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Thursday, June 26, 2014

Avoid Estate Planning Worry: Start Educating Your Children Early


A few weeks ago, I was consulted for a CBS News article about preparing children to handle the financial windfall of a large inheritance. In the article, which you can read here, I suggested parents start educating their children early with hands-on exercises in saving, investing and giving back.  I’d like to expand on that advice.

Depending on a child’s financial education, they may see a large sum of money as something to be spent, and not as a foundation for a secure future. In many cases, these children grow up being spoon fed by their parent’s wealth, without respecting the financial habits that created that wealth in the first place. But with a bit of planning, parents can ensure their children learn about the time value of money, compounding interest, diversifying investments, and helping others through charitable giving.

Starting from a young age, give your children an allowance and discuss with them how they’re going to spend it. Maybe give them some "ideas” like saving part of it or giving part of it to a charity that's important to them. In the beginning its only conversation and will blossom later.

If you start early and they see the value of saving, when they get to middle school they can start investing. Have them "buy" ten shares of stock in few businesses that are interesting to them, then have them follow the companies for a few months. Talk to them regularly about the ups and downs, which are a natural part of investing, and teaching them this way shows them first hand that bad investments can be a valuable learning experience. Losing is just as much a part of the process as winning, and these are lessons best learned at a young age with small sums, rather than later on when the stakes are higher. Meanwhile, the savings account can continue, or some can move into fixed income securities. As they reach their later teen years, start involving more money as they start to learn the game.

Another track is to give them a certain amount to allocate to charities of their choosing. Just like buying stocks, put the choice in their hands. Encourage them to decide which issues are meaningful to them, and then have them research organizations that are making a difference in that field. Hopefully over time they will see the value of sharing their wealth to give an advantage to those less fortunate.

These are just a few suggestions and are by no means the only way of preparing children to manage an inheritance. The important thing is starting early with a hands-on program, allowing them to make their own choices and learn from their mistakes, and discover firsthand the value of using wealth to enrich the world around them.

Friday, June 13, 2014

A Match Made in Bar Heaven

 Matching young lawyers with those in need of pro bono legal services




Pro bono work is a valuable experience for any young attorney. Specifically, a young attorney will find that he or she is creating the opportunity to gain practical lawyering skills, while making a positive impact in the community by helping those who cannot afford legal services. In an article I wrote for the Beverly Hills Bar Association, I discuss the reciprocal benefits of pairing young lawyers in need of real-world experience with those in need of pro bono legal services, and suggest ways in which young attorneys can find a volunteer program that is right for them. 


Wednesday, June 4, 2014

Recent Tax Developments May Affect You


The following tax developments may affect you, your family, your business, or your investments. If any of these tax developments apply to you, please call me or one of the other attorneys in our Tax and Wealth Planning Group for more information on how to take advantage of or minimize the impact of these developments.

Tax Court limits annual amount of IRA Rollovers
A law limits the number of IRA rollovers that can be made in any 1-year period to one. Recently, the Tax Court held that the limit applies not to each separate IRA an individual may own, but to all of his or her IRAs. It reached this result even though the IRS had indicated in proposed regulations and tax publications that the limit applies to each IRA. Thus, an individual with three IRAs could make three rollovers in a 1-year period under the IRS guidance but only one under the Tax Court decision. After considering the matter, the IRS has announced that it will adopt the more restrictive view of the Tax Court. However, the new rule won't apply to any rollover that involves a distribution occurring before 2015. The IRS emphasized that an IRA owner will continue to be able to transfer funds from one IRA trustee directly to another as frequently as desired. Such transfers are not rollovers and thus are not subject to the limit.

Popular tax breaks expire, under congressional revision
A number of popular tax breaks expired at the end of 2013. For individuals, these expired items include, among others, the deduction for state and local sales taxes, the deduction for qualified tuition and related expenses, tax-free distributions from IRAs for charitable purposes, the deduction for mortgage insurance premiums, the exclusion for discharged principal residence debt, and the provision allowing a higher exclusion for employer-provided transit benefits. Work has begun in Congress to revive these provisions and extend them through 2015. Some key business breaks might also be brought back, including the research credit, higher expensing, bonus depreciation, employer wage credit for activated military reservists, work opportunity tax credit, and 15-year straight line cost recovery for qualified leasehold, restaurant, and retail improvements, among other items.

Supreme Court holds severance payments subject to social security taxes
 In a unanimous decision (with one justice not participating), the Supreme Court, reversing the Sixth Circuit Court of Appeals, has held that severance payments that were made to involuntarily terminated employees, and that weren't tied to the receipt of State unemployment insurance, are subject to tax under the Federal Insurance Contributions Act (social security taxes). The Court concluded that the severance payments at issue fell within the law's broad definition of “wages” for social security tax purposes.

IRS releases inflation-adjusted luxury auto depreciation limits for 2014
 Under special “luxury automobile” rules, a taxpayer's otherwise available depreciation deduction for business autos, light trucks, and minivans is subject to additional limits, which operate to extend depreciation beyond its regular period. The IRS has released the inflation-adjusted depreciation limits for business autos, light trucks and vans (including minivans) placed in service in 2014.

Maximum auto/truck values for cents-per-mile valuation
The IRS has released the 2014 maximum fair market values for employer-provided autos, trucks and vans, the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate. An employer must treat an employee's personal use of an employer-provided auto as fringe benefit income and value it using one of several methods. One of the permitted methods allows an employer to value personal use at the mileage allowance rate (56¢ per mile for 2014). However, this method may be used only if the auto's fair market value does not exceed $12,800, as adjusted for inflation. The inflation-adjusted figures for vehicles first made available to employees for personal use in 2014 are $16,000 for autos (same as for 2013) and $17,300 for trucks and vans (up from $17,000 for 2013).

Relief from individual mandate for certain limited health coverage
The health care law contains an “individual mandate”—a requirement that most U.S. citizens and legal residents maintain minimum essential health insurance coverage (i.e., government-sponsored programs such as Medicare, Medicaid, Children's Health Insurance Program; eligible employer-sponsored plans; plans in the individual market; certain grandfathered group health plans; and other coverage as recognized by Health and Human Services) or be subject to a tax penalty for 2014 and later years. The IRS has provided relief from the penalty for months in 2014 in which individuals have, under Medicaid and chapter 55 of Title 10, U.S.C. (medical and dental care for members and certain former members of the uniformed services, and for their dependents), limited-benefit health coverage that is not minimum essential coverage.

IRS proposes regulations on the individual mandate to carry health insurance
The IRS has issued proposed regulations on the individual mandate to carry health insurance. The regulations include additions to the list of government-provided health plans that don't provide minimum essential coverage and a liberalization of the hardship exemption rules under which an individual who fails to carry coverage can escape the penalty.

FAQ provides guidance for employers on subject of individual mandate
The IRS has issued final regulations and guidance in the form of frequently asked questions (FAQs) on the health care law's so-called employer mandate imposed on a large employer (one that employed on average at least 50 full-time employees on business days during the preceding calendar year). The FAQs cover a variety of topics including how to determine whether an employer is subject to the mandate, how to properly identify full-time employees, and how to calculate the shared responsibility payment. The mandate or employer shared responsibility provisions, as they are called, essentially impose a penalty on such employers if one or more of their full-time employees obtains a premium tax credit through the insurance exchange. The mandate has been delayed until 2015 and its applicability to mid-sized employers (between 50 and 99 full-time employees) has been delayed until 2016 if the employer meets certain requirements. In addition, they provide a phased-in coverage requirement for large employers.

Small estates get more time to transfer unused exclusion to surviving spouse
The estate of a decedent who is survived by a spouse may make a portability election. This allows the surviving spouse to apply the decedent's unused exclusion amount to the surviving spouse's own transfers during life and at death. The amount received by the surviving spouse is called the deceased spousal unused exclusion, or DSUE, amount. In general, the election must be made within nine months of the decedent's death on the estate tax return, even if the estate is below the exclusion amount so that a return normally would not be required. Because many estates below the threshold did not file, the IRS provided a simplified method to obtain an extension of time to elect portability. Provided certain requirements are met, the IRS will grant an automatic extension to make the election on an estate tax return filed on or before Dec. 31, 2014. Taxpayers failing to qualify for this relief may request an extension of time to make the election by requesting a letter ruling.

IRS releases new guidance on virtual currency
 The IRS has provided guidance in the form of frequently asked questions (FAQs) on the tax treatment of virtual currency, such as Bitcoin. This guidance treats virtual currency as property for U.S. federal tax purposes. Thus, the general tax principles that apply to property transactions apply to transactions using virtual currency.