Posts Tagged ‘education’

Heckerling: Day 1

HalTerr-12-09Today’s blog post about the Heckerling Institute is written by Withum’s Private Client Services Partner and Practice Co-Leader, Hal Terr.

After the ball drops in Times Square for the New Year a considerable number of attorneys, accountants and trust officers finalize their travel plans to go to Orlando, Florida the second week of January.   No, it is not to go see Mickie and Minnie Mouse at Magic Kingdom but to attend the Heckerling Conference held by the University of Miami to listen to the preeminent speakers in estate planning.   Once again, the Private Client Service tax partners at Withum will be summarizing each day’s discussion from the insights they have heard.   Leading off the insights of the first day is Hal Terr, co-Practice Leader of the Private Client Services Niche.

This year’s conference has 3,400 professionals attending, exceeding the prior year attendance records which emphasizes that even with great change in the law, there will always be the two constants of death and taxes.   The Recent Developments section this year was presented by Steven Akers, Samuel Donaldson and Amy Kanyuk and provided an overview of recent IRS pronouncements of the 2017 Tax Act as well as tax court decisions in the areas of estate and gift.

The recent proposed regulation from the IRS indicates that there will be no claw back if a taxpayer utilized the increased gift exemption, currently $11.4 million, under the 2017 Tax Act prior to 2025 and the law sunsets after 2025 to $5 million, indexed for inflation.   This will provide some certainty to high net worth individuals that they can utilize the increased gift and estate exemption and not created a tax liability if the exemption is less when they eventually pass away.   In addition, it was discussed that the increase in the Generation Skipping Tax (GST) exemption can be allocated to pre-existing trusts established prior to the passage of the 2017 Tax Act.   For some trust this can then lower or reduce the inclusion ratio to zero for prior GST trust to reduce any GST tax in the future.

The new year brings a new administrative change by the IRS for the filing of gift and estate tax returns.   For a long time, gift and estate tax returns have been mailed to the IRS processing center in Cincinnati, Ohio.   Effective January 1, 2019 all gift tax returns will be filed and mailed to the IRS processing center in Kansas City, Missouri and effective after June 30, 2019 all estate tax returns will be filed and mailed to the IRS processing center in Kansas City, Missouri.

With the increased estate exemption some high net worth individuals do not want to incur the expense of filing of an estate tax return on the death of the first spouse just to elect portability.   Prudent practice of estate attorneys and accountants would get in writing the surviving spouse’s intentions to avoid any disputes at a later time.   There is not extension for portability election if the estate is required to file an estate tax return if the estate exceeds the estate exemption at the time of the decedent’s passing.   However, if the estate is not required to file estate return, the executor can make portability election within 2nd anniversary of decedent’s passing under administrative relief and not have to apply for a costly private letter ruling.

Recent proposed regulations for Qualified Business Income and deductions for trusts and estates were then discussed.   The details of the operations of the Qualified Business Income (QBI) deduction will be discussed in a future presentation but there were three important items that were highlighted.  The first is that the QBI deduction does not reduce an individual’s tax basis in the flow-through entity.    For trusts, the QBI deduction will be allocated between trusts/estates and the beneficiaries in the same proportion of the allocation of Distributable Net Income (DNI).   Finally, there will be a presumption by the IRS under code section 643(f) that multiple trusts with the same grantor and substantially the same beneficiaries will be combined if the only reason for the multiple trusts is to get a benefit for the QBI deduction.   Final regulations to provide additional clarity for the QBI deduction are expected but delayed to the recent government shutdown.

For individuals, miscellaneous deductions such as tax preparation fees and investment management fees are no longer deductible under the 2017 Tax Act.   There was some uncertainty of the deductibility of these items for fiduciary income tax purposes for trusts and estates.   The IRS issued Notice 2018-61 to allow trusts and estates to deduct expenses incurred for the administration of the trust/estate, including trustee fees, accounting and attorney fees.   However, investment management fees would not be deductible, including any investment management fees incorporated in the trustee fee.

The priority guidance plan of the IRS was issued in November 2018 which provides an insight of future pronouncements by the IRS.   In the estate and trust area, the guidance plan addressed the IRS’s intention to reduce the administrative burden for basis consistency reporting to beneficiaries of an estate.  Currently executors are required 30 days after the filing of an estate tax return to report the basis of assets inherited by a beneficiary.   In addition, the IRS included in the priority guidance plan issuing rules to determine basis adjustments for assets owned by a grantor trust.

Those were the highlights from the first day.   Stay tuned for tomorrow’s blog post you will hear from Ted Nappi on Heckerling’s Tuesday presentations.

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Sometimes the retail solution is the best solution.  Take tax incentives for higher education.  We can argue until the cows come home as to who actually benefits from such incentives – the taxpayer or the institution.  Nevertheless, we can also agree that the taxpayer is harmed if s/he does not take advantage of them.  But. most of the incentives are what I call “tax gimmee’s” – they produce a nice, after-the-fact perk but do little to incentivize saving for college.  They are not planning opportunities per se; they are rewards for meeting certain income and educational criteria.  Into that bucket I toss the American Opportunity credit (up to $2,500), the Lifetime Learning credit (up to $2,000) and the student loan interest deduction (up to $2,500).  So, if you qualify, take ‘em, but don’t call ‘em planning opportunities.  Nobody has ever financed college based on these gimmee’s.CollegeFund

Now, the 529 plan is a completely different story and is the “retail” solution to which I alluded above.  529 plans, creatively named after the Internal Revenue Code section that spawned them, come in a number of different flavors.  “Savings plans” are like 401(k) plans (another creatively named technique) in that the grantor socks away a slug of cash, invests it, and ends up with a market return.  “Prepaid tuition plans,” on the other hand, are like pension plans – you put in a certain amount of cash and at the end of the cycle, voila, the tuition to a particular institution is locked in.  The common denominator is that the investment is tax sheltered during the build-up period and is withdrawn tax-free if used to pay qualified higher education expenses.  You can comparatively examine the various plans in the 529 universe at www.savingforcollege.com.

The reason I am so high on 529 plans?  They are for everyone – there is no income ceiling that limits participation.  And, while there is a cap as to the amount you can contribute, that cap is pretty high.  The grantor can set up a fund to benefit whomever s/he pleases, and within limits, can change the beneficiary designation without any adverse tax impact at any time.  Because contributions to 529 plans are considered present interest gifts, they qualify for the annual gift tax exclusion to the extent of $14,000 per beneficiary[1].  But wait, there’s more – this is the “gracious grandparent” technique at work here – grantors can front end load their gifts by funding up to five years’ worth of annual exclusions provided that they do not use the annual exclusion for other gifts during that time period.  So, assuming that they split the gift, grandma and grandpa can make a gift tax-free transfer of $140,000 today into a tax free 529 plan for that newborn angel.  Multiply that by “x” number of grandchildren and you can see the power of the “gracious grandparent” technique for both college savings and estate planning purposes.

By the way, you don’t have to be a grandparent to employ this technique.  Aunts, uncles, even parents – it is powerful stuff.

I have only scratched the surface here and there are many caveats and nuances.  However, suffice it to say, the 529 plan should be a consideration in every family’s wealth planning.

[1] Or $28,000 if a married couple elects to split gifts.

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Have you ever heard the term “MOOC”?  “MOOC” is yet another acronym referring to one of today’s seemingly exciting new ideas that you may never have heard of before but may end up seeing as something you can’t live without!  Massive Open Online Courses – depending on whom you speak with about them, they will either become the low cost and highly accessible college classroom of the future or they will die a quick death as students shun them for the traditional “sage on a stage” classroom model.  Personally, because I tend to be more traditional and respond better in face-to-face educational encounters than to web-based technology, I have my doubts that MOOC’s will replace brick and mortar schools.  But, then again, I’m no youngster raised in the iPad society, so what do I know?  Nevertheless, I doubt that tenured academics have to worry just yet – in the 1920’ s the talk was that radio would supplant the classroom and in the late 1940’s and early 1950’s, the great wasteland of television was thought to be the newest, latest, greatest educational platform, and look at how all that turned out. The ivy’s and not-so-ivy’s are still with us and thriving.   More likely than all or nothing, MOOC’s will serve a purpose for some students, but I doubt they will have as radical an impact as some of their more breathless advocates would have you believe. Any way you slice it, though, the ability to deliver high quality educational content in a low cost (or no cost) way is intriguing, particularly for continuing education.  So, what does all this have to do with philanthropy?

A couple of months ago, I became aware of a MOOC entitled “Giving with Purpose – How to Get The Most Out Of Your Charitable Giving.”  Intrigued by the idea of testing a MOOC by participating in a course of material with which I am already familiar, I enrolled in the course, which began (unfortunately for me, a CPA with a pretty hectic tax practice) on April 2nd.  Undaunted, and pleased at the fact that I could wait until after April 15th before actually beginning my studies, I signed up.  What the heck?  It cost me nothing so I had nothing to lose.  Of course, having no skin in the game makes it particularly easy to ignore the program, a problem that MOOC-providers will have to address.  The program itself?  Overall I would say that it was interesting but not particularly mind-blowing.  Taught by Rebecca Riccio, the director of the Social Impact Lab at Northeastern University, the course employs snippets of lectures (none more than a couple to four or five minutes long), videotaped conversations with some well-known philanthropists, some “review questions” smattered throughout as well as (drumroll, please) a class project involving the analysis of a number of real live charitable organizations.  This analysis culminated in the award of a grant to one of the charities based on the feedback of students using the analytical techniques taught in the class.  “Giving with Purpose “ is sponsored by the Learning by Giving Foundation and Northeastern University, and hosted by edX, one of the big names in the MOOC business.

Now, this particular course was obviously aimed squarely at the next generation of donors and philanthropists and at this point, it was the only MOOC that I could find having anything at all to do with the subject matter.  But, it does not take a world class visionary to see the potential for MOOC’s in the charitable giving world.  The questions of “why” (the soft side analysis of philanthropy) and “how” (the technical tools and techniques) can both be covered quite nicely in such a medium.  In fact, I see MOOC’s as tailor made for providing continuing education in niche areas such as philanthropy.  I plan to keep my eyes open for more opportunities and will let you know what I find.

In the meantime, I will admit, I still have to finish “Giving with Purpose” (maybe this weekend.)  And, if I pass the final exam I will receive a Certificate of Completion which will give me… what?  I’m not really sure, but I suspect that the acquisition of knowledge will be, or should be, reward enough.

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