Court Grants IRS “John Doe” Summons in Gift Tax Case

After previously refusing to do so, a district court in California has granted an IRS request for lists from the California Board of Equalization of grantees of real property between nonspouse relatives, looking for taxable gifts. In Re Does, (DC CA 12/15/2011) 108 AFTR 2d 2011-5589. The IRS has already received such information from Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin. Even though Colorado is not yet on that list, keep in mind that a conveyance without consideration to a child, for example, is a taxable gift and a gift tax return should be filed to report the gift. In addition, because Colorado gives a joint tenant the right to unilaterally sever and convey his or her interest in real property, adding a child to one’s title as a joint tenant is also a taxable gift (unlike the use of a Beneficiary Deed). For more information on Beneficiary Deeds, see the article entitled Property Transfers on Page 3 of our Spring 2005 newsletter at http://www.wadeash.com/newsletter.asp.

The Cost of the Items in "The 12 Days of Christmas"

According to PNC Wealth Management’s 28th annual index, the cost of the items in the song “The 12 Days of Christmas” is $101,119.84. This is a 4.4% increase from last year and the first time the cost of the items has topped $100,000. Some of the items increased in cost this year, but the three French hens, eight maids-a-milking, nine ladies dancing, and ten lords-a-leaping all cost the same this year as they did last year. A list of the items, their cost, and their price increase or decrease from last year is below:

1. Partridge in a pear tree: $185 (+14%) 
2. Two Turtle Doves: $125 (+13%) 
3. Three French Hens: $150 (unchanged) 
4. Four Calling Birds: $600 (-13%) 
5. Five Golden Rings: $650 (-1%) 
6. Six Geese-a-Laying: $162 (+8%) 
7. Seven Swans-a-Swimming: $6,300 (+12.5%) 
8. Eight Maids-a-Milking: $58 (unchanged) 
9. Nine Ladies Dancing: $6,294 (unchanged) 
10. Ten Lords-a-Leaping: $4,767 (unchanged) 
11. Eleven Pipers Piping: $2,428 (+3%) 
12. Twelve Drummers Drumming: $2,630 (+3%)

See Quentin Fottrell, The ’12 Days of Xmas,’ Itemized, Family Money, Dec. 2, 2011.

And Just When You Thought You'd Heard It All . . .

We hear unusual requests from clients all the time when discussing desires for disposition of last remains. From the thoughtful to the funny, clients have strong ideas when it comes to this issue. But Alan Billis, a sixty year old English taxi driver, volunteered to be mummified after his death by a research team making a documentary about the ancient Egyptian practice of mummification, to learn more about the process. Mr. Billis read about the planned documentary, and contacted the researchers to volunteer. Dying of lung cancer, Mr. Billis saw this as an opportunity to benefit science and get an appearance on TV. Although he regretted not being able to see the final product.

In order to assist citizens in the fulfillment of their last wishes for the disposition of their remains, the Colorado legislature passed the Disposition of Last Remains Act, CRS 15-19-101, et seq., The 2003 Act creates a form that allows us to specify the manner in which our body is disposed, what kind of service or funeral is held, and who ultimately makes those decisions. Being mummified might be a bit out of the average estate's price range, but if these issues are important to you, be specific about your wishes, and make sure those wishes are known.

For more information on this topic, go to www.wadeash.com and use our search function at the top right of the screen to search for specific topics. There are several references to "last remains".

A Volatile Stock Market Can Provide Capital Losses

The stock market has been very volatile the past several months. If you or your business has capital gain income for 2011 (or for corporations, in the last three tax years), discuss with your investment advisor whether it would be beneficial to consider sales to lock in offsetting capital losses before the end of the year.

Expiring Tax Provisions for Businesses

In addition to the individual tax provisions that are expiring, there are a number of business tax provisions that are scheduled to end in 2011, including 100% bonus depreciation for qualified property; 15-year writeoff for certain realty assets such as leasehold, restaurant and retail improvements; increased expensing elections; a number of credits such as the work opportunity tax credit (this was extended for qualified veterans), research credit, renewable and alternative fuels credits, new markets credit, energy efficient homes credit, and the energy efficient appliance credit; and enhanced charitable deductions in a number of areas. Again, if any of these apply to your business, act now to take advantage of these provisions before the end of the year.

Expiring Tax Provisions for Individuals

The failure of the "Super Committee" to agree on deficit reduction makes even more uncertain the fate of a number of tax provisions that are scheduled to expire at the end of 2011. Included in that list for individuals: the contribution of up to $100,000 from an IRA directly to charity by an individual at least age 70 ½; enhanced deductions for contributions of conservation easements; reduction in payroll taxes (although this may be extended separately); increased Alternative Minimum Tax exemption; a number of credits such as the adoption credit, energy property credit, first-time homebuyers credit, increased deduction for qualified tuition expenses; and exclusion of 100% of gain on certain small business stock. If any of these apply to your personal situation, act now to take advantage of these tax provisions before the end of the year.

November is National Family Caregivers Month

On November 1, President Barack Obama issued a Presidential Proclamation in which he named November as National Family Caregivers Month, to honor those who work to assist those in need in our communities. In the Proclamation, President Obama encourages all of us to "pay tribute to those who provide for the health and well-being of their family members, friends, and neighbors." For more information, go to National Family Caregivers Month.

The New Compensation and Cost Recovery Legislation

Marc Darling will be making a presentation on December 5, 2011 to the Trust & Estate Section of the Colorado Bar Association as part of their CLE Luncheon Series. His presentation is entitled, "The New Compensation and Cost Recovery Legislation (C.R.S. §15-10-601, et seq.)." Topics covered will include a General Discussion of the Statute, Recovery of Reasonable Compensation and Costs, Factors in Determining the Reasonableness of Compensation and Costs, Fee Disputes: Process and Procedure, Assessment of and Limitations on Compensation and Costs, and Strategies That are Evolving to Deal with these Provisions.

No Protection Under Bankruptcy for Self-Settled Trust

Alaska is among a handful of states that explicitly provide creditor protection to beneficiaries of trusts that are "self-settled" meaning in this context that the same person created the trust, contributed the property to the trust, and is one of the beneficiaries of the trust. In 2005, Mr. Mortensen, an Alaska resident and at the time, solvent, created an Alaska Asset Protection Trust and contributed cash and real property to the trust. Mr. Mortensen and his heirs were beneficiaries of the trust. In 2009, Mr. Mortensen filed for bankruptcy, with more than $250,000 in debts. He did not list the trust as one of his assets in the bankruptcy estate. The Bankruptcy Trustee attacked the trust, claiming in part that because Mr. Mortensen created the trust with intent to protect the assets against his future creditors, the transfers were void under new Bankruptcy Code Section 548(e). The Section was adopted as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The Alaskan Bankruptcy Court agreed with the Bankruptcy Trustee in Battley v. Mortensen, D. Alaska, No.A09-90036-DMD. The Court commented that Section 548(e) "closes the self-settled loophole" and made it clear that it was the intent to protect the trust assets from creditors that caused the trust to be included in the bankruptcy estate. Although this case is limited in scope to the Bankruptcy Code, we will keep watch for developments in this area. At this time, Colorado does not have explicit asset protection for assets in a self-settled trust. If you’d like to read more about the the decision in the Mortensen case, go to http://www.wadeash.com/PDF/battley-mortensen.pdf.

Elder Law Society Career Panel

Marc Darling and Josie Faix are participating in a panel discussion on Tuesday, November 8, 2011, with the Elder Law Society. The Elder Law Society is a student organization of the University of Denver Sturm College of Law. The panel will discuss the practice of Elder Law with attendees.

Dead Man's Statute Presentation to the Litigation Section

On Saturday, November 5, 2011, Marc Darling, Herb Tucker and Greg Washington are making a presentation at the Litigation Section Council meeting of the Colorado Bar Association concerning proposed revisions to the Dead Man’s Statute.

Favorable Tax Treatment of Contribution of IRA to Charity May End 12-31-2011

Unless Congress extends this benefit, the ability of taxpayers at least age 70-½ to contribute an IRA up to $100,000 in value directly to a public charity without having to report the IRA as taxable income followed by a charitable deduction (which does not offset the income 100%) will end as of December 31, 2011. Such a contribution will also satisfy the taxpayer’s Minimum Required Distribution for the year. If you are considering taking advantage of Code section 408(d)(8)(F), be sure to get the contribution started well before the end of the year.

Can I Be Accidentally Married?

Although we hear a lot of un-true estate planning rumors from clients, we seem to be encountering quite a few lately that deal with common law marriage.  Colorado recognizes common law marriage, but does not impose any particular time line for being considered married by common law.  Nor does Colorado have any kind of “automatic” common law marriage for couples living together.  Folks seem to think that just by living together for a particular amount of time (and the stories vary from six months to seven years), the state will legally consider the couple as husband and wife.  We want to set the record straight: you cannot be accidentally married, any more than you can be accidentally divorced.  Common law marriage is purposeful, and while not accomplished by filing for a marriage license, results from two people wanting to be married, holding themselves out to the community as married (by referring to each other as “husband” and “wife”) as well as creating a financial life together, such as filing “married” income tax returns.  But we also want to debunk one more fallacy - there is no common law divorce - those married by common law have to get a formal, court ordered decree of dissolution, just like a couple married by filing a marriage license. For more information, go to http://www.wadeash.com/newsletter.asp, click on the June 2007 Newsletter and go to the article entitled, “Look Before You Leap”. Another publication of interest might be the article entitled “Common Law Marriage”, as issued by the Office of Legislative Legal Services at http://wadeash.com/PDF/common-law-marriage.pdf. If you want to clarify your cohabitation rights, call us at (303) 322-8943 or you can send an email through our website under the Contact Us tab.

Form 8939 Released by IRS

The IRS has released Form 8939 and instructions, which the estate of a 2010 decedent can use to elect out of the estate tax system and into the modified carryover basis system. This form is due January 17, 2012. To view the form, go to http://www.irs.gov/pub/irs-pdf/f8939.pdf, and to view the instructions, go to http://www.irs.gov/pub/irs-pdf/i8939.pdf.

Thirty Years of Practicing Law!

Wade Ash Woods Hill & Farley, P.C. would like to congratulate Laurie A. Hunter for reaching her 30th anniversary of practicing law!  Laurie’s practice focuses on estate planning, probate and trust administration. She is a frequent speaker on trust and estate issues and is an active member of the Trust & Estate Section of the Colorado Bar Association. Ms. Hunter was elected as a Fellow in the American College of Trust and Estate Counsel and is also listed in Best Lawyers in America and Colorado Super Lawyers. For more information about Laurie, please visit our website.

Oral Contract Between Parties

In an unpublished case, the Colorado Court of Appeals affirmed the trial court’s holding for unjust enrichment and that an oral contract existed between the parties. The parties were engaged in an intimate relationship and participated in a commitment ceremony. At issue in the case was whether the parties had a valid oral contract to split rent and expenses incurred during the relationship. In an evaluation of credibility, the trial court found both unjust enrichment and the existence of an oral contract. The Appeals Court declined to evaluate the credibility of the witnesses and rather upheld the trial court’s decision based on a "clearly erroneous" standard of review. The take away from the case is the importance of reducing all agreements to writing! For more information, go to Dufour v. Jordan.

2012 Inflation Adjusted Numbers

Under the Internal Revenue Code, certain figures affecting estate planning are adjusted annually for inflation. RIA calculated those numbers and reported the following:

Estate, Gift and Generation-skipping transfer basic exemptions: $5,120,000 (an increase from $5 million in 2011).  Also keep in mind the effect of portability of the first deceased spouse's unused estate tax exemption that is potentially added to the surviving spouse's gift and estate tax exemptions (but not GST).  Portability must be elected by timely filing a U.S. Estate Tax Return (Form 706) for the deceased spouse.

Gift tax annual exclusion: $13,000 (no change).

Gift tax annual exclusion for gifts to non-U.S. citizen spouses: $139,000 (an increase from $136,000 in 2011).  Remember that gifts to non-U.S. citizen spouses are not unlimited.

2011 Form 706 and Instructions Released by IRS

The IRS has posted on its website the forms for the U.S. Estate Tax Return (Form 706) and instructions for estates of decedents dying in 2011. The IRS previously released Form 706 and instructions for estates of decedents who died in 2010. We are still waiting for the release of Form 8939 for estates of 2010 decedents to elect out of the estate tax system and into the carryover basis system. Click here for the IRS forms and instructions.

Guidance on 2011 Decedents and "Portability"

The IRS just released new guidance for personal representatives regarding electing portability of the deceased spouse’s unused estate tax exclusion amount and to potentially double the estate tax exemption that will be available at the surviving spouse’s later death. Notice 2011-82 confirms that the "portability" election must be made on a timely filed Federal Estate Tax Return (Form 706) and provides that the timely filing of a Form 706 "prepared in accordance with the instructions" will constitute the making of the portability election; therefore, by simply filing the Form 706, the estate will be considered to have elected portability "without the need to make an affirmative statement, check a box, or otherwise affirmatively elect." The Notice also provides that an estate may avoid making the election by following the instructions for the Form 706, which describe the necessary steps. For more information, go to http://www.irs.gov/pub/irs-drop/n-11-82.pdf.

IRS Extends Deadline for Form 8939 to January 17, 2012

The IRS issued Notice 2011-76 on September 13, 2011, extending the due date for Form 8939 from November 15, 2011 to January 17, 2012.  This form must be filed by Estates of 2010 decedents electing out of the estate tax system and into the carryover basis system.

The IRS also noted that estates of 2010 decedents may file Form 4768 to extend the due date for the Form 706 from September 19, 2011 to March 19, 2012, and that no penalties will be imposed for late payment of tax before that date.  Interest will still be assessed on late payments of tax, but the penalties will not apply.

See Notice 2011-76 for more details.

Trusts in Divorce Property Divisions

James R. Wade will be speaking at the Colorado Bar Association Continuing Legal Education Live Seminar in Denver on September 30, 2011 regarding Trusts in Divorce Property Divisions.

Program Description: Beneficial interests in trusts are being included in the pool of divisible assets in divorce in Colorado and a number of other jurisdictions.

Mr. Wade will specifically be discussing whether beneficiary withdrawal rights (including Crummey powers and 5x5 powers) are property, and also what the beginning time point is for measuring appreciation in value of trust interests which are characterized as property under the dissolution of marriage statutes. Mr. Wade often serves as a consulting or testifying expert regarding the characterization of such trust interests.

For more information, go to Colorado Bar Association or you can visit our website at www.wadeash.com.

Patenting Tax Strategies

Congress passed a new Patent Act on September 8, 2011 and President Obama is expected to sign it. As part of that Act, patents will not be granted for tax strategies submitted after the effective date of the Act. Prior patents that were granted for tax strategies (such as the SO-GRAT patent) are not affected by the new Act. We believe this is a positive development, and will encourage the continued sharing of tax strategies among professionals.

Final 2010 Form 706 and Instructions

After some confusion with initially posting an older version of the instructions, the IRS has posted both the Final Form 706 for decedents dying in 2010, and the Instructions.  The Form 706 is due September 19, 2011 for 2010 decedents who are not electing out of the estate tax regime and into the carryover basis regime, pursuant to the December 2010 Tax Act.  As mentioned in an earlier blog, you may wish to file Form 4768 prior to September 19, 2011 to extend the due date for filing the return for six months, to give yourself more time to determine which regime to file under.  To see the instructions, go to http://www.irs.gov/pub/irs-pdf/i706.pdf.

Form 8939 and 2010 Decedents

Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Act"), the estate of a 2010 decedent can either stay with the estate tax system with a $5 million exemption, 35% tax rate and full stepped up basis to date of death value, or make an election out of the estate tax system and into the carryover basis system by filing a Form 8939. Form 8939 is due November 15, 2011 according to IRS Notice 2011-66, but the Form itself has still not been released. There will be no extensions of the November15, 2011 due date and the election, once made, is irrevocable, according to the Notice. See our  January 2011 newsletter for a more complete discussion of the Act.
　

2011 Decedents and "Portability"

If a 2011 decedent is the first spouse to die, then in order for the surviving spouse to potentially double the estate tax exemption that will be available at his or her later death, under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) “portability” of the deceased spouse’s unused estate tax exemption must be elected on a timely filed U.S. Estate Tax Return (Form 706).  A draft of the 2011 Form 706 was released by the IRS on August 26, 2011, but does not seem to include a place to elect portability.  You may want to file a Form 4768 by the due date of the Form 706 (usually 9 months after date of death) to request an automatic 6-month extension and perhaps by then the manner of electing portability will be clear. See our January 2011 newsletter for a more complete discussion of this Act.

Form 706 Deadline is Near!

The deadline for filing a U.S. Estate Tax Return (Form 706) for a 2010 decedent is September 19, 2011 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Act"). If you are still unsure whether or not to file a Form 706 or the Form 8939 that is due November 15, 2011 to elect out of the estate tax system and into the carryover basis system, then you probably want to file a Form 4768, application for automatic 6-month extension of time to file. See our January 2011 newsletter for a more complete discussion of the Act.