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Survey Says Start “The Money Talk” with Mom

“To the extent that there is a disconnect between parents and their grown children on these financial topics, our data show that families can look to mom to help bridge that gap,” says Lauren Brouhard, senior vice president of retirement in Fidelity’s Personal Investing unit.

Oh the dreaded “money talk.” Where do you start? The experts suggest that you start with Mom.

Fidelity Investments specifically suggests that moms are the best source of open dialogue, even when it comes to the “money talk.” (See also the recent MarketWatch article titled “In family-money talks, start with mom”).

A summary of the numbers from that article:

In the survey of 975 parents and 152 adult children, 64% of mothers said it was “not at all difficult” to start a conversation with an adult child about their finances; only 54% of fathers felt the same way. In addition, 79% of women, versus 69% of men, reported having had “comprehensive discussions” with their adult children about estate planning or wills.  The same was true of 66% of women vs. 56% of men about health and elder-care topics and 70% of women vs. 55% of men about running out of money in retirement.

Although there are many reasons why moms might be the best to approach, most of them are mere conjecture. More important, however, is the reality that senior parents really do not enjoy talking about their finances. That is understandable.

The alternative to an uncomfortable conversation may be financial strain on parents and children alike, particularly as the costs of long-term care continue to increase.  Take a deep breath, make the call, and get the ball rolling.

Reference: MarketWatch (May 7, 2013) “In family-money talks, start with mom”

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Be Your Own Bookkeeper When Caring for Elderly Parents

There was no contract, no invoice, and no evidence the family agreed to pay him anything. Sure, Anthony gave round-the-clock care. The family would have hired round-the-clock nurses if he hadn’t been there.

I you’re the primary caretaker for an elderly parent or loved one, are you documenting your efforts? If you are giving time and money for the care of loved ones and would like to take tax deductions for your efforts, you ought to make sure you brush up on your bookkeeping skills. Otherwise, when it comes to tax time, you may be out of luck (and money).

The case of Estate of Olivo v. Commissioner is most instructive.

Forbes examined the Olivo case in an article titled “Mother's Day? Son Claims $1.2M Tax Write-Off For Helping Mom.” From the title of the article, it is clear that the son may have been a bit generous in his claim. To make matters even more interesting, the son was a tax attorney.

Background: Anthony Olivo was the son/tax attorney. He took nearly ten years away from his law practice to care for his parents. Accordingly, Anthony lost his law practice income. However, he did collect fees from his parents for managing their estates. When Anthony’s mother died, he sought to deduct $44,200 in administrator’s fees, $55,000 in accountant’s and attorney’s fees, and a whopping $1,240,000 for a near-decade’s worth of lost wages (he did manage his own firm, after all).

The IRS raised an eyebrow, however, particularly after they took a look at his documentation of all of those fees and amounts. There were no contracts, no invoices, and no evidences to back up his claims.

Anthony didn’t even keep track of his time when he was handling the estate and filing the tax return. Also, not good.

In reality, not everything claimed may have been deductible. Nevertheless, the lack of recordkeeping killed any chance for successfully claiming legitimate deductions.

If you and your loved ones are entering a period of caregiving, then a little forethought and planning can go a long way. In the end, a little recordkeeping can be the deciding factor in making your claim.

Reference: Forbes (May 8, 2013) “Mother's Day? Son Claims $1.2M Tax Write-Off For Helping Mom”

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The Protecting Alabama's Elders Act

The Alabama Legislature is sending SB 29, The Protecting Alabama's Elders Act to Governor Bentley for his signature.  The bill was sponsored by Senator Cam Ward and Representative Paul DeMarco. 

The Act makes elder abuse and neglect, as well as the financial exploitation of an elderly person (i.e., any person over age of 60) a crime in Alabama. Emotional abuse is defined to include the "intentional or reckeless infliction of emotional or mental anguish or the use of a physical or chemical restraint, medicaition, or isolation as punishment or as a substitute for treatment or care of an elderly person."  

Financial Abuse is defined as the use of improper methods (such as deception, intimidation, force, threat of force, etc.) with the intent to deprive an elderly person of his or her property.  The definition of financial abuse also includes the breach of a fidcuciary duty owed to the elder by a guardian, conservator, or agent under a power of attorney which results in an unauthorized transfer of the elderly person's property. 

If passed, this bill will give local law enforcement authority to intervene in a situation in which an elderly person is being manipulated or financially/emotionally abused by a family member. Currently, and particularly with regard to financial abuse cases and cases involving the improper use of a power of attorney, local law enforcement has been reluctant to intervene in what they see as a civil matter. This bill should be a step in the right direction. 

You can read the full text of SB 29 by clicking here.

Hospice Waiting on Help from Medicare

"The effect is very negative for end-of-life care in the country. The way hospice is designed now may have worked fine 30 years ago, but it doesn’t work now and we need to think about alternatives."

The U.S. health care industry has been in flux since 2010, with many aspects of health care reform still on hold. Hospice is one area that is still waiting for help with protecting the elderly and those in end-of-life care.

As reported quite recently through the Kaiser Health News, hospice care has yet to be expanded under the Medicare project set out three years ago.

The article, titled “Medicare Lags In Project to Expand Hospice” examines the very real conflict between “curative” treatment and “palliative” treatment. The former is meant to cure a condition and thereby prolong life, and the latter is meant to ease the pain caused by a condition without a focus on effecting a cure.

Naturally, the curative and palliative treatments are often considered opposites. In fact, choosing palliative care would mean giving up all hope on curative care. Consequently, it is only natural that rapidly declining patients delay their entry into palliative hospice care.

The 2010 law was to begin inroads into exploring combined care, the possibility of both curative and palliative concurrently. Logically, this should ease transitions without forsaking hopes, likely reducing costs in the process. To date, however, this has not happened.

Reference: Kaiser Health News (May 9, 2013) “Medicare Lags In Project to Expand Hospice”

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State Death Taxes

Even if death and taxes are the only things certain in life, state legislators say they can never be certain about death taxes.

The fiscal cliff-bridging budget “permanently” set the federal estate tax at a generous $5.25 million exemption amount. So, for most American’s there’s no need to worry about the death tax, right? Not exactly--there are still some states with their own death taxes.

Consider Connecticut, a state that enjoyed a bumper year for death taxes. As reported by The Hartford Courant in an article titled “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus,” the tiny Nutmeg State raked in an unprecedented $428 million in inheritance taxes.

A good portion of this windfall is due to budget timing and estate planning, since this figure includes any gift taxes collected in 2012. Remember, that was a year of great gifting before the American Taxpayer Relief Act (ATRA), and Connecticut counts all transfer/inheritance taxes as one and the same. Then again, there were some notable deaths in Greenwich, CT, the richest little town in the U.S.

In Alabama, the state estate tax is still on the books. However, it is considered “dormant” because new Alabama state estate taxes are no longer being collected.

If you do not reside in one of the states with its own death tax, watch out. As state budgets continue to squeeze, death taxes may become more appealing to your state legislators.

Reference: The Hartford Courant (May 11, 2013) “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus”

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Don’t “Escheat” Your Family Inheritance

Nearly 2.5 million Americans died last year, many without signing a will. One of them was apparently Roman Blum, a Holocaust survivor and New York real estate developer who was worth almost $40 million when he passed away in January 2012 at the age of 97 . . .  If, after three years, there’s still no sign of his doing any estate planning and no one comes forward to claim his assets, all that money will go to New York State, under a legal rule called escheat.

Estate planning is not a do-it-yourself project; there are too many opportunities to make costly mistakes. Of course, the biggest mistake may be having no plan at all. Why? Because your life’s work may escheat to your state’s treasury by default.

At the very least, a proper will can avoid legal landmines like the escheat rule.

Escheat is the principle that there is no such thing as estate-limbo. Basically, an estate can sit in limbo for only so long before it gets swallowed up by the state where the decedent last resided. Consider the case of Roman Blum in New York, as reported in a recent Forbes article titled “N.Y. State Could Get $40 Million From Man Who Died Without A Will.” You can read all of the details in the original article, but Mr. Blum likely did not intend the State of New York to benefit from his life’s work as a real estate developer.

Here are the lessons to take away from this case:

1      Plan for your loved ones. If you don’t make at least a basic will, your state’s laws of intestacy may apply. (In Alabama, the intestate succession statute may be found at Code Ala. § 43-8-40, et seq.).

2      Review beneficiary forms. Many assets are transferred via designations on beneficiary forms – from your retirement accounts to life insurance and even bank accounts. Review these forms regularly, and be sure to keep them up-to-date.

3      Benefit charities. Some people refer to this as the “bomb” clause, stating that should your entire family be wiped out in a single incident, your assets should be distributed to specific charities.

4      Sign documents to protect yourself. Someone needs to make important decisions for you when you cannot do so for yourself. With legal documents like health care directives and powers of attorney you can appoint those you must trust to act on your behalf.

5      Make documents accessible. Make sure your legal documents can be found. It won’t matter how many documents you’ve signed if no one can find them!

6      Don’t procrastinate. Apparently, when Mr. Blum was ailing, he had finally agreed to sign the necessary documents, but passed away before getting it done.

Reference: Forbes (April 28, 2013) “N.Y. State Could Get $40 Million From Man Who Died Without A Will”

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Asset Protection and the LLC

In terms of new formations, the Limited Liability Company (“LLC”) is the new King. The former King, the corporation, has been deposed, and relatively few corporations are now being formed other than for companies that have a future hope of being publicly-traded, or some other unique reason.

Business owners often focus on the tax consequences of business structure. But asset protection is a growing concern in these litigious times, leading to the rising popularity of “limited” forms of business such as the Limited Liability Company (LLC).

LLC’s have a unique asset protection feature against charging orders. Maybe you have heard of these? A recent Forbes article titled “The Misunderstood Charging Order,” offers a basic explanation:

The charging order itself is not the lien; rather, the lien is what is placed by the charging order. Think of the charging order as a can of spray paint, and the paint is the lien. The charging order basically sprays the lien on the debtor/member’s interest. Stated differently, the charging order is the vehicle by which the lien is placed on the debtor/member’s interest — it is not the lien itself.

While this is a complex subject, basically a charging order is a creditor’s first and last tool to extract your interests and capital from your business (assuming they don’t try to pierce the veil). In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business. This can be disastrous. “Limited” company structures are specifically designed with charging order protection, something that could be important to you as a business owner. 

The original article goes into greater detail, but essentially the charging order protection means that while a creditor can place a lien on your LLC membership interests and claim any distributions, a creditor cannot claim the membership interest itself and sabotage the business.

While a “limited” company structure does provide a level of asset protection, keep in mind it is not a panacea. Do not just presume that a creditor will see an LLC and run away or settle for pennies on the dollar (as LLC’s are often marketed), as that is rarely the case. 

Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order”

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Can One Attorney Meet Both Your Estate Planning Needs?

If a conflict of interest arises in fact between the spouses, their estate planning attorney should withdraw and advise the spouses to retain separate counsel.  Having represented both of the spouses, the attorney may not thereafter represent one of them against the other, even if they consent.

According to the U.S. Census Bureau, the divorce rate of first marriage is around 50 percent; second marriages are at 60 to 67 percent and third marriages are at 73 to 74 percent. The fact is married couples frequently disagree . . . even when it comes to estate planning.

Marriage counselors stay in business because of marital disharmony. Commonly, they represent both spouses and seek to find common ground in a team approach. When it comes to estate planning, however, attorneys face a potential ethical dilemma. For example, estate planning attorneys cannot favor one spouse over the other, nor can they keep the secrets of one spouse from the other spouse in the course of “dual representation.”

While there’s no sense starting trouble where there is none, sometimes spouses really do have different estate planning interests. It’s an ethical problem for the spouses and their estate planning attorney alike, as pointed out in a recent Forbes article titled “Ethics in Estate Planning for a Married Couple.”

Indeed, sometimes it’s even appropriate for spouses to engage separate counsel to wrangle their way through an estate planning impasse. While the most common examples are prenuptial and postnuptial agreements, separate representation may be proper in other instances as well.

Before engaging in any estate planning, talk with your attorney about the issue of dual representation in order to determine whether separate counsel may be appropriate.

Reference: Forbes (April 26, 2013) “Ethics in Estate Planning for a Married Couple”

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Accurate Gift Tax Returns Can Stop the IRS Clock

In 1972, President Richard Nixon cruised to re-election. “The Waltons” premiered on CBS. And Sumner Redstone, who wasn’t yet a global media mogul, (allegedly) made a taxable gift to his children and failed to file a return.

Why wouldn’t you file a gift tax return if you made a taxable gift? Well, for a lot of people, the answer might be “I didn’t know it was required.” But, in this case, Redstone argues the transfer wasn’t gift, but rather the result of an “intra-family lawsuit” and thus “an ordinary business transaction.”

So, how long does (or can) the IRS scour your financial history to find taxable gifts? Well, it seems they do (or can) go back some 41 years. Whether you are a billionaire or a thousandaire, this is a case worth watching.

You can get the high points of the case from a recent Bloomberg article titled “Billionaire Redstone Challenges IRS on Tax for 1972 Gift.” Normally the IRS is bound by a statute of limitations set to about three years. However, an exception to this rule includes the failure to file a tax return like the allegedly missing gift tax return of Mr. Redstone.

Apparently, the difficulty arose over certain shares of National Amusements Inc., and a family lawsuit resulting in a “transfer” of shares. The IRS is now calling that “transfer” a “gift” with $1.1 million in taxes, penalties, and interest due and owing.

According to Richard Behrendt, a former estate and gift tax auditor turned director of estate planning, “This is unheard of . . . I can’t remember ever hearing of anybody going back 41 years to raise an issue. It’s really unprecedented in my experience.”

Note, however that Mr. Redstone may have become a target due to the fact that he is the chairman of both Viacom and CBS, not to mention National Amusements and all the related subsidiaries of the three. Reportedly, Mr. Redstone is worth approximately $4.9 billion. Nevertheless, this 41-year-look-back is a troublesome precedent.

The takeaway is that timely filing of an accurate gift tax return will start the clock running on a three-year statute of limitations. If no gift tax return is filed, however, the statute apparently does not apply, potentially opening the door for the IRS to look for skeletons in the closet for many years to come.

Reference: Bloomberg (May 1, 2013) “Billionaire Redstone Challenges IRS on Tax for 1972 Gift”

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Can You Transfer IRA Funds to Charity?

Tax-free transfers are limited to those over age 70½ mainly to contain
the drain on the federal budget.

One thing you should never forget about your IRA: even though you make contributions with pre-tax dollars, the government is merely deferring its right to collect tax on that income to a future date. This is why only those over the age of 70½ are eligible to make tax-free transfers of up to $100,000 from IRA funds directly to charity. By limiting eligibility and capping the transfer amount, the government limits its exposure to lost revenue.

So, why might you want to utilize this IRA-to-Charity strategy? A Charitable IRA Rollover lets you give to your favorite charity while avoiding taxes on IRA distributions. Consequently, this is a very popular win-win strategy for taxpayers who have accumulated a lot of money in their IRAs, but don’t need the money to live one – and would rather be “voluntary philanthropists” as opposed to “involuntary philanthropists.”

A recent Kiplinger article titled “Who Can Transfer IRA Funds to Charity?” explains the ins and outs of Charitable IRA Rollovers.  Of course, if you are considering this strategy, you should beware of the fact that there are strict rules governing the proper execution of these transfers, as well as their ultimate tax treatment.

While Congress generally approves the use of this strategy on a year-by-year basis, the good news is that they already approved it for this year. This means you should have plenty of time to plan if you’d like to make a charitable transfer this year.

Reference: Kiplinger (April 30, 2013) “Who Can Transfer IRA Funds to Charity?”

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