Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Saturday, October 25, 2014

Article on Schedularity in the Tax System

Henry Ordower

Henry Ordower (Saint Louis University School of Law, Professor of Law) recently published an article entitled, Schedularity in U.S. Income Taxation and Its Effect on Tax Distributions, 108 Nw. L. Rev. 767, 905-924 (2014).  Provided below is the article’s abstract:

Income tax systems in some countries follow primarily scheduler models that classify income by type, match it with deductions from the same class, and compute a separate tax on each class.  The United States income tax uses a global tax model under which it taxes citizens and permanent residents on their worldwide income without regard to source or character.  The United States system is not purely global but includes scheduler elements.  This Article exposes embedded schedularity in the United States income tax in the three principal areas of investment income, personal services income, and tax free income.  The Article tests whether that schedularity enhances or undercuts the tax principles of horizontal and vertical equity that underlie the development of both global and scheduler tax systems in advanced economies.  Horizontal equity is a straightforward principle and seems an indisputable precept.  It requires that like taxpayers incur like tax burdens.  The principle of vertical equity is more nuanced and departs from the principle that as one’s income increases, one can and should contribute ever larger percentages of that income to supporting governmental services.  Vertical equity assumes that the wealthier one is, the less likely it is that an increased tax burden will diminish the individual’s welfare in a material way.  Conversely, the less wealthy one is, the more likely it is that an increased tax burden will diminish the individual’s welfare materially.  The vertical equity principle led to the development of the progressive rate structures.  While the Article observes that Congress uses scheduler elements to accomplish distributional policy goals, initially in order to protect progressivity, more recently schedularity has tended to increase overall regressivity in taxation.  The Article concludes that United States taxation seems to be moderately scheduler and that schedularity in the Untied States contributes to regressivity in taxation. 

October 25, 2014 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Trust Reformation


In Private Letter Ruling 201442046 (Oct. 17, 2014), the Internal Revenue Service held that a reformation of a trust to correct scrivener’s errors triggered remainder interests to be completed gifts and consequently, a trust’s assets would not be included in a grantor’s gross estate upon his death.  Furthermore, the reformation would not cause any current or future beneficiaries to make a gift to any other trust beneficiaries.

Grantor and his wife met with an attorney to discuss estate planning for their four children.  The couple decided to use grantor retained annuity trusts (GRATs), including a 4-year term GRAT and a 15-year term GRAT.  To grantor established both GRATS by making gifts of stock to each GRAT.  Under the 4-year GRAT, the grantor would receive an annuity for 4-years, and the remaining assets would pass to a Children’s Trust.  The second GRAT was similar, but after the 15 years, the Children’s Trust would be the remainder beneficiary. 

The grantor subsequently hired an accountant to prepare Form 709 and report the date of transfers to the GRATs.  The accountant notified the grantor that the Children’s Trust contained language making the Trust revocable by the grantor, thereby defeating the grantor’s intent in creating the GRATs. 

The grantor retained a second attorney to reform the Trust under state law and filed a petition in state court to request reformation of the Trust to correct mistakes under scrivener’s errors.  The court approved the petition and ordered the reformation should be effective. 

See Dawn S. Markowitz, State Court Trust Reformation, Wealth Management, Oct. 22, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

October 25, 2014 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Community Memorial Services

CandleFunerals and memorial services are a popular way in our culture to say good bye to departed loved ones and begin the process of continuing life without them. Some hospitals and hospice facilities also offer community memorial services as well. These services pay respects to multiple deceased individuals at once. While for many of the families attending, a memorial service or funeral has already been held, these community events allow individuals to come together in an additional service that provides community support and reflects on the affect of the passing of many individuals, including those who may not be known to attendees. For some, this creates a feeling of community and comfort.

See Amy Ziettlow, The Sacred Work of Community Memorial Services, Patheos, Oct. 16, 2014.

October 25, 2014 in Death Event Planning | Permalink | Comments (0) | TrackBack (0)

Article on Why the UPC Should Allow Real Property to Transfer by Small Estate Affidavit

HouseFaith Elizabeth Alvarez (Valparaiso University Law School) recently published an article entitled, Chained to the Title: Why the UPC Should Allow Real Property to Transfer by Small Estate Affidavit, September 26, 2014. Provided below is the abstract from SSRN:

This Note questions whether the Uniform Probate Code must necessarily exclude real property from small estates, and proposes that the UPC adopt a change, similar to Indiana’s deviation, that allows real property to be considered an asset for small estates. This Note also discusses the background of the UPC, the probate process, and the housing market. This note additionally provides an analysis of transferring the title of low-value real property upon death. Finally, this Note provides the contribution of revising the UPC to allow low-value real property to transfer by small estate affidavit.

October 25, 2014 in Articles, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Friday, October 24, 2014

Workers Fear Running Out of Money

Retirement planning

New research shows that 22 percent of workers say they would rather die than run out of money.  However, 61 percent say they are not sacrificing a lot to save for their golden years. 

The Wells Fargo Middle Class Retirement survey looked at the retirement planning of Americans with household incomes between $25,000 and $100,000 who held investable assets of less than $100,000.  One third contribute nothing to a 401(k) plan or IRA, and half say they have no confidence they will have enough to retire. 

Although middle-class Americans have a median retirement balance of just $20,000, those who have an retirement plan are doing better than those without one. 

Most people do understand the need to save for retirement, yet they do not see it as an urgent goal requiring spending cutbacks.  Still, many individuals have room in their budget to boost their savings rates. 

“Of course, the larger problem is that a sizeable percentage of middle-class Americans are struggling financially and simply don’t [have] enough money to stash away for long-term goals like retirement.  As economic data show, many workers haven’t has a real salary increase for 15 years, while the cost of essentials, such as health care and college tuition, continues to soar.”

See Dan Kadlec, 22% of Workers Would Rather Die Early Than Run Out of Money, Time, Oct. 22, 2014.

October 24, 2014 in Current Affairs, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Roth IRAs and Gifting

Roth ira

A recent mutual fund study suggests that newly employed workers should contribute between 15-17 percent of their earnings to a retirement plan each year.  The problem, however, is that young workers may have school debt, mortgages, among other payments.  Hence, the suggested level is oftentimes unrealistic. 

Although individuals can save more later in life, the compounding cannot be duplicated.  Furthermore, there is no ability to “catch up” on missed annual 401(k) or IRA windows that expire each year if they go unused.  So what can be done?

The $14,000 (or smaller) annual exclusion gifts that a grandparent or a parent may wish to make to reduce their estate taxes, or simply to help out the donee, may be the best solution.  Rather than writing a single check, the donor can write two: one for the child for general assistance and a second in the amount of $5,500 for deposit into a newly established Roth IRA account. 

“With the Roth IRA strategy, there are no complex trusts, no separate tax returns and minimal administration expenses.  Can you think of a better gift than that?”

See John t. Bannen, Annual Gifts to Give a Child—Roth IRA Accounts vs. Cash, Quarles & Bradley LLP, Oct. 21, 2014.

October 24, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Planning for Alzheimer's Patients


According to the Alzheimer’s Association, in 2014 Americans will spend more than $214 billion to care for those affected by Alzheimer’s disease.  This number is expected to drastically increase in the coming years. 

Establishing a legal plan is critical for Alzheimer’s patients.  The sooner the planning begins, the more likely it is that the person with dementia will be able to participate in decision-making.  Every adult should have basic estate planning documents that include a financial power of attorney, advance health care directive, and last will and testament.   

Families confronting Alzheimer’s disease should also consider how they will cover long-term care costs.  At an average cost of more than $7,500 per month, some families are unable to cover this expense on their own.  Medicare may be available to cover nursing home costs, provided certain financial requirements are met.  Also, veterans and their spouses may be eligible for aid through the Department of Veterans Affairs. 

A good resource to consult on these matters is the Alzheimer’s Association free monthly “Legal and Financial Planning for Alzheimer’s Dementia” class.  This class gives you the tools to ensure you are legally and financially protected in the wake of this debilitating disease. 

See Patrick J. Haase, Legal, Financial Planning for Alzheimer’s Patients, UT San Diego, Oct. 23, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 24, 2014 in Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Planning - Generally, Wills | Permalink | Comments (0) | TrackBack (0)

Jim Thorpe Remains in Jim Thorpe

Jim Thorpe

In an unusual case involving a dispute between the family of the legendary Native American athlete and a small Pennsylvania town named after him, a federal appeals court ruled that the remains of Jim Thorpe can remain in Jim Thorpe, Pa. 

The story began in 1953 when two Pennsylvania towns agreed to merge into one town named Jim Thorpe and erect a memoJrial in his honor.  The late athlete was from Oklahoma and likely never visited the area.  In exchange, Mr. Thorpe’s widow, Patricia, allowed the corpse to be buried there.  However, the descendants of the star football player protested that he should be reburied on Sac and Fox tribal land in Oklahoma along with other family members. 

Four years ago one of Mr. Thorpe’s sons filed a lawsuit in federal district court in Pennsylvania seeking the town to surrender the body.  While a trial court sided with him last year, a three-judge panel of the Third U.S. Circuit Court of Appeals disagreed saying the Native American Graves Protection and Repatriation Act “was not intended to be wielded as a sword to settle familial disputes within Native American families.”

See Jacob Gershman, Court: Remains of Jim Thorpe Can Remain in Jim Thorpe, The Wall Street Journal, Oct. 23, 2014.

October 24, 2014 in Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Changes to IRS Appeals Policies

ChangeRecent modifications made to policies of the IRS Appeals Office have been mad and are in effect for all appeals filed after September 2, 2014. The new policy, entitled the Appeals Judicial Approach and Culture (AJAC) Project is focused on using a quasi-judicial approach with a focus on fairness and impartiality. In an attempt to encourage fuller disclosure of information throughout the process, under the new policy new issues will not be raised by the Appeals Officer, with some exceptions for certain situations.

See Morris Robinson, New IRS Appeals Procedures Complicate Tax Dispute Resolution, JD Supra, Oct. 23, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

October 24, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Michigan's Cottage Transfer Statute Broadened

LawA new law in Michigan has expanded the state's law on from to whom can a cottage transfer occur without the property taxes being uncapped. The statute was signed into law on October 9, 2014, and not only expands the list of individuals that are considered a transferee, but also added trusts and inheritance vehicles, such as a will or through intestacy, to the definition of a transferor. The new law will be in effect in 2015 and will apply to transfers made on December 31, 2014 or later.

See Christopher J. Caldwell, Laura E. Radle, New Law Effective in 2015 is an Important Win for Cottage Owners, JD Supra, Oct. 23, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

October 24, 2014 in Estate Planning - Generally, New Legislation, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)