Spring 2019 Articles
Real Property, Trust and Estate Law Journal
USING POWERS OF APPOINTMENT TO INCREASE THE PERIOD ASSETS ARE HELD IN TRUST
Jessica A. Cohan & Blake N. Melton
This Article discusses a number of strategies to use powers of appointment to extend the period assets will be held in trust. Specifically, this Article explores three fundamental scenarios and the various tax and state law issues involved with those scenarios: (1) the exercise of a nongeneral power of appointment to extend the term of a trust for a period that does not exceed the currently applicable perpetuities period, (2) the exercise of a nongeneral power of appointment to extend the term of a trust for a period beyond the currently applicable perpetuities period, and (3) the exercise of a general testamentary power of appointment. This Article also addresses the effect of perpetuities savings provisions on the availability and efficacy of the strategies presented.
SUBCHAPTER J AFTER TAX REFORM: TEN PLANNING CONSIDERATIONS
Raj A. Malviya & Brandon A.S. Ross
This past year has proven to be action-packed for estate planning and tax practitioners thanks to the Tax Cuts and Jobs Act of 2017. A full-service trusts and estates practice presents many opportunities to navigate the income tax rules, particularly the rules that govern both grantor and nongrantor trusts. This Article discusses the fundamental rules when navigating the lifecycle of a nongrantor trust and incorporates ten key planning considerations along the way to create flexibility, help minimize taxes, and preserve more value for trust beneficiaries.
This Article begins by discussing some of the terminology used in the fiduciary income tax rules under subchapter J of the Internal Revenue Code, and then describes the mechanics involved in calculating trust accounting income and trust taxable income and explains the applicability of Category 1–6 deductions. The Article then discusses the calculation of distributable net income and analyzes the differences in calculations between domestic and foreign nongrantor trusts. Further, the Article describes the new rules and objective tests that help a practitioner determine whether a trust will be treated as a foreign or domestic trust. Finally, the Article explores the responsibilities that trust and estate beneficiaries have for paying for fiduciary income tax and concludes with planning considerations for practitioners, including unbundling fiduciary fees, preserving and choosing where to use deductions, and distributing capital gains as part of distributable net income.
STATE THEFT IN REAL PROPERTY TAX FORECLOSURE PROCEDURES
Jenna Christine Foos
There are three major property tax foreclosure systems used in the United States, and one of them—the surplus retention system—prohibits former property owners from receiving the surplus from a property tax foreclosure sale. Surplus retention systems incentivize wrongdoing by allowing foreclosing governments to profit from property tax foreclosures. Surplus retention systems also have a strong negative effect on the most vulnerable people in the population because these are the people who are most likely to fall behind on property tax payments, fail to receive notice, and lose all their home equity. Finally, surplus retention systems violate the Takings Clause of the United States Constitution by allowing local governments to commit a taking for public use without providing just compensation.
The states that use surplus retention systems should change their laws to allow property owners the opportunity to recover the surplus from a tax foreclosure sale. This change would be in line with the requirements of the Takings Clause and with prior Supreme Court decisions. Importantly, allowing property owners a chance to recover the surplus would also ensure that states are protecting their citizens’ Fifth Amendment rights by providing just compensation for a taking of property as required by the United States Constitution.