Wills, Trusts & Estates Prof Blog

Book on IRS Compliance Issues and IRA Trust Violations

Seymour Goldberg (CPA, MBA, JD) recently published a book entitled, IRA Guide to IRS Compliance Issues Including IRA Trust Violations, American Bar Association, (Apr. 2013).  Provided below is a description of the book from the ABA Store’s website:

Based on government reports from the Treasury Inspector General for Tax Administration and the GAO, there is a significant amount of noncompliance from taxpayers who make excess contributions to IRA accounts, and from taxpayers who fail to receive timely required minimum distributions.

The IRS is developing a long-term compliance initiative to reduce the growing noncompliance involving retirement accounts. This strategy will include the development of techniques to identify individuals who are not in compliance. It will include, according to a government report, education, outreach programs. and other guidance.

This essential guide outlines many of the mistakes that are made by IRA account holders from an IRS compliance point of view, understanding that is quite easy for a taxpayer who has an IRA or inherits an IRA to fall into a tax trap and violate the IRA rules. The IRA Guide to IRS Compliance Issues will help you be aware of the potential IRA violations that may be triggered and how to be proactive and not reactive when it comes to IRA issues. Issues covered in the book include:

•  IRA Trust Checklist with Practitioner Tips

•  Statute of Limitations Involving IRA Penalties

•  IRS Levy on IRA to Satisfy Federal Tax Debts

•  Early Distribution Penalty Violation

•  Required Minimum Distribution Penalties

•  Important IRA Distribution Tax Traps to Know About

•  Excess Contributions

•  Violations of the Rollover Rules Non-Spouse Beneficiaries

•  Disclosure Issues and IRA Trusts

•  Circular 230 Violations

•  Loss of Creditor Rights Protection of Decedent's IRA in State Court

•  Asset Protection for Inherited IRAs

•  And much more

Discover the potential legal pitfalls that may befall your clients who may inadvertently have violated complex IRS IRA rules, and have the information you need to help you deal with your clients' fear of pending audit with this valuable addition to your resource material.

Mother Denied Support For Her Child Because Dad Is An Anonymous Donor

Recently, an administrative court in Germany denied a women impregnated by anonymous sperm, child support payments. The law in Germany allows advance payments from the state to the mother and later collects from the father. The court reasoned that because the donor was anonymous the state would not be able to recover payment. The law indicated that it would not pay out support if the mother declines to assist in naming the father. Here, the court reasoned that the mother willingly declined to know the identity of the father. 

See No Child Support If Dad Is Anonymous Sperm Donor, The Local- Gemany's News In English, May 17, 2013.

A Charitable Gift Annuity

Because of the American Taxpayer Relief Act, donors face higher taxes. This year, major charitable donors will be seeking financial advice to reduce their taxable income. Single taxpayers might lose part of their itemized deductions. Single taxpayers are not the only ones facing tax increases married couples should expect increases as well. Donors over age 75 are trying to gain tax-free income. A funded gift annuity might be the best tool to reach that goal. The gift annuity is the best combination of tax-free income and donor deductions. Using a gift annuity should be effective with the expected interest rates.

See What Do Major Donors Want?, Legacy UCLA, May 21, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Ravi Kumra's Womanizing May Expose His Estate To Additional Claims

Last year, two prostitutes were accused of planning Ravi Kumra’s murder. Kumra died of asphyxiation during the robbery of his mansion. Recently, other women are trying to swindle the Kumra family’s estate. One of the family members who did not want to be identified stated “'A mere few days after his funeral people are making claims on his estate and we were completely blindsided, by the homicide, by the claims, by everything in the police investigation.'” It was confirmed that a former prostitute's two daughters were Kumra’s children. The judge is deciding on the percentage of the estate that the girls are entitled to. Additionally, there are other women with similar claims.  

See Julia Prodis Sulek, Monte Sereno Homicide: Kumra Family Speaks Out, Fears More 'Women Waiting In The Wings' To Get Millions, Mercury News, May 13, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

CLE on IRA Compliance Issues Including IRA Trust Violations

The American Bar Association will sponsor a CLE entitled, IRA Compliance Issues Including IRA Trust Violations, on Jun. 11, 2013 from 9:00 am - 12:45 pm. Provided below is a description of the event:

WHY ATTEND?

Government reports from the Treasury Inspector General for Tax Administration and the Government Accountability Office reveal a significant amount of noncompliance from taxpayers who make excess contributions to IRA accounts and from taxpayers who fail to receive required minimum distributions.

The IRS is developing a significant long-term compliance initiative to reduce this growing noncompliance involving retirement accounts. This strategy includes the development of techniques to identify individuals who are not in compliance. The initiative will also include education components and outreach programs.

Seymour Goldberg, the featured speaker at this program, is well known and highly respected for his expertise in retirement distribution planning and compliance. He will provide the guidance practitioners need to effectively advise their clients. As a BONUS, his just written manual for the American Bar Association, IRA Guide to IRS Compliance Issues Including IRA Trust Violations, will be given to registrants as part of the course materials at no extra cost.

PROGRAM TOPICS INCLUDE:

• Commencement of the IRS audit initiative in fiscal 2013 on IRA noncompliance
• (including outreach initiatives)
• Statute of limitations involving IRA penalties
• Professional responsibility and ethics issues
• Tax preparer responsibility and Circular 230 issues
• Personal liability of the fiduciary for debts to the U.S. Government
• Early distribution penalty violations
• Required minimum penalty violations
• Waiver distribution procedure of the required minimum penalty
• Excess contribution violations .
• Important IRA distribution tax trap to know about
• IRA trust checklist and practitioner tips
• Disclosure issues and IRA trust violations
• And much more. . . .

Granddaughter Raises Enough Money for Grandfather to Keep House

Jaclyn Fraley recently reached her goal of raising $125,000 to buy back her grandfather’s home. 

John Potter, a 91-year-old WWII vet, had been living in his Zaleski, Ohio, home for over fifty years.  In 2004, he gave power of attorney to his daughter, who then transferred the property to herself.  Potter’s daughter then attempted to evict him following a dispute between the two over visitation rights to Potter’s autistic son.   Fraley then launched a successful fundraising campaign on GoFundMe to save his house.

See Debra Cassens Weiss, WWII Vet Reaches Fundraising Goal in Effort to Prevent his Daughter from Evicting Him, ABA Journal, May 16, 2013.

Disturbing Trends in IRA Withdrawals

According to a recent report by the Employee Benefit Research Institute, younger retirees between the ages of 61 and 70 are withdrawing larger amounts from their individual retirement accounts than older households.  These earlier withdrawals “are larger in absolute dollar amounts and as a portion of their overall IRA balance.

The report also found that low-income households were more likely to make early withdrawals and withdraw in larger amounts than higher-income households.

See Kelly Greene, Younger Retirees Burning Through IRAs, The Wall Street Journal, May 15, 2013.

Article on Estate Settlement in Michigan

John H. Martin (Warner, Norcross & Judd LLP) recently published an article entitled, Improving Michigan Estate Settlement, 29 T.M. Cooley L. Rev. 1 (2012).  Provided below is the introduction to his article:

The indictment is short and pointed: probate estate settlement is too expensive, too slow, and lacks privacy. This indictment covers probate in Michigan as well as probate nationwide.

Michigan took a major step toward increasing public acceptance of estate-settlement procedures when it adopted EPIC in 1998.  The informal procedures under EPIC permit both the validation of the decedent’s will and the appointment of a personal representative without the delay and expense of an adjudicatory proceeding.  Intermediate settlement steps may take place free from a court’s view; and even closing an estate may be accomplished without adjudication.  Despite these advances, Michigan estate planners do not commonly recommend probate procedures for estate settlement, and the public still does not embrace probate.  Nevertheless, if the legislature adopts a few modest changes, then probate will become a viable, attractive option for estate settlement.  Indeed, a few minimal alterations can produce a procedure that is comparable, or even preferable, to settlement under a funded revocable trust.

This Article proposes modest changes to EPIC that will improve the acceptance of probate in Michigan. But first, this Article describes the need for statutory modifications by reviewing briefly the public’s present attitude and the estate planners current preferences.  It then reviews and draws pertinent lessons from summary-procedure statutes enacted by other states to facilitate the settlement of smaller estates.  Against that backdrop, this Article then explains the need for and describes the specific changes that will improve Michigan estate settlement.

Topeka Sperm Donor Motions for Judge to Recuse Herself in Child Support Case

William Marotta’s defense attorney has filed a motion calling for Judge Mary E. Mattivi to recuse herself from Marotta’s case.

The state of Kansas asserts Marotta owes child support to the 3-year-old daughter of two women who enlisted Marotta through Criagslist to provide sperm for the couple.  Under Kansas law, a physician is required to perform an artificial insemination for the man to be considered a sperm donor, but Marotta and the female couple agree that Marotta should have no financial responsibility for the child.

In accordance with the Kansas statute, Marotta’s attorney did not include a reason for the request for recusal.  However, if Judge Mattivi declines to recuse herself, Marotta’s attorney must then provide a reason by filing an affidavit.  Reasons may include personal relations to the parties, an interest in the action, or personal bias.

See Aly Van Dyke, Sperm Donor Defense Calls for Judge to Recuse Herself, The Topeka Capital-Journal, May 20, 2013.

The Giving Pledge's First Female Signatory

In 2009, Warren Buffet and Bill Gates started the Giving Pledge for charitable donations. Recently, nine billionaires have signed on to the Giving Pledge promising to donate half of their wealth to charity after death. The first female billionaire to sign on to the Giving Pledge is Sara Blakely. Blakely is the founder of Spanx Inc. Her hope in signing on to the Giving Pledge is to empower women. Other signatories who have signed on include Mark Zuckerberg, George Lucas, and Michael Bloomberg. 

See HuffPost Live Highlights, Spanx Founder Is First Women Billionaire To Join Giving Pledge, On.Aol.Com, May. 2013.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

CLE on Representing Estate and Trust Beneficiaries and Fiduciaries

The American Legal Institute will be hosting a CLE in Langham, Boston entitled, Representing Estate and Trust Beneficiaries and Fiduciaries, July 18-19, 2013.  A description of the CLE is below:

Why You Should Attend

Estate planners, litigators, and corporate fiduciary counsel all want to know what impact (if any) the American Taxpayer Relief Act of 2012 will have on their clients.

This advanced CLE course goes beyond basics and delves into topics that specifically affect beneficiaries and fiduciaries, while offering registrants solutions to their most pressing concerns through small roundtable discussions and networking opportunities.

Experienced planning chairs Steve Fast and Bob Whitman, and the rest of the nationally known faculty panel, provide two full days of knowledge, insight, and even a bit of humor as they update you on all the current law developments affecting beneficiaries and fiduciaries.

What You Will Learn

The go-to program for estate and trust administration professionals is back by popular demand! Get the latest insight on the issues, including strategies for addressing current challenges for unhappy beneficiaries and concerned fiduciaries. Expert faculty of seasoned practitioners from across the country will examine: 

• Emerging fiduciary issues and how to pick (or be picked as) the best lawyer for the job
• Hot topics in tax, ethics, and estate and trust administration
• What you don’t (but should!) know about income taxation of estates and trusts
• The current fiduciary litigation landscape—and what you should do differently
• Perils of the lawyer-trustee
• The emboldened beneficiary
• Deposition devils and details
• Decanting illusions
• “Side letters” to trustees
• The intersection of the prudent investor and business interests
• Failing facility – drawing the lines on diminished capacity
• Using taxes to settle disputes
• Ethics analysis (one hour)
• Your issues, one-on-one

Faculty will reserve time throughout the program to address your questions.

Registrants at the live program have the opportunity to take part in small, focused, and interactive discussions during breakfast.

Conservation Easement Deduction

The IRS has raised its scrutiny with charitable easements. The increase in scrutiny with charitable easements stems from compliance problems with subordination rights, valuation, and substantiation. Litigation over these compliance problems in charitable easements is steady making it more likely the problems will continue. Recently, the IRS argued easement contracts assigning particular rights to mortgagees did not meet the requirement of a mortgagee’s rights in relation to the subordination rights of the donee. The valuation issues come into play with the requirements for qualified appraisals. Additionally, the value of an easement is difficult to determine for a deduction. Failure to comply with Form 8283 could lead to problems with substantiating the value of the easement leading to a disallowance of a tax deduction. 

See Karl L. Fava, Conservation Easement Tax Donation Update, Journal of Accountancy May 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

When Can a Fiduciary Duty Be Discharged In a Bankruptcy Proceeding?

Recently, the Supreme Court has decided when the fiduciary duty can be released during a bankruptcy proceeding. Chris Bullock was the trustee of his father’s trust. The trust provisions did not allow the family from borrowing from the trust. Despite the provision, Chris made a loan to his mother to reimburse a debt. In addition, he made a loan to himself. As a result, Chris made several improper loans.  All of the improper loans were made at the same interest rate the trust was earning.  

 In Bullock v. BankChampaign, the Supreme Court determined the definition of “defalcation” within Section 523(a)(4) of the Bankruptcy Code. The court held that “defalcation” means a state of consciousness “as one involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.”  The court rationalized its decision by including scienter as a requirement. In effect, a fiduciary will still be held accountable for a breach of his duty where the standard is simple negligence.

See Luke Lantta, Defalcation, Bankrupcy, And Fiduciary Litigation, Bryan Cave Fiduciary Litigation, May 20, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

IRS Limits Material Participation by Non-Grantor Trusts

In a recent Technical Advice Memorandum (TAM), the IRS limited “the circumstances in which a complex, non-grantor trust can materially participate in the activities of an S corporation.”  The IRS concluded that only time spent by a fiduciary in a fiduciary capacity counts towards material participation in S corporation activities.  Time spent as a shareholder or an employee should not be counted as material participation.  The reasoning of this TAM applies to alternative minimum tax rules as well as “passive activity loss and credit rules and the new 3.8 percent net investment income tax.”

See Michala P. Irons & Randal J. Kaltenmark, Tax Law Alert – New IRS Guidance Takes Restrictive View of Material Participation by Non-Grantor Trusts, Barnes & Thornburg LLP, May 9, 2013.

Tips on Having a Successful Family Meeting

Family meetings are common after a medical crisis, but they can also be invaluable in resolving complicated financial issues as well as legal planning for elderly family members.  Here are some tips on starting, and getting the most out of, family meetings:

•  
  •  
    • Be inclusive by finding a date where everyone in the family can meet.  And ensure everyone has a chance to get their opinion across, especially any person you’re making decisions for.
    • Have family meetings before any serious health issues arise.
    • Hire a professional with expertise in the area of dispute to help resolve conflicts.  Consider a mediator if disputes get heated.
    • Set an initial agenda and invite any suggestions of other items that need to be discussed

See Kelly Greene, When It’s Time to Huddle, The Wall Street Journal, May 10, 2013.

Same-Sex Couples Face Challenges in Determining Whether Spouses Qualify as Trust Beneficiaries

Spouses often use trusts to pass monetary benefits to the other spouse, but the law is often unclear on whether same-sex spouses can become the beneficiary of their partner’s trust. 

If the Supreme Court finds the Defense Against Marriage Act constitutional, states will not have to recognize the relationship laws of other states and will be left on their own to determine the definition of spouse.  As a general rule, states will recognize marriages from other states unless it is contrary to the state’s public policy. 

If the trust document is ambiguous on the definition of spouse and the grantor’s intent is unclear, “trustees and fiduciaries often turn to the courts to help resolve the issue.”  Absent a Supreme Court ruling providing some clarity on this issue, attorneys will continue to rely on complex and unclear state laws to guide same-sex couples on this issue.

See States Decide: Can Same-Sex Spouses Become the Beneficiary of Their Partners’ Trust?, ABA Now, May 8, 2013.

Special thanks to Margaret Ryznar (Associate Professor of Law, Indiana University Robert H. McKinney School of Law) for bringing this article to my attention.

401(k) Considerations to Improve Your Financial Future

Inspired by the illuminating PBS Frontline story The Retirement Gamble, here are some key points to consider for employers offering 401(k)s as well as employees investing in them.

First, try to keep your investment fees below one percent.  These fees include “fund expenses, administration, asset management, and any other fees that silently but surely are taken from your 401(k) account."

Next, invest in the more reliable index funds instead of the much more erratic actively-managed funds.  Index funds are an efficient way to earn market returns and avoid risk.

Last, use a 401(k) provider that will agree in writing to act in the best interest of your company’s 401(k) plan.  By ensuring your provider takes on a fiduciary responsibility, you can hopefully receive the best fund options for your retirement, and not the best options for your provider.

See Stuart Robertson, PBS Frontline’s ‘The Retirement Gamble’ Got 401(k)s Right, Forbes, May 13, 2013.

Live Webinar on Family Wealth Transfers

The American Bar Association will be hosting a Trust & Estate Webinar entitled, What’s the Encore:  Correcting and/or Amplifying Family Wealth Transfers on June 6, 2013 from 12:00 PM – 1:30 PM CT.  A description of the webinar is below:

During this session our panelists will cover the application and management of wealth transfer strategies that provide some benefit to the grantor and/or the grantor’s spouse.

They will discuss the following strategies:

• Creative planning with loans and/or annuities owed by an IDGT to the grantor;
• Additional wealth transfer strategies available when gift tax exemption is exhausted, and;
• Strategies to preserve a basis adjustment upon the grantor’s death.

Life Insurance v. Annuities

Both life insurance and annuities have tax deferral benefits. Annuities offer steady income, while life insurance protects your family in the event of your death. However, many believe the tax benefits are outweighed by administration costs and penalties. If you are planning to take money from your life insurance policy then it might be wise to consider an annuity instead. Moreover, people who live in a high tax state might want to consider an annuity to hold income-generating assets.

See Weighing the Tax Advantages of Life Insurance and Annuities Against Their Real Costs, Wealthstrategiesjournal.com, May 14, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

A New Book On California Community Property

Charlotte K. Goldberg, (Professor of Law, Loyola Law School, Los Angeles) recently published the revised fourth edition of, Examples & Explanations: California Community Property (4th ed. 2013). A description from amazon of the book is below:

Using the Examples & Explanations pedagogy and FITS (Funds, Intentions, and Title)—an original tool for understanding the complexities of California Community Property—Charlotte Goldberg presents an effective and timely overview of California’s community property system.

• FITS (Funds, Intentions, and Title)—a class-tested, unique tool for determining, under California law, whether marital property is to be considered community or separate property
  • The FITS acronym helps students to understand the roles that funds, intentions, and titles play in characterizing property as either separate or community
• the proven-effective Examples & Explanations pedagogy combines straightforward introductions with well-written examples and explanations that apply concepts, reinforce learning, and test understanding of material covered
• meticulous treatment of joint titles and reimbursement, featuring examples thoroughly illustrating all possible scenarios, including retroactivity
• coverage of tangible and intangible property, such as businesses, educational degrees, goodwill, and pensions
• premarital agreements and recent amendments to the Premarital Agreement Act

Updated throughout and with many new examples, the Second Edition features:

• major developments regarding retroactivity of the Family Code—affecting premarital agreements, fiduciary duty, and domestic partnerships
• several new cases clarifying premarital agreements and fiduciary duty
• new case decision regarding celebrity goodwill
• coverage of Family Code §4 and §2640(c)

Designed and written for the needs of students, Examples & Explanations: California Community Property, now in a Second Edition, combines the time-tested E&E pedagogy with a class-tested tool of analysis that makes an enormous difference in the depth and quality of students’ understanding of California community property law.