Thursday, March 28, 2013

When does inheritance tax matter to "unmarried" couples?


In reviewing the Supreme Court hearings about the Defense of Marriage Act (DOMA) on Wednesday, it’s important to note that the spousal benefit upon inheritance applies only to the “unlimited” tax-free inheritance.
      
Any individual beneficiary (including adult child or for that matter, gay spouse) can benefit from an exclusion amount, which in 2013 will be $5.25 million, according to the law passed January 1, 2013 (as part of the “Fiscal Cliff” resolution).  However, at that point, the rate goes up in increments that can reach 40%.  Non-citizen heterosexual spouses are not protected, although there exists an instrument called a Qualified Domestic Trust. 

From the viewpoint of DOMA (at least until it was litigated) and the IRS, when a "legal" marital partner passes away, the household continues intact as it was and no inheritance should be taxed.
  
The details are on Wikipedia here
  
There’s another good discussion at “How Stuff Works” here.
  
The ACLU has a story on Edith Windsor here. Windsor had been married in Canada, and also paid more than $200000 in taxes to New York State despite NYS’s adoption of gay marriage since then.

Non-spouses (including adult children) can be faced with sales of businesses or residences to pay taxes, when the book values or businesses or assessed values of homes or real estate is large.   It is not always possible to live in a home one has inherited for this reason. This can become very important to a survivor who does not have strong economics of his or her own (to qualify for a home or rental by oneself after a death).  

Patricia Cain, Santa Clara University, speaks here:
  

Cain warns people to be wary that some day Congress could drop the $5 million exemption (it almost happened because of the Fiscal Cliff until Congress acted New Years Day).  The video also explains the concept of "community property" in some states' laws, especially California and Texas (and seven other states).  You can't tax a "community property" transfer of property, and this also sounds like a Full Faith and Credit Issue.  Cain also traces marriage exemptions back to laws passed in 1948 and then 1981.  . 

Cain also discusses gift taxes and an IRS project to research the practice of "gift taxes" without consideration.  

Remember that an "inheritance tax" is different from an "estate tax".  For example, in some states (like Ohio), an "estate tax" must be paid before distribution to heirs.

(Cain's video is also mentioned on GLBT blog, Dec. 14. 2012.) 

Tuesday, March 26, 2013

California municipal pension funds battle bondholders in bankruptcy court in Central Valley


Pension funds for municipal and local government employees in California are watching closely as a bankruptcy case for Stockton, CA goes to trial, as reported in the New York Times today by Mary Williams Walks, link here

Pension funds in California have deep pockets for legal battles, unlike the case in Rhode Island where the town of Center Falls slashed its pensions to retirees.  There is question as to whether Stockton (and maybe some other Central Valley cities) could qualify for “Chapter 9” at all.  Insurance companies guaranteeing bond holders of their interest payments will fight, however, if municipalities cut their payments. 

  
Many retirees around the country have invested heavily in tax-free bond portfolios often sold by banks (especially Suntrust in the east); some may have close to half their portfolios in these instruments.  So there is a battle between one set of retirees and another.  This is indeed part of "pension tsunami".  

Saturday, March 23, 2013

Voluntary withholding from Social Security benefits: a "poison pill" against debt ceiling debacle?


I’ve crafted my own “poison pill” answer to any future debt ceiling crisis (which could come up again in late May). 
  
Since taxes this year are substantially more than what I had anticipated, I’m going ahead with some voluntary tax withholding withdrawals for 2013. For Social Security, this is done with a form W-4V.  There is an explanation here.  
  
Only federal tax can be withdrawn from Social Security; state income taxes cannot.
  
But if a debt ceiling crisis did cause delay or even suspension of Social Security payments, now the IRS would actually lose even more daily revenue, from me at least.
  
Call it an “insurance policy”. 
   
Of course, the real risk of disruption may be less than we feared because of the legal status of the Social Security Trust Fund as a bond holder. 

Friday, March 22, 2013

Cyprus would steal pension to save itself; would the US "steal" social security some day?


Here we go, with another attack on pensions.  The latest scuttlebutt from Cyprus is that, instead of bank account garnishment, Cyprus would confiscate money from pensions (by lumping them with other funds) as part of a plan to avoid bankruptcy.  The situation changes every hour, and there are reports that this plan has also been rejected. There are also reports that pensions to British expatriots are frozen.
  
But that doesn’t sound so different from calls in the US that the better off should give up any claims to entitlements as part of a budget deal, either for sequester or the next time the debt ceiling idea comes back. (Oh, but the Trust Fund mechanism buffers us from all of that.) 
  
Here goes the thinking in the new demographic reality:   The elderly have already lived.  It’s young people’s turn.  Or, put it this way, families should take car of their own elderly when possible. Public institutions shouldn’t.  We could be headed back in that direction.   
    
In the US, there were other stories about coal miner retiree health insurance stopping as part of a corporate bailout, basically leaving miners with black lung or job illnesses to die.   

Monday, March 18, 2013

Is America the world's retirement home?


The Washington Post has an op-ed by Robert J. Samuelson, “America: the retirement home”, with s telling subtitle, “An aging nation keeps us from an honest budget debate”, on p. A17 of the paper Monday, March 18, 2013.
   
This is not “my old Kentucky home”.  It’s not about the stereotypes of senior living. It’s about priorities.
   
The link for his article is here.
  
Samuelson argues that entitlements are keeping us away from other priorities to help the young and working, “whose turn it is”.  And they may be goading us into undercutting defense, which suddenly gets attention because of North Korea’s testy provocations.
  
He argues that we need a new “social compact” (or social contract). 
  
It’s true that most other western democracies have pretty comprehensive social insurance for both health care and old age, but most of them are becoming even more challenged by demographics – longer life spans and fewer children – than we are.  The currently popular model seems unsustainable.
  
A new social compact would have to establish just how much responsibility the public sector takes for the elderly, and draw lines around how far life-extending treatment goes.  Should there be upper age limits or behavioral considerations for some procedures like coronary bypass surgery?
   
It would also have to consider filial responsibility or filial piety, as discussed in yesterday’s posting (about a new Wikipedia article on the subject).  This could have a profound effect on how we see marriage.
But a social compact also needs to contemplate how people take care “of themselves”.  I still think that a gradual shift to privately owned but regulated retirement accounts, to partly replace Social Security, is still in order.   

Sunday, March 17, 2013

"Filial Responsibility Laws" is now an article on Wikipedia


Today, I posted a new topic on Wikipedia, “Filial Responsibility Laws”, link here. I kept it simple and factual, avoiding moral speculations.  Wikipedia committee staff have slightly restructured it and added a few more references, which I will follow up on.
  
The basic entry is here

The additional references refer to the possibility that some state filial responsibility laws could be viewed as unconstitutional (perhaps under due process concerns). There is also a reference to filial responsibility laws in Canada.
   
I will track these down.  


Update: March 18

I have emailed some columnists about the new article.  But I think that some people fear that open discussion of the issue could taunt states that have these laws into trying to enforce them more often, given their budget pressures.  I got this kind of feedback (making me the "troublemaker")  in 2007 when I first blogged about the issue.  States should consider why these laws are on the books if they are not enforced.  There is a certain viewpoint that supports them. Remember the 1979 song "We are family"?


Update: Oct. 28, 2014

Wikipedia notes that the article is out-of-date, as of Sept. 2014, and of "low impact".  I am not sure yet what happened very recently that is worthy of note.  It also notes that the page focuses on only the US and Canada, and is not worldwide.  But no one has a complete worldwide compendium on the subject.  I'll look further.  AARP (previous posted) "punted" on keeping up with this topic.  I will check further to see what is going on.  

Friday, March 15, 2013

Obama administration had proposed rule for grantor trusts that "ends life as we know it"


In August, 2012 “Accounting Today” ran an article by Roger Russell reporting that the Obama administration wanted to gut the advantages of grantor trusts for estate planning purposes, link here

Some are saying it’s “the end of life as we know it.”  It would have an effect on transferring (non liquid) assets out of an estate. It's not the end of the Internet!
  
However, owner-trustees who control these after inheritance find that their reportable personal income increases, often in unpredictable manners difficult to estimate in advance during the year (for withholding or estimated tax payments), subjecting them to more interest of penalties.  Real knowledge of a variety of financial products, some of them unfamiliar, is often necessary for proper handling.  Also important will be detailed understanding of how itemized deduction rules work.   

Beware the Ides of March (as well as April).

Monday, March 11, 2013

Recent documentary downplays importance of aggressive surgical intervention for elderly heart patients; maybe more about self than family after all


As I discussed on my TV blog yesterday, CNN repackaged a film “Escape Fire: The Fight to Rescue American Healthcare” and presented it with additional materials and discussions Sunday night.  The film and discussion do provide a different idea about senior care.
  
That is to say, indulging patients with constant tests and procedures, while profitable for some doctors under Medicare, may not really prolong patients’ lives significant after all.  Particularly with heart disease, some patients have as long an expectancy without stents and invasive interventions but by being treated medically.
  
This is important because, as Dr. Mehmet Oz has pointed out on Oprah and numerous other daytime shows (mostly on ABC), he doesn’t like to do invasive procedures on elderly patients without strong familial support – “you love someone and they love you back”.  The CNN film (which I had seen in a theater six months ago but not recalled in detail at first) struck me this time as emphasizing personal independence, momentum, activity, and healthful lifestyles (staying away from too much processed food), but not so much interdependence with family. On the other hand, previous broadcasts on Oprah about “blue zones” have stressed the importance of social connections. 
  
My own mother had coronary bypass surgery at age 85 in 1999.  At first, doctors had tried to deal with her blockages medically – and in fact had not been as aggressive in looking for them as they might have been, which was better for me – if they had been, I wonder if I could have done a necessary corporate transfer in 1997. They wanted to do angioplasty, and decided her arteries were too brittle, and confronted her on a Saturday afternoon than they would do emergency surgery on a Monday morning.  I did not have to return (I was afraid that I might have to).
  
They never again attempted any more surgical interventions.  For example, they never installed a pacemaker.  She did very well on the surgery for eight years, and started a gradual decline in about 2007, to pass away at the end of 2010.  

Saturday, March 09, 2013

Grantor trusts could affect partial tax on social security earnings, reaching AMT levels


There is something to watch with grantor trusts.  Preliminary conversations with a tax adviser suggests that all the income goes to your personal return.
  
That means that the Social Security payments would likely push the total income over certain thresholds, making it taxable up to 85%.  Call it a form of accidental means testing if you like.  I can’t say that it would be unfair.  If you have other income, then a social security “pseudo-annuity” payment is just like other income.  You still get the income. 
  
It could also in some cases push someone over the Alternative Minimum Tax  (at two different points; at the upper point there is “no more exemption”).  Also, what remains in a trust no longer has an AMT floor at all (for 2012) , although it wasn’t very much before.  Check the new Wikipedia tables here
  
This could still be an evolving story.  

Friday, March 08, 2013

AARP offers map with links to all states filial responsibility laws


The AARP has a United States map with color coding and links to the statutes of the thirty states that currently have filial responsibility laws, which the AARP calls “filial support laws” and even "filial piety laws".
    
The link for the map is here.  

 Click on each “orange” state to see the applicable statute (which could me more current than the links I gave on my July 2007 postings).
  
It’s humorous that the states not having laws are in green.
   
Note that Iowa law can apply to grandchildren.  In South Dakota and Nevada the requirement extends to siblings.   This may happen in other states.  Utah’s brief law mentions mental health.  Tennessee’s is very long and detailed.  Note Pennsylvania’s, because  of the Pittas case. Yes, you can be responsible to support someone “procreated” by someone else’s sexual intercourse.  I wonder how that plays out in arguments against teen pregnancy.  

Snider Advisors has a good perspective on this issue here
  
Will the media start covering this issue more in the near future? 

Thursday, March 07, 2013

Seniors face both reduced Social Security and pensions or savings contributions from employers, simultaneously


Harold Meyerson has an interesting perspective on entitlement reform, titled “Shortchanging seniors”, on p. A17 of the Washington Post Thursday March 7, 2013. Online the title is “Steering America toward a more secure retirement”, link here

He makes the point that corporate America is pulling back on not only defined benefit pension plans but also on contributory 401(k)’s.  So seniors, faced with losing benefits from Social Security from future reform, also face loss of benefits from work and face working longer.

It is appropriate to work longer as life spans lengthen.  Indeed, I pretty much defined the course of the rest of my work life when I decided to author “Do Ask Do Tell” one vacation summer day after my 51st birthday.  I was good for three more decades at most.

Meyerson suggests a mandatory “defined benefit” program where employees save some income for private accounts (like privatized Social Security) and employers match.  That actually makes it a defined contribution program, but it certainly protects the retiree from politicians.
  
But it doesn’t say anything about means testing of current Social Security benefits, which could even reach down to current retirees some day if the budget pressures get strong enough.  That’s why I favor Congress’s protecting an actuarially determined portion of every current beneficiary’s past contributions. 

Sunday, March 03, 2013

Should a retiree take responsibility for his own Medicare costs by demanding less, and maybe not living as long?


Even on the Sunday morning news shows, I hear talk that the federal sequestration is driven by the fact that it is so difficult to cut “entitlements” and therefore the meat of government services (defense and infrastructure) gets cut. 
  
There was vague mention of means testing again, and a reminder that the Supreme Court views “entitlements” as “benefits”, not as property rights, so Congress can still change them.  The debt ceiling can come up again as soon as mid May. Social Security, because the trust fund is a Treasury bondholder, is safer from the debt ceiling problem in the short term than we had previously thought.
  
There has been a particular complaint that Medicare patients go into doctors and demand everything.  I am afraid that my own mother (who passed away in 2010) tended to do that. In my own case, I’m trying to do as little as possible.  My own primary care physician has gone along with that, but I noticed a remarks about “concern” on my charts. 
  
I do have a heart arrhythmia, but do delve into it would require “doing everything”.  The same could be true about the consequences of doing the expected colonoscopy. 
  
Once you go down a diagnostic path, it is very difficult for our medical system let up on trying to do every possible test and treatment. 
  
A half-century ago, we let problems like mine slide.  We understood and accepted that everyone dies of something, and once you retire, your days are finite, perhaps even “numbered”.  You remained productive and active as long as possible, which might be two or three decades if you were healthy, even with very little intervention.  Once something happened, however, it was essentially over.  Once people developed major illnesses, their life expectancies were low and the periods of disability and need for custodial care were short.
  
I’m comfortable with that.  That is the world I grew up in.  Today's world, of emotional indulgence in some families, is not.  Instead, a lot can be done today, but typically people need social support systems, some of which I don’ have.  As Dr. Mehmet Oz said, “you love someone, and they love you back”, despite all the dependence and disability.  That didn’t seem to be expected in old age when I was growing up, but it has grown with time.  
As to specifics, I can see the case for some treatments, which have sometimes grown less invasive.  Even some heart surgery can be done with laproscopes or "keyholes".  That would require some "preparation" but could be feasible, some day.  But I cannot see how someone "like me" could ever be a reasonable patient for, say, a transplant.