For a Limited Time Only: IRS Grants Extension to Elect Portability

Executors who discovered too late that they should have made a portability election have gotten a reprieve. 

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More on the Primacy of Beneficiary Designations

Beneficiary designations trump a will. Tennessee has a statute on it:

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Spousal Rollover When RLT is Beneficiary

Is a spousal rollover available when the beneficiary of an IRA is a revocable trust? Surprisingly, in some cases, the IRS says yes.

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Rushed Prenup Invalidated by Court

How much time must pass between the execution of a prenuptial agreement and the wedding of the parties in order for the agreement to be enforceable?

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Joint Revocable Trust: Gift on Creation?

Not if the non-contributing spouse has the unilateral power to revoke:

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Children Born after the Will is Executed

A good Last Will and Testament will address the issue of children born after the document is executed. Nonetheless, the Tennessee Code has the situation covered: A child born after the making of a will, either before or after the death of the testator, inclusive of a mother-testator, not provided for nor disinherited, but only pretermitted, in the will, and not provided for by settlement made by the testator in the testator’s lifetime, shall succeed to the same portion of the testator’s estate as if the testator had died intestate. The statute goes on to say that a pretermitted child’s share is to be funded pro rata out of the shares of the other beneficiaries.  Note that the quoted statute only […]

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Revocable Trust as Post-Nup?

Can a revocable trust created by one spouse after marriage constitute an enforceable postnuptial agreement for divorce purposes? This question arose in a recent case decided by the Tennessee Court of Appeals. The facts are as follows: Husband and Wife were married in 2006. It was a second marriage for both parties. In 2009, Husband established a revocable trust, naming himself as trustee and Wife as successor trustee. The revocable trust named Husband as current beneficiary and Wife and children as remainder beneficiaries of anything left in the trust at Husband’s death. Husband also executed a will that directed his probate assets to the revocable trust at death. Husband funded the revocable trust with at least four properties: (1) a lakehouse […]

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TISTs: Who SHOULD be Trustee?

A previous post discusses who can legally be the trustee of Tennessee Investment Services Trust (TIST). A better question might be: who should be the trustee of a TIST? Choosing the wrong trustee could expose a TIST to creditors. One argument in favor of piercing a TIST is that the trustee is beholden to the grantor. That is, a creditor might argue there is a tacit understanding that the trustee will simply follow the grantor’s instructions without exercising independent judgment. This is simply a version of the alter ego argument discussed here. Essentially, the argument is that the trust is a sham and thus should be disregarded.  The best way to avoid this argument is to appoint a trustee that has written policies […]

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June 7520 Rate Announced

The 7520 rate for June 2017 will remain at 2.4%. A table showing historical 7520 rates since 2008 is here. The effectiveness of various estate planning and charitable planning techniques is measured in terms of the 7520 rate. These techniques include Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs). If the assets transferred to these trusts appreciate faster than the 7520 rate in effect at the time of transfer, a plan would normally be considered successful in shifting value outside of a taxpayer’s estate for estate tax purposes.  Fortunately, the 7520 tends to be low relative to market rates of return. Source: Rev. Rul. 2017-12 (pdf) Posted by Joel D. […]

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Health Insurance and Gift Tax

Are payments of health insurance premiums for a child, grandchild, or other party subject to federal gift? No, provided the payment is made correctly. I.R.C. § 2503(e)(2) excludes from gift tax any amount paid on behalf of an individual: (A) as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or (B) to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care. For this purpose, medical care is defined under Section 213(d) as amounts paid for: for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, […]

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Estate Planning for Retirement Assets in a Nutshell

When the owner of an IRA or 401(k) plan dies, the plan must pay out over some period of time. This is true regardless of whether the IRA/401(k) is a traditional account or a Roth account. The only exception is when the surviving spouse is named a beneficiary. In that case, the surviving spouse has the option of rolling over the decedent’s account to his or her own account. Amounts distributed from a retirement plan–excluding Roth distributions–generally constitute taxable income to the recipient. From an income tax standpoint, the best result is to “stretch out” payments for as long as possible. This is desirable even with a Roth account, because amounts remaining in the account continue to grow tax-free. The tax rules […]

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Forms of Asset Protection

Ownership by the Other Spouse–It is not uncommon for a spouse with high liability exposure to transfer assets to his or her spouse with a lower risk profile. Tenancy by the Entirety (TBE)–TBE refers to assets titled in the name of husband and wife. A creditor of one spouse may not reach TBE property unless and until the non-debtor spouse dies or the TBE is severed by the divorce of the parties. Retirement Assets–State law protects IRAs from the creditors. Federal law protects qualified plans such as 401(k)s. This protection applies to the account owners. Whether it extends to beneficiaries who inherit the accounts is an open question. According to the Supreme Court, the answer is no, at least in […]

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The Right for Trusts to Remain Silent

Under the Tennessee Trust Code, is a trustee required to give beneficiaries information about their trust? Not necessarily.

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2018 HSA Limits Announced

The IRS has announced the maximum amount an individual can contribute to a Health Savings Account (HSA) in 2018. For individuals with self-only coverage, the HSA limit will be $3,450. For individuals with with family coverage, the limit will be $6,900. In order to qualify for an HSA, you must be enrolled in a “high deductible health plan.” For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage. Earlier posts about HSAs: Are HSAs Protected […]

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Governor Signs SB0769

Today Governor Haslam signed SB0769, a bill that revises various provisions of the Tennessee Code relating to wills, trusts, and probate. The substantive provisions of the bill take effect July 1. Analysis of the bill may be found at the following links: 2017 Probate Omnibus Bill 2017 Probate Omnibus Bill: What’s Missing? Trust Funding & the Probate Omnibus Bill Memorandums of Personal Effects after SB0769 Tennessee’s Revised Slayer Statute Source: Tennessee Legislature Website Posted by Joel D. Roettger, JD, LLM, EPLS

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PLR: CRUT Not Subject to Private Foundation Rules

Grantor executes a charitable remainder unitrust (CRUT). CRUTs are normally subject to certain private foundation rules. However, Grantor never claims an income tax or gift tax charitable deduction with respect to the trust. Is the CRUT still subject to the private foundation rules? A quick review of I.R.C. § 4947(a)(2) would suggest the answer is yes. It provides that: In the case of a trust which is not exempt from tax under section 501(a), not all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B), and which has amounts in trust for which a deduction was allowed under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, section 507 (relating to […]

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Memorandums of Personal Effects after SB0769

A new statute taking effect on July 1 will finally cause memorandums of personal effects to be legally recognized, but the statute is not without drawbacks. A memorandum of personal effects is separate from, but related to, a client’s last will and testament. It allows the client to dispose of tangible personal property at death, but in a less formal manner. The client simply makes a list of items and the persons who should receive them. Because the list is not a part of the will, it does not need to be executed with the formalities of a will. Therefore the client can update the list as often as he wants without having to consult his attorney or execute a […]

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Funding a Trust with Annuities? Beware.

There are income tax consequences to transferring annuities for less than full and adequate consideration. If you are considering making a gift of annuities in trust, keep the following in mind: If an individual who holds an annuity contract transfers it without full and adequate consideration, such individual shall be treated as receiving an amount equal to the excess of the cash surrender value of such contract at the time of transfer, over the investment in such contract at such time, under the contract as an amount not received as an annuity. In other words, gifting an annuity triggers gain to the annuity owner to the extent the cash surrender value exceeds basis, as a general rule. In may be […]

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Trust Funding & the Probate Omnibus Bill

An unassuming provision in the probate omnibus bill may prove to be a trap for some unwary practitioners. SB 0769, the 2017 Probate Omnibus Bill, has been transmitted to the Governor for his signature. One of the more perplexing provisions of the incipient law is Section 13, which adds the following to the end of T.C.A. § 35-15-402, Requirements for Creation [of a Trust]:  (d)   A lifetime trust is valid as to any assets held by the trust to the extent the assets have been transferred to the trust. For purposes of this subsection (d): (1)   Assets capable of registration, such as real estate, stocks, bonds, bank and brokerage accounts, and the like, are transferred to the trust through the […]

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2017 Probate Omnibus Bill: What’s Missing?

The 2017 probate omnibus bill is notable not just for what it contains, but also for what it does not contain. The original version of the bill was HB 0567. It contained several sections that addressed the effect of divorce or annulment on an estate plan. Under current law, divorce/annulment, by itself and without any further action of the testator revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise. Similarly, a decree of annulment, divorce, dissolution of marriage, or legal separation revokes […]

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2017 Probate Omnibus Bill

Every few years, the Tennessee legislature introduces an “omnibus” probate bill. These bills address a broad range of issues in the areas of wills, estates, and trusts. The most recent omnibus bill just cleared the Senate and House. A summary of the key provisions is as follows: Sections 3, 4, 5, 6, and 10 are simply housekeeping changes that amend the following statutes to reflect the repeal of the Tennessee inheritance tax on January 1, 2016: T.C.A. § 30-2-614(e) [pertaining to apportionment of death taxes] T.C.A. § 30-2-713(c) [agreements between personal representatives and beneficiaries or governmental authorities] T.C.A. § 30-4-103(5)(A) [small estates] T.C.A. § 30-4-104(d) [small estates] T.C.A. § 32-3-108(b) [interpretation of marital deduction language in a will] Sections 1, […]

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Don’t Neglect the Residuary Clause

A recent case demonstrates the need to carefully consider how one drafts the residuary provisions of a will or trust. Article III of Decedent’s will left the “rest, residue, and remainder” of her estate to Sister, Nephew 1, Nephew 2, and Niece. Sister was to receive 2/5, and the Nephews and Niece were each to receive 1/5. In that same article, the Decedent gave Nephews the right to purchase her residence on the condition that they “shall pay such amount to [Niece] as makes her share of [Decedent’s] estate equal with them.” If Nephews did not exercise their right to purchase, the property was to be sold and the proceeds divided “with the rest of [Decedent’s] estate in the manner set forth […]

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Early Termination of CRTs

There is a high economic cost to terminating a charitable remainder trust (CRT) before the date specified in the trust. There are two primary tax issues associated with terminating a CRT early:  the excise tax on self-dealing and the excise tax on the termination of a private foundation (a CRT is treated like a private foundation for purposes of this tax). These issues can apparently be avoided by following procedures described in various private letter rulings (PLRs). However, a PLR is only binding on the person who requested it.  Thus these PLRs provide guidance only and may not be relied upon as precedential authority. According to the available guidance, a CRT can be terminated early if authorized under applicable state law.  […]

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Excess Distributions Prove Fatal (and Costly) for CRUT

A taxpayer, admittedly operating under bad advice from a financial planner and an attorney, nonetheless paid a steep price for failing to administer a charitable remainder unitrust (CRUT) properly. Grantor established a trust. He intended for the trust to qualify as a CRUT. He named himself as a co-trustee and initial beneficiary. The remainder beneficiary upon termination of the trust was, of course, a charity. The term of the CRUT was 20 years. During the term of years, the CRUT was required to pay Grantor, if living, otherwise a successor beneficiary “B”, a fixed percentage (presumably 5%) of the trust assets or the net income of the trust, whichever was lesser. If the net income in later years exceeded the fixed […]

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May 7520 Rate: the Trend Continues

All year, the 7520 rate has vacillated between 2.4% and 2.6%. The current 7520 rate is 2.6%. It will go back to 2.4% in May. A table showing historical 7520 rates since 2008 is here. The effectiveness of various estate planning and charitable planning techniques is measured in terms of the 7520 rate. These techniques include Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs). If the assets transferred to these trusts appreciate faster than the 7520 rate in effect at the time of transfer, a plan would normally be considered successful in shifting value outside of a taxpayer’s estate for estate tax purposes.  Fortunately, the 7520 tends to be low […]

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