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Trusts, Estates & Business Succession Blog

This blog is published by the attorneys in Capehart Scatchard’s Wills, Trusts & Estates group. It addresses issues related to estate planning, wills, trusts, succession planning, tax and tax codes.

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Things to Remember When Selling a House

The temperatures outside are hot and so is the current real estate market.  It is a seller’s market.  Just speak with a realtor or a real estate attorney.  Kelly Dugan, real estate attorney at Capehart, has shared that despite her years of handling real estate transactions, she is seeing new situations almost daily.  There are bidding wars resulting in sellers receiving more than the asking price, buyers are taking short cuts and are waiving inspections unless required by lenders, closing dates are accelerated and there are unique terms being part of the deal. 

Kelly’s involvement usually starts when someone has placed an offer on a house and the contract is ready for review.  The contracts are boilerplate but it is important that they be reviewed before the attorney review period expires to protect the interest of either the buyer or the seller.  Sometimes there are added provisions that may benefit one party but not the other.  Having an attorney’s input is highly recommended as this may be one the largest investments you have transacted in your life – buying or selling. 

If you are selling your home, it is important to remember that your income taxes could be impacted.  Here are some considerations to make:

  • Who owned the home and how was it used?  Was it owned solely, as husband/wife or other joint ownership, or perhaps by a business entity?  Was it a personal residence or a rental property?  If a rental property, was it used for personal purposes at all during the year (i.e., a shore or mountain home)?
  • Why are these important factors to consider?  Well, if you owned a home for five years and used it for at least two years as your principal residence, you may qualify for some or all of a capital gain exclusion.  Sorry, but rental properties or vacation homes aren’t eligible for exclusions. 
  •  If your gain is in excess of an eligible exclusion, you MUST report the gain on your income tax return.  You will receive a Form 1099-S – Proceeds from Real Estate Transaction that should be placed with your income tax information for the current year so it is readily available when it is income tax preparation time.
  • Also, keep your settlement statement with the Form 1099-S for income tax purposes of the deductibility of certain closing expenses. 
  • Additionally, did you make major capital improvements to the house during your ownership?  These may be advantageous for income tax reporting.  Don’t wait until tax time to pull this information together.  You will want to provide your tax preparer with as much information as possible to enable the evaluation of your gains/losses in the sale.

New homebuyers – even though you are a new homeowner, keep the above items in mind during your ownership as it could be to your advantage in the years to come. 

Last Instructions

If something were to happen to you right this very moment, how easy or difficult would it be for your loved ones to step in and take care of your affairs – whether you were temporarily unable to handle your affairs or if you passed suddenly? 

  • Would they be able to find information as to your wishes – medical or funeral?  Keep you alive or let nature take its course?  Cremation or burial? 
  • Who should be notified of your situation?  Where is this information?
  • Where are your documents – power of attorney, health care directive, will – located? 
  • Where are your records with regard to your assets?  Do you have a safe deposit box?
  • If you keep your information electronically, do loved ones know where to find access to these electronic records? 
  • Do you receive benefits from retirement type accounts?
  • If you are working, who should be contacted regarding employee benefits?
  • Where do you keep copies of your income tax returns from prior years? 
  • Where can medical insurance information be located? 
  • Do you have life insurance?
  • Do you have long-term care insurance?
  • Do you have a prepaid funeral or cemetery plot?
  • Where is information about your homeowners and vehicle insurance?
  • Who are your medical professionals?
  • How do you keep track of appointments and are there appointments which need to be addressed?
  • If you are a business owner, who should be contacted to keep the business running?
  • If you have minor children, is there someone authorized to take custody of your children, pick them up from school or other activities?
  • If you have minor children, are their health records and medical providers available?

Be prepared.  Don’t leave your loved ones having to deal with more than your immediate needs.  Get organized.

Handling Sensitive Information

Whether you think about your home or your office (in office or remote office), do you have confidential or sensitive information out in the open?  Easily accessible?  If a visitor were to come near your work area, could information be breached?  Do you have either professional or personal information easily accessible whether it be on paper or electronically?  Could this information be taken without your knowing it until it was too late?

Now may be the time to take a look at how secure this information is.  Do you have paper documentation at least in folders or stored out of sight unless you are working with the same?  If you are going to be away from home and someone will have access in your absence, is this information stored securely?  How about what you put in your recycling container to be picked up on recycling day – is there sensitive information that should be shredded?  If someone were to go through your recycle bin (or workers at the recycling center), could they obtain information about you that should not be seen? 

Perhaps you prefer the electronic methodology of keeping information.  If you work in the office and use a desktop, your IT department most likely has measures in place for security.  But, what if you use a laptop from your company.  Is the data encrypted?  Are USB drives you may use encrypted?  If either were to get into someone’s hands who should not have access, can the files be read, copied or sold?  Are they safe? 

If you use electronic means for personal purposes, how vulnerable is your information?  Do you access sensitive information on unsecure connections?  In hotels, restaurants, coffee shops, even professional offices? 

If you have individuals in your workplace or home to clean, to do repairs, for just a visit, take steps to avoid the compromise of any information – personal or professional.  Don’t become a victim.

We cannot be cautious enough when it comes to sensitive information – professional or personal.  Be wise.  Take precautions.  Don’t be vulnerable. It takes less time to be proactive rather than be reactive if a breach occurs. 

Birthday Basics

You will never forget your birthday (even though you may want to).

Every time you make another trip around the sun (a year), it is good to reflect on what has changed in your life and what you have accomplished. Estate planning is probably something that rarely is among these thoughts.

Many people think that once they have executed their estate plan, they are done and set for life. Realistically, this is not the case. You, as an individual, are never done growing as a person and your life is never static. Things will always change. Each year, especially throughout 2020, people’s circumstances, financial markets, tax laws, and personal goals all changed.

Since you will never forget it and usually there is some type of celebration to remind you, your birthday is the perfect time to review your estate planning. Think back on the past year and decide whether or not you need to make any modifications to your current plan. Maybe you have no plan in place and want (or more appropriately – NEED) one.

Big life events to think about are: Did you get married? Did you get divorced? Did a spouse pass away? Did you start a business? Did you have a child? Did you move? Did you acquire significant assets? Did you start a new job? Did you start a new hobby that may add some risk to your life?

All these questions and possible changes will affect your estate planning. The changes could be as simple as updating your Power of Attorney or Living Will to reflect new healthcare laws or update your agent. It could be that you want more detailed distribution provisions in your Will. You may need to change your beneficiaries on your non-probate assets such as life insurance policies, annuities, and retirement plans.

This time of reflection on your past year may shed some light on changes that you otherwise wouldn’t think about.

Income Tax Refund Myths

Tax season is once again behind us and if you are entitled to a refund, you are anxiously awaiting for the same.  But, with the pandemic, some people are still awaiting their 2019 refunds, let alone their 2020 refunds. 

There are facts about receiving your refund and there are plenty of myths about refunds.  Here is some information that will hopefully dispel some myths about refunds:

  • You received a refund so you don’t need to adjust your withholding for 2021 – WRONG.  Go to irs.gov and use the Tax Withholding Estimator to determine if the amount being withheld is correct.  If you have experienced a life event – marriage, divorce, birth or adoption of a child or you no longer are able to claim a dependent previously claimed – you need to check your withholding by your employer. 

  • You are impatient so you think that if you call the IRS, you will get your refund quicker – WRONG.  The best way to determine the status of your refund is online at irs.gov Where’s My Refund?  Calling someone will not expedite your refund.  Or, you can call the automated refund hotline at 1-800-829-1954, but don’t expect to speak to a person.  In either case, you must have information available as to the expected refund, your personal information and perhaps your taxable income amount.

  • You access Where’s My Refund? and it must be incorrect because there is no deposit date – WRONG.  This tool is updated once a day and it is possible that more information is needed to process your return.  If this is the case, you will receive a notice by mail.  Or, it could be that your bank is taking additional time to post the deposit to your account.  But, in any event, if you are waiting for a check to be received, it could take even longer for the check to be issued and mailed.  The fastest and safest way to receive your refund is always by electronic deposit to a bank account. 

  • The IRS messed up because your refund is less than expected – WRONG.  YOU could be the reason your refund is less than expected.  It could be that there are math error or mistakes on the return, you owe taxes from a prior year, you have other non-tax obligations such as state taxes, child support or student loans. There is always an explanation for a refund being less than expected.  A letter of explanation will be mailed with the adjustments made.  Be certain to review this letter carefully in the event that there is further action to be taken by you. 

The best place to start with inquiries about a refund is the Where’s My Refund? on irs.gov.  Hopefully, you will have received your refund and that won’t be necessary. 

Do You Owe Money to the IRS? Help is Available.

So, the dreaded news is received – you owe the IRS.  What to do? 

Fear not; there is help available.  It is called an offer in compromise and may help some taxpayers.

An offer in compromise is an agreement between the taxpayer and the IRS that settles a tax debt for less than the full amount owed.  Paying the full amount would create a financial hardship for the taxpayer.  The goal – a compromised amount in the best interest of both the taxpayer and the IRS. 

So, if you are unfortunately in this situation, what are your chances?  The IRS reviews applications based upon the taxpayer’s unique set of facts and special circumstances as well as income, expenses and asset equity.  This is all further detailed in the Offer In Compromise Booklet available on irs.gov.  The booklet covers who is eligible to submit an offer, the cost involved and how the application process works.  The required application forms are included in this booklet.  Currently, the application fee is $205, but, if the taxpayer meets the definition of a low-income taxpayer, the fee may be waived. 

The taxpayer must have filed all required tax returns. 

If you are in an open bankruptcy proceeding, you are not eligible for an offer in compromise. 

Payment options are available by way of a lump sum cash payment or periodic payments.  

If you owe money, visit irs.gov and search for offer in compromise.  You will be able to easily determine if you are eligible to apply.  If not, then by all means, apply for an agreement for a payment plan to pay off your balance over time. 

Don’t ignore a tax liability or the IRS could proceed to seize your assets.  This can result in financial accounts being frozen, your residence being seized, etc.  Don’t become a victim to taxes owed.  Take action one way or another to resolve the issue.

Joint Owner vs. POA

Getting your financials in order is something everyone would like to accomplish. Making sure that the bills are being paid isn’t something that many people want to worry about.

As we grow older, we may need assistance from a family member or a friend. Assistance can be what we consider simple tasks such as getting a ride to a medical appointment, grocery shopping, or fixing things around the house. Another way someone can assist you is by writing your checks or balancing your checkbook.

One way to have someone assist you is by adding your Power of Attorney on your bank accounts. This will allow the person you appointed as your Power of Attorney to access your bank records and make sure that the proper bills are being paid and that your accounts stay managed.

When you met with a banking representative, you probably explained what you would like to accomplish and that you have a Power of Attorney. The bank tells you that they will have the Power of Attorney added to the account. They process everything and send you on your way. When the next statement comes, you realize that your Power of Attorney’s name is accompanying your name as an “owner” and the statement doesn’t reflect their status as “POA”.

In some cases, the banks will add your agent as a joint owner on your account instead of identifying that they are your agent under the Power of Attorney. If this does happen, upon your passing this account will not follow your intent under your Last Will and Testament, but will be transferred to your agent as the surviving joint owner. Naturally, this could cause some issues during the administration of your estate. It would also give your agent the legal right to access the accounts as their own, which could cause another set of issues. Your money could be subject to creditor claims of your “agent, now co-owner”.

If you are adding your agent onto your account at your local bank, please make sure that they are being added as the agent and not a joint owner.

Who’s on Your Team?

Team?  Do you really have a team?  Think about it – you certainly do.  In fact, you probably have several teams – medical, financial/legal, family, friends, etc.  In this blog, I am going to address the importance of your financial/legal team. 

In years gone by, we would go to a doctor who would treat us for everything – almost.  Today, we may have a primary doctor, but if there is a specific issue, we get referred to a specialist.  Your primary and the specialist now become a medical team for you. 

Likewise, in the legal profession, many practitioners are focused on specific areas that complement one another, rather than being a general practitioner.  The benefit to specializing is that their services are focused on the matter at hand and they have more expertise in this practice area. 

In our world today, we are all aware of tax law changes and how frequently they occur.  It is wise to utilize the services of a lawyer who specializes in estates, trusts and taxes. Such lawyers must keep up with these changes and, by doing so, are better versed in how to help you plan to meet your specific situations, needs and wants. 

Regardless of the amount of wealth you have accumulated, it is good to have a financial advisor; not a customer service representative in your local bank branch.  A financial advisor is there to provide financial advice on how to preserve your acquired wealth and how to meet your goals – growth, income, or both.  They follow the economy and the securities markets and can strategize how to get the most bang for your hard-earned buck.  Their focus is on money.

Another member of your team might be an accountant or tax preparer.  This member focuses on finance, but differently than the financial advisor. They will try their best to help with the minimization of tax liability. 

So, you probably have a financial/legal team already and just didn’t realize it.  You may see each of them separately, but imagine how effective they might be if they worked together for your benefit.  The team approach has proven to be very beneficial to clients because of the interaction and collaboration of ideas and strategies.  Speaking with each of your team members separately may not enable them to provide services to their potential.  One of them may know about a specific detail in your life and the others aren’t aware of this.  However, this one detail could have an overall impact. 

Introduce your team and allow them to work together on your behalf.  You might be surprised at the beneficial outcome. 

Receive a Notice from the IRS? Don’t Ignore It!

While many of us panic to see a piece of mail from the IRS, it isn’t always bad news.  So, please do yourself a favor and read the notice; don’t panic. 

The IRS may send you a letter or notice if you have a balance due, if there is an adjustment in the amount of a refund, if there is a question about your return, if your identity needs to be verified, if the IRS changed your return, or if there is a need for additional information. 

If you do receive a notice, read it carefully and address the action you are requested to take, if any. 

When responding, there is usually a second copy of the notice or a voucher which should be included in your response to enable the IRS to properly match up.  This is especially important if you are remitting a check.  Remember, payment to many taxing authorities, including the IRS, can be made on line.  If you have received a bill, but cannot pay the full amount, contact the IRS to make payment arrangements.  They WILL work with you.

Perhaps you have been given a phone number to call.  If calling, make certain you have a copy of the return in question handy so that you can reference the same during the call.    

Respond timely and keep copies of everything. 

Finally, remember that the IRS will not contact you using social media or text messages.  Your first contact will be via letter/notice.  If you are ever uncertain as to the validity of notification from the IRS, regardless of the method, call them.  Once you have provided information as to your identity, they can assist in responding to the notification you received. 

“I Care a Lot”

“I Care a Lot” is one of the most popular movies on Netflix recently.

The movie follows Marla Grayson who is a professional Guardian over elderly individuals who have substantial assets. Marla can been seen taking control over their assets, placing them in assisted living facilities, selling off their homes and assets. There are even instances where she denies a man access to his mother. Without spoiling the movie, the underlying plot has been shocking to people. Unfortunately, guardianships happen all too frequently; and sometimes abuse does happen.  And, we see these situations in real life – not just in the movies.

A guardian is the person who has the legal authority to care for the person and property interests of another person. A guardianship is typically used for an incapacitated individual, for a minor, or for a developmentally disabled/incompetent adult.

A guardianship proceeding begins when there is no legal document in place indicating who is to care for an individual in effect. The most frequent reason that a court appoints a guardian is when an individual does not have a Power of Attorney or Living Will in place.

As stated above, the guardian can be responsible for an individual’s person or property, or both.

In order to avoid having the court appoint someone you may not know as your guardian, you can decide who in your life that you trust would be your agent under a Power of Attorney and Living Will. Everyone should have these documents in place to reaffirm their wishes if they are unable to communicate it later in life.

If an individual is not sure who they can trust or even if their most trustworthy contacts live far away, they can name their attorney as their agent.

If someone has an incapacitated child 18 years of age or older, they can also begin the guardianship proceedings themselves in order to be appointed as their child’s legal guardian. This would still keep the control within the family and would avoid an outside party being necessary.

If an individual proactively makes the choice as to who will be responsible for taking care of them and their affairs, they will limit the chances of being taken advantage of by an unscrupulous individual.

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