Thursday, March 23, 2006

American's Favorite Estate Plan Idea? Do Nothing!

Category: Estate Planning

I have written before about what happens if you don't have a will ("Married and Don't Have a Will? New Jersey Has One For You"), but I thought the beginning of this article summed it up nicely:

Writing a good will � it's all relative - Personal Finance - "No one wants to acknowledge their own mortality, especially in writing. This is probably why avoiding doing so is the favored estate plan for many Americans. "

The article goes on to point out that 70% of adults have no estate plan (and think how many have children????); and that 1 out of 3 affluent adults have no estate plan (a gift to the government in taxes).

If you don't make a Will it doesn't mean that you don't have one - it just means that you didn't write the one you have. For those who don't write their own Will, there are intestacy statutes that say who gets what and how. A comment from the article: "Letting the state decide may save the decedent a few hours of thinking through their exit plan, but it can be exceedingly costly and aggravating to those left behind. Ultimately leaving a will is a much better legacy than dying without one."

The law empowers you to make your own choice about who gets what and how - a failure to plan leaves you with a plan, but that plan may fail your family.

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Tuesday, March 14, 2006

Beware - Internet Tax Scams that may be in your Inbox - The IRS's Top 12 List

Category: Tax Law and Planning

Reprinted with permission from Steve Leimberg, creator of, where I get my most up to date analysis of what is going on in the world of tax, estate planning, business planning, and employee and retirment benefits.

Normally, Steve's newletters are copyrights. But here, the internet scammers tried to fake Steve, a tax authority, into giving up some personal information in response to an "email from the IRS" about an after-discovered "refund."

First, the IRS NEVER communicates via email (other then auto-confirmations). All news, good and bad, arrives in the mail.

From Steve Leimberg's Estate Planning Newsletter # 942 (March 13, 2006) at


Each year the IRS issues a list of the 12 "most notorious tax scams" that it is monitoring. These are typically ploys that promise to reduce or eliminate taxes. Three relatively new schemes are: (1) "zero wages" and (2) "Form 843 tax abatement" - in which filers use IRS forms to claim that their tax bills have been wrongly
inflated, and (3) "phishing," a crime of identity
theft. This trickery involves criminals working through the Internet,
posing even as representatives of the IRS itself or as PayPal, specific
banks, or e-Bay, with the goal of tricking unsuspecting taxpayers into
revealing private information that can be used to steal from their financial

FACTS:The IRS continues to uncover and attack schemes designed to trick taxpayers into parting with their money through scams that are "too good to be true". Gullible, greedy, or ignorant
taxpayers - including charitable organizations, continue year after year to fall
for these tricks. Some are generated by promoters who know full well - or close
their eyes and minds and choose to believe what they know is not true about the
tax packages they are selling . And there's no dearth of people willing to
fall for the pitch. Some taxpayers, for instance, are still using frivolous
arguments to claim they do not owe taxes, despite the fact such reasoning has been thrown out of court time and again.IF YOU DO THE CRIME, YOU DO THE TIME: The IRS and the Courts have made it clear that "involvement with tax schemes can lead to imprisonment and fines. The IRS pursues and shuts down promoters of these and numerous other scams. Anyone pulled into these schemes can also face repayment of taxes plus interest and penalties."


1. Zero Wages.
In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099
that shows zero or little wages or other income. The taxpayer may include a
statement indicating the taxpayer is rebutting information submitted to the IRS
by the payer. An explanation on the Form 4852 may cite "statutory language
behind IRC 3401 and 3121" or may include some reference to the paying company
refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form
4852 or 1099 is usually attached to a "Zero Return." (See number four below.)

843 Tax Abatement.

This scam rests on a faulty interpretation of the Internal Revenue Code. It involves
the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."


Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for new loans in their names. These Internet-based criminals pose as representatives of a financial institution (or even the IRS) and send out fictitious e-mail correspondence in an
attempt to trick consumers into disclosing private information. In recent months, some taxpayers have received e-mails that appear to come from the IRS. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. In a variation of this scheme, criminals have
used e-mail to announce to unsuspecting taxpayers they are "under audit" and
could make things right by divulging selected private financial information.
Taxpayers should take note: The IRS does not use e-mail to initiate contact with
taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040
to confirm it.

4. Zero

Promoters instruct taxpayers
enter all zeros on their federal income tax filings. In a twist on this
filers enter zero income, report their withholding and then write
"nunc pro
tunc"–– Latin for "now for then"––on the return. They often also
do this with
amended returns in the hope the IRS will disregard the original
return in which
they reported wages and other income.

Trust Misuse.

Promoters doing nothing but selling trust packages
taxpayers to transfer assets into trusts which the claim that the use
of their
trust will reduce income subject to tax, create deductions for
personal expenses
and reduce estate or gift taxes. However, most of these
packaged trusts do not
deliver the promised tax benefits, and the IRS is
very aggressive in examining
and prosecuting these arrangements.

Frivolous Arguments.

Promoters make totally false and misleading
claims such as:
The Sixteenth Amendment concerning congressional power to lay and collect
taxes was never ratified;
Wages are not income;
Filing a return and paying taxes are merely voluntary; and
Being required to file Form 1040 violates the Fifth Amendment right against
self-incrimination or the Fourth Amendment right to privacy.
are continually thrown out of court.

7. Return Preparer

Dishonest return preparers skim a portion of their
refunds and charge inflated fees for return preparation services.
They attract
new clients by promising large refunds. Taxpayers should choose
carefully when
hiring a tax preparer. Taxpayers should remember that no
matter who prepares the
return, the taxpayer is ultimately responsible for
its accuracy.

Credit Counseling

The IRS Tax Exempt
and Government Entities Division is
in the process of revoking the tax-exempt
status of numerous credit
counseling organizations that operate under the guise
of educating
financially distressed consumers with debt problems while charging
large fees and providing little or no counseling. These counseling
organizations claim they can fix credit ratings. But all too often, they are
merely pushing debt payment plans or impose high set-up fees or monthly
charges that may add to existing debt.

Abuse of Charitable
Organizations and

Tax-exempt organizations are
constantly used in various
ways to improperly shield income or assets from
taxation. This can occur, for
example, when a taxpayer moves assets or
income to a tax-exempt supporting
organization or donor-advised fund but
maintains control over the assets or
income, thereby obtaining a tax
deduction without transferring a commensurate
benefit to charity. A
"contribution" of a historic facade easement to a
tax-exempt conservation
organization is another example. In many cases, local
historic preservation
laws already prohibit alteration of the home's facade,
making the
contributed easement superfluous. Even if the facade could be
altered, the
deduction claimed for the easement contribution may far exceed the
easement's impact on the value of the property.

10. Offshore

Individuals avoid U.S. taxes by illegally hiding income
in offshore bank
and brokerage accounts or using offshore credit cards, wire
foreign trusts, employee leasing schemes, private annuities or life

Employment Tax Evasion.
The promoter tells an employer not to
withhold federal income tax or other employment taxes from wages paid to
employees. Such advice is based on an incorrect interpretation of Code
861 and other parts of the tax law and has been refuted in court.
There are also
"double-dip" parking and medical reimbursement schemes.
Note that employer
participants can be held responsible for back
payments of employment
taxes, plus penalties and interest and that employees
who have nothing withheld
from their wages are still responsible for payment
of their personal

"No Gain" Deduction.

Filers attempt to eliminate their entire
adjusted gross income (AGI) by deducting it on Schedule A. The filer lists
or her AGI under the Schedule A section labeled "Other Miscellaneous
and attaches a statement to the return that refers to court
documents and
includes the words "No Gain Realized."


Download IRS Form 3949-A, Information Referral
the IRS Web site at , or
through the U.S. Mail
by calling 1-800-829-3676.
Send the completed form or
a letter detailing
the alleged fraudulent activity to the IRS, Fresno, CA 93888.
Tell the
Service as much as possible
Who the tricksters
What they are
How you found out about the activity,
When the alleged violation took place,
The amount of money involved, and
Any other information that might be helpful in an investigation.

You do not have to give your name. If you do, your identity can be
kept confidential.
You may be entitled to a reward.
really will understand if you don't send my refund. But as a reward
alerting so many people, could you please send some Wild Turkey my



Leimberg's Estate Planning
Newsletter # 942 (March 13,
2006) at
Due to the public nature and interest of this information, and
fact that these con artists had the unmitigated gall to try to con me,
permission granted to reproduce it.

IR-2006-25, Feb.

Information on both legitimate and illegitimate
tax planning and a whole chapter on trust related schemes and
scams can be found
(610 924 0515). Be sure also to check out Jay Adkisson's
site, and JJ MacNab's
Beware: Schemes,
Scams, and

Scams: How to Recognize and Avoid Them

Theft and Your Tax Records

Return Preparer Enforcement

to Report Suspected Tax Fraud Activity


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Monday, March 13, 2006

Are you Factoring Medical Costs into your Retirement Needs Goals?

Category: Elder Law, Financial Planning

From, "Retired Couples Will Need $200,000 for Basic Medical Costs"

Couples retiring at age 65 who lack employer-sponsored health coverage will need
an average of $200,000 to cover basic medical costs during retirement, according
to a new annual estimate by Fidelity Investments.

Fidelity has found that most people don't take health care into account when planning for retirement, even though it represents the largest single expense for most people in retirement. The 2006 estimates are a 5.3 percent increase from $190,000 in 2005, according to Fidelity. The brokerage's estimate for health-care costs for retired couples has jumped by $40,000 since it began tracking such expenses in 2002.

The estimate assumes that a couple 65 or older relies heavily on Medicare. The estimate includes expenses associated with Medicare Part B and D premiums $64,000), Medicare co-payments, coinsurance, deductibles and excluded
benefits ($72,000), and prescription drug out-of-pocket costs ($64,000).
Fidelity's estimate does not include other health expenses, such as
over-the-counter medications, most dental services and long-term care.

Meanwhile, Fidelity predicts that the number of companies offering
health benefits to retirees will fall sharply in coming years.

care costs have the potential to significantly erode an individual's retirement
savings," said Brad Kilmer, a vice president at Fidelity who oversaw the study.
"This is the part of retirement people frequently forget."

For a
MarketWatch article on the study that offers tips on how to reduce the cost of
health care in retirement, click here.

For a Los Angeles Times article
on the Fidelity study, click here.

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Thursday, March 09, 2006

Who's Going to Buy Your Business - You Need a Plan to Get Money in Hand

Category: Business Law and Planning

From the Puget Sound Business Journal: How to find the right buyer for your business :

The value and importance of estate planning are obvious. Preparing a will,
naming beneficiaries and establishing trusts may all be important steps in your

But if you are a business owner, the complexity of your estate planning increases substantially. Your heirs will be unable to enjoy the true value of your business unless you find and train the right successor well in advance.

According to the Small Business Administration, more than 40 percent of small businesses are facing the issue of ownership transfer or sale. Some business owners have family members who are willing and able to step in and take over. However, many do not. If this is the case, then your strategy probably involves selling your business. When the time comes to sell your business, recognize that all buyers are different, and finding the right one is the key to maximizing the value of your estate and ensuring the future success of your employees and customers. Follow these steps to find the right buyer for your business:

  • Develop a high-quality and comprehensive document that describes your business and its background.
  • Create a "profile" of the ideal buyer.
  • Market the business proactively -- but confidentially.
  • Screen buyers aggressively.
  • Engage a team of trusted, experienced professionals to aid you in the process.

See the Article for more detailed information about the step for sale.

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Wednesday, March 08, 2006

Real Medicaid Reform for NJ Seniors - Expanding Home Based Care

Category: Elder Law

A new proposed law may give New Jersey seniors who require assistance with their care more reasonable choices. At present, the Medicaid system is skewed towards nursing home care - the availability of Medicaid as a financing source for assisted living or home based care is extremely limited. As a result, seniors who do not require a nursing home level of care are being forced to a nursing home to get the care they do need. This is a huge waste of state and federal resources, as the cost of the care being provided eclipses the cost of the care needed - typically bureaucracy. However, as this article from the CourierPostOnline points out, there may now be hope to be able to match care with needs at less cost.

Courtesy of: CourierPostOnline - South Jersey's Web Site:

"As soon as 2008, elderly and disabled New Jerseyans in every county may
get a choice in the type of long-term care they receive through Medicaid, under
a bill introduced in the state Legislature Monday.

The legislation seeks to reallocate Medicaid funds in order to balance the amount of money put toward home- and community-based programs with that spent for institutional care.

Currently, about 82 percent of funding goes toward institutional care, while
about 17 percent goes toward those living at home, said Terrence Duffy, adjunct
professor at Rutgers University's Graduate School of Social Work and member of
the Elder Rights Coalition of New Jersey.

Backers of the bill say at-home care and community-based care are cheaper than institutional care. They also say people healthy enough to live at home if home health aides, day programs and other alternative care options were available are sometimes forced into nursing homes.

That's 'because of where money is allocated,' Sy Larson, president of the New Jersey chapter of AARP, said at a State House news conference announcing the bill.

"It's a wrenching thing for a lot of people who for medical reasons and sometimes mental reasons need care, but they certainly do not require being put into an institution," said Martin Cramer, co-chairman of the Elder Rights Coalition.

The proposed law would set up a pilot program in Atlantic and Warren counties by next January. If successful, it would be extended to all 21 counties by 2008.

New Jersey's "aging population will be booming over the next decade," said bill sponsor Sen. Loretta Weinberg, D-Teaneck. She said the number of New Jerseyans 60 and older is now about 1.6 million but is forecast to double in the next 25 years.

Compared with $70,000 per year for a nursing home, it costs about $20,000 per year for a senior or disabled adult to be enrolled five days a week in the Atlantic County day program called CARING Inc., said bill sponsor Assemblyman Jim Whelan, D-Atlantic City. "We can reach that many more patients by the money we save," Whelan said.

About 14 other states have similar laws, Duffy said.

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Monday, March 06, 2006

Don't Overlook Valuable Tax Credits

Category: Tax Law and Planning

Courtesy of James Jimenez, CPA of Fass and Associates in Parsippany, New Jersey:


Tax credits are one of the most powerful ways to lower your income tax bill. A tax credit reduces your taxes dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket. For example, a tax deduction of $1,000 will lower your tax bill by $280 if you are in the 28% tax bracket. A $1,000 tax credit will lower your tax bill by $1,000. Here are some of the most common tax credits; most are subject to income limits.

Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $1,000 per child.

Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.

Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the Hope credit, up to $1,650 per student can be claimed for tuition and fees paid during the first two years of post-secondary education. Under the lifetime learning credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.

Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status.

Adoption credit. A credit of up to $10,960 per child is available for qualified adoption expenses.

Business credits. There are a number of credits that are specifically available to businesses.

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Thursday, March 02, 2006

Marshall v. Marshall - or Anna Nicole Smith goes to Washingtorn

Category: Probate and Estate Administration

From the Los Angeles Times:

"For much of her adult life, [Anna Nicole Smith, whose real name is Vickie Lynn
Marshall] sought the limelight. She was a 24-year-old topless dancer when she
met [billionaire J. Howard] Marshall; the oil tycoon proposed marriage a week
later. They wed in 1994, but he died a year later - leaving an estate estimated
at $1.6 billion.

Since then, [Anna Nicole] has been locked in a bitter legal battle with E.
Pierce Marshall, 67. At one point, his father's will had named him the sole
heir. But after Vickie Lynn and J. Howard Marshall married, the oilman ordered
his attorneys to draw up a trust that left her half of his assets.

The legal dispute grew more complicated when Vickie Lynn Marshall filed for
bankruptcy protection in California in 1996. Normally a federal bankruptcy court
can claim 'exclusive' control over all financial matters affecting the filer.
When a bankruptcy judge in Orange County took up the case, he ruled for Marshall
and said she was entitled to the money promised in her late husband's trust.

However, the Supreme Court has said that state courts should have
exclusive control over deciding wills and settling estates. E. Pierce Marshall
contended - and the U.S. 9th Circuit Court of Appeals agreed � that the will
should be decided in a Texas state court, not a federal bankruptcy court. That
legal dispute prompted the Supreme Court to take up the case.

But for the identity of the petitioner, the argument in Marshall vs. Marshall probably would have been held before a half-empty courtroom. "

See the entire Los Angeles Times Article

And one point of irony and interest from a similar article in the New York Times (Registration Required): "One question that may go unanswered is how J. Howard Marshall II left his affairs in such apparent confusion. He was not just an oilman. He was a lawyer — a professor of trusts and estates at Yale Law School."

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Wednesday, March 01, 2006

The Emergency "Vacation" Will

Category: Estate Planning

Having just gotten back from vacation (in case you were wondering where the blog went) I have been thinking about the not infrequent phone calls I get that go something like this “Help, I need a Will. I have 2 children and my wife and I are going on vacation in 5 days and we don’t have Wills!!!!”

Well, the first reaction (to be thought and not necessarily said to the prospective client) is – if you have children, why don’t you have a Will? A Will is the only place where you can name Guardians for minor children. In a Will you can create trusts to hold and manage assets passing to your children – minor or otherwise (Remember what you were like at 18/21? Would you give large sums of cash to your younger self?).

Of course, a Will isn’t a fun think to think about – it’s more of a necessity, like health insurance. And even though it is far safer to fly than drive, many people only think of the fact that life’s little necessity of a Will is missing when they are taking a long trip somewhere. Hence the emergency “Help!” phone calls.

What to do if you need a Will in a hurry? Get a referral to an attorney who does a lot of estate work. A good estate planning attorney can prepare a “temporary” Will for you on rather short notice. In this Will, you can expect to name Guardians (as well as Executors and Trustees) and set up a trust to hold in assets for your children. What you will likely NOT get is any kind of tax planning to save taxes when passing dollars to your children (remember (1) in New Jersey, if you and your spouse both die in short proximity to the other, it is likely that only one exemption of $675,000 will exist; all assets above that will be subject to estate taxes, and (2) life insurance death benefits are part of your taxable estate unless you have done planning to remove them from your estate). This type of planning takes review and analysis of your assets, which likely cannot be done under your time constraints.

The moral? While it is better to have some Will then no Will, it is best to have planning done in advance, not under pressure, so a will can be created that best meets your needs.

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