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April 18, 2023: Nothing Is Certain Except Death and Taxes By Melinda Gustafson Gervasi April 14, 2023  This year "tax day" , the deadline by which individuals must file their federal income taxes for 2022, falls on Tuesday, April 18th .  If that strikes you as "off", you would be correct.  Normally this day falls on April 15th, but in 2023 the 15th is a Saturday.  One might expect for the deadline to be the next business day, assuming it is Monday, April 17th.  However, April 17th is a holiday in Washington, D.C. ( Emancipation Day ). Leaving us with a federal income tax filing deadline of Tuesday, April 18th.  Phew, this got complicated quickly and it's just the calendar, not the tax code itself. When updating or creating an estate plan, many Americans focus their efforts on minimizing gift or estate taxes.  Many never think about the income tax; they'll be dead, how could the income tax be an issue they may wonder.  If you own traditional retire...

Beneficiary Forms Gone Horribly Wrong. By Melinda Gustafson Gervasi Within the legal community there is a decent amount of discussion about whether or not our professional lives will be usurped by on-line and digital platforms.  Days like today reassure me that my professional life has a few good years, decades even, before a software engineer codes me out of business. Take life insurance and children for instance.  New client call comes in.  Brief biographical information is provided related to: marital status, children, and financial instruments.  In short, caller is single with a minor child and his best friend from college is named as beneficiary of the life insurance because friend is a responsible adult who will do the right thing.  An actual attorney will likely hear this and say, "wait, tell me that again please" as her eyebrows rise higher on her forehead.  In contrast, your standard online will-writer will prompt "check here if you have na...

Be Alert! Image by M. Gustafson Gervasi 2019 Once upon a time an elderly women, Agnes, went into her bank to review her accounts.  Behind the desk sat an eager and chipper 23 year old "banker".  With good intentions of providing the best banking services possible, the young banker encouraged the older women to add her daughter to her bank accounts in order to "make things easier."  Relying on her long relationship and established trust with the bank, Agnes took the advice.  When the door closed upon Agnes' exit, her daughter, Anne, had been made a joint owner of the bank account. Time passed and Agnes' health took a turn, with her earthly life ending six months after the bank visit.  Grieving, yet still functioning, Anne set about taking care of Agnes' affairs.  One day she went into the bank to settle her mother's accounts, death certificate in hand.  To her surprise, the 23 year old banker informed Anne about the joint ownership of the accoun...

In 2012 Congress and the President gave a gift to those attuned to estate planning.  The federal estate tax exemption was increased and earmarked for inflation.  Finally!  Now I could advise my clients beyond the year or two into the future.  We had a federal exemption of $5 million per person.  Until then the threat of the level falling back to the $1 million mark lingered. That made planning a challenge. Under current law any one person can die and leave $5.3 million at death without triggering the federal estate tax.  Married couples can leave an unlimited about, tax free, to US citizen spouses.  With the exemption tied to inflation, planning done now evolves nicely over time. And then I blinked. Over the past two years, as I discussed the federal estate taxes in seminars, I routinely joked " what Washington giveth, Wasthington can taketh -- keep an eye on this issue ."  Perhaps I told that joke one time too many.  News reports last we...

Reviewing headlines posted in an email summary of important news in the world of estate planning, one caught my eye.   Gift tax limits to increase in 2014 per an IRS announcement . What -- I thought the amount was going to remain the same in 2014, what's going on?  This is what immediately popped into my mind. As I dug into the article clarity hit. Oh, the lifetime gift tax exemption is increasing in 2014, not the annual gift tax exemption.  Got it! And then I realized, this is the type of news that makes sense to me, but not many of Americas middle class. Annual exclusion, lifetime exclusion, what....?   I have given enough seminars to know this is the type of distinction that makes people roll their eyes and throw their hands up on frustration. Here is my breakdown: The annual gift exemption is the amount any one person can give another person in one calendar year and not worry about telling the IRS.  In 2013 that amount is $14,000, and it will re...

Image by M. Gustafson Gervasi, 2013 Fall colors may be at peak brilliance as I type, but our friends at the Internal Revenue Service have already thought ahead to calendar year 2014.  When January 1st arrives Americans should keep two things in mind. First, the federal estate tax exemption will increase to $5,340,000, up from $5,250,000 in 2013.  What this means is any one person who dies in 2014 with an estate worth less than $5,340,000 does not need to worry about an estate tax.  Those who have a net worth in excess may face a federal estate tax being applied to any amount in excess.  Note, exceptions are married for married couples as well as those naming nonprofits in their estate plan. Second, the world of the gift tax will not change.  Unlike the federal exemption, the amount will not increase in the new year and will remain at $14,000.  An important number to keep in mind when gifting assets.  If the amount you gift to any one person i...

As fall settles over the country and children return to the classroom, we have a clear understanding how one federal agency will treat same-sex couples in a post-DOMA world.  Last week, within an hour or two of dropping my Summer/Fall newsletter off at the printers, I received an alert from my associate back in the office.  The IRS released a statement clarifying its position on how it will treat married same-sex couples for estate and income tax purposes.  The newsletter had indicated that each agency would make a decision, and up until then, the IRS treatment depended on a couple's state of residence.  And then it changed.  My plans to start the Labor Day weekend were delayed, a few sentences were re-written, and back to the printers it went. According to the Internal Revenue Service, same-sex married couples will receive: all federal tax benefits no matter where they live.  This is significant for same-sex couples in my home state of Wisconsin...

Image by M. Gustafson Gervasi, 2013 According to this report , Americans gave more to non-profits in 2011 than the prior year: the amount of claimed deductions rose from $3.1 billion to $4.4 billion; and total gifts given increased from $37.9 billion to $51 billion in 2011. Reading this one cannot help but wonder if the President's budget proposal to cap the amount of the charitable deduction , allowing only 28 cents on the dollar.  Keep in mind that only tax payers who exceed the standard deduction can actually take the deduction.  It will be interesting to monitor the numbers in the years ahead should the budget proposal be adopted.  Stay tuned.

Due to the budget compromises in the American Tax Payer Relief Act of 202, cuts are being made at the IRS. And those cuts mean shutting the agency down for several days in 2013, with the possibility of an additional days being added.  This means employees will go without pay, and citizens will go without Taxpayer hotlines, and all other IRS services .  For my office, it means we would not be able to file for EINs in probates or trust cases.  Here are the dates, plan accordingly: May 24th June 14th July 5th July 22nd August 30th Image by M. Gustafson Gervasi, 2013 -- IRS Building in DC.

This past April my family took traveled to Washington, D.C. for a few days.  While exploring the city I once called home, we walked past the Internal Revenue Service Building.  I quipped, I wonder if they have a drop box....I'd kind of like to pay our taxes in person.  Joking of course, but when looking around I spotted these lovelies and knew I need an image to share here, today, tax day 2013. IRS Flowers, DC, M. Gustafson Gervasi, 2013 And since the focus of my writing is education on the issues of illness, death and taxes for the middle class, I offer you a link to a very useful article.  The 11 things you pay tax on that might surprise you.  Educational fees surprised a client of mine this past week; they are tax free if paid to the institution only.  Paying kids directly, for fees they paid a decade ago does not count.  And number 2 is one I see far too often, people add loved ones to the deed of a home or a bank account, and bam, they've ...

  Image credit:  www.sxc.hu - free image Recent news reports indicate that Congress is currently considering changes to the charitable deduction aspect of annual income taxes.  The deduction, which has been around for 96 years, is one of several items the Congress and President are considering as the face the challenge of "broadening the tax base".  Bloomberg News reports three possible changes that may occur in regards to the charitable deduction : cap on amount of allowable itemized deductions; limiting the tax rate at which the deductions are allowed; or converting it from a deduction to a credit. For those who do not itemize, this issue is basically a mute point because the donation and hence deduction is never realized.  This fact escapes many people.  I see it crop up in mortgages too.  People will say "mortgage debt is a good thing because you can deduct the interest".  Well, yes, but only if the interest is more than the standar...

Image credit: www.sxc.hu - free image Waiting in my email in-box this morning was a message from the United Way of Dane County.  A weekly newsletter, it often contains usual information to my legal practice.  The top story shared news that the IRS is cracking down on identity theft this year , in conjunction with tax season. Apparently, identity thieves steal a Social Security number and then file the 1040 before the tax payer does. The hope is that they'll collect the refund before the well meaning citizen.  The article includes tips on keeping the number safe, etc.  Reading it, two additional thoughts came to my mind, based on my experience with estate planning. First, never create estate planning documents that contain your Social Security number.  Historically the number was included on powers of attorney as well as wills.  Occasionally I will see one of these filter through my office, created long before I entered practice.  Immediately I...

January has now passed, and like many households around the country we have a stack of "tax papers" on the dinning room table at my home.  We all know that April 15th is approaching, and that means a flurry of numbers, forms, envelopes, and addresses to the IRS. But the "living" are not the only ones with tax matters to attend to this time of year, even those recently departed have papers the IRS is eager to see.  And that translates into a responsibility for the deceased's personal representative, trustee, and or trusted family or friend.  Yes, even death does not release you from the income tax deadline. Examples usually help drive home an issue.  Here is one from my own life.  My father died on September 18, 2009.  So, we had to make sure a final Income Tax Return was filed for him for January 1, 2009 through September 18, 2009, AND, if his estate had earned more than $600 from September 19, 2009 through December 31, 2009, the estate would also be ...

$5.25 Million As the week comes to a close here on Illness, Death and Taxes for the Middle Class I can leave you with a number.  And that number is $5.25 million, which is the inflation adjusted federal estate tax exemption for the year 2013, as reported recently .  What does it mean?  For those who die in 2013 and have a net worth (including life insurance) that is below $5.25 million, no federal estate tax would be owed by the estate. The ink is hardly dry on the legislation signed by the President on January 2nd, so please know that details will continue to emerge on this topic.  It is so new that I have yet to see a continuing legal education advertisement arrive in my in-box.  Which means, even if you are below this number, do not dismiss it as an issue entirely.  Especially if you are married, and are near the limit.  There is much to be learned about the new laws of portability, a new tool in the tax box of surviving spouses. Thanks for r...

With the sign of his name, the President brought several significant changes to the world of estate planning and probate. Yesterday I shared with you updates to the federal estate tax.  Today I am pleased to cast the limelight on the topic of IRA gifts to charities. Since 2006 there has been an on again, off-again tax break for folks aged 70.5 and older, which allowed them to make a gift from their IRA (ROTHs excluded) directly to a charity.  The distribution was not considered taxable income for the IRA holder, and the charity did not pay a tax on the gift either.  And on January 2, 2013, when the President signed the American Taxpayer Relief Act of 2012 into law, it once again turned this law on. Under the law, those qualify have until January 31, 2013 to make a gift to a charity and have it count towards a 2012 distribution.  And distributions can be made for calendar year 2013 as well, and are capped at $100,000. So, if you are 70.5 or older, have large bal...

Snow covers the ground outside my home office window, a large cup of pipping hot coffee is at hand, and a stack of articles related to the American Taxpayer Relief Act of 2012 have been read.  Yes, it is January in Wisconsin for this estate planning and probate attorney. After reviewing the news coverage of the bill, one word jumps out at me - permanent.  Can that be?  Has Washington, D.C. granted me my holiday wish?  Did they not kick the can another two years, but rather write and pass legislation that has solidness to it?  Apparently they did.  Miracles can happen dear reader! So, if you are eager to learn more about the landscape of federal taxation, here are some highlights: the federal exemption levels we had used in 2012 were made permanent, and are/will be indexed for inflation; adjusting for inflation, the federal exemption level for 2012 is $5.12 million per person; the IRS has yet to release the indexed federal exemption for 2013; deced...

Image credit:  www.sxc.hu - free image Until today I have always had positive things to say about my interaction with the Internal Revenue Service from my role as an estate planning attorney.  Unfortunately, its reputation with me was tarnished a bit today when I attempted to kick start a probate and trust administration for a recently deceased client. The client had nearly all of his assets in a trust, of which a child will serve as trustee.  Now that the grantor has passed, the trust needs an EIN number .  However, the decedent also had numerous savings bonds outside of the trust, which requires us to open a probate and an estate of checking account.  And for that checking account, we need an EIN . So on-line I went.  I had tried to do this Sunday when I was working at home, but the IRS apparently gives its computers that day off.  No EIN applications allowed on Sunday!  So first thing Monday morning I go on to the web site.  All ...

Last week President Obama offered his first go at the federal estate tax, which is tangled up in the whole fiscal cliff scenario playing out in Washington, D.C.  According to news reports , his proposal is to have the federal exemption return to 2009 levels; $3.5 million, with a 45 percent tax.  What does that mean?  Anyone dying with an estate over $3.5 million would have a federal estate tax due, in the amount of 45 percent on the amount above $3.5 million. If no agreement is met, the federal exemption will fall to $1 million, and I'd have to look up the tax rate.  With no doubt, it would capture a lot more estates than the $3.5 million or the current $5 million. As December ticks away my eyes will be on D.C., waiting and wondering what resolution, if any, will emerge.  And then I can offer a bit more concrete guidance for my clients. Thanks for reading, and remember,  a blog is not a lawyer nor does it constitute legal advice.  Please consult ...

The good news is that those pesky political commercials are behind us now.  However, the focus has now been redirected to the "fiscal cliff".  Buried in there is a discussion on what to do with the federal estate tax.  If no action is taken, the federal exemption limit will fall to $1 million in 2013.  And it will resurrect the Wisconsin estate tax.  So, while we may want to look away from the ways of Washington, D.C., I cannot. Image credit:  www.sxc.hu - free image I will be following the discussion (is that a generous choice of words) and wait, listen, and read.  What oh what will happen?  Time will tell, and sadly I think Congress and President will simply "kick the ball".  Meaning they'll come up with a short-term fix, good for a year or two.  Which means long-term planning is not really an option for folks flirting with the $1 million level. Enjoy your weekend everyone, and I'll be back Monday with more on illness, dea...

There is nothing certain about life except death and taxes.  And often the two go together.  Loosing a loved one is never easy, no matter how much time a family may have had to prepare.  Emotions run high, caregivers suffer exhaustion, paperwork swirls, life marches on, and some matters need to be addressed even though they are unpleasant.  I see this every day in my legal practice.  To the extent you can, do not overlook income tax matters for the loved one you have lost. If a loved one has died and you are picking up the pieces and moving the paper work forward, there is one important thing many overlook -- income tax forms.  When empowered by a probate court in Wisconsin, the  Personal Representative has a duty to make sure a last income tax form is filed for the decedent.  And, of the decedent's estate earned more than $600 (current level, which may change in the future), then a fiduciary income tax return is likely due as well.  And th...