General Information | Begin the Begin

The ABLE Act – Proposed Legislation Will Modify Certain Provisions

March 22, 2016

An earlier post gave a brief summary of the Achieving a Better Life Experience Act of 2014 or the ABLE Act. Three different pieces of legislation were introduced on March 17, 2016 that would change some of the provisions of the ABLE Act. Below is a brief summary of each proposed change.

Current law limits eligibility for the creation of an ABLE account to individuals with disabilities where the disability occurred before turning 26 years old. H.R. 4813 would increase that age from 26 to 46.
H.R. 4794 would allow for rollovers between 529 accounts and ABLE accounts.
Finally, H.R. 4795 would permit individuals with disabilities to save additional monies to an ABLE account above the annual maximum ($14,000.00) now in place. Such additional contributions would be allowed for those individuals with disabilities who work and earn income. The additional contribution would equal the lesser of (a) his or her “compensation…for the taxable year” or (b) “an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins.”

Updates will be posted as the legislation moves forward. #specialneeds #ABLEact #estateplanning #proposedlegislation

The ABLE Act – An Additional Resource for Families and Advisors

March 15, 2016

In 2014, the Achieving a Better Life Experience Act of 2014 or the ABLE Act was signed into law. Under the ABLE Act, certain savings accounts could be established for individuals with disabilities. Such accounts allow for monies to be set aside for an individual with disabilities without disqualifying the individual from public benefits such as Social Security Income (SSI) or Medicaid. The total annual contributions are currently capped at $14,000, but the accounts can grow and be funded up to state mandated limits. Virginia and Maryland limit these accounts to $350,000 while the District of Columbia caps the accounts at $260,000. Various other restrictions apply including restrictions that may impact an individual’s SSI benefit for a period of time and require any remaining amounts in the account to be used to pay back for Medicaid benefits that are received; generally known as a “Medicaid pay-back” provision.

Recently, the ABLE National Resource Center, an organization founded and managed by the National Disability Institute (NDI), went live with an informative website for families and professional advisors interested in learning more about the ABLE Act and establishing an account for an individual with disabilities. In addition, the website provides state specific information since each state has implemented the ABLE Act differently. Families of individuals with disabilities now have another resource in addition to consulting with their professional advisors if they are considering creating an account to ensure such planning fits within their overall goals and objectives. #specialneeds #ABLEact #estateplanning @RealEconImpact

ALERT – UPDATE: New Rules for Basis Consistency

March 6, 2016

I previously posted about the new rules for basis consistency about which executors and their advisors must be aware. I noted that the IRS had indicated that regulations would be forthcoming. Late last week the proposed regulations were released relating to both Section 1014(f) and Section 6035 and I have highlighted a few points below.

One of the biggest issues about which clarity was being sought was whether an executor of an estate in which an estate tax return is being filed to take advantage of portability needs to complete and file Form 8971. The proposed regulations exclude such returns from the requirement; that is, if an executor is simply filing for portability, then Form 8971 is not required.

For those who are required to file an estate tax return, the regulations provide some additional guidance as to how an executor is to go about satisfying this new requirement. For example, if at the time the Form is due, the executor does not yet know what assets a beneficiary will receive, then the executor must report all assets the beneficiary may receive. This ultimately means that the same assets may be reported to several different beneficiaries. This also means that an executor will be required to supplement the initial filing of Form 8971 and make it clear to the beneficiaries which filings are the final ones.

Moreover, it now appears that when a beneficiary who originally received an asset from an estate subsequently transfers that asset to another family member or entity, the transferring beneficiary will also be required to file Form 8971 with the IRS and report the basis to the family member or entity. This requirement impacts many individuals who otherwise had no reporting requirement to the IRS and may not be paying attention to the fact they now have these requirements.

Lastly, the new rules, as clarified by the regulations, do not allow for a step-up in basis (a discussion from an earlier post) in certain circumstances. After discovered assets that should have been disclosed on the estate tax return and were initially not, will have a zero basis, and therefore, be subject to greater income taxes consequences when sold unless certain corrective measures are taken.

What these new rules and proposed regulations tell us is that if you are dealing with a taxable estate, then you should consult with your professional advisor about various filing requirements to avoid missing a filing and incurring the resulting penalties. #estateadministration #basisconsistency #form8971 #IRSregulations #taxplanning #estatetax

The IRS and Its “Dirty Dozen”

March 1, 2016

Last week I passed along a few tales of identity theft and phone scams involving the IRS. The IRS also annually posts a list of the “Dirty Dozen” tax scams that may impact you or for which they look when reviewing tax returns. Number 1 on the list was identity theft and number 2 centered around phone scams. As you can see, fraud and identity theft involving the IRS is becoming more common and you need to be aware of the most likely scams. Moreover, the threat has increased now that it has been revealed that the recent IRS hack will impact many, many more taxpayers. Be sure to talk to your professional advisors about possible ways to protect yourself. #identitytheft #IRShacked #taxfraud #dirtydozen #protectyourself

Identity Theft and the IRS

February 22, 2016

Many of you may have seen that the IRS was hacked again recently and personal data was compromised. My partner, Wayne Zell, was one such victim and he recently blogged about his arduous experience of proving who he was to the IRS once he received a letter from them.

Unfortunately, his experience is becoming all too common. Another partner, Eric Horvitz, also recently had an experience in which he received robot calls on his cell phone supposedly from the IRS telling him that he would be sued within days unless he returned the call. Although Eric knew it was a scam, he was curious and returned the call using his office phone and was asked to provide personal information. Once the person on the other end of the line knew that Eric understood this was a scam, the person hung up. Eric then provided the following valuable reminders:

The IRS will never initially contact you by phone. You will first receive a letter. If you paid all of your taxes for a prior tax year, then a legitimate letter from the IRS likely will say that your tax return is being audited in some fashion. If you did not pay all of your taxes for a prior tax year, then a legitimate letter from the IRS likely will be a bill that requests payment. Your failure to address an initial IRS letter in a timely fashion will result with a follow up letter from the IRS in some fashion.
If after receiving a letter (or likely letters) from the IRS, the IRS does call you. The IRS employee always will provide his name and should give his IRS employee number. Ask what office the IRS is calling you from and later verify that the given IRS office does exist. A legitimate phone call from the IRS likely means that you have ignored all prior letters from the IRS. The person calling you likely is either a “revenue agent” – the IRS employee who will audit your return – or a “revenue officer” – the IRS employee who will demand payment.
The IRS will never call you threatening to sue you. Again, you always will get some sort of letter in the mail.
Never call these scam artists back. They are out to get your personal information in any way and your money. Simply by calling them back on the telephone number on which they called you will give them a source of information with which they can steal your identity.
The IRS neither asks nor requires you to use a specific payment method for your taxes, such as a prepaid debit card – the 21^st century version of cash — which likely will have no origin through the banking system.
The IRS will never threaten that the “police” will arrest you. The IRS does have its own police officers. They are called “special agents.” If you are contacted by a special agent, then you likely will know why the IRS has contacted you. In that case, tell the special agent to have a nice day and also tell him that your attorney will contact the special agent. Then, get an attorney. You will need one.

As if matters are not already difficult when dealing with the theft of your own identity, for those who have recently lost loved ones and are having to deal with filing final tax returns, the process has become even more complex because of the amount of identity fraud. It is not uncommon for a fraudulent tax return to be filed using a deceased person’s social security number that claims any refund. Usually, executors do not know it has happened until they go to file the final tax return and their filing is rejected.

The process for undoing the damage of the stolen identity can and will take months to resolve. Because there has been so much fraud, the IRS has started responding to requests for information about a deceased’s person’s tax returns with a letter indicating that they will not provide any such information until the executor (or perhaps the CPA or attorney) calls and proves the executor has authority to ask for and receive the tax information. The call alone can take hours with you just sitting on hold.

There are ways that you can notify the IRS of your authority as an executor through particular IRS forms that are filed with the IRS. An experienced estate and trust administration attorney or CPA can guide you through that process and help complete the forms and get them filed in the proper order. The hope in submitting the IRS forms is that you can avoid hours lost on hold with the IRS and prevent fraudulent filings that create stress during any already stressful time after a loved one has died.

Ultimately, whether you are having to deal with identity theft or fraud involving the IRS at a personal level or as an executor, you should consider speaking with a tax professional, such as a CPA or an attorney. #taxplanning #identitytheft #IRSfraud #estateadministration

Why Has Income Tax Planning Become a Bigger Part of Estate Planning?

February 17, 2016

Many of you may have had your estate plan prepared at a time when the exemptions from Federal estate tax were much lower and the ability to use a deceased spouse’s exemption was unavailable. To ensure that a married couple maximized the use of the available exemptions, your estate plan may have been structured so that upon the death of one spouse, two subtrusts were automatically created for the benefit of the surviving spouse.

As discussed in an earlier post, the estate tax laws have changed and exemptions from Federal estate tax were permanently set at higher levels. In addition, married couples are permitted to transfer any unused Federal estate tax exemption to a surviving spouse by way of a concept known as ‘portability.’ Thus, the need for an automatic allocation between two subtrusts upon the death of one spouse is no longer necessary in certain circumstances and may have unintended income tax consequences as follows.

As you may know, upon the death of one spouse, the tax basis in certain assets owned by that spouse is adjusted to the fair market value as of the date of death. This adjustment is often referred to as a “step-up” or “step-down” in basis. Assets funded into the subtrusts will receive a basis adjustment on the death of the first spouse. Upon the death of the surviving spouse, only assets held in one of the subtrusts (i.e., the Marital Trust) will be adjusted to the fair market value as of the date of death of the surviving spouse. The assets of the other subtrust (i.e., Credit Shelter or Bypass Trust) continue with the same tax basis that was received upon the death of the first spouse. Therefore, the beneficiaries under your estate plan after both of you are gone may pay more in capital gains tax on any assets held in the subtrusts if automatic allocation is made between the subtrusts and the assets appreciate in value after the date of death of the first spouse.

To provide maximum flexibility to the family following the death of the first spouse, you should consider amending your estate plan to remove the automatic allocation and having all the assets pass to one subtrust. The surviving spouse would then have the ability to reallocate (i.e., disclaim) a portion of the assets, if necessary, but the reallocation would be made after evaluating both the income tax and estate tax situation at that time.

Realizing this may be a lot to digest, the main point is that if you have not recently reviewed your estate plan, you should do so to see if any changes need to be made. Rest assured that any change would be implemented only after collaboration and concurrence of all of your advisors (i.e., your financial advisors, your accountant and your attorney). #estateplanning #taxplanning #incometaxplanning #portability #estateplanupdate

ALERT – New Rules for Basis Consistency

February 13, 2016

If you are an executor of an estate or an advisor to such executor, then you need to be aware of two new statutes that may impact you and a change in the initial deadline. Included in the Surface Transportation and Veterans Health Care Choice Improvement Act that was effective on July 31, 2015, were two statutes that require the executor of an estate to report to the IRS and to the beneficiaries of the estate the basis (in this case, fair market value of the asset that is determined after a death) of the assets that the beneficiaries are to receive from the estate.

Section 1014(f) requires that the basis the beneficiary receives be consistent with the value as reported on the estate tax return. Section 6035 is the reporting requirement on new Form 8971. Under Section 6035, executors are required to provide certain information on Form 8971 to beneficiaries no later than the earlier of (a) 30 days after the estate tax return was due (taking into account any extensions), or (b) 30 days after the estate tax return is filed. In Notice 2015-57, effective on August 21, 2015, the initial deadline for such reporting was extended to February 29, 2016 to allow for the promulgation of regulations.

On February 11, 2016, Notice 2016-19 was released in which the initial deadline was further extended to March 31, 2016 to allow for more time to issue regulations relating to these new statutes. Among other items that are in need of clarification is whether an executor of an estate in which an estate tax return is only being filed to take advantage of portability needs to complete and file Form 8971. The recent Notice advises executors and others to not file Form 8971 until the release of the regulations, which are expected “very shortly.” Thus, executors and advisors remain in limbo in certain situations and will need to stay tuned for further updates. Furthermore, beneficiaries need to be aware that they will be receiving this information and will be responsible for maintaining accurate records. #estateadministration #taxplanning #basisconsistency #form8971

David Bowie’s Last Will and Testament – What Is to be Learned?

February 2, 2016

Last week David’s Bowie’s Last Will and Testament was filed in a New York Surrogate Court. We learned how he wanted to be remembered, a subject I addressed in an earlier post. We also learned how his considerable estate will be divided and about specific gifts he wanted to have made. But most importantly, we learned that having a Last Will and Testament as the main instrument that details the disposition of our estate does not ensure privacy regarding our personal and financial affairs after death. In fact, having a Last Will and Testament means that anyone can see who benefits from an estate and ensures the Court has to be involved at some level.

For some individuals, privacy may not be a priority issue after death, but for others privacy is tantamount. This is why when you think about your own estate plan you should ask – “What level of privacy in my personal and financial affairs do I want to achieve after my death?” If you want the utmost privacy, then consider using a Revocable Living Trust as the main instrument in which to dispose of your estate. If, however, there are problematic parties or other reasons to have the Court supervise the administration of your estate, then perhaps having only a Last Will and Testament to dispose of your estate is the path to take. But, you should consider who will have access to your estate plan and what will they learn as result. Either way, a thoughtful conversation with your professional advisor should be had as you begin constructing your estate plan. #davidbowieswill #estateplanning #revocabletrust #livingtrust

How Do You Want to Be Remembered…

January 26, 2016

When it comes to being remembered, you may have very detailed plans that you want implemented or you may not have thought about it at all. During the recent blizzard or Snowzilla on the East Coast, the Tomb of the Unknowns was constantly guarded, as it has been since 1937, a tribute to those who had fought in earlier wars. Of course this raises the question as to how you would want to be remembered. Here is a short list of some considerations:

(1) Who should be notified – Family, friends, colleagues, organizations or groups, listservs, newsletters or other publications?

(2) What personal information would you want to have included? Certain information is required for a death certificate, but are there certain accomplishments or interesting stories you would want shared? Do you want an obituary, and if so, what should it say?

(3) How do you want your remains handled and where do you want to be buried? This could include your preference for cremation versus burial or use of a family burial plot, mausoleum crypt or cremation niche for an urn.

(4) Do you want a marker or headstone? If so, what should the engraving say and how should the marker be designed? Do you have a preference as to the type of urn or casket?

(5) Do you want a memorial service or just a big party? Should any service be religious, and if so, are there particular hymns to sing, certain readings to include and/or particular persons you want to provide eulogies or words of remembrance? Are there military honors to be bestowed? Should any service be for family and close friends only? If you are to be buried, are there personal items to include in the casket? A particular outfit in which you want to be buried? Do you want a viewing?

(6) How should the costs and expenses be paid and by whom?

This list includes only a few of the items to consider, but will hopefully start the conversation with family members. Ultimately, the more planning that is done can help alleviate stress on surviving family members during an already difficult time and also pay tribute in a respectful, thoughtful manner. #estateplanning #howtoberemembered #blizzard2016 #snowzilla

Online Forms – To Use or Not to Use?

January 10, 2016

Many people ask why they should not use online forms that are available for free? Why do I need to go to an estate planning attorney? If you choose to use a form, you run the risk that the form will not be accepted in the state in which you live. Each state has different requirements for the execution of a will, trust or power of attorney. An estate planning attorney can help guide you through the requirements and also ask the tough questions about the family dynamics that are often not considered when using a form. More importantly, using an estate planning attorney ensures that your wishes for the disposition of your estate are clearly identified for your family in the proper manner.

In addition, a form does not encourage the dialog that a visit with an estate planning attorney does. That dialog includes important topics such as incapacity planning, tax planning, health care decisions and guardianship. However, an estate planning discussion also involves the little stuff. For example, who will receive Aunt Sue’s china or Uncle Frank’s antique car. Very often people forget about the little things and focus on the house, bank accounts or life insurance, when in fact, the disputes arise over a particular piece of furniture or jewelry that had strong sentimental value. Forms do not address these issues in the way that having a conversation does. Regardless of the value of your estate, forms do not lay the complete groundwork for your legacy. #legalforms #estateplanning