Wealth Strategies Journal

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Aryane Garansi

Associate Editor

The George Washington University Law School, J.D., 2016 (expected)
Winthrop University, B.A. in History & Political Science, 2012

Aryane is currently working on her J.D. as a 2L at The George Washington University Law School. Aryane spent her 1L summer in the corporate headquarters of Wal-Mart Stores, Inc. in Bentonville, Arkansas, where she worked on copyright policies for the photo labs, trademarks for many of their private labels, and patent litigation matters. Aryane currently interns in the Investigations and Hearings Division of the Enforcement Bureau at the Federal Communications Commission.

Aryane joined the Wealth Strategies Journal as an Associate Editor in 2014.

CRS Examines Four Recently Expired Charitable Tax Provisions That Are Being Considered for Extension

The Congressional Research Service released a report examining four of the temporary charitable tax deduction provisions that are expired or expiring, and being considered for renewal in the 113th Congress. The tax provisions being discussed are the enhanced charitable deduction for food inventory donations, tax-free distributions from individual retirement accounts (IRA) for charity, basis adjustment to stock of S corporations making charitable contributions of property, and special rules for contributions of capital gain real property for conservation purposes.

See Jane G. Gravelle and Molly F. Sherlock, “CRS Examines 4 Recently Expired Charitable Tax Provisions,” 2014 Tax Notes Today 204-17 (October 17, 2014).

Posted by Jin Keol Park, Associate Editor, Wealth Strategies Journal

Tax Notes Recommends Simple Methods to Avoid Backdating Problems in Tax Reports

Backdating legal documents in tax reporting is widespread among tax practitioners who often regard it as an insignificant ‘white lie.’ Whether intended or not, however, backdating can pose serious legal consequences as IRS may suspect fraudulent activity. To avoid being entangled in unnecessary tax fraud accusations, Jasper Cummings suggests to follow a few simple rules.

See Jasper L. Cummings, Jr., “Backdating Documents: Wrong or Just Dumb?” 2014 Tax Notes Today 204-9 (August 25, 2014).

Posted by Jin Keol Park, Associate Editor, Wealth Strategies Journal

Charles (Chuck) Rubin: Treasury Makes Life Easier for Holders of Canadian Retirement Account Interests

By: Charles (Chuck) Rubin


Summary: Treasury automates the process for U.S. taxpayers making an election to defer taxation of Canadian RRSPs and RRIFs and to eliminate some information reporting requirements as to those accounts.

U.S. persons are generally not subject to U.S. income tax on individual retirement accounts (“IRAs”) until distributions are taken. Canada has retirement accounts similar to IRAs. These are known as Canadian registered retirement savings plans (“ RRSPs” ) and registered retirement income funds (“ RRIFs” ). Similar to U.S. treatment, Canada does not impose its income tax on these accounts until distributions are made from them.

If the beneficiary of an RRSP or an RRIF is a U.S. citizen or resident for U.S. income tax purposes, the deferral of U.S. income tax on earnings of the funds that applies to U.S. IRAs does not apply under U.S. income tax law because these are not U.S. IRAs. This can leave the beneficiary in the unhappy situation of being taxed by the U.S. on the earnings of the Canadian retirement accounts as those earnings accrue but are not distributed, and then being taxed by Canada when distributions are made from the account. Since these events may occur in different tax years, foreign tax credits may not be available to eliminate this double taxation.

The Income Tax Convention between the U.S. and Canada provides a relief mechanism for U.S. taxpayers who are beneficiaries of RRSPs and RRIFs. Under Article XVIII(7) of the Convention, as amended by the 2007 Protocol, a natural person who is a citizen or resident of the United States and who is a beneficiary of a trust, company, organization or other arrangement that is a resident of Canada, generally exempt from income taxation in Canada and operated exclusively to provide pension or employee benefits, may elect to defer taxation in the United States, subject to rules established by the competent authority of the United States, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefor.

In Rev.Proc. 2002–23, a procedure for making the treaty election was established, which required the filing of a statement each year with the beneficiary’s income tax return. In 2004, the IRS released Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans. This Form facilitated the required reporting and the making of the election.

In Rev.Proc. 2014-55, Treasury has now further simplified the treaty election and reporting process. Essentially, qualified taxpayers are treated as having made the treaty election simply by including in gross income distributions made from the RRSP or RRIF. There is no other notice or filing requirement necessary.

This is a little confusing, since most tax elections require some type of statement or filing with the IRS. Here, while the plan is being held and no distributions are being made, no income is reportable pursuant to the election. But the election itself is not made until a later distribution is made that is reported as income. Even that election itself is odd because no statement is made or boxes checked – the reporting of the income on the return is the whole election. Such election is then given retroactive effect per the statement in the Rev.Proc. that provides the taxpayer “will be treated as having made the election in the first year in which the individual would have been entitled to elect the benefits under Article XVIII(7) with respect to the plan.” The election procedures under Rev.Proc. 2002-23 or under Form 8891 no longer apply.

There are 4 requirements before this automatic, retroactive election applies. These are that the beneficiary:

A) is or at any time was a U.S. citizen or resident (within the meaning of section 7701(b)(1)(A)) while a beneficiary of the plan;

B) has satisfied any requirement for filing a U.S. Federal income tax return for each taxable year during which the individual was a U.S. citizen or resident;

C) has not reported as gross income on a U.S. Federal income tax return the earnings that accrued in, but were not distributed by, the plan during any taxable year in which the individual was a U.S. citizen or resident; and

D) has reported any and all distributions received from the plan as if the individual had made an election under Article XVIII(7) of the Convention for all years during which the individual was a U.S. citizen or resident.

Once made, the election cannot be revoked without the consent of the Commissioner.

If a beneficiary has previously reported the undistributed income of the Canada plan in his or her U.S. gross income, this election is not available without the consent of the Commissioner.

The Rev.Proc. also simplifies the U.S. information reporting in regard to these accounts. Regardless of whether the beneficiary is eligible to make the above election, Forms 8891, 3520 and 3520-A need no longer be filed for these accounts. However, information reporting on Form 8938 and on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) will still apply. Previously, there was an exception for Form 8938 reporting if Form 8891 reporting occurred – but since Form 8891 is now obsolete this exception should not apply anymore.

Rev. Proc. 2014-55, 2014-44 IRB, 10/07/2014

Click Here For Original Posting

Uber and the Coming Disruption of Finance – Bloomberg View

Mohamed El-Erian, chief economic adviser at Allianz SE, writes in Bloomberg View that the Uber model will disrupt finance and describes how that might occur.

Mr. El-Erian’s article begins as follows:

The more I use Uber, the more I am convinced of the transformational power of recent technology innovations, especially when it is intelligently combined with behavioral science and economic principles. Indeed, it is only a matter of time until this potent mix disrupts an increasing number of industries, including certain segments of finance.

Read full article at Uber and the Coming Disruption of Finance – Bloomberg View.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

Jin Keol Park

Associate Editor

Georgetown University Law Center, J.D., 2016 (expected)
University of Virginia, B.A. in Foreign Affairs, 2006

Jin is a 2L at Georgetown University Law Center. He is currently participating in a fall legal internship program at the U.S. Securities and Exchange Commission, where he focuses on the issues related to Regulation M and Regulation SHO. He is the President of the Korean American Law Student Association and the Political Chair of the Asian Pacific American Law Student Association at Georgetown Law.

Jin joined the Wealth Strategies Journal as an Associate Editor in 2014.

California Guardianship Law: Transferring Assets to a Non-Resident Guardian

Janet Brewer writes about how California’s guardianship law applies when assets are transferred to a nonresident guardian.  Her article begins as follows:

California guardianship law can be confusing and complex, and guardianship issues that involve a non-resident guardian can be even more complicated. If you have nominated a guardian who does not live in the United States, you should know that many aspects of the legal process are different, including how the non-resident guardian of the estate receives assets.

Read full article at California Guardianship Law: Transferring Assets to a Non-Resident Guardian | Janet Brewer – JDSupra.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

The Best Law Schools For Making Money (2014-2015)

Above the Law reports on the best law schools to attend to make lots of money. Their post begins as follows:

When it comes to choosing a law school, conventional wisdom dictates that one should attend the best school possible — that usually means a law school that’s perched atop the prestigious heights of the U.S. News rankings. Conveniently, going to an elite law school also means that one’s salary will usually be quite high, but just how high are we talking?

According to the latest salary rankings produced by PayScale, the answer is “pretty damn high” — so high, in fact, that at the midpoints of their careers, alumni of certain law schools beat out graduates from almost every other graduate school in the country.

So which law schools were ranked the highest? You made be surprised by some that made the cut…

Read the full post at The Best Law Schools For Making Money (2014-2015) « Above the Law: A Legal Web Site – News, Commentary, and Opinions on Law Firms, Lawyers, Law Schools, Law Suits, Judges and Courts + Career Resources.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

Making Sure Retirement Savings Don’t Run Out

The NY Times has published a special report entitled “Making Sure Retirement Savings Don’t Run Out,” which covers just what the title describes.  The article begins as follows:

We are living longer, but the life expectancy of our money may have trouble keeping pace.

The combination of longer retirements and more exaggerated cycles in financial markets heightens what financial advisers call longevity risk, the possibility of running out of money before running out of time. But adjustments can be made to investment portfolios, financial plans and lifestyles — before and after retirement — to limit the risk, they say, without increasing other risks.

“People are living longer and looking with a more critical eye at their retirement and whether they’ll have enough funds,” said Leo Kelly III, chief executive of Kelly Wealth Management in Hunt Valley, Md. An affirmative answer “comes down to two things: investing intelligently and allocating assets correctly.”

Read the full article at Making Sure Retirement Savings Don’t Run Out – NYTimes.com.

See also

Special Report Personal Finance: Home as a Piggy Bank? Not Everywhere OCT. 22, 2014

Special Report Personal Finance: How to Gladden a Wealthy Mind OCT. 22, 2014

Special Report: Personal Finance: Stock Buybacks Demystified OCT. 22, 2014

Special Report: Personal Finance: Older Women and Challenges of WealthOCT. 22, 2014

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

John Lanchester’s ‘How to Speak Money’

The NY Times writes about John Lanchester’s new book, “How to Speak Money.”   The article begins as follows:

Do you know the difference between “fiscal” and “monetary”?

Don’t feel bad. Neither did the British writer John Lanchester when he began work a decade or so ago on “Capital,” his sweeping novel about contemporary London. To his annoyance, he realized that he lacked even the rudimentary vocabulary to write about one of the great forces driving life in that city: the financial system.

“I got a first-class degree from Oxford,” Mr. Lanchester said the other day. “I worked for The London Review of Books for a decade; and I had heard the terms ‘fiscal’ and ‘monetary’ maybe 10,000 times each, and I didn’t know what they meant. I kind of vaguely sort-of maybe half-knew, and that was embarrassing. I didn’t know what they meant until I was in my late 40s.”

Read the full article at John Lanchester’s ‘How to Speak Money’ – NYTimes.com.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

PLR re State Court Trust Reformation

Dawn Markowitz reports, on WealthMangement.com, that in Private Letter Ruling 201442046 (Oct. 17, 2014), the Internal Revenue Service ruled that a reformation of a trust to correct scrivener’s errors caused remainder interests to be completed gifts and as such, a trust’s assets wouldn’t be included in a grantor’s gross estate on his death.  Moreover, the reformation wouldn’t cause any current or future beneficiaries to make a gift to any other trust beneficiaries.

Read the full article at  State Court Trust Reformation | Estate Planning content from WealthManagement.com.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

Financial Independence In Lieu Of Retirement, And Other Phrases That Should Be Banished From Retirement Planning

Michael Kitces writes about the language used with clients during retirement planning.  His article begins as follows:

As the research into behavioral finance has shown, the words we use and how concepts are framed can have a powerful impact on how we see the world and consider the opportunities that may lie before us. A strategy can go from being appealing to terrifying (or vice versa!) based solely on how it’s explained. And in the context of retirement, there are a lot of words and phrases that may unintentionally be hampering our efforts to have a productive planning conversation.

For instance, with the rise of Monte Carlo analysis, it’s become increasingly popular to talk about the probability of success, leading retirees to naturally want to minimize the probability of failure as much as possible, given the catastrophe that implies. Yet the reality is that for most retirees, a “failure” doesn’t just mean running off the retirement spending cliff, but instead a gradual spenddown of assets that necessitates adjustments along the way to get back on track. So what happens if “probability of failure” is reimagined as a “probability of adjustment” instead, to reflect what actually happens in the real world? All the sudden it doesn’t seem so bad; it simply raises the question of how much of an adjustment will be necessary, and when or under what conditions.

Read the full article at Financial Independence In Lieu Of Retirement, And Other Phrases That Should Be Banished From Retirement Planning | Kitces.com.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

Charles (Chuck) Rubin: Hidden Gift in Merger Transaction

By: Charles (Chuck) Rubin

Summary: Disguised gifts found in a merger transaction, along with an interesting story on how the gifts came about.

Most tax practitioners are trained to look behind the transfers occurring in family corporate transactions to determine if a disguised gift is being made. A recent Tax Court case provides a real world example of such gifts

In the case, the parents’ manufacturing company was merged with another company owned by their sons. The Tax Court found that the parents’ company was substantially undervalued in the merger. Therefore, the parents received less stock in the resulting entity (and the sons received more) than was appropriate based on the relative values of the two companies. This resulted in a taxable gift of $29.6 million from the parents to the sons.

We could stop here and view this as an instructive case on how, if the IRS can successfully challenge values in mergers involving family entities, gifts can arise. However, this case has another interesting aspect.

This is that it is possible that this taxable gift would not have arisen but for the involvement of estate planning attorneys. At a point in time prior to the merger, estate planning attorneys determined that it would be more beneficial for the family if certain intellectual property relating to a manufacturing process for computer circuit boards belonged to the sons’ company and not the parents’ company. This is because the value of the process would thus not need to be transferred from the parents to the sons during their lifetime or at death in a taxable gift or taxable transfer at death. Factually, however, there was no transfer documentation showing a transfer of ownership of the process from the parents’ company where it had been originally developed. Nonetheless, through interviews with the principals and other review of available evidence, the estate planning law firm believed there was enough support to treat the process as having previously been transferred to the sons’ company at the time of the formation of that company. They were able eventually to convince the CPAs of the same, even though prior tax returns did not support such a change in ownership of the process. To have some documentation for the ownership in the event of a later IRS examination, the law firm prepared a bill of sale to memorialize a prior transfer of the process to the sons’ company.

In valuing the companies in the merger, the position was taken that the ownership of the process was in the sons’ company. The Tax Court determined that such a transfer of ownership to the sons’ company never took place and thus that the parents’ company was worth a lot more in the merger (per the substantial value of the process) than the parents received stock for. This was the source of the large gift found by the Tax Court. One has to wonder whether this gift would have arisen if the estate planning attorneys had not gotten involved.

This case was just resolved. However, the merger and resulting gift occurred in 1995. Thus, in addition to the large gift tax liability, there will be a substantial interest amount due on that gift tax liability. Luckily for the taxpayers, the Tax Court found that based on their reliance on counsel they had reasonable cause for their underpayments of gift tax and are not liable for accuracy -related penalties.

William Cavallaro et ux. v. Commissioner, T.C. Memo. 2014-189

Link to Original Source Post

Finance Lab: They have a pension, long-term care insurance and savings. But, with Alzheimer’s & Parkinson’s is it enough?

The Washington Post ran an article analyzing financial and retirement planning where one spouse has Alzheimer’s and Parkinson’s.  The article begins as follows:

We recently asked readers to tell us about their financial planning for retirement and promised to have experts review readers’ plans and offer advice. One of the first responses we received was from Betsy Campana, 63, who works fulltime as a pharmacist at a hospital in Milford, De., where she and her husband moved after he retired. Ken Campana, 72, is a retired meteorologist with the National Weather Service.

The Campanas are relatively well off in many ways, but they face challenges, including the cost of Ken’s care for Alzheimer’s and Parkinson’s diseases in a long-term care facility and Betsy’s concerns about how much longer she will be able to work.

“My concern is that as long as I am able to work, I seem to be okay financially,” Betsy wrote. “But I am worried that he will outlive my ability/desire to work, and I don’t know if I can survive if that happens.”

We asked two experts to take a look at the Campanas’ situation and to share their thoughts and suggestions. Our experts are Richard W. Johnson, director of the Urban Institute’s Program on Retirement Policy, and Mehmood Nathani, who in 2001 founded Altius Financial Advisors, a Bethesda-based fee-only firm that provides financial advice and manages investments.

via Finance Lab: They have a pension, long-term care insurance and savings. But is it enough? – The Washington Post.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

Chained to the Title: Why the UPC Should Allow Real Property to Transfer by Small Estate Affidavit by Faith Elizabeth Alvarez

Faith Elizabeth Alvarez has published her Note, “Chained to the Title: Why the UPC Should Allow Real Property to Transfer by Small Estate Affidavit.”  The abstract reads as follows:

This Note questions whether the Uniform Probate Code must necessarily exclude real property from small estates, and proposes that the UPC adopt a change, similar to Indiana’s deviation, that allows real property to be considered an asset for small estates. This Note also discusses the background of the UPC, the probate process, and the housing market. This note additionally provides an analysis of transferring the title of low-value real property upon death. Finally, this Note provides the contribution of revising the UPC to allow low-value real property to transfer by small estate affidavit.

via Chained to the Title: Why the UPC Should Allow Real Property to Transfer by Small Estate Affidavit by Faith Elizabeth Alvarez :: SSRN.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

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