By David Keligian on 5/28/2020 3:39 PM

In his classic book “Think and Grow Rich”, Napoleon Hill said “Every failure brings with it the seed of an equivalent success”. Finding the “seed of equivalent success” seems difficult when we see valuations—regardless of asset class—collapsing before our eyes. With few exceptions, as the U.S. economy has been shut down, the COVID 19 pandemic has hurt business values, real estate values, and investment holdings alike.

However, for those of significant wealth, there is an opportunity to take advantage of the crisis. You can maximize tax savings by acting while asset values are still depressed. In part, this opportunity is based on the consensus view that given the government’s massive spending to avoid a financial collapse, taxes will increase.

In a recent Forbes interview, Leon Cooperman, Chairman of Omega Advisors and a billionaire investor, opined that the recent government intervention in the U.S. economy would result in more government regulation and higher taxes. With respect to the pending presidential election, Cooperman stated: “Regardless of who wins, taxes will have to be raised. Quickly, if Biden wins; slowly, if Trump wins—but taxes have to go up”.

By David Keligian on 4/9/2018 9:12 AM
Most Californians with higher incomes and homes will probably end up with higher federal income taxes as a result of the new income tax bill. Our federal income tax law now imposes a $10,000 limit on federal deductions for state and local income taxes. For example, any person who owns a home in California with an assessed value of $1,000,000 will be limited in their federal income tax deductions for the California taxes on their home alone—regardless of how much state income tax they pay.

That makes a ballot initiative slated for the November 2018 California ballot especially painful. Named “The College For All Act of 2018”, it is an attempt to re-institute the estate tax in California. Unlike the federal estate tax rules, which were recently liberalized, the proposed California estate tax starts to kick in on estates of more than $3,500,000 at a 12% rate, increasing to a rate of 22% on estates of more than $5,490,000. The initiative, backed by the California Federation of Teachers, establishes priorities...
By David Keligian on 10/26/2017 2:49 PM
Regardless of your party affiliation, expecting Congress to enact rational tax reform is - - at least for individual income taxes - - like asking your dog to parallel park your car. You're foolish if you expect a good result. To paraphrase one observer's comment, you can't expect reform from those who deformed our income tax laws to begin with.

Let's talk about one of the first principles mentioned in the "Unified Framework for Fixing Our Broken Tax Code" (the "Framework"). The Framework is supposed to make the tax code simple, fair, and easy to understand. But fixes such as adding a "zero tax bracket", combining 7 tax brackets into 3, and eliminating most itemized deductions don't simply do anything for most taxpayers.

Most individual tax returns are filed with software that makes the number of brackets, or what itemized deductions are allowed, simple to address. The same point applies to repealing the alternative minimum tax ("AMT"). Again, most tax return software automatically generates AMT...
By David Keligian on 6/20/2017 12:35 PM
Although tax reform in general and estate tax repeal in particular have been sidetracked as a result of other issues facing the Trump administration, even if the estate tax is “repealed", it will not eliminate the possibility of taxes being due at death. That is because one of the long standing features of our estate tax law is the increase of a decedent's income tax basis in any assets that are included in their estate for estate tax purposes.

For example, under current law, if I own a piece of vacant land that cost me $1,000 and it has appreciated to $10,000,000 on my death, my estate would include an asset valued at $10,000,000 on which I would have to pay estate tax. However, for income tax purposes, my heirs could sell that property with a “stepped-up" income tax basis of $10,000,000, thus avoiding income taxes on the sale of the property at it’s date of death value.

For example, the estate tax previously was repealed for just one year in 2010. Anyone who died that year didn't pay estate...
By David Keligian on 5/21/2013 2:28 PM
The end of 2012 was a tumultuous time for estate planning. No one—Congress, planners, or clients—knew anything for certain other than the high estate and gift tax exemption might (and temporarily did) go away at the end of 2012.

Congress and the administration soon agreed that for 2013, both the estate and gift tax exemptions would be “permanently” set at $5,250,000, with inflation adjustments. Some people who rushed into 2012 planning may have thought that the rush was unnecessary. Those who procrastinated breathed a sigh of relief, thinking they could wait to do their planning.

President Obama’s fiscal year 2014 budget illustrates how uncertain the situation remains, and how quickly the rules for estate planning can again change. While budgets represent something of a “wish list” for different types of tax increases, there are several key points about the 2014 budget.

First, President Obama has proposed returning the 2018 estate tax rates to the 2009 levels—estate and gift tax rates...
By Casey Hale on 12/14/2012 6:27 AM

For more in-depth information on the ongoing battle over the the charitable deduction and how it is affecting current gifts, the Nonprofit Law Prof Blog posted an entry yesterday that is definitely worth reading.

Also, here is a panel on Fox News discussing the fiscal cliff and the charitable deduction:


And on the other end of the media spectrum, here is MSNBC on the topic as well:


By Casey Hale on 12/13/2012 10:51 AM

The Washington Post published a story today covering the Obama Administration's struggle to convince the nonprofit sector to accept the administration's proposed curtailment of the charitable deduction. Needless to say, the White House is feeling significant push back from the nonprofit sector. Here's some of the key excerpts:

The White House and the nation’s most prominent charities are embroiled in a tense, behind-the-scenes debate over President Obama’s push to scale back the nearly century-old tax deduction on donations that the charities say is crucial for their financial health.

“It’s all castor oil,” said Diana Aviv, president of Independent Sector, an umbrella group representing many...
By David Keligian on 11/9/2012 10:19 AM
The uncertainty about the recent presidential and California elections has vanished and one thing is absolutely clear—taxes are going to be much higher. Unlike the situation two days ago, there is now a very strong possibility that one of the most powerful wealth transfer vehicles will soon be legislated out of existence.

Intentionally defective grantor trusts (or “IDITs”) are among the most powerful estate and gift tax saving strategies in existence. IDITs have been used successfully over the past 20 years. They let you get assets out of your estate, provide asset protection for your children, grandchildren, and great-grandchildren, and allow continuous wealth transfers (by the grantor’s payment of income taxes on the trust’s assets) without further gift taxes. They can be used to pass wealth which will greatly exceed the $1 million gift and estate exemption which will automatically take effect on January 1, 2013.

The problem is that President Obama’s Fiscal Year 2013 revenue proposals included...
By David Keligian on 8/30/2012 11:43 AM
Everyone (especially us at Brown & Streza) is encouraging their wealthy clients to make use of the $5,120,000 per person gift tax exemption which will automatically revert to $1,000,000 at the end of this year. However, some wealthy clients are concerned that even if they have $20 million or $30 million dollars of wealth, gifting $10,240,000 may be too radical a step. They may be concerned about parting with the cash flow generated by the gifted assets.

An excellent solution is an irrevocable gift made by each spouse, in trust to the other. The benefits to this planning, which must be completed before the end of this year, are:

1. First, assuming no “fraudulent conveyance”, the assets in each irrevocable trust enjoy the strongest creditor protection available under California law. 2. Both spouses have made maximum use of available gift tax credits that are probably the highest we’ll ever see. The trusts are drafted so that the gifted assets are excluded from both husband and wife’s estate...
By David Brown on 3/7/2012 4:07 PM
When an estate is in excess of the Unified Credit, gifting assets is a good way to avoid future estate taxes.

A Qualified Personal Residence Trust (QPRT) is one of the best tools to use because it is so simple.

While we still have a $5,000,000 exemption we should all be encouraging our clients to make gifts this year, assuming it is a taxable estate.

Here are a few of the characteristics of a QPRT:

1. Transfer the home or homes (a couple is allowed to transfer up to 4) at a significant DISCOUNT. 2. The gift FREEZES the value at the discounted gift value, so if the home appreciates by the time the client dies all of the appreciation is out of the estate. 3. While the client is living they still live in the home just like they always did. 4. If they are married there is no “rent” due at the end of the “term” unless they want to pay rent. Some couples like the idea of paying rent to the kids after the term as a further means to help the kids and reduce the estate tax. Many...
By David Keligian on 2/27/2012 5:24 PM
One of the most powerful techniques for the transfer of wealth to children and grandchildren is the intentionally defective grantor trust, or “IDIT”. The IDIT offers the following benefits:

• An opportunity to transfer significant wealth by getting assets out of your estate at the cost of little or no gift tax.

• Asset protection for the IDIT beneficiaries.

• Exemption from the generation skipping transfer tax for the IDIT, meaning the transferred wealth can be passed down to grandchildren and great-grandchildren without exposure to additional estate or gift taxes.

• The ability for the grantor to pay all income taxes on the IDITs taxable income. This amounts to an additional wealth transfer to the IDIT beneficiaries each and every year, without any gift taxes.

Unfortunately, President Obama’s fiscal year 2013 revenue proposals (read: “big tax increases”) propose doing away with the IDIT. In the proposal’s words: “The lack of coordination between the income and transfer tax rules applicable to a grantor trust creates opportunities to structure transactions between the deemed owner and the trust that can result in the transfer of significant wealth by the deemed owner without transfer tax consequences”.

By David Keligian on 1/31/2012 3:55 PM
The IRS recently won a court argument allowing it to summons property transfer records from the California State Board of Equalization. The IRS is searching for unreported taxable gifts. This move, like so many others by the IRS and the Franchise Tax Board, are parts of ongoing attempts to grab the lowest hanging fruit on the tree to bring in more tax revenue.

Especially in Southern California, many parents end up providing assistance to their children with home purchases. They sometimes take joint title to homes to help their children qualify for loans, or take sole title to the home then transfer title to the children at some future point.

Right now, the IRS appears to be looking at people who transferred real property for no consideration to children and grandchildren from January 1, 2005 through December 31, 2010. However, in estate tax audits, we’ve seen auditors go back through all of someone’s recorded property transfers (sometimes for more than 20 years) attempting to find transfers of...
By David Keligian on 10/28/2011 2:38 PM
The $5,120,000 per person gift tax exemption is supposed to last until December 31, 2012. Why use it now if you still have next year? Here are two good reasons.

The first is that given our country’s economic and fiscal situation, the Joint Select Committee on Deficit Reduction, also known as the “Supercommittee”, may reduce the gift tax exemption sooner than 2012. At least half the members of the committee are insisting on tax increases as part of the deficit reduction “solution”. (As one wag put it, where do all the “solutions” go after politicians get elected?)

The Obama administration has not only proposed tax increases in its jobs bill, but is also calling for a return of the estate and gift tax rates and exemptions to their 2009 levels. That means an estate tax exemption of $3,500,000 per person, but a gift tax exemption of only $1,000,000 per person. So it is possible a significant reduction in the current $5,120,000 gift tax exemption could occur sooner than the end of 2012.

By Matt Brown on 1/27/2011 1:27 PM
Estate planning just got a lot more powerful. We all remember the Congressional fight over tax legislation last year. Democrats wanted unemployment benefits extended, and Republicans wanted massive tax cuts. President Obama’s compromise included a provision nobody anticipated – a $5 Million gift tax exemption. It is precisely the no-fiscal-analysis-whatsoever, horse-trading approach to these negotiations that suggests that this is a short-term deal that will not outlast the next two years.

This is extraordinary because the gift tax exemption has never been higher than $1 Million. The power of gifting early, before assets have a chance to appreciate, is a favorite tool of estate planning attorneys. Congress has indeed opened the estate planning floodgates.

There is a catch. This opportunity will only last for two years.

Everyone should be updating their estate plans to deal with some very serious issues created by this new law. Blended families may inadvertently give more or less than...
By Matt Brown on 12/15/2010 11:47 AM
Title III of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is titled as follows:


That’s right. It’s temporary. Meaning more uncertainty. Great. Is estate and gift tax planning dead? To the contrary! The next two years will provide an enormous planning opportunity if the bill is passed.

The bill amazingly provides for a $5 Million gift tax exemption. No, that is not a typo. In the past, clients had to go to extreme measures to take advantage of the exemption amount as it increased above $1 Million: they had to die. Not surprisingly, no client has yet found that a viable planning technique.

As you probably know by now, House Democrats voted yesterday not to allow the bill to reach a floor vote, mostly based on the perceived give-away to the rich of the estate and gift tax relief provisions. It may be that, to satisfy House Democrats, the bill is amended to temporarily go back to a $3.5 Million exemption amount with a 45% rate of 2009.

By Matt Brown on 11/9/2010 5:06 PM

Good overview article on basic estate planning (although the advice on TOD accounts is generally a bad idea).