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    Monthly Archives: March 2012

    Tax Relief – Caring For Elderly Loved Ones

    If you're helping out a financially stressed relative in this still-lousy economy, you may be entitled to some tax breaks.

    Taking care of your elderly loved ones is a difficult task. It can be emotionally difficult, as well as financially crippling.

    In honor of tax season, SmartMoney offers some related articles about often-overlooked deductions that might help relieve some of your financial stress if you are providing such care. The first article is titled Tax Breaks for Helping Relatives and the sequel article is More Tax Breaks for Supporting Relatives.

    For example, the most obvious way to realize some tax relief is to claim your elderly loved one as a “dependent.” In addition, do you pay for medical expenses? If yes, then there is a deduction for that.

    As you might expect, the level of support available under the tax code depends on multiple factors, to include the level of support you provide, the support your elderly loved one needs, and even various programs available in your area.

    It may be too late for you to pursue tax relief for tax year 2011. However, now is the perfect time to explore your options for tax year 2012 and plan accordingly.

    Regardless, I recommend taking time to read both articles. If this issue does not directly affect you now, it may in the future.

    Reference: SmartMoney (March 7, 2012) “Tax Breaks for Helping Relatives

    Check Out Charities Before Cutting Check

    The IRS announced that taxpayers can find information about tax-exempt organizations in a new online search tool called Exempt Organizations Select Check

    If charitable giving is important to you, you may want to do some investigating to ensure that the charities you support are in good standing with the IRS. Fortunately, a new IRS search tool for tax exempt organizations can simplify this process for you.

    While the tool (known as the Select Organizations Exempt Check) isn’t exhaustive, it does offer some helpful information, to include whether an organization:

    • Is eligible to receive tax-deductible contributions.
    • Had its tax exemption automatically revoked for failing to file a required Form 990, Return of Organization Exempt From Income Tax, for three consecutive years.
    • Filed a Form 990-N, Annual Electronic Filing Requirement for Small Exempt Organizations, also called an e-Postcard.

    Such information can help a potential donor see an organization as the IRS does. However, the tool is not without some glitches, as addressed in a recent article in the Journal of Accountancy. For example, once an organization is placed on the auto-revocation list (triggered when the organization fails to file a form) it won’t be removed from the list even if the organization re-applies and is re-admitted back into tax exempt status.

    With that caveat, the tool provides an excellent means to check the status of a given charity. Nevertheless, if one of your favorite charities is on the auto-revocation list, then you may need to confirm the current standing directly with the charity itself.

    For more information, read the original article in The Journal of Accountancy and the IRS news bulletin.

    Reference: The Journal of Accountancy (March 15, 2012) “New online search tool makes it easier to find information about exempt organizations

    Administrivia – Postmortem Paperwork Proliferates

    So as a public service to those who are coping with the same tedious chores or may soon be, the Foreman family assembled a list of stuff to do, stuff almost everyone will have to do, after a loved one dies.

    Death and taxes. Benjamin Franklin aptly noted that these are the only two certainties in life. Mr. Franklin perhaps should have added a footnote regarding the paperwork both certainties generate.

    A New York Times blog (The New Old Age) recently published a “public service” announcement of sorts titled Death's Companion: Paperwork. The article showcases the experiences of the Foreman family as an object lesson for what one of the family members member termed “administrivia.” This in an appropriate one-word description for one family’s experience with the trials and tribulations of postmortem paperwork and minutia.

    Think about it. While we are living, we establish myriad relationships with bureaucracies. Whether the IRS, Social Security, Medicare, banks, hospitals, creditors, social media platforms, car companies or gym memberships, we all have long lists of identification numbers, account numbers, customers numbers, and user passwords. And the list goes on and on. So, what happens when you die? How do all of these relationships end? How many trees must die (in the form of paperwork) to achieve legal and financial closure?

    It has been said that a shortcut to wisdom is to learn from the experiences of others. Accordingly, the experiences of the Foreman family provide excellent lessons and the original article provides important pointers for you to consider in your own estate planning.

    In short, proper planning is about seeing both the forest and the trees. Be sure to seek competent legal counsel to help you with the big picture when it comes to your own estate planning. However, the difference between the success or failure of any estate plan hinges on careful attention to the details.

    Reference: The New York Times – The New Old Age Blog (March 15, 2012) “Death’s Companion: Paperwork

    Name Permanent Guardians for FREE this Thursday in Newport Beach!

    Join me and one of Orange County's most talented financial advisors, Brandon Burton with Northwestern Mutual, at a free Kids Guardian Workshop tomorrow, March 29, 2012 at 12pm at Northwestern Mutual's beautiful offices located at 1500 Quail Street, Suite 600, Newport Beach CA 92660.  We are excited to have so many great parents joining us to name permanent guardians for their kids, and want you to feel more than welcome to come out and enjoy a complimentary lunch and do something extremely important for your kids! This event is open to all great parents so feel free to invite friends and family to join you in protecting your little ones. Registering is so easy but you must do so by the end of today.  Click here or email or call 949.718.0420. Hope to see you tomorrow!

    Indiana Death Tax Dies – Will Other States Follow?

    It’s official. The Indiana inheritance tax is repealed for deaths after Dec. 31, 2021.

    The Indiana inheritance tax is officially on its way out the door. What does this mean for other states?

    For some taxpayers, wealth transfer planning has required two layers of tax consideration. First, the federal estate tax, which traditionally has received the lion’s share of attention and, second, “state” estate taxes or even “state” inheritance taxes. And, in some instances, those state taxes can be harsher than the federal estate tax (especially given the current federal estate tax exemption of $5.12 million per taxpayer)!

    Accordingly, the demise of another state wealth transfer tax is welcome news to many in Indiana. Might this signal a trend extending beyond the Hoosier state? This question is explored in a recent Forbes article titled Another State Death Tax Kicks The Bucket, Will More Fall?. As the author points out, this development in Indiana could buttress the argument for the repeal of such wealth transfer taxes in sister states and maybe even at the federal level. The states, after all, are always in constant competition with one another (for residents and businesses) and taxes are a constant give and take in the exchange.

    For more information on the Indiana laws and the politics involved, I recommend reading the original article.

    Reference: Forbes (March 20, 2012) “Another State Death Tax Kicks The Bucket, Will More Fall?

    Large Animal – Large “Pet Trust”

    A pet trust, which ensures care for the horse if the owner gets sick or dies, is often the best way to ensure the horse’s care.

    Trusts can be remarkably powerful tools to provide for all members of the family, especially the ones most in need of care. This includes four-legged family members that stand “16 hands tall” and are adept at dressage. Yes, trusts can be an essential part of your “horse care” plan, as recently highlighted in The Wall Street Journal article, Stable Value: Putting Your Horse In A Trust.

    Horses are not “pets” in the classical sense, as their needs are far greater than those of the family dog or cat. Not only does a horse enjoy a longer life-span, but horses require more wide open spaces, exercise, care, grooming and food. The upkeep on a horse can be rather expensive.

    Through a pet trust you can set aside sufficient funds to provide for your horse’s unique needs and ensure his care and safety should you predecease him. Even more significant, you can establish important safeguards to ensure proper deployment of those funds.

    Of course, one of the biggest challenges is selecting the proper caretaker of your horse. Would a trusted loved one be willing to serve? Do not assume that charities, shelters or “rescues” would step in to care for your horse. Recent financial difficulties affecting the broader economy have likewise strained the ability for charities and horse shelters to care for horses currently under their care.

    Unfortunately, pet trusts are not recognized in every state, but the problem still remains. If you are a horse owner, then your horse is an important member of your family and you must plan accordingly.

    To learn more about your state laws and the alternatives open to you (and your horse), be sure to seek competent counsel.

    For more information and ideas I recommend reading the original Wall Street Journal article. Be sure to share it with your equestrian friends, too.

    Reference: The Wall Street Journal (March 7, 2012) “Stable Value: Putting Your Horse in a Trust

    Charitable Giving – Leaving A Lasting Legacy

    Perhaps the most powerful and common reason why the rich give is the idea most commonly referred to as “legacy.”

    At some point in your life, there comes a moment when it becomes important – vital, in fact – to focus your energies on a cause and give to charity with all the passion that went into amassing your worth. But what drives so many generous givers to this moment?

    A recent Wall Street Journal article points out that it’s the age-old, if hackneyed, idea: legacy.

    Beyond a doubt, there are certain tax advantages to well-timed and well-planned charity; the tax code is designed for this. But it is also important to realize that there is a history to the tax code. Regardless, however convoluted the reason, many a tax advantage exists beyond the lobbying of non-profits and the work of those set to take advantage for fiduciary reasons. No, such advantages exist to recognize the urge to provide a legacy.

    Planning for your estate and your wealth, in life and after death, is usually about “legacy” in one form or another. Your family is part of your legacy, that is oftentimes a given, but the missions you held dear in life are just as much a part of your legacy. In fact, they are an extension of your ideas, dreams and hopes for the world, or some small corner of it.

    The original article goes as far as to say that legacy, in broad terms, is why we give to charity in the first place. So, what will your legacy be, and what do you want to leave for the world? If there is something that you care about, perhaps it is worth acting upon, either in life or as a bequest.

    Reference: The Wall Street Journal (March 8, 2012) “Why the Rich Give to Charity

    Disinheriting Children Can Be Dicey

    Wealthy parents today face an inevitable choice: leaving boatloads of money to kids who aren’t good with money.

    They say that money is the root of all evil, but that’s not quite right since money can also be the product of much hard work, knowledge, and ability. What tends to be right more often than not, and also what happens to be more unfortunate, is that money is the “toxic soil” of crooked trees, unruly gardens, and those that don’t understand money and value itself. That’s a serious challenge to the wealthy estate planner and especially the planner with a business to leave behind.

    As pointed out recently, here, a possible, if difficult, option among wealthy parents is some form of disinheritance. That’s right, you may actually decide to simply not leave your wealth (or some form/amount of wealth) to your children. It need not be out of malice, but it likely will require every bit of planning that otherwise leaving a robust inheritance otherwise would.

    Your challenges aren’t in the political system, the tax court, or even arcane IRS challenges, but they are no less real. For one thing, you must decide what to do with those assets if not to let them transfer downstream. At the same time, you must protect your decision against entreaties and potential lawsuits from the disinherited.

    The poster-parent of this idea, and the source of much legal activity in the Australian Court system, is none other than Gina Reinhart the mining billionaire (and an heiress herself). It seems Ms. Reinhart came to the conclusion that her children weren’t fit to run the company and shut them out of the ownership stakes of the business (although they are already part of the family trust):

    Court documents cited in the Australian media show that Ms. Rinehart believed the kids weren’t fit to manage their fortune. She said none had ever held a real job, unless it was given to them by the family. “None of the plaintiffs (her children) has the requisite capacity or skill, nor the knowledge, experience, judgment or responsible work ethic to administer a trust in the nature of the trust in particular as part of the growing HPPL Group,” she claimed in court papers.

    It’s not a complete disinheritance, but it is a decided opinion, and a terse objection, to leaving certain things to those children. Indeed, a tough call.

    More information about the Reinharts and their trials can be found in the original article. Their specific situation and grievances aside, it goes to show that planning to give and planning to withhold are, usually, two sides of the same coin. They require the same decision making and authoritative execution.

    Reference: Forbes (March 13, 2012) “Billionaire Says Her Kids Aren’t Fit for Inheritance

    Joint Tenancy Transfers Matter For Medicaid Eligibility

    A New York appeals court rules that a woman who, two years before applying for Medicaid, transferred money to a friend through joint tenancies in a claimed effort to avoid probate did not rebut the presumption that the transfers were made in order to qualify for Medicaid. 

    American law contains a principle that runs like a thread through very fabric of our jurisprudence – one is “innocent until proven guilty.” In other words, the law begins with the premise that one accused of wrongful conduct or motives, whether in a civil or a criminal context, is first given the benefit of the doubt until established otherwise by competent evidence to the contrary.

    Nonetheless, sometimes the tax courts, in their zeal to root out cheats, end up reversing that principle and end up turning on those vulnerable people who act only in the best of intentions: sometimes the elderly are “guilty until proven innocent” when it comes to the courts and Medicare disqualification.

    Consider the case of Mallery v. Shah (N.Y. Sup. Ct., App. Div., 3rd Dept., No. 513277, Mar. 1, 2012), as written about here in a recent post over at ElderLawAnswers.

    Here’s the deal: Paula Mallery wanted to be sure she had safely left her estate to her friend, Ron Stanton, and a moderate estate at that, without her family interceding and dragging the matter into the probate court following her death. Her reasons are her own (but you can appreciate anyone wanting to avoid a public bloodbath). It was something she thought about, even sought counsel for, and ultimately effected by adding Mr. Stanton as joint-tenant on her home and bank accounts. Mr. Stanton withdrew $141,410.12 between 2007 and 2008. Then, in 2009, when Ms. Mallery fell, required nursing home care, and ended up applying to Medicaid to pay for it.

    No, no, no. That was Medicaid’s response. Why? Medicaid maintained that Ms. Mallery had effectively made “uncompensated transfers” and was therefore subject to a 19 month penalty period (and more than a year and a half of such care is expensive!).

    To assume the absolute best of Ms. Mallory and her motivations – because it wouldn’t change the decision either way – she simply intended to pass her property quietly to Mr. Stanton, but ended up getting dragged into court. She appealed the decision and was ultimately rejected on the grounds that she never disproved the allegation her planning moves were motivated with an eye toward Medicaid qualification.

    It’s yet another harsh lesson in unintended consequences and the trials of qualifying for Medicare. In the end, planning for your assets after death must always also be about planning for those assets, and your medical care, throughout the remainder of your life. 

    Reference: (March 5, 2012) “Estate Planning Move to Avoid Probate Earns Medicaid Applicant Penalty Period

    Trust “Protector” Power – Potential Pitfalls

    It used to be that you would write out your will, name some trustees and hope for the best for all of eternity. But, increasingly, folks aren't leaving it to luck. They're appointing a "trust protector," someone given broad power to reshape your trust over time.

    Trustees are a special kind of hero to the trusts and the families they oversee, and that’s a tough gig as many will know. Nevertheless, some problems call for superheroes. In the context of some trusts, some problems call for “trust protectors.”

    The idea got some recent limelight from Barrons, and this article there, but essentially the difference between a trustee and a trust protector is the level of power they have over the trust itself. A trustee has the power to uphold the document as it was written and getting something
    dramatic done might involve petitioning for a court order; it can mean being stuck between a rock and a hard place but valiantly working with what you were given. A trust protector, on the other hand, has broad powers to change the trust as they see fit but always in the name of the greater good that is the intentions of the drafter.

    That might mean overriding debate among parties to the trusts, moving the trust from state to state, terminating the trusts, and a host of other possible superpowers. This gives a definite malleability to your trust arrangement, especially if you are creating an irrevocable trust or something as long lasting as an actual dynasty trust. The benefits are obvious.

    On the other hand, as the “maker” of the trust, it can be a difficult thing because it means entrusting all of your own powers to someone else. In essence, you literally are choosing someone to do as you would do and maybe even with the hope that they would do it better.

    It may make for a powerful meditation on the role of the person who sets up the trust, since they create their own heroes and superheroes.

    The trust protector is not a recognized role in every state – only about half of them, in one form or another – and so that is something investigate, as with any trust arrangement.

    In the end, the drafting of any advanced trust will require a skilled hand and tempered judgment, and so too with a trust that empowers a so-called “trust protector,” if not evn more so.

    Reference: Barron’s (March 3, 2012) “Why You May Need A ‘Trust Protector’”

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