The Florida Estate Planning and Probate Law Blog is focused on recent federal and state case law and planning ideas.

Showing posts with label Sarasota Tax Lawyer. Show all posts
Showing posts with label Sarasota Tax Lawyer. Show all posts

IRS RELEASES 2018 HEALTH SAVINGS ACCOUNT RATES

The IRS has issued Revenue Procedure 2017-37 which contains the annual inflation-adjusted contribution, deductible and out-of-pocket expense limits for health savings accounts (HSAs) in 2018. Annual contribution limitations, deductibles and out of pocket expenses for 2018 increased in all categories from 2017: Limitation on deductions for an individual with self-only coverage under a High Deductible Health Plan (HDHP) to $3,450 Limitation on deductions for an individual with family coverage under an HDHP to $6,900 Annual deductible for self-only coverage that is not less than $1,350 Annual deductible for family coverage that is not less than $2,700 Annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for self-only coverage - do not exceed $6,650 Annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for family coverage - do not exceed $13,300

INCREASED IRS AUDITS OF THE WEALTHY IN 2017

The IRS is planning to focus its attention in 2017 on the "Rich." That means individuals and companies who are likeliest to hide money or under-report their tax burden. While the IRS launches fewer full-blown audits, the agency is sending out more “mass notices” addressing specific issues (especially large charitable contribution, large losses, mortgage interest deductions, and 529 college savings plans). So-called “hobby losses” are a frequent IRS target. To combat these audits, be prepared to produce extensive records and documentation to substantiate each and every loss and charitable donation.

DISCRIMINATION PROVISION IN WILL UPHELD AS VALID

In the New Jersey Appeals Court case of In re the Estate of Kenneth E. Jameson, (NJ App., Aug. 12, 2016), a New Jersey appeals court upheld NJ law which allows discrimination provisions in testamentary bequests. The law does not preclude an "individual from disinheriting his or her child for religiously discriminatory reasons." The Ohio Supreme Court previously upheld a similar provision. The court upheld the specific provision contained in the Will, which disinherited his daughter if she married someone of the Jewish faith, because "neither the New Jersey Law Against Discrimination nor New Jersey public policy bars disinheriting a child based on religion or religious affiliation."

THE IMPORTANCE OF A LAST WILL & TESTAMENT



SARASOTA, Fla. -- It's something that experts say you don't want to have running away from you. If you pass away without a will in the state of Florida, the state statutes would decide where your assets go. "Everyone should have a will, because what it does, it shows the court and all the beneficiaries how you want your assets to pass," said Marc Soss, a Sarasota attorney. According to estate planning attorneys, around two-thirds of people don't have a living will. Many folks we talked with at Bayfront Park on Thursday are in the same boat. "At this point we do not have a will and it's something we do need to take care of," said Shannon Ashburn. "We just haven't gotten around to it yet." "I have had a will and it was up to date," said Donna Wilson, "but I divorced and that's null and void now, so I need a new one but you know you put that kind of thing off." It's a little bit of smoother ride for Joe Giannetti. Several years ago he had an attorney put together his will. "We have two children, they're both married and we have grandchildren," said Giannetti. "I feel we're in great shape if something should happen." Attorneys say the will process is typically quick and easy with costs running as low as $100 for an attorney to do it. "Creating a will is actually a very simple process," said Soss. "In most cases, a simple will can take less than 15 minutes." Following the death of Prince, because it's reported he had no will, a bank has officially been appointed to handle his assets said to be worth hundreds of millions of dollars. Marc Soss says this a lesson everyone can learn from. "Whether you have minimal assets or multi-millions of dollars people fail to plan for the important things in life," said Soss.


FIDUCIARY ACCESS LAW IN FLORIDA



On March 10, 2016, Governor Scott signed in law the “Fiduciary Access Law.”  Effective July 1, 2016, the law allows custodians to turn over "data, text, images, videos, sounds, codes, computer programs, software, databases" and other files. Under the law, Internet service providers and other custodians can grant access to fiduciaries who submit written requests with certified death certificates, letters of administration and other documents that show proof of power of attorney. They can request usernames, addresses and other unique subscriber information to identify accounts or ask for a court order to show the fiduciary requires disclosure to administer the estate.

The new law allows account holders to designate authorized users and specify what content they can access. It also permits custodians, like telecom companies that store files, to share that content with fiduciaries or guardians. Many internet companies already have these policies in place. 

CHANGES TO THE PARTNERSHIP RULES COMING IN 2017



The Bipartisan Budget Act of 2015 has strengthened the IRS’s ability to audit partnerships (including multi-member LLCs). The new rules apply to tax years beginning after 2017, and will apply to partnerships of 100 or more partners. To prepare for these changes, Partnerships should amend their Partnership Agreements and select a “Partnership Representative” (sole contact individual with the IRS auditor and someone authorized to make all decisions regarding how to handle the audit).

The new rules require the IRS to assess the partnership if filing errors are detected during an audit. The Partnership Representative will then be responsible to determine whether the partnership itself (the current partners, indirectly), or those who were partners during the audit period, should pay the assessment. The Partnership Representative will also be able to determine whether the entity could opt-out of the new rules (if it has 100 or fewer partners, individuals, S corporations, C corporations, or estates of deceased partners). If you have an S corporation partner, then you must count each of its shareholders for this purpose. If a Partnership Representative is not designated by the entity, the IRS reserves the right to appoint one for the entity.

Partnerships should begin planning for 2017 today by determining: (i) who will serve as the Partnership Representative; (ii) the level of indemnification they will receive against any costs or liabilities that may be incurred in that role, and (3) the level of accountability they will have to the company and its partners. It is important to note that Partnership Representative does not need to be a partner of the entity.

DO NOT FORGET TO COLLECT YOUR SOCIAL SECURITY SURVIVOR BENEFITS


There are few upsides (maybe relief from pain and suffering) to the death of a spouse. In order to ease the burden, the U.S. government offers a few Social Security survivor benefits.



Survivor Benefits: The main benefit for a surviving spouse is that they may be able to receive Social Security payments if their deceased spouse met the requirements to qualify for Social Security retirement benefits. If both spouses are collecting Social Security benefits, the surviving spouse will only receive the larger benefit. 



Others eligible for benefits include: spouse of the deceased, aged 60 or older; spouse of the deceased, aged 50 or older, if disabled; spouse of the deceased at any age, if he or she is caring for the deceased's child who is younger than 16 or disabled; an unmarried child of the deceased who is younger than 18, or younger than 20 if still a full-time student in elementary or secondary school or 18 or older and with a disability that began before age 22; a stepchild, grandchild, step-grandchild, or adopted child under certain circumstances; parents aged 62 or older, who were dependent on the deceased for at least half of their support; and a surviving divorced spouse, under certain circumstances.





Death Benefit:  In addition to the benefits described above, a surviving spouse may be eligible for a one-time payment of $255.  Eligibility for the benefit requires the surviving spouse to have been living with the deceased spouse, at their date of death, or, if living apart, to have been receiving benefits based on the deceased spouse's Social Security record.







How to Claim Social Security Survivor Benefits: In order to claim Social Security survivor benefits you must inform the agency of the death of your spouse. Typically, the funeral home will notify the Social Security Administration with regard to the deceased.  In order to contact the Social Security Administration you must either visit your local Social Security office or speak with the agency on the phone (at 800-772-1213). hen speaking with them it is important to also inquire about: (i) survivor benefits; (ii) retirement benefits; and (iii) eligibility for the one-time $255 lump-sum benefit.

CHARITABLE PLANNING WITH YOUR RETIREMENT ACCOUNT



 
 
For the past several years, Congress has employed a last minute temporary rule that allowed IRA owners to exclude their required minimum distributions (RMDs), from their adjusted gross income, by making a direct contribution of the funds to a qualified charitable organization. However, this last minute action made planning difficult for taxpayers. Finally, in December 2015, the Qualified Charitable Deduction (“QCD”) provision became a permanent part of the U.S. Tax Code.  This allows taxpayers to comfortably utilize the provision and establish long-term planning strategies around it moving forward.
 

Eligibility and Advantages:

Any IRA owner or beneficiary who is at least 70.5 years old, no exceptions, can use the QCD rule to donate their required minimum distribution or up to $100,000 per year to charity and exempt the funds from taxation. All contributions and earnings inside the IRA are QCD eligible but are classified as a nondeductible contribution. Taxpayers may not utilize a joint gifting strategy for the purpose of QCDs. 

The biggest benefit of utilizing the QCD provision is the ability for a taxpayer to lower their adjusted gross income, since the gifted funds do not count as taxable income to them. This can allow a taxpayer to stay in a lower income tax bracket, reduce or eliminate the taxation of Social Security or other income and remain eligible for deductions and credits that might be lost if the taxpayer had to declare the RMD amount as income. Another advantage is the taxpayer will not have to itemize deductions in order to qualify for this deduction (since the exclusion applies to adjusted gross income and not taxable income).

Rules

In order for the donation to qualify under the QCD rules it must be made directly to the charity. The IRA owner or beneficiary can personally receive the check and deliver it to the charity, but they cannot deposit the funds and then make out a check to the charity. The recipient charity must also be a qualified 501(c)3 organization and a charitable gift annuity will not qualify. The charitable donation amount must be substantiated by the charity with a written receipt.

ROTH IRA ADDITIONAL PLANNING OPTIONS


Most individuals view a Roth IRA as a great way to save more for the future using after tax dollars. While the funds deposited into a Roth IRA are subject to income tax, they grow tax-free and are not subject to tax, even the growth, when withdrawn (assuming certain requirements are met).  However, a Roth IRA has other advantages that most individuals do not know about or utilize:

Saving for College:

A Roth IRA can be utilized to pay college expenses without the contributed funds being subject to any income tax or early withdrawal penalty. Unfortunately, while account earnings on contributions can be withdrawn penalty free, they still may be subject income taxation. 

In contrast, a 529Saving Plan will allow you to save a larger amount for college expenses but are not as flexible when it comes to investing and utilizing the funds. While contributed funds will grow tax-free, the account earnings will be subject to income tax upon withdrawal and subject to a 10% penalty if not utilized for college expenses.

Saving for a Home

A Roth IRA can be utilized to save for a down payment on the purchase of a home. To qualify, the purchasers must be first-time home buyer (someone who hasn't owned an interest in a home within the past two years) and had their Roth IRA set up for five years. Subject to those restrictions, they can withdraw up to $10,000 to buy, build, or rebuild a home without paying the 10% early withdrawal penalty or worrying whether your withdrawing contributions or earnings. The exemption may also be utilized to assist children or grandchildren purchase their first home.

Savings Option:

While the opportunity to contribute to a traditional IRA stops the year you turn 70.5 years old, contributions can be made to a Roth IRA as long as you live. If you're over 50 years old, you can contribute up to $6,500 per year as long as your income is below annual limits.


Sarasota and Manatee County residents can contact me directly to learn more.

IS THIS THE YEAR TO MAKE A ROTH IRA CONVERSION


The crazy 2015 stock market offers some excellent planning opportunities, if you qualify.  While year-end has not brought the stock market back to where it started the year, it opens the door to those interested in making a Roth IRA conversion. Converting a traditional Individual Retirement Account (IRA) to a Roth IRA would allow the assets to grow tax-free, while remaining in your account, and tax-free distributions once you start withdrawing funds.

There is no income limit or other restrictions on who is eligible to convert a traditional retirement account to a Roth IRA. The account owner will have to pay income taxes on the account’s value on the date of conversion.  However, the new investment account will never again be subject to income taxes or required minimum distributions. Considerations that should be reviewed include (i) whether your income tax rate be lower now, or during your future retirement years; and (ii) do you have funds to pay the income taxes, other than the converted funds (if you’re under age 59 ½ and use a portion of the IRA to pay the tax bill, the payment is treated as an early distribution of the traditional IRA). 

2015 YEAR END TAX PLANNING CONSIDERATIONS

2015 Year-End Planning Moves:

·  Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later.
·  Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
· Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2015.
·  If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by recharacterizing the conversion, transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer.
·  Use a credit card to pay deductible expenses before the end of the year. This will increase your 2015 deductions, even if you don’t pay the bill until 2016.
·  If you expect to owe state and federal income taxes when you file your return next year, ask your employer to increase withholding of state and federal taxes (or pay estimated tax payments of state and federal taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the alternative minimum tax (AMT) in 2015.
·  Estimate the effect of any year-end planning moves on the AMT for 2015, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2015, or suspect you might be, these types of deductions should not be accelerated.
· You may be able to save taxes by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses, and other itemized deductions.
· Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70- 1/2. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016, the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016, as bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.
· Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
·  Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next.

Tax Factors for Consideration:

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case).  The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year; others should try to see if they can reduce MAGI other than NII, and still other individuals will need to consider ways to minimize both NII and other types of MAGI.

The 0.9% additional Medicare tax also may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s combined income won’t be high enough to actually cause the tax to be owed.

Tax Breaks Not Extended, as of Yet:

Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up to $2 million of mortgage debt forgiveness on a principal residence.

YEAR END RETIREMENT PLANNING TIPS


Year end retirement planning deadlines you need to meet in order to qualify for income tax deductions and credits:

Make last-minute 401(k) contributions. An employee can contribute up to $18,000 to a 401(k) account in 2015. Workers age 50 and older can make catch-up contributions worth an additional $6,000, or a total of $24,000 in 2015, which are also due by Dec. 31. An investor over age 50 who is in the 25 percent tax bracket and maxes out his traditional 401(k) will save $6,000 on his federal income tax bill. But even a smaller contribution of $5,000 would save him $1,250 in taxes. At a minimum, double check that you have saved enough to get any employer match offered by your company.

Take required minimum distributions. Retirees born before July 1, 1945, are required to take distributions from their individual retirement accounts and 401(k) plans by Dec. 31, 2015. The distribution amount is calculated by dividing the account balance by an IRS estimate of your life expectancy, and sometimes a spouse's age is also taken into account. The penalty for missing a required distribution is a stiff 50 percent of the amount that should have been withdrawn. However, if you turned 70 1/2 in 2015, which is those born after June 30, 1944, and before July 1, 1945, there is a special rule that allows you to delay your first required distribution until April 1, 2016. But the second (and all subsequent) distributions will be due by Dec. 31 of the same year. Retirees who delay their first required minimum distribution will need to take two distributions in the same year. "Taking a double distribution in 2016 could cause you to pay more for taxes and may even push you into a higher tax bracket," says Helga Cuthbert, a certified financial planner for Cuthbert Financial Guidance in Decatur, Georgia. "You're usually better off taking it the year you turn 70 1/2."

Extra time for IRA contributions. You have until April 15, 2016, to contribute up to $5,500 to an IRA that can be applied to tax year 2015. Workers age 50 and older are eligible to contribute an additional $1,000, for a total contribution of $6,500 in 2015. You can reduce the amount you owe and help increase your retirement savings by putting some money in an IRA. 

Claim the saver's credit. If your adjusted gross is below $30,500 for individuals, $45,750 for heads of household and $61,000 for couples in 2015 and you contribute to a 401(k) or IRA, you may be able to qualify for the savers credit. This valuable tax credit is worth between 10 and 50 percent of the amount you contribute to a retirement account, up to $2,000 for individuals and $4,000 for couples.

Get ready for 2016. 401(k) and IRA contribution limits will remain the same in 2016. But if you weren't able to max out your accounts in 2015, consider setting your contribution amount a little higher next year. If you get a raise, bonus or tax refund, redirecting part of it to a retirement account will set you up for a lower tax bill in 2016.

WILL YOUR PRE-MARITAL AGREEMENT PROTECT YOU?


 
In Hahamovitch v. Hahamvitch, the Florida Supreme Court Case No. Sc14-277 (September 10, 2015) addressed a divorcing spouse claim that a twenty (20) year old pre-marital agreement did not apply to the enhanced value of non-marital property, attributable to marital labor. Her position was that the enhanced value to the husband’s assets was subject to equitable distribution. The divorcing spouse additionally claimed an interest her husband’s earnings, since their agreement did not specifically address the issue.

The husband argued that the agreement did provide that the property “owned or hereby acquired by each of them respectively” would be free of claims of the other spouse. It also provided that “each party agrees that neither will ever claim any interest in the other’s property,” and if one party “purchases, [a]cquires, or otherwise obtains, property in [his/her] own name, then [that party] shall be the sole owner of same.” Thankfully, both the District Court of Appeals and the Supreme Court concurred and found that the above general waiver language was broad enough to protect enhancement in value of property and the husband’s separate earnings as separate property of the husband, thus denying the wife an interest in those assets upon divorce.

When drafting marital agreements it is important to look to Fla.Stats. Section 61.079 and Casto v. Casto,  508 So.2d 330 (Fla. 1987), in which the Florida Supreme Court found that unfairness or unreasonableness can negate enforceability, although full and complete financial disclosures will still allow for enforceability even if the agreement is unfair or unreasonable.

ONE IN THREE AMERICANS WHO GET AN INHERITANCE BLOW IT

 
The “Great Wealth Transfer” (the wave of wealth, estimated to be in the trillions, which will flow from the oldest generation in the coming decades) will land in the hands of many Americans ill prepared to handle an inheritance. Multiple studies indicate that the majority of these recipients will quickly dispose of their inheritance. One study found that one third of people who received an inheritance had negative savings within two years of the event.
 
The problem stems from the fact that those inheriting the funds tend to view it as “fun money” and do not utilize it to shore up their retirement savings. The 2015 Retirement Confidence Survey by the Employee Benefit Research Institute found that 57% of workers have less than $25,000 in savings and investments.  In addition, when you factor in inflation, even a $1 million inheritance will not guarantee a couple’s comfortable retirement.
 
The following is a list of expert’s guidance:
 
A decision-free time period where no big decisions (large investments or expenditures) are made. This includes evaluating funds put away for retirement and anticipated cost, the cost of a child’s education through graduate school, annual trips with the extended family, or the purchase of a second home for the whole family to use. 
 
The payment of oppressive debt should also top the list of considerations. Why would you maintain a credit/debit card with a 20% interest rate when you could not invest the funds and earn a financial return even close to that amount annually. 
 
The next consideration should be the creation of an emergency fund in case of unemployment, a medical emergency, or a big-ticket home repair. The funds can help you weather the unexpected expense while still maintaining your lifestyle. 
 
Do not make family members aware of your windfall. If you do, you will quickly learn about multiple “get rich quick” ideas that distant relatives have for your money or loans that you will need to pay on someone else’s behalf. 
 
Funds which remain, after allocating for each of the above items, should then be spent with caution. What may have initially sounded like a great idea (a second home by the lake) could result in the purchase of an item that family and friends will use more than you.

 

WHERE CAN WE FIND THOSE AGE 65 AND OLDER



As the Baby Boomers reach retirement and older generations continue to live longer, more counties across America are turning gray (their hair). A new analysis finds that 97% of counties saw an increase in their 65-and-older population since 2010. On average, a U.S. county’s 65-and-older population grew by 12.4% from 2010 to 2014. Some counties are “aging” much more rapidly than others.  

The State of Florida, the destination for most snowbirds and retirees, is one of the nation’s grayest states. Overall, 19.1% of the Sunshine State’s population is 65 and older (the highest percentage in the nation). Sumter County (west of Orlando) is the only U.S. county where more than half (52.9%) of residents are 65 and older. Sumter County also has the highest median age in America at 65.9. Not far behind, with 37.7% of its residents age 65 and older is Charlotte County, Fla. and then Citrus County with 35.2%. In Florida, 53 of 67 counties have an above-average share of people 65 and older when compared with the percentage of Americans in that demographic.

ESTATE PLANNING NEEDS FOR FOREIGN CLIENTS



It is no surprise that foreign residents do not have the same estate or gift tax exemptions as a U.S. resident.  In 2015, a U.S. resident may gift, during his or her lifetime, or bequeath upon death as much as $5.43 million. In contrast, a foreign national has an estate tax exemption of only $60,000. As a result, a foreign national who owns a $2 million house in the U.S. can expect their heirs to pay some $740,000 in estate taxes upon their death. 

On the gift tax front, foreign nationals should take advantage of their annual gift tax exemptions of $14,000. However, unlike U.S. residents, they are limited to $147,000 in gifts to their spouses before triggering estate and gift taxes. To avoid these tax issues, many counsel their clients to establish off-shore entities to own the U.S. assets.

It is important to note that Canadian citizens benefit from a treaty with the U.S. that allows them the same exemptions as U.S. citizens. 

THE REASONABLENESS OF FLORIDA PROBATE LEGAL FEES

The Florida 2nd District Court of Appeals, in Faulkner v. Woodruff (Fla. Ct. App., 2nd Dist., No. 2D13-2165, March 6, 2015) recently held that a Florida Personal Representative may petition a probate court to review the reasonableness of attorneys' fees, and that the burden of proving attorneys' fees are reasonable is on the attorneys.
 
As personal representative of an estate, Gary Faulkner hired the Woodruff Law Firm to assist in administration. The estate was uncontested and consisted of $4,594.02 in personal property and a house that sold for $150,000. The attorneys charged $39,869.24 for work in the administrative proceeding. Mr. Faulkner filed a petition with the probate court to review the reasonableness of the attorneys' fees. The probate court dismissed the petition, holding that Mr. Faulkner was required to interplead himself because the burden of proving reasonableness of attorneys' fees was on him. Mr. Faulkner appealed.
 
The 2nd DCA reversed the Florida Probate Court and held that a Florida Personal Representative may petition the probate court to review the reasonableness of attorneys' fees. According to the court, as "the party seeking fees, [the attorneys] have the burden of proof to establish that their fees are reasonable."

LLC CASE OF INTEREST IN THE BANKRUPTCY REALM

Walro v. The Lee Group Holding Co., LLC (In re Lee), 524 B.R. 798 (Bankr. S.D. Ind. 2014) –

A chapter 7 trustee sought a court determination that (1) a debtor’s voting rights in a limited liability company (LLC) were property of the bankruptcy estate, and (2) other members of the LLC violated the automatic stay by taking action to remove the debtor as a member and terminating his voting rights. The operating agreement for the limited liability company (Lee Group) provided that the debtor had a 0% economic interest, but held 51 out of 101 votes.  The agreement further provided that his voting rights would expire upon his death or withdrawal from the LLC.

The debtor signed the operating agreement as a member.  The debtor was also designated as the manager of the LLC, which meant that he was in control of the company’s business and affairs.  The members were entitled to vote on certain matters, including “alienation of interest of individual members.” After the bankruptcy was filed, the trustee’s counsel wrote a letter to the LLC’s counsel contending that the debtor’s non-economic voting right interests became property of the bankruptcy estate subject to the trustee’s control. After receipt of this letter, the members adopted a resolution accepting withdrawal of the debtor from the LLC as of December 31 of the prior year.  The resolution acknowledged termination of the debtor’s voting rights and his resignation as a manager.  The remaining members subsequently designated the debtor’s son as the new manager and reallocated voting rights based on economic interests.  They also agreed that the debtor would continue to work for the LLC as a “consultant.”


The trustee argued that the voting rights were property of the estate, and that the postpetition action taken by the other members to terminate the debtor’s membership violated the automatic stay.  The defendants responded that (1) the debtor’s voting rights were derivative of his role as a manager, (2) he had no other property interest in the LLC, and that (3) their actions did not violate the automatic stay. The court began by noting that “property of the estate” has been “construed most generously” so that it includes “[e]very conceivable” interest of the debtor.  While determination of whether an interest is part of the bankruptcy estate is a federal question, courts look to state law to define the debtor’s interests. Reviewing the operating agreement and applicable state law, the court concluded that the debtor was a member of the LLC and that his voting rights were incident to that membership.  In response to the defendants’ contention that the debtor was not a member because he did not have a right to any distributions, the court concluded that “interest” was broadly defined so that the debtor did have a qualifying economic right.

As the holder of a majority of the votes, he could ensure that he was not removed as a manager, and as a manager and majority member, he had “unfettered control,” including the right to award incentives and bonuses and to provide for indemnification of expenses and liability in any proceeding.  Further, under the operating agreement, if his wife divorced him he could purchase her interest for a substantial discount. And regardless, the debtor was not required to have any economic rights in order to be a member.  The court then reviewed a series of cases in which courts held that both economic and non-economic rights in an LLC are property of the bankruptcy estate.
 
Once the court concluded that the debtor’s voting rights were property of the estate, it turned to whether the defendants had violated the automatic stay.  The court held that when the other LLC members voted postpetition to remove the debtor as manager and to appoint a new manager they were exercising control over property of the estate in violation of the stay. The defendants next tried to argue that the debtor’s 51% voting rights applied only to routine management of the LLC and not actions that require a vote by a majority in interest of the members.  However, the court did not find this argument to be supported by the operating agreement.  In addition, it was irrelevant whether the debtor was entitled to a vote on his own removal. Thus, the court granted the trustee’s motion for summary judgment and held that the debtor was a member as of the petition date, he had voting rights pursuant to the operating agreement, and actions of the other members in terminating his membership and voting rights violated the automatic stay so that those actions were invalid.

On a positive note, the court did not go on to hold that the trustee was entitled to step into the debtor’s shoes as manager or to compel the debtor to remain as manager.  However, this does not provide a lot of comfort since this was because that the trustee did not request this type of relief and does not indicate how the court would have ruled if it had been asked to address these issues.

2015 RETIREMENT PLAN CONTRIBUTION LIMITS

Traditional and Roth 401(k), 403(b) and 457(b) Retirement Accounts
These employer sponsored retirement accounts you to contribute up to $18,000 (up from $17,500 in 2014) per year if you are less than 50 years old or up to $24,000 (up from $23,000 in 2014) if you are 50 years old or older. Additionally, many employers match contributions and/or provide profit sharing contributions. The maximum contribution amount you and your employer (combined) can make per year is $53,000 (up from $52,000 in 2014), based on $265,000 (up from $260,000 in 2014) maximum considered compensation.
Simplified Employee Pension Plan Accounts (SEPs)
Employers can contribute up to 25% of an employee’s compensation. The maximum contribution an employer can make is $53,000 (up from $52,000 in 2014), based on $265,000 (up from $260,000 in 2014) maximum considered compensation.
Savings Incentive Match PLan for Employees (SIMPLE) IRA Accounts
SIMPLE plan accounts allow for contributions up to $12,500 (up from $12,000 in 2014) per year if you are less than 50 years old or up to $15,500 (up from $14,500 in 2014) if you are 50 years old or older. Additionally, employers are required to make contributions to your account on an elective or nonelective basis. The maximum elective match is 3% of compensation, not to exceed $12,500 (up from $14,500 in 2014) if you are less than 50 years old or up to $15,500 (up from $14,500 in 2014) if you are 50 years old or older. The nonelective contribution is 2% of compensation based on $265,000 (up from $260,000 in 2014) maximum considered compensation.
Traditional and Roth Individual Retirement Accounts (IRAs)
In lieu of or in addition to employer sponsored retirement plans, you can contribute to an IRA. You can contribute up to $5,500 (same as 2014) per year if you are less than 50 years old or up to $6,500 (same as 2014) if you are 50 years old or older. The Traditional IRA provides pre-tax or post tax contributions (based on your income and employer sponsored retirement plan status) and tax deferral. The traditional IRA provide an immediate tax benefit and a deferral of income taxes, while the Roth version foregoes the immediate tax benefit and provides tax free withdrawals.