Portability

On December 17, 2010, President Barack Obama signed into law the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010, P.L. 111-312 (“TRA 2010”), which enacted a new system of portability of exclusion amounts for gift and estate tax purposes by amending Code Section 2010(c)(2) and adding new sections 2010(c)(3) through (6).  These provisions are available for the estates of those who die in the year 2011 and 2012.  Currently, these provisions are set to expire on December 31, 2012.

Congress did grant to the IRS the ability to create regulations to govern the administration of the Deceased Spouse's Unused Exclusion Amount ("DSUEA").  On June 15, 2012 the IRS issued new temporary and proposed regulations governing the application and filing of DSUEA.  Overall these regulations were very favorable for taxpayers and may open up new opportunities.  My gut instinct tells me that the IRS is thinking that DSUEA might be with us for the future given all the energy and effort put into these regulations which, in theory, would only be for a time frame of a little more than the next 6 months.

A timely filed Form 706 Estate Tax Return is still the vehicle to elect DSUEA.  Failure to file the return timely is an election not to preserve the decedent's DSUEA for the benefit of the surviving spouse.  Widows and widowers should consult tax counsel, even if the estate is not subject to the filing of a federal tax return, to consider whether one should file to preserve DSUEA in the years ahead.  Given the projected decrease in the basic exclusion amount for 2013 and the increase in the tax rate from 35% to 55%, the portability election may well become a bedrock of estate planning going forward.  Ultimately, Congress will have to tell us what the rules are going forward.  Stay tuned.

Here We Go Again....Proposed New Rules for IRA's.

On Tuesday, Senate Finance Committee Chairman Max Baucus announced he will release a modified Chairman's Mark of The Highway Investment, Job Creation and Economic Growth Act of 2012 ahead of the Committee's consideration of the bill. Under the proposal, the five-year rule is the general rule for all distributions after death for plans and IRA's (regardless of whether the owner dies before or after the required beginning date) unless the beneficiary is an eligible beneficiary as defined in the proposal. This would apply to deaths occurring after 2012. Eligible beneficiaries include any beneficiary who, as of the date of death, is the surviving spouse of the employee or IRA owner, is disabled, is a chronically ill individual, is an individual who is not more than 10 years younger than the employee or IRA owner, or is a child who has not reached the age of majority. For these beneficiaries, the exception to the five-year rule (for death before the required beginning date) applies whether or not the IRA owner or employee dies before or after the required beginning date. In addition, the five year rule would apply after the death of the beneficiary.

While this is only proposed legislation, it does show how some in Congress want to find new ways to increase our income taxes in the years to come.  Leaving money in an IRA (or any type of qualified plan, i.e. 401(k), 403(b), etc.) at death is the worst place to leave one's wealth for heirs to inherit anything.  That is why these vehicles are called "Retirement Plans".  One is to "use" these monies while one is alive during your retirement years to live on.  So many people make the mistake of only taking minimum distributions late in their retirement years allowing wealth to compound tax free.  But, never forget that this is only "tax deferral" and not "tax avoidance".  Every IRA guarantees that there will be at least two kind of taxes at death.  First, (i) an income tax; and (ii) secondly, an estate tax if one exceeds his or her basic exclusion amount.  People would be better leaving these assets to qualified charities when they see the tax brackets of what the IRS will take when people die. And, it is only continues to look worse with these kind of proposals.  Stay tuned. 

Missouri Taxes

For those of us who live in Missouri the article here might be of interest.  Especially for those who take yoga classes and for those who smoke!  On a serious note, I do not think the state tourism commission has caught on to my idea for increasing population growth in our state.  Missouri is one of the few states that has NO INHERITANCE tax of any kind.  So, if you want to pick a tax jurisdiction to die in, we are one of the best states in which to expire! 

IRS Offers Year End Tax Planning Advice

It is nice that our government actually does something to help out taxpayers at the end of the year.  Go to the link here for the IRS web page for free year end tax advice. This is otherwise known as IR-2011-18.  Happy Holidays from all of us! If you need futher help, feel free to give us a call at (314) 241-3963.

Prenuptial Agreements

When one marries a second time it is critically important to protect one's wealth through a Prenuptial Agreement. This is a contract between two parties entered into upon the advice of counsel that sets forth the rights a spouse will have after one is legally married. A typical Prenuptial Agreement will set forth what is considered "Separate Property" and what property will be deemed to be "Marital Property". Separate Property is wealth that the future spouse waives his or her rights to upon death or divorce. When someone says "I do" a spouse gains legally enforceable rights to take against a will or a living trust by virtue of the marriage contract. The only way to protect against a second spouse upsetting the apple cart for the heirs is to have the spouse waive those rights before the marriage. This has to be done upon advice of counsel and full disclosure. A Prenuptial Agreement needs to be signed long before the date of the marriage ceremony so as to avoid any undue influence that might give someone the right to void the agreement at a later time. Married couples need to promise their current spouses that they will enter into Prenuptial Agreements if they decide to remarry after one becomes a widow or widower.

Estate Planning for One's Social Media

While traditional estate planning deals with one's physical assets such as bank accounts, stocks and bonds, brokerage accounts, real and personal property, etc. the mark of a good estate plan goes beyond these matters to reflect a client's goals, legacy and history for future generations. Today one's social media may record more about a person's hopes, dreams and goals than ever before. So what happens to your Twitter, Facebook or Linked-In accounts when someone dies?

Facebook has a page here whereby one's Facebook page can be memorialized for friends of the deceased Facebook owner. Comments can be left on the wall for the family. The same link can also be used to close the account.

Twitter has a policy that sets forth the requirements for saving a deceased's public tweets or deleting them. They require the following information:

1. Your full name, contact information (including e-mail address), and your relationship to the deceased user;


2. The username for the Twitter account, or a link to the profile page of the Twitter account.


3. A link to a public obituary or news article.

One can either contact them at privacy@twitter.com or mail or fax at:

Twitter, Inc.
c/o: Trust & Safety
795 Folsom Street, Suite 600
San Francisco, CA 94107

Fax: 415-222-9958

Linked-In has a very simple "Verification of Death Form" here. One can opt to submit the form on-line or via Fax.

As with a person's other property, one's estate planning may include instructions on how one wishes their intangible property to be used even after one's death. Social media may do more to preserve one's photos, videos and conversations for future generations than ever before possible.

When you make a Charitable Gift - Get a Receipt at that time!

The IRS recently issued an e-mail advice that when a taxpayer fails to obtain a contemporaneous written acknowledgment from the charity to whom the taxpayer has made a gift, the taxpayer cannot later claim an income tax deduction even if the charity files an amended Form 990 for the year of contribution for purposes of identifying the gift. See more here.