Using IRA funds for ‘alternative’ investments can be dangerous

IRAs can be an important part of estate planning, especially for savvy investors and business owners. But be careful – mixing your IRA and your business interests too closely can cause big tax problems.

The IRS can “revoke” an IRA, and deny you all its tax benefits, if you use the funds for certain improper purposes. This rule applies not only to you, but also to actions by your family members and any business or trust that is controlled by you or your family.

What can’t you do? You can’t buy, sell, or lease property to or from an IRA; you can’t borrow money from an IRA or lend money to it; and you can’t make personal use of IRA property. [Read more…]

If you’re donating property, don’t scrimp on an appraisal

If you’re donating assets to a charity, don’t scrimp when it comes to an appraisal and don’t try to file the tax forms yourself. That’s the lesson of a recent case from the U.S. Tax Court.

The case involved Joe Mohamed, an extremely successful real estate investor in Sacramento, California. Joe donated real estate he valued at $18.5 million to a charitable trust. Because Joe was a qualified appraiser, he valued the properties himself. He also filled out the relevant tax form himself to claim a deduction for the donation.

But the IRS denied any deduction for the real estate, claiming that Joe made mistakes on the form. And the Tax Court reluctantly agreed that the IRS was right. [Read more…]

Stepchildren present challenges in estate planning

If you or someone you know has an older estate plan that doesn’t carefully take into consideration the role of stepchildren, it’s a good idea to have it reviewed. If you have stepchildren – or if your children have stepchildren – it’s critical to make clear whether they’re included in your plans.

Take the case of Bill and Pat Clairmont. This North Dakota couple had a daughter, Cindy; a son-in-law, Greg; and several grandchildren including a grandson named Matthew. In 1996, they decided to set up a trust to benefit Matthew. Greg, their son-in-law, wrote the trust document.

Under the trust, Matthew would start receiving the trust funds when he turned 40. If he died before then, the trust funds would go to his brothers and sisters.

That all sounds fine … but sometimes things don’t go exactly as planned. [Read more…]

Same-sex couples should review estate plans after Supreme Court ruling

Same-sex couples should review their estate plans in light of the Supreme Court’s decision striking down part of the federal Defense of Marriage Act.

The Supreme Court said that the federal law, which refused to recognize same-sex marriages with regard to federal taxes and benefits, was unconstitutional.

The law had made estate planning especially difficult for same-sex couples, because they couldn’t take advantage of techniques that were available to other married couples. For instance, under federal law, married couples can make unlimited gifts to each other, and can leave an unlimited amount of property to each other in a will, without incurring gift or estate tax. But the law said this wasn’t true for same-sex couples. [Read more…]

Big tax change for widows and widowers who remarry

Widows and widowers who are considering remarriage should be aware that a law recently passed by Congress could make a huge difference in how much of their assets they are able to leave to their heirs after taxes.

In general, anyone who is considering remarriage later in life should talk to an estate planner first in order to avoid possible tax problems. But the new law gives added urgency to this advice.

Typically, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. However, if the person’s bequests (plus large lifetime gifts) to other beneficiaries – such as children – total more than a certain “exemption amount,” then an estate tax must be paid. For 2013, the exemption amount is $5.25 million. [Read more…]