If you have a spouse who passed away after December 31, 2010 but before December 31, 2013, there is a limited time frame by which you may file to obtain your spouse’s estate tax exemption. This is what is known as “portability,” but the deadline to file for this one-time exemption is December 31, 2014.
Portability is a tax break between spouses. This exemption is available for all married couples, including same-sex couples, and is also known as the “marital deduction” – the amount that may be left tax free to a surviving spouse. In the past, if the exemption was not used, it was lost. Now, the exemption is available to be transferred to a surviving spouse within a limited time period, and so surviving spouses should be motivated to file for this exemption.
When a person passes away and leaves all assets to their surviving spouse, then the surviving spouse “inherits” the deceased spouse’s $5 million federal estate tax exemption (adjusted by inflation). This occurs only if an estate tax return was filed timely (usually 9 months from date of death). With this special exemption that the IRS provides, if the tax return is filed by December 31, 2014, the portability exclusion may be transferred to the surviving spouse, thus giving the surviving spouse a potential $10 million in estate tax exemptions. Even in cases where the surviving spouse has $5 million or less, and is not expected to have an estate that would exceed $10 million, it may still be beneficial to file for the exclusion. Unexpected income, inheritance of assets, collection of a settlement, gains in a stock portfolio, or even a lottery win could mean that the surviving spouse’s estate does in fact reach that threshold, in which case estate tax protections would be in place. Note that after December 31, 2014, the opportunity to file for this exclusion is extinguished.
If you are a surviving spouse with a sizeable estate, or if you are the child of a surviving parent with an estate this size, you should contact an estate tax attorney or accountant who has assisted in the estate planning process, in order to file for the portability exclusion before the end of the year.
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Did you know that we are currently in the open enrollment period for “Obamacare”? For plans sold on the individual market, consumers should act promptly to avoid any gap in coverage. If you do not act, you could be exposed to a penalty for being uninsured – the penalty will be the greater of 2% of your household income, or $325.00. The 2015 enrollment period runs from November 15, 2014 through February 15, 2015, so there is still time to address this after the holiday season. But beware that if your coverage is ending on December 31, 2014, you must enroll by December 15 to be covered as of January 1, 2015.
There are many different plans to consider, and it is important to spend time determining which plan is best for you. One of the best websites for information is www.healthcare.gov. There are links to considering new plans, staying covered through the marketplace, reviewing plans that have changed from the prior year, and informing you as to what happens if you do not have your enrollment in place. Prices are also available to review. If you wish to change your coverage, now is the time review your options. Another helpful website is www.gohealthinsurance.com which will assist you in checking if you qualify for government-assisted health insurance.
There is no shortage of websites or information, but whatever your choice, it should be elected very soon so that you will have an opportunity to thoroughly review your options and not allow your coverage to lapse risking a penalty.
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In June of 2014, the U.S. Supreme Court heard a case and unanimously ruled that an Individual Retirement Account (IRA) left to a non-spouse beneficiary was not to be a protected asset from a bankruptcy proceeding. This ruling changed how inherited IRAs are to be treated in bankruptcy; previously, an IRA was an exempt asset, but this case now alters the rule on the protection or non-protection of inherited IRAs.
The facts of the case were that a husband and wife filed for bankruptcy in 2010, claiming that an IRA the wife inherited from her mother (worth approximately $300,000.00) was a qualified retirement fund and therefore should not be applied towards the claims of creditors. Several years later, the case made its way up to the U.S. Supreme Court, which determined that the client was not going to have protection from bankruptcy proceedings for those assets.
Essentially, the prior concept protecting IRAs from bankruptcy proceedings was a consideration by the court that a self-funded IRA was a protected account because the contributor was working and the funds were sheltered from taxes. In the case discussed above, however, the court treated an inherited IRA differently; since it was not saved by the taxpayer/bankruptcy filer, it did not receive the same protection from bankruptcy proceedings. Basically, a person can no longer deposit money and contribute to a rollover/inherited account, and is also required to take distributions, whereas a self-contributed IRA is not required to make distributions until the required minimum distribution date occurs.
It is important, therefore, to pay attention to all court rulings, and presume that only a self-contributed IRA would be protected from proceedings in the unfortunate event of a bankruptcy. If a person is considering bankruptcy, and has received funds, it is crucial to plan for the protection of those assets. A wealth creation and wealth protection plan should be implemented in all cases, as this important new decision affects non-contributed, or inherited IRAs.
Hyman G. Darling, Esq.
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In 2014, a person may die and leave as much money to their spouse as they so desire without any federal estate taxes. This is known as the unlimited marital deduction. Normally, when a person dies, the exemption also dies with them. Except for the current time, there is an opportunity to file an estate tax return within nine (9) months of date of death of the first spouse to die, which allows the surviving spouse to utilize the deceased spouse’s credit upon their own death, so long as this exemption is allowed. This is what is known as portability, and is available at the current time, and although there is no legislation pending to rescind this option, one never knows what the future may bring.
In any event, a person who is single or married, with a US citizen for a spouse, has the availability of utilizing their own exemption of $5.34 Million. This exemption amount is indexed for inflation and will probably increase again in 2015. When the law was initially established, the exemption was $5 Million, and in only a few years, it has increased to $5.34 Million.
You may therefore think that there is no problem if you should die and have less than this amount of money, correct? Wrong!
In fact, there are approximately 18 states and the District of Columbia that impose their own estate and/or inheritance taxes. Most of these states do have exemptions, and you should pay attention to the estate tax consequences when planning your estate and perhaps when moving from one state to another.
Some of these states have exemptions as low as $675,000, or as high as the federal exemption of $5.34 million, so it is important to review the tax rates where you are likely to reside when you die. For example, Massachusetts has a maximum rate of 16%, which basically ties into a credit that the federal government provides, what is known as the state death tax credit.
Of course, states are changing their rates and amounts all the time, and New York recently instituted a change that increases the exemption from $1 Million to the federal exemption over the next several years, based on the year and month of date of death.
There are seven states that have inheritance taxes that are unlike the estate tax. The estate tax taxes all estates based on the value of all assets as of date of death, but the inheritance tax taxes the individual based on the relationship of the decedent to the inheritor. In fact, some states have both an estate tax and an inheritance tax.
There are 31 states that have no estate or inheritance taxes, and those are certainly good jurisdictions in which to live at the time of your death. You should also review the income tax status of a state, as there are several states that have no estate taxes and no income taxes.
Although taxes are not a reason to move, it is certainly a consideration if you have a taxable estate.
Hyman G. Darling, Esq.
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In a recent New York surrogate court case, a battle was initiated over competing claims to administer an estate. The decedent, who was from an Orthodox Jewish family, died without a will. His daughter, acting on behalf of his mother, asserted that he was unmarried, while another person did claim to be his wife. Each person was claiming to be the sole distributee of his estate, and each filed a competing petition for administration. Of course, determining whether he was married or not would clarify whether his alleged wife or mother would inherit his estate.
Apparently, four years before his death, he become romantically interested in the alleged wife and sought an Islamic marriage. He converted to Islam and then participated in a religious ceremony in 2008, four years before his death. However, the parties did not take out a license with any civil city or town clerk, nor did he inform his family of the marriage ceremony until approximately four years later, when he informed his sister. At that time, the relationship between the parties was in trouble, and his attorney drafted, but never filed, a divorce petition.
It is certainly questionable whether a divorce could have been obtained if the couple was not legally married. In any event, both parties filed in family court for orders of protection against each other. Several months before the “husband” died, the couple said they wanted to reconcile and withdrew their petitions, and within six months, the “husband” was hospitalized and subsequently died.
The decedent’s mother claimed that the ceremony was invalid as a matter of Islamic Law. However, the court ruled that the matter of a religious doctrine may not be determined by a civil court, and it also refused to grant summary judgment to the alleged wife.
Basically, the court ruled that the marriage would be valid if conducted in accord with the requirements of the New York domestic relations law, including the requirement of a clergy to perform a ceremony with at least one other witness and the attestation of both parties that they intended to and took each other as husband and wife.
Basically, because neither party in the contest could conclusively prove any evidence, the court remanded the matter to a further court for further discovery and trial as to whether they were in fact married or not. Only time will tell as to how the court determines the marital status of this person as of his date of death. Certainly, if an individual wants to be legally married, he or she should take all necessary steps to have the ceremony performed both religiously, if desired, as well as civilly, with the recording of a proper marriage license.
Hyman G. Darling, Esq.
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