In early July, the IRS issued a new procedure that can extend the portability of estate tax for up to five years after the death of a spouse. 

What is a Portability Election? Portability Election is a method to prevent any applicable exclusion not used by a decedent with a surviving spouse from being lost. If an estate makes the portability election, any unused exclusion at this first death is made available to be used by the surviving spouse and, or their estate for subsequent transfers. No transfer taxes will be due on any amounts transferred to the decedent’s surviving spouse.

Why did the IRS Make the Change? Due to receiving a number of requests for those who could not meet the 2-year deadline, the IRS decided to extend the deadline. This decision was not only to extend this relief to five years but to make certain changes to reduce the number of PLR requests the agency receives.

What are the Impacts on the Surviving Spouse? If the 706 is filed promptly, the surviving spouse will receive the unused exclusion (DSUE)  amount from the deceased spouse for application on the surviving spouse’s transfers that were made on or after the date of death. If the surviving spouse had made taxable gifts before the estate took advantage of the relief and had to pay a gift tax transfer, then the surviving spouse may file a claim for a refund of the gift tax that the DSUE would have offset. The same can be done with paid estate tax returns of the surviving spouse. However, suppose the surviving spouse’s applicable exclusion amount, caused by the addition of the decedent’s DSUE as of the decedent’s date of death, results in an overpayment of gift or estate tax by the surviving spouse or their estate. In that case, no claim for credit or refund may be made. Something to keep in mind is that if a surviving spouse files a claim for a refund before filing Form 706 under this Revenue Procedure, that filing will be treated as a protective claim for a refund. 

Do I Qualify? This relief is available to the executor of a qualified estate or, if no executor has been appointed, a “non-appointed executor” as provided for in the regulations at Treasury Regulation. To be able to take advantage of this relief, the following conditions must be met:

  • The decedent was (1) survived by a spouse, (2) died after December 31, 2010, and (3) was a citizen or resident of the United States on the date of death
  • The executor was not required to file a federal estate tax return based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes
  • The executor did not file an estate tax return within the time required by section 20.2010-2(a)(1) for filing an estate tax return
  • The executor files Form 706 under the procedures outlined in this Revenue Procedure to make a late portability election.

Though your options are virtually limitless, proper estate planning -deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

If you are happily married, healthy, and wealthy, a tax perk you should be talking about with your advisor is the spousal lifetime access trust, or SLAT. Its ability to whisk assets out of their taxable estates while still benefiting from them during retirement is a valuable benefit. However, a SLAT is not a simple add-water-and-mix move since it is easy to get the requirements wrong. That will void your arrangement and you could end up owing the IRS millions of dollars. When done right, some estate planners call it the perfect tax break for the perfect couple with the perfect lifestyle. The trusts are a form of so-called grantor trusts, in which a donor, or grantor, transfers assets but retains a degree of control. Last fall, grantor trusts were on the chopping block, now they are no longer in immediate danger. 

How SLATs work
A spouse sets up a SLAT for the benefit of their partner by transferring assets held in their name only. The idea is to transfer assets, including life insurance, into the trust so that your estate dips below the historically high federal exemption levels, currently $11.7 million and $23.4 million, above which the 40% gift and estate tax kicks in. The donor will pay tax on the trust’s taxable income when filing their personal return. A SLAT must have a trustee. That person cannot be the donor and can be the beneficiary only if their power to move money out of the trust is limited.

SLATs owe tax on the gains made since the original owner acquired them when the donor dies. This means that a beneficiary can owe big capital gains taxes when selling any of its holdings. However, there is a way around that hit: the donor can swap stock or property in the trust whose tax bill would be high for separate assets that have not appreciated as much. Meaning the low basis assets will now be a part of the donor’s estate and heirs would not owe gains on their appreciation while they were in the trust.

‘Not a personal checking account’
The donor spouse has effectively given the beneficiary spouse the assets. But the spouse who’s the beneficiary can request withdrawals from the SLAT to fund basic lifestyle needs and pursuits, like vacations, mortgages or home remodeling. Although, this is still not a personal checking account because the trusts are typically set up so that distributions are under what the IRS calls health, education, lifestyle maintenance or support guidelines. These so-called HEMS can get squishy come tax return time.

The IRS and children who are heirs can glom on to such potential abuses when the SLAT donor passes away, which causes the trust’s inner working and use to be detailed in the estate’s federal return. IRS employees read the trust document’s terms to see if a standard has been violated.

Divorce and death can ruin everything
If you get divorced, the donor spouse loses access to the trust. Because a transfer of assets into a SLAT is irrevocable, your ex continues post-marriage as the beneficiary, a likely bitter pill to swallow. A donor spouse whose partner dies can no longer access the trust. While there are certain ways a SLAT can be structured to allow money to be returned when a spouse dies and allow a new spouse to become the beneficiary, they can prove to be complicated.

Things get turbocharged when each spouse creates a SLAT for the benefit of the other. But even assuming our happy and healthy married couple stay that way, there are pitfalls to that twofer. Under what’s known as the reciprocal trust doctrine ban, the IRS deems to be abusive arrangements when two identical trusts are used by the same married couple to avoid estate taxes while remaining in the same economic position as beneficiaries of the trusts.

Talley’s team of tax and estate planning professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Although Shaquille O’Neal has made millions from his NBA career and endorsements, he has joined a growing number of wealthy parents who limit how and when their heirs will get their inheritance. During an episode of the “Earn Your Leisure” podcast, O’Neal shared his views on giving his kids money, now and in the future: “we ain’t rich, I’m rich“. Like many affluent people before him, O’Neal is taking a creative approach with respect to gifting his children money. Here are three key considerations using Shaquille O’Neal as an example.

Communicate with your heirs. It is important to keep an open line of communication between yourself and those who will eventually inherit your earnings. Be sure to tell your kids what your plans are, like O’Neal. In the podcast, O’Neal says that he explains to his children that they are not wealthy, O’Neal is the one with the money. He has also had discussions with his children about how he will invest in their businesses in the future. O’Neal goes on to explain that his kids will need to get their bachelor’s or higher and if they want dad to invest in their future business ventures, they will need to submit to him a proper business proposal for his review and approval.

Think Big. O’Neal’s plan focuses on setting his children up for long term success, rather than instant gratification and handouts. It would not be difficult for him to just give his children money now, but he chooses to encourage them to generate their own wealth instead of relying on his. This also cultivates a healthy ambition and drive to succeed that they will need in life.

Take your time, but start now. Be sure that when creating your will, there is no room for interpretation. Make your words clear and concise. While O’Neal is still relatively young, there is no time like the present to start planning. Taking the time to consult an estate planning expert is also a great way to ensure everything goes according to plan.

Though your options are virtually limitless, proper estate planning -deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs possible can be a challenging and an emotional affair to wrestle with alone. For more information, contact Talley LLP today.

The tax plan taking shape in Congress will erase the long-standing benefit of keeping life insurance in certain trusts, by making its value subject to the 40% estate tax when the policy owner passes away. This is a tremendous change since the trusts and their assets are not currently subject to the levy. Many advisors are still suggesting that their clients splurge on life insurance. This is because advisors believe that by pre-paying a lifetime’s worth of annual premiums by January 1st, before the new curb would go into effect if approved, individuals may be able to preserve the trust’s lucrative tax benefits.


Crisis Stage. The blow to life insurance in trusts, a bread-and-butter wealth preservation strategy for decades, is one of many proposals in the emerging tax bill that takes aim at the wealthy to finance President Joe Biden’s $3.5 trillion social spending plan. The draft bill plans to raise the top individual rate to 39.8% and bump up the top capital gains rate to 28.8%. It will tax capital gains at the top ordinary rate once income hits $1 million as well as crack down on large retirement accounts and end backdoor Roth conversions. The Bill will also kill the use of grantor trusts, whether they do or do not contain life insurance. Currently, if an individual owned a $3 million home, had $7 million in retirement accounts, and had $4 million not in a trust, $2.3 million of that $14 million estate would incur the 40% estate tax, which is about $920,000. Now if it is assumed that the insurance policy is in a grantor trust, the $920,000 would instead be left to heirs. These types of savings will no longer be possible if the proposal passes.


A major impediment. Financial advisors and estate lawyers are upset with the proposal because it is common for life insurance to be held in a widely used type of trust called a grantor trust, in which the grantor retains control and pays income tax on its gains. Many benefits of these trusts include intentionally defective grantor trusts, or IDGTs, and grantor retained annuity trusts, or GRATs. Advisors say that most irrevocable life insurance trusts, or ILITs, are set up as grantor trusts, so they would be hit by the curb, too.


In obscure language, the proposal states that any assets contributed to grantor trusts come 2022 would become part of the grantor’s estate for estate tax purposes. The issue with this is that under the plan, a policyholder who pays their annual premiums for a policy that is held in a trust would be “contributing assets,” thus making the trust subject to the 40% estate levy. Wealthy individuals who want to create a future trust for their life insurance could not make their spouse a beneficiary without subjecting the trust to estate tax as well. This is due to it automatically being a grantor trust and thus would have to pay estate tax under the proposal.


The solution becomes the problem. The proposal has the potential to upend retirement planning. The idea of pre-paying premiums revolves around using outside funds, not the money inside the trust, as the latter would get caught by the proposed curb. Many are advising clients to pre-fund their premiums now by contributing cash or other assets before the new law passes so that no additional outlays are required to pay future premiums.


Flying blind. The proposed curb would hit not just the very wealthy. Many families have a life insurance policy that is often their trust’s single largest asset. For example, a person might have a net worth under the estate tax threshold but also a large life insurance policy to care for their family if they die prematurely and their income grinds to a halt. This means that when the insurance death benefit is paid, the decedent’s total assets can exceed the estate tax exemption.


One solution might involve “decanting” a grantor trust. This strategy involves “pouring” a trust’s assets into a new trust. Or a trust could pay the insurance premiums through so-called split dollar arrangements, which are common with wealthy executives. It could be set up so that beneficiaries other than a spouse would have to approve any distributions out of the trust to the spouse, but some fear that it could cause family rifts and may have gift tax implications for kids.


Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Early this month, the U.S. Tax Court published a 271-page opinion that decided the fate of Estate of Michael Jackson v. Commissioner. In a battle between valuation experts that ended in the court discounting the IRS’s expert for committing perjury, the Court found the Jackson Estate’s valuations much more accurate than those of the IRS’s experts.

Before Michael Jackson’s untimely death in 2009, the King of Pop had fallen far from grace. Before Jackson’s death, he had stopped touring due to child sexual abuse allegations and was hemorrhaging cash. He had announced a new tour that had sold out, but no shows were held, and Jackson’s team struggled to find a sponsor for his show considering his tarnished image. In a last-ditch effort, Jackson had re-hired his advisors from his “Glory days”, but they were unable to put a plan in action since Jackson died shortly after. Jackson died deeply in debt, hadn’t made a new album, had not toured, and had not made any money from his likeness or image for years.

After Jackson’s death, his advisors took action, and were extremely successful, in both restoring the value of Jackson’s image and likeness and capitalizing on that restoration. To this day, Michael Jackson is still Forbes’ highest-earning dead celebrity. He is currently the 93rd most popular artist on Spotify, even though he passed away over 11 years ago. Based largely on the post-death success of the Estate’s managers, the IRS took issue with the valuation of three “intangible” items on the Estate Tax Return. These were Jackson’s image and likeness, the value of Jackson’s interest in Sony/ATV, which is a music publishing company, and the value of Jackson’s interest in Mijac, which owns rights from various musicians, including but not limited to Jackson.

Judge Mark Holmes made clear that the court was to focus on the nature of the estate tax as a tax on the privilege of passing on the property, not a tax on the privilege of receiving the property. With this significant decision, the court was able to discern the estate was in shambles when Jackson died, and it is only through the careful and shrewd guidance of the managers that it developed into the “estate” that the Commissioner sought to tax years later. This means that since the managers had built up Jackson’s three assets after he had passed, what the Commissioner should be taxing is the value those three assets had when Jackson was alive, which was much less than now. The court decided that Jackson’s image and likeness were valued at roughly $4.1 million. This was $1 million more than what the Estate argued in trial and about $3 million more than what the estate had reported, but this value was a shocking $400 million less than what the IRS had calculated. According to the court, the IRS included, and should not have, the “intangibleness” of likeness and image, which was already counted and agreed upon elsewhere. The IRS expert also included assets that were not foreseeable at the time of Jackson’s death. While the IRS valued Jackson’s interest in Sony/ATV at about $400 million, they did not account for Jackson squeezing it dry to the $0 that the estate managers had valued it. The court agreed with the estate managers that at Jackson’s time of death his interest in Sony/ATV was $0. Lastly, the Court decided that the “Mijac revenue” was closer to the IRS’s estimate than the estate manager’s estimate. The Court determined a value of $107 million for this asset. While the IRS wanted to add penalties to the Estate’s bill for understating the value of assets, the Tax Court ultimately rejected this premise.

Although the Tax Court’s decision significantly favors the taxpayer, there will be more cases where the value of a celebrity’s image and likeliness is in dispute in an Estate Tax Case. The IRS will learn from the mistakes that were made during this case to better prepare themselves in the future.

Though your options are virtually limitless when it comes to estate planning, deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

Due to the onslaught of the COVID-19 pandemic, philanthropists have brought new momentum to a less popular style of philanthropy: spend-down, or time-limited, philanthropy; in which charitable foundations spend their assets by a certain date, then close up shop. Foundations and donors alike are realizing that humanitarian and environmental issues won’t be solved by only allocating 5% of their assets to charity every year.

Although this concept is nothing new, it is outside of the norm. About 70% of foundations are designed to exist in perpetuity, while about 30% have established deadlines on their spending, according to a January 2020 report by Rockefeller Philanthropy Advisors and Campden Wealth. Over the past 20 years, spend-down philanthropy has been growing steadily since 2000, and the current crises seem to be accelerating the movement. Comparing Gilded Age philanthropists, like Andrew Carnegie and John D. Rockefeller, to philanthropists today, Gilded Age philanthropists started their foundations when they were in their 70s while today, philanthropists are starting at a much younger age. Philanthropists are also becoming more comfortable throwing money at certain problems because it’s now easier to measure the impact they’re having. People are more and more confident that they can have impact by giving at a much faster rate.

Individuals in favor of perpetuity for foundations say it will take a long time to end problems like poverty, racism and bias against girls and women and contend that doing so will require a slow stream of funding over many years. Although there is clear value in acting with urgency and dealing with pain and suffering in the current moment, there is also a benefit in thinking in terms of generational long-term change.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today

The gravity of the COVID-19 pandemic has forced a multitude of Americans to confront many issues they had previously put off because the topics are uncomfortable. Mortality has become a central concern due to the rise of the Coronavirus, so estate planning has become a priority for many individuals who currently have no plan in place and face the outlook of their probate estate distributed by the court rather than their own wishes. There are a few important documents you should have in place to handle unexpected situations such as illness, incapacitation, or death that make up a solid, basic estate plan.

One of the most obvious issues is the improper distribution of assets after a loved one’s death. It is not easy to talk or think about, but as they get older, a plan needs to be in place. If not, there is no guarantee that their assets will be handled properly after they die. More importantly, planning ahead can help protect accounts in special circumstances. For example, for those who fall ill and need expensive care and facilities, naming a legal beneficiary in advance can make sure that they can access money to help pay for the necessary treatment. Beneficiaries can also create a barrier from scammers, as with the right documents set up, there is a second source of control over accounts to prevent them from being drained without approval.

While the topic may not be easy to approach, there are a few tips to make starting a conversation easier. The first and most important tip is to be honest and respectful when bringing it up. It seems self-explanatory, but this is often the hardest part of the whole process. Just keep in mind that things will be a lot better when a plan has been created rather than leaving it until it is too late. In cases with multiple beneficiaries, tensions can run especially high. A good way to mediate these tensions while also ensuring things are handled correctly, is to hire a fiduciary. Fiduciaries, unlike other financial advisors, are legally obligated to conduct all business with their clients’ best interest above everything else. The most important tip is to stay dedicated to the process of getting an estate handled and taking the proper steps to make sure it is done correctly.

Even though COVID-19 has created a sense of uncertainty in many areas of our lives, creating or updating an estate plan is a huge step in taking back control and gaining some peace of mind. Though your options are virtually limitless, proper estate planning, deciding on the “who, what, when, and how”, and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

This year alone, Americans are estimated to inherit over $750 billion while only paying an estimated 2.1% in taxes, according to the Brookings Institution. In comparison, the estimated taxes on work income and savings is 15.8%. While plenty of people advocate for higher taxes on the wealthier population, Lily Batchelder, who advised Barack Obama during his presidency, is proposing an inheritance tax that could raise approximately $1.4 trillion over the next ten years in taxes.

Currently, wealthy Americans and their estates are required to pay a 40% tax on bequests and gifts to their heirs. However, there are many ways to avoid the tax. For example, the first $23.2 million in inheritance is tax-exempt for married couples, and there are many other methods to transfer wealth to heirs tax-free using trusts and other strategies.

Batchelder’s plan would eliminate the current estate tax system and require heirs to pay income and payroll tax on inherited money. Also included in her plan is a proposed lifetime threshold that would make certain heirs exempt, taxing only the richest heirs. The estimate is still not representative of the actual number raised by the new “inheritance tax” due to the fact that it does not include additional funds raised through the closing of certain tax loopholes also enacted by the new plan.

Batchelder wrote that the proposal would “soften inequalities, strengthen mobility, and more equitably allocate taxes on inheritances among heirs,” while also cutting any distortions in the labor market and increasing work among heirs.

Though your options are virtually limitless when it comes to estate planning, deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

This holiday, families are bound to discuss their lives and talk about their plans for the next year. Most topics will revolve around day-to-day activities, but discussing broader, more uncomfortable things like finances and estate planning can benefit all those involved. With the holidays bringing key family members together, this may even be the best time to start a discussion about the future. While some believe this to be a “wealthy person problem,” a lack of estate planning can affect everyone and results in potential problems when it comes time for an estate to be managed.

One of the most obvious issues is the improper distribution of assets after a loved one’s death. It is not easy to talk or think about, but as they get older, a plan needs to be in place. If not, there is no guarantee that their assets will be handled properly after they die. More importantly, planning ahead can help protect accounts in special circumstances. For example, for those who fall ill and need expensive care and facilities, naming a legal beneficiary in advance can make sure that they can access money to help pay for the necessary treatment. Beneficiaries can also create a barrier from scammers, as with the right documents set up, there is a second source of control over accounts to prevent them from being drained without approval.

While the topic may not be easy to approach, there are a few tips to make starting a conversation easier. The first and most important tip is to be honest and respectful when bringing it up. It seems self-explanatory, but this is often the hardest part of the whole process. Just keep in mind that things will be a lot better when a plan has been created rather than leaving it until it is too late. In cases with multiple beneficiaries, tensions can run especially high. A good way to mediate these tensions while also ensuring things are handled correctly, is to hire a fiduciary. Fiduciaries, unlike other financial advisors, are legally obligated to conduct all business with their clients’ best interest above everything else. The most important tip is to stay dedicated to the process of getting an estate handled and taking the proper steps to make sure it is done correctly.

Though your options are virtually limitless, proper estate planning, deciding on the “who, what, when, and how”, and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today. 

Almost 65 years after his death in a car crash, actor James Dean will appear back on the big screen through the magic of CGI. Magic City Films announced that Dean’s image will be digitally recreated in their Vietnam War drama “Finding Jack”, causing mixed reactions from the star’s friends and fans. Many have speculated whether the actor would have wanted this, but Dean passed away without a will, leaving his family with the ultimate decision-making power.

Dean’s situation is not uncommon, as the last thing on any 24-year-old’s mind is their mortality. His entire estate ended up being left to his father, the default heir determined by interstate law. Considering he barely spoke to his dad, Dean most likely would have wanted the majority of his fortune to go to the aunt and uncle who raised him. As a famous actor, it is also important to realize that his assets included much more than money and physical possessions.

The actor’s image and likeness became the property of his heirs, leaving them to decide its usage in any future films, ads, and other media. Magic City Films did get consent from Dean’s estate, but people question whether he really would have wanted to be digitally recreated or if he would have wanted to play this specific role. Although some believe this would be against Dean’s wishes, without them in writing, there is no way to determine this for sure.

Dean is not alone, as Aretha Franklin, Prince, and Kurt Cobain also passed away without a will in place. It’s hard to believe that with all of the attorneys, accountants, and managers in a celebrity’s inner circle, no one thought about estate planning until it was too late. In total, an estimated 55% of American adults have not planned for their estate. While most people do not have multi-million-dollar empires, they do have loved ones that they want to provide for. Having a will can protect families and give loved ones a roadmap to carry out any last wishes. While we’d like to think we’ll always be around, there is no amount of CGI that can make us live forever.

Though your options are virtually limitless, proper estate planning, deciding on the “who, what, when, and how”, and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.  


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