IRS Loses Gift Tax Battle

Joseph Hahn — Tue, 20 Sep 2011 13:00:54 +0000

As this article from the Wall Street Journal details, the IRS recently lost another case, this time in the Ninth Circuit, dealing with gift tax issues. Where family members are trying to make signficant lifetime transfers to loved ones, there is frequently some uncertainty over how to value the assets, especially business or real estate interests. If the IRS successfully challenges the valuation, it might result in gift tax being due to the federal government. The taxpayer had specified that if additional tax was found to be due, increased transfers would be made to the taxpayer's own charitible foundation, thus negating the additional taxes. The IRS challenged this strategy (as it results in no additional revenues to the IRS) and lost. The IRS has the power to change the regulations at issue on its own, with no action by Congress, so this is another reason why those considering significant lifetime gifts while the gift tax exemption remains at $5 million per person (through the end of 2012) should think about taking action now.

Spouse Died In 2011? File An Estate Tax Return

Joseph Hahn — Mon, 22 Aug 2011 13:50:59 +0000

As this article from Forbes.com illustrates, if your spouse died in 2011, you will probably want to at least consider filing an estate tax return with the IRS to preserve your deceased spouse's portable estate tax exemption — even if the estate was well below the exemption level. Due to the new portability rules, if one spouse dies leaving an unused exclusion amount, the other spouse may add it to his or her own personal exemption and effectively have up to a $10 million exemption. However, to do so, the surviving spouse must file an estate tax return for the decedent. No estate tax return, no portability. You have up to nine months from the date of death to get the return on file, so the first returns for 2011 deaths are going to be due in just a few days.

Tax Deadlines Set For 2010 Deaths

Joseph Hahn — Thu, 18 Aug 2011 13:45:40 +0000

As detailed in this article from Forbes.com, the IRS has finally issued its rules and guidance regarding opting out of the estate tax system for deaths that occurred in 2010. If a $5 million personal exemption is sufficient to cover the estate of the 2010 decedent, most executors will not choose to opt out of the estate tax system. Why? Because if no tax is due, the executor will want to preserve the stepped up basis that the inherited assets will receive. If the executor does choose to opt out of the estate tax system, the step up in basis is replaced with a modified carry-over basis. To opt out, the executor must file Form 8939 by no later than November 15, 2011. The IRS estimates that approximately 7,000 executors of estates where the decedent died in 2010 will choose to file Form 8939.

Why You Need A Will

Joseph Hahn — Thu, 18 Aug 2011 13:33:42 +0000

This chilling story, told in the pages of HuffingtonPost.com, details a horrifying chain of events that illustrate vividly why everyone needs to do some estate planning before the unexpected happens. Mom had no will when she died and her two adult children, who were very close, cooperated to handle the administration of the estate. However, one of those adult children died shortly thereafter, again without a will, and her estranged husband re-enters the picture and upsets the apple cart, ensuring that most of the estate was eaten up by legal fees.

IRS To Gay Newlyweds: You’re Not Married As Far As We’re Concerned

Joseph Hahn — Fri, 05 Aug 2011 11:07:37 +0000

As this BusinessWeek piece illustrates, many of the recently-married same-sex couples in New York and other states permitting same-sex unions are facing a rude awakening. While they might be married in the eyes of their home state, the IRS isn't having it. Those couples must continue to file individual "single" returns and cannot file as "married." How they go about doing so is a topic for another posting. Moreover, these couples cannot take advantage of the unlimited marital deduction for estate tax purposes, which leads to huge problems if planning is not done in advance of the death. Until Congress repeals the Defense of Marriage Act, these problems are not going away. This article from the New York Times goes into even greater detail on some of these topics.

Overlooked Estate Planning Issues

Joseph Hahn — Thu, 21 Apr 2011 13:25:59 +0000

This article by Bob Carlson at Investing Daily details some of the issues that are frequently overlooked during the estate planning process. Some of the questions: Is there enough cash? Who pays the taxes? Have beneficiary designations been addressed? Are there creditor problems? Who will serve as trustee/executor? Has the trust been funded?

Lesbian Widow Suing For Estate Tax Refund

Joseph Hahn — Wed, 20 Apr 2011 12:14:16 +0000

As ABC News is reporting, a New York woman left widowed after her lesbian partner of over 40 years died last year, has sued the federal government for a refund of the $363,000 in federal estate tax she was forced to pay after her partner's death. Her claim is based on the fact that a heterosexual married couple would not have had to pay anything in similar circumstances. But by reason of the fact that the federal government will not recognize her 40 year relationship as a legal marriage (even though they were lawfully married in Canada) due to the passage of the Defense of Marriage Act (or "DOMA"), Edith Windsor claims that she has been unfairly discriminated against to the tune of $363,000. Her case is one of the cases that the Obama administration recently announced it would not longer defend in court. The Republican-controlled House of Representatives has stepped into the gap, authorizing hundreds of thousands of dollars in taxpayer funds to pay for legal fees to defend the constitutionality of DOMA, an ironic position since the Republicans have taken the lead in arguing that all estate taxes should be eliminated. Apparently, the only folks that House Republicans believe should pay estate taxes are same-sex couples.

Baby Boomers Not Concerned About Leaving Money To Children

Joseph Hahn — Wed, 20 Apr 2011 11:58:52 +0000

This article in the Los Angeles Times discusses the recent findings of a recent study by US Trust on the attitudes and values of wealthy baby boomers relating to their wealth. US Trust surveyed almost 500 people with investible assets in excess of $3 million. Only 49% of those surveyed feel it is important to leave money to their children. Most felt they wanted to spend their wealth during their lifetimes on travel and personal relationships. Only one-third of respondents felt their children could even "handle" an inheritance. More than half haven't disclosed the extent of their wealth to their kids. The survey results reveal an overwhelming sense that wealth has the power to corrupt future generations, by making them "lazy," not value work, etc. This seems to be a generational shift with the boomers, as prior generations seemed to be primarily motivated by passing wealth down to their descendants. Bottom line: if you are the child of a baby boomer, you might not want to be counting on an inheritance.

IRS Extends Time to File Form 8939 For Deaths in 2010

Joseph Hahn — Tue, 05 Apr 2011 13:14:24 +0000

As this Bloomberg article explains, the IRS recently announced that it was extending the time for heirs of 2010 decedents to file Form 8939. That form will NOT be due on April 18, 2011, but rather, will be due at some point in the future after the IRS finalizes the form and issues further guidance. The form is required for estates that are opting out of estate tax for 2010 (and thus, also opting out of a step-up in basis for the inherited assets for capital gains purposes). The form will be used to allocate the $1.3 million in increased basis (and additional $3 million in basis for assets being inherited by a surviving spouse). In general, the estates that are opting out of estate tax for 2010 are relatively large estates with more than $5 million in assets.

IRS Extends Time to File Form 8939 For Deaths in 2010

Joseph Hahn — Tue, 05 Apr 2011 13:14:24 +0000