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Will you be subject to estate tax?

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Many unsuspecting middle class households may be subject to estate tax even though they wouldn’t classify themselves as “rich”, according to a recent MarketWatch study. The current federal estate tax exemption is a generous $5.43 million for estates of individuals who die in 2015, but that can be easily exceeded by individuals with significant life insurance proceeds, a nice home and healthy retirement accounts.

The estate value for federal tax purposes includes a number of things, such as proceeds from any life insurance policies, any residences (primary/vacation/etc), retirement accounts, investment accounts, closely held business ownership interests, cars, boats, furniture and more.

To avoid estate tax where life insurance coverage puts you over the limit, you can have an experienced North Carolina estate tax attorney put together an irrevocable life insurance trust to own any policies that you may have, as well as help you determine the best option to proceed with the rest of your estate planning. There are downsides to an irrevocable life insurance trust, though, such as not being able to make changes to the policies after ownership is transferred to the trust.

Even if you don’t have exposure to the federal estate tax due to the generous exemption, you may be subject to state taxes. In North Carolina the legislature repealed the estate tax in July 2013. Florida also has no state estate tax, and has also done away with any inheritance tax.

For any questions about your estate planning or personal tax situation, call one of our estate planning experts at 919-787-7711 or contact us online to schedule a consultation.

Are you liable for the Trust Fund Recovery Penalty?

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What are “Trust Fund Taxes”?

“Trust Fund Taxes” refer to any taxes required to be withheld on behalf of an employee by an employer for federal tax purposes. These include income tax withholding, social security, and Medicare taxes. Simply put, as an employer you do not pay your employee all of their wages. Instead, you have a duty to withhold certain federal tax portions from your employees’ paychecks. You hold these funds “in trust” for the federal government.

What is the Trust Fund Recovery Penalty?

The Trust Fund Recovery Penalty (“TFRP”) is penalty on responsible individuals who fail to withhold and/or pay Trust Fund Taxes to the federal government. Many individuals view a business’ tax debts as separate from their personal tax debts. However, some individuals may be personally liable for the tax debt of their business. The key to understanding the TFRP lies in two key terms: “responsible person” and “willful.” The first term identifies who the penalty may be proposed against. The second term broadly defines the actions, or lack of actions, required to be liable for the penalty.

Who is a “Responsible Person”?

The term “Responsible Person” includes only those persons who are responsible for the nonpayment of taxes.   In determining who may be a “Responsible Person,” the IRS includes a great number of potential roles within every type of business. However, your title or role within a company is not the actual deciding factor. Rather, your status, duty, and authority within the organization determines your “responsible person” status.

The courts have further identified the following 7 legal factors in deciding the status of an individual:

i. Is the individual an officer or member of the board of directors;

ii. Does an individual own shares or possess an entrepreneurial stake in the company;

iii. Is the individual active in the management of day-to-day affairs of the company;

iv. Does the individual have the ability to hire and fire employees;

v. Does the individual make decisions regarding which, when, and in what order outstanding debts or taxes will be paid;

vi. Does the individual exercise control over daily bank accounts and disbursement records; and

vii. Does the individual have check-signing authority

If an individual is determined to have “responsible person” status, then that individual may be personally liable for the trust fund tax debt of the business.

What does it mean to “willfully” fail to collect, truthfully account for, and pay over Trust Fund Taxes?

In a civil context, in order to determine “willful” failure to collect, truthfully account for, and pay over trust fund taxes, the  focus is primarily on your knowledge of your duty to withhold and pay the Trust Fund Taxes and your willing and conscious decision not to pay those taxes. This knowledge element includes not only things you actually knew at the time but also things you should have known undertaking reasonable efforts to determine your tax duties.

How do I avoid the TFRP?

The best way to avoid the TFRP is to be aware of your Trust Fund Tax requirements and to make timely reports and payments to the IRS. If you are uncertain about your reporting or payment requirements, it will be well worth your time and resources to seek out an experienced tax professional.  Contact the attorneys at Wilson Ratledge today if you have any questions regarding the Trust Fund Recovery Penalty.

IRS Announces Over 100k Accounts Compromised

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On May 26, 2015, the IRS released the following statement:
IRS Statement
The IRS announced today that criminals used taxpayer-specific data acquired from non-IRS sources to gain unauthorized access to information on approximately 100,000 tax accounts through IRS’ “Get Transcript” application. This data included Social Security information, date of birth and street address.

These third parties gained sufficient information from an outside source before trying to access the IRS site, which allowed them to clear a multi-step authentication process, including several personal verification questions that typically are only known by the taxpayer. The matter is under review by the Treasury Inspector General for Tax Administration as well as the IRS’ Criminal Investigation unit, and the “Get Transcript” application has been shut down temporarily. The IRS will provide free credit monitoring services for the approximately 100,000 taxpayers whose accounts were accessed. In total, the IRS has identified 200,000 total attempts to access data and will be notifying all of these taxpayers about the incident.

As always, the IRS takes the security of taxpayer data extremely seriously, and we are working aggressively to protect affected taxpayers and continue to strengthen our protocols.

Additional information
The IRS announced today it will be notifying taxpayers after third parties gained unauthorized access to information on about 100,000 accounts through the “Get Transcript” online application.
The IRS determined late last week that unusual activity had taken place on the application, which indicates that unauthorized third parties had access to some accounts on the transcript application. Following an initial review, it appears that access was gained to more than 100,000 accounts through the Get Transcript application.

In this sophisticated effort, third parties succeeded in clearing a multi-step authentication process that required prior personal knowledge about the taxpayer, including Social Security information, date of birth, tax filing status and street address before accessing IRS systems. The multi-layer process also requires an additional step, where applicants must correctly answer several personal identity verification questions that typically are only known by the taxpayer.

The IRS temporarily shut down the Get Transcript application last week after an initial assessment identified questionable attempts were detected on the system in mid-May. The online application will remain disabled until the IRS makes modifications and further strengthens security for it.

The matter is under continuing review by the Treasury Inspector General for Tax Administration and IRS offices, including Criminal Investigation.

The IRS notes this issue does not involve its main computer system that handles tax filing submission; that system remains secure.

On the Get Transcript application, a further review by the IRS identified that these attempts were quite complex in nature and appear to have started in February and ran through mid-May. In all, about 200,000 attempts were made from questionable email domains, with more than 100,000 of those attempts successfully clearing authentication hurdles. During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts.

In addition, to disabling the Get Transcript application, the IRS has taken a number of immediate steps to protect taxpayers, including:

*Sending a letter to all of the approximately 200,000 taxpayers whose accounts had attempted unauthorized accesses, notifying them that third parties appear to have had access to taxpayer Social Security numbers and additional personal financial information from a non-IRS source before attempting to access the IRS transcript application. Although half of this group did not actually have their transcript account accessed because the third parties failed the authentication tests, the IRS is still taking an additional protective step to alert taxpayers. That’s because malicious actors acquired sensitive financial information from a source outside the IRS about these households that led to the attempts to access the transcript application.

*Offering free credit monitoring for the approximately 100,000 taxpayers whose Get Transcript accounts were accessed to ensure this information isn’t being used through other financial avenues.

Taxpayers will receive specific instructions so they can sign up for the credit monitoring. The IRS emphasizes these outreach letters will not request any personal identification information from taxpayers. In addition, the IRS is marking the underlying taxpayer accounts on our core processing system to flag for potential identity theft to protect taxpayers going forward – both right now and in 2016.

These letters will be mailed out starting later this week and will include additional details for taxpayers about the credit monitoring and other steps. At this time, no action is needed by taxpayers outside these affected groups.

The IRS is continuing to conduct further reviews on those instances where the transcript application was accessed, including how many of these households filed taxes in 2015. It’s possible that some of these transcript accesses were made with an eye toward using them for identity theft for next year’s tax season.

The IRS emphasizes this incident involves one application involving transcripts – it does not involve other IRS systems, such as our core taxpayer accounts or other applications, such as Where’s My Refund.

The IRS will be working aggressively to protect affected taxpayers and strengthen our protocols even further going forward.

Estate Litigation

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However unpleasant, a person’s death may result in controversy as to the validity of a last will and testament or the distribution of assets.  When this happens, families may ultimately decide to resolve such controversies in court.

In North Carolina, a party that is arguing that a will is not valid may decide to bring a caveat proceeding.  “The purpose of a caveat is to determine whether the paperwriting purporting to be a will is in fact the last will and testament of the person for whom it is propounded.” In re Spinks, 7 N.C. App. 417, 423, 173 S.E.2d 1, 5 (1970).

We provide counsel to parties who either seek to contest a will (the “Caveators”), or are forced to defend a will being contested (“the Propounders”), as well as issues which may relate to this process.  In North Carolina, the two primary reasons a will may be contested are due to:

  • Lack of Capacity

When a party feels that the testator lacked the mental capacity to make a last will and testament, or “testamentary capacity,” that party may decide contest the will.  Medical evidence tends to be very important in these types of contests and/or

  • Undue Influence

“Undue influence” is when a person in power psychologically manipulates and persuades the testator to sign a will, eliminating the free will and judgment of the testator. In North Carolina, undue influence has been defined as “something operating upon the mind of the person whose act is called into judgment, of sufficient controlling effect to destroy free agency and to render the instrument, brought in question, not properly an expression of the wishes of the maker, but rather the expression of the will of another.” In Re Will of Jones, 362 N.C. 569, 575, 669 S.E.2d 572, 578 (2008).

Wilson Ratledge counsels parties in will caveat proceedings and other estate litigation actions.  Our attorneys represent anyone whose interests under a will or trust are in dispute, or anyone who is concerned about the way in which a vulnerable or incompetent relative’s estate is being managed.  We deal with business and partnership issues that need to be resolved in the estate administration process, as well as familial disputes with respect to a testator’s will.

We handle disputes involving estates of all sizes.  Please contact an attorney at Wilson Ratledge to discuss an estate litigation issue today.

Recent North Carolina Workers’ Compensation Case Summaries

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The attorneys at Wilson and Ratledge stay up to date with the latest North Carolina Workers’ Compensation cases in order to provide you the best possible outcome. Below you will find the some of the most recent North Carolina Court of Appeals and North Carolina Supreme Court decisions.

April 27, 2015

Fields v. H&E Equipment Services, LLC. (Futility of seeking employment)

The plaintiff was 65 years old with 10th grade education.  He was a mechanic and his work history was physical labor.  A physician testified that the plaintiff’s pre-existing degenerative disc disease was aggravated by his work at the defendant-employer.  At hearing, the plaintiff did not present any evidence of an attempt to find work, or evidence that he was so incapacitated that he is incapable of work in any capacity.  However, the Industrial Commission found disability through the futility prong of Russell v. Lowes.  There was no testimony from a vocational expert that it was futile for the plaintiff to look for work.  There were no statistics presented that his pre-existing condition made him incapable of returning to the labor market.  The plaintiff’s medical provider only said that Plaintiff should not continue work in his current role, and did not provide testimony that it was impossible for the plaintiff to return to work.  The North Carolina Court of Appeals found that, since the plaintiff did not present any expert testimony that his prior job with defendant was the only job obtainable, or any evidence showing that someone of the same age, education, experience, and physical capabilities as the plaintiff was currently not working anywhere, the plaintiff did not meet his burden of proving disability under the futility prong of Russell. The North Carolina Court of Appeals reversed the Industrial Commission’s ruling.

 

May 4, 2015

Birckhead v. North Carolina Dept. of Public Safety  (Short-term disability credit)

A defendant adjuster provided testimony at a hearing that it was her belief that the defendant-employer’s short-term disability plan was funded 100% by defendant-employer.  The North Carolina Court of Appeals found that the adjuster’s testimony was sufficient evidence to support the Industrial Commission’s finding that the employer fully funded the short-term disability policy.  The North Carolina Court of Appeals affirmed the Industrial Commission’s ruling that defendants were entitled to a credit for the short-term disability payments.

 

Haileab v. John Q. Hammons Hotels  (Causal connection within medical records)

The North Carolina Court of Appeals held that since the defendants stipulated to medical records for the hearing that provided a causal link between the plaintiff’s compensable foot injury and her subsequent left knee injury, even though those records came from a physician that had not been deposed or qualified as an expert, the medical records were sufficient to support the Industrial Commission’s finding of a causal connection between the compensable injury and subsequent left knee injury.

 

Chenette v. Metokote Corp.  (Average weekly wage)

The plaintiff suffered a compensable injury to his back in 2007, and then again in 2010.  The plaintiff began experiencing back pain again, and the Industrial Commission found that the plaintiff’s current back pain was related to his 2010 injury, and not the 2007 injury.  The evidence showed that the plaintiff earned less in the year preceding his 2010 injury, than he did in the year preceding his 2007 injury.  Even though the defendants filed Form 60s for both injuries, the Form 60s did not create a presumption of ongoing disability and the plaintiff had to prove that his current condition was related to his 2007 injury.  However, the Commission found that since his current complaints were related to his 2010 injury, the plaintiff’s wages for the 52 weeks preceding his 2010 injury were used to calculate his TTD award.

 

Collins v. Seaton Corp.  (Credible testimony)

The Industrial Commission rejected a physician’s testimony, where that physician testified using information provided by the plaintiff regarding the details of his injury, and where the Industrial Commission found the plaintiff’s story of the events was not credible.  The North Carolina Court of Appeals upheld the Commission’s decision to reject the physician’s testimony.

Duties Of A Personal Representative In An Estate Administration

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The death of a loved one is a very difficult time in anyone’s life.  In addition to all of the responsibilities that family members of the deceased are faced with, a person who is named as a Personal Representative (often called Executor) in a Will, and is willing to serve in that role, must also accept the responsibilities required to properly administer the estate.  The following is a short summary of some of those responsibilities:

COMMENCING A PROBATE ADMINISTRATION. A probate administration is necessary to transfer all assets held in a deceased person’s (“the decedent”) individual name. The process begins with filing the Application for Probate and Letters and the original Will (if one exists) with Estates Division of the Clerk of Superior Court in the county where the decedent was domiciled. The petition requests both the appointment of the Personal Representative and admission of the Will to probate. Upon the filing of the application, the Clerk will issue “Letters Testamentary” certifying the appointment as Personal Representative, who is now authorized to deal with all the facets of the estate, including paying creditors’ claims, managing real property, transferring bank accounts, and any other duties that become necessary to wind up the financial affairs of the decedent.

NOTICE TO INTERESTED PERSONS. After filing the petition, a notice is published in the local newspaper regarding probate of the Will. This puts creditors on notice that they have three months from the date of the first publication to file claims against the estate for payment of their accounts.

ASSET VALUATION. An inventory of the estate assets must be filed within 90 days of the appointment as Personal Representative. For tax purposes, the Personal Representative must also identify and value all non-probate assets owned by the decedent. These assets include any jointly owned assets, life insurance, annuities and retirement accounts.

FINAL PERSONAL INCOME TAX RETURN. The Personal Representative is responsible for preparing the final state and federal income tax returns for the decedent, which are due on or before April 15 the following year.

FEDERAL ESTATE TAX RETURNS. If, in year 2015, the decedent’s total assets (including life insurance and other death benefits) are over $5.43 million, a federal estate tax return may need to be filed. Such estate tax return is due nine months from the decedent’s death absent a request for an extension of time to file. Any tax due must be paid on the nine-month due date.  A Personal Representative must also determine whether a surviving spouse may use a deceased spouse’s unused estate tax exclusion, a concept known as “portability.”

FIDUCIARY INCOME TAX RETURNS. The estate is a separate taxpayer and it is generally necessary to file income tax returns for the estate, reporting income received after the date of the decedent’s death and prior to distribution.

DISTRIBUTION OF ESTATE. Once the creditors claim period referred to above expires, and all tax matters are resolved, the Personal Representative will distribute the estate. As part of that process, the Personal Representative must file a detailed accounting reporting all the property in the estate presently on hand, and all income received and disbursements made during the probate process.

CLOSING THE ESTATE. Once distribution is completed, the Personal Representative files the Final Account with the Clerk to discharge the Personal Representative and close the estate.

PERSONAL REPRESENTATIVE’S COMMISSION AND ATTORNEY’S FEES. The Personal Representative is statutorily entitled to a commission for services rendered on behalf of the estate. North Carolina  law authorizes payment from the estate of reasonable attorney fees for assistance in the administration of the estate. Attorney fees are paid after court approval and often at the time the estate is ready for distribution.

Please contact the attorneys at Wilson Ratledge should you have any questions about estate administration.