TRUSTS & ESTATES, WILLS, AND TAX LAW UPDATE

TAX: Qualified Tuition Plans (QTPs)

Posted by James P. Witt on Tue, Jan 19, 2016 @ 12:01 PM

The Lawletter Vol 40 No 12

Jim Witt, Senior Attorney, National Legal Research Group

     Given the steep rise in college tuition costs over recent years, the Qualified Tuition Plans ("QTPs") authorized by § 529 of the Internal Revenue Code of 1986 have become increasingly popular. The following summary describes the basic rules governing QTPs, but, as becomes obvious, the restrictions on these plans are formidable, and the rules can vary from state to state.

     There are two basic types of QTPs, a "prepaid qualified tuition program" and a "qualified tuition program savings plan" (informally known as a "college savings plan"). Under a prepaid qualified tuition program, a person may purchase tuition credits or certificates on behalf of a designated beneficiary (the student) that cover future tuition charges and fees, and, in some cases, a room and board option may be purchased. There is generally a premium charged over the current price of tuition, intended to account for inflation. The benefit of this type of QTP is that it locks in tuition costs to the extent of the credits purchased. Many state-sponsored prepaid tuition programs are guaranteed by the state (this is not true for college savings plans). Most state-sponsored plans require either the owner or the beneficiary of the plan to be a resident of the state (college savings plans have no residency requirement). Prepaid tuition plans have a limited enrollment period (there is no limited enrollment period for college savings plans).

     A college savings plan generally allows an individual (the "accountholder") to establish an account for the student/beneficiary to be used for the payment of eligible college expenses, which include tuition, room and board, mandatory fees, and books and computers (where required). College savings plans are not guaranteed, meaning that investment options are subject to market risk and the loss of any benefit should tuition growth outpace investment results. A college savings plan is more expansive in its coverage, providing for the payment of tuition, room and board, fees and books, and a computer (payment for a computer is in doubt as a qualified 529 expense, with proposed federal legislation covering the question).

     The funds invested in both prepaid tuition plans and college savings plans will grow without being subjected to federal income tax, and funds withdrawn from the account will not be taxable as long as they are used for qualified educational expenses. A majority of states provide for a state income tax deduction or credit for an investment in a college savings plan offered by the particular state. Funds withdrawn from a 529 plan that are not used for eligible expenses are subject to federal income tax and to a 10% penalty on earnings. College savings plans charge a fee covering operating costs. One study found that an average annual fee charged by a savings plan obtained through a state was 0.69%, whereas the average annual fee for a savings plan obtained through a broker was 1.17%.

     Obviously a theme of the 529 plans is the assorted restrictions and rules imposed by these plans. More basic is the question of whether these plans are a wise investment for the long term, given rising costs. According to Time magazine (October 5, 2015), a nonpartisan think tank, Education Policy Center, has found that while an annual investment of $1,000 in a 529 plan for 18 years could have funded the tuition at a public university for four years for a student entering college in 1997, the same level of investment would not have covered even one year's tuition for a student starting in 2008.

     Thought should be given to other tax-advantaged strategies such as those available under the Uniform Gifts to Minors Act ("UGMA") (allowing a donor to place securities in a custodial account for the benefit of a minor child), and the Uniform Transfers to Minors Act ("UTMA") (also authorizing a custodial account for the benefit of a minor but allowing the deposit of assets such as real estate, patents, and royalties). Upon reaching the "age of trust termination" (not necessarily the age of majority), the beneficiary's use of the fund or assets is not restricted. Moreover, a Roth IRA, allowing after-tax dollars to be withdrawn by the owner prior to age 59½ if used for educational purposes, should be added to the mix of options.

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Topics: tax, James P. Witt, QTPs, tax-advantaged strategies, prepaid tuition plan, college savings plan

TAX: Carly Fiorina, Multistate Income Taxation, and the Dormant Commerce Clause

Posted by James P. Witt on Wed, Sep 30, 2015 @ 16:09 PM

The Lawletter Vol 40 No 8

Jim Witt—Senior Attorney, National Legal Research Group

     A feature of recent U.S. presidential campaigns has been the interest of the press and the public (not to mention the requirements of the law) regarding the finances of those competing for the nomination and, ultimately, for the office itself. A key element of those finances has, of course, been the income tax returns of the various candidates. In this connection, one of the present candidates for the Republican nomination, Carly Fiorina, recently offered reporters who came in person to her campaign headquarters in Virginia the opportunity to review her state income tax returns.

     Ms. Fiorina and her husband had already put their federal income tax returns for 2012 and 2013 online, but it is her state income tax returns that are of special interest. She and her husband were required to file such returns in no fewer than 17 states in 2013, with the couple's connection with some of those states so insubstantial that their tax liability in 11 of the states was less than $250.

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Topics: tax law, James P. Witt, dormant Commerce Clause, multistate income taxation, Fiorina

ESTATES: Assets—Gold Bars, Bullion, and Coins—Tangible or Intangible Property?

Posted by Matthew T. McDavitt on Mon, Jul 27, 2015 @ 09:07 AM

The Lawletter Vol 40 No 6

Matt McDavitt, Senior Attorney, National Legal Research Group

     When distributing a probate estate, it is important to determine whether particular assets are tangible or intangible property where the will's language distributes these classes of property to different beneficiaries. While many assets may be sorted based upon common-sense principles, other assets present analytical difficulties. One such problematic asset is gold formed into bars, bullion, and coins. Some laymen would classify these precious metal assets as money, others as collectibles, and it is not intuitive whether such gold objects constitute tangible assets (such as a chair or a computer) or intangible assets (such as bank account deposits or stocks).

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Topics: Matthew T. McDavitt, estates law, probate, tangible property

TRUSTS: Dean Smith Payments to Players—NCAA Violation

Posted by Gale Burns on Tue, Jun 9, 2015 @ 16:06 PM

The Lawletter Vol 40, No 4

Jim Witt, Senior Attorney, National Legal Research Group

     Dean Smith, the head coach of the University of North Carolina ("UNC") men's basketball team from 1961 to 1997, died on February 7, 2015, at age 83. Aside from the tributes paid to the man and his career that captured a good deal of media attention, a specific aspect of Coach Smith's estate plan also stirred up some interest. Following the modern trend, Smith's estate planners made a revocable living trust an important part, if not the centerpiece, of his plan for disposing of his assets at his death. Presumably, Smith transferred the bulk of his estate to the trust and, by doing so, realized a number of advantages for both himself and his estate: (1) privacy—the details of the trust, unlike information concerning an individual's assets that pass by will, do not become part of the public record; (2) because the transfer or transfers of assets to the trust are made during the individual's life, the assets are not subject to probate administration, and the expenses of such procedure are avoided (although the expenses of setting up the trust and having it administered must be considered); (3) the assets of the trust are not frozen, as can happen under a probate proceeding, thereby improving access to the assets for the estate and the heirs; (4) because the trust is revocable, the individual maintains control over the disposition of his or her assets transferred to the trust, because he or she can withdraw particular assets from the trust or dissolve the entire arrangement, which is also essentially true under a will in that a will has no effect until the individual's death.

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Topics: legal research, tax, revocable living trust

TAX: State and Local Sales Tax on Internet Sales of Goods

Posted by D. Bradley Pettit on Wed, Apr 15, 2015 @ 17:04 PM

The Lawletter Vol 40 No 2

Brad Pettit, Senior Attorney, National Legal Research Group

      A very recent decision by a Florida appellate court illustrates constitutional issues that arise when a state or locality seeks to impose a tax upon sales of goods to out-of-state customers via the Internet. In American Business USA Corp. v. Department of Revenue, 151 So. 3d 67 (Fla. 4th DCA 2014), the court addressed the question of whether Internet sales of flowers, gift baskets, other items of tangible personal property, and prepaid telephone calling arrangements by a corporation that was registered to do business in Florida to out-of-state consumers were subject to the Florida sales tax. The taxpayer in the American Business case objected to taxation of its Internet sales to out-of-state customers on the ground that such taxation violated the Commerce and/or Due Process Clauses of the U.S. Constitution. The American Business court upheld the State of Florida's taxation of Internet sales of prepaid telephone call cards but rejected the State's taxation of Internet sales of flowers and other tangible goods.

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Topics: Commerce Clause, Due Process Clause, tax law, Internet sales, state and local sales tax

ESTATES: Depletion of Eventual Probate Estate Through Inter Vivos Transfers

Posted by Matthew T. McDavitt on Tue, Apr 14, 2015 @ 13:04 PM

The Lawletter Vol 40 No 2

Matt McDavitt, Senior Attorney, National Legal Research Group

     One problematic issue regarding the administration of probate or intestate estates is that in which the property of mentally or physically incapacitated persons is found to have been significantly depleted through lifetime transfers in the period just prior to death. The Virginia Supreme Court recently addressed this problem, establishing that where such lifetime transfers benefit persons standing in a confidential relationship to the grantor, a rebuttable presumption of fraud arises so as to protect decedent estates from the depredations by third parties upon whom the decedent relied at the end of life.

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Topics: estates law, depletion of property in estate, inter vivos transfers, confidential relationship

TAX: Assessed Value Dispute Robert De Niro's Hudson Valley Compound

Posted by James P. Witt on Thu, Mar 19, 2015 @ 09:03 AM

Jim Witt, Senior Attorney, National Legal Research Group

     A real property tax assessment dispute involving a large parcel of land in Ulster County, New York, 75 miles north of Manhattan in the Hudson Valley, has recently been settled. The case is of interest for two reasons: (1) It brings into focus the issue of assessed value as based on the uniqueness of the property versus assessed value based on comparable properties in the area; and (2) the property is owned by a Trust on behalf of the actor Robert De Niro and his family.

     The property, well over 50 acres, is located in the town of Gardiner, New York, and has frontage on the Wallkill River (a tributary of the Hudson). The property was acquired in 1997 for $1.5 million, when its main structure was an 18th-century farmhouse, supplemented later by barns. Under De Niro's ownership, the house was renovated to include six bedrooms and seven bathrooms; one barn was converted into a 14,000-square-foot recreation center, containing a game room, gym, basketball court, swimming pool, boxing ring, and small film studio. Another barn was converted into a workshop and another into an office. Also there were $1 million in landscaping expenses to block any view of the property from the road.

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Topics: tax law, assessment value, property tax

PENSIONS: What Severance Contracts Are Subject to Federal ERISA Law?

Posted by Noel King on Mon, Dec 29, 2014 @ 15:12 PM

The Lawletter Vol 39 No 10

Matt McDavitt, Senior Attorney, National Legal Research Group

     While many employers create severance contracts as incentives for employees to remain during mergers or sales of the company, few employers realize that some severance agreements are governed by the Employee Retirement Income Security Act ("ERISA") and that federal ERISA law preempts state law when such severance contracts are introduced during litigation.

     However, not all employer severance contracts are subject to preemption by federal ERISA law. The ERISA statutes do not define which severance agreements are governed by federal law; fortunately, a line of federal case law has clarified how this determination is made.

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Topics: ERISA, pensions, severance contracts

ESTATES: The Scope of the Probate Exception to Federal Jurisdiction

Posted by Gale Burns on Tue, Aug 26, 2014 @ 09:08 AM

The Lawletter Vol 39 No 6

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Topics: legal research, Matt McDavitt, estates, U.S. Supreme court, Third Circuit, probate exception, federal jurisdiction, Marshall v. Marshall, Three-Keys Ltd. V. SR. Utilities Holding Co., federal court may not probate, annul, dispose of property, The Lawletter Vol 39 No 6

TAX: Disclosure of Taxpayers' Records under Obamacare

Posted by Gale Burns on Tue, Apr 8, 2014 @ 12:04 PM

Brad Pettit, Senior Attorney, National Legal Research Group 

     On August 14, 2013, the IRS issued a "document [that] contains final regulations relating to the disclosure of return information under section 6103(l)(21) of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010." Regulations Pertaining to the Disclosure of Return Information to Carry Out Eligibility Requirements for Health Insurance Affordability Programs, T.D. 9628, 2013-36 I.R.B. 169 (Aug. 14, 2013). "The [new] regulations define certain terms and prescribe certain items of return information in addition to those items prescribed by statute that will be disclosed, upon written request, under section 6103(l)(21) [of the Code."  Id. 

     As alluded to above, the Internal Revenue Code now provides that

[t]he Secretary [of the Treasury], upon written request from the Secretary of Health and Human Services, shall disclose to officers, employees, and contractors of the Department of Health and Human Services return information of any taxpayer whose income is relevant in determining any premium tax credit under [26 U.S.C.] section 36B or any cost‑sharing reduction under section 1402 of the Patient Protection and Affordable Care Act or eligibility for participation in a State medicaid program under title XIX of the Social Security Act, a State's children's health insurance program under title XXI of the Social Security Act, or a basic health program under section 1331 of Patient Protection and Affordable Care Act. 

26 U.S.C. § 6103(l)(21)(A) (emphasis added). Section 6103(l)(21)(A) goes on to say that 

[s]uch return information shall be limited to— 

(i)         taxpayer identity information with respect to such taxpayer, 

(ii)        the filing status of such taxpayer, 

(iii)       the number of individuals for whom a deduction is allowed under section 151 with respect to the taxpayer (including the taxpayer and the taxpayer's spouse), 

(iv)       the modified adjusted gross income (as defined in section 36B) of such taxpayer and each of the other individuals included under clause (iii) who are required to file a return of tax imposed by chapter 1 for the taxable year,

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Topics: legal research, Brad Pettit, tax law, taxpayer records disclosure, eligibility requirements, healthcare, information relevant to tax credit under Affordabl, 26 U.S.C. § 6103

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