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NOTES and Updates -Fall
2006
"Sweet and shining
are thy ways; beautiful, golden Autumn days"
In August, President Bush signed the Pension Protection Act of 2006 (PPA) into law. Included in that act are several items which can directly impact individual investors. One of these is that traditional and Roth IRAs can now fund charitable lifetime donations; however, 401k and 403b plans do not qualify. Specifically, for the years 2006 and 2007, persons aged 70 and older can take advantage of the opportunity to donate a maximum of $100,000 from an IRA to qualified public charities or private "non-supporting" (not created under the realm of a public charity) foundations without reporting that gift as "income." Furthermore, the amount donated can count as your entire minimum required distribution or a portion of it (up to a $100,000 limit) for the year. If you are one of those who does not need all of your minimum distribution to live on, this is a good opportunity to donate the unneeded portion of your distribution to your favorite charity. Of course, given that these "qualified charitable transfers" will not be included in the donor’s income, they cannot be claimed as charitable deductions also. That’s okay, though, because you are getting an even better benefit by not having to report the amount withdrawn as part of your adjusted gross income (AGI). In other words, by making a direct gift from your IRA to the charity of your choice, the distribution never even appears on your tax form. This is extremely helpful, because the lower you can keep your adjusted gross income, the better. Why? Because as that AGI number gets higher, the amount you pay in taxes does too. Deductions and exemptions may be phased out, social security benefits can become taxable, and in the worst case scenario, you might even have to pay the "alternative minimum tax." No wonder this IRA gift law is such a nice benefit! Of course, some of you may be taking the standard deduction every year because you don’t have enough deductions to itemize. If this is your situation, you are probably thinking that this benefit has no application to you. However, you’ll be glad to know that it still does. Simply stated, those who don’t itemize rarely receive a financial advantage from gifting annually to charities. However, under the new rules, your taxes are reduced even without itemizing. Finally, if you have already taken your required minimum distribution for this year, you may be wondering if you can just write a check for that amount and still get the benefit. The answer, unfortunately, is no. Only direct gifts from an IRA qualify for the special tax treatment. However, you can still take advantage of this opportunity in 2007. Please contact us if you would like our assistance in ensuring that the paperwork is processed California Law Changes Have you named a friend who might become your caretaker (paid or not) in the future as a beneficiary of your estate plan? If so, you should be aware of the outcome of Bernard v. Foley, a California Supreme Court case. As background, be aware that Probate Code section 21350 creates a rebuttable presumption which prevents most caretakers from becoming beneficiaries of their clients’ trust estates. This law was passed with the intent to protect elders/invalids from the possibility of undue influence from unethical care custodians hoping to inherit money from these uniquely vulnerable clients. It should be noted that Section 21350 does not apply if "the transferor is related by blood or marriage to, is a cohabitant with, or is the registered domestic partner of" the testator. That said, although the term "caretaker" was limited to non-family, etc., it is less clear exactly what constitutes a caregiver per se, which could conceivably include a person who merely helps out with shopping or getting to the doctor. Prior to Bernard v. Foley, caretakers who had "pre-existing friendships" with the person they cared for were not being barred by Section 21350 from being trust beneficiaries, even though they technically did not qualify under the exception as quoted above (Davidson 2003, 113 Cal.App.4th 1035). Presumptively, if your friendly relationship with someone preceded your role as his/her caretaker, your "preexisting friendship" exempted you from consideration under the statute, thus allowing you to be named as a beneficiary of that person’s trust. In Bernard v. Foley, the California Supreme Court held that a preexisting relationship with the person you are taking care of does NOT exempt you from being defined as a care custodian under Section 21350 of the probate code. This means that if you are named as a trust beneficiary by the person for whom you are serving as a caretaker, no matter if you had a pre-existing friendship or not, the trust could be challenged and your position as a beneficiary nullified unless you specifically meet the criteria for exception (i.e. marriage or blood relation, registered domestic partner or cohabitatant) or can rebut the undue influence presumption by clear and convincing evidence. Consequently, any testator naming a friend who is currently or could eventually become a caretaker as a beneficiary of his/her estate plan (and wishing to avoid the application of Section 21350 in doing so) should take extra steps to ensure that the gift to that beneficiary is not challenged. Such testators will need to obtain a "certificate of independent review" by a second attorney to establish that the gift is not the result of fraud or undue influence. While this can increase the expense to the testator, the ultimate goal is a worthy one, namely protection from caregivers who seek gifts through fraud or undue influence. In the event a certificate of independent review has not been obtained, the caregiver must convince the court that the "donative transfer" was not the product of "fraud, menace, duress or undue influence." What’s more, the evidence cannot be based solely upon the testimony of either the person who drafted the instrument or the caregiver. Objective third party assessments of the testator’s capacity and freedom of choice will be needed in order to potentially prevail. Scam Alerts The following ideas may limit your vulnerability to scams perpetrated by internet criminals: 1. Never click on a link provided in a suspicious e-mail.Remember, "too good to be true" is the very definition of a scam. This year, 104 IRS-related internet scams have been identified. One scam solicits personal data from taxpayers by referencing the US Dept. of the Treasury’s Electronic Federal Tax Payment System (EFTPS). (This system lets citizens pay federal taxes online or by phone.) The unwitting recipient of a fraudulent e-mail is told that someone has enrolled his credit card in EFTPS to pay taxes with it. The e-mail then warns that further research shows illegal activity on the potential victim’s bank account, that money has already been lost, and that all remaining funds are blocked. At this point, the reader is asked to click on a link that will help him/her recover the money. This link leads to a fraudulent IRS website where personal data is sought. Another e-mail scam tells people they are due a federal tax refund and directs them to a phony but convincing IRS site. Forms found on the site are modified to request personal and financial information. IRS Commissioner Mark Everson warns, "The IRS does not send out unsolicited e-mails asking for personal information. Do not be fooled." Elders and Emergency Preparedness
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