The Wiewel Law Firm

2012 – A Recap of This Year’s Highlights

The good news:  There was no Mayan apocalypse.

The bad news:  You didn’t win the Powerball.

This past year will undoubtedly be remembered for several important events – the Supreme Court’s decision upholding Obamacare, the London Olympics and the reelection of President Obama – to name a few. A recent article by The Estate Analyst, “The Year in Review – 2012: A Retrospective of the Whole Shebang,” provides a somewhat comedic overview of this year’s Supreme Court rulings, Tax Court cases, celebrity estates, and other interesting events.

One notable tax decision involved the Alabama Waffle House waitress who was given a lottery ticket worth $10 million from a customer. The waitress, her parents, and her siblings set up a corporation, which eventually claimed the winning ticket and elected to receive annual payments of $354,000 for 30 years.

Not surprisingly, other Waffle House employees claimed they were entitled to a share of the winnings because all tips were to be shared. The IRS also claimed its share by finding that the waitress had made a taxable gift by sharing the lottery ticket with her family.

In Dickerson v. Commissioner, T.C. Memo 2012-60 (March 6, 2012), the Tax Court decided that: (1) the customer who gave the waitress the lottery ticket did not make a taxable gift; (2) the waitress’s former Waffle House co-workers were not entitled to any share of the lottery ticket – which was a gift to the waitress and not a tip; and (3) the waitress’s long-standing family agreement to share tickets was not binding, so a taxable gift of 51% of the lottery ticket was made with a value of $1.1 million. A gift tax delinquency of $771,000 was owed with interest and penalties.

To read about the other tax, charitable and estate planning blunders of 2012, be sure to check out this article.

Reference:  The Estate Analyst (December 2012) “The Year in Review – 2012: A Retrospective of the Whole Shebang”

The Fiscal Cliff - Don’t Make Any Sudden Moves!

“Any time you make a decision purely for tax reasons,

it has a way of coming back and biting you.” 

It’s no secret that the looming “fiscal cliff” has investors sitting on the edge of their seats. And if the President and Congress cannot agree on a plan to avert automatic tax increases set for December 31, some of those investors may be tempted to act soon to take advantage of current tax rates.

But financial advisers warn that “any time you make a decision purely for tax reasons, it has a way of coming back and biting you.”

A recent article in the New York Times, “With Shifts Possible in U.S. Tax Policy, Beware of Sudden Moves,” discusses some of the top areas where short-term trading decisions based solely on taxes could end up hindering long-term investment goals. The article focuses on how to deal with appreciated stock, municipal bonds, real estate and insurance annuities.

The best advice offered by the article, however, is to wait and see. Restraint now could prevent a lot of regret in the future.

 

References: The New York Times (December 2, 2012) “With Shifts Possible in U.S. Tax Policy, Beware of Sudden Moves”

The Fiscal Cliff: A Slippery Slope for Your Health

If President Barack Obama and Congress cannot reach an agreement on the fiscal cliff, economic experts agree it would be devastating ... The part of the government that handles health-related programs -- Medicare, medical research, food safety inspectors -- all would be automatically cut starting January 2 if there is no agreement on the Budget Control Act.

The fiscal cliff not only affects your financial health, but it can also affect your physical health. Changes to Medicare and other health-related programs can impact these aspects of your wellbeing tremendously if decisions are not made in Congress soon.

This issue was recently taken up in a CNN article titled, “10 ways falling off the fiscal cliff could hurt your health.”

According to the Congressional Budget Office, if the fiscal cliff is not avoided, the scheduled reduction in Medicare’s payment rates for physicians will lower Medicare spending by $11 billion. This overall spending reduction results in a 2% cut in existing Medicare budgets. Consequently, these reductions will mean a decrease of available Medicare funds to help pay for essential healthcare needs.

In many instances, Medicare funds are used to pay for vital services like nursing home and hospice care, which are crucial to the wellbeing of our elderly population. Reduced Medicare funds mean reduced payments to health care providers which, in turn, may cause hospitals and care providers to stop accepting Medicare patients.

In preparation for the impending fiscal cliff, a consultation with an experienced elder law attorney can ensure that your access to healthcare is protected.

Reference: CNN (November 30, 2012) “10 ways falling off the fiscal cliff could hurt your health”

Congressional Budget Office (May 30, 2012) “Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013”

Proper Planning to Avoid Will Disputes

The body of actor Sherman Hemsley, who played George Jefferson, has been kept on ice for the last 3 1/2 months.  His remains have been refrigerated since he passed away from lung cancer on July 24, 2012, at the age of 74.

Why? It’s all because a man claiming to be his half-brother challenged the validity of Hemsley’s will in court.

Will disputes can be very messy, and oftentimes can delay important wishes laid out by the deceased. Take for example the case of the late Sherman Hemsley, as reported in a recent Forbes article titled “Court Ruling Finally Allows Body of Late Jefferson Star To ‘Move On Up’.” Hemsley’s remains rested on ice for three and a half months before he was finally put to rest.

Hemsley’s story is a troubling one, perhaps even more so because his estate was valued at only around $50,000. Sherman Hemsley, who played George Jefferson on the hit TV comedy “The Jeffersons,” didn’t have any real family, but he did have a close friend and business manager in Flora Enchiton whom he named in the will he drafted a mere six weeks before his passing. When a long-lost half-brother showed up to dispute the validity of Hemsley’s will and claim his right to direct the burial, the ensuing fight became both ugly and very public. In the end, Hemsley’s will prevailed, but not without a long fight.  

Teaching points:

1. Even estates of relatively small value can bring out the worst in your relatives.
2. Proper estate planning can help ensure your wishes are carried out after your passing, even if some would choose to violate them.
3. Don’t procrastinate. The fact that Hemsley’s will was written a mere six weeks before his death did complicate matters. Had the will been signed long ago, before Hemsley was sick, it’s unlikely that the case would have taken so long to resolve.

This is another tough lesson on the importance of timely estate planning. Be sure to contact your estate attorney on a regular basis to ensure proper plans are made.

Reference: Forbes (November 12, 2012) “Court Ruling Finally Allows Body of Late Jefferson Star To ‘Move On Up’”

Same-Sex Couples Endure Complex Estate Planning Issues

A tough battle lies ahead for those who would like to achieve marriage equality for same-sex couples. The most significant hurdle is the federal Defense of Marriage Act or DOMA, which defines “marriage” and “spouse” as limited to one man and one woman, and bars federal recognition of all same-sex marriages. DOMA prohibits all types of federal benefits to spouses of same-sex marriages, even in states that have recognized gay marriage.

With the election now over, gay marriage advocates see something entirely new across the states. As you probably know, three new states approved same sex marriage: Maine, Maryland, and Washington. What do these new developments mean for same-sex couples and their estate planning challenges?

With the three newest states to uphold same-sex marriage, that makes an official total of nine states plus the District of Columbia, plus an assortment of 12 other states with various forms of “civil unions” and “domestic partnerships.” It’s a good sign for advocates, but all the same it’s important to remain in perspective, as put by Forbes staffer Deborah Jacobs not too long after the election: “Gay Marriage Scores Victories In All Four States That Considered It, But Tough Road Lies Ahead.”

For planners, being able to take care of one another and your family, either with legal rights or transfers of assets, is a matter of balancing the right legal appointments, documents, and tax codes. But same-sex couples occupy a strange place that requires a steady hand: states vary greatly even when they permit same-sex marriage, the institution that opens up so many planning avenues, and yet the federal government doesn’t recognize any of them.

As we watch the Supreme Court take on the Defense of Marriage Act (DOMA), there may be more new developments on the horizon.  Whatever the outcome may be, same-sex couples still face unique and complex trials when it comes to their estate plans.

Reference: Forbes (November 7, 2012) “Gay Marriage Scores Victories In All Four States That Considered It, But Tough Road Lies Ahead”

Going Once, Going Twice …Can You Sell Your Business in Time?

A looming increase in the capital-gains tax rate next year is fueling sales of some privately-held businesses.

So little time, yet so much to do!  That seems to be the theme as we near the end of 2012. Hopefully Congress will get to work and hammer out a deal to avoid the “fiscal cliff” (and trigger another recession).

Regardless, it certainly looks like 2013 still won’t be quite as advantageous as the current tax code. This especially is the case if you’re looking to make a major sale that will invoke capital gains taxation. Accordingly, you’d better get to work and get that sale completed before the ball drops in Times Square!

For business owners considering the sale of their businesses, this advice includes you. In fact, you will be interested in a recent article in The Wall Street Journal titled “Looming Tax Hike Motivates Owners to Sell.”

As you likely know, the first tsunami to hit will be the automatic relapse in the tax code to pre-Bush era days, with an effective increase in capital gains taxation from a current 15% to a less advantageous 20%. And it gets worse: the Affordable Care Act (Obamacare) tacks on an extra 3.8% to capital gains that also goes into effect next year. Bottom line: capital gains will increase to 23.8% (that’s an increase of almost 60%!).

It’s yet to be seen what the lame-duck Congress will do with their time or how they’ll solve this problem. But it seems unlikely that Obamacare and that extra 3.8 % surcharge is going anywhere. That alone is enough to encourage some business owners to advance their sale dates to 2012.

It might already be too late to sell your business. Nevertheless, there may be time yet or other transfers besides. Looking for an example? Well it’s worth noting that George Lucas didn’t wait until January to sell his company, Lucasfilm, to Disney, potentially shaving $176 million off his would-be tax bill.

References: The Wall Street Journal (November 1, 2012) “Looming Tax Hike Motivates Owners to Sell”

The Trust Advisor (November 4, 2012) “Disney Deal Gives George Lucas a Billion-Dollar Tax Break”

Estate Planning: Securing Legal Ties for Children of Same-Sex Couples

Many (same-sex couple) families go to great lengths to establish strong legal relationships where they can.

When same-sex couples become parents, regardless of where they live, they frequently are well-advised to establish strong legal relationships to bolster parental ties to their children.

Take, for example, the legal complications surrounding same-sex unions as recently explored in The New York Times. The article, titled “A Family With Two Moms, Except in the Eyes of the Law,” found that many same-sex couples do start families and do bear children. As a result, very careful estate planning is essential, especially given current state and federal laws.

For any couple with minor children, fundamental estate planning focuses on providing backup parents (i.e., guardians) to raise them and trustworthy stewards to protect their inheritance. When it comes to same-sex couples, making such provisions for minor children likely means navigating a dicey web of laws that may (or may not) tilt in their favor.

To make matters even more complicated, a simple relocation from one state to another may upset your comprehensive estate planning and require a top-to-bottom review of your existing estate plans.

In the end, not only must you fully define your own legal structure, but you must also do so well in advance and make changes as they inevitably occur in the law and in your life.

Reference: The New York Times (July 20, 2012) “A Family With Two Moms, Except in the Eyes of the Law”

 

Filing a “Protective Claim” for Same-Sex Estate Planning

Which taxes qualify for the protective claim? Estate taxes, income taxes, even gift taxes. In fact, any time you feel you overpaid a tax you can file for a refund, if you have a good reason.

The legality and constitutionality of same-sex marriage has not been far from the news or the estate planning of some who are affected. This particularly is true after the ruling of U.S. District Court Judge Barbara S. Jones in Windsor v. United States.

When it comes to “same-sex” estate planning, there are significant tax burdens at play. However, according to a recent article in MarketWatch titled “Ruling poses tax issues for same-sex couples,” that doesn’t mean that you have to consider the protective claim.

So, what is a protective claim? Any form of taxation is subject to a sort of protective claim. All that is required is that you pay your tax and then file an amended return. It should be filed on the basis of what your return should be if current litigation is decided in that favor.

Still, the stakes are simply that much higher in this case with the many tax benefits that marriage as a federally-recognized institution brings. Some may consider it premature, but, in the case of either income taxes or estate taxes, taking the defensive position of a protective claim may be worth it. At the very least, there’s nothing to lose.

Reference: MarketWatch (July 10, 2012) “Ruling poses tax issues for same-sex couples”

 

Disaster Looms Without an Estate Plan

In Beckwith v. Dahl (May 3, 2012), the California Court of Appeal, Fourth Appellate District, joined the majority of states in recognizing the tort of intentional interference with expected inheritance (IIEI).

In the darker and more unfortunate corners of estate law, one doesn’t need to look far to find family squabbles, double-crossing, and intrigue. Accordingly, in a majority of states the courts have a term to describe those who would throw a monkey wrench into an inheritance. It is the tort of “Intentional Interference with Expected Inheritance,” or IIEI for short.

The tort of IIEI was been recently recognized in California with the case of Beckwith v. Dahl (May 3, 2012). In fact, of the 42 states to consider the tort, 25 states have adopted it. While that is a majority, vast stretches of the country still have no specific legal context for the types of unfortunate fights that cripple so many families and level so many estates.

Still, it should be noted that the vast majority of estate difficulties giving rise to IIEI issues result from unplanned estates. I recommend reading the analysis of this California case in a recent Forbes article titled “California Joins Majority Of States In Recognizing Tort -- Intentional Interference With Expected Inheritance.” The Beckwith case is yet one more example of a will never being committed to paper. In that case, the would-be planner had very specific concerns to address in the form of a same-sex relationship. However, due to his lack of estate planning, his partner was disinherited due to the prevarications of a family member and certain legal defaults.

In general, the teaching point here is the old saying that “failing to plans means planning to fail.” 

Reference: Forbes (June 30, 2012) “California Joins Majority Of States In Recognizing Tort -- Intentional Interference With Expected Inheritance