Taxes Archives - Page 2 of 3 - Taggart Law, LLC

What is Probate Anyway?

August 16, 2016 by Gregory 1 Comment

Everybody wants to avoid probate, but far too many of those who want to avoid it, know what is. Here’s a primer:

Probate is the legal process in which a deceased person’s will is proved valid; her personal representative or executor appointed; her property collected and preserved; and her debts, including taxes, paid. Usually, the deceased’s family hires an attorney to file the appropriate papers with the probate court to begin the process. Depending on the state and the complexity or size of the state, the probate process can be complicated or streamlined. In Utah, for example, if the deceased’s estate is under $100,000, probate can be handled via a s0-called small estate affidavit, a much more simple process.

The deceased person’s personal representative (another term for executor) is the point person in the process. Essentially, a personal representative fills the shoes of the deceased. What the deceased could do if she were still alive, the personal representative does instead. Need to transfer title? The personal representative does that. Need to close a bank account. Again, the personal representative steps up. Often (but not always) named in the deceased’s will, the personal representative, once he has the court’s blessing, is the one who goes about collecting property, paying debts, and–finally–distributing what’s left to the deceased’s heirs. Often (but again, not always) this is done under court supervision, depending again on the state and the size/complexity of the estate.

Why do people say they want to avoid probate? Probably because they’ve heard it’s expensive–which it can be–or because they’ve heard it’s public–which it is; that is, it’s public in the sense that your nosey neighbor can walk down to the courthouse and ask the clerk to see your probate file. Then it really becomes public.

There are a number of ways to avoid probate the attendant publicity and some of the cost. One is to establish a revocable or living trust. For more on that, go here.

Filed Under: Estate Planning, Probate, Taxes, Trusts, Wills

Get Your (Valuation) Discounts Now!

August 15, 2016 by Gregory Leave a Comment

Two weeks ago, the Treasury Department released proposed IRS Code Section 2704 valuation regulations that, as proposed, will dramatically change the discounts currently allowed, including so-called minority and marketability discounts. Thus, gift and estate tax planning strategies that rely on such discounts to transfer property from one individual to another via the use of limited liability companies, family limited partnerships, and other such entities may not work so well in the future.

The IRS has scheduled hearings on the proposed regulations for December 1, 2016. Sometime after that hearing the regulations will become final; thus, anyone planning on taking advantage of such discounts has little time to waste.

As I learn more about the proposed changes, I’ll follow-up on this blog. If you can’t wait that long, the AICPA has a number of helpful resources.

Filed Under: Estate Tax, Family Business, LLCs, Taxes, Wealth Transfer

Estate Planning? I Don’t Have Time . . .

April 30, 2016 by Gregory Leave a Comment

Why doves cry. Half of Prince’s estate to go to government.

Filed Under: Business Planning, Estate Planning, Estate Tax, Taxes, Trusts, Wealth Transfer, Wills Tagged With: Prince

When Dave Ramsey’s Wrong, He’s Really Wrong

April 15, 2016 by Gregory Leave a Comment

I’ve listened to Dave Ramsey. My wife owns a couple of his books. I get what he does, and I think he probably does a some good–in the debt area, at least. But he’s not always right. For example, I don’t care for some of his opinions about life insurance and much of his investment advice is off the mark as well. Further, his one-size-fits-all approach and his dismissive attitude towards insurance agents and other financial advisors are a real turn off for me. Seems that everybody’s out to get you but Dave and those he recommends. (I have more to say on this point, but I won’t.)

In short, I’m basically not a fan.

So you will not be surprised that I’m posting this link to a blog post by attorney Richard Chamberlain in response to a wildly uniformed excerpt about living/revocable trusts from one of Dave’s books. Make sure to read the entire post and the links in the post.

I must add my two cents on living/revocable trusts: Though they are just one part of a well-executed estate plan, they are an important part. Among many good reasons to establish a living/revocable trust, there’s this: setting one up and funding it will help you and yours get your minds around what you own, how you own it, and how you want it distributed or handled upon your death or incapacity. Mind you, I could add more than two cents to this conversation, but I’ll stop here.

Filed Under: Asset Protection, Business Planning, Divorce, Estate Planning, Estate Tax, Family Business, Financial Advisors, Funding, Life Insurance, Long-term Care, Probate, Stepfamilies, Taxes, Trusts, Wills

April 15 is Fast Approaching. Mistakes to Avoid in the Rush.

April 8, 2016 by Gregory Leave a Comment

Six mistakes, actually. This mistake resonated with me because, well, I’ve made it:

Mistake 6: Not Realizing That Stock Can Be Donated Directly to Charity

Cutting a check or hauling your old clothes to Goodwill isn’t the only last-minute way to make tax-deductible charitable contributions. According to Crystal Faulkner, a partner with MCM CPAs and Advisors in Cincinnati, donating stock that you’ve held for more than a year directly to an organization allows you to take a deduction for its full fair market value.

Let’s say, for example, that you wanted to make a pledge of $5,000 to your child’s school. If you sold $5,000 worth of stock in order to make the contribution, you’d have to pay taxes on any gains you realized, then contribute the after-tax proceeds. “But if you instead contribute the security directly to the charity, you are able to deduct the fair market value on the date of the gift as an itemized deduction—and you forever avoid paying tax on the gain,” Faulkner says. “The charity gets more money, and you avoid tax.”

Filed Under: Family Business, Taxes

Divorced? Going through a Divorce? Be Afraid. Be Very Afraid. And Change Your Beneficiary Designations

April 7, 2016 by Gregory Leave a Comment

At least that’s the moral of this story. Actually, here’s the moral as stated at the end of that story:

“The moral of the story for practitioners is clear. Whenever you have a client that is either going through a divorce or is already divorced, do everything you can to get the client to change both his/her beneficiary designations and his/her will as soon as possible. The results in Smoot and Egelhoff could easily have been avoided with proper planning.”

Read the story and then follow the writer’s advice. Got it?

Filed Under: Divorce, Estate Planning, Life Insurance, Taxes

Social Security: Myths Debunked?

April 4, 2016 by Gregory Leave a Comment

That’s the claim in this piece by the Motley Fool.

Myth 1: Social Security benefits will disappear in the future.
Myth 2: You should always take Social Security benefits as soon as you qualify.
Myth 3: What you do with your Social Security has no effect on your family.

I won’t take time here to review the answers. The article linked to is short enough to read in a few minutes. But there’s little doubt that Social Security is on the minds of more and more people–aka Baby Boomers–and rightly so.

By the way, the piece ends with a paragraph bearing this heading: The $15,978 Social Security bonus most retirees completely overlook. I clicked on the link and, well, I found the sales pitch pretty compelling. Unfortunately (fortunately?) the link to the thing being sold was down, so I can’t say more. I will when I have a chance to read more.

Filed Under: Estate Planning, Financial Advisors, Insurance, Taxes, Wealth Transfer

The IRS Wants Consistency in Basis Reporting

April 1, 2016 by Gregory Leave a Comment

From the article New Basis Reporting Requirements for Executors and Beneficiaries:

Recent federal legislation adds fresh compliance burdens to an old concept in federal tax law: the step-up in tax basis of appreciated property at death. New reporting requirements will apply to estates required to file a federal estate tax return after July 31, 2015 and are effective beginning June 30, 2016. Executors and beneficiaries who do not comply with the new rules may be subject to penalties.

When a person sells an asset that has appreciated in value, the gain recognized generally equals the sale price minus the seller’s “tax basis” in the property, usually the amount paid to acquire the asset. When a person dies owning appreciated property, the property generally acquires a new tax basis equal to its fair market value as of the date of death. This “step-up” in basis has the effect of wiping out the income tax burden on all pre-death appreciation in the property. (Property can also depreciate in value and receive a “step-down” in basis at the decedent’s death.)

Stretch IRAs Under Seige?

March 31, 2016 by Gregory Leave a Comment

What’s a stretch IRA, you say? Well, it’s not a new type of IRA, rather it’s a strategy to preserve the value of an inherited IRA, to defer the tax on as much of the IRA as possible for as long as possible. As the law now stands, the owner of an IRA has to begin taking required minimum distributions (RMDs) for his or her IRA at 70 1/2. Those RMDs are based on the person’s life expectancy at that time.

Should the IRA owner die, the beneficiary of the IRA must then take RMDs based on the beneficiary’s life expectancy–regardless of how old the beneficiary is at the time. Typically, beneficiaries are spouses, people of roughly the same age as the owner, so their RMDs will be more or less the same as the IRA owner’s.

To “stretch” the tax deferral benefits of an IRA, some advisors suggest their clients change the beneficiary designation on their IRA from their spouse to their children, that is, if their spouse has other income and will have no need for the income from the IRA. Though the children beneficiaries will have to take RMDs as well, those RMDs will be “stretched” out over a longer life expectancy and therefore will be much smaller and therefore more dollars will remain in the IRA for a longer period, safe from the tax man–for now.

Got that?

Well apparently stretch IRAs are under attack, according to a piece at Wealthmanagement.com. Here’s the first paragraph, with a teaser at the end. Yes Virginia, there are some possible solutions to the problem.

The stretch IRA is under siege.

If it’s eliminated, a non-spouse beneficiary of an IRA will be required to pay income taxes on the entire inherited IRA within five years of the IRA owner’s death. Here are two promising solutions using tax-free income that your clients can act on before the law changes. Let’s discuss Roth IRA conversions and life insurance.

There’s much to talk about with regard to IRAs, so check back later.

Filed Under: Asset Protection, Estate Planning, Financial Advisors, IRA, Life Insurance, Roth IRA, Taxes

Joint Trust or Individual?

March 21, 2016 by Gregory Leave a Comment

You and your spouse have decided you need to do some estate planning, and you’re finally sitting down with an attorney to do same. He or she starts talking about a will for you and a will for your spouse. A trust for you and a trust for your spouse. And a . . . .

“Wait a minute!” you almost shout. “Two trusts? What’s up with that?”

In brief, here’s what’s up with that.

First, if you live in a community property state and you’re married, the joint trust is almost certainly the way to go, both to preserve the community property character of property contributed to the trust and to take advantage of a 100% step-up in the basis of the property on the death of either spouse. That is, when a spouse dies, property in the hands of the surviving spouse has a basis for tax purposes of the market value of the property at the date of death. For example, suppose the couple bought the property for $100,000 ten years ago. On the day before the death of the first spouse, the property was worth $500,000. If they had sold the property on that day, they would have a capital gain of $400,000, a gain they would have to pay tax on.

Now suppose they didn’t sell and the first spouse died. On the day after that death, the surviving spouse could sell the property for $500,000 and pay no capital gains tax because the basis in the property had “stepped up” to the market value on the date of death–$500,000. Voila!

For separate property states, the question of joint trust vs. individual trust is not so clear. If a married couple has lots of jointly owned property, the joint trust may still be the best choice. May. But if the couple has little jointly held property or if one of them has asset protection concerns–a doctor maybe?–then individual trusts are probably the better choice.

Unmarried couples? Individual trusts all the way because of big gift tax issues caused by no unlimited marital deduction, a deduction available to only married couples.

Image courtesy of Wealth Counsel.

Filed Under: Asset Protection, Estate Planning, Taxes, Trusts, Uncategorized Tagged With: community property