New Danger When Doing IRA Rollovers

IRS_logoThere’s now a big danger if you’re rolling money over from one IRA into another IRA, as a result of a decision from the US Tax Court. Under feferal law, you can only do one IRA-to-IRA rollover per year. If you try to roll over more than one IRA in a 365-day period, it’s considered a distributionm and you’ll be subject to significant taxes and penalties.

In the past, the IRS has told taxpayers that this means you can’t roll over the same IRA within a year. So if you rolled your Fidelity IRA over to Schwab, and you later wanted to roll the same IRA over to Vanguard, you had to wait at least 365 days.

But the Tax Court says this is wrong, and in fact you can’t roll over more than one IRA per year ….even if they’re different IRAs.

So if you had two IRAs at Fidelity, and you wanted to roll them both over to Schwab, you’d have to roll one over, and then wait a whole year to roll over the second one. There’s an easy solution to this problem: Instread of rolling the funds over (having them made payable to you and then depositing them at the second instituion), move them with a direct trustee-to-trustee transfer. As long as the funds move directly to the second institution, and you never touch them, it’s not considered a rollover.

But you have to be very careful and make sure that the formalities are followed and the first instituion doesn’t actually send you any money. Otherwise, it could be a tax nightmare.

Eight States are Easing Their Estate Taxes in 2015

estatetaxsmallEight states are reducing their estate tax burden in 2015, which is good news for anyone who lives or owns property in those states.

New York and Maryland are increasing their exemption amounts (the amount of assets an estate can have before any tax is due). For 2015, the New York limit goes from $1 million to just over $2 million, and the Maryland limit goes from $1 million to $1.5 million. Both states plan to gradually raise their limits to the amount of the federal limit by 2019. (The federal limit was $5.34 million in 2014 and will be $5.43 million in 2015.)

Tennessee’s limit will be $5 million in 2015, and the tax will be repealed altogether in 2016.

Rhode Island’s limit will go from about $1 million to $1.5 million next year, and Minnesota’s will rise to $1.4 million, increasing gradually to $2 million in 2018.

Also, starting next year, the exemption amounts in Rhode Island, Washington, Hawaii and Delaware will be indexed each year for inflation.


Some gifts to charity should be made now… not in your will.


In the past, many people’s wills included a sizable donation to charity. Because the federal estate tax was so burdensome, including charitable bequests in a will was a good idea since it reduced the amount of tax the estate had to pay.

Now, however, the federal estate tax applies only to estates of well over $5 million. As a result, for a great many people, leaving money to charity in a will no longer provides any tax benefit.

On the other had, the federal income and capital gains taxes have gone up, new surcharges have been added on investment income, and many states have raised their income and capital gains taxes as well. As a result, many pepple could reap signficant tax savings if they made planned annual gifts to charity while they’re alive, as opposed to making bequests in a will.

If you have an older will that includes a significant charitable bequest, this might be a good time to reconsider whether you could save taxes by writing the charity out of your will and instead making regular donations each year.


Estate Planning is important – even if you’re not super wealthy!

coupleA year ago, Congress dramatically raised the federal estate tax exemption, which for 2013 was $5.25 million (or $10.5 million for a married couple). And that caused some people to mistakenly believe that they no longer need to think about estate planning if their assets are less than $5 or $10 million. However, nothing could be further from the truth. And people who don’t keep their estate plan up-to-date are making a big mistake that could still be very costly to them and their families.

There are a multitude of reasons for this, but here are just a few:

Protecting your heirs.

Many of the techniques that people have used in the past to avoid estate taxes – such as trusts – have lots of other purposes in addition to saving taxes.

For instance, leaving assets to someone in a trust can protect them over the long term if they’re not good at managing money. Trusts can also shield children from losses in the event they get divorced, face a lawsuit, or start their own business. And if you have children from a former marriage, a trust can be a way to care for your new spouse if something happens to you, while still protecting your children.

Trusts can also protect children and grandchildren if they should ever have a problem with gambling or other addictions, or if they have special needs. All of these benefits still exist regardless of the level of the federal estate tax exemption.

Other kinds of taxes have gone up.

While the federal estate tax is less of a problem, other taxes – such as income and capital gains taxes – have increased recently. There’s also a new 3.8% surtax on investment income.

So you should know that techniques such as trusts, LLCs, and family limited partnerships, which in the past were used primarily to avoid estate taxes, can also be used to reduce these kinds of taxes, by giving you the flexibility to funnel income and capital gains to family members in the lowest tax brackets. Techniques such as charitable remainder trusts can also be used to shift income taxes from current years until post-retirement, lower-bracket years. And with capital gains taxes going up, it’s increasingly important to use estate planning to adjust your heirs’ basis in the property they inherit.

Most of the time, if a person dies owning assets that have appreciated in value, his or her heirs receive the assets with a new, “stepped-up” basis as of the date of death. Suppose Martha buys some stock for $50,000, and many years later it’s worth $90,000. If Martha sells it, she’ll have to pay tax on a $40,000 capital gain. But if she dies and leaves the stock to Lou, then Lou will have a “stepped-up” basis of $90,000, and if he sells it right away, he won’t owe any tax. While capital gains basis is typically stepped up at death, it isn’t always, so it’s important to engage in estate planning to make sure your heirs aren’t stuck with a large and unnecessary tax bill.

Health care costs.

If you’re not super-wealthy, health care costs in later years can be a bigger destroyer of wealth than the estate tax ever was. It’s critical to consider health care in retirement as part of a complete estate plan.

State estate taxes.

While the federal estate tax is now a problem only for the very wealthy, many states impose their own estate taxes, and these often kick in at much lower thresholds. New Jersey, for instance, imposes a tax on all estates with assets of more than $675,000. Six other states have estate tax thresholds of $1 million or less. It’s still important to plan around avoiding these taxes.

In addition, some states impose inheritance taxes. Inheritance taxes are different from estate taxes, because estate taxes are paid by a dying persons estate, while inheritance taxes are paid by the dying person’s heirs. Inheritance taxes don’t depend on where the heir lives; they’re based on where the dying person lived or owned property. So if you live in Florida but you inherit assets from a relative in Arizona who owned property in Iowa, you might owe Iowa inheritance tax.

In some states, the inheritance tax rate varies depending on the heir’s relationship to the dying person – so a child might pay one rate, a cousin might pay another, and a lifelong friend might pay yet another.

It’s important to plan for this, too, if for no other reason than to compensate your heirs if you’re going to saddle them with unexpected taxes after you die.

Family issues.

Estate planning has always been about more than just taxes, or even just financial assets. It’s about family. What will happen to your family home, or a beloved vacation home? What will happen to a family business? If you have minor children, how will they be taken care of? Who will receive possessions that have sentimental value? Will your children feel that they’ve been treated fairly, and be encouraged to get along and use their legacy in accordance with your values? All these issues can (and should) be dealt with in a complete estate plan.

Estate Planning | Asset Protection

Secure Money  Price Lock Made From Photographed MoneyWhen you lose a loved one, you want to know that his or her estate will be handled respectfully and in a manner in which your family member requested. Estate Planning and Asset Protection involves the careful use of Wills, Trusts, Durable Powers of Attorney, Health Care Surrogate Designations, and Living Wills.

Certain aspects of Estate Planning protect you while living, while other aspects protect you, as well as your family members, upon dying. Proper Estate Planning can accomplish a number of things, such as providing for the care of minor children in the event of an unforeseen disability or death, protect and transfer assets and valuables to loved ones upon dying, and avoid or mitigate estate taxes.

Having a will, along with other essential documents, can lend a great deal of peace of mind to individuals. Everyone’s situation is different, which is something we understand at the Law Offices of Dana Bowie, P.A. Therefore, we will tailor an Estate Plan that’s just right for you.

Probate Law is the legal process in which the assets of a deceased person are passed to his or her heirs. Sometimes, probate is necessary even if there is a Will. Often, assets needing probate may include bank accounts, real estate, IRA’s, as well as other retirement plans, and life insurance policies. Some types of Estate Planning may avoid probate.

We so often hear that hard work is the path to achieving the American dream. But retaining as much of our earnings as possible for our family can be a challenge. An estate planning attorney can help you to ensure that your assets are protected from creditors.

American Taxpayer Relief Act of 2012

2013-TaxAs you probably know, Congress passed at the 11th hour the American Taxpayer Relief Act of 2012 (the 2012 Tax Act), signed into law by the President on January 2, 2013. The 2012 Tax Act makes several important revisions to the tax code that will affect estate planning for the foreseeable future. What follows is a brief description of some of these revisions and their impact:

The federal gift, estate and generation-skipping transfer tax provisions were made permanent as of December 31, 2012. This is great news for all Americans; for more than ten years, we have been planning with uncertainty under legislation that contained built-in expiration dates. And while “permanent” in Washington only means that this is the law until Congress decides to change it, at least we now have more certainty with which to plan.
The federal gift and estate tax exemptions will remain at $5 million per person, adjusted annually for inflation. In 2012, the exemption (with the adjustment) was $5,120,000. The amount for 2013 is expected to be $5,250,000. This means tliat the opportunity to transfer large amounts during lifetime or at death remains. So if you did not take advantage of this in 2011 or 2012, you can still do so ó and there are advantages to doing so sooner rather than later. Also, with the amount tied to inflation, you can expect to be able to transfer even more each year in the future.

The generation-skipping transfer (GST) tax exemption also remains at the same level as the gift and estate tax exemption ($5 million, adjusted for inflation). This tax, which is in addition to the federal estate tax, is imposed on amounts that are transferred (by gift or at your death) to grandchildren and others who are more than 37.5 years younger than you; in other words, transfers that “skip” a generation. Having this exemption be “permanent” allows you to take advantage of planning that will greatly benefit future generations.

Married couples can take advantage of these higher exemptions and, with proper planning, transfer up to $10+ million through lifetime gifting and at death.
The tax rate on estates larger than the exempt amounts increased from 35% to 40%. The “portability” provision was also made permanent. This allows the unused exemption of the first spouse to die to transfer to the surviving spouse, without having to set up a trust specifically for this purpose. However, there are still many benefits to using trusts, especially for those who want to ensure that their estate tax exemption will be fully utilized by the surviving spouse.

Separate from the new tax law, the amount for annual tax-free gifts has increased from $13,000 to $14,000, meaning you can give up to $14,000per beneficiary, per year free of federal gift, estate and GST tax- in addition to the $5 million gift and estate tax exemption. By making annual tax-free transfers while you are alive, you can transfer significant wealth to your children, grandchildren and other beneficiaries, thereby reducing your taxable estate and removing future appreciation on assets you transfer.
And, you can significantly enhance this lifetime giving strategy by transferring interests in a limited liability company or similar entity because these assets have a reduced value for transfer tax purposes, allowing you to transfer more free of tax.

For most Americans, the 2012 Tax Act has removed the emphasis on estate tax, planning and put it back on the real reasons we need to do estate planning: taking care of ourselves and our families the way we want. This includes

Protecting you, your family, and your assets in the event of incapacity;
Ensuring your assets are distributed the way you want;
Protecting your legacy from irresponsible spending, a child’s creditors, and from being part of a child’s divorce proceedings;
Providing for a loved one with special needs without losing valuable government benefits; and
Helping protect assets from creditors and frivolous lawsuits. For those with larger estates, ample opportunities remain to transfer large amounts tax free to future generations, but it is critical that professional planning begins as soon as possible.
With Congress looking for more ways to increase revenue, many reliable estate-planning strategies may soon be restricted or eliminated. Thus, it is best to put these strategies into place now so that they are more likely to be grandfathered from future law changes.

Further, as is well publicized, the 2012 Tax Act included several income tax rate increases on those earning more than $400,000 ($450,000 for married couples filing jointly). Combined with the two additional income tax rate increases resulting from the healthcare bill, income tax planning is now more important than ever.

If you have been sitting on the sidelines, waiting to see what Congress would do, the wait is over. Now that we have increased certainty with “permanent” laws, there is no excuse to postpone your planning any longer.

How Divorce And Remarriage Affect Your Social Security Benefits

Social Security CardMany people are aware that seniors are entitled to collect Social Security benefits that are calculated based on their spouse’s work record. What’s less well known is that this benefit applies in many cases to divorced spouses? In fact, ex-spouses may even be entitled to surviv

or’s benefits in certain circumstances.

As a spouse, you have the option of (1) claiming a Social Security retirement benefit based on your own earnings record, or (2) collecting a spousal benefit equal to one-half of your spouse’s Social Security benefit. You are automatically entitled to whichever benefit is higher, and you can collect on your spouse’s record even if you never worked yourself.

A divorced spouse can collect benefits based on an ex-spouse’s work record, whether or not the ex-spouse has remarried and whether or not the ex-spouse’s new spouse is also collecting on the same work record.

But to receive this benefit, you must meet the following requirements:

  1. Your ex-spouse is currently eligible for retirement benefits.
  2. Your marriage lasted at least 10 years.
  3. You are at least 62 years old.
  4. You are currently unmarried.

If your ex-spouse has not yet applied for retirement benefits, but is eligible for them, you can receive benefits based on his or her work record as long as you have been divorced for at least two years.

If you have reached full retirement age and are eligible for both a spouse’s benefit and your own retirement benefit, you have a choice. One option is to receive only the spouse’s benefit for now, and delay receiving your own retirement benefit until a later date. The longer you delay taking your own benefit (up to age 70), the higher the monthly payment you will ultimately receive.

If you remarry, though, you cannot receive benefits based on your former spouse’s work record unless the new marriage ends (by death, divorce, or annulment).

Survivors benefits

If you’re divorced and your former spouse has passed away, you could be eligible for survivors benefits if the marriage lasted 10 years or more. Survivors benefits are equivalent to the deceased spouses full Social Security benefit amount.

However, if you remarry before the age of 60, you can’t collect survivors benefits (unless the later marriage ends for any reason). If you remarry after age 60, you can still receive survivors benefits based on your former spouse’s record.

It may be that your new spouse is also collecting Social Security benefits, and you would receive a higher amount based on the new spouse’s work record. If this is the case, you will receive the higher amount.

There is one circumstance in which you don’t have to meet the 10-year marriage rule – if you’re caring for a child who is under age 16 or disabled, and who is currently receiving benefits based on the work record of your former spouse.

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.


Estate Planning and Chronic Illness

estate_planningTo many, the idea of estate planning sounds like something distant and daunting. For the 133 million Americans living with a chronic illness, it might seem a lot less distant, and a lot more daunting. What should you do if you or a loved one is living with a chronic illness? The following “BASIC” tips apply generally as good estate planning practices but are particularly helpful for those families dealing with chronic illness: Be Specific, Automate, Simplify, Inform, and Commit. Careful planning can help ensure that you and your assets will be protected.

Be Specific

It will be difficult for your agents and attorney to respect your wishes if your wishes aren’t clear. It is crucial that you document, in a written legal statement, exactly what should happen if your condition worsens. For example, you may want your power of attorney documents to remain valid if your illness renders you incompetent or otherwise disabled. Be sure to discuss this with your attorney, as state laws sometimes require special language to ensure this durability. You should also consider adding special provisions to allow your agent to adapt to needs arising from your illness. If your condition could make it difficult to navigate your home, you might authorize your agent to improve accessibility, for example, by adding ramps and railings, even if such improvements would be expensive.

A durable health care power of attorney, if drafted correctly, will specify those types of medical decisions your agent can make on your behalf, even if you become incapacitated.

Tailoring your health care power of attorney to your illness is also important. A health care power of attorney is a specialized type of power of attorney; a traditional power of attorney grants a person broad authority to handle all types of financial matters and is usually not valid if you become incapacitated, whereas a durable health care power of attorney, if drafted correctly, will specify those types of medical decisions your agent can make on your behalf, even if you become incapacitated. Carefully differentiate in your living will which standards are to apply in acute situations versus chronic situations. Do you want experimental or nontraditional treatment? Do you want to be a tissue donor? How much treatment do you want? Don’t leave your agents guessing; the more specific you can be, the better.


The last thing you want to think about if your condition worsens is your finances. To minimize the chance of forgetting payments and making mistakes, automate as many of your accounts as possible. Have income deposited directly into checking accounts, and have expenses charged against those accounts. Then if your illness flares up or you are hospitalized, your day-today finances won’t collapse. With most payments and deposits running automatically, you would be able to devote your attention to your health.


Consider making a centralized list of important information, including: medical and emergency contact information, current health status, medications, allergies, and contact information for important advisers, such as lawyers, accountants, bankers, financial advisers, and household staff. Make sure to list names, relationships, phone numbers, and e-mail and residential addresses. If your illness could make it difficult to remember things, you might aggregate your passwords and security codes, just to be safe. Collect all important financial information into one comprehensive document, and consolidate as many of your accounts as possible. That way you, your agents, and your attorney can easily monitor your money and make sure that no one is taking advantage of your illness.


Your attorney and agents, or those authorized to act on your behalf, will be better equipped to assist you if they understand the nature of your condition. It is thus imperative that you provide them with as much information as possible. There are many organizations that endeavor to help people with specific chronic-illnesses. These organizations often have educational materials that you can use to get your attorney and agents up to speed. You may want to meet regularly with your attorney. This can help your attorney track changes in your condition, and as an independent professional, your attorney may be able to recognize potential risk factors and protect you from abuse.


Living with a chronic illness can be ‘overwhelming. It might be especially difficult to talk about your death or disability with loved ones, and if you are receiving intensive treatment for your illness, you might be short on time or energy. When meeting with your lawyer, break down larger tasks into smaller, manageable pieces. Take your time, and only do as much as you can handle—it is better to have just a few important documents signed and finalized than to take on too much at once and not finish anything.

If you have a chronic illness, it is important that you start the estate planning process as soon as possible. A little preparation now will save you serious headaches later. Following these few simple steps and having a conversation with your attorney now will give you peace of mind and allow you to focus fully on your recovery when you experience health issues,