Eye on Estate Planning

In this HOH update, we focus on one of the most complex and least understood aspects of creating enduring financial security:  estate planning.  Below are links to news items and articles from trusted third party sources that address timely developments and potential opportunities in estate planning.  If any of them pique your interest – either for yourself or for your clients – please contact us and we’ll be happy to discuss them with you.

Trusts may be able to avoid the Net Investment Tax (NIIT)

Certain trusts may be able to avoid the 3.8% net investment tax. After decades of confusion since the 1986 tax overhaul, the IRS is finally beginning to clarify the muddled lines between when a trust must pay the 3.8% net investment tax and when a trust can avoid that tax. According to the decision in Frank Aragona Trust v. Commissioner, the trust must materially participate in the real estate operations. But what constitutes material participation? Does it include the activities of fiduciaries, non-trustee employees, trustees, employees, and beneficiaries? Have a little more patience. The IRS is working on adding some definition to the unresolved issue.
Further Information:

Bloomberg News Blog:
AICPA Journal of Accountancy article from July 2014:   
EY Webinar: 
IRS final regulations:

IRS announces 2015 inflation adjustments that impact estates

Every year the IRS makes inflation adjustments that typically result in increased exemptions from estate taxes, higher thresholds for gift reporting and requirements for expatriates, as well as providing various guidelines for tax exempt organizations.  A quick summary of the recently-released 2015 figures can be found here: http://bit.ly/1usihSm

Rules for donations of household and other noncash goods reinforced

During the course of the year, many people donate goods of some sort to charity and claim a tax deduction for their value.  Commonly donated items include used clothing, furniture, various household items and even art.  Both the quantity and reported value of these items can stack up quickly when they are being donated from the estate of a deceased loved one.  But in order to receive the deduction, certain rules must be followed and records must be kept.  A recent tax court ruling reiterated those rules in no uncertain terms.  The summary of the ruling and compliance guidelines appear here:  http://bit.ly/18pcdXG

IRS reaffirms use of non-grantor, incomplete gift trusts

Trusts are a versatile tool for a wide range of financial planning purposes.  Executed properly, they can reduce one or more levels of tax liability, including state, federal income, inheritance and gift taxes.  The “non-grantor incomplete gift trust” is an especially flexible vehicle for those whose financial planning strategies include a combination of both receiving income and making conditional gifts from the asset during their lifetimes and ensuring tax-advantaged distribution with their estate.  There are many technicalities to this type of trust, which are summarized here: http://bit.ly/1siEa6t

New estate tax book is anything but deadly

When most people hear “estate tax,” they want to fall asleep. Keith Schiller’s new book, Art of the Estate Tax Return, Second Edition – Estate Planning at the Movies, has an unexpected illustrative and cinematic take on estate planning and tax concepts. It humanizes the boring and uncomfortable concept by making tax law as fun as it can possibly get and delves into very important issues like portability elections, tips to avoid audits, cautions and help for fiduciaries, maximizing valuation discounts and deductions, etc. Educate yourself and don’t fall asleep in the process! http://bit.ly/1sn8AF8


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