Archive for January, 2007
Charitable Remainder Trust Rules
Under the Pension Protection Act of 2006, there are some new items beneficial to IRA owners that the average IRA owner will miss:
First, if you leave your employer and you had a tax sheltered annuity (typically the type of plan at school districts and governments), you can roll both the pre-tax and after-tax amounts to an IRA. That way, the whole account can continue to grow tax deferred.
Next, the silly requirement to first roll your company account into a regular IRA and then into a Roth IRA has been dropped. Under the new rule, when you retiree, you can roll your company account directly into a Roth IRA (of course, you pay the income tax due and then the Roth will grow tax free). This is effective January 1, 2008.
The nonsensical prior rule that a non-spouse beneficiary of a company plan could not roll over the money had been dropped. Here’s an example. Dad worked for Chevron. He listed his son as beneficiary on his 401k. If Dad dies, the son can now do a trustee-to trustee transfer of Dad’s account into an inherited IRA. Previously, only a spouse could move money from a deceased’s 401k into an inherited IRA or their own IRA. The non-spouse beneficiary still cannot take possession of the money or else it will be taxed—there is no 60 day rollover provision.
There’s more good news about the above. Let’s say Dad died in 2003 and the son was subject to the 5 year rule which required that the IRA be emptied by 2008. Now, the son can just do the rollover in 2007 (the rule is effective January 1, 2007) and take advantage of the new rule even though Dad dies a while back.
If you’re charitably inclined, it has always made sense to give IRA funds or retirement finds to charity. Since each dollar in a retirement plan is only worth 65 cents (after an assumed 35 cent tax), it’s always made sense to give retirement funds rather than non-retirement funds to charity. Previously, if you wanted to give a lifetime gift of your IRA funds, you needed to include the distribution from your IRA on your tax return and then show a charitable deduction. For limitation reasons, this was not always favorable.
Now, you can distribute up to $100,000 directly to a public charity and not show it on your tax return, provided you are also past age 70 ½ (this does not apply to transfers to foundations, donor advised accounts or charitable remainder trusts—only outright gifts to public charities). You would not show the IRA distribution or the charitable deduction.
This is really a rule for seniors because you must be age 70 ½ to use it and it helps people, typically seniors, that have the following issues/limitations: helps people who could not previously make full immediate use of the charitable deduction because of the 50% of AGI limitation, those who paid tax on social security income, those who had a limit on their itemized deductions and those that did not itemize deductions.
The best news is that these transfers to charity count toward the taxpayer’s required mandatory distribution. One more good thing—these transfers to charity are exempt from the normal “pro-rata” rule. Therefore, if the taxpayer has after—tax funds in their IRA, the transfers to charity are only from pre-tax funds and will not affect basis in the IRA. Beware, this rule is immediately effective and set to expire at the end of 2007!
Last, good for seniors, starting in 2010, the $100,000 MAGI limitation on Roth conversion is repealed. Therefore, retirees, for whom Roth conversions are most appealing, will be able to do a Roth conversion without limitation and also spread the tax so that half is paid in 2011 and half in 2012.
You can get a complete education when you attend the Advanced IRA Rollover and Distribution Training in Orlando. Details at www.iraexpert.net
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Charity Trust Website
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Bright Ideas Trust's website storyboard
Tax Planning Children
Question: How do I plan my two nondependent children under head of household?
My wife passed away in 2006. Both my children are living with me. They have been working for half the year in 2008. I supply more than half the expenses in 2008. They are both under 24. Under head of household in turbo tax, I can fill in one child as my nondependent child, but there is no option for the second child. Any ideas?
Answer: 1. If they are not your dependents, it does not matter whether you have one or two. If neither one is your dependent, then the only thing that matters is whether you have zero or you have more than zero. There is no reason to enter more than one because it does not matter how many you have; it only matters that you have at least one.
2. Based on the information that you provided, I am not sure whether you are correct that they are not your dependents. Check this carefully.
Allowing your Children to Keep the Low Proposition 13 Real Estate Upon Your Death
Fundraising Ideas For Clubs
Question: I need help with fundraising ideas..?
I need some good fundraising ideas for my club at school. The school came up with a new rule that there can’t be any bake sales so that ruined all of our plans.
We have until December 17 to raise as much money as we can for Invisible Children.
Do you have any ideas as to what we could do to raise some money?
I’m going to have some bake sales around my house for the next two weekends but I need some ideas for school.
Thank you (:
Answer: We did this at our school - do a candy sale. Go to Costco and buy candy bars in bulk. Place 10 or so in 1 gallon ziploc bags to carry around with you (give each person in the club a bag). At break and lunch time you WILL be mobbed. When you are not in school, carry your bag around and hit up your friends, family and relatives. Each person is responsible for their bag and money. When the bag is empty, get a refill.
Another thing we did was "candy grams." The club sets up a table at break and lunch offering candy grams for a week or so. You make a small sheet with to, from, 2nd period class of the "to" person and space for a cute note. This sheet can be 3" x 5" or so. You will hand deliver the note with a candy attached to that person's 2nd period class on _____ day. The candy can be a candy cane, mini candy bar, etc... You have to decide the price and get permission to be out of class delivering at the beginning of 2nd period.
Green Fundraising Ideas - Recycle Cell Phones for Ca$h
Tax Planning Vs Tax Evasion
How to Avoid Fraudulent Transfers in Asset Protection
One of the most important things to keep in mind is that if you wait to protect your assets until a legal claim is filed, it may be too late. Many actions to transfer your assets after a lawsuit has been filed could be considered a fraudulent conveyance. This means that the court could seek repossession of assets from the transferee. If you are in a high risk profession, it is recommended that you retain some of your assets to be available to creditors. This will prevent the courts from obtaining all of your transferred assets.
The best way to avoid any of this is to get an asset protection plan in place before you think it will ever be needed. Many state courts have said that there must not be any potential of a claim when you place your assets beyond the reach of the creditors. This is typically a period of one to three years prior to a claim being filed; however, there are ways to get around the rules if implemented correctly by exchanging assets of equal value for a financial instrument. Most attorneys do not understand or know how this could be done. This is what differentiates sophisticated estate planners.
Protecting Assets from Creditors without Defrauding Them
It is always important to be aware of legal rules against defrauding your creditors. There are laws in place that define fraudulent conveyance. The laws state that the conveyances were made when the transferor of assets was rendered insolvent by incurring an obligation. It also states that conveyances were made without any fair consideration when the original owner of the assets engaged in any business transaction that leaves the transferor with small capital. In addition, it states that the conveyances were made when the transferor believed he may incur debts that he or she will be unable to pay. Lastly, the conveyances were made with the intent to hinder or defraud creditors.
Fraudulent conveyance requires that you have the specific intention of defrauding creditors. It is difficult to prove this intent, so the courts have a specific set of guidelines that are used to determine intention. However, if you are solvent when you make the transfer, you are less likely to be guilty of fraudulent transfer. The key is to be aware of whether you are solvent or not.
Privacy vs. Secrecy
A fraudulent transfer is not always considered to be a felony. However, if there is proof that there has been efforts made to hide the assets, this may constitute a felony under United States laws.
In regards to privacy, those individuals who evade taxes and launder money are searching for a way to hide their income and assets from the government. Government employees typically regard privacy as a code word that is used by people who are looking for help in order to implement an illegal transaction. In most cases, when there is an excessive concern for privacy and secrecy, there is usually an act of fraud in the making.
Many lawyers who work with asset protection will advocate disclosure to tax agencies. Corporations, limited liability companies and partnerships are entities that are authorized by law. This gives them certain rights without having to obtain consent from the state. If financial affairs of the corporation or partnership are not fully disclosed, the state will not allow any benefits of a separate entity. A trust is a little different and does not require any type of registration with a government agency. This is because a trust is just a contract between a grantor of the trust and the trustee. Irrevocable trusts may offer some protection, but a revocable trust does not provide any asset protection at all. A revocable trust is revocable which allows you to annul the contract; thus, negates the asset protection level of an irrevocable trust.
There are a few forms of asset protection that rely on evasion and secrecy instead of making use of the law openly. In this case, the desire for that privacy can turn into a potential felony. If secrecy is essential to the asset protection plan, the chances are it is illegal.
Since 9/11 and the Patriot Act, it is almost impossible to hide assets in secrecy and no good asset protection firm will advise this strategy because it does not work. Banks and other financial institutions are required by law to “know their customer” and the penalties are fierce. It is much more effective and some would say outright fun to share your structure with someone threatening to sue you (when you have a solid irrevocable trust in place) and tell the person to “go ahead and sue me because you will never get a dime.” Showing them the structure will deter any smart person – and certainly any smart contingency lawyer – if you are set up correctly. What contingency lawyer would waste his time suing you if s/he had no prospect of collecting money for their time?
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Learn how to protect your assets from potential frivolous lawsuits, preserve your wealth by recapturing lost tax dollars, defer capital gains taxes, eliminate inheritance taxes, reduce taxes on your income streams, eliminate probate and estate taxes. You will receive tax efficient wealth transfers to your next generation. We will utilize means of domestic LLCs and international offshore tax haven strategies and customize our program to meet your highest yield expectations and more. Contact us if you have any questions on asset protection or estate planning. Asset Protection Asset Protection: Fraudulent Transfers Boston, MA: 71 Commercial Street #150 Boston, MA 02109
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People & Politics | Tackling Tax Evasion