Hyden, Miron & Foster, PLLC Law Blog

Monday, August 24, 2015

Who Pays Taxes On Insurance Proceeds Taxable to the Estate?

Under Federal law, when a beneficiary of an estate receives insurance proceeds taxable to the estate, the executor of the estate may be entitled to recover the portion of the estate tax attributable to the proceeds. (IRC §2206)  But what happens if the beneficiary refuses to turn over the funds?  

The executor may sue the beneficiary for payment— but not until the taxes are paid, according to the language of the Internal Revenue Code. One cannot force payment for taxes that are still owed.  The executor must first pay the taxes some other way and then try to get reimbursed from the beneficiary.       

Such a situation arose in a recent case, showing the perils of an estate plan involving warring siblings, where one was the executor of the estate and the other the recipient of insurance proceeds taxable to the estate.      

It is, of course, impossible to plan for every eventuality, but careful preparation may help avoid such problems. Here are several ways to minimize the risk of conflict in the settlement of an estate and the use of insurance proceeds.     

  • Choose executors and trustees who will be fair. While it is tempting to name your oldest child or a close relative, it may be safer to opt for professionals who stand above the fray and are able act impartially.
  • Talk to your heirs in advance.  It may be helpful to make your wishes clear, whether they involve an insurance policy or a sentimental object.   
  • Work closely with counsel. In confidential, private talks with your attorney, you may be able to address problems that would be difficult to discuss in the open.   
  • Revisit your estate plan periodically. It is important that your estate planning documents stay up-to-date on your financial situation and family dynamics.        

With effort and forethought, you may be able to prevent many disputes. Skilled counsel will help you identify potential problem areas.  The experienced estate and tax planning attorneys at Hyden, Miron & Foster, PLLC know that every family is unique.  We are committed to understanding your needs and helping you plan effectively.  Contact us at (501) 482-1787 for a confidential consultation. 


Monday, August 3, 2015

Common Rental Property Income Mistakes

By: Carrie Bumgardner

Entering the rental property market is a common way to increase your net worth as well as generate some passive income. If you are new to the landlord business, you may fall prey to some common income mistakes when you file your tax return. Knowing the most common mistakes is a good place to start.

1. Not declaring rent when it is received. Any rent received by a landlord must be declared in the year it is received. It is common to require a deposit and last month's rent. Even though the last month's rent is not due yet it must be declared when received.

2. Security deposits count as income if not returned. However, you may also have corresponding expenses if the funds are used to complete repairs.

3. Expenses paid by a tenant are income to the landlord. If your tenant fixes something on the property, the money spent by the tenant is income if the cost of the repair is deducted off the rent. Again, you may also have a corresponding deduction for the cost of the repairs.

4. Property and furnishings are depreciated differently. For property that is rented “furnished,” you may deduct the cost of the furnishings. Residential rental property is depreciated over 27½ years while furniture is depreciated over five (5) years.

5. Failing to document. Everything from your original lease agreement to the cost of replacing a lightbulb should be documented in writing. Not only does this ensure you will get credit for all your allowable deductions but is also protects you in the event of an Internal Revenue Service audit.

By avoiding these common mistakes you can dramatically reduce the chances of an error on your tax return. The best way to avoid these pitfalls is to have your return prepared by a tax professional.


Wednesday, June 24, 2015

IRS Issues Last-Minute Reminder for Taxpayers to Report Certain Foreign Bank and Financial Accounts

The Internal Revenue Service has issued the following reminder to anyone who has one or more bank or financial accounts located outside the United States, or signature authority over such accounts that they may need to file an FBAR by next Tuesday, June 30.

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, which must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. It is not a tax form and cannot be filed with the IRS. The form must be filed electronically and is only available online through the BSA E-Filing System website.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

For more on filing requirements for the FBAR, see Current FBAR Guidance on IRS.gov and check out our previous blog post Do I need to file an FBAR? The IRS has also produced a free one-hour webinar explaining the FBAR requirement.

If you are uncertain of your filing obligations or have missed the filing deadline contact the attorneys at Hyden, Miron & Foster, PLLC. Call (501) 482-1787 for a consultation.


Wednesday, June 10, 2015

De minimis According to the IRS

Lawyers have a tendency to casually toss Latin phrases into everyday conversation. De minimis is one of those Latin phrases. It means “concerning minimal things.” The IRS allows employers to exclude the value of de minimis benefits provided to employees from the employees’ wages. A de minimis benefit is any property or service that employers provide to employees that has so little value that accounting for it would be unreasonable or administratively impracticable.  

In short, the government doesn’t want to force employers and employees to spend countless hours figuring out just how much the hotdogs each employee ate at the annual company picnic were worth, but it does want to ensure that employers aren’t able to disguise compensation as small side benefits and thereby get away with not paying taxes on it, so it adopted a policy of not taxing de minimis benefits.  

The IRS lists the following as examples of de minimis benefits:    

  •  Controlled, occasional employee use of photocopier  
  • Occasional snacks, coffee, doughnuts, etc.
  • Occasional tickets for entertainment events
  • Holiday gifts that have little monetary value
  • Occasional meal money or transportation expense for working overtime
  • Group-term life insurance for employee spouse or dependent with face value not more than $2,000
  • Flowers, fruit, books, etc., provided under special circumstances
  • Personal use of a cell phone provided by an employer primarily for business purposes

The key is the value and the frequency of the benefit, and it is very fact-specific, so it is important not to generalize based on the examples above.   

Something the IRS is very clear about is that cash and cash-like items such as gift cards can never be considered de minimis. This is because they are not difficult to account for, even in small amounts.       

If you have questions about the taxability of fringe benefits, please contact  experienced attorneys at Hyden, Miron & Foster, PLLC,  at 501.482.1787 or 888.770.1848. Our offices are conveniently located in Little Rock, Conway, and Hot Springs Village.

 


Thursday, June 4, 2015

Estate Planning With Your Pets in Mind

If you consider your pets to be part of your family, you might assume that your beloved Fido and Fluffy will be as well taken care of as a human should you become unable to care for them. Unfortunately, that assumption is wrong. Under the law, pets are considered property, and are treated no differently than your dining room table or television, unless you make special arrangements for them in your estate planning documents. At Hyden, Miron & Foster, PLLC, we can help clients in Arkansas make long-term care plans for their pets using a pet trust. 

A pet trust allows you to arrange for the care of your pet should you become incapacitated or pass away, as opposed to a will which only allows you to provide for your pet in the event of your death. We find that trusts are also more likely to be enforced in these types of situations. A pet trust can be a separate and distinct trust or can be included in a revocable trust that handles the disposition of your property.

In order to set up a pet trust, you will need to:         

• Put together a detailed description of the pets to be provided for. 

• Select someone to serve as your pet or pets’ guardian. You should talk with this person about your intentions to make sure they are on board with your plans. It is also wise to pick a successor guardian in case the original guardian is unable to care for your pets when the time comes. If the trust is created during your lifetime, you could serve as the initial guardian and then when you pass or become incapacitated the successor guardian would serve.

• Determine how much, if any, money or other assets you are going to place in the trust to financially provide for your pets. We can help you determine how much and what types of assets are best, based on our experience with these types of trusts. 

• If you are putting a substantial amount of resources in the trust, we recommend selecting a financial advisor for the trust. Placing someone other than the pet guardian in control of the finances to help ensure that there are multiple people looking out for the welfare of your pets.

• Decide who will receive the assets left in the trust after your pet(s) die. Some people devise the remaining trust estate to the pet guardian and financial advisor as compensation for their service. Others choose to donate any remaining assets to charities that support animal welfare, such as a local animal shelter, or leave the remaining assets to their family.           

If you would like to talk with someone on the estate planning team at Hyden, Miron & Foster, PLLC, about providing for your pets in this way, please call us today at (501)482-1787 or (800)467-8297. We would be happy to schedule consultation with you at one of our offices, conveniently located in Little Rock, Conway, and Hot Springs Village. 


Tuesday, May 26, 2015

How to Safely Share & Store Your Estate Planning Documents

I recently executed a trust, pour-over will, living will, and power of attorney. What is the best way to store these documents, and should I make copies? 


Congratulations on taking this important step toward a solid financial future for your family, loved ones and/or charities of your choice.  Now that your documents are signed, witnessed and notarized, what’s next?

Being that original estate planning documents are required in many scenarios, including opening an estate or utilizing a power of attorney, it is extremely important to keep these papers preserved in a secure location for safekeeping. The following explains some best practices post-execution, as well as suggestions on what to do if you have further questions about your estate plan or need to make a change in a certain area. 

Storage and preservation of documents

Many times, couples execute an estate plan when their children are young, and forget all about the documents for several decades. Depending on the type of paper used, these documents can begin to fade and wither, thereby inviting possible objections or skepticism when it comes time to register the will and administer the estate.

Estate planning documents should be stored in a cool, dry, preferably dark place, such as a filing cabinet or fireproof lock box. Keeping these documents in a storage unit or the basement is not the best idea, as mold, rodents, and the weather can introduce damage and destruction. 

Likewise, storing your documents in a safe deposit box is not always advised, as only the owners of the box will be able to access the documents in a time of need. If your documents are needed in an emergency situation, the bank will not allow just anyone to retrieve the contents of the box without express written authorization by all owners – which can introduce major inconvenience in an already-stressful situation. 

Sharing copies of your documents

As experienced estate planning attorneys, we always advise our clients to make copies of their powers of attorney, as it will be very important to ensure all agents are aware of their role. With regard to a living will (i.e., advance healthcare directive or healthcare power of attorney), be sure to provide a copy to all healthcare providers in the event important decisions must be made on your behalf. With regard to your power of attorney, be sure to distribute a copy to each of your agents, as well as to your bank and financial advisors. 

For more information about estate planning, or to make a change to an old estate plan, please contact the experienced will and trust attorneys at Hyden, Miron & Foster, PLLC, by calling (501) 482-1787. 


Wednesday, May 20, 2015

Medicaid Planning: 5 Tips to Consider in Planning for Long-Term Care Costs

One of the most misunderstood aspects of long-term care is whether coverage is offered by Medicare, and for how much. Below you’ll find several tips with regard to planning for long-term care, including qualifying for need-based coverage through the government’s Medicaid program. 

Tip #5: Medicare Will Not Cover Long-Term Care Costs: This is an important starting point for many seniors, and may come as a surprise. Medicare coverage for around-the-clock skilled nursing is generally only available for a maximum of 100 days, and is designed to effectuate proper healing post-surgery or after a debilitating fall. If coverage is needed beyond this time period, enrollees must either pay out-of-pocket, or consider other options. 

Tip #4: Medicaid Eligibility Planning Should Begin Today: As you consider your possible long-term care needs, the best time to start planning is today. An experienced elder law attorney can walk you through the financial steps necessary, whether you need care immediately or in 20 years. No matter your situation, don’t delay – the longer you wait to plan, the more you could lose in the long run. 

Tip #3: Qualifying for Medicaid Requires Financial Need: In general, an applicant qualifies for Medicaid once he or she has $2,000 or less in countable assets (not including the applicant’s home or vehicle).  There are also every strict income limitations. The maximum amount of income varies for each state.

Tip #2: An Irrevocable Trust May Help: An irrevocable trust may help protect assets from the costs of long-term care. Reason being, once an asset is irrevocably retitled into the name of a trust, the previous owner no longer has access to the asset, thereby reducing his total countable assets. 

Tip #1: Advance Planning is Necessary to Avoid the Look-Back Period: Whether you plan to transfer an asset outright to a family member, or into an irrevocable trust, the transfer must have occurred more than five years from the date of application for long-term care coverage through Medicaid. If the time span is any shorter, Medicaid will impose a penalty.

For more information about proper Medicaid planning, contact the elder law attorneys of Hyden, Miron & Foster, PLLC, by calling (501)482-1787 or (888)770-1848. 


Monday, May 18, 2015

5 Common Notices From the IRS (And how a tax attorney can help)

The IRS is notorious for sending out millions of notices each year. The following are some of the most common notices and disputes asserted by the IRS, followed by practical advice for those unwittingly on the receiving end of IRS correspondence. 

#5: CP01B Notice: Probably the tamest of the bunch, this notice simply describes some missing information necessary for processing. If you receive one of these, simply log on to the IRS website or call, and the issue should be resolved quickly. Don’t delay. as most correspondence includes a response deadline. 

#4: CP11 Notice: This notice will arrive if the IRS believes you miscalculated your taxes and owe additional money. This notice may also be accompanied by an underpayment penalty if the discrepancy represents a certain percentage of your adjusted gross income (AGI). If you are facing a sizable tax bill and believe the IRS may be in error, check with your accountant first. If the dispute cannot be resolved, a tax attorney can help you properly dispute the IRS’s adjustments. 

#3: LT14 Notice: If you owe outstanding taxes do not avoid the problem; the IRS will not go away – ever. An LT14 notice asserts that agents have been trying to reach you and have been unable to do so.  The IRS offers options for payment of your tax liability - online payment agreement, installment agreement, and offer in compromise. However, avoiding payment of the tax liabilitywill only make it worse, and the IRS will have no choice but to file a tax lien. 

#2: Personal Audit: Personal audits are rare, and often come about in the context of high-earning, high-deducting individual taxpayers. We highly recommend seeking representation for assistance with your tax audit, especially if the IRS is alleging significant discrepancies. Sometimes, the audit will reveal very minimal issues – or none at all. 

#1: Business Audit: Like an individual audit, a business audit will generally come about if the IRS believes a company may be underreporting, sheltering assets, or engaging in fraudulent measures to avoid tax liability. Working with a trained tax professional through the process will be vital in achieving a workable outcome.

The worst thing you can do when you receive an IRS notice is to do nothing. The experienced tax law team at Hyden, Miron & Foster, PLLC can help. For more information, call (501)482-1787 or (888)770-1848. We have offices in Little Rock, Conway, or Hot Springs Village.


Monday, May 11, 2015

Estate Planning for Major Milestones

When it comes to updating an estate plan, there is no better time to make changes than immediately following one of life’s major milestones, including a birth, death, divorce, marriage or adoption within the family. Regularly updating an estate plan not only helps ensure the will or trust is honored when the time comes but also helps protect against unintentional disinheritances or bequests. It is also advisable to make changes to an estate plan upon major financial transitions, such as receipt of a sizable inheritance, retirement, promotion or entering into long-term care.

Marriage and divorce are two of the most significant milestones from an estate planning perspective. For most Arkansas couples, the surviving spouse is named as a beneficiary in the decedent’s Will. Under Arkansas law, if, after making a will, the testator (the person who made the Will) becomes divorced, then all provisions in the will in favor of the testator’s spouse so divorced are revoked.  Even though the ex-spouse would not inherit under your Will, you would want to amend your estate plan to ensure that your property passes as you intend.  

The birth of a child or grandchild or the death of a beneficiary is another milestone that should prompt prudent planners to make a change in their estate plans. In most wills, the term “child” or “children” is defined to include after-born children and those children (adopted or biological) who were not contemplated at the time the will was drafted. However, not every will is drafted to include this language, and it may be possible to unintentionally omit a child or grandchild for failure to update the language of a will or trust. Even if you omit (by not naming) a child in your Will, under Arkansas law they can receive a portion of the estate. Under Arkansas law, in order to disinherit a child, the testator must specifically mention the child and refer to the class in which the child is a member.

If you have experienced a significant milestone in your life and you need to implement or update an estate plan, the experienced attorneys at Hyden, Miron & Foster, PLLC can help. We have offices in Little Rock, Conway, and Hot Springs Village. Contact us today by calling (501)482-1787 or (888)770-1848.


Wednesday, April 15, 2015

Five Things to Know if You Need More Time to File Your Taxes

You know what today is – April 15. If you need more time to file your taxes, you can get an automatic six month extension from the IRS. Here are five things to know about filing an extension:

1.    Use IRS Free File to file an extension. You can use IRS Free File to e-file your extension request for free. Free File is only available through IRS.gov. You must e-file the request by midnight on April 15.

2.    Use Form 4868. You can also request an extension by filling out Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must mail this form to the IRS by April 15. Form 4868 is available on IRS.gov/forms at any time.

3.    More time to file is not more time to pay. An extension to file will give you until Oct. 15 to file your taxes. It does not give you more time to pay your taxes. You still must estimate and pay what you owe by April 15 to avoid a late filing penalty. You will be charged interest on any tax that you do not pay on time. You may also owe a penalty if you pay your tax late.

4.    Use IRS Direct Pay.  The safe, fast and easy way to pay your tax is with IRS Direct Pay. Visit IRS.gov/directpay to use this free and secure way to pay from your checking or savings account. You also have other electronic payment options. The IRS will automatically process your extension when you pay electronically. You can pay online or by phone.

5.    IRS helps if you can’t pay all you owe.  If you can’t pay all the tax you owe, the IRS offers you payment options. In most cases, you can apply for an installment agreement with the Online Payment Agreement tool on IRS.gov. You may also file Form 9465, Installment Agreement Request. If you can’t make payments because of a financial hardship, the IRS will work with you.

Wednesday, April 1, 2015

Taxpayer Bill of Rights

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the Internal Revenue Service. Explore your rights and our obligations to protect them.

The “Taxpayer Bill of Rights” takes the multiple existing rights embedded in the tax code and groups them into 10 broad categories, making them easier to find and understand.

#1 The Right to Be Informed 

Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

#2 The Right to Quality Service 

Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

#3 The Right to Pay No More than the Correct Amount of Tax 

Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

#4 The Right to Challenge the IRS’s Position and Be Heard 

Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

#5 The Right to Appeal an IRS Decision in an Independent Forum 

Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

#6 The Right to Finality 

Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

#7 The Right to Privacy 

Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

#8 The Right to Confidentiality 

Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

#9 The Right to Retain Representation 

Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

#10 The Right to a Fair and Just Tax System 

Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.


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