Don't fall prey to the 2011 "Dirty Dozen" tax scams

The IRS has identified the "Dirty Dozen" tax scams of 2011.  Participating in or falling victim to them can result in real harm to your pocketbook and your freedom.  My WealthCounsel colleague, Scott Makuakane, practices in Hawaii and he recently posted five of the Dirty Dozen.  He noted that he did not list them in any particular ranking of "dirtiness":

Hiding income offshore

People used to be able to get away with this because of the IRS' former inability to track offshore accounts.  Things have changed, and penalties have been increased.  Any tax strategy that requires secrecy as an element for success is highly suspect and probably should be avoided. 

Identity theft and "phishing"

It is absolutely critical to protect  your personal information.  All an identity thief needs are your name, birthdate, and social security number to make your life a living hell.  Watch out whenever anyone asks for those bits of information, and protect yourself by shredding documents that may contain sensitive information about you before you discard them.  Also beware that identity thieves are out there trying to gather your personal information any way they can--through email, by posing as government personnel, by spyware programs that can steal passwords from your computer, and a variety of other nefarious means.

Return preparer fraud

Be careful who you trust with preparing your returns.  If you have a fairly complicated return, it would behoove you to work with a CPA.  In any event, be sure to work with trustworthy professionals in whatever you do.

False or misleading forms

Some folks claim refunds to which they know they are not entitled.  Obvious no-no.  Don't file a return that does not pass the smell test.

Frivolous arguments

People sometimes make the darndest arguments.  Here is one that will land you in the pokey.  Premise 1:  there are ample declarations by the IRS in a variety of publications that our income tax system is "voluntary."  Premise 2:  I have the right to opt out of any "voluntary" income tax system.  Conclusion:  by golly, I will opt out of the U.S. income tax system and there is nothing anybody can do to me if I do. 

Please don't get caught up in any "strategy" that would seem to enable you to evade taxes.  Tax avoidance or minimization through recognized legitimate means (such as deductions for charitable contributions and mortgage interest) is good stewardship.  Tax evasion is a crime, and it will eventually catch up with you.

You can check out the rest of the "Dirty Dozen" on the IRS website.  For some information on legitimate approaches to estate planning, please contact me and we discuss the legal path offering confidence in your estate planning.

Estate Planning For Women (And the Men Who Love Them) Question #2

A fellow attorney (and award-winning journalist) Deborah Jacobs authored the book, “Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide”.  In her recent Forbes article titled “Estate Planning for Women (And the Men who Love Them)” she indicated the below question is a question every financially savvy woman should be able to answer. 

 

Question #2

Is there money in the bank?

In the process of dividing assets into "yours," "mine" and "ours," couples should make sure there is enough money to cover immediate expenses if one of them suddenly passes away. These reserve funds can be held in each of your separate accounts or in a joint one. Just be aware that when you die, your spouse or partner will probably not have access to your individual account right away, and you will each need the discipline to keep the fund flush. A better approach is to maintain a joint account designated for emergencies that can also be available for this purpose.

With bank and brokerage accounts, the most frequent form of joint ownership is joint tenancy with rights of survivorship. It is available to any two people who want to own assets together. Both owners have access to the assets during life, and when one joint tenant dies, the survivor immediately becomes the sole owner of the whole property, regardless of what the will says, or whether there is a will. These features make this type of ownership appealing both to spouses and other couples.

Despite these advantages, joint tenancy has a serious drawback: it exposes each owner to the other's potential liabilities. Unmarried couples also need to be aware that state laws on joint tenancy for non-spouses may vary. Consult a lawyer who is familiar with the rules of the state where you live.

Questions like this one can often trigger even more questions in your mind.  Please accept my invitation to schedule a meeting where we can discuss this topic and others that might be relevant to your estate planning.  Give my office a call to set a meeting.

Potential Portability Problems

Portability has become a popular topic among the estate planning set, and I found this recent post to be valuable.  The author of the commentary is Lizette Sundvick, who practices in the sate of Nevada.  And her comments are based on the article  “Wealthy Take Estate-Tax Exemptions Beyond Grave Until 2013”  Bloomberg (8-6-11)


The Bloomberg article notes that:  Wealthy individuals in the U.S. will find it easier to cut their estate-tax bill as a result of a provision for using their deceased spouses’ exemption credit.


Much ado has been made about this new power in estate planning known as “portability,” and for good reason. Nevertheless, it’s also prudent never to put all your eggs in one basket. So it is with the matter of estate tax exemption portability.


As you may know, “portability” is the new ability for a deceased spouse to transfer their unused gift and estate tax exemption amount to their surviving spouse. Provided all the required paperwork is timely filed with the IRS, that effectively allows a married couple to exempt an astounding $10 million from federal taxes for their loved ones without the use of trusts or legal devices.


Bloomberg suggests that it is better to think of portability as a “safety valve” for married couples, especially those whose assets would be entirely covered by the doubled exemption, but not something to be relied upon. The biggest limitation, for one, is that portability exists at the whim of lawmakers. After the budget showdown last December, existence of portability is only guaranteed until the end of 2012 (if that, Congress being the politically fickle animal that it is).


But there is another important caveat Bloomberg touches upon that is worth mentioning. Portability is a power that exists between spouses, but in a world of shifting marriages, divorces, and remarriages that also creates strange limitations. Portability only applies to the last deceased spouse. Accordingly, if a widow remarries, then they could potentially lose that massive exemption (even after their own estate has doubled, creating an estate tax liability). Indeed, if portability isn’t lost and if the widow’s new spouse predeceases after using their own exemption by gifting, then the widow’s estate is in the same tricky situation.


We all know (or should know) that relying on fickle politics is addressing the temporary.  On the other hand, we encourage you to investigate every opportunity that arises for your use here and now.


Portability can be a worthwhile tool to consider.  On the other hand it can be a daunting issue to incorporate into your long-term estate tax plans.  As these new planning tools surface, it is advisable to make sure your estate plan is up-to-date and fully addresses your desires regardless of what "portability "may or may not offer.  Please call to schedule a meeting. 

Estate Planning For Women (And the Men Who Love Them)

While important to both sexes, estate planning often affects women more profoundly. Women live longer on average and tend to marry older spouses, making them three times as likely as men to be widowed at 65. So for women, estate planning is a crucial part of retirement planning. And since they usually survive their spouses, women more often have the last word about how much wealth goes to family, charity or the taxman.

A fellow attorney (and award winning journalist) Deborah Jacobs recently authored an article in Forbes titled “Estate Planning for Women (And the Men who Love Them)” she indicated the below question is one every financially savvy woman should be able to answer. 

Question #1  

What key deadlines apply when a spouse dies?

Starting in 2011, a surviving spouse can add any unused estate tax exclusion of the just deceased spouse to her own $5 million exclusion--this is called portability. So a widow can pass on as much as $10 million, untaxed, through either lifetime gifts or her will. But portability is not automatic. To get it, the executor of the estate of the first spouse to die must file an estate tax return, even if no tax is due. Surviving spouses should see to it that the form is filed even if they have nowhere near $5 million of their own, because who knows what the future holds?

Nine months is also the deadline if you plan to disclaim (turn down) any portion of what you inherited from a spouse so that it can go directly to your children or other family members or into a trust for their benefit. The new tax law makes it more likely that spouses will leave everything to each other outright. Other couples may want to give the survivor the right to disclaim at least some money and have it go into a family trust or bypass trust, as it is also called.  This allows the survivor to make an informed decision based on her own financial resources and federal and state estate laws at that time. If you want to use this postmortem tax planning strategy, you need to keep an eye on the calendar.

Questions like this one can often trigger even more questions in your mind.  Please accept my invitation to schedule a meeting where we can discuss this topic and others that might be relevant to your estate planning.  Give my office a call to set a meeting.

 

Amy Winehouse got her will right

This commentary is taken from an article authored by Karen Datko in MSN Money on July 27, 2011.  It gets right to the core of a will and its potential importance for your estate. I wanted to share this with you.

The late soulstress reportedly wrote a will that excluded her ne'er-do-well ex-husband.

The late Amy Winehouse was many things to many folks -- fabulous talent, an inspiration to Lady Gaga, an addict who couldn't quite shed her demons all come to mind. Add to that list: wise estate planner.

Winehouse's revised will reportedly prevents any of her fortune, estimated at $16 million and most assuredly growing, from going to her ex-husband, Blake Fielder-Civil, widely regarded as the person who introduced her to hard drugs. Instead, her millions will be divided among her father, Mitch; mother, Janis; and older brother, Alex.

 "Let this be a lesson to both the famous and the obscure: A will is a good idea at any adult age," Ron Dicker wrote at DailyFinance.

Fielder-Civil, now serving a sentence for burglary and possession of an imitation firearm, might have inherited everything had Winehouse not put a new will in place. Tim Worstall wrote at Forbes:

However, the one thing, under English law, that divorce does not do is undo the presumption that the natural inheritor is the spouse. In the absence of a will the surviving spouse will inherit at least the bulk of any estate.

Even in the presence of a will written pre-marriage which states otherwise the surviving spouse, or ex-spouse, will again be the natural inheritor.

How would it work in the United States? It varies from state to state, but generally if you die intestate, your estate will go to spouse and kids, or parents or siblings if you are single and don't have children.

 Do you have a will? There's a good possibility you don't, even if you're well past 27. "According to an AARP survey, more than one third of Americans over 50 lack a will, living trust, or power of attorney," Kimberly Palmer wrote at U.S. News & World Report.

If you're a parent of minor children, consider yourself negligent if you don't have one. Liz Weston of MSN Money wrote: "No matter how icky you feel about planning for your own demise, you owe it to your kids to spare them the potentially ugly and drawn-out custody battle that could ensue if you don't make these decisions now."

Whether you are older than 27 or younger than 27, it may be worth meeting to discuss a will.  After all, it was a very smart move by Amy Winehouse and it could be equally beneficial to you. I’m available to schedule a meeting.

 

Uncovering Dementia and Alzheimer's Cover-ups

One of my estate planning colleagues, Lizette Sundvick, who practices in Nevada recently penned this comment on dementia cover-ups.  Her post occurred after reading this “The Danger of Your Aging Parent Covering Up Dementia” article in Forbes (August 11, 2011)

Here’s what’s important: it doesn’t matter if you have a diagnosis for your aging parent or not. It matters how your aging parent functions. It matters how you deal with what you see.

Dementia and Alzheimer’s are becoming increasingly common, but even if we are beginning to become more and more aware of how to spot them, it doesn’t make it any easier. Many a reader will be familiar with the terrible uncertainty and concern over their elderly parent’s thinking. Fortunately, Carolyn Rosenblatt of Forbes has more advice to give in her recent article.

Among the many dangers to keep in mind when an elderly loved one starts “slipping” is that they may begin “hiding” it. For one thing, it is not something with which any senior looks forward to acknowledging, even if they are aware of some telltale symptoms. It is human nature.

We all compensate or distract when there is something to hide, both from ourselves and from others. But when something like Alzheimer’s is at stake, it can be all the more difficult to get past, and it is harmful to hide. Indeed, since there is no actual test for dementia or Alzheimer’s, it is possible that a doctor will be unable to diagnose those conditions.

It is important, therefore, to observe how your loved one functions. Keep a keen eye on them and know what you are seeing, for their own sake. The original article has more advice and anecdotes to offer, but Ms. Rosenblatt sums up the steps in four points. As soon as you begin to worry you must, first, persuade your loved one to visit a doctor, and a specialist if possible, to detect it early. Second, you must secure their estate planning documents while they have legal capacity to know and understand what they are doing. Third, you must secure proper care for them. Fourth and last, you have to discuss the circumstances openly with all family members, so all may be aware of the circumstances and can work together to protect your loved one.

Good estate planning should take into consideration the healthcare and power of attorney documents needed to insure a smoother transition for proper care in this type of situation.  As articles, like this one in Forbes, raise our awareness of the growing painfulness of dementia and Alzheimer’s, you or your loved one may want to update your existing plan or design a new plan.  We can help.  Our office is available to take your call to schedule an appointment. 

 

Back to Basics with Estate Planning

Fundamental Estate Planning

The fundamentals are the same across all sizes of estates.  A recent post by my estate planning colleague, Scott Makuakane, who practices in Hawaii reminded me once again that it is important to review the basics.  Below is Scott’s blog posting on the fundamentals.  I think you will find them a brief, but worthwhile, read.

 No one enjoys a conversation about death.  And, with the estate tax exemption now set at $5 million for an individual and $10 million for a couple, many people may believe they have no reason to consult an attorney about their estate planning.  But avoiding the topic of estate planning can mean unnecessary expense, confusion and conflict.

SmartBusiness recently highlighted the fundamentals of a “well-thought-out estate plan,” with topics that everyone should consider – whether prince or pauper.

• Why do you need an estate plan?  A comprehensive estate plan ensures that your estate will distributed according to your wishes, provides protection for yourself in the event of your own disability, and allows you to plan for minor children, pets, and charitable causes.  You can also make sure that the assets you leave behind will be there for your intended beneficiaries - and not their creditors or ex-spouses.
• Can I write my own will?  You certainly can, and there are many online sites to help you do so! However, remember that you get what you pay for.  Improperly drafted or last-minute, hand-written wills frequently are contested and invalidated in court.  If you don’t know what you’re doing, the outcome could be much different than what you expect.
• What should every estate plan have?  SmartBusiness recommends two powers of attorney and a living will.  That's not a bad start, but I would expand the list to include a will, powers of attorney for financial affairs and for health care, and an authorization to your physician to share your health-care information with your health-care agent.
• What about trusts?  Many people choose to create trusts, not only to reduce estate taxes, but also to help their heirs avoid probate.  Trusts also can help shield assets from loss to due to unforeseen circumstances, such as the bankruptcy, divorce, or lawsuits of your heirs.
• What mistakes do people tend to make in estate planning?  The writer points out two common mistakes: failure to plan for their personal effects, and failure to review and update their plans over time.  Reviewing and updating your estate plan is particularly important in light of the frequent changes that have characterized our estate tax law of late.  Although the estate tax "coupon" (the amount you can pass estate tax-free) is $5 million for the next two years, the coupon is set to go down to $1 million in 2013, and the estate tax rates are set to go from 35% to 55% at that time.  Another mistake that we see is failure to implement an estate plan by making sure all assets are properly titled.  Many people create trusts but then do not make sure that title to their assets is transferred into their trusts. 

If you have questions, let’s get together and get them answered.  My goal is to provide you with helpful information for creating, implementing, and updating your estate plan to serve your wishes.  And our mutual goal will be creating an estate plan that will succeed when it is called upon to take you and your loved ones through life’s inevitable transitions.