Same-Sex Couples Should Review Estate Plan


Same-sex couples should review their estate plans in light of the Supreme Courts decision striking down part of the federal Defense of Marriage Act.

The Supreme Court said that the federal law, which refused to recognize same-sex marriages with regard to federal taxes and benefits, was unconstitutional.

The law had made estate planning especially difficult for same-sex couples, because they couldn’t take advantage of techniques that were available to other married couples. For instance, under federal law, married couples can make unlimited gifts to each other, and can leave an unlimited amount of property to each other in a will, without incurring gift or estate tax. But the law said this wasn’t true for same-sex couples.

The Supreme Court ruling affects more than a thousand federal laws and regulations, ranging from Social Security to veterans’ benefits to income taxes to immigration.

While the ruling affects tax and estate planning for almost every same-sex couple, exactly how it will apply is complicated. One reason is that same-sex marriage is allowed in only about a quarter of the states, and only a small number of other states legally recognize out-of-state same-sex weddings. So the exact impact of the decision will likely depend on the state in which a couple has, or plans to establish, their legal residence.

Nevertheless, the potential impact is very significant. For instance, in the case before the Supreme Court, a widow in New York (which allows same-sex marriage) will be entitled to a refund of more than $360,000 in estate taxes she had paid as a result of the Defense of Marriage Act.

Another question is what happens if a same-sex spouse passed away before the Supreme Court announced its decision. It seems likely – although it’s not entirely clear – that the spouses’ estate tax return could be amended, potentially resulting in a significant tax refund.

In addition to reviewing their estate planning, same-sex couples should also review their federal income tax returns, since they may be able to amend them and claim a refund.

This is quite complicated in Florida, which is a state that does not recognize same sex marriages in spite of the recent Supreme Court ruling. Consult your attorney.

Donating Property? Don’t Scrimp on Appraisal!

housedonateIf you’re donating assets to a charity, don’t scrimp when it comes to an appraisal and don’t try to file the tax forms yourself. That’s the lesson of a recent case from the U.S. Tax Court.

The case involved Joe Mohamed, an extremely successful real estate investor in Sacramento, California. Joe donated real estate he valued at $18.5 million to a charitable trust. Because foe was a qualified appraiser, he valued the properties himself. He also filled out the relevant tax form himself to claim a deduction for the donation.

But the IRS denied any deduction for the real estate, claiming that Joe made mistakes on the form. And the Tax Court reluctantly agreed that the IRS was right.

For one thing, the IRS rules say that a donor of property can’t act as the appraiser. They also contain a laundry list of things that must be included with the form, such as the taxpayer’s basis in the property, which Joe didn’t include.

Joe argued that the IRS form was confusing. The court agreed that the form was confusing (the IRS has since changed it to make it easier to fill out), but the court said it was up to Joe to understand the form or hire a tax expert.

Joe also argued that he hired an independent appraiser after the IRS complained. The appraiser valued the property at more than $20 million, and in fact the trust sold most of the property shortly afterward for more than $25 million. But the court said this didn’t matter, because under the IRS rules the independent appraisal was too late to count.

So Joe’s do-it-yourself approach meant that he got no tax deduction at all for an enormous charitable gift.

This isn’t the first time the IRS has completely denied a deduction because someone didn’t follow the formalities. There have been other recent cases where a deduction was denied because an appraisal was conducted too long before or too long after the donation was made, didn’t include the complete laundry list of required items, or was made by an appraiser who didn’t have the proper qualifications or was connected to the donor in some way.

For instance, the IRS said that a high school principal wasn’t qualified to put a value on a donation of art supplies, and that an appraisal of partnership interests mistakenly valued the underlying assets of the partnership rather than the interests themselves.

Consult a tax professional before attempting this.


Public Resources Available From the Florida Bar

FloridaBarLogoThe Florida Bar website has valuable, free resources available for the general public. Please visit the Florida Bar Association. On the home page at the top left hand corner, click on the link “For the Public”. There you will find Consumer Pamphlets on a variety of legal topics such as:

1. Consumer Tips.

2. Consumer Forms.

3. Excerpts from the Rules Regulating the Florida Bar.

4. The web address and telephone number for the Lawyer Referral Service.

5. Help For Homeowners Facing Foreclosure.


Public Resources Available From the American Bar Association

Please visit the American Bar Association website. There you will find a large number of excellent publications on consumer topics, the fair debt collection practices act, elder law, estate planning, family law, veterans benefits, health law, voting rights, foreclosure help and mediation, to name just a few.

If you wish, you can call the ABA service center during normal business hours at 1-800-285-2221.

Or, you can write to the ABA at: 321 North Clark St. Chicago, IL. 60654

Take advantage of this valuable free resource.

The ABCs of Arbitration

arbitrationIn the event of unsuccessful challenges to the arbitration award or failure to comply with 
the award, the prevailing party is ordinarily entitled to costs, including a reasonable 
attorneys’ fee for having to compel arbitration or defend or enforce the award.

In the event a dispute shall arise between the parties to this contract, it is hereby agreed 
that the dispute shall be referred to the American Arbitration Association for arbitration 
in accordance with American Arbitration Association Rules of Arbitrations. The 
arbitrator’s decision shall be final and binding and judgment shall be entered thereon.

WHEN IS ARBITRATION USED? Arbitration is used in many different 
fields, and its use continues to 
increase. Some contexts in which 
parties commonly use arbitration 

Consumer disputes, to resolve 
disputes between consumers 
and companies. Commercial contexts, to 
resolve disputes between 
companies. Employment and labor 
disputes, to resolve disputes 
between workers, or between 
employers and employees.

Professional sports leagues, to 
resolve disputes.


Arbitration is a form of dispute resolution in which an arbitrator hears a dispute in a 
private, court-like setting and then makes a final decision that binds the parties. The 
parties select the arbitrator, who is often an 
expert in the subject areas of the dispute. The 
emphasis is on the equity of the situation and 
not on the technicalities of the law. For these, 
and many other reasons, arbitration can be a useful tool for resolving disputes. However, it 
can also pose traps for the unwary.

First, it is important to understand the 
difference between arbitration and other types 
of alternative dispute resolution such as simple 
negotiations and mediation. In negotiations, the 
parties are in control of the process as well as the 
outcome. In mediation, the mediator controls 
the process, but the parties control the outcome. 
Arbitration is a more formal process. The parties can set the parameters of the arbitration 
before the hearing, but in the hearing it is the 
arbitrator-not the parties-who controls both 
the process and the outcome. Unlike negotiation 
and mediation, in which the parties agree on a 
solution in their mutual interest (or are free not 
to reach agreement), an arbitrator’s decision is 
valid regardless of whether or not it satisfies the parties. As a result, arbitration may be a 
more adversarial process than mediation or 

Disputes can end up in arbitration through a number of routes, some voluntary and some 
required by a court order or previous agreement. 
Arbitration is voluntary when two willing parties 
agree to the process as a means of resolving their 
dispute. This sometimes happens if the parties 
have already tried negotiation and! or mediation 
without success but are still looking for an 
alternative to litigation. If you are thinking about 
voluntarily going to arbitration, it can be helpful 
to consider whether the dispute is primarily 
about interests or about rights. If parties can 
resolve their dispute by reaching a compromise 
relating to their interests, then negotiation or 
mediation probably is a more desirable option 
than arbitration. However, if the parties believe 
their legal rights are at stake in the dispute, then 
arbitration is probably preferable.

Sometimes, a court may order parties to 
participate in nonbinding arbitration prior to trial. This means that the parties are not legally bound to comply with the arbitrator’s 
decision and may continue with litigation if they wish. Judges sometimes order parties 
to arbitration because it will give each side a sense of the strength of its case.

Some disputes are required to go to arbitration based on an arbitration clause. These clauses, which are found in contracts, state that disputes over the contracted 
matters must be resolved through arbitration. An arbitration clause might look 
something like this:

Arbitrations arising under an arbitration agreement are usually binding, unless 
otherwise provided in the arbitration clause. This means that the parties are legally 
obliged to comply with the arbitrator’s decision and have very limited rights to appeal 
the decision to a court.

If you have agreed to the terms of a credit 
card, insurance policy, or bank loan, it is likely 
that you have agreed to an arbitration clause. 
Often the arbitration clause is included in the 
fine print of an agreement. However, arbitration 
clauses do not have to be part of your initial 
agreement with a company. For example, credit 
card companies may include in your monthly 
statement an arbitration clause providing that 
continued used of the credit card constitutes 
agreement to the arbitration provisions. 
Arbitration clauses can even be retroactive, 
applying to disputes that arose before you 
agreed to the arbitration clause.

Although you are generally bound by any 
arbitration clause to which you agree, there 
may be some ways to negotiate such an agreement. For example, you may be able to argue 
that your case is not the type of dispute covered 
by the arbitration clause. Or, you may be able to 
argue that, because an arbitration clause gives one side a large advantage over the other, it is 
so unfair (usually referred to as “unconscionable” in legal terms) as to be invalid. If 
you think this is the case with an arbitration agreement you have entered into, talk 
to your lawyer, who will be able to help you understand the agreement and your 
options going forward.


Dying In a Digital World

Each year, more and more of our lives move online. From photos posted on a 
social-networking site to bank statements stored in your email, many of our assets that used to be detailed by a paper trail are now completely digitized.

If something happens to you, your loved ones or the executor of your estate may have no simple way to locate your pictures, or figure out where you bank, without 
access to your online accounts. However, many online service providers will not
release your password to anyone but you, even if you are no longer living or are 

Unless you have shared your email accounts and passwords with your executor or family, your social networking profiles, blogs, and other digital media may be lost forever upon your death or disability. For some people, this may be exactly what they want. However, if you spend a significant amount of time online, your online accounts may contain material that 
has financial or sentimental value to your loved 
ones. If this holds true for you, consider creating a set of instructions on how you would like your online life handled. Consider listing: all of your computer, tablet, and smartphone devices and 
their connected service providers; all e-mail addresses, including how the address is used (e.g., for personal or professional use, or to receive spam and other unwanted messages) and the 
password; and the usernames and passwords to each of your social networking profiles and instructions as to what should happen to the 
profile upon your death (e.g., Should it be deleted? 
If not, who should be responsible for continuing 
the profile?). You should also list all of your blogs, domain names, and webpages and the host for 
each; each bank and brokerage account for which 
you have online access along with the username 
and password for each account; where you store 
digital photos; and, finally, if there is any sensitive 
information in these online accounts that should be 
kept secret from certain family or friends.

A few words of caution, before you create a 
list of all your online accounts and passwords–check the privacy policies, terms, and conditions of each of your online service providers. Some web sites prohibit anyone but you from using 
your account; your executor or agent should be mindful not to violate these policies. You’ll also want to take great care to keep this list in a safe place; if the list falls into the wrong hands, your bank accounts could be wiped out and your online identity could be tarnished, or worse.

If a simple paper list isn’t really your way of doing things, a software or web-based password 
storage mechanism such as Legacy Locker or KeePass may be a better alternative.

Since so much of our lives these days exist in a digital environment, it is more important than ever to make sure you include this part of your life in your discussions with your attorney when developing your estate plan. Your attorney can help to make sure that your executor has the necessary authority to access your various financial accounts 
and pass along the information you wanted your 
executor to have upon your death.

May 2014 Be Careful Using IRA Funds for ‘Alternative’ Investments

nesteggIRAs can be an important part of estate planning, especially for savvy investors and business owners. But be careful – mixing your IRA and your business interests too closely can cause big tax problems.

The IRS can “revoke” an IRA, and deny you all its tax benefits, if you use the funds for certain improper purposes. This rule applies not only to you, but also to actions by your family members and any business or trust that is controlled by you or your family.

What can’t you do? You can’t buy, sell, or lease property to or from an IRA; you can’t borrow money from an IRA or lend money to it; and you can’t make personal use of IRA property.

So, for instance, you can’t invest IRA funds in a business you own, you can’t lend money from an IRA to a relative to start a business, and you can’t use real estate owned by an IRA (such as rental property) for personal purposes (such as a vacation).

In fact, if your IRA owns rental property, you should avoid making any repairs or improvements yourself, because the value of your labor might be considered an improper contribution.

Two Colorado business partners found this out the hard way recently.
The two each used about $300,000 in their IRAs to buy 50% shares in a new corporation. The corporation then used the funds, plus a bank loan and a promissory note personally guaranteed by the partners, to buy a fire-safety company.

Oops! The personal guarantees meant that the partners were indirectly lending money to the IRA. As a result, the IRS revoked the IRA, and it charged the partners more than $500,000 in taxes and penalties.

If you’re considering putting IRA funds into “alternative” investments such as real estate, art, or shares in a private business, be careful and consult an expert first.

Consult a tax professional before attempting this.


May 2014 Shouldn’t You Go Forward With a Reverse Mortgage?

reversemortgagesAs we age, our financial resources and priorities begin to shift; we may no 
longer be receiving a bi-weekly paycheck, but we also may no longer have 
dependent children. However, a lot of stress can result from living on a limited 
income in the shadow of increased costs associated with healthcare and estate planning.

There are a number of financial tools and arrangements that can help you finance 
your retirement years, including pensions, 401(k)s, and various trusts and insurance 
programs. Another option exists that is not as widely known-reverse mortgages. This 
option may be right for you if you own the home you live in and are looking for some 
extra cash.

A reverse mortgage lets you borrow against the equity in your home without having 
to repay the loan while you still live in the house. You can get the money in a lump 
sum, in monthly cash payments for life, or by drawing on a line of credit, or you can 
choose a combination of these options. The amount you can borrow and the sizes of the loan installments are based on several factors, including: your age, the value of the 
home and of your equity in it, the interest rate, and the kind of loan you select. Reverse 
mortgages can be costly, but the relative costs lessen over time, and you will never owe 
more than the value of your home.

Most reverse mortgages place no restrictions on how you use the money. The loan usually does not have to be repaid until you sell your home, move, or die. In 
years past, there were loans that had to be repaid at the end of a specified number of years. Very few, if any, of these types of loans still exist. Some lenders combine a 
reverse mortgage with an annuity that allows you to receive payments under the 
annuity even after you sell your home and move. However, there can be complicated 
tax implications resulting from such an annuity; make sure you understand how an 
annuity would impact your tax obligations and estate planning before agreeing to such 
an arrangement.

If you enter into a reverse mortgage, you will be required to repay the money you 
have borrowed plus the accrued interest and fees when you sell your home or move, or at the end of the term. The house can be sold to repay the loan, or the funds can be 
collected some other way (for example, out of your savings). The lender is not permitted 
to collect more than the appraised value of the home at the time the loan is repaid, even 
if the loan exceeds that amount. Therefore, you will never end up owing more than the 
current value of the home, which can provide some important peace of mind.

You will never end up owing 
more than the current value of 
the home, which can provide 
some important peace of mind.

The most widely available reverse-mortgage 
product is the federally insured Home Equity 
Conversion Mortgage (HECM). Under this 
program, the Federal Housing Authority (FHA) 
provides insurance for reverse mortgages 
acquired through private financial institutions. 
Another reverse-mortgage program is the 
Home Keeper Mortgage, which is backed by 
Fannie Mae. Over the years, a few private 
companies have started to offer their own 
reverse-mortgage products. These tend to be more costly than the HECM or the Home 
Equity Keeper Mortgage because the lender 
must charge customers more in order to self- 
insure against potential losses. Federal law 
requires all reverse-mortgage lenders to inform you, before making the loan, of the total amount 
you will owe throughout the course of the loan. This allows you to compare the costs of 
different mortgages.

Your eligibility for a reverse mortgage 
depends on the specific loan you apply for, but 
most programs have rules similar to those of 
the HECM program. Generally, you and anyone 
who is listed on the deed must:

Be at least 62 years old; andOwn the property free and clear, except 
for liens or mortgages that can be paid off 
with proceeds from the loan.In addition, the property must be:The borrower’s primary residence (so, a 
vacation home won’t work); andA single-family home or in a one- to four- 
unit building. (Some condominiums are 
eligible depending on the program.)

If you are considering a reverse mortgage, it is important to think through how it might 
impact your estate planning. Reverse mortgages 
allow you to spend your home equity while you are alive. This can be a useful way to get 
more cash to spend now; however, it may also 
result in your using up all of your equity and 
not having any left to pass along to your heirs. 
It is important to talk to the attorney who 
helped you craft your estate plan to determine 
if a certain reverse mortgage option is best for 
your needs. There can also be complicated tax 
implications connected with certain reverse 
mortgage options that your lawyer or tax 
advisor can help you understand.