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Today I received an email message that reads as follows:

    Good Day,

    My name is Sarah Brown. I work as an executive partner for the firm Mayer Brown Watford
    consulting,U.K. We are conducting an inquiry on
    behalf of Deutsche Bank, the German conglomerate. This inquiry involves a late client who                 shares your surname.
    1. Are you aware of any relative/relation who's last contact address was Brussels, Belgium?
    2. Who shares a similar name?
    3. Whose date of birth on file was 27/07/1932?
    Thank you for your co-operation and best regards,

    Sincerely,
    Mrs. Sarah Brown.
    mailmayerbrownwatford@googlemail.com

This is obviously a ploy designed to appeal to greedy folks who might provide false information in order to try to collect an "inheritance."  Notice how the writer doesn't even say what the name is?  And the email address doesn't have a company URL? I'm sure that if one were to respond, "Mrs. Brown" would require a "documentation" or similar fee to be paid up front before the inheritance can be received. Don't fall for it!

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I read in the paper this morning about the case of Janet Rivera, a comatose 46 year old California woman.  A heart attack two years ago caused the condition. The Fresno County Public Guardian's office, who is serving as her guardian, had life support withdrawn on July 11, but Rivera's family was able to get the court to order temporary support until a hearing a hearing schedule for tomorrow.  Five physicians have opined that Rivera will never recover.

Just like with Terry Schiavo, there are many groups weighing in on the case, but regardless of which side one might take, the important message here is for one to make one's wishes about such things known in advance, preferably in writing in the form of a valid Living Will.   Doing so could help avoid a great deal of expense, and more importantly anguish on the part of family members and others involved.

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This news is courtesy of Roger Brooks and the Association for Advanced Life Underwriting.

The introduction of two estate tax bills - one in the Senate (S. 3284) and the other in the House (H.R. 6499) - enhances the likelihood of ultimate (more probable in 2009 than 2008) estate tax reform.

Senate Bill - $3.5 Million Exemption. Senator Carper (D-DE) introduced S. 3284 with two co-sponsors, Senator Voinovich (R-OH) and Senator Leahy (D-VT). The bill would permanently fix the lifetime estate tax exemption at $3.5 million (indexed for inflation) and the estate tax marginal rate at 45% (essentially freezing the exemption and rate levels slated by the current Revenue Code to be in place in 2009). Significantly, this initiative represents the first time, within our memory, Senators from both parties have co-sponsored such estate tax reform legislation.

House Bill - $2 Million Exemption. Representative McDermott (D-WA), a member of the Ways and Means Committee, has, without co-sponsors, introduced H.R. 6499 which sets the lifetime exemption at $2 million (indexed for inflation) and adopts other major reform approaches, such as gift and estate tax reunification.  Rep. McDermott’s bill would repeal portions of the Economic Growth and Tax Relief Reconciliation Act of 2001 related to the estate tax. Its major thrust would be the adoption of the $2million lifetime exemption, indexed for inflation. The bill would be applicable for all “estates of decedents dying and gifts made after December 31, 2008” and would reunify the gift and estate tax exemption/exclusion amounts. Instead of the applicable exclusion amount for the gift tax being $1 million, it would equal $2 million in 2009 and would be indexed for inflation going forward.

The exclusion amount for the estate tax would also be increased by any unused exclusion from a deceased spouse. This provision (not previously introduced in the current Congressional session, but often described as implementing spousal exemption portability) would allow the surviving spouse to increase his or her exclusion amount by the unused comparable amount of a deceased spouse, if the executor makes an election at the time of the deceased spouse’s death. Furthermore, the exclusion amount could be increased by the unused amount of more than one deceased spouse if the surviving spouse had been married more than once, but the total for each such deceased spouse would be capped at the basic exclusion amount of $2 million, indexed for inflation.

The rate for the estate tax would be 45% for all estates between $1.5 and $5 million, 50% for estates between $5 and $10 million, and 55% for estates over $10 million. Furthermore, the bill would reinstitute the credit for State death taxes and would repeal the deduction for such taxes. The credit was taken away in 2001 and the deduction was put in its place. This bill would restore the credit as it was prior to the 2001 amendment.

Continue Reading...

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If you set up a Charitable Remainder Trust (CRT) in the past but now wish you could get a lump sum back from the trust, it may be possible to sell your interest in the trust.  In a 2001 Private Letter Ruling (200127023), the IRS ruled that the sale of an income interest in a trust is a sale of a capital asset.

Thus, a CRT income beneficiary who has had that interest in the CRT for a year or longer can, in many cases, sell their interest and pay taxes at the current 15% long-term capital gain rate.  (State taxes would be additional).

Given that the capital gains rates are at historically low levels, this can be a way to turn a long term income interest into a lump sum that can be enjoyed currently, while avoiding potential future increases in tax rates.

There are companies that will purchase interests in trusts, including CRTs.

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The Social Security Administration has a new calculator on its website called the Retirement Estimator.  It allows one to estimate benefits based on different earnings estimates and expected retirement ages.  I tried it out and it's quick and easy.  I just hope I actually get those estimated benefits when I'm eligible in 20 years!

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This afternoon I'm sitting in Koury Natatorium on the UNC Campus watching my son and hundreds of other kids compete in the Chapel Hill Summer Swim League Championship meet. This is my 15th year of doing this, so I have spent many, many hours watching my kids swim, volunteering, etc.  And that's for only one of their activities.  Of course, my situation is not unusual, but rather the norm for middle class parents.

What struck me, though, is that parents routinely spend dozens, if not hundreds of hours, and hundreds, or maybe even thousands, of dollars annually on their kids' activities.  Yet most do not chose to spend a few hours, and as little as several hundred dollars, to put in place an estate plan that will protect their children in the event something happens to them.

So, parents, go ahead and schedule an appointment to meet with an estate planning attorney.  The peace of mind is priceless.

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In what comes as a surprise to me, based on the last news as reported in my postings in the last week or so, yesterday Governor Easley signed HB2436, which includes (page 201) a complete repeal of the North Carolina Gift Tax (Article 6 of Chapter 105 of General Statutes), effective January 1, 2009.

This will certainly make estate tax planning and Medicaid planning easier (and less expensive, in some cases) for North Carolinians.  I personally will miss the NC gift tax, since I enjoyed advising people about its peculiarities as compared to the federal gift tax.  After all, it it weren't for taxes, my job would be much less interesting!

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With the recent failure of IndyMac Bank and even large banks like Wachovia reporting astounding losses, some folks are becoming increasingly concerned about the safety of their money.  As most everyone knows, the Federal Deposit Insurance Corporation (FDIC) covers cash deposit accounts up to $100,000 per person.  Persons with over $100,000 in cash deposits often use multiple banks to obtain coverage for all or most of their money.

What about accounts in the name of trusts, since trusts generally have more than one beneficiary?  Luckily, the FDIC has expanded coverage for trust accounts based on the number of beneficiaries.  The FDIC website provides the exact rules.

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Democrat and Republican Senate leaders continue to clash over the tax extenders bill, which contains an extension of the $100,00 IRA charitable rollover and other income tax benefits.  Stay tuned...

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North Carolina's own BB&T Wealth Management was rated as the most prestigious regional bank wealth manager by high net-worth consumers, according to the 2008 Luxury Brand Status Index survey.  The survey is conducted by the Luxury Institute in New York, but the results report must be purchased.

BB&T's personalized service was the key to its number one ranking.

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I generally recommend that persons with IRA or qualified plan assets of at least $200,000 should consider a Standalone IRA/Retirement Plan Trust. 

There are many reasons that justify creation of a separate trust just to receive retirement plan assets. Though most attorneys think it can be done with only one master trust, there are various drafting problems and post-mortem administrative problems that are lessened by using a separate trust for retirement benefits alone. Many of the benefits of a separate trust(s) established to solely hold retirement plan or IRA assets after death are included below.

This posting is adapted from a presentation by Ed Morrow, J.D., LL.M.

Continue Reading...

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These are the facts from a recent Private Letter Ruling from the IRS:

The Decedent had a "pour-over" will requiring that his probate estate be added to his living trust. The trust provided that upon Decedent's death distributions are to be made to certain beneficiaries with the remainder going to four charitable organizations. The Decedent had an IRA at the time of his death but there was no designated beneficiary as the named beneficiary was deceased. Therefore, the Decedent's estate became the beneficiary by default. The Trustee of the living trust and the personal representative of the estate proposed to satisfy the residuary bequest to the charities by assigning the IRA to the four named charities.

IRC Section 691(a)(1) provides that income in respect of a decedent (IRD) assets owned at death are included in the gross income of the estate or the person, who, by reason of the owner's death, acquire the right to receive the asset. A traditional IRA is an IRD asset (Rev. Rul. 92-47, 1992-1 C.B. 198). Under Sec. 691(a)(2), if a right to an item of IRD is transferred by an estate who received the asset by reason of the owner's death, the asset is included in the gross income of the estate.

However, the term "transfer" under Sec. 691(a)(2) does not include the transmission of an IRD asset at death if the transmission occurs pursuant to the right of the person receiving the asset by reason of a decedent's death by bequest, devise or inheritance. The IRS held that the transfer of the IRA in satisfaction of the Decedent's residuary bequest from his trust is not a transfer within the meaning of Sec. 691 and is thus not includable in the gross taxable income of decedent's estate.

The IRD will be considered income to the four charities, but since they are tax exempt organizations, no tax will be due.

To see the full text of PLR - 200826028, click "Continue Reading."
Continue Reading...

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Yesterday the North Carolina General Assembly reached an agreement on the budget, but it did not include a repeal of the gift tax in 2009.  Instead, the repeal was put off until 2010.  However, given the state of the economy and continuing budget woes, I for one won't count on repeal until it actually takes place.

Most North Carolina residents and even many attorneys aren't even aware of the NC gift tax.  In my practice I have learned of many, many gifts that have been made over the years and not reported as required.

If the General Assembly ultimately decides to keep the gift tax, I believe they should provide funds to the Department of Revenue to hire me as a consultant!  I have a few ideas that would result in a marked increase in tax collected.

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My last entry was about SB1756, which includes a complete repeal of the North Carolina gift tax.  However, Governor Easley and others have been strongly urging the General Assembly to delete the repeal provisions.

If you would like to see the gift tax repealed, please email or call the office of your legislators and ask them to support repeal of the gift tax, effective 1/1/09. Go to www.ncleg.net and look under House Finance committee for names and email addresses of finance committee chairs.

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Today the IRS issued temporary and proposed regulations that reduce the extension of time to file tax returns for certain businesses that generate Schedules K-1 and other similar statements to five months. (The current period is six months.)

This change will be effective for extension requests for tax returns due on or after January 1, 2009, and applies to entities that file the following returns and forms that have a tax year ending on or after September 30, 2008:

• Form 1065, U.S. Return of Partnership Income
• Form 1041, U.S. Income Tax Return for Estates & Trusts
• Form 8804, Annual Return for Partnership Withholding Tax (Section 1446)

The final and temporary regulations finalize the simplified procedures for obtaining an automatic extension of time to file returns, doing away with the requirements for a signature and an explanation of the need for an extension of time to file. They also complete the elimination of Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return, granting individual taxpayers an automatic six-month extension with their filing of Form 4868, Application for Automatic Extension of Time to File a U.S. Individual Income Tax Return.

Thanks to Bob Keebler, CPA for this news.

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