IRA Rollover Ruling

Uncle Sam's Tax Court just ruled that the one-rollover-per-yea​r rule applies to all of a taxpayer's IRAs rather than to each IRA separately. And that ruling, experts say, is in direct conflict with IRS Publication 590, the bible for IRAs.

"Industry leaders, financial advisers, and everyone else who handles IRAs are stunned," said Denise Appleby, the editor and publisher of The IRA Authority.

According to Appleby, there are two ways to move money between IRAs:

1. Transfers, which are not reported to the IRS and not reported on a tax return. The IRA owner never touches the money. You can do this as often as you like, whenever you like, Appleby said.
2. And rollovers. With this method, the IRA owner takes the money as a distribution and they have 60-days to rollover (put back) the amount in an IRA. And this, you can do only once per 12-month period, said Appleby.

According to Appleby, the IRS, through their publications and regulations, has said for at least 20 years that the rollover method applies on a "per-IRA" basis. In other words, if you have 10 IRAs, you can do 10 rollovers for the year (12-month period), as long as an IRA does it only once (or the year). 

Here's the guidance found in Publication 590, which everyone viewed as gospel: 

Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a one-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same one-year period, from the IRA into which you made the tax-free rollover.  The one-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.

The IRS gives this example: You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.

However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the past year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.

Enter Alvan and Elisa Bobrow, who had a few IRAs.

In 2008, Alvan rolled over two distributions from his IRAs and took the position that the rollovers were valid because they were done in a timely manner, and involved different IRAs, Appleby wrote in her analysis of the court case. His position was that he had not broken any rules, as explained by the IRS in their publication for the past 20 years.

The IRS disagreed and determined that only one of the two rollovers was valid. So, Uncle Sam and the Bobrows went off to court. And the Tax Court — much to the surprise of all IRA experts — agreed with the IRS.

The mistake cost the Bobrows an additional $51,298 in income tax and a penalty of $10,260. Maybe they should be thankful; it could have cost them $31,000 more, according to Appleby. You can read the gory details in Bobrow v. Comm’r, T.C. Memo. 2014-21.

So what was the bottom line? In essence, only one of the Bobrow's distributions was eligible for rollover during the 12-month period. In fact, that Tax Court concluded that the Internal Revenue Code Section 408(d)(3)(B) limitation — the relevant section of the federal tax code — applies to all of a taxpayer's retirement accounts and that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.

In other words, we've all been operating under the impression that what was written in Publication 590 — you know, the IRS’ very own publication — was correct. But it's not.

In fact, the Bobrow case highlights, according to Appleby, an important rule that we sometimes overlook: "If conflicting information is provided in multiple sources, one must consider the hierarchy and reliability of such sources. In this case, Publication 590 is not authoritative and is not considered official guidance. The Tax Code is the more authoritative, and supersedes any other guidance in the event of conflict."

So what now?

Well, according to Appleby, the IRS will be changing its publications, changing what they have been saying for 20-plus years. The IRS will implement this change for everyone -- everyone except the Bobrows who have to pay those penalties, starting Jan. 1, 2015.

You should plan ahead so that — starting in 2015 — you avoid making two or more IRA-to-IRA rollovers during a 12-month period. This 12-month (one-year) period is not determined on a calendar-year basis. Instead, it starts when the IRA owner receives the distribution, Appleby said.

And, check with your IRA custodian. According to Appleby, they need to change their IRA agreements, because those agreements say what the IRS has been saying for years — which means they are wrong.

And finally, Appleby said individuals should start moving money via transfers and not rollovers. "There are too many pitfalls with rollovers and none with transfers," she said.

Source:  www.money.msn.com, 4/4/14.

Senate Bill Updates SSI and Would Help Elder Poor

WASHINGTON, DC – The Supplemental Security Income Restoration Act of 2014 was introduced in the U.S. Senate by Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA). The bill, championed by the National Senior Citizens Law Center (NSCLC),would fix key elements of the Supplemental Security Income (SSI) program that currently make life difficult for millions of low-income older adults.

“Millions of vulnerable Americans who struggle just to get by depend on Supplemental Security Income to help take care of their families, but inflation has significantly decreased the ability to qualify for SSI benefits, hurting seniors, the disabled and blind, and more than one million children,” said Sen. Brown. 

“SSI is a critical program that helps millions of our poorest and most vulnerable citizens keep their heads above water,” said Senator Warren . “I’m very pleased to join Senator Brown to introduce the SSI Restoration Act, which will help strengthen SSI for families who rely on these essential benefits.”

The legislation would update rules such as one that recognizes the value of past work by disregarding the first $20 of Social Security Retirement or other monthly income when determining SSI eligibility, a rule that hasn’t been updated in more than 40 years.  The SSI Restoration Act will increase the disregard to $110 to account for inflation.  The bill also increases the amount of resources an SSI recipient can retain from $2,000 to $10,000 so that they can respond to emergencies such as a home repair or the replacement of an old car. The bill also eliminates the harsh provision that reduces the monthly benefit whenever someone receives food or housing for less than fair market value from another person, including family members.

“We hear many stories from consumer advocates about elderly SSI recipients who cannot pay for food, or needed medical care because they exceeded the resource limit or received too much support from a family member and lost part or all of their benefits,” said NSCLC Executive Director Kevin Prindiville.  “Sadly, some poor seniors face homelessness when they lose even some of the already meager income SSI provides.”

An identical bill, H.R. 1601, was introduced in the House last April by Rep. Raul Grijalva (D-AR) and has 13 co-sponsors. The House bill has been endorsed by 50 national and local organizations, including NSCLC.

“Recipients, their families and all of us owe Sen. Brown and Sen. Warren many thanks for advancing one of the most important fixes we can make to this program,” Rep. Grijalva said. “This shouldn’t be a political football. Everyone agrees it can be improved, and they agree on how badly it’s needed. The full Senate should take this bill up and pass it as soon as possible, and the House should do the same.”

SSI provides subsistence-level income to two million older adults with very limited financial resources who are either age 65 or over or cannot perform substantial work because of a severe disability. More than two thirds of older adults receiving SSI payments are women and one out of every three applying for the program has a primary language other than English.

“We hope that many others in the Senate will join Sens. Brown and Warren as co-sponsors to help make these needed changes into law this year,” Prindiville said. 

Source:  National Senior Citizens Law Center

Estate Administration

Estate administration is the process of managing and distributing a person’s property (the “estate”) after death.  If the person had a will, the will goes through probate, which is the process by which the deceased person's property is passed to his or her heirs and legatees (people named in the will). The entire process, supervised by the probate court, usually takes about a year. However, substantial distributions from the estate can be made in the interim.

The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple's finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can't be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Depression.

Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor or personal representative in the deceased family member's will. Matters can be a bit more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps.

First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task. Of course, this does not apply to gifts the deceased may have made during life, which will not be part of his or her estate.

Second, take your time. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It's more important that you and your family have time to grieve. Financial matters can wait. (One exception: Social Security should be notified within a month of death. If checks are issued following death, you could be in for a battle.

When you're ready, but not a day sooner, meet with an attorney to review the steps necessary to administer the deceased's estate. Bring as much information as possible about finances, taxes and debts. Don't worry about putting the papers in order first; the lawyer will have experience in organizing and understanding confusing financial statements.

The exact rules of estate administration differ from state to state. In general, they include the following steps:

1. Filing the will and petition at the probate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate.

2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court. It's generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.

3. Paying bills and taxes. If an state or federal estate tax return is needed---generally if the estate exceeds $1 million in value---it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.

4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.

5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which can be as long as a year after the date of death. But once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate.

6. Filing a final account. The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work.

Some of these steps can be eliminated by avoiding probate through joint ownership or trusts. But whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and reduce the legal bill.

www.elderlawanswers.com

Century of Giving Philanthropy Contest Concludes for 2013

Century of Giving Philanthropy Contest Concludes for 2013

       

Long Islanders have voted for the final time in 2013, and have selected the Suffolk County Chapter of the AHRC as the winner of the Century of Giving contest, sponsored by Davidow, Davidow, Siegel & Stern.

"We are grateful to all Long Islanders who cast ballots online and endorsed these three deserving non-profit organizations," declared Lawrence Davidow, Senior and Managing Partner of the firm.  AHRC Suffolk will be awarded $5,000 from the law firm.

"We are pleased to have been nominated for the Century of Giving initiative, and our recognition as a recipient is deeply gratifying," announced Director of Development, J. Andreassi.  "The award will be used to continue to support individuals and families impacted by intellectual and other developmental disabilities."

Mr. Davidow added that the other two Century of Giving nominees are essential to supporting Long Islanders with special needs and their families.  "The Long Island Advocacy Center and the Viscardi Center both serve thousands of families and individuals impacted by special needs," stated Mr. Davidow.  "Their contribution to our community is outstanding, and we wish to recognize their support.

The Century of Giving initiative was created by the Law Firm of Davidow, Davidow, Siegel and Stern to celebrate the law firm's centennial on Long Island.  The firm designed a philanthropic celebration to recognize non-profits that mirror the firm's mission: serving seniors and special needs populations.

The final phase coincided with the celebration of "Special Needs Law Month", a recognition offered by the National Academy of Elder Law Attorneys, of which the law firm is a member.  The previous two phases of Century of Giving recognized organizations serving Long Island seniors, and awarded $5,000 to two of the non-profits that were selected by Long Islanders.

Century of Giving Promotion Announces Phase III Nominees

The Law Firm of Davidow, Davidow, Siegel and Stern (DDSS) announced the Phase III nominees for “Century of Giving”, a philanthropic endeavor created to recognize and reward Long Island charities for the good works performed for local seniors and individuals with special needs.  

Managing Partner Lawrence Davidow stated, “It is our privilege to recognize the wonderful contributions of the following three non-profits, and to single them out as eligible nominees within the Century of Giving program: The SuffolkAssociation for the Help of Retarded Children (AHRC); The Long Island Advocacy Center; and the The Viscardi Center and School.”

Mr. Davidow added, “These three non-profit organizations have made a difference in the lives of so many individuals with special needs and their families on Long Island. While we can only select a single final recipient for the $5,000 award within the category of ‘organizations serving those with special needs’, we appreciate and acknowledge the good works performed by all our nominees.”The Century of Giving promotion celebrates the law firm’s centennial anniversary by recognizing worthy charities, and permits the public to vote for the charity which most deserves the $5,000 award donated by DDSS (vote at Davidow Century of Giving). The organizations have been selected with the expertise and guidance of the Long Island Community Foundation (LICF), and the pool of nominees serves the same populations as DDSS: seniors or those with special needs.

The promotion has been funded by DDSS, with LICF managing the fund and providing a comprehensive review of each nominee. “This is a wonderful philanthropic endeavor created by the 100 year-old law firm, and we were pleased to be the stewards of this initiative,” stated David M. Okorn, Executive Director of LICF.

The promotion has three phases: phase I, conducted in April and May, recognized select non-profits that have provided a range of human services for seniors; phase II – nominated organizations that combat specific health conditions among senior populations; and currently phase III nominates those organizations that have helped special needs populations.

Mr. Davidow concluded, “There is no more appropriate celebration for our hundred-year anniversary than one which recognizes organizations that share in our mission of helping seniors or individuals with special needs here on Long Island.”

Century of Giving Phase II Winner Announced

Celebrating 100 Years  1913-2013

Davidow, Davidow, Siegel & Stern, LLP

The votes are in, and Long Islanders have declared the Alzheimer's Disease  Resource Center of New York to be the winner of the second phase of the 2013 Century of Giving philanthropic contest.

"We are pleased to announce that Alzheimer's Disease Resource Center of NY has received the most votes within our category of 'Helping Seniors with Specific Health Conditions', and will be awarded $5,000 from the law firm of Davidow, Davidow, Siegel & Stern," announced Managing Partner Lawrence Davidow.

"It is our pleasure to accept the Century of Giving recognition and the donation," declared Mary Ann Malack-Ragona, Executive Director of the Alzheimer's Disease Resource Center.  "We are honored to have been selected, and we look forward to using these funds to support additional Long Island families impacted by Alzheimer's Disease."

Mr. Davidow added that the other two Century of Giving nominees also have assisted Long Island seniors in significant ways.  "The Arthritis Foundation of Long Island and The American Parkinson Disease Association's Information & Resource Center on Long Island are renowned for historic assistance provided to Long Island's elder populations with health concerns.  We salute them for their inspiring efforts and encourage support of these worthy charities," he noted.

The competition will conclude with a new Phase III nomination of other local non-profit organizations that are focused on Special Needs.  Stay tuned to find out the latest nominees and then log on to the Century of Giving website and vote!

Google Develops 'digital will'

Google has a way to ensure your data dies when you do.

The international tech giant, best known for its much-used search engine, has launched an Inactivity Account Manager, a "digital will" of sorts that allows users to determine what to do with their online "digital assets" once it's no longer needed.

The account manager, which can be activated by a new setting on a Google account page, will also allow the user to have their data expunged after three, six, nine or 12 months of inactivity and users can also designate "trusted contacts" to receive the data.

"Not many of us like thinking about death - especially our own.  But making plans for what happens after you're gone is really important for the people you leave behind.  So today, we're launching a new feature that makes it easy to tell Google what you want done with your digital assets when you die or can no longer use your account," product manager Andreas Tuerk wrote in a posting on Google's publicity blog.

"We hope that this new feature will enable you to plan your digital afterlife - in a way that protects your privacy and security - and make life easier for your loved ones after you're gone," Tuerk added.

In the same vein, but with a twist, a new online app allows people to keep tweeting posthumously.  LivesOn makes it possible by tweeting for you after you've died.

The Twitter app, which came out in March, examines your tweets to learn about your tweeting patterns and creates tweets of its own in your, uh, memory.

It examines your tweets while you're alive, learns about your tweeting patterns and then generates its own to match after you're gone.

An executor, named by users before their demise, notifies the server and then takes control of the account.

Source:  www.thestar.com/life/technology; written by Bruce DeMara, 4/12/13

As you can see, there are many aspects of your life that need to be considered when it comes to advance planning.  We have stressed for years how important it is to plan early so that you can get everything in order the right way, the first time.  Working side by side with our firm will provide you with great peace of mind and eliminate uncertainties and mistakes that can destroy a family, not only financially, but emotionally.

If you have completed your planning, we salute you and remind you to check in with us every now and then as life's circumstances continuously change.  If you haven't, we invite you to begin the process.  Start with attending one of our upcoming free seminars!