The estate tax exemption is up (to $3.5 million) and portfolios are down. However, for those whose estates are still above $3,500,000, now is the perfect time to transfer wealth to younger generations. Interest rates are low, and the tax laws may never be more favorable. See Tough Times Are Good Times to Trim Estates on the WSJ website.
First it was Timothy Geithner for Secretary of the Treasury, and now it turns out Tom Daschle, nominated for Secretary of the Department of Health and Human, also failed to report income and pay taxes. Then there's Charles Rangel. What's up with these people? Mistake, error, omission - I call it tax fraud.
Call me idealistic, but I don't believe we should have tax cheaters running our country, especially the IRS and the Ways and Means Committee!
Don't worry if you don't get your Forms 1099-B by tomorrow - the deadline this year is not until February 17. From the IRS:
WASHINGTON ― Many investors will receive their year-end tax statements later than in past years, but these forms are likely to be more accurate, according to the Internal Revenue Service.
A new law, enacted last fall, changed the deadline from Jan. 31 to Feb. 15, when brokers, including brokerage firms, mutual fund companies and barter exchanges, must furnish year-end Forms 1099-B to their customers. Where a broker furnishes these forms by mail, this means that the forms must be mailed, not received by that date.
Because Feb. 15 falls on Sunday in 2009, and Monday, Feb. 16 is a federal holiday, the deadline is Feb. 17 this year. In addition, the IRS said earlier this month that for calendar-year 2008 reporting, the Feb. 17 deadline also applies to other tax information that brokers report to their customers, including such items as interest and dividends, on a combined year-end statement.
This change is designed to make it easier for brokers to provide investors with accurate year-end statements on stock sales and other transactions. Inaccurate year-end statements that have to be corrected later often force investors to file amended individual returns.
In its 2006 annual report, the Information Returns Program Advisory Committee (IRPAC) recommended changing this deadline from Jan. 31 to Feb. 15. The report noted that, “Form 1099 reporting has become very complex over recent years. As a result, many broker dealers are currently experiencing 20% amended Forms 1099. There is insufficient time to make the necessary changes in January, verify the data, print the forms and mail them by Jan. 31.” IRPAC is a federal advisory committee that advises the IRS on issues related to information returns, such as Forms 1099.
The long-standing Jan. 31 deadline for providing other year-end forms remains unchanged. However, because Jan. 31 falls on Saturday, employers, banks and other businesses have until Monday, Feb. 2 to mail or otherwise make available various 2008 year-end tax statements. This includes forms in the W-2, 1098 and 1099 series.
Taxpayers can make the tax-filing process faster and easier and often avoid follow-up correspondence with the IRS by carefully reviewing all year-end statements. Make sure all social security numbers are correct, check income and withholding amounts and contact the issuer promptly, if any mistakes are found.
Janice Oldham, who has served as Chatham County's Clerk of Superior Court for more than 30 years, is retiring at the end of this month. Senior Resident Superior Court Judge Carl Fox has appointed Chatham native Sam Cooper to serve the remainder of Oldham's term, which expires on December 31, 2010. Cooper will then have to run for election if he wishes to keep the job.
Clerks of Court are responsible for, among other things, estate, trust and guardianship matters, serving as ex officio judges of probate. Legal training is not a requirement of the job, but the trend in recent years is for licensed attorneys to be appointed. The counties in which the most probate matters, Orange, Durham and Chatham, all now have lawyers serving as Clerks.
In 2008, 0.84% of housing units in North Carolina went into foreclosure, placing us at number 27 among the 50 states and Washington D.C.. The actual number of houses going into foreclosure was 33,819.
The state with the largest number of foreclosures was Nevada, at 7.29%, with Florida, Arizona, California and Colorado rounding out the top five. Bucolic Vermont ranked last at 0.04%.
Source: RealtyTrac, Inc.
Lawyers routinely prepare advance directives for their clients - in North Carolina the statutory form was previously called a "Declaration of a Desire for a Natural Death, "and is now just known as an "Advance Directive (Living Will)." Also used, to a lesser extent, is the "Advance Instruction for Mental Health Treatment."
I am often asked about the Do Not Resuscitate (DNR) form, and sometimes people confuse it with the Living Will advance directive. There is also a newer form called the Medical Order for Scope of Treatment (MOST). There are significant differences in these two forms and the Living Will. First of all, the yellow DNR and pink MOST forms are only available to and must be signed by physicians. The DNR and MOST are sometimes referred to as "portable" medical orders because patients can keep copies at home or on their person. The DNR contains an order to not resuscitate in the event of pulmonary or cardiac arrest, while the MOST form is much broader. It has sections dealing with cardiopulmonary arrest, medical interventions, antibiotics, and artificial hydration and nutrition, and describes the treatment(s) the patient may want or not want. The DNR and MOST are generally used only by elderly or seriously ill persons.
As I tell my clients, the DNR and MOST forms deal with acute situations, while the Living Will deals with chronic situations. Not everyone should have a DNR or even a MOST, but to round out a complete health care plan everyone should have a Health Care Power of Attorney, Living Will and HIPAA form (Authorization for Use and Disclosure of Protected Health Care Information).
There's a couple of good recent articles on forbes.com - Dems Dedicated to Death Tax and Why You Need a Will. For this year, anyway, the $3.5 million exemption means that many of us don't need planning for estate tax purposes, but we need planning nonetheless.
A colleague of mine, Dennis Toman of Greensboro, contacted the North Carolina Deparment of Insurance about the issue of insuring homes owned by living trusts. Bernard Cox, assistant to the Deputy Commissioner, stated that:
We tend to agree with your insurance company that the manual eligibility rule for HO policies would allow this arrangement [keeping the homeowners policy in the name of the individual owner and naming the trust as an addtional insured]. The individual maintains an insurable interest as long as he/she remains primary resident and has life time rights. I am stating the rule would allow it but individual companies do have different underwriting requirements, please understand.
This is good news, but those who own real estate in their living trusts should always check with their insurer. I am informed that GEICO will allow the above-referenced method.
I recently had someone email me and ask if the North Carolina Estate Procedure Pamphlet, published by the North Carolina Administrative Office of the Courts, is accurate. It is generally correct, and provides a good, basic overview of estate administration requirements and procedures in North Carolina. However, it is out-dated, having been published in 2002. In addition, it does not go into depth about how to fully accomplish the many requirements of probate and deal with unusual issues, not to mention the estate and income tax aspects of probate. Furthermore, the Clerks of Court in each of our 100 counties may have different rules and intrepretations of the law. This pamphlet alone certainly does not provide enough guidance for a lay person to properly handle a probate proceeding. Given that executors and administrators can be held personally liable for mishandling an estate, even if not intentional, having an estate attorney on board is always a good idea. It may even save money in the long run, and will certainly save a lot of time and aggravation for the executor.
I recently received the following email, and then had a phone conversation with its author. This is a legitimate documentary, with filming to take place in Montreal over the course of the year. All expenses for the trip to Montreal will be paid. Feel free to contact me or Ms. Ouimet directly. Click "Continue Reading" for the "looking for" message referred to by Ms. Ouimet.
Dear Mr. Herman-Giddens,
I'm a researcher working on a documentary series about people's first-hand experiences with a family will. The project is being produced for a major US broadcaster.
I came across your blog and found your knowledge very inspiring. I was hoping you may have stories to share with me and perhaps help me get in touch with families having dealt with a difficult will story. We would also very much appreciate having you on board as our legal expert to help us make sense of all the legal complexities surrounding wills in your state.
Our series explores various, unexpected family issues surrounding wills. We would like to showcase the powerful, true-life stories of family wills, in an effort to create a deeper awareness of the difficult subjects of legal wrangling, conflict, grief and deep-seeded dynamics that can often arise when the will of a loved one is read.
We believe it will help others reach closure on their feelings concerning a past will, and help them make sense of their own experience with a will.
Please feel free to share the "looking for" text pasted below with your clients or on your blog if you wish and/or deem it acceptable.
Thank you, I look forward to hearing from you soon.
Katherine
--
Katherine OUIMET
___________________________________
CMJ Productions -
The Will (working title) / a ten-part hour-long documentary series
514-277-5504
Continue Reading...
I am pleased to announce that the North Carolina Estate Planning Blog will be nationally syndicated by Newstex, a blog aggregation company. The Blog is also recognized by the American Bar Journal, Trusts and Estates magazine and USlaw.com, as well as by other nationally known bloggers.
1. H.R.96 : To amend the Internal Revenue Code of 1986 to increase the maximum reduction in estate tax value for farmland and other special use property, to restore and increase the estate tax deduction for family-owned business interests, and for other purposes.
Sponsor: Rep Conaway, K. Michael [TX-11] (introduced 1/6/2009) Cosponsors (None) Latest Major Action: 1/6/2009 Referred to House committee. Status: Referred to the House Committee on Ways and Means.
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2. H.R.173 : To amend the Internal Revenue Code of 1986 to exempt certain farmland from the estate tax.
Sponsor: Rep Salazar, John T. [CO-3] (introduced 1/6/2009) Cosponsors (7)
Latest Major Action: 1/6/2009 Referred to House committee. Status: Referred to the House Committee on Ways and Means.
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3. H.R.436 : To amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.
Sponsor: Rep Pomeroy, Earl [ND] (introduced 1/9/2009) Cosponsors (None)
Latest Major Action: 1/9/2009 Referred to House committee. Status: Referred to the House Committee on Ways and Means.
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4. H.R.533 : To make full estate tax repeal, small business expensing, and SECA tax deduction for health insurance permanent.
Sponsor: Rep Neugebauer, Randy [TX-19] (introduced 1/14/2009) Cosponsors (None) Latest Major Action: 1/14/2009 Referred to House committee. Status: Referred to the House Committee on Ways and Means.
See this article from the AARP website. I have had clients who have lost money when their prepaid plans were not honored. The longer ago the plan was purchased, the more likely it is that there will be a problem. Ownership changes, business termination, and theft or fraud can all affect plans.
One alternative is to establish an irrevocable funeral trust, funded by life insurance. This technique will protect the policy and provide cash to pay additional expenses such as travel to the funeral, etc. However, one must be in good enough health to qualify for the insurance coverage.
A bill entitled the Certain Estate Tax Relief Act of 2009 was recently introduced in the U.S. House of Representatives. The bill retains the current $3.5 million federal estate tax exemption, freezes the estate tax rate at 45%, and repeals the carryover basis rules which would otherwise be in place next year. The effective date would be January 1, 2010.
The bill also contains a provision disallowing valuation discounts for transfers for interests in entities (such as LLCs and corporations) containing "nonbusiness assets." This is aimed at preventing the use of family limited partnerships and limited liability companies (which are not true operating businesses - holding marketable securities, for example) for discounted transfers to younger family members. This would eliminate a common and highly effective method for gift and estate tax reduction, but LLCs would continue to be an excellent tool for asset protection. The effective date of this portion of the Act would be the date of enactment.
Click "Continue Reading" for the text of the bill.
Continue Reading...No - in most cases. Mortgages generally contain "Due on Sale" clauses, which say that the lender can call the mortgage due upon transfer of property. However, federal law (12 USC § 1701j-3(d)) provides a number of exceptions (emphasis added):
(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real
property containing less than five dwelling units, including a lien on the
stock allocated to a dwelling unit in a cooperative housing corporation, or
on a residential manufactured home, a lender may not exercise its option
pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s
security instrument which does not relate to a transfer of rights of
occupancy in the property;
(2) the creation of a purchase money security interest for household
appliances;
(3) a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not
containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner
of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal
separation agreement, or from an incidental property settlement agreement,
by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and
remains a beneficiary and which does not relate to a transfer of rights of
occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by
the Federal Home Loan Bank Board.
Here are some of the current entries:
An additional tip will be added each business day until April 15, 2009
In addition to the text tips, some audio files will also be available.
Choosing a tax preparer is a particularly important topic. I recently assisted a client whose previous tax preparer included fraudulent deductions on the client's returns (without his consent or knowledge), and made a mistake that cost the client almost $15,000. Luckily I discovered the mistake in time and we were able to get a refund.
Unfortunately, CPAs and tax attorneys can also make major mistakes on tax returns. If you are having gift, estate, or fiduciary income tax returns prepared, make sure that you use a preparer who is properly trained and experienced in preparing such returns. Given the potential penalties involved, it is not worth using the lowest cost provider.
Conrad Teitell, one of the nation's most foremost charitable gift planning attorneys, has, on behalf of the American Council on Gift Annuities and the National Council on Planned Giving, written Congress urging changes to IRA distribution laws:
Click "Further Reading" for the full text of the letter and the proposed bill. The same letter was sent to House leaders.
BTW, Teitell is a former professor of mine, and a very entertaining speaker. I'll never forget how he incorporated a rubber chicken into a talk on income and estate rules relating to charitable giving!
Continue Reading...Today's Wall Street Journal has an article on the latest buzz on what the Democrats would like to do with the federal estate tax. This summary is courtesy of Stephen Bigge, CPA:
Revocable living trusts are a common estate planning tool for avoiding probate. It is not uncommon for a home to be transferred to the trust for that purpose, as well as occasionally motor vehicles. I normally advise my clients to check with their insurance company to make sure their coverage will not be affected.
However, yesterday I had a conversation with a local independent insurance agent, who said that most of the insurance companies he works with will not insure homes and cars owned by revocable living trusts under standard personal policies. Instead, business policies must be used, which can be more expensive.
For homes owned by living trusts, the insurance companies require a business fire policy, and then for complete coverage a renter's policy must be obtained.
If this causes the insurance costs to increase significantly, it may outweigh any benefit of avoiding probate.
Bottom line - check with your insurance agent or company before transferring a home or a car to your trust. If the new ownership will up your insurance costs, discuss the matter with your attorney to make sure the transfers are still worthwhile from a financial standpoint. For real estate, you should also check with your title insurance company. Finally, make sure your umbrella liability insurance covers your trust assets also.
In a Private Letter Ruling issued late in 2007, the IRS approved a clever technique to leverage a gift to your favorite charity using your IRA and life insurance. Developed by Douglas Delaney, a CPA and attorney in South Carolina, the "CHIRA®" works something like this:
Here's an example for the CHIRA® website:
A 74 year old donor decides to loan $1 million from her IRA to her favorite charity. The charity uses $30,000 each year to purchase a $1 million life policy on her life. The death benefit is used to fully repay the loan. Today, the charity will have $970,000 to allocate to their charitable purposes as well as a prudent interest and premium reserve. Whether it is cash to sustain their budget for a few years, or to put shovels in the ground two years early, the CHIRA® plan provides immediate capital without income tax to the donor.
The IRS concluded that (1) this is not a prohibited transaction within the meaning of Section 4975 of the Internal Revenue Code which would terminate the IRA under Section 408(a)(3), and (2) is not a prohibited investment in life insurance by an IRA under Section 408(a)(3) of the Code. What this means is that this technique results in no taxable income to the donor.
However, this a complex, multi-step technique, and everything must be done correctly in order to achieve the intended consequences. If you decide that a CHIRA® makes sense for you, make sure that you consult with tax counsel to ensure that you will face no adverse tax consequences.
Click "Continue Reading" for the full text of PLR 200741016.
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