Gift Tax
Did I need to file a federal gift tax return? Now that the federal estate tax, under the new 21st Century Act, raised the taxable estate to $11.0 million and over, many will opt to not file – that’s not to mention the current gift tax exclusion increase to $15,000 per person. But wait! Is there another reason to file? The Financial Agent: That’s especially a consideration for an individual who has served as an agent under a Power of Attorney. The Executor: The concern relates to questions about timing under the Medicaid lookback period of 5 years. The Beneficiary: A nonrelative named as a beneficiary under a Will may need proof of the past donative intent of a decedent. The IRS: The failure to file a federal gift tax return may result in penalties for failing to file the return. Oh, and don’t forget it is a way to establish income tax basis for personal and real properties. Uneven or surprise distributions gifts, without a legacy letter that expresses a person’s intent, may call into question those expenditures. So is there a reason to file a federal gift tax return? Yes!
Read moreMedicaid: Are you a caregiver?
With the ever-increasing cost of nursing home care, it becomes increasingly necessary for children to step-in as caregivers to help their parents with their daily lives, or just to avoid the loss of assets accumulated by their parents during their lifetime. Those unintended caregivers may provide assistance with daily living routines, medication management, and, sometimes, financial assistance to their parents. Sometimes, in an effort to save their home from being taken for nursing home expenses, parents merely transfer the family home, a substantial asset in most estates, to the family caregiver. Does this protect the loss of the family home? Not necessarily due to the five year look back period. There is a caregiver exemption that could potentially prevent the loss of the family home even if the real estate is transferred during that five year look back period. Have you heard of it? No? Let me explain. If you, as the caregiver, reside in the home for at least two years prior to your parent(s) entering a nursing home, and, by living there and assisting your parent(s), it kept your parent(s) from having to enter a nursing home earlier than they did – then you should consider applying for the exemption. There are certain criteria that must be met…and documented. Do you have proof that you resided with your parents for those years? Do you have a letter, on their letterhead, from your parent(s) primary physician(s) that details the care you provided, how long the care has been provided, and that your caregiving prevented your parent(s) from having to enter into a nursing home sooner? Even with the documentation in place, it does not stop the Department of Human Services from reviewing any transfer of real estate to a child during the five year look back period. There are other criteria that must be met, but this gives you an idea of what the DHS is looking for. There is more to this exemption process, but you should know that it exists.
Read moreProposed Worker Classification Issue – GIG 2017
Can you imagine? There is another push to examine worker classification issues. As we have discussed previously, the Internal Revenue Service uses three basic tests to determine if an individual is an employee or an independent contractor. These tests are: The behavioral test – Does the company control, or have the right to control, what the worker does and how it is done? They examine instructions about the work being performed, evaluation criteria, and training. The financial test – Who controls the economics of the worker’s job? Is the individual able to work for multiple companies? Does the individual provide their own tools for the job? Is the individual eligible for reimbursement of travel costs or payment based on the hours worked? The type of relationship test – How do the parties perceive each other? Is the worker provided paid vacation or retirement benefits? Was the worker hired to provide services indefinitely or for a specific period of time? These tests are subjective, NOT all-inclusive, nor does one test outweigh another for the classification of a worker. The proposed GIG Act of 2017 would create a safe harbor that would apply for both income and employment taxes. If the objective tests of the safe harbor are met, the following will occur: the worker will be treated as an independent contractor, and not an employee; the customer will not be treated as the employer; and, in cases where a third party (payor) facilitates the transactions and payments, as with internet platform companies, the payor will not be treated as the employer. Objective tests – The safe harbor focus on three areas that are intended to demonstrate the independence of the worker from the customer and/or the payor based on objective criteria, rather than a subjective facts-and-circumstances analysis: (1) the relationship between the parties (e.g., job-by-job arrangement, the worker incurs his or her own business expenses, the worker is not tied to a single service recipient); (2) the location of the services or the means by which the services are provided (e.g., the worker has his or her own place of business, does not work exclusively at the customer’s place of business, provides his or her own tools and supplies); and, (3) a written contract with specific requirements (e.g., stating the independent-contractor relationship, acknowledging that the worker is responsible for his or her own taxes, providing the customer’s reporting and withholding obligations). Safe harbor only – Given that the safe harbor is based on objective criteria, it may not apply in every case. However, the bill would preserve the common law rules for worker classification as well as the provisions under current law that treat real estate agents and direct sellers (including direct sellers of promotional products as clarified under the bill) as independent contractors. Reporting rules – The amount paid to the customer under the safe-harbor would be reported to the IRS. For gig economy arrangements – three-party transactions – the payor would report payments over $1,000 on IRS Form 1099-K (with the option of reporting amounts below that level). For traditional independent-contractor relationships, the customer would follow the existing reporting rules and file a Form 1099-MISC […]
Read moreAre You Sure You Remembered Everything?
Virtually every estate has the same problem! You had your estate documents prepared and painstakingly thought of every scenario, but . . . here’s the catch. Did you prepare a letter or memo of instructions? Here are a few examples. Example: Husband has an investment account accruing no interest at a financial institution. Husband dies and the wife has no knowledge of the account. Wife moves to a different address and the financial institution forwards the money to unclaimed property. (If you haven’t checked here’s the site: http://www.patreasury.gov/claim/ ) Currently, $2.3 billion is held by the Pennsylvania Treasury. Example: Widow dies without any family. She names an executor in her Will who has no knowledge where the financial assets, if any, are located. That memo, instruction list, or letter should be kept with your Will/Trust or among your important papers. What should be on this checklist? I’m so glad you asked! 1. Name and address of your physician, attorney, CPA, insurance agent, accountant, stockbroker, and any other financial advisors. 2. Location of insurance policies, deeds, mortgages, safety deposit box, and checkbook. 3. Account numbers for banks, savings, checking account, investment accounts, annuities, and credit cards. 4. Names and addresses of all beneficiaries for insurance policies, IRAs, and retirement accounts, as well as present and former employers. 5. Location of your most recent federal and state income tax returns. 6. Passwords to accounts and digital assets. 7. Burial, or other instructions as to what to do with your remains. Don’t forget to update your checklist every year. The perfect time to do it might be when you file your income tax return. For more information about estates, elder law, tax law or business consulting or valuation, or to send a comment to us, please visit www.iezzilaw.com.
Read moreHelping Elders with Their Finances
As we get older, things that seemed so simple, almost trivial, require a bit more concentration and effort. It happens to everyone who is blessed with a long life. For the most part, people do not like to divulge everything about their financial situation, such as assets, income, expenses, and the extent of their liabilities. But, as in most every case, an open and honest conversation is necessary. If your older loved ones have not already done so, you should help them assemble a list of all their assets such as bank accounts, investment accounts, retirement accounts, trusts, foreign investments or accounts, etc. Along with the name of the institutions where the assets are held, you should also write down the type of accounts, the address, account numbers, how the accounts are titled, the contact person and their telephone number, and online user names and passwords, if they have them. In addition to assets, it is important to make a list of all sources of income. Sometimes, retirement or Social Security checks can be misplaced, and those dividend checks may not even look like checks, which may lead to misplaced or discarded checks. The best thing to do in this situation is to see if the retirement accounts, investment accounts, etc. offer direct deposit. In Pennsylvania, you should check for unclaimed property at www.Patreasury.gov/claim. Another VERY important thing to make a list of is recurring expenses and liabilities. Make a list of their monthly living expenses, as well as loan or credit card liabilities, to include account numbers, addresses to mail payments, telephone numbers of the companies, who the checks are payable to, an approximate payment ranges, etc. This can include mortgages, utilities, insurances, car payments, condo fees, credit card payments, and so on. If they don’t have a mortgage, don’t forget about the real estate taxes. Check with their financial institution or the companies to see if they offer some type of automatic payments. Finally, although it doesn’t seem to have anything to do with finances, check to see if your loved ones have a will, power of attorney, living will, and health care proxy. All of these documents are very important, and it is even more important to know where the originals are in the event that the documents need to be executed. If they do not have these documents, or are not sure, you should contact their attorney to find out and have them created if they don’t already have them. As a side note, the originals should not be kept in a safe deposit box at their financial institution. The time to have a discussion with your loved ones is before they can no longer assist in making the lists or make legal decisions before tragedy occurs. It is easier to update the lists periodically than it is to try to create them at a later date.
Read moreBut I Thought I Could Trust You…
It happens! With the rapid increase in the number of Americans aged 65 or older (46 million and growing each year), the incidence of financial exploitation has grown substantially. Whether a scam artist says he’s your nephew who is incarcerated in a foreign country or the IRS intends to arrest you for failure to pay federal income taxes, or, simply, identity theft, the object is to find a way to separate you from your money. But it does not end with scam artists. A trusted family member or a friend may also be a potential source of elder abuse. The signing of a financial power of attorney that names an agent may be a breeding ground for unscrupulous individuals who have their sights on redirecting your wealth. Understanding the language within a durable financial power of attorney (the one that names your “agent”) is a daunting exercise that takes significant time and effort. Too many people merely sign the document, but do not understand completely what they are signing. In a sense, it’s a ticking time bomb – triggered at some point – if the wrong person is named as the agent. In a nutshell, you are signing a “blank check.” Think about this…would you give this person free reign with your personal finances? Here are a few recommendations, questions, and comments to consider when establishing a durable financial power of attorney: Recommendations: · Review the document every year. Determine whether the laws have changed that apply to agents. · Discuss the document with your attorney, if you are uncertain or need direction on an agent. Questions: Think about these questions when you are considering your financial power of attorney. · Is the person aware of the law that governs financial power of attorney? Make sure they are comfortable serving as your agent. · Is the agent willing to accept the responsibility, and possible liability, for failure to act appropriately on your behalf? · Who will oversee the agent? Family members? · Should the agent account for financial matters on an annual basis to you and the beneficiaries of your estate? · Is the agent permitted to change the beneficiaries of your retirement plan, insurance policy, or annuity? · Is the person you appointed investment savvy? Are they responsible with their own money? Could this person be someone who would take advantage of their appointment? · When should the person take charge of your financial matters? Now? When you are incapacitated? · Did you name an alternate agent? Should you name a co-agent? Comment The key is to select the right person to act as your agent and decide on the powers the person should possess. Lastly, make the decision to execute a financial power of attorney when you are fully aware of your financial matters. The failure to act requires court intervention through a guardianship. And a guardianship requires a court hearing at a substantial cost to you and your family – it is a last resort. Make it a priority every January to review your documents – your will, trust, and health care and financial powers of attorney.
Read moreAre you an Independent Contractor or a Con? I am a….
In this arena, the Internal Revenue Service decides whether an individual should be classified as an Independent Contractor or an Employee…not you…not the individual in question. To help make a proper determination, here are some basic questions to ask and answer honestly: Do you have the right to direct and control what work is done, and how it is done, through instructions, training, or some other way? Do you have the right to direct or control the financial and business aspects of the job? For example: Does the individual have extensive unreimbursed business expenses? Who owns the tools that are used for the job? Does the individual have the right to offer his services to others in general? How do you pay this individual? Flat fee? Hourly? Salary? Can the individual realize a profit or loss from the work? What kind of relationship is there between you and the individual? Do you have a written contract? Do you provide any employee-type benefits to the individual? How permanent is your relationship with the individual? Are the services provided by the individual a significant part of your business as a whole? Does the individual believe they are an employee? Do they believe they will be eligible for unemployment benefits if you terminate their services? No one part of the above is weighted more heavily than the other parts. They are considered as a whole to determine employee status. If your answer is “It doesn’t apply to me, so who cares?”, don’t fool yourself! If you use the services of independent contractors, you need to make sure that is what they are…not employees in disguise. The Internal Revenue Service, federal and state Labor Departments, and state Revenue Departments are all looking for misclassified workers. If they happen to find any during their audits, rest assured that those results are going to be shared with other agencies, which will create a veritable nightmare of wage issues to include minimum wage and overtime, back taxes and penalties for Social Security, Medicare, federal and state unemployment taxes, state withholding, and, if applicable, local withholding. It may also trigger worker’s compensation benefits for any injured reclassified individual, and possibly employee benefits such as health insurance and retirement plan participation.
Read moreIRS Fresh Start Program
Over the past several years, the Internal Revenue Service, “IRS,” started a program that would give taxpayers who fall under certain criteria a bit more leeway when it comes to Tax Liens, Installment Agreements, and Offers in Compromise. Are you current with your taxes? Have you filed all your income tax returns? Answers to these questions in the negative will have an impact on whether you qualify. The Fresh Start program also expanded criteria for streamlined installment agreements with taxpayers. If an individual taxpayer owes $50,000.00 or less, installment payments can be made by direct debit for up to six (6) years! In this particular situation, the IRS may not even need financial statements from the taxpayer; however, they may still need some financial information. If you happen to owe more than $50,000.00, or need a longer period of time to pay the liability, you will need to provide the IRS with a financial statement; therefore, consider an offer in compromise. If you don’t already know, an offer in compromise is an agreement between the taxpayer and the IRS that permits you to settle your outstanding debt for less than what you owe. The Fresh Start also expanded and streamlined this program, making it much more accessible to taxpayers in general. Offers in compromise, another program to settle your tax debt, can seem like they are very invasive of your privacy, and they can take extended periods of time for review by the IRS and subsequent negotiation. Some of the areas that the IRS looks at when considering an offer are the amount of the liability, taxpayer’s income, expenses, assets, and the statute of limitations on collection. If you are a candidate, then make sure you get qualified assistance for the best results.
Read moreEstate Planning Information
Estate Planning is important no matter how much money you have since it can ensure that your assets are distributed according to your wishes and to whom and when you decide they should be distributed. It also provides guidance on who should make decisions on your behalf should you become physically or mentally incapacitated. Good estate planning can reduce your tax liability so that as much of your money gets passed on as possible, and it can give you peace of mind knowing that your financial affairs are taken care of before you die or become incapacitated. You should first make a list of all of your assets and the value of each asset. You should include all of your financial investments, stocks, bonds, furniture, vehicles, jewelry, retirement accounts, all insurance policies, all real estate, any business interests, and any “receivables” (i.e. any monies due to you including any IRS refunds, loans due to you, or any pending inheritance). You should determine who you want to handle your financial affairs when you die or become incapacitated. If you choose a trustee to oversee your trust, (whether it is a beneficiary, family member, or corporate trustee) be sure that the terms of the trust clearly outline your wishes. A simple estate may only include a will, a power of attorney, and a living will (medical power of attorney). More complex estates may involve revocable or irrevocable trusts. Trusts are legal documents that outline how and when your assets will be distributed upon your death. Trusts can also reduce estate and gift taxes and allow your assets to be distributed without probate. You should then decide who will be inheriting your assets and when. It may not always be a good idea to leave everything to your spouse. If you have a sizeable estate, you need to be sure that you take advantage of the estate tax exemptions. You should also decide if your beneficiaries are to receive their income from just the investments, or if any of the principal will be distributed after you die. When making these decisions, you need to consider the age (or maturity) of the heirs, their current and future financial needs, and whether or not your heirs will be financially responsible if inheriting a large sum of money all at one time. You may want to consider leaving assets in a trust until your children reach a certain age, and even then only paying out a portion of the assets over a specified time period or for specific circumstances (for school or for buying a house for example). This can prevent heirs from receiving and spending all of their inheritance before they are financially responsible adults. Your estate should provide for your minor children and you should choose legal and financial guardians for your minor children. You should consider a special needs trust for any children with special needs. If you were married before and have children to your first spouse, you may want to consider what you leave your second spouse after allowing for your children (and first spouse, if appropriate). You may also consider gifting […]
Read moreReverse Mortgages
Home Equity Conversion Mortgages (HECMs) are reverse mortgages insured by the federal government. While these can be invaluable when an elderly person needs money, they can also be dangerous if the borrower does not fully understand all of the federal regulations administered by the Department of Housing and Urban Development. Some statistics claim that between 8% and 10% are in default. Therefore, applicants for an FHA/HUD reverse mortgage must take an approved counseling course to make sure they understand all of the advantages and disadvantages of a reverse mortgage. The money received from a reverse mortgage is considered a loan advance since no monthly payments are made. Since the mortgage is an advance, and not considered income, it does not affect Social Security benefits or Medicare benefits. However, it could impact Medicaid or SSI benefits if the proceeds are put into a liquid fund (checking or savings account) beyond the end of the calendar month in which the money is received, and the amount of the assets is greater than what’s allowed for the SS or Medicare benefits. Reverse mortgage loans come due when the borrower dies, sells the house, moves out of the house for more than 12 consecutive months, or the borrower fails to pay the property taxes or required property insurance. With an insured reverse mortgage, the borrower can never owe more than the value of the property and cannot pass on any debt from the reverse mortgage to any heirs. The lender can only claim the property as collateral, not any other assets in the estate, and has no recourse against the borrower personally nor the borrower’s heirs. In most cases, with an FHA-insured HECM reverse mortgage, the lender’s insurer (the federal government) covers the loss. So, if the amount of the loan ends up being more than the fair market value of the home, surviving family members can opt to settle the reverse mortgage for a percentage of the full amount due, or 95% of the home’s current fair market value, which could be less than the amount due on the loan; the insurance pays the difference. For example, if a loan balance is $308,000 yet the current fair market value of the home is only $250,000, the lender must accept $237,500 (95% of $250,000) to settle the loan, vs. the $308,000 that was borrowed. Reverse mortgages are not without criticism. Interest rates can be higher than on a traditional mortgage, and there are often high up-front costs, depending on the type. Loan amounts can range from 62% to 77%. Interest accrues not only on the principal amount received by the borrower, but also on the interest previously assessed to the loan. The interest that accrues is treated as a loan advance. If a senior has a reverse mortgage for a long period of time, chances are the entire amount of the equity in the home will be used up by the time the loan becomes due. With no equity left, borrowers often end up short on cash in the future if money is needed (from the ultimate sale of the home) to pay property […]
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