California Society of CPAs / Estate Planning / CalCPA Discussion Forum

Loaning/Gifting Money

hlcpa — Thu, 02 Oct 2008 15:04:00 GMT

In a situation where grandparent is loaning money to grandchild to buy
a house, am I correct in thinking that even if all the interest is
under the annual gift amount, that the lender/giftor still has to pick
up interest income on his 1040? The annual gift just allows the
borrower/giftee not to have to move cash to lender/giftor, but they
still have a mortgage interest deduction, and the lender/parent has
interest income?
Or is this incorrect and as long as the interest amount is less than
the exclusion, no one needs do anything on any tax return.

If loan is $500,000 @5%, and gift exclusion is 13,000 x 2 in 2009, then
the interest is $25,000 and less than exclusion for h & w to
grandchildren. Would the grandparents still pick up $25,000 in interest
income, even if they gift that amount to the grandchild?

Form 706 Presentation

awombat — Wed, 03 Sep 2008 10:45:20 GMT

What is the correct presentation on Form 706 for a decedent's QPRT that is disqualified due to death prior to end of QPRT's term. Schedule G with explanation ? Report as prior gift and removal on same schedule with explanation of failed gift ?

Sale of Residence within Estate

lisa — Tue, 26 Aug 2008 13:03:22 GMT

Hi,

I have taken losses on sales of personal residences sold by an estate since inherited property becomes investment property even if not rented. I'm now trying to find law to substantiate my position and haven't found any. Any ideas?

Thank you, Lisa

Royalties - 706 and Future Income

hlcpa — Thu, 21 Aug 2008 18:03:18 GMT

Deceased recieved royalties for work as director on Broadway shows. He does not own the copyright to the show, only has a right to percentage of royalites recieved for performance of the show. Now after death his wife will be receiving the royalty income.

Is this reflected on the 706 (Sch G?) I suppose I can do a present value of future earnings. How do I reflect the money coming in to the wife after death?

I had a discussion with a colleage that it depends on whether it is owned or unowned copyrights. And that while both owned and unowned are reflected in full on the 706, only the owned are amortized (income is not picked up until fully amortized). It does not seem right to me that if the unowned copyright future income is on the 706, it would still be taxable and not IRD. Thank you for any help. Harlan Levinson, CPA

National Tax Training School

Tiffany Pillsbury — Fri, 08 Feb 2008 15:02:32 GMT

Has anyone heard of National Tax Traninig School or took course(s) from this school? If so, would you suggest this school to a friend?

Thank you so much in advance for your reply to this message.

Tiffany

Crossed Estimate Payments

John Jacobson — Fri, 20 Jun 2008 16:23:47 GMT

This may be a bit outside the scope of this forum, but perhaps some of you have had the same experience.

A client inadvertently sent the California estimate to the IRS, and vice versa. Both cashed the other's check. (In fact, the IRS ink-stamped "U.S. Treasury" over Franchise Tax Board.) Client didn't find out about it right away, because the bank honored each check, and listed them on the bank statement merely as the check number, amount and date cleared. Client found out about it after tax return was filed, by an IRS notice asking for the difference and penalties.

Seems to me that in the past, when this happened, both taxing authorities stamped the date received on the others' checks, and forwarded them.

Has this happened to any of you?

UBTI and a Charitable Remainder Trust

richkeene — Mon, 19 May 2008 13:43:27 GMT

I have a client who desires to transfer a mini-storage business, currently owned as a sole proprietorship, to a CRT. Is there a method to get around the UBTI issue, and assignment of income generally. One thought, was to create an LLC, and transfer a non-managing member interest to the CRT.

Any thoughts? Thank you.

do "court accountings" require an opinion?

Allmon — Thu, 15 May 2008 15:51:00 GMT

our firm does not prepare "financial statements" and have hired other firms to "prepare" our probate accountings in the past...
we have heard arguments that a probate accounting is a prescribed form (similar to a tax return) and thus not subject to the peer review program. we have also heard that they are considered a type of compilation, subject to peer review.

any thoughts on this?

Risk Premium on SCIN

CMSD108 — Thu, 14 Feb 2008 10:23:48 GMT

I have been asked to calculate the risk premium on an SCIN where interest would be paid monthly, but principal would be paid annually or semi-annually. BNA's Estate & Gift Tax Planner will not do this kind of calculation. Is there any program that will or any guidance on this seemingly unconventional scheme?

Thank you.

test

Larkin — Wed, 30 Apr 2008 08:12:39 GMT

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Form 5227 - Questions re: Charitable Unitrust

johnt — Sat, 26 Apr 2008 16:08:12 GMT

I have a client who set up a charitable unitrust last year with low basis stock acquired from an employer stock option plan. After the contribution, the trust sold the stock at a large gain. I'm assuming that the donor's tax basis will carryover to the trust and a capital gain should be reported by the unitrust upon sale of the stock, but I'm not certain if this is the appropriate tax treatment. I can't think of any reason why the tax basis would be adjusted to FMV at the time of the contribution to the trust, but if someone knows why it should, I would appreciate their input, with any tax authority they may be able to cite.

Form 706 26 week Treasury Bills alternate valuation date

susancarlisle — Mon, 21 Apr 2008 20:55:31 GMT

I need to report the values for an alternate valuation date on 6 treasury bills totalling approx $1.5 million. All of them will have matured during the 6 months from the date of death to the alternate date 6 months later. Most (but not all) have been rolled into new purchases at the maturity dates. For the date of death, I am reporting the discounted purchase price plus accrued interest as the value. What amounts should be reported for the alternate date: (1) Maturity value (face amount); (2) Maturity value plus additional accrued interest; or (3) same as date of death value? Please advise. Many thanks. Susan

sale of dec'd mothers home

chap729 — Tue, 05 Feb 2008 08:30:22 GMT

widowed mother passed away Jan 07. Sold her home (which was in a trust) in Auguest. home sold for FMV at time of death. Is there a reporting requirement on 1041 and 1040's

QTIP Election - revoke?

Michele Day — Mon, 28 Jan 2008 13:48:03 GMT

Can a QTIP election be revoked?

If so, how can one check to confirm it has been done?

Thanks.

Tranfer of CPA firm ownership interest

gacates — Wed, 24 Oct 2007 09:19:27 GMT

Since CPA's are licensed by the state and CPA firm owners must be licensed, the ownership interest in a CPA firm cannot be held in the name of the partner's living trust. The partnership agreement calls for the distribution of book capital to the surviving spouse and the pay out of unfunded retirement (buy out) over 10 years to the surviving spouse. FYI, the ownership capital and retirement buy out are community property.

Do these assets need to be probated if not in a living trust?

How do you get them into the trust?

Should the trust be named as the beneficiary in the partnership agreement?

Do they by-pass probate if the partnership agreement has designated beneficiaries?

Maybe I'm making more out of this then I need to, but I just want to make sure my family has no surprises.

Captive Insurance Co

Anonymous — Fri, 14 Dec 2007 13:24:01 GMT

Does anyone have experience with a captive insurance company being owned by an irrevocable trust created for the benefit of client's children.

Facts: Client forms irrevocable trust for the benefit of his children with a non adverse party as trustee. Client gifts cash to trust and trustee uses the cash to form a captive insurance company that insures client's business.

Client is President and a member of the board of insurance company, presumably entitled to reasonalbe compensation and at least partially in charge of whether dividends are ever declared. Key employees of client's business are also officers and directors and with client make up a majority of the directors.

Does client's involvement with the operation of captive insurance company cause its value to be included in client's estate for federal estate tax purposes?

Thank you.

Loss on sale of a residence after death

kruspodin — Wed, 05 Dec 2007 15:43:13 GMT

We are preparing form 1041 for a Decedent's Estate. The return shows a sale of what previously was the deceased individual's principal residence. The property was sold shortly after death and after the 706 was filed. It happens that the property was sold for the same value as what was reported on form 706 except that there were $35,000 of commissions paid on sale. Therefore, there is a loss on sale of approx. $35,000. My question is whether this loss of $35,000 can be reported as investment loss and deducted at $3,000 per year on Sch. D since the property no longer serves as a personal residence (the taxpayer is deceased). The other option is to deduct the $35,000 commission fee as professional fees on form 1041. Of course, the third (undesirable) option is to treat the loss on sale as personal non-deductible loss.

I appreciate your help.

Mark Kruspodin

trouble posting

Richard F. Cassidy — Thu, 06 Dec 2007 10:09:22 GMT

Can I not cut and paste text from a world file as a message here?

Funding bypass trust with portion of personal residence

Barbara Whatley — Sun, 11 Nov 2007 14:00:08 GMT

Hi - I'm a new member. I read in CalCPA about this group and encouraging participation. I thank you for your willingness to give your time to help other practitioners.

I have searched through the archives and see some discussion regarding:

1. A bypass trust is funded with all or portion of personal residence. Reasons may vary, it may be the only asset, it may be the best choice for other reasons.

2. Subsequently, the survivor purchase all or a portion of the residence back from the bypass trust. Reasons are to retain qualified mortgage interest deduction on mortgage payments, and perhaps for section 121 issues since 121 does not apply to trusts.

Assuming this occurs, my questions are:

If the survivor already has maxed out on qualified residence interest, is the deduction for interest paid to the bypass lost?

If this is case, is there any structure that would allow the survivor to obtain an investment interest deduction?

Thank you,

Defined benefit plans on 706

jmscpainc — Wed, 17 Oct 2007 06:34:02 GMT

Decedent husband was receiving benefits from a corporate defined benefit plan. Wife is now receiving retirement benefits from the plan under a joint and survivor election made by husband.

Did decedent have a community property interest in wife's future retirement benefits? Is this reported on decedent's 706, and if so, how is it valued?

Related question. Wife is receiving benefits from a government defined benefit plan. Did dededent husband have a community property interest in wife's retirement benefits? If this reported on decedent's 706, and if so, how is it valued?

Administrative Trust/Community Property

jmscpainc — Sun, 14 Oct 2007 20:24:26 GMT

I am trying to figure out "best practices" reporting on Form 1041 for an Administrative Trust for a first to die spouse. The surviving spouse's share of community property is included in the various assets (cash, investments, real estate) that have been titled in the name of the Administrative Trust. I assume that I report the gross amount (including surviving spouse's share) on Form 1041 so that the amounts reported agree to 1099's etc.

The question is: what is the best way to "back out" the surving spouse's community share of income and expenses to be reported on her 1040?

Can anyone recommend a reference publication that provides practical guidance on the use of an administrative trust that includes the survising spouse's share of community property? PPC is not much help.

GST Tax for a predeceased relative

jweldoncpa — Thu, 04 Oct 2007 14:32:41 GMT

Husband and Wife created a living trust with the beneficiaries being their sons Al and Ralph. Al has two sons and Ralph has no heirs. The trust states that if Ralph predeceases the second parent to die (which he did), his inheritance would go to Al's children.

Is there a way to avoid GST on Ralph inherentance that will go to Al's sons? I do not think the predeceased parent rule applies.

Thanks John

Waiver of Accounting

Carol Ach — Wed, 03 Oct 2007 11:10:06 GMT

My client is beneficiary of her Mother's Trust. Mother died in 2005. Mother was beneficiary of her grandfather's trust. That trust has about $15M of assets in it. There is reason to believe that there was major malfeasance in that trust. Mother was unsophistocated in financial matters.

In 2003, under duress from attorney of grandfather's trust, Mother was forced to sign a waiver of accounting or face losing everything. Because of this waiver, the trustee is refusing to provide any accounting/financial information to the beneficiaries of Mother's estate. Apparently, there is a letter telling the attorney to obtain the waiver because disclosure of what was in the accounting would be embarrassing to the trustee.

The question is: are there any cases out there that invalidate a waiver of accounting signed under duress? I know there are rules that must be followed in order to have a valid pre-nuptial agreement. Perhaps there is some case law which led up to instituting those rules that might be applied to signing a waiver of accounting.

706 EXPENSES - Schedule J or L

Geoff Given — Mon, 20 Aug 2007 11:19:26 GMT

where are people reporting administative expenses on a 706 under the following fact situation, on Schedule J or L-2?

Facts are as follows:

unmarried decedent
100% of assets were in a revocable living trust
no probate has or will be opened
The estate is a taxable estate
There are no outstanding creditor's claims
Expenses include attorney's fees, accountant fees, expenses incurred in preserving and selling property which was sold to pay estate tax.

Thanks in advance for any comments.

IRA with Trust as Beneficiary

Bill — Mon, 23 Jul 2007 14:34:32 GMT

New clients.
Taxpayer died at age 75 with a substantial IRA account. In his living trust, he provided that the trust was to be the beneficiary of the IRA and pay it out to the surviving spouse over her lifetime. This sounds to me like it was supposed to be a conduit, or see-through, type of trust provision. And that RMDs should flow from the Bank to the Trust, and then out to the surviving spouse, with only expenses offset at the trust level.

But, the bank/trustee issued a 1099-R for the full balance of the IRA, indicating it was all taxable. That was for 2005. And the bank/trustee has issued regular 1099 forms for 2005 and 2006 as if the account was a regular investment account, showing interest, dividends and capital gains for those two years. I'm wondering why they didn't issue 1099-R forms for the RMD. I'm concerned that the bank thinks that the IRA was paid out in full in 2005.

Am I missing something?

bill downs

Retained Life Estate -- IRC 2036

Bill McKinley — Mon, 25 Jun 2007 11:01:07 GMT

Husband and wife, both 71 years old at the date of her death, have at the date of her death $3,100,000 in assets and no debt. In addition to these assets there is another piece of property that is the subject of this question. They purchased a home on the central coast of California (the beach house) which is now worth $1,200,000. In 1989 they transferred this property to an irrevocable trust. The husband and wife are trustors, but not trustees of this trust.

A part of the trust document is titled “Trust Terms During the Lifetime of Trustors”.

The document says in part, that the trustors “during their lifetimes, and the survivor of them during his or her lifetime, shall have the right at all times to occupy and use said beach house, rent free; provided however, that said turstors or the survivor of them shall pay all property taxes, assessments, fees, charges, and other expenses for the maintenance and protection of the said property, including but not limited to insurance, utilities, repairs and maintenance thereof.” These rights are personal and not transferable.

The beach house is an older home and the burden of maintenance has been substantial. For instance the trustors have paid for removing and replacing rotted lumber in large areas.

The next paragraph of the agreement says that if they don’t pay the expenses, they lose the right to use the property.

The trustors do not have the power to deal with the title, or manage or control, or to receive proceeds from any rental, mortgage or sale of the property. The trustors had and the survivor has the right to “abandon and forever surrender the use” of the beach house.

I could easily argue that this situation fits within the broad scope of IRC 2036 and one half the value of the beach house should be included in the wife’s estate.

I could also easily argue that this is not a retained interest subject to IRC 2036 and is nothing more that a rental agreement. Although the rent at times may be lower than expected, it could also be higher do to the responsibility for maintenance of the property. One year the maintenance was over $25,000 and that by itself far exceeded the market value rent. The statement in the trust that the trustors get the use of the property “rent free” is completely negated by their obligations to pay other expenses. As a rental agreement none of the value would be included in the wife’s estate.

I would sincerely appreciate any advice or comments on this issue.

Looking for CPA with both Probate Estate and Depletion background

Rick Franceschini — Tue, 10 Jul 2007 13:18:33 GMT

Hello all,

I am looking for a cpa with both estate accounting experience and depletion (timber) experience. The CPA would be stipulated to by parties to assist a Superior Court Judge in Sonoma County to analyze and interpret a previously court approved accounting. The CPA would be paid by the estate. Is anyone out there interested or qualified? Or do you know anyone who falls in this category. Obviously, the person should probably be in Northern California. You can e-mail me at rfran@rflawllp.com

Thanks.

Rick Franceschini

estate extension as deposit and not as payment

Allmon — Tue, 24 Oct 2006 16:29:40 GMT

we have a client who made a payment with the estate's extension... then filed the return more than 3 years later showing a refund of the amounts paid with the extension. the refund was denied as the statute had run on the overpayment according to IRS.

a new district court case (Blom vs US 2006-1 USTC P60,527) has held that an extension payment is a deposit and not a payment. thus, it allowed a refund after three years from the payment had passed.

1. interesting case

2. anyone had any experiences in this area?

3. assume that we would file a claim using the claim form rather than a supplemental 706?

Distribution of specific community property on first death

Richard Cassidy — Wed, 06 Jun 2007 11:59:51 GMT

A trust states:

"Division of trust estate upon death of either grantor

A. If the husband grantor is the decedent, then upon the decedent's death the trustee shall distribute all of the trust estate's X company stock (including any stock held as the separate or community property of the Survivor) to Y individual, if she is then living."

Is the transfer of the surviving spouse's community interest considered a gift from the surviving spouse or is this offset with other property of the decedent to make the surviving spouse "whole"?

Thanks for your thoughts and comments.

Richard Cassidy

estate tax "closing document" vs "closing letter"

Richard Cassidy — Wed, 30 May 2007 14:01:05 GMT

Is there a difference between an "estate tax closing document" and an "estate tax closing letter" or do they have the same affect?

Thanks.

Contribution of Partnership Interest Holding Appreciated Property to a CRT

John R. Woodford — Wed, 09 May 2007 12:30:15 GMT

The taxpayer owns a 21% interest in a general partnership. The partnership holds real property and the taxpayer would like to transfer his partnership interest into a CRUT that he had previously established and funded. Without the taxpayer's knowledge a third party exercised an option to purchase all of the partnership assets in March 2007. The decision to make the contribution was made prior to the exercise of the option. The managing partner had negotiated the option and taxpayer had no prior notice that the option was to be exercised. The sale is set to be consummated in August 2007. Assuming that there is no debt issues and the other partners are willing to substitute the CRUT as a general partner in place of the taxpayer would the taxpayer be taxable on the gain realized or would it fall to the CRUT? Ferguson v. Commissioner would seem to indicate that it might be under the assignment of income doctrine.

mutistate california trust

Catherine Thompson CPA — Wed, 11 Apr 2007 10:52:50 GMT

I have a simple Oregon Trust with a California trustee, an Oregon trustee, & an Oregon beneficiary. Income passes out to the beneficiary, capital gains remain in the trust. On my California return, 50% of both income and capital gains are being taxed at the trust level with the income flowing through to the K1 in column b but subsequently backed out in column c, leaving no income. Is this correct? (I thought the trust would be taxed for 50% of the capital gains by California & the beneficiary 50% of the income.)

Private Foundation controlled entity ownership

Richard Cassidy — Fri, 04 May 2007 11:34:53 GMT

If a private foundation owns 30% of an entity and a director of the foundation owns 15% and his child owns 15% of the same entity, is the foundation considered to own over 50% for purposes of control under the new section 512(b)(13) rules. I obviously don't quite understand how the section 318 constructive ownership rules work regarding this. I don't see where it says a foundation is considered to own shares owned by its directors but something is telling me that this may be the case.

Any help would be appreciated.

If this question is too far off topic for the estate planning forum just let me know and I'll take it elsewhere.

Thank you.

Gift Tax or 1031 Exchange

Peter McNeil — Mon, 23 Apr 2007 10:55:28 GMT

4 Heirs receive a 1/4 interest in 10 income properties as tenant in common in the early 80s. To properties are mow worth $20 million an each TIC interest is $5 million.

For simplicity the heirs want to split up the properties and take whole interest in the properties.

All parties have agreed on the property division. However this will lead to uneven market as follows

A) 4 Million

B) 6 million

c) 7 million

d) 3 million

Is there a gift tax issue. How doe 1031 come into play?

Can discounts be used to reduce any gift tax component?

Does agreement cause equal fair market value?

Variable annuity in Exemption Trust

Bill — Wed, 07 Mar 2007 23:32:59 GMT

Over on TaxTalk, we are struggling with this. Two of us have this situation. Client's banker has sold the client a variable annuity as part of Exemption Trust funding.

First the tax question: is it true that there is no deferral of income tax if a variable annuity is owned by a trust? Sec 72(u) seems to say that, though at least one insurance company is saying it is OK for a trust to own a variable annuity.

Second is the accounting question: what is the "income" of a variable annuity? If it's the whole increase in value, then we would have no deferral since all the increase in value would have to be paid out to the income beneficiary.

In my case, the client is a surviving spouse who is the trustee and beneficiary. The remaindermen are a niece and nephew of the decedent, not blood relatives of the surviving spouse!

Step up on gifted property

Mary Kay Foss — Mon, 05 Mar 2007 20:18:07 GMT

A client put her brother's name on her residential property as joint tenants so that he could obtain a loan in 2001. He passed away unexpectedly in 2003. Does she get a step up in basis in the property?

Isn't there a provision that covers *death bed* transfers to a terminally ill person to create a step up in basis? Does that provision apply under these circumstances?

Incidently he made no contribution to the property but did make payments on his loan secured by the property and the property was subject to other creditors of his while he was alive.

california taxation of trust protectors

Allmon — Tue, 06 Mar 2007 08:25:29 GMT

great question that i received by email today:

<
I read your interesting article on Trust Protection in the March 2007 Journal of Accountancy. Since you are a California CPA, you may be able to provide commentary or citations dealing with the possibility that a Florida testamentary trust with Florida trustees and beneficiaries would be subject to California tax if a California resident is named as a trust protector.

My law firm is Propp Lubell & Lapidus, 1500 Broadway, 21st fl., New York, NY 10036. My fax # is 212-687-0056 and my phone number is 212-986-7714. Your reply is greatly appreciated.>>
----------

i do not know the answer to his question... i do know that california is overly aggressive with its income taxation of beneficiaries- in the situation where no benes or trustees are california resident, i am interested in the comments of others as to the effect of having a california protector.

Crummey Letters Not Done

Donita Joseph — Mon, 26 Feb 2007 12:21:13 GMT

What do you do if you discover that a trustee has not been issuing the Crummey notices? In this case, some Crummey notices were sent, but at some point it was changed to just a letter telling the beneficiaries that the gift had been made to the trust on their behalf. All of the beneficiaries were aware of their withdrawal rights. I see that the Holland case dealt with this issue, but I don't see anything else.

Merging A & B Trust

hlcpa — Fri, 16 Feb 2007 07:47:43 GMT

If you have a Decedents (B- died 2000) trust and Survivors (A - died 2005) Trust, and now that both parents are dead, can you merge the two. The beneficiaries of both trusts are exactly the same. What would be required to do so? (Can you just move assets of A to B? or need to set up new trust?)Or would this violate the wording of trust that I believe requires distributions to the beneficiaries.

They also mentioned forming Lifetime Benefit Trusts. The reason they say for not distibuting, is that there is a farm that has not sold, and they are not sure of its future. Thank you very much.

Interest - Imputed or Effective

hlcpa — Mon, 05 Feb 2007 17:19:42 GMT

Mother's Living trust lends money to a long-standing General Partnership, made up of children. Both are cash-basis. Is there a requirement to expense interest on the partnership or record it as income for the mother? If the intention is to pay interest upon payment of the note (when she dies) is there a current gift, or anything else that needs to be done. Or can the loan just sit there until her death? Thank you.