BEYOND GRATS AND IDGTS

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm. Click here to view his professional resume.

The Troublesome Joint Tax Return

Stephen J. Dunn, a specialist in tax and estate planning issues at Demorest Law Firm, PLLC, recently wrote an article entitled “The Troublesome Joint Tax Return”.  The article was published in the March/April 2009 issue of the EA Journal.  This Journal is published by the National Association of Enrolled Agents, an organization representing professionals licensed to practice before the Internal Revenue Service. In the article Mr. Dunn discusses important factors in deciding whether one should file taxes jointly with their spouse.

Mr. Dunn explains why a tax preparer should not allow spouses to sign a joint income tax return if there is substantial unpaid tax liability on the return with respect to only one of the spouses.  Nor should a preparer allow the spouses to sign a joint income tax return if there are disallowable deductions or unreported income attributable to one of the spouses.

If the spouses have already filed a joint income tax return with substantial unpaid tax liability attributable to only one of the spouses, the prepared should consider filing a Form 8857 seeking relief under IRC Sec. 6015(f) for the innocent spouse.  The Form 8857 may also assert IRC Sec. 6015(b) as an alternative for innocent spouse relief.  This action could accomplish a great result for the innocent spouse.

The full article is now available for download in PDF format by clicking the link below.

DOWNLOAD A FULL COLOR PDF

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm. Click here to view his professional resume.

Is your Estate Plan Effective?

Your estate plan should:

• Make sure that your property goes to the persons you want to receive it.
• Avoid taxes on succession to your property.
• Avoid probate on succession to your property.
• Protect your property from claims of creditors.
• Appoint an attorney-in-fact to make transactions in your property, and a patient advocate to make medical decisions for you, in the event you become mentally incapacitated.

To accomplish these objectives, you need competently-drawn estate planning documents.   We see a wide variation in the quality of estate planning documents.

Funding is the process of transferring one’s property to his or her trust during his or her lifetime.  Effective funding is just as important as having a competent set of estate planning documents, if not more important.

EXAMPLE.  Husband and Wife  own their considerable estate as joint tenants with rights of survivorship.  Husband dies, then Wife.  There is no estate tax at Husband’s death.  But at Wife’s death, the entire estate in excess of Wife’s unified credit is subject to estate tax.  By failing  to have a revocable trust for each spouse, and transferring (“funding”) at least the unified credit amount ($2,000,000 currently; $3,500,000 in 2009), the couple has  wasted  the unified credit, an opportunity to pass property to the next generation free of estate tax, of the first spouse to die.

EXAMPLE.  Husband and wife each have a revocable trust.  But Wife’s trust is not funded.  If Wife dies first, her unified credit is wasted.

Funding also includes making sure that beneficiary designations on your retirement plan interests and your life insurance policies are as you want them to be.

A married couple should make sure that all of their property is titled in the name of their revocable trusts, and that each spouse’s trust is funded at least to the amount of the current unified credit.

Funding is not something to be visited every 3-5 years.   Rather, it should be monitored on an ongoing basis.  Each time you acquire real property, securities, or an interest in a business, care should be taken to title the asset in the name of your trust or your spouse’s trust.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm. Click here to view his professional resume.