Paul R. Tierney Law

Procrastinating on Filing Your 2012 Tax Return? Don’t Sweat It

The IRS still needs time to prepare dozens of other forms and software programs for new and
retroactive tax exemptions, credits, and other provisions tucked into the
fiscal cliff bill, passed by Congress and signed by President Obama in early
January after months of partisan wrangling.

 

According to Psychology Today, "Everyone procrastinates sometimes, but 20 percent of people chronically avoid difficult tasks and deliberately look for distractions—which,
unfortunately, are increasingly available."  Whether you are among the 80 percent or the
20 percent, don't feel guilty if you're procrastinating filing your 2012 income
tax return. You've got a good excuse!

Because Congress waited so long to act on the so-called fiscal cliff bill (American
Taxpayers Relief Act of 2012), the IRS has had to prepare new tax forms and
develop and test software programs to accommodate all the of last-minute code
changes. In fact, the IRS still needs time to prepare dozens of forms and
software programs for new and retroactive tax exemptions, credits, and other
provisions. As a result, the Boston Globe article "Delayed forms give new excuse to procrastinators" reports that "about 27 million Americans won’t be able to file 2012 tax returns until
late February or even March, as the IRS tries to ready and distribute all the
necessary forms."

 

The IRS says the delayed forms cover about 30 tax provisions, including the general business
tax credit, the mortgage-interest credit, and the work-opportunity credit. They
also need to process a number of energy related tax forms, such as for
residential energy credits and for plug-in electric car credits.

So, for once at least, there's no need to feel guilty about a little tax-time procrastination.
Remember, though, that while Congress and the IRS extended their own deadlines,
they won't extend yours. April 15 is still the filing deadline for 2012 taxes.

Tax specialists also advise you to take note of certain retroactive changes that could
affect your 2012 taxes:

Alternative Minimum Tax. The AMT standard exemption jumps to $50,600 from $33,750 for individuals and to $78,750 from $56,600 for married couples. The recently enacted tax deal also indexes the AMT threshold to inflation.

American Opportunity Tax Credit. This credit up to $2,500 for expenses incurred during the first four years of college was reinstated for 2012 through 2015.

     
Child tax credit. A $1,000 credit for dependent children under 17 was due to be cut to $500 in 2012, but the new law keeps it at $1,000 for 2012 returns.

Reference: The Boston Globe (Feb. 10, 2013) "Delayed forms give new excuse to procrastinators"

Make Sure Your Will and Beneficiary Designations Coincide

Do you love your beneficiaries enough to
take the time to check up on your beneficiary forms for your retirement
accounts?

You want to ensure the your
plans are carried out for your loved ones when you are no longer here, and your
will is the powerful tool you have for this very reason. But a will is rarely
and one-and-done deal – it should be updated regularly to reflect life changes
as they occur. You want to make sure your beneficiary designations and your
overall estate plan coincide so they work together instead of being in conflict.

Beneficiary forms seem simple
and they generally are. Just to be on the safe side, however, you may want to
read a recent article in The Slott Report
titled “Beneficiary Form Review: The Gift That Keeps
on Giving.”

Essentially, designating a
beneficiary or beneficiaries on a beneficiary form can allow you to exempt a
given account or policy entirely out of your “probate” estate. However, when
you avoid probate your will has no control over who inherits such account or
policy. Accordingly, by not reviewing and updating your beneficiary forms you
risk giving your assets to the wrong beneficiary (e.g., an ex-spouse on your
401k plan).

The take-a-way? Perform a
beneficiary form audit of your accounts to ensure they are consistent with your
wishes. Contact your estate planning attorney for assistance.

Reference: The Slott Report
(February 18, 2013) “Beneficiary Form Review: The Gift That Keeps
on Giving”

The Challenges of Being an Estate Executor

It is important for an executor to pay close
attention to detail and engage in a careful, deliberative process.  And remember that the best advice will come
from an experienced and knowledgeable estate planning attorney.

Scenario: You’ve been named the
executor of a loved one’s will.  You feel
honored to be selected, but then the reality of it all hits you – what
responsibilities are entailed in this role?

To take on the role of executor
is to take on several important duties, and sometimes liabilities as well. Whether
you are a newly named executor or are selecting an executor as part of your
estate planning, the role of executor requires in-depth understanding.

None other than Forbes recently took up this important
issue with an article titled “Understanding the Role and Responsibilities
of an Executor.” In effect, the executor (also known as the “personal representative”) is the named agent of the deceased, tasked with carrying out their will and tying up all of the
legal and fiscal loose ends of life. Even a simple estate typically requires
filing the will in probate and distributing assets appropriately to creditors
and beneficiaries alike.

As you might imagine, when there is an inheritance in play a messy trifecta of courts, creditors, and family drama isn’t far behind. Depending on the nature and number of creditors, the
family dynamics, and even the kinds of assets involved, things can get
complicated fast.

When facing the challenge of becoming an executor (or selecting your own), it certainly helps to have the assistance and counsel of a professional. Be sure to secure the services of
competent legal counsel sooner rather than later.

Reference: Forbes (February 14, 2013) “Understanding the Role and Responsibilities
of an Executor”

Lifelong Careers – When Do You Retire?

Pope Benedict, 85, is reportedly the first
pope to retire in almost 600 years, which made his decision all the more momentous.
But since the pope believed his health issues were impacting his job, the
decision seems relatively clear-cut.

For the growing number of retirement-aged
professionals who are still hale and hearty, however, the decision gets more
complicated.

Many were surprised at the
recent announcement by Pope Benedict XVI to step down from his post. This
decision is sure to go down in history, and it triggers an important question
in those with lifelong careers – when is the right time to retire?

While you may not have the same
problems or responsibilities as the Pope, have you reflected on your own future
and when may be time to step down? This especially is true if you have no
mandatory retirement age for your position.

A recent Marketwatch article titled “Retirement lessons from Pope Benedict”
explored this timely issue. Whether you are the Pope, a business owner, or even
a CEO there is always the question of succession. Aside from the business
aspects, on a personal level make sure your advance health directives are
current in the event you became infirm or incapacitated. While you are at it, a
good top-to-bottom review of your estate planning likely is in order.

Whether you are responsible for
millions or just a few, the take-a-way is the same - always be prepared! Seek
appropriate counsel regarding your retirement and/or succession plans.

Reference: MarketWatch
(February 11, 2013) “Retirement lessons from Pope Benedict”

Will the IRS Challenge the Valuation of Your Gift of Art?

So you have there is this really cool painting that you gave away.  Do you want
it to be worth a lot or a little? It depends on who you gave it to.

Giving someone art rather than dollars can be complicated, especially when it comes to taxes and the IRS. So the need for a qualified appraisal is critical in this gifting situation.

When it comes to art valuations, however, you should know that the IRS certainly will not take your word for it, or even the word of a decent appraiser, until they get their own expert opinion
from their own experts: the Art Advisory Panel. A fair question to ask, then, is how fair is the Art Advisory Panel?

The question of the Panel and fairness was addressed in a recent Forbes
article titled “Is Art Advisory Panel Giving Taxpayers A
Fair Shake?” Here’s how the competing interests play out. First, if you
are a taxpayer giving art to a loved one or bequeathing it as a part of your
estate, then you likely want a lower valuation. Why? Because you want a lower
tax bill. On the other hand, if you are selling that very same piece of art,
then you will want to command the absolute top dollar. Likewise, a body in
charge of taxation is pretty much always going to be interested in a high
valuation because it triggers a higher tax bill.

So, statistically, how much of taxpayer appraisals does the government Panel accept? Would you believe only 51%? In addition, the Panel “adjusts” the other 49%, and of that adjusted
percentage generates a net 47% increase on items in estate and gift appraisals.

Of whom are you more cynical, the IRS or the taxpayer?

When considering the gift of art, be sure to have your valuation set and ready to go. Remember: there’s nothing an expert likes better than disagreeing with another expert - and the
IRS keeps them on staff.

Reference: Forbes (February 6, 2013) “Is Art Advisory Panel Giving Taxpayers A Fair
Shake?”

Generational Differences Can Affect Family Foundations

One issue that some families have encountered is that the types of philanthropy favored by one generation may not be the ones favored by the next — something that could cause strife if not
addressed.

Ensuring continuity of both your family harmony and your family business is as much an art as it is a science. Such is the case with family foundations.

For a family with means, and perhaps also as a model for a family with fewer resources, a family foundation may offer just a unifying bond.

A family foundation represents a way of doing good as a family and even making those foundation goals the goals of the family itself. This kind of unifying goal was explored by CNBC in an article titled “Family Foundations Prepare for the Next Generation.”

If you are the family member who established the family foundation, the goal should expressly be to include and to establish a succession for your family foundation. In point of fact, a
family foundation is like a family business and shares many of the same
concerns, anxieties, and goals.

Now, even a family of modest means can see the value in the family foundation model. If for no other reason, your family foundation can be a means of doing good as a family and letting
everyone in the family work together to accomplish that good end.

Reference: CNBC (February 9, 2013) “Family Foundations Prepare for the Next
Generation”

The Appropriate Time for Asset Protection Planning

…Proper Asset Protection is most appropriately done when the client knows that he or she has no outstanding claims, i.e., the skies are perfectly clear of creditors. Asset Protection is
all about avoiding fraudulent transfers, not designing and implementing them.

Plans are made with the intent to put them into action in the future (if necessary). Asset protection planning is no different, although many people attempt this type of planning entirely
too late.

A recent Forbes article is a good reminder that asset protection is like
fire insurance – the best time to take out a policy (i.e., make proper asset
protection plans) is before the fire department arrives. The article is appropriately titled “Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival.”

Asset protection is about making sure matters are structured now to protect them if a legal claim may threaten them later. If there already is a claim, then any act to protect assets becomes
suspect and reversible (or punishable).

If you have reason to protect your assets due to some future risk you can envision, then now is the time to plan. Courts do not look favorably on last minute plays to protect assets.

Consult with your estate planning attorney on all of your asset protection needs. Planning now will
ensure peace of mind for the future.

Reference: Forbes (January 31, 2013) “Existence Of Claim Renders Some Clients Seeking
Asset Protection Effectively Dead On Arrival”

The Trials of Caring for Elderly Parents in Blended Families

Research shows that the ties which lead
adult children to become caregivers — depending on how much contact they have
with parents, how nearby they live, how obligated they feel — are weaker in
stepchildren, Dr. Silverstein said. Money sometimes enters the equation too,
Ms. Keller added, if biological children resent a parent’s spending their
presumed inheritance on care for an ailing stepparent.

Today’s “modern family” can make good material for divorce courts and sitcoms alike, but it’s also becoming clear that there is a new family crisis brewing in elder care within these blended
families. A New Old Age Blog article titled “In Blended Families,
Responsibility Blurs” addresses this blended family challenge.

When it’s just parents and just the kids born from those parents, caring for elderly parents can be difficult enough. Generally, most families assume that the adult children can work things
out to take care of their elderly parents. In a blended family, however, and
especially in one where the parents of those adult children have remarried late
in life, the boundaries can get blurry. Moral decisions once clear become
blurry.

With elderly parents in such situations, there oftentimes are changes in relationships for the worse that can lead to petty angers which further add to complications. Remember, every
family requires ongoing communication and shared understandings to make a
family run smoothly. Easier said than done. Nevertheless, you owe it to
yourself and to your loved ones to come to that point.

Here is an important takeaway: the coming generations of elderly persons are more likely to be in a blended family, so be prepared now for the challenges that may affect you and those you
love.

Reference: The New York Times – The New Old Age Blog (February 5, 2013) “In Blended Families, Responsibility Blurs”

The Complexity of Gift Valuations

…Good intentions do not guarantee a charitable contribution deduction. By failing to properly account and document the contribution, however, the IRS and Tax Court [could] disallow the
deduction.

You may think that being eligible for the charitable tax deduction is as simple as making your gift and
then claiming the deduction.  Not so. In order to qualify, there are important steps to take regarding documentation and valuation of your gift.

Fundamentally, you need to prove the value of what you have given, but that can get complicated when you are giving in the form of things. You need an appraisal of any thing you
give (e.g., art, a house, an easement, or a service), and you need that
appraisal to answer all the tax man’s questions even before he asks them. In
short, appraisals can get tricky.

For example, if you give art you need an art appraiser, and if you give real estate you need a real estate professional. However, what if you give interest or stock in a company? Then
the appraisal becomes even trickier.

When you are giving less than obviously valued interest, then you might want to consider the advice given in a recent Forbes article titled “It's Hard To Satisfy The Qualified Appraisal
Requirement For A Charitable Contribution If You Appraise The Wrong Property.” The problem with interest or stock in a company is that the interest or stock is different than the things the company owns. So, 10% of the stock in a company with $5 million in assets is not (necessarily) equivalent to
10% of $5 million. Such is the case, even when the sole purpose of the company
is to hold well-documented and appraised assets worth $5 million.

In a “simple case,” the IRS likely will provide leniency and determine that such and such an appraisal was  “substantially compliant” if not fully so. Nevertheless, the greater the
business complexity, the greater the risk of misstep and attending (and costly)
determination of insubstantial compliance.

To avoid any questions being raised about your gift, obtaining an appraisal is an essential step when
recognizing the tax implications of any transfer of property that is more than
simply money itself. Contact your estate attorney or tax advisor for further
assistance.

Reference: Forbes (February 5, 2013) “It's Hard To Satisfy The Qualified Appraisal
Requirement For A Charitable Contribution If You Appraise The Wrong Property”

Avoid the Sting of the Estate Tax Rules

The good news is the estate tax won’t apply to as many business owners as we
feared; the bad news is that when it applies, it has a nasty sting.

Over the past several years, we’ve seen estate taxes go through many alterations.
We’ve seen changed exemption amounts, a one-year repeal, and “band-aid” fixes
to name a few. In fact, the only thing certain about the federal estate tax was
its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I
mean that except for a built in inflation factor for the estate and gift
exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal
estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially
reduce, or even eliminate, federal estate taxes -- even on estates that far
surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate
taxes:

      Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you
are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

      Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

     
        Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.”

      Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business
owner's death.

        Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of
tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.”

What we love about the new estate tax rules is their permanence, but what we don’t like is their sting -- in the form of 40 percent on the first dollar over the exemption amount (currently $5.25 million). Be sure to plan wisely for your estate tax liability, or risk being “stung” by the rules.

Reference: Forbes (January 30, 2013) “Want to Avoid the Estate Tax Cliff? Five Ways to
Help”