Trusts, Estates and Succession

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Do You Know The Telltale Signs Of A Tax Scam?

We are constantly hearing about security and technology and perhaps are turning a blind eye and a deaf ear to anything we see and/or hear.  But, in these trying times, there are many creative minds at work and not working for the good.  They are coming up with new ways each and every day and we need to be alert. 

Have you or someone you know had a phone call saying that there is tax owed and someone will come and collect what is owed or you need to send an amount via Western Union or the police will come and arrest you?  Let’s be reasonable; do you think that the IRS would do such a thing, even if you don’t have a good opinion of the IRS?  (Just remember, the IRS is only a collection agency, so to speak, for our government and operates under Congress.) 

Phone calls are common from spoofers or fakers who can get your caller ID to show a number from anywhere in the country and can “spook” an IRS office phone number.  Don’t fall for these spoofs or fakes.  If you feel the number is suspicious, let it ring and go to voicemail.  After all, if it is important, a message will be left.  If you do answer the phone and realize it is not the caller you thought it was, hang up immediately.  You should contact the Treasury Inspector General for Tax Administration to report the call or report the caller ID and callback number to the IRS by sending it to phishing@irs.gov with the subject line to read “IRS Phone Scam”.

If the IRS is attempting to collect taxes from you, you will be notified in WRITING.  The notification with provide you with contact information on where to send payment or a phone number to call.  You will not be asked to send money via Western Union or any other electronic means.  The writing you receive will be to send a check directly to the IRS at the address provided in the notice.

You will not be contacted via email by the IRS, but should you get a phishing email that has an attachment, DO NOT open the same.  Rather, forward it to phishing@irs.gov with the subject line to read “IRS Phishing Scam”. 

If you know or think that you owe taxes, then go to irs.gov and view your tax account information online.  Or, call the IRS at 800-829-1040 to inquire about your account. 

Be safe.  Don’t be vulnerable. 

Challenges for Taxpayers Due to COVID Pandemic

Mid-March, the height of income tax season.  Add to that the COVID Pandemic and where does that leave taxpayers?  Well, first of all, tax season was extended to July 15 to provide additional time for taxpayers to file their taxes.  But, what about the people who filed their taxes before the pandemic was in full force or during our country’s shut-down?  What situations could be encountered?

If a paper return was filed and a refund due the taxpayer, processing had been suspended.  As the IRS slowly reopened, there were over 4.7 million paper returns waiting to be processed as of mid-May.  And, due to limited space, many returns were sitting in mail facilities. 

Some taxpayers whose returns were mistakenly flagged by IRS processing filters have experienced delays in receiving their refunds. All tax returns claiming refunds are passed through filters designed to detect identity theft and other types of refund fraud. It has been determined that some of these filters produced “false positive rates” of more than 50 percent (meaning that more than half the taxpayers whose returns are stopped by certain filters are entitled to the refunds they claimed). If you were one of these affected taxpayers, you may be asked to mail in documentation to substantiate your claims, but, the big question is whether the IRS has opened or processed many of the responses due to the backlog, delaying refunds.

While IRS systems prepared over 20 million notices during the pandemic, these notices could not be mailed due to closure of notice production centers. The IRS has now mailed these notices. However, some collection notices bear old dates and include response deadlines that often have passed. These notices with stale information can be confusing and of concern to taxpayers. 

If you have received a notice that is confusing or of concern, don’t hesitate to contact the IRS at the number contained in the notice to get assistance with regard to updated information. 

Safekeeping Original Documents

Where are your original estate planning documents?  In a safe place – right?  That safe place could be a safe deposit box at a bank, a fireproof box or safe in your home. Hopefully, not in a container that could burn or perhaps suffer water damage if there was a fire.  There are certain documents such as a Will that only one copy is signed and therefore, the only original.  If that document were destroyed, what would happen? 

There is the likely possibility that, if there is a photocopy, the photocopy could be processed through the Courts as the original Last Will and Testament.  However, that can be an expensive process. 

You feel comfortable knowing that your Will, life insurance policies, deed and other important papers are in your safe deposit box at a bank.  You have been told that, upon your passing, your executor can enter the box to retrieve the original Will to file the same with the Courts and be appointed as the executor.  However, there are some banking institutions that are not allowing entry to the safe deposit box to retrieve the original Will.  The executor will be told that they need a short certificate – the certificate issued by the Court to evidence the appointment of a representative of the estate, which can only be obtained by presenting the original Will.  That sounds so contradictory.  So, what happens now?

You can be firm with the bank that you should be able to retrieve the Will, but you may be told that you need the short certificate.  You can argue that you can’t get a short certification without the Will.  It can become a vicious circle.  And, unfortunately, a battle you most likely will not win.

We have had the experience that the executor has had to file documentation with the court to get permission to retrieve the Will.  This incurs legal and court costs and takes time.  In the meantime, there may be matters pertaining to the decedent’s estate that need immediate attention by an authorized representative. 

So, where is the best place to keep your original Will?  In the past, we would have said in a safe deposit box, but with some financial institutions restricting access after the death of the owner of the safe deposit box, we now do not necessarily feel that way.  If the owners of the safe deposit box include the name of the executor, there should be no problem.  But, if the executor is only listed on the box as an agent under a power of attorney, that authority dies with the box owner. 

Check with your financial institution as to what their policy is regarding the retrieval of a Will after a box owner’s death.  Maybe you really don’t need a safe deposit box.  Most paper contents can be replaced.  Perhaps your estate planning attorney offers the service to clients to keep the original Will as does Capehart.  Think about it and determine what is best for you.

Ownership of Assets by Non-Married Couples

You and the love of your life have lived together for years being perfectly content not being married.  You have acquired assets together, like a residence, a second home, bank account or other items.  But what will happen when one of you dies? 

Thinking that because you have both names on the asset, the surviving partner will automatically inherit the asset, and that could be very true for the most part.  There are two types of ownership – joint tenants with the right of survivorship (where the survivor automatically inherits) and tenants in common (where each is deemed to own a one-half interest).  The type of ownership is not automatic.

On a deed, it should be clearly specified which type of ownership is intended.  If it is as tenants in common, each of the tenants have the ability to sell or pledge their one-half ownership.  In the event of death of one of the owners, the surviving owner does not automatically inherit the deceased owner’s one-half share.  That share will pass pursuant to the provisions of a Will of the deceased owner and, if no Will, then according to the Intestacy Laws in the state of residence.  For example, one of the unmarried couple dies without a Will and has children from a prior relationship.  Those children could have an interest in the property due to intestacy.  Is that what is intended? 

Also, there may be two names on, let’s say, a bank account.  Is that with right of survivorship or tenants in common?  It is best to check with the bank.  Banks can treat the type of ownership differently. 

Regardless of the type of ownership, when assets are jointly owned by unmarried individuals, there is the subject of inheritance tax.  In New Jersey, there is no inheritance tax to a surviving spouse (legally married) as in Pennsylvania.  But, when the couple does not have “that piece of paper”, the taxing authorities step in and take their share – 15 percent in both New Jersey and Pennsylvania when one of the “couple” passes!

Live as you so choose; that is your right.  But, if you fit into the category that is the subject of this blog, be prepared.  When one of you passes away, you could be in for a hefty inheritance tax payment. 

Recordkeeping for Stocks Not In a Brokerage Account

Gone are the days of paper stock certificates to evidence ownership of stock.  Now, if your stock is not held in a brokerage account, it will be held in a statement account with a transfer agent such as Computershare. 

If your shares are held in a brokerage account, you will have the availability to have the brokerage institution track the basis, stock splits, exchanges, non-dividend distributions, dividends, etc. for you.  However, if you have your shares in a statement account with a company such as Computershare, you may not have the same information available to you.  Therefore, you will need to track this information yourself. 

Why is it important to keep track of this information?  At some point, you may wish to sell some or all of the shares and, in doing so, you will need to report the sale on your income tax return.  You will need to report the basis – your acquisition cost.  Since you purchased the shares, the company may have had stock splits (receiving additional share(s) for each share you own), a spinoff (your shares are taken into consideration when the company gives shareholders stock in a newly acquired company), an exchange (when the company may have merged into a new company and your existing shares are exchanged for shares in the new company) or if you have a dividend reinvestment plan in place (rather than receiving dividends in the form of cash, your dividend is used to purchase additional shares).  All of these actions factor into your basis.  Without this information, you will not be able to properly report the basis of your shares sold.

For the past several years, brokerage firms have been required to track the basis of the shares owned.  But, with companies that simply hold your shares, the information is not as readily available.  You are required to keep track yourself.  How you do this is up to you.  If you like pencil and paper, a ledger sheet can be used.  If you like spreadsheets, you can set one up yourself.  Or, there are portfolio tracker apps available on the internet.  Whatever method suits your style, use it.  It will save much angst should you decide to sell the securities and need to determine the basis. 

Owning Property Used By Others

You have a second home – either at the shore or in the mountains and you are very generous with letting others use the home.  It may be while you are there or to enjoy your home without you.  Your guests are so lucky.  And you feel good knowing they are enjoying your home. 

But while they are your guests – with or without you being present – an accident occurs.  An accident that has caused catastrophic injuries and the medical bills add up.  You’ve made a claim on your homeowner’s insurance, but your once-friendly guests now file a lawsuit against you.  And, the amount of potential liability is causing you sleepless nights thinking that you could lose assets which you have accumulated.

So how can you protect yourself? 

Consult with an attorney, but a good manner of protection would be to consider putting the property into an LLC – a limited liability company.  This would remove you as an owner and you would have an interest in the LLC, but the assets of the LLC would be limited to anything titled in the name of the LLC and not in your individual name.  This can help to protect you as an individual.

When someone owns rental property, attorneys will usually advise to create an LLC and title the rental property in the name of the LLC.  The exposure to liability is limited, just as the title states. 

Some may say that they don’t want the hassle of the extra record keeping needed for the LLC and that a separate income tax return will be required.  If the only members of the LLC are an individual or a married couple, then the information can be reported on the individual income tax return – Form 1040 for the owner(s).  No additional tax return is necessary unless there would be members of the LLC who are not husband and wife. 

Protect yourself and your hard-earned assets.  If you think that an LLC might be a good idea, discuss it with your attorney and/or tax preparer.

Know Your People

“People”?  Yes you have “people”, we all have “people”.  So, who are your “people”?  They include, but are not limited to, the beneficiaries under your will and/or trust, beneficiaries of life insurance and retirement-type accounts, parties named to serve as executor or trustee, agents under your power of attorney and living will.  Yes, I can hear you saying “Sure I know them”.  And, I believe you that you do. 

However, I am referring to knowing them in a different manner – one that you know the correct name, the correct spelling, where the individual lives or if a corporate fiduciary, where they do business.  In some instances, you may need to know their Social Security Number. 

And why is this important?  Here are a few real life examples encountered in handling estates:

  • You always have referred to a friend as “Jack” during your friendship.  But “Jack” is a nickname, not his given name and he has no identification referencing “Jack”.   When Jack has to show identification as either an agent or a beneficiary, he has nothing; but he does have identification for his real name as “John”. 
  • This even goes one step further with “Sue”.  “Sue” might be a shortened form of “Susan”, but Susan doesn’t have any identification for Sue; only Susan.
  • Even better yet, you refer to someone as “Buddy” when the real name is Robert John. Since he was named after his father, there had to be some distinction.  In all reality, “Buddy” doesn’t exist.
  • Always have the correct spelling of names because an incorrect spelling can cause problems.  For instance “Debra” may really be spelled as “Deborah”.  Or one better, how many spellings are there for “Catherine”? “Catharine”, “Katherine”, Katharine”, “Kathryn”, “Cathryn”. You get my drift.
  • Be specific.  “Mary, my neighbor” really doesn’t provide sufficient information.  What happens if your neighbors change and by chance another Mary moves in next to you?  Would you want her to be a beneficiary?
  • Another example is a female name that does not reflect her married name.  Susan Smith is now Susan Jones.  All of her identification is in the name of Susan Jones but when she tries to act on your behalf, she has problem because of the name differences.  Sometimes presenting a copy of her marriage license will suffice; other times, it is not that easy.

It is likely that if you are revisiting your estate planning documents, you have an attorney who is attentive to detail and will require full names and complete identification of the parties.  However, the attorney cannot be held responsible for “Jack” really being “John” or “Buddy” really being Robert John.  Can they?  They don’t know Jack or Buddy.

Maybe you never realized you have “people”, but you do.  When naming them in legal documents, just make sure that you have properly named your “people”. 

Owning Property In A State Other Than The State You Call Home

Your dream – to own a home in the mountains or a home at the shore.  Unless you live in New Jersey and have a home at the shore or live in Pennsylvania and have a home in the mountains, your estate could be subject to estate administration in the state where your second home is located.  Many people from Pennsylvania and New York enjoy a home at the Jersey shore.  Many people from New Jersey enjoy a home in the Pennsylvania Mountains. 

Also, in today’s world of online banking, where the financial institution does not have a brick and mortar location in your state, the account you have could be subject to what is called ancillary administration – administration in a state other than that of your primary residence. 

Ancillary administration is required to show that there is an estate administration in the home state of residence. It can be as simple as filing a copy of a death certificate when husband and wife own real estate together all the way to the extent of having to go through a long-drawn out process requiring court appearances. 

For example, an online financial institution offered a great interest rate on an account – better than could be found elsewhere.  The owner dies and the estate is administered in New Jersey with the filing of an inheritance tax return and the issuance of a waiver that all inheritance taxes are paid.  The executor presents the waiver to the financial institution located in California.  Rather than getting the proceeds via a signed letter of the executor requesting the account be closed, the executor must go through the ancillary process in California that involves filing of documents referencing assets of the decedent who was a resident of New Jersey, being recognized as the executor of the estate, advertising the estate administration in California newspapers, and being present for a couple of court hearings – fortunately via telephone.  So, in the end, was that great interest rate that great?

Know what could be required if you own assets in another state.  The above scenario could be experienced, the need to file additional documents could be experienced, there could be inheritance tax due (such as if a New Jersey resident owned real estate in Pennsylvania which passes to children – no New Jersey inheritance tax, but there would be inheritance tax on the real estate in Pennsylvania). 

I am not advising that you not own assets in other states, but just be aware.  Speaking with your estate planning attorney may open up some ideas as to how ancillary administration may be able to be avoided, but if you don’t ask, you will never know what options are available to you. 

Caregiver Compassion

Is there someone in your family receiving services from a caregiver?  It could be a family member or someone who is paid to care for the infirmed or elderly loved one.  Have you ever thought about the strength that it takes for someone to be a care giver?  

If it is a family member providing care, you may think it is their duty or responsibility.  If it is a paid caregiver, you may think that it is their job.  Whatever the situation is, the caregiver deserves to be acknowledged, recognized, and yes, even pampered.  They work tirelessly caring for your loved one and can appreciate the smallest gestures. 

Yes, the third Friday of every February is celebrated as National Caregivers Day, but that is once a year.  Perhaps the caregiver you know deserves to be celebrated more frequently. 

I’m not referring to anything grandiose.  Small, unexpected gestures can be meaningful.  Here are some suggestions:

  • Give the caregiver ten minutes of your time to just let them talk and you do the listening.
  • If you are able, perhaps you could arrange for them to have an unexpected hour break to take a walk, make a phone call, grab a relaxing cup of coffee or tea – just some time to recharge. 
  • A small trinket or gift card may brighten their day.
  • Doing something to help the caregiver without them asking can mean a lot.
  • Rather than saying “let me know if I can help”, ask “what can I do to help?”

Perhaps you don’t have a caregiver caring for a loved one, but you have a friend or acquaintance who is a caregiver.  You can always give them a little recognition for the job they do.  A few kind words may be just what they need to hear or just offering a listening ear or a trinket may help to lift their spirits if they have been caring for someone going through a difficult time.  

Thank you, caregivers. 

Coronavirus Relief on Retirement Plan Withdrawals

Have you found the need to take a withdrawal from your retirement plan during this pandemic or are you thinking about doing so to ease your burdens? 

The CARES Act that Congress passed in late March includes provisions enabling people to take distributions or loans up to $100,000 from their IRA, 401(k) or 403(b) plan and get some favorable tax treatment for the calendar year 2020. 

Usually, if you have not reached the age of 59-1/2, any withdrawals are subject to a 10 percent additional tax or surcharge for a premature distribution.  That is definitely something to make you think twice about taking a premature distribution.  Also, for an individual of any age, the distribution is normally reported in the tax year in which it is received.  If you are looking to take a loan against your retirement plan, the maximum loan amount has been limited to $50,000.00. 

But, thanks to the CARES Act, those scenarios have been adjusted for 2020.  If you are under the age of 59-1/2 and take a distribution, there will be no additional 10 percent tax.  If you take a distribution, you have three years to repay a 2020 distribution to your plan or IRA and undo the tax consequence.  And, finally, if you need to take a loan, the maximum has been increased to $100,000. 

There are some finer details with regard to the three allowances above and I suggest that you consult your professional team (tax preparer, accountant, attorney, financial advisor) or brush up on the details on irs.gov. 

Just trying to provide some relief if relief is needed.  Stay safe.

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