North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

There a few federal income tax deductions and other provisions that expire this year:

• Tax-free distributions from IRAs for charitable purposes -  Taxpayers who were at least age 70½ could make tax-free charitable distributions from an IRA up to $100,000.
• Contributions of capital gain real property made for conservation purposes - The expanded deduction (50% for individuals, 100% for qualified farmers and ranchers) of the value of a qualified conservation easement donated to a qualifying charitable organization. In 2012 and later, the deduction will be limited to 30% for all taxpayers.
• Deduction for certain expenses of elementary and secondary school teachers - The above-the-line deduction of up to $250 for unreimbursed classroom expenses.
• Deduction of state and local sales taxes - Taxpayers could choose to deduct, as an itemized deduction on Schedule A, state and local general sales taxes, in lieu of deducting state and local income taxes.
• Qualified tuition and related expenses - Certain taxpayers were allowed an above-the-line deduction (up to a maximum of $4,000) for qualified tuition and related expenses for higher education.
• Individual AMT exemption amounts - Individual AMT exemption amounts for 2011 are $74,450 (married filing jointly), $37,225 (married filing separately), and $48,450 (single and head of household). In 2012 the exemption amounts will decrease to $45,000 (MFJ), $22,500 (MFS), and $33,750 (Single/HoH).

It's possible that tax legislation in 2012 could retroactively extend these benefits.  A host of other tax cuts will also expire on December 31, 2012, and I'm sure that Congress will at least attempt to address the issue next year.  Stay tuned for more fun and games from Washington!

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Much to my surprise, I recently became aware of the following North Carolina law:

§ 14‑326.1.  Parents; failure to support.

If any person being of full age, and having sufficient income after reasonably providing for his or her own immediate family shall, without reasonable cause, neglect to maintain and support his or her parent or parents, if such parent or parents be sick or not able to work and have not sufficient means or ability to maintain or support themselves, such person shall be deemed guilty of a Class 2 misdemeanor; upon conviction of a second or subsequent offense such person shall be guilty of a Class 1 misdemeanor.  If there be more than one person bound under the provisions of the next preceding paragraph to support the same parent or parents, they shall share equitably in the discharge of such duty.

On its face, this law makes it a crime not to support one's parents if they are unable to support themselves.  What about all those elderly persons receiving assistance from the state because they can't pay for nursing home costs themselves?  It might make one think twice about assisting your parents in divesting themselves of assets in order to qualify for Medicaid.  Also, it could make considering long-term care insurance that much more important - who wants their kids to get arrested, even if just for a misdemeanor?

However, on the North Carolina Bar Association's Elder Law Section list serve, there was a recent discussion of the statute and the fact that no one is aware of anyone being prosecuted for violation of the the law.

That's not surprising - even as a estate planning attorney (as opposed to a criminal attorney), I see many problems with the law.  It is so vague that I do not see how it could ever stand up to challenge before a judge.   How does one determine what "sufficient income" is or "reasonable providing."  What about saving for one's own retirement to avoid the same problem with the next generation? What about college expenses for kids? The statute also makes no mention of assets, so apparently one could have a couple of million dollars socked away, and the statute would not apply if one's income was all used for reasonable support of one's immediate family.

Bottom line - you probably don't need to worry about N.C.G.S. Section 14-326.1.  In the unlikely event you are busted for a violation, hire a good attorney.  You'll probably make law by having the statute declared unconsitutional.

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Attorneys interested in learning more about IRA Trusts may wish to sign up for my 90 minute teleconference, How to Draft IRA Trusts, to be held on January 27, 2011 at 2:00 p.m. Eastern.  The program may also be of interest to CPAs, financial planners and trust officers.

IRA Trusts are great tool for protecting large IRAs for the benefit of younger generations.  Anyone with an IRA or retirement account over $250,000 or so should consider implementing one.

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The IRS is requesting comments on the tax implications of trust "decanting,"  which refers to transfers by a trustee of all or a portion of the principal of an irrevocable trust to another irrevocable trust. Specifically, would like to hear from practitioners regarding when and under what circumstances such transfers that result in a change in the beneficial interests in the trust are not subject to income, gift, estate, and/or generation-skipping transfer (GST) taxes. See Notice 2011-101 for details.

North Carolina and many other states have statutes that expressly allow for trust decanting. In addition, in order to add flexibility and protection for beneficiaries, irrevocable trusts such as life insurance trusts often contain provisions allowing the trustees to transfer some or all of the principal to another trust. Court approval is not required, but certain limitations are imposed to so that the rights of the beneficiaries are not substantially modified.
 

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Local Financial Planner Janet Ramsey, MBA, CFP will be offering a course entitled To the Health of Your Wealth as part of Duke University's OLLI program.  The course will run from January 11 to March 28, 2012.  Greg Herman-Giddens will speak on non-tax reasons to do estate planning.

For more information click here.

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U.S. citizens must report and pay taxes on their world-wide income, even if living in another country.    U.S. taxpayers are also required to disclose foreign bank and financial accounts (FBARs).  It's important to know and follow the rules in order to avoid civil and criminal penalties.

The IRS has published a guide on income tax filing and FBARs for U.S. Citizens or Dual Citizens Residing Outside of the U.S.

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According to Robert Keebler, CPA, the IRS may allow a late filed Federal Estate Tax Return, Form 706, if the only reason for filing the return is for the surviving spouse to claim the deceased spouse's unused estate tax exemption. The current exemption is $5 million, but it is scheduled to reduce to $1 million in 2013.

Form 706 is due nine months after death, with an automatic six month extension available.

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North Carolina legal assistants working with estate lawyers may be interested in a day-long seminar, Estate Planning and Probate Practice for Paralegals, to be held in Chapel Hill on January 25, 2012.  I will be presenting the portion on Assisting with Guardianships.

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