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Tag: Estate Tax

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Life Insurance Trusts


Business_meeting[1]Life insurance is a great way to provide your family with liquid assets after you pass away, but if the policy benefits would put your estate over the estate tax exemption, then you might consider a trust.

When planning the estate of a family's primary breadwinner one of the biggest concerns is providing the necessary cash assets for the rest of the family to live on while everything else gets settled. This is especially the case if the estate is expected to go through probate or if most of the estate assets are difficult to sell quickly.

One of the best ways around this problem is through the use of life insurance. The policies pay out in cash almost immediately. However, as Forbes points out in "3 Considerations for an Irrevocable Life Insurance Trust" the solution is not always perfect.

One of the problems with life insurance policies is that the benefits can be counted for estate tax purposes. This is especially problematic if the benefits would put your estate over the exemption limit when it would not be otherwise.

One way to get the advantages of life insurance while avoiding the estate tax problem is to create an irrevocable life insurance trust. The trust becomes the owner and the beneficiary of the life insurance policy and keeps the benefits out of the estate tax calculations. However, if you transfer ownership of an existing life insurance policy, then you must live for three years to avoid having the IRS include the death benefit value in your estate anyway.

If you have questions about irrevocable life insurance trusts or other ways to provide liquid assets to your family after you pass away, then speak with an estate planning attorney about the options.

Reference: Forbes (Sept. 19, 2016) in "3 Considerations for an Irrevocable Life Insurance Trust."

 

Posted on

New Estate Tax Case


Bigstock-Vintage-brass-telescope-on-ant-44347372[1]In a case of first impression the tax court has broadened when an estate can claim a theft loss.

If the property of an estate is stolen, then the estate can report it as a “theft loss” and not pay estate taxes on the value of the asset. That is not a controversial issue. However, a recent case required the tax court to determine what it really means for property to be stolen from the estate.

In that particular case the deceased owned 99% of the shares in an LLC. All of the assets in that LLC were stolen through a Ponzi scheme. The estate sought to claim this as a theft loss, which the IRS disallowed on the grounds that it was the LLC's loss and not the estate's.

As Forbes reports in "Tax Court Allows Estate a Theft Loss Deduction for Property Held by LLC," the tax court disagreed with the IRS.

The court reasoned that since the Ponzi scheme reduced the value of the LLC to nothing, that it was a loss to the estate. It ruled that the relevant law just requires that there be a sufficient nexus between the estate's loss and the theft.

In this case since the deceased owned 99% of the LLC, it was appropriate to include the loss in the estate.

This was a case of “first impression” and it is unclear how the ruling will apply in other cases. It is also not known if the ruling will be extended to other entities and not just LLCs.

If you have questions about allowable estate losses, consult with an estate attorney.

Reference: Forbes (Sept. 27, 2016) "Tax Court Allows Estate a Theft Loss Deduction for Property Held by LLC."