Increase in Audits of Estate Tax Returns

Posted on May 16, 2013 by Roger Billings

Taxes - Illustration

Be careful when signing the federal 706 Estate Tax return.

According to Frank Byrt of Accounting Web:

The IRS scrutinized estate tax returns more than any category of individual tax returns in tax year 2011, at close to a 30 percent rate of examination, while individual income tax returns with $1 million or more in income saw a slight decline in audit coverage, according to the “2012 Internal Revenue Service Data Book,” issued March 25.

See the entire article at Accounting Web.

Creative Commons License photo credit: DonkeyHotey

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You’re Named in Power of Attorney – How Do You Sign Documents?

Posted on April 16, 2013 by Roger Billings

 

A power of attorney gives one person responsibility for the other person’s finances. The responsible party is known as the attorney-in-fact. How should the attorney-in-fact sign documents (checks for example) on behalf of the principal? The safest answer is to contact the institution and see if they have a preferred format. The Wall Street Journal advises as follows:

Suppose your ailing mother gives you a durable power of attorney, which means it will remain valid even if she becomes incapacitated. If you need to sign a check for her, the usual procedure is to write her name on the top line and then add your name and title underneath, Mr. Rubenstein [a New York attorney] says.

For example, you would write your mother’s name on the main line. Underneath it, you would write: “By (insert your own name), as attorney in fact.”

Nevertheless, don’t try to guess precisely what wording each bank will want. “It’s always good to check with the person who will be relying on the signature to confirm what form” the institution will accept, says Don Weigandt, managing director, wealth advisory, at the Private Bank at J.P. Morgan Chase Bank n Los Angeles.

See the rest of the article here.

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Obama Still Trying to Overhaul Estate Tax

Posted on April 11, 2013 by Roger Billings

Yesterday, April 10, President Obama released a 2014 budget proposal in which he seeks to overhaul the estate tax, yet again.

According to Bloomberg Businessweek:

Obama’s budget would drop the per-person exemption from estate taxes to $3.5 million from $5.25 million this year and increase the top estate tax rate to 45 percent from 40 percent. The $3.5 million exemption wouldn’t be indexed for inflation.

‘It gives us new meaning to the word permanent,’ [Holland & Hart’s Scott] Sloan said. ‘Apparently permanent means five years.’

The proposal to restore the estate tax to 2009 levels may re-ignite discussions among wealthy families and advisers that occurred last year when the threshold was set to drop to $1 million, said Jay Messing. He’s a senior director of planning in the Northeast for the private bank unit of San Francisco-based Wells Fargo & Co. (WFC).

Even more controversial, Obama wants to cap IRA’s at $3.4 million and prohibit heirs of IRAs from stretching their distributions over their life expectancies.

See the entire article here.

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Who Needs An Advance Health Care Directive? — Estate Planning Basics

Posted on June 26, 2012 by Roger Billings

McGee 205

As people live longer, the chances of experiencing incapacity increase, and the advance health care directive becomes ever more crucial in avoiding disputes and providing a peaceful transition for end-of-life situations.

It is often asked, why do I need an Advance Health Care Directive? My family knows what I want and I trust them much more than some piece of paper written by a lawyer.

To answer that, it is helpful to distinguish between the typical scenario and the worst-case scenario. People don’t usually experience the worst-case scenario. Typically family members are united in wanting the best for the one in the hospital. Normally, doctors hardly pay attention to the health care directive. Usually, there are no disagreements. Usually.

But what if the worst-case scenario comes about? Are you prepared? What if there are disagreements? In that case, a health care directive, like a bridge over the dispute, can save a family. In the worst-case scenario, or even the not-worst-case, but bad-enough scenario, different family members may disagree about proper treatment. Doctors suddenly become reluctant to make decisions without clear legal authorization. Conflicting opinions about whether to continue life support may require a court order to resolve.

In the case of Terri Schiavo, a Florida woman who was in a coma, the initial court order to remove the patient from life support was appealed to successive Florida and Federal courts, and Congress and even the President of the United States got involved. All the while Teri lay in a coma for 15 years. The legal fees that result from such a conflict are astronomical and the family division is tragic. If Terri Schiavo had prepared an advance health care directive, there would have been no real dispute, little or no family division, and little or no legal fees.

Who needs an advance health cared directive? Not everyone needs every estate planning tool. It makes no sense to plan to reduce estate taxes if there is no chance of paying estate taxes. But every living adult needs an advance health care directive.

Your loved ones will thank you.

Next week’s Estate Planning Basics post will explain what an Advance Health Care Directive is and how to get one.

Creative Commons License photo credit: otisarchives3

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A Facebook Billionaire in Singapore, and Estate Taxes

Posted on May 22, 2012 by Roger Billings

The Parliament House at The Singapore River

One popular version of the American dream is the opportunity to go to a great university, graduate, work hard, get rich and retire.

The “Facebook” entrepreneurs, Mark Zuckerberg’s collaborators, have turned this dream on its head. Go to college, meet people, get fabulously wealthy, think about whether to graduate.

Or another option is move to Singapore, and give up US citizenship so your kids don’t pay estate tax when you die. This last was chosen by Facebook co-founder Eduardo Saverin. It seems premature and a little morbid to be thinking about death taxes right out of college (and presumably he doesn’t even have kids yet) but last week his net worth hit approximately $3 billion. 35% of that is over a billion dollars. A potential billion dollar tax bill can motivate all kinds of unexpected behavior.

The New York Times discussed Mr. Saverin’s choices in a recent article:

American tax lawyers say they think Mr. Saverin’s exit had more to do with estate and gift taxes than income tax. If he remained an American citizen, he would not have had to pay the United States capital gains tax on his income until he sold his shares. Wealthy American shareholders often borrow against their shares and live tax-free off the unrealized appreciation for years.

When American citizens pass on their holdings to their heirs, however, those assets are subject to estate taxes, which are difficult to escape (as are gift taxes on assets given to relatives and heirs before death). So Mr. Saverin’s decision to leave could have been a wager that the cost of an exit tax now — 15 percent of whatever valuation he could get the Internal Revenue Service to agree to — would be far less than the 35 percent or more in estate tax his heirs would face on his holdings when he died.

 As to life in Singapore:

What has gotten attention, though, is his billionaire playboy lifestyle in glittering Singapore. Thanks to the interconnected world Mr. Saverin helped to create, the Internet is full of people sharing photos and stories of him embraced by statuesque women and drinking expensive Champagne. “It’s a misperception, especially the playboy,” he said. “I do have a Bentley. I do go out. I’d rather not go into personal details.”

 See the entire article in the New York Times.

Creative Commons License photo credit: williamcho

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Pepsi Inventor Left Original Recipe to Heirs?

Posted on May 10, 2012 by Roger Billings

Pepsi Water Drops
Creative Commons License photo credit: Just Another Wretch

Distribution of personal property items is often one of the most difficult obstacles to a peaceful estate plan. The symbolic meaning of keepsakes carries a weight far in excess of their intrinsic value.

But a recent lawsuit discloses some personal items, particularly a handwritten recipe, that have explosive values. The heirs of the inventor of the Pepsi formula found their father’s written formula in a safe desposit box and now they want to share (or sell?) the document with historians and other interested persons.

“By this action, the heirs seek to eliminate any doubt that original, historically significant documents belonging to their deceased father, Richard John Ritchie (‘Ritchie’), who is historically acknowledged as the person who developed the original, commercially successful formula for Pepsi-Cola on or about 1931 (the ‘Ritchie Invention’), are their personal property, as his lawful heirs, which they may freely share with historians, collectors, journalists, and television and film producers, and ultimately, members of the interested public, to tell their father’s extraordinary life story without interference or the threat of litigation from Mr. Ritchie’s former employer, Pepsi,” the complaint begins.

***

Ritchie wrote down the formula, which was subsequently locked in a bank vault, the heirs say.

More on this interesting lawsuit can be found at Courthouse News Service.

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Dick Clark Left a Fortune

Posted on April 19, 2012 by Roger Billings

Dick Clark
Sound business decisions  made it possible for Dick Clark to amass a huge fortune. Did he also leave a sound estate plan? Will there also be a huge estate tax bill? We’ll keep you posted. Meanwhile, here is some more info on his wealth:

When America’s oldest teenager passed away yesterday at the age of 82, he left more than legacy of music and television achievements. He left a huge fortune.

The former host of American Bandstand and TV’s Bloopers and Practical Jokes was a savvy businessman whose career spanned television, concerts, awards shows and radio.

*****

Dick Clark Productions went public in 1987. However, after growing frustrated with Wall Street, Clark allowed the company to be acquired for $140 million by an investment group led by Mosaic Media Group in 2002.

*****

Clark’s other holdings reportedly include millions of dollars of Malibu, Calif., real estate.

See the entire article at Investor Place.

Creative Commons License photo credit: Alan Light

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