Category Archives: Taxes

2014 Federal Gift and Estate Tax Update

By Attorney Ted Brown

TaxCredits_Flickr_TaxJarEffective January 1, 2014, the unified federal gift and estate tax exemption was increased to $5.34 million dollars. This change reflects an adjustment for inflation from last year's 5.25 million exemption amount. In January 2013 as part of the “fiscal cliff “ negotiations, Congress established the limit at $5.25 million to be adjusted annually for inflation.

What this change means is that an individual can now give up to $5.34 million during their lifetime, or pass away with an estate valued up to $5.34 million dollars, without paying any Federal gift or estate tax.

The annual gift reporting limit remains at $14,000 per person. Total annual gifts less than this amount do not need to be reported and are not subject to gift tax. Total annual gifts in excess of this amount count against the donor's $5.34 million lifetime gift exemption.  

Photo by: Tax Credits on Flickr

 

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DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person's situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.
The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement. If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

If an estate goes through probate, how much taxes do we pay?

By Associate Attorney Keith Stevens

Screen Shot 2013-09-30 at 10.58.28 AMIn the last couple weeks, clients have asked me the following and similar questions:

“If an estate goes through probate, how much taxes do we pay?”

“So if we avoid probate, then we don't have to pay taxes, right?”

While these questions reflect the normal concern about after-death expenses, they also combine two entirely different issues into one. Let's untangle these issues.

First, probate may be necessary even when no estate taxes are due and, on the flip side, estate taxes may be due even when there is no need for probate. This is because these two expenses are for different things.

A probate proceeding is the judicial oversight of the administration of a decedent's estate in order to ensure that creditors are paid, the beneficiaries are protected, and the decedent's wishes are upheld. To this end, and depending on the size of the estate, the court may charge hundreds to thousands of dollars of filing fees and imposes expensive requirements on the estate, such as having real estate and other valuable property appraised. However, the real expenses with probate, money-wise, are in the fees that attorneys charge to guide an executor through the probate process, which can cost as little as a few hundred dollars for single small asset to much more for the entire estate itself.

If your assets are not properly protected against probate, a single car or bank account could spend months in limbo before it is available to your beneficiaries, regardless of the value.

The estate tax, meanwhile, is leveled against a decedent's estate if it exceeds a certain value. It serves as a “transfer” tax, a tax on wealth being transferred to the next generation. While Ohio got rid of the estate tax effective January 1st, 2013, there is no guarantee that it won't come back. Further, the federal estate tax still remains, to tax those with an estate larger than $5.25 million (as of 2013). If an asset is in your estate (i.e., you earned it or own it and haven't purposefully gifted it away), then it is countable toward that exemption.

Even if all your assets avoid probate court, they are still subject to the estate tax.

These two after-death expenses do not intermingle (except to the extent that an Ohio estate tax return is filed with the probate court), so probate protection and tax planning are two separate beasts often that require different approaches. If you want to learn more about how to minimize the after-death expenses for your beneficiaries, contact an estate planning attorney at Cooper, Adel & Associates for more information.

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DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

Should I transfer my mortgage into the living trust?

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Answer:  No.  It is not necessary.  Your liabilities follow your assets.  You transfer your assets into the trust.  However, it is not necessary to transfer your liabilities into the trust.

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DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

Would You Pay Taxes Before You Had To?

By Julian Guilfoyle

“Elections should be held on April 16th – The day after we pay our income taxes. That is one of the few things that might discourage politicians from being big spenders.”

-Thomas Sowell, American economist, author, political philosopher, and social theorist

Screen Shot 2013-07-30 at 3.03.40 PMImagine a world where your local tax planner’s parking lot was packed January 1st instead of April 15th . Imagine that the lot is full of people not planning to receive refunds, but those who owe additional tax. Imagine people taking their RMDs, or required minimum distributions at 59 ½, when they first are able to do so without penalty, instead of waiting until they are forced to make these withdrawals at age 70 ½. There is a segment of people who are choosing to pay tax before they have to, and by the way, I am not referring to Warren Buffet, Hollywood “philanthropists” who believe they pay too little tax, or “doomsday preppers” trying to save the country before our debt load overtakes us all. No, the people choosing to pay tax before they are forced to are high income earners and the number doing so is increasing.

High income earners are taking distributions from qualified, or pre-tax investments, before they must satisfy their required minimum distributions (or pay a severe penalty for failing to do so). This is noteworthy because they are paying income tax on the distributions when, in most cases, they do not require the additional income. It would make sense, for example, that lower-income earners take pre-RMD distributions because they may require the additional income.

Donald Jay Korn of onwallstreet.com cited a study recently conducted by the University of Michigan in his article “Even Higher-Income IRA Owners Take Pre-RMD Withdrawals” to make this claim. The study found that “28.8% of retired households in the top-income quartile [at least $61,897 in 2010 dollars] made an IRA withdrawal between ages 61 and 70. The average withdrawal for that quartile was 11.5% of their IRA balance”. I believe this data reflects planning done by these individuals.

There are a myriad of reasons why one would withdraw from their IRA pre-RMD for reasons other than to provide additional income. Given some of Washington’s recent developments (i.e. the fiscal cliff deal, Obamacare) combined with a look at historical tax rates, especially on the wealthy, it is hard to argue with those who believe tax rates will rise in the future. Consider that if you pay the tax early, it’s at a lower rate, and you can always reinvest that money into after-tax investments including tax-deferred investments like annuities. One advantage of an after-tax (non-qualified) annuity is that tax is deferred until there are voluntary withdrawals or the individual passes away, meaning there are no RMDs. Another reason for these early withdrawals may be the effect that RMDs have on an investor’s income tax filing. For example, depending on the size of the qualified investment (i.e. an IRA) and your tax filing situation, sometimes RMDs can bump you into a higher tax bracket. So early withdrawals would lose the tax deferral, but they can keep you in a lower tax bracket in subsequent years resulting in less overall tax paid.

 

As laws continue to change, it is imperative that your plan reflect these changes. What was smart planning five years ago is terrible planning today and vice versa. Whether legal or financial, make sure you review your plans every three to five years or when your situation or wishes change. And unless you want to start campaigning for elections to be held April 16th, it may be time to start thinking outside the box to reduce your tax burden.

 

http://www.onwallstreet.com/news/even-higher-income-ira-owners-take-pre-rmd-withdrawals-2684845-1.html

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DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

The Life Insurance Tax Trap

By Attorney Ted Brown

Screen Shot 2013-05-22 at 9.23.32 AMThe term “discharge of indebtedness” doesn’t mean much to the average person. The gist of it is that if you owe a debt and that debt is forgiven you can end up owing income tax on the forgiven amount.

An interesting example of this concept recently crossed my desk. Mom had purchased a cash value life insurance policy many years ago for $20,000. Over the years, the policy’s had a cash value had grown to $70,000. Several years ago she had taken a loan against that cash value to help one her children through a hard time several years ago.

Last year, Mom got sick and went into a nursing home. She was forced to surrender the life insurance policy in order to pay her bills. At the time of the surrender, the policy had a cash value of just over $5,000. At her request, the company surrendered the policy and wrote mom a check for the $5,000.

However, when tax time came around, she received a 1099 from the insurance company reporting $50,000 of taxable income resulting in over $9,000 of tax being owed.

When the policy was surrendered, there was an outstanding loan balance of $45,000 which was forgiven by the insurance company. The act of forgiving that balance is treated as income by the IRS. The math is not that hard to follow: the $70,000 policy, minus the $20,000 mom has initially contributed, resulted in $50,000 of taxable growth. When the loan was taken, that growth was not taxed even though Mom has access to it. However, when the policy was surrendered tax was due on the full amount of the growth even though it only yielded $5,000.

Give us a call if you are planning your estate or facing a nursing home situation.
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Contact us for a free consultation.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

The 2013 Capital Gains Tax Hikes – with an “s”

By Attorney Dan Vu

Screen Shot 2013-05-22 at 8.32.01 AMDue to the 2013 fiscal cliff deal, the capital gains tax rate has jumped up in more ways than one. If you file as a couple and earn over $450,000 – or if you file as a single and earn over $400,000 – the capital gains rate has jumped from 15% to 20%. Couples and single filers making less those amounts will continue to be taxed at 15% and those making less than $36,250 will be exempt from paying any capital gains tax.

However … don’t let the $450,000 and $400,000 number fool you into thinking the increase affects only highest-earning brain surgeons and CEOs!

The Medicare Surtax is a new and additional tax for couples making over $250,000 and for single filers making over $200,000. The new tax will be used to help pay for the extraordinary cost of Medicare. This Medicare Surtax adds a 3.8% tax on capital gains (and dividends) to the 15% or 20% capital gains tax! So in all, the highest tax on capital gains is now 23.8%.

Furthermore, for Ohioans, add another 5.9% Ohio tax on capital gains – that’s potentially 29.7% in total! It all adds up to a significant capital gains tax hike, and for some, its tax hikes, with an “s.”

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Contact us for a free consultation.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

What is capital gains tax?

Capital gains tax and its impact on real estate is one of the most widely-misunderstood nuances of modern tax law. Perhaps the most important concept related to capital gains tax is known as "tax basis" or "cost basis." This is the value of the property at the time you acquired it, usually the purchase price. This number becomes locked at that date and will not adjust as the property value appreciates over time. 



If you plan to give property to your children or leave it to them when you pass away, the way in which these transactions are handled can result in major tax consequences for your children decades in the future. It is important to understand how estate planning strategies will affect your tax basis and discuss the options with a professional before embarking on a plan.

 

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person's situation is different and requires an attorney to review the situation personally with you. No attorney-client relationship is created by this site. The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement. If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

Estate Taxes, the Fiscal Cliff and the New Year

 

By Attorney Ted Brown

Amid all the fanfare of Congress acting in the eleventh hour to stop a major income tax increase, many Americans have been left wondering what the Fiscal Cliff and the “deal” to avert it now means for their estates. The fear looming over the latter part of 2012 was that the Federal Gift and Estate tax limit would drop to $1 million.

As part of the Fiscal Cliff compromise, Congress agreed to extend the $5.12 million estate and gift tax exemption. They also added a provision that will allow the exemption amount to be adjusted for inflation each year. The tax rate for lifetime gifts or estates in excess of this amount is set at 40%.

Using inflation estimates for 2013, the current Federal estate and gift tax exemption is $5.25 million. This means that, just like last year, someone can either gift or pass away with up to that amount without owing gift or estate tax. More importantly, it means that someone who gifted the maximum last year ($5.12 million) now has an extra $130,000 unused exemption amount.

Congress agreed to make this extension “permanent,” meaning that no expiration date (or “cliff”) was included as part of the legislation this time. This does not mean that Congress cannot or will not change the limit downward at some point in the future. Essentially, it is permanent until Congress decides to change it.

The new year also brought a major change to the Ohio Estate Tax. Effective, January 1, 2013 the Ohio Estate Tax was officially repealed. This means that no Ohio Estate Tax filing is necessary for dates of death occurring on or after January 1, 2013. However, the tax will still apply to dates of death on or before December 31, 2012.

 

If a loved one passed away in 2012 and you would like to discuss the impact of the Ohio or Federal Estate Tax, please call our office.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

 

Ohio’s Fracking Tax May be Changing

 

By Attorney Ted Brown

With the recent boom of oil and natural gas production in Ohio, it should be no surprise that the government is looking for its share of the action.

With the use of a new technique called hydraulic fracturing, or “fracking,” and new methods of horizontal drilling, oil companies have been able to reach previously unreachable pockets of oil and gas. For farmers and landowners alike this has created a new source of revenue in both lease income and higher per-acre value.

However, with higher income means higher taxes. Governor Kasich recently unveiled a plan to relieve the tax burden on farmers and pass it on to the oil companies. The Governor's plan calls for the increase in what is known as the “fracking tax,” or tax on the amount of oil or gas recovered from Ohio lands. This tax is paid by the driller, not the land owner, and would amount to between 1.5% to 4 % of the gross income the oil company generates from the sale of “liquids” extracted in Ohio.

In conjunction with this increase, Kasich will cut income taxes by around 5%, thereby allowing the average landowner to keep more of the lease income they receive.

The plan awaits the endorsement of the Ohio Farm Bureau Federation which is seeking additional information on the impact the plan will have on oil companies before giving its support. The fear is that the companies will merely pass the additional tax burden onto the consumer through higher prices or the landowner through lower lease rates.  

Preplanning Can Reduce Estate Tax Liability for Heirs

 

by Attorney Ted Brown

In 2007, an heiress passed away leaving an estate of just over 20 million dollars. The bulk of the estate was her shares of stock in the family hotel business. Facing an exorbitant estate tax bill, the family entered into a payment plan with the IRS to pay the tax over a period of years.

However, when the hotel went out of business a few years later the estate became insolvent and couldn't keep up with the payments. The IRS then promptly contacted the beneficiaries of the estate demanding payment. After several years of litigation, the IRS prevailed on its claim and collected the remaining tax from the children.

Unfortunately, this situation could have been prevented with the help of a special irrevocable trust. If you are holding onto a family business interest, the last thing you want is for that business to be sold to pay the tax expenses of your estate. However, that usually means giving up control of that business sooner than you would like. An irrevocable trust can be used in this situation to accomplish what Elder Law Attorneys call “controlled gifting.”

Controlled gifting allows an individual to reduce the size of their estate by gifting assets to a trust but stipulating that those assets cannot be distributed until after the owner's death. This is an advanced estate planning technique that can be used to save significant money in estate taxes and preserve hard-earned assets for the next generation. If you would like to discuss the appropriateness of this approach for your situation, call our offices for a free consultation.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

 



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