Monthly Archives: April 2023

Organ donation saves lives, even as the donor loses theirs. April is National Donate Life Month. It’s designed to encourage people to register to be organ donors and to talk to their families about it. But few people outside of hospital staff see the process in action.

I’ve recently been spending a lot of time in the Cardiac Intensive Care Unit of a local hospital. A friend had a heart attack, coded and was revived. This is heavy stuff, experiencing a life and death situation. Luckily my friend had done advance medical directives, estate planning and funeral planning. You definitely want to have all of those things in place when a medical crisis hits.

The Walk of Honor

While keeping vigil at the hospital, I noticed a crowd of nurses and other staffers lined up along the corridor in the ICU. What was going on?

One of the ICU patients who was not going to survive was about to be taken to have their organs harvested. The hospital personnel had gathered for a Walk of Honor. They were there to salute this person’s gift of life. I joined the silent crowd.

A team of what seemed like a dozen medical personnel wheeled the patient through the unit. The person’s ebbing life was still supported with multiple IV drips and a portable vital signs monitor. All eyes focused on the crowd moving this person to organ harvesting surgery. Silent tears welled in the eyes of many. I put my hand over my heart.

This hospital’s staff does this Walk of Honor salute with every patient who opts to donate their organs.

One Organ Donation Story

Connie Diamond received a life-saving liver transplant. During National Donate Life Month, she wanted to share her story through this letter she wrote to the family of the donor.

Dear Donor Family,

When I awoke in the intensive care unit after the transplant surgery, I remember the nurse asked me, “How do you feel?” I said, “I feel grateful,” and I cried tears of joy.

After numerous diagnostic tests, a team of transplant specialists placed me on the transplant list over a year ago. My liver deteriorated to end stage liver failure due to a non-alcoholic auto immune disease called Primary Biliary Cirrhosis. I had complications which resulted in several hospitalizations. Transplant was my only viable treatment, my only hope.

In May, I was given the green light by the transplant team to relocate to Arizona for several months to be readily available for an organ donor match. I flew out to Arizona immediately, by myself, packing a bag big enough to fill with hope, optimism, positivity, and determination. I lit prayer candles. I opened the window coverings so I could see the sunrise on a new day of hope for a donor liver. I kept my cellphone fully charged and placed it on my chest as I slept. I met some special people who had transplants and were recovering. They became my angels while I waited for “the call.”

I am a 70-year-old youthful grandma and proud adoptive, single mother of accomplished twin girls, now age 34: Lauren, a registered nurse, and Jennifer, an honor student in Chemical and Biological Engineering. I also have a precious granddaughter, Maggie, 9 years old, my swim buddy and joy of my life!

While I waited for an opportunity for a transplant, I prayed and maintained a positive attitude. I readied myself to be physically and mentally strong. A driving force that kept me holding on was my wish to be able to attend my daughter Lauren’s wedding in California. August 2, “the call” came and I knew the angels were circling. I made a miraculous recovery and was discharged in record time. Less than two weeks later, on September 10th, I walked my daughter down the aisle with her dad.

I count my blessings every day, and every day think of you and your loved one who gave me this gift of life. I once had a vibrant career and I was forced into retirement, but now I feel like I have more to do in this life, a bigger purpose, and I feel compelled to give back.

With every beat of my heart, I live in gratitude for this precious gift of life from a beautiful loving soul and family. May you have solace in knowing that your loved one’s organ saved my life.

Make Your Wishes Known

National Donate Life Month (NDLM) was established by Donate Life America and its partnering organizations in 2003. Observed in April each year, National Donate Life Month helps raise awareness about donation, encourage Americans to register as organ, eye and tissue donors, and to honor those that have saved lives through the gift of donation. 

If you decide to become an organ donor, talk to your loved ones about what it means to you to make this life-giving choice. They are going to be the ones who have the final say once you are terminal.

Married individuals may decide to create a joint trust to address their Estate Planning needs.  Joint trusts make sense in community property states (Illinois is not a community property state) because those states consider assets accumulated during the marriage as community assets and require that both spouses have equal management rights with respect to the community assets.  Joint trusts may provide benefits in separate property states as well by eliminating the need for separate trusts for each spouse.  In a typical joint trust, each spouse decides what will happen with their respective contributive share of trust assets upon their death.  They retain control of the assets during their life, just as they would were their assets in separate trusts.  A joint trust is nothing more than two separate trusts governed by one document instead of two.  Clients often prefer joint trusts because they have familiarity with joint property.  Typically, the trust has three property schedules, one for each grantor and one for their community or joint assets.

Spouses in second marriages find these trusts useful because they allow the survivor to have continuing access to assets or wealth that the couple accumulated together while maintaining some separateness thereby allowing the spouses to split whatever remains at the second death however they like.  Of course, joint trusts for second marriages require careful drafting and consideration.  For example, naming the surviving spouse as sole trustee after the death of the first spouse could cause issues.  If the surviving spouse fails to seek competent counsel upon the death of the first spouse, that only exacerbates the issue.  Unfortunately, sometimes a surviving spouse continues to view and use all the assets of the joint trust as their own because they had unrestricted access to the assets during the life of the now-deceased spouse.  Occasionally, the surviving spouse fails to realize that, as the Trustee, they have fiduciary duties to the remainder beneficiaries and a duty to follow the terms of the trust, even if against their self-interest.

A recent Michigan case, In re James M. Kurtz Protection Trust, Docket No 360605 2003 Westlaw 2618498 (Mich Ct App Mar 23, 2023) (unpublished), highlighted some of the issues that arise in a joint trust situation when the surviving spouse lacks competent counsel or fails to retain counsel altogether.  James and Barbara Kurtz created a joint trust naming their respective children from prior marriages as equal residuary beneficiaries after the death of both of them.  The joint trust contained provisions preventing revocation or amendment by the surviving spouse after the death of the first spouse.  The joint trust also gave the surviving spouse the right to withdraw principal.  After Barbara died, however, James purported to restate the joint trust.  He eliminated the children as beneficiaries and named his newly created “protection trust” as the sole residuary beneficiary.  In his capacity as trustee, James made distributions from the joint trust to himself and then used those assets to fund the protection trust.  James named one of his sons as the sole beneficiary of the protection trust.  James died and Barbara’s children initiated a lawsuit challenging James’ actions, including his restatement of the joint trust, his withdrawals from the joint trust, and the creation of the protection trust.  The lower court invalidated the restatement, the withdrawals, and creation of the protection trust.  James’ son appealed.

The appellate court considered both the provision prohibiting amendment of the joint trust as well as the provision allowing the surviving spouse the right to withdraw principal from the trust.  The court determined that one of the main purposes of the trust was to “ensure the children of one settlor would not be posthumously disinherited following the death of that settlor” which was exactly what James did.  By removing assets from the joint trust and putting them in the protection trust, James effectively disinherited Barbara’s children, which frustrated the goal of the joint trust.  The appeals court found that although James had the right to withdraw assets from the joint trust for his own use and benefit, the withdrawals that he made were not for that purpose.  The court determined that the withdrawals that James made were solely to fund the protection trust which was improper.  The court of appeals affirmed the lower court’s rulings with respect to the restatement of the joint trust and withdrawals therefrom.   The higher court indicated that James had the power to create the protection trust, but the terms of the joint trust prohibited unfettered access to the assets thereby preventing him from using joint trust assets to fund the protection trust.

The James case highlights some of the pitfalls that may trap the unwary practitioner with respect to joint trusts and provides several important lessons.  First, even though all the assets are in the joint trust at the first death, it’s important to retain counsel to review the terms of the trust and help guide the trustee through the administration of the joint trust after the death of the first spouse.  Second, it’s vital to follow the terms of the joint trust precisely in making distributions from the trust.  Third, the joint trust need not be irrevocable upon the first death, although the contributive share attributable to the decedent spouse should be irrevocable if protecting the plan is important.  If you want to discuss whether a joint trust is right for you or want to better understand the terms of your joint trust, reach out to discuss.

Each year the Internal Revenue Service (“IRS”) publishes its “Dirty Dozen” list of the most notorious tax scams from the year. The list alerts taxpayers and professionals alike of the most commonly used tax cons during the last year. The scams run the gamut from promoting taking incorrect credits to produce large refunds to misusing international accounts. Let’s dive in!

Perhaps unsurprisingly, five of the twelve scams making their way onto the Dirty Dozen focus on technology and information grabs. The first comes in the form of fake communications from individuals posing as employees of legitimate tax and financial organizations such as the IRS, state departments of revenue, or other similar organizations. Communications arrive in the form of a text, called “smishing” or an email called “phishing” and ask the taxpayer to provide personal information which allows the scammer to steal the identity of the taxpayer. The IRS always initiates contact through mail, not email or text. Tax professionals need to worry about the second of the Dirty Dozen: “spearphishing” which is a phishing attempt targeted at a specific organization. Tax professionals who have suffered a data breach find themselves at greater risk for spearfishing. A successful spearfishing attempt gives the scammer access to client data allowing the thief to file fraudulent tax returns, among other things.

The third on the list involves scammers who offer their services to create a profile for the taxpayer on IRS.gov and prepare tax returns. The online account gives access to valuable tax information about the taxpayer and requires no assistance for creation. The IRS encourages each individual taxpayer to establish their own account. Anyone with access to the account could misuse the information found in the account. Related to the fake online accounts are fake professional preparers who take the number four spot on the list. While many wonderful preparers exist, watch out for anyone who refuses to sign on the dotted line, who charges a fee based upon the amount of the refund, or who neglects to provide their IRS Preparer Tax Identification Number (“PTIN”). Taxpayers should only sign a completed return and should create an IRS account themselves.

Any list of fraudulent schemes would be incomplete without mentioning social media, which is the fifth and final of the technology-related scams. The IRS notes that social media sites circulate inaccurate and misleading information. Some of it relates to common tax documents like Form W-2, or other forms intended to be used by a small group of individuals. The schemes encourage folks to submit false, inaccurate information to secure a refund. The IRS warns that those things that sound too good to be true generally are.

Two separate tax credits make the Dirty Dozen list. The first or number six on the list relates to the Employee Retention Credit (“ERC”). Those promoting the scam encourage individuals who do not qualify for the credit to file for it anyway. The IRS has discovered radio and internet ads regarding the ERC. First, most people do not qualify for this credit and second, the scam gives ne’er-do-wells an opportunity to collect taxpayer information under the guise of a refund that the scammers know the taxpayers cannot receive. The other tax credit scam giving us number seven on the list relates to the fuel tax credit. Here again, the credit has limited application; however, unscrupulous return preparers and promoters entice taxpayers to claim the credit thereby receiving a larger refund. Unfortunately, the taxpayer doesn’t qualify for the refund and will be subject to interest and penalties once discovered. The IRS has indicated an increase in the promotion of filing for refundable credits.

Fraudulent “Offer in Compromise” (“OIC”) mills sit at number eight on the list. The IRS offers OIC to people unable to pay their tax liabilities as a way to settle their debt. They play an important role in our system and require that the taxpayers desiring to avail themselves of such settlement meet certain qualifications. Mills promoting the OIC mislead taxpayers into thinking that they have a valid OIC with the IRS when they do not which often costs the taxpayers thousands of dollars.

The IRS grouped together three separate schemes all with international implications under the “schemes with international elements” umbrella that resides in spot number nine. Of note, the first scheme under spot nine involves use of offshore accounts and digital assets. United States (U.S.) citizens should avoid placing their assets in other jurisdictions for the sole purpose of preventing the IRS from reaching their assets. The IRS has made identifying these accounts and assets a top priority for several years. The second scheme under spot nine involves U.S. taxpayers contributing to foreign individual retirement accounts to avoid payment of taxes. The taxpayer then improperly claims an exemption from U.S. income tax on gains, earnings, and distributions from the foreign account based on the tax treaty with the host country. Finally, the third scheme under spot nine is some U.S. business owners with foreign business interests claim deductions for amounts allegedly paid as “insurance” even though the arrangement lacks many of the attributes of legitimate insurance. The IRS plans to challenge the purported benefits obtained from these transactions and impose penalties. Rounding out the top ten, the IRS warns taxpayers of bogus tax avoidance strategies such as “micro-captive insurance arrangements” and “syndicated conservation easements.”

Bogus charities pose a tremendous issue, especially when a natural disaster or crisis strikes. Number eleven on the list relates to scammers that set up fake organizations to receive contributions from unsuspecting taxpayers. These scams are particularly egregious in nature because they take advantage of tragedy and people’s generosity. The individuals running the fake charities collect personal information and exploit the taxpayers further. Remember that charitable deductions count only if given to qualified tax-exempt entities recognized by the IRS when accompanied by contemporaneous written acknowledgment.

The last of the Dirty Dozen involves two separate schemes aimed at high-income taxpayers. The first involves the use of a Charitable Remainder Annuity Trust (“CRAT”). A CRAT often involves the transfer of appreciated property to the CRAT. When used incorrectly, taxpayers claim that the transfer to the CRAT provides a step-up in basis as if the property were sold. Promoters and advisors sell taxpayers on this and the subsequent elimination of ordinary income and/or capital gain on the later sale of appreciated property from the CRAT. This misapplies the rules under Internal Revenue Code Sections 72 and 664. In reality, when a CRAT sells appreciated assets, those gains flavor distributions to noncharitable beneficiaries of the CRAT. The second relates to monetized installment sales. With these transactions, scammers find taxpayers seeking to defer gains on the sale of appreciated property. For a fee they facilitate a purported monetized installment sale for the taxpayer. An intermediary purchases appreciated property from a seller in exchange for an installment note. The note typically provides for payments of interest only, with a balloon payment of principal at the end of the term. The seller receives most of the proceeds, but improperly delays the recognition of gain on the appreciated property until the final payment on the installment note, often years later.

The IRS encourages taxpayers to be wary, avoid sharing data, and to report fraudsters who promote these schemes as well as those who prepare improper returns. Taxpayers need to protect their sensitive information and exercise caution and common sense both during tax time and throughout the year. Some of the scams listed in this article have been around for a time while others are new to the list this year. The Dirty Dozen serves as a good reminder to protect confidential information and to stay safe out there.

When most folks think about Estate Planning, they focus on who gets what along with who distributes what. In some cases, clients consider their taxes, but that often occurs only when their estate will exceed the Applicable Exclusion Amount (currently $12.92 million in 2023). Comprehensive Estate Planning focuses on the foregoing but encompasses much more. The first part of this two-part series explored the various tax considerations and the impact of state law on Estate Planning. This second part will focus on the non-tax aspects of Estate Planning.

A Revocable Trusts creates the foundation for an Estate Plan by providing numerous benefits. Revocable Trusts allow the grantor of the trust to maintain control of their assets while alive and provide privacy after death. To understand how that works, it’s important to understand what happens in the absence of a Revocable Trust. Normally, a Will determines the distribution of your assets upon your death and allows you to select an individual or company to make the disbursements. Nearly everyone understands this aspect of Estate Planning. The Will also allows for nomination of a guardian to care for minor children. If you do not have a Will, then your state’s intestacy laws will govern distribution of your assets at your death. There’s no guarantee that the state’s distribution pattern matches yours. Further, state intestacy laws may appoint a stranger to handle these important tasks. Finally, a court proceeding will determine who will care for your minor children. Again, without your input, the court may select someone whom you would not want caring for your children. It’s easy to see how a Will or intestacy laws lack flexibility and fail to meet certain needs.

Regardless of whether you have a Will or your state’s intestacy laws determine property division and distribution of your assets upon your death, the individual in charge must petition the court for permission to transact the business of your estate through a probate proceeding. Depending upon the laws of your state, probate can be a lengthy, costly, and public process. If you want to avoid probate and maintain your privacy, a Revocable Trust serves as a Will substitute and provides the opportunity for you to do that. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the Trustee. You avoid probate altogether by using a Trust because the Trust doesn’t die, only the individual dies. The Trust contains provisions regarding what happens upon the individual’s death and vests a successor Trustee with the power to make distributions from the Trust without court oversight. The Trust also protects against incapacity by giving a successor Trustee the power to make distributions from the Trust for your benefit should you become incapacitated. Due to cases of fraud, institutions more readily recognize a successor Trustee acting on your behalf than an agent under your Property Power of Attorney. Thus, a Revocable Trust provides several great non-tax benefits to individuals desiring to have privacy and continuity in their Estate Plan.

In addition to the above benefits, using a Revocable Trust provides a way to protect your beneficiaries. Certain types of beneficiaries, for example, minors, those with special needs, or who have creditor issues require assistance in receiving and managing an inheritance. Consider the individual who plans to rely upon state intestacy laws for distribution of their estate. Those laws make no exceptions based on the type of beneficiary receiving the assets. This means that a minor, special needs beneficiary, or spendthrift could end up receiving funds outright. Outright distribution could have disastrous consequences for any special needs beneficiary by making them ineligible for the benefits that they were receiving. Outright distribution causes issues for a minor child by requiring a guardianship for such child to receive the assets. A spendthrift will squander any funds left outright. As mentioned above, the distribution pattern may or may not match your intended plan of distribution. Creating a comprehensive Estate Plan, consisting of a Revocable Trust, Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and a Health Insurance Portability and Accountability Act (“HIPAA”) Authorization avoids these consequences and gives the individual the ability to account for their own specific circumstances, be it a desire for privacy, protecting a particular beneficiary, or planning for incapacity.

Revocable Trusts also protect blended families. If either spouse has children from a prior marriage, establishing a trust allows that spouse to make distributions to those children on their death and/or create a trust for the surviving spouse that will be distributed to the children from the prior marriage upon the surviving spouse’s death. None of this is possible through the laws of intestacy. Finally, Revocable Trusts often contain provisions that help account for changes in circumstances through the inclusion of Trust Protector language. A Trust Protector may exercise certain powers to amend or change the Revocable Trust when the situation warrants it. For example, if tax consequences changed drastically and operating the trust as originally intended would be economically inefficient or cause undesired tax consequences, the Trust Protector can amend the Trust to provide a better result for the beneficiaries.

Estate Planning involves more than just who gets what when and who gives it to whom. It requires consideration of taxes applicable to an individual during life and to that individual’s estate at death. It also requires understanding the nature and character of assets in that individual’s estate as well as state law governing the title and disposition of assets. Finally, several non-tax considerations impact the shape of the plan as well. Privacy, continuity, and protection for certain beneficiaries, including those with special needs, minors, and spendthrifts all influence the plan. A comprehensive Estate Plan takes shape during life and grows and evolves as do your needs. I can help demystify these confusing concepts and guide you to a plan that accomplishes your goals in a tax-efficient manner.

When most folks think about Estate Planning, they focus on who gets what along with who distributes what. In cases in which an individual’s estate is not expected to exceed the Applicable Exclusion Amount, currently $12.92 million, taxes may simply be an afterthought. Comprehensive Estate Planning, though, encompasses much more than the foregoing. This is the first part in a two-part series that explores the various considerations, both tax and non-tax, for Estate Planning. When focusing on the tax aspects of Estate Planning, one considers the income, gift, and estate tax at both the federal and state level. At the federal level, we have a unified estate and gift tax system applicable to everyone. At the state level, taxes vary widely. Some states may impose estate, gift, inheritance, or income taxes. States diverge in the type of property they recognize and their property and sales tax rates as well, all of which should impact the planning undertaken.

If you live in a state that imposes an income tax, it’s important to understand what types of income your state taxes. Individuals at or nearing retirement prefer states that exclude Social Security benefits from taxation and that provide exemptions for other common forms of retirement income, such as private pensions or Individual Retirement Accounts (“IRAs”). These states generally have lower property and sales taxes that allow their residents to make the most of every dollar, which has become increasingly important as interest rates and food costs continue to rise.

Eight states, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not impose a state income tax. This protects a resident’s income from diminishment because of state income tax liabilities. Of those eight states, Florida, Nevada, Tennessee, and Wyoming impose neither an estate tax nor an inheritance tax. Nevada provides another advantage with a median property tax rate of just over $572 per $100,000 of home value. Unfortunately, Nevada has a combined state and local sales tax rate of 8.23%. Wyoming provides both a low combined state and local sales tax rate (5.22%) and a median property tax rate of $605 per $100,000 of home value.

Arizona, Alabama, Colorado, and South Carolina impose a state income tax, but none impose an estate or inheritance tax. Arizona, Alabama, and South Carolina all exempt Social Security benefits from state income taxes. Colorado exempts Social Security benefits from taxation at the state level if the retiree has attained the age of 65. South Carolina allows taxpayers aged 65 and over to exclude up to $10,000 of retirement income versus $3,000 for those under the age of 65. South Carolina also allows seniors to deduct $15,000 of other taxable income as well. Colorado’s combined state and local sales tax rate comes in at 7.77% and its median property tax rate is $505 per $100,000 of home value. South Carolina bests Colorado slightly with a combined state and local sales tax rate of 7.44% but has a slightly higher median property tax rate of $566 per $100,000 of home value. Alabama taxes IRA and 401(k) distributions but offsets that with a lower median property tax rate than nearly any other state in the nation at $406 per $100,000 of home value. Its average combined state and local sales tax rate is a bit high at 9.24%, but it allows anyone over the age of 65 to exempt the state portion of property taxes and allows lower-income residents an exemption from all property taxes on their principal residence.

Most states impose a tax on capital gains ranging between 2.9% in North Dakota to 13.3% in California. Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming do not tax capital gains. Of the states on the list that do not impose a tax on capital gains, New Hampshire stands alone in imposing a state income tax. Although it does not impose a state income tax, Washington recently passed legislation imposing a tax on capital gains at a rate of 7%. The legislation included a $250,000 standard deduction.

In addition to considering the potential estate, gift, inheritance, income, sales, and property taxes imposed by a state, individuals need to consider the types of ownership acknowledged in their state. For example, Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin all have community property. In addition, Alaska, Florida, Kentucky, South Dakota, and Tennessee allow their residents to elect into community property status for property held in a community property trust. In general terms, community property states consider the fruits of the labor of either spouse to belong to the community of their marriage, requiring equal access to the assets by both spouses. Community property provides a significant tax advantage by allowing a step-up in basis for all of the community property at the death of the first spouse, rather than just the decedent spouse’s assets, as would be the case in separate property or common law states. Community property states impose no restrictions on the distribution of the decedent spouse’s share of the community property, unlike separate property states.

While common law states do not permit residents to create community property, they provide other protections to a surviving spouse not found in community property states in the form of elective share rights. Typically, the surviving spouse may elect against the will of the predeceasing spouse to receive an intestate share of the estate. This amount depends upon many factors but often ends up around 1/3 of the “estate.” In some common law states, the spouse may elect against an augmented estate, which includes non-probate assets such as those found in a revocable trust. In other states, the survivor may only elect against the probate estate.

About one-half of the separate property states recognize “tenancy-by-the-entirety” or “TBE.” TBE requires unity of the interests of time, title, interest, possession, and marriage. Illinois, Indiana, Kentucky, Michigan, New York, North Carolina, and Oregon recognize TBE ownership for only real property. Alaska, Arkansas, Delaware, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming all extend it to personal property as well. TBE property requires both spouses to encumber or sell the property and provides certain creditor protection if the creditor is only a creditor of one spouse. Understanding the protections and limitations of TBE ownership helps shape an estate plan in the separate property states that recognize that type of ownership.

As this article makes clear, Estate Planning involves more than just who gets what when and who gives it to whom. It requires consideration of taxes applicable to an individual during life and to that individual’s estate at death. It also requires understanding the nature and character of assets in that individual’s estate as well as state law governing the title and disposition of assets.