Sunday, December 8, 2013

Useful site for Social Security information

One of the very useful sources of information on the web is well-hidden. Larry Kotlikoff is Professor of Economics at Boston University and is the author of Ask Larry, a weekly column posted at the PBS web site. The column, posted somewhat irregularly, answers questions from readers and viewers on some of the finer points of social security benefits. Highly recommended, although a caveat is warranted. The advice that is given does have occasional inaccuracies, so it should be double-checked with the Social Security Administration's own web site.

Sunday, November 17, 2013

More Medicare and ACA scams

It was inevitable. The Wall Street Journal has posted: 

Fraudsters Are Exploiting New Health Law
One Con: Telling Medicare Beneficiaries They Must Choose New Plans

A selection:
According to a recent survey. . . a significant portion of Medicare recipients has misconceptions about the ACA. While there have been no changes to Medicare's annual open-enrollment procedures, 20% of Americans age 65 and over incorrectly believe they can enroll in Medicare through one of the new state-based health-insurance exchanges, which actually cater to individuals under 65. Seventeen percent believe exchange-based policies are replacing Medicare, according to the survey.
David Lipschutz, a policy attorney at the nonprofit Center for Medicare Advocacy, says Medicare employees "as a rule" don't contact beneficiaries. He says Medicare rules prohibit most insurers, brokers and agents from initiating contact with Medicare beneficiaries.

Wednesday, October 23, 2013

How to handle a death

An Arizona law firm has posted a useful reference guide called What to do when someone dies. The tasks are listed in stages - what should be done immediately, within 24 hours, within a couple of weeks, etc.

Sunday, September 29, 2013

FBI warns of "ransomware" scam

The FBI has posted an informational page on the emerging "ransomware" scam that is affecting computer users.
“We’re getting inundated with complaints,” said Donna Gregory of the Internet Crime Complaint Center (IC3), referring to the virus known as Reveton ransomware, which is designed to extort money from its victims.

“While browsing the Internet, a window popped up with no way to close it,” one Reveton victim recently wrote to the IC3. “The window was labeled ‘FBI’ and said I was in violation of one of the following: illegal use of downloaded media, under-age porn viewing, or computer-use negligence. It listed fines and penalties for each and directed me to pay $200 via a MoneyPak order. Instructions were given on how to load the card and make the payment. The page said if the demands were not met, criminal charges would be filed and my computer would remain locked on that screen.”
“We are getting dozens of complaints every day,” Gregory said, noting that there is no easy fix if your computer becomes infected. “Unlike other viruses,” she explained, “Reveton freezes your computer and stops it in its tracks. And the average user will not be able to easily remove the malware.”
The IC3 suggests the following if you become a victim of the Reveton virus:
  • Do not pay any money or provide any personal information.
  • Contact a computer professional to remove Reveton and Citadel from your computer.
  • Be aware that even if you are able to unfreeze your computer on your own, the malware may still operate in the background. Certain types of malware have been known to capture personal information such as user names, passwords, and credit card numbers through embedded keystroke logging programs.
  • File a complaint and look for updates about the Reveton virus on the IC3 website.
The FBI provides extensive information on many other common scams and frauds, including those aimed at senior citizens. Its Fraud Target: Senior Citizens page lists several of these, including

Health Care Fraud/Health Insurance Fraud
Counterfeit Prescription Drugs
Funeral and Cemetery Fraud
Fraudulent "Anti-Aging" Products
Telemarketing Fraud
Internet Fraud
Investment Schemes
Reverse Mortgage Scams

The page also provides a list of links under the heading "How to Report Crime and Fraud."

Thursday, July 25, 2013

The Feds and inherited IRAs

The proposal originally made a couple of years ago by Sen. Max Baucus of Montana to severely restrict inherited IRAs has re-emerged in the bill currently under consideration to extend interest rates on Federally subsidized student loans. The bill passed by a vote of 51-49, which is not enough to overcome a filibuster under the Senate's rules. (See the recent article in Forbes magazine.)

What this means for IRA owners is that the Federal government is continuing to cast its covetous eyes on money that is being held in tax-free accounts.

Traditional IRAs are accounts created with before-tax money and in which the funds may grow tax-free until they are distributed, but when funds are distributed from an ordinary IRA to the owner (called the "participant"), they are taxed as ordinary income. Until that distribution takes place, the Federal government does not get any revenue from the account. That delay is what irks some of our lawmakers.

When the participant dies, assuming that he is not survived by a spouse, his designated beneficiary will begin to take required annual distributions based on his or her life expectancy, again as ordinary income. For a young beneficiary, this can result in a "stretch" over several decades, a very favorable result.

The Baucus proposal is to remove that favorable treatment in the hands of the beneficiary and instead require that the beneficiary take all funds from the account, as taxable income, within five years of the death of the participant.

We can expect that this proposal will continue to resurface from time to time. Ultimately, we may see some form of it adopted for large inherited IRAs, perhaps those with assets over $10 million or $5 million.

Friday, June 14, 2013

Decided case: Johnson v Johnson

Lillian R. Johnson, an elderly widow, sued her son, Randy L. Johnson, arising from a deed that was prepared in 2005.

Lillian owned a 100-acre family farm in Delta County, Michigan. In April 2004, she secured a mortgage on five acres of the parcel as collateral for a loan to provide funds for Randy to construct a barn. Because that improvement increased the value of her farm, resulting in higher property taxes, Lillian wished to take steps to remedy the situation.

She and her son traveled to a lawyer’s office (without an appointment) to speak with an attorney. Lillian testified:
  • The purpose of the consultation was to prepare a deed conveying the five acres to Randy
  • She did not go in to see the lawyer, but waited in the car while Randy spoke to the lawyer.
  • The lawyer prepared a deed.
  • A legal secretary came out to the car to obtain her signature and to notarize it.
There apparently was no evidence that there was any discussion between Lillian and Randy about the deed or the import of what she was signing. It turned out that the deed that was prepared conveyed the entirety of the 100-acre farm to Randy, while reserving a life estate to Lillian. (The interest conveyed to Randy is legally called a "remainder.") It also appears uncontested that the lawyer told Randy that the transaction would have the greatest flexibility if the deed were not recorded until after Lillian passed away.

The opinion relates that the deed remained in Lillian’s safe for some period of time. She asserted that Randy thereafter removed the deed from her safe without her permission. It was recorded in March 2006. Lillian learned in 2009 that she no longer held the fee interest in the farm, but rather held only a life estate.

She filed a quiet title action in the circuit court. The claims raised included fraud, unconscionability, and lack of delivery of the deed. Under Michigan law, a deed must be “delivered” to the grantee in order to become effective.

The Court of Appeals agreed with the trial court that delivery requires more than having the deed in the grantee’s hands. It cited a number of earlier Michigan cases that establish that the purpose of the requirement of delivery is to demonstrate an intent by the grantor to convey the property, to “perfect the transaction.” The Court noted that the fact that Lillian continued to manage the property and continued to pay all of the expenses, as well as the fact that she had included it in her will, were evidence of a lack of intent to make a present conveyance of the remainder interest at the time that the deed was signed or thereafter.

The Court of Appeals held that the trial court had failed to consider the recognized principle that recording a deed gives rise to a presumption of delivery. With such a presumption, Lillian would have the burden of proving that there was no intent of delivery. The Court of Appeals remanded the case to the trial court for a further hearing on that issue.

Lessons to be learned from this case include:
  • Preparing a deed but instructing the client not to record it is a strategy that is fraught with peril.
  • Even if it could be shown that the son's later steps to obtain the deed and to record it were done without the permission of the mother, the presumption in favor of delivery still applied and made it more difficult to enforce the transaction as intended.
  • Whether or not he is regarded as representing the grantor, a lawyer who is requested to prepare a deed to convey land from a grantor to a grantee should at the very least speak with the grantor to ensure that the deed as written accomplishes the result that she wants to achieve.

Johnson v Johnson, unreported decision
Michigan Court of Appeals, May 28, 2013

Sunday, June 9, 2013

The ACA and the tax penalty

On February 1, 2013, the Internal Revenue Service released a proposed regulation and sought comments. 78 FR 7314. The subject is how to calculate the penalty under the Affordable Care Act for not purchasing health insurance for a taxpayer or for any of his dependents.

The proposed rule confusingly refers to the penalty to be paid as the taxpayer's "shared responsibility payment." The terminology becomes muddled because the amount that an employer is required to pay, if it does not provide health coverage, is also called its "shared responsibility payment." See this IRS page for information about that requirement.

The French word for puzzle is "casse-tete," literally "headbreaker." That phrase would apply to this proposed regulation. The proposal is dense and impenetrable, the calculations are complex, and following tradition for the IRS, the proposal is filled with confusing jargon and newly manufactured phrases:

- flat dollar amount
- excess income amount
- applicable dollar amount
and, of course,
- shared responsibility payment (SRP)

(To be fair, at least two of these phrases were created and filled out in the Affordable Care Act. Blame Congress, not the IRS.)

To comply with the requirements and to calculate the SRP, the taxpayer must separately determine, for each month of the year and for each member of his family,
  • whether that person has proper medical coverage
  • whether that person is exempt from the requirement
  • whether health coverage is available to that person
  • what the cost to the family would be to buy health coverage for that person, and
  • whether that cost would exceed 8% of the total family income
For each member of the family, for each month in the year for which (1) he or she has no coverage and (2) he or she does not meet an exemption, the taxpayer will have to calculate what the monthly penalty amount would be. At the end of the year, he will need to determine how many months it would apply, and pay the corresponding amount with his Federal income tax return.

For a single person with steady employment and income, the calculation may not be too difficult. For spouses filing jointly, each of them is regarded as the taxpayer and they bear this responsibility jointly. For a single parent or a couple with children, the calculation can end up being extremely complex, particularly when household income changes based on different events.

The statute and the proposed regulations require that these determinations be made from month to month. This means that the calculations will need to be redone if conditions change from one month to the next:
  • if there are new additions to the family
  • if a child moves out
  • if a child moves back in
  • if anyone takes on a new job, loses a job, or otherwise experiences a change in income
  • if a child living with his parents takes on a summer job
  • if employer-provided health insurance is offered, withdrawn, or the cost to the employee changes
  • if the cost of commercially-available health insurance changes
One of the possible difficulties with the proposal is the fact that the drafters appear to assume that, for each individual in the family, spending up to 8% of the total household income on health insurance is "affordable." This may be true for very small families. The larger the family gets, the more untrue that assumption becomes.

Family size        "Affordable" figure
1                          8%
3                          24%
6                          48%
8                          64%
10                        80%
12                        96%


(It should be noted, though, that the examples that are provided include one which suggests that a different calculation methodology would apply - the employee's 8% is to be compared, for self-only coverage, and then the cost of insuring the rest of the family is considered together and compared to the household income.)

We have posted a document which displays some of the calculations that would be involved in applying the proposed regulation. This will provide an appreciation for how dense and difficult the proposal is.

One thing that we can predict: beginning in 2015, when the taxes for the tax year 2014 are going to be figured, many more Americans will find the need to have their documents done by a professional tax preparer.

Thursday, May 23, 2013

Federal credit for IRA contributions

If your annual income is more than about $10,000 but less than $28,750 (single) or $57,500 (married filing jointly), the U.S. Government will give you up to $1,000 per year to help defray your retirement contributions. Here's how.

Congress adopted the "savers credit" in order to encourage people to contribute to retirement plans. If your employer offers a retirement account that you contribute to (such as a 401k plan), your contributions are eligible. If not, you can make the contributions to a separate IRA.

Under this plan, you can claim up to 50% of your retirement contributions as a credit against your Federal tax liability, up to $1,000 based on a contribution of $2,000. The full 50% is available to persons with an adjusted gross income under $16,750 single / $33,500 married filing jointly. At higher levels of income, the credit is reduced.

Unlike a deduction, which reduces income and thus partially reduces taxes, a credit is a full offset of a tax liability. If the government gives you a tax credit for a particular activity, this means that the government is paying for it fully, with money you would otherwise have to send to the IRS. This applies even if you get a refund at tax time.

This is a nonrefundable credit, meaning that you will have to have a tax liability that this credit will offset. It is not available to those who will pay no taxes - i.e., single people whose income is less than about $9,700. And the largest credit, 50% of contributions up to $2,000, is available only to persons whose income is quite low - $17,250 for a single person. Of course, someone making that little is very unlikely to be willing, or able, to direct as much as $2,000 to a retirement account.

Those making between $17,250 and $28,750 will be able to claim a credit of only $200-400 based on a $2,000 contribution.

See IRS Publication 590, page 79, for more information.

Sunday, May 5, 2013

New statute on reporting unsafe drivers

Effective January 1, 2013, Michigan now has a law that permits physicians and optometrists to notify the Secretary of State or to warn third parties (such as family members) of a patient's physical or mental condition that may affect his or her ability to drive safely. The new statute, found at MCL 333.5139, provides:
  • The report must be based on an "episode," not just the patient's overall condition. The word is defined by reference to "loss of consciousness, blackout, seizure, a fainting spell, syncope, or any other impairment of the level of consciousness" arising from a medical condition.
  • The physician or optometrist may make the report, but is not required to do so.
  • If he does not do so, the statute grants immunity from any claim founded on negligence or professional negligence for failing to do so.
  • If he does make the report, the statute grants immunity from any claim founded on breach of privacy or physician-patient relationship, provided he acts in good faith and documents the basis for his report.
  • The report must be accompanied by a recommendation for a period of suspension of the patient's driver's license. (We can predict that many practitioners will balk at this requirement.)
The wording of the statute:
Sec. 5139.

(1) A physician or an optometrist has no affirmative obligation to but may voluntarily report to the secretary of state or warn third parties regarding a patient's mental and physical qualifications to operate a motor vehicle in a manner as not to jeopardize the safety of persons and property due to an episode. A physician or an optometrist who chooses not to make a report to the secretary of state or warn third parties as provided for under this subsection is immune from any criminal or civil liability to the patient or third party that may have been injured by the patient's actions.

(2) A physician or an optometrist may make a report under this section and submit that report to the secretary of state for the purpose of initiating or contributing to an examination of an applicant's physical and mental qualifications to operate a motor vehicle in a manner as not to jeopardize the safety of persons and property pursuant to section 309 of the Michigan vehicle code, 1949 PA 300, MCL 257.309. In making that report, the physician or optometrist shall recommend a period of suspension as determined appropriate by the physician or optometrist as follows:

(a) In the case of a patient holding an operator's license, that the suspension be for at least 6 months or longer.

(b) In the case of a patient holding a commercial license, that the suspension be for at least 12 months or longer.

(3) A physician or an optometrist making a report under subsection (2), acting in good faith and exercising due care as evidenced by documenting his or her file or medical record regarding an episode, is immune from any civil or criminal liability resulting from the report to the patient or a third party that may have been injured by the patient's actions.

(4) As used in this section:

(a) "Episode" means any of the following:

(i) An experience derived from a condition that causes or contributes to loss of consciousness, blackout, seizure, a fainting spell, syncope, or any other impairment of the level of consciousness.

(ii) An experience derived from a condition that causes an impairment of an individual's driving judgment.

(iii) An experience derived from an impairment of an individual's vision.

(b) "Optometrist" means that term as defined under part 174.

(c) "Physician" means that term as defined under part 170 or 175.

Wednesday, April 10, 2013

An obligation to pay for your parents' nursing home?

The AARP has posted a state-by-state guide to "filial support" laws, which obligate a child of an elderly parent, or the parent of an adult child, to contribute to his support if he is unable to support himself. The map shows that 30 states have some form of this law. (Michigan is not among them.) The author notes that some nursing homes are using these laws to require adult children of residents to pay for their nursing home care.

Sunday, March 24, 2013

Is this a worthy cause?

In Saturday's mail came a solicitation from the American Federation of Police and Concerned Citizens, a charity that seeks donations to assist the surviving spouses and children of police officers killed in the line of duty. It includes numerous references to the "MARQUETTE County Area" to make it appear that this is being sponsored or supported by local law enforcement.

When a solicitation like this comes in, how can you know whether it deserves a contribution? The question of whether it is "legitimate" is different. So long as it is organized as a 501-c-3 corporation and has filed the required forms each year, and so long as it does not divert its funds to private hands, a charity is "legal." But many legal charities are not deserving of consideration because they spend the majority of their funds on administrative and fundraising activities instead of the activities that define their missions.

Whenever this question arises, we recommend that you take a look at Charity Navigator, which calls itself "Your Guide to Intelligent Giving." The entry for the AFPCC tells us that it has a rating of 14 out of 70, very low. Its report on what is done with the money:

Program Expenses - 21.8%
Administrative Expenses - 6.0%
Fundraising Expenses - 72.1%

Thus, of every dollar contributed, 72 cents goes to efforts to collect more dollars, and only 22 cents goes to the group's activities. But, to be fair, 6% for administrative expenses is not bad at all.

A very interesting section is at the bottom of the page: links to the entries for "Charities Performing Similar Types of Work." Taking a look at a highly rated charity - the New York City Police Foundation, rated 64.31 out of 70 - we see the following breakdown:

Program Expenses - 86.7%
Administrative Expenses - 7.9%
Fundraising Expenses - 5.2%

So the NYCPF spends more than 86 cents of every dollar raised on its charitable activities.

Charity Navigator is one of several web sites that help to illuminate these issues. Others are:

Sunday, February 10, 2013

Supreme Court: Child Conceived Post-Mortem Cannot Inherit

The Michigan Supreme Court has decided that a child who was conceived by in vitro fertilization after her father died is not his heir for purposes of the Michigan intestacy laws.

The case, Mattison v Social Security Commissioner, decided in December 2012, involved a couple who were married in 1995. They had one child who was conceived via artificial insemination in 1997. Due to the father’s numerous medical conditions, Jeffrey Mattison was unable to impregnate his wife naturally.

Before undergoing chemotherapy for treatment of lupus, he deposited frozen sperm for later use. He died unexpectedly on January 18, 2001. His wife, Pamela Mattison, had a fertilized egg implanted on January 30. This effort was successful and she delivered twins in October 2001.

Under the Social Security laws, the minor children of a deceased wage earner can draw benefits based on his work history. The determination of who is eligible is expressly made dependent on the intestacy laws of the state where the decedent was domiciled at his death. The mother of the twins sought dependent survivor benefits on their behalf but was denied, the Social Security Administration having determined that the twins could not inherit from their deceased father. She then sued in the Federal court. That court asked the Michigan Supreme Court to answer this question under Michigan law.

The Supreme Court, in its decision, noted that, under long-standing decisions, the determination of who is an heir is decided as of the date of the decedent’s death. (The word "heir" refers to those who inherit by intestacy. Those who succeed to property under a will are "devisees." For purposes of the Federal Social Security statute, whether the decedent had a will is not considered.)

Under section 2103 of the Michigan Estates and Protected Individuals Code, after the intestate share of the spouse is determined, the remainder of the estate passes to identified “individuals who survive the decedent,” but section 2104 provides that a person who dies within 120 hours of the decedent is regarded as not surviving him. Under section 2108, an “individual in gestation at a particular time is treated as living at that time if the individual lives 120 hours or more after birth.”

The court ruled that, given these provisions, the twins were not the heirs of their father. Further, the presumption under section 2114 that a child who is born to a married woman is presumed to be the natural issue of the marriage did not apply because the marriage had ended at Jeffrey’s death.

Justice Marilyn Kelly wrote separately to observe that the result, though required by law, is “lamentable,” and she encouraged the Legislature to amend the provisions of EPIC to account for cases of post-mortem conception.

Sunday, February 3, 2013

Limit on annual gifts now $14,000

The amount that one person can transfer to another without any concern for gift tax issues is now $14,000 per year. Since this is a per-person limit, a husband and wife may give $28,000 per year to a single person. If the gift is made by husband and wife to a married (or unmarried) couple, such as a son and daughter-in-law, the maximum is $56,000 per year.

Gifts made in excess of this amount require the filing of a gift tax return, to report the transaction, but no gift tax is payable so long as the total lifetime amount transferred by the donor(s) does not exceed the lifetime limit - currently $5.25 million per person, $10.5 million per couple.

Friday, February 1, 2013

The Simple Life Insurance Trust

For clients who have relatively limited assets, but who have a life insurance policy and wish to ensure that the proceeds will be held and managed by a trusted person (often a relative) while their children are young, we can prepare a simple trust document that will govern the use of the proceeds. Using this document, the trustee can be named as beneficiary of the policy, and can invest the proceeds for the benefit of the client’s children. The trust directs that income is paid to a child over a certain age (such as 18), and that the principal is paid to him or her at a specified age (30 or 35).

Sunday, January 20, 2013

Property tax limit expanded

One of the several new statutes passed in December and signed by the Governor:

Public Act 497 (2012) modifies the statute which implements Proposal A, placing limits ("caps") on increases to the real estate property tax. That statute specifies what constitutes a "transfer of ownership," a conveyance or transfer which removes the cap and allows the taxable value to increase, and then lists a series of events or conveyances which are not considered a "transfer of ownership" for Proposal A purposes. An example of the latter includes a conveyance of real estate from the owner to a trust whose sole present beneficiary is the same owner - the familiar revocable living trust.

The amendment adds another exception to the second list: a conveyance - or gift under a will or trust - from a parent to a child (or vice versa).

If the property in question is residential real estate, and if the use of the real estate "does not change," the cap on property taxes will continue after such a transfer. This new exception will apply to a conveyance after December 31, 2013.

The Act does not define what constitutes a change of use. One interpretation would be that a child who inherits a home that his parents owned and occupied and thereafter rents it out to a tenant will not be entitled to the continued exemption. But a contrary interpretation would be that any continued use of the land for single-family residential purposes would qualify for the extended cap.

Tuesday, January 1, 2013

The new "fiscal cliff" law

The "fiscal cliff" bill passed by the Senate on New Year's Eve and by the House on New Year's Day includes the following for estate taxes:
  • Retaining the current $5 million per person / $10 million per couple exemption amount. The amount will be indexed for inflation. (The exemption for 2013 is $5.25 million per person.)
  • A modest increase in the top estate tax rate (applicable to those whose assets are more than $1 million over the exemption) from 35% to 40% 
It also would raise taxes on long-term capital gains, for those with incomes over $400,000 per year ($450,000 for married couples), from 15% to 20%.

Extended for five years: the earned income credit, child tax credit, tuition credit.

The 2% holiday for Social Security payroll taxes was allowed to expire.