Bielski Law Office, Ltd.

The IRS Knows More about Art than You Think

If an effort to reduce their estate tax burdens many wealthy families are tempted to undervalue their prized collections, such as art. The IRS, however, makes its own valuations.

As with other taxes, most people seek ways to pay as little in estate taxes as possible.

However, there is only so much wiggle room available to reduce the value of estates subject to such taxes. Liquid assets have a value that is easy to determine. If an estate has $10 million in securities, then there is only so much that can be done to limit estate taxes. On the other hand, some assets have values that are more difficult to determine.

For instance, many wealthy families have art and other prized collectibles. The true value of these tangible assets cannot be easily ascertained until the items are put up for auction and sold. For estate tax purposes these items must be appraised.

Not surprisingly, some people attempt to choose appraisers who will give a low value to reduce the estate tax on the items. In the end, as the New York Times explains in an article entitled "Revaluing Family Treasures for the Taxman," that is not always the best idea.

The IRS has its own process for appraising art and other high-ticket items.

The Art Advisory Panel is a group of experts employed by the IRS. Every year the panel reviews hundreds of items to determine their value and make sure taxpayers are not undervaluing them for estate tax purposes. In other words, if something is undervalued by an appraiser, it is not a good idea to assume the IRS will not find out about it. Of course, the IRS's valuation can be challenged, but that does require a long and lengthy process.

Consult with an estate planning attorney to help ensure your valuable collections are properly accounted for.

Reference: New York Times (Feb. 6, 2016) "Revaluing Family Treasures for the Taxman"

Estranged Children and Your Estate

If you have a child who you do not communicate with, you might want to make sure that the child does not receive part of your estate. The decision to do that can be difficult, but the process is not.

A recent Market Watch column, entitled "Can my 40-year-old long-lost daughter get my estate?," features a question from a reader with an interesting story. As a teenager he had a relationship, which unbeknownst to him resulted in a daughter. He found out when the daughter wrote to him with the news that her mother had identified him as the father while the mother was on her death bed.

The man paid for DNA testing which confirmed that she was his only child.

Unfortunately, the father and daughter ultimately did not get along and ceased communication. The man lives with a partner who wishes to give him her house when she passes. However, this partner is reluctant to do so. It seems she does not want the daughter to inherit the house when the father passes away.

The man wonders how he can ensure that the daughter will not inherit the house.

The answer to the reader's question is very short and simple. He can have a will prepared to specifically exclude the daughter and any of her children.

Nevertheless, the article does not elaborate regarding why this needs to be done.

Accordingly, a more complete explanation would have noted what happens when a single person passes away without a will. In such circumstances, the laws of intestate succession apply. Consequently, the estate passes to any living children.

So, if you do not want a child to inherit your estate, you need a will. However, that is not all that must be done.

The law assumes that if a child is not mentioned in a will, it was an oversight. The judge can reconstruct the will to include the child. For that reason the child must be mentioned in the will and specifically disinherited.

An experienced estate planning attorney can help you do this right.

Reference: Market Watch (Feb. 5, 2016) "Can my 40-year-old long-lost daughter get my estate?"

Former Prosecutor Guilty of Stealing From an Estate

It is always disturbing when an estate administrator steals from the estate. That goes double when the administrator is a former district attorney.

John Paschall served as the District Attorney for Robertson County, Texas for 20 years. He should have been someone who could be trusted and counted on to dutifully follow the law. Marium Oscar must have believed so.

She chose Paschall to oversee her estate. It was supposed to be divided between the local Volunteer Fire Department and a local charity. Instead, Paschall took approximately $200,000 from the estate for his own benefit.

His misdeeds came to light during a civil suit and he was subsequently charged in a criminal action.

Paschall plead guilty and will serve 30 days in jail and 10 years of probation. He was also ordered to pay more than $186,000 in restitution and surrender his license to practice law.

KBTX reported this story in an article entitled "Former Robertson County DA must pay $186,518.07, spend month in jail for stealing money."

Fortunately, Paschall was caught and convicted.

Even if you consider the sentence is on the light side, this case illustrates the need to be very, very careful when it comes to selecting the executor of your estate. Choosing an attorney may be a good idea. However, make sure it is an attorney you can trust, such as an experienced estate attorney who has a reputation for properly handling estates in your area.

Although there can be no guarantees, vetting the person you select can help ensure that he or she will not steal estate funds.

Reference: KBTX (Feb. 4, 2016) "Former Robertson County DA must pay $186,518.07, spend month in jail for stealing money."

Tax Time Can Also Be Estate Planning Time

One of the best times to review your estate plan, or to get one if you do not already have one, is when you are doing your yearly taxes.

Even if you have the assistance of an accountant, filing your income tax return can be a time-consuming and frustrating process. Most people want to get it over as quickly as possible. However, it is actually an excellent time to extend the burden a little bit and do some estate planning.

Think about it. While doing your taxes you will be gathering much of the same documentation needed to review an estate plan. In addition, the documentation will be fresh in your mind.

Accounting Web recently offered some tips about estate planning during the tax season in "Estate Planning Reminders for This Tax Season."

The advice includes:

• Review or Get a Will – Spend a little time to review your will and make sure everything is up to date. If you do not already have a will, visit with an estate planning attorney about getting one.
• Prepare a Letter of Instruction – Make a list of your assets, where they are located, and how they should be handled in your estate.
• Review Beneficiaries – Since you should have the asset documentation available as part of your tax preparation, make sure all beneficiary designations are up to date.
• Consider a Trust – Again since you already have the documentation handy, tax time is a good time to have a trust drawn up and to transfer assets into the trust.
• Beware Free Lunches – Many shady companies like to offer free seminars on estate planning or retirement planning around tax season. They know people tend to worry about their finances at tax time. Often these seminars offer a free lunch. Usually, these are nothing more than heavy-handed sales pitches and you should avoid them.

Tax time is a great time to introduce your tax preparer and your estate planning attorney, so all of the bases are covered each year.

Reference: Accounting Web (Feb. 8, 2016) "Estate Planning Reminders for This Tax Season."