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Al's Column: Avoiding the pitfalls of poor estate planning

October 9/16, 2017: Volume 32, Issue 9

By Roman Basi

 

Screen Shot 2016-07-15 at 3.49.34 PMIn my previous column, “Estate Planning: Leave it to the pros,” (FCNews, Sept. 11/18), I explained—citing several recent real estate tax cases—how unqualified advisors can potentially cause a host of problems for their clients. Despite having expertise in other areas, some attorneys, accountants and other professionals that do not specialize in estate planning can do more harm than good. In this installment, I will cover some of the financial repercussions of poor estate planning.

Choosing an unqualified person or firm to handle your estate planning can result in unforeseen financial consequences. The IRS has recently stated that for all 2017 cases attorney’s fees awards will remain at $200 per hour. This may or may not seem like a significant amount to some; however, the ramification is that if someone brings an action against a professional, that person may be subject to paying the attorney’s fees of the claimant at a higher rate than what they were paid to have the work completed in the first place.

And yet, while we caution everyone on proper planning, it does appear that our current system works well for encouraging charitable contributions. A report recently stated that over 2,600 estates with a net worth of approximately $61 billion made charitable contributions in their estates. This amount was a tax deduction for the estates and the government did not receive taxes in the range of $27.4 billion. It appears the estate tax law does in fact provide a substantial means by which charitable organizations can be funded. This is one key reason why charitable organizations do not want the estate tax to go away. If the estate tax did not exist, it appears that the donations to these organizations would decrease substantially as there would be no incentive to give as estate taxes would not be lowered.

Estate planning is very important to all of us as long as the estate tax law is in existence in the U.S. As a matter of fact, the IRS has recently released information about how important the estate tax is to the U.S. Over 11,917 estate tax returns were filed in a recent year. Of the taxable estates, 13.5% did not owe taxes, but the remainder owed estate taxes such that the total amount produced income to the U.S. Treasury of $17.09 billion. (And this is only for one year.) An interesting breakdown of the assets on the tax returns showed that traded stock, state and local bonds, cash and closely held stock and real estate—other than a personal residence—amounted to a total value of $60.12 billion.

Bottom line: Don’t put off creating an estate plan. And once you have created one, be sure to keep it current as your situation changes and as laws pertaining to estate taxes change. More importantly, use qualified professionals who specialize in estate planning. Remember, the Center has specialists that stay current with the tax laws and specialize in estate planning.

Be sure to attend my presentation on Tuesday, Jan. 30 at TISE, where I will discuss different ways to reduce your taxes and protect your assets. Following my session, I will be available for free, 30-minute consultations.

 

Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He writes frequently on issues facing business owners. For more information, please visit taxplanning.com.

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Financial: Estate planning—Leave it to the pros

September 11/18, 2017: Volume 32, Issue 7

By Roman Basi

 

Screen Shot 2017-05-15 at 9.35.04 AMWe all know the old saying, “Leave it to the experts.” Well, several recent estate tax cases clearly show us individuals who set up estates but are not specialists can create a lot of problems for their clients. Attorneys, accountants and other professionals that do not specialize in this area of the law are warned their actions might hurt clients instead of help them.

In illustration: A recent IRS case said a family member who had a power of attorney could not change a revocable trust and set up a limited partnership one week prior to the death of the father to remove the value of the assets out of the father’s estate. The court held the transaction was illusory and the full value of the business would be included in the estate. With an estate tax exemption of $5,490,000 at the federal level and potentially significantly lower ones at the state level, this can result in an estate tax that puts the business into bankruptcy or into a forced sale. In particular, estates in New York, Illinois, Massachusetts, New Jersey and Connecticut are reportedly where the greatest amount of estate tax is paid.

Another case involved an attorney who didn’t comply with deadlines in filing estate taxes. The tax court held that reliance on the attorney was reasonable and no penalty or interest would be due. The attorney even had the estate pay more taxes than were due on the tax return.

Remember this: Just because you get advice doesn’t mean you are going to get away with an unreasonable position. Take, for example, the case where an estate was liable for late filing and late payment penalties because it relied on an attorney who had committed malpractice in representing the estate. The court held that reliance on such an attorney was not reasonable cause for late payments.

Attorneys are not the only ones who have erred. An accountant handling an estate for someone who did not owe estate taxes failed to file a tax return. As a result, the qualified election for property to a spouse was lost. In the end, the court granted extra time to make the election so the surviving spouse did not have to pay extra taxes.

In another case involving taxes, a father had his sons create a new business that sold the equipment the father’s company manufactured. The “expert” in this case advised the sons’ company should hold the technology for the manufacturing. However, the expert advisor did not follow up and see that legal documents were created to actually transfer the technology to the sons’ company. Accordingly, the tax court concluded the transfer did not really exist, and the expert’s opinions were summarily disregarded. The result was a very high value on the father’s manufacturing company, which was determined to own the manufacturing technology, and this raised the total value of the father’s estate.

This is a very common problem I see in estate planning whereby plans are created, but the actual transfer of legal title of the assets does not always occur. In fact Illinois recently passed a law that allowed for a trust to be the constructive owner of a property that was not actually deeded into the trust—so long as the intent was to transfer the property into said trust. It happens so often that Illinois had to create a law to help advisors who do not follow through.

In my next column, I will discuss other implications of poor estate planning.

 

Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at The Center for Financial, Legal & Tax Planning. He writes frequently on issues facing business owners.