Archive for April, 2012

Can I write my children and/or spouse out of my will?

April 23, 2012

The short answer is yes, you can write your spouse and children out of your will, but there is of course a “but.”  Multiple times recently I have found myself explaining to clients and friends just what “testamentary freedom” means in Iowa.  As a general rule in the United States, we are free to choose who gets what property when we leave the world behind. I will spare us all the history lesson, but historically this was not the case and many countries still limit the ability to completely disinherit a surviving spouse or children. Iowa still has protections in place for those individuals also.

Children have no “right” to inherit from their parents, but there are certain assumptions in place that protect the children. For instance, children born or adopted after the execution of a will (referred to as “pretermitted heirs”) typically receive a share of the estate. Some wills specifically provide for this by defining the term “children” in the will to include any children born to or adopted by the testator after the date of the will. Including such a statement saves a couple from needing to change their wills every time a child is born.  Even if the will does not address it, Iowa law provides a share to children born after the date of the will unless it appears the omission was intentional. (Iowa Code Section 633.267).  Also, children and grandchildren are among the classes of beneficiaries who are not charged inheritance tax in Iowa.  Does inheritance tax really stop someone from disinheriting a distant child? Probably not, but if a parent is indifferent between leaving property to nieces and nephews or estranged children, the tax difference may be a factor.

Spouses in Iowa have more protection than children. While you can draft a will leaving nothing to your spouse, the surviving spouse has a right to an elective share, meaning he or she can “elect” to take approximately one-third of your property instead of the share given under the will. (Iowa Code 633.238). (The exception here is if the couple had a valid prenuptial agreement. If the couple is already married, it is too late for that, but that is a topic for another day.)  The elective share is not discussed with most couples during estate planning because the surviving spouse often receives all or most of the assets, which is more than the one-third elective share. The biggest thing to remember about the elective share in Iowa is that the law is unclear as to whether retirement assets or life insurance can be reached by the one-third election. In some estates. that can make a huge difference.

After the long explanation, the conclusion is yes, you can write family members out of your will, but the will needs to be carefully drafted in light of these state law protections.

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Keeping Tax Records

April 12, 2012

Now that we have all filed our taxes (or are close to filing, hopefully), what do you do with your records? How long do you keep them? How do you organize them? Well, here are some tips from the IRS:

  1.  Tax records should be kept for a minimum of three years. Be sure to keep a copy of your filed tax returns. In addition, keep the records that prove your income and expenses, including W2s, 1099s, K-1s, receipts for deductions, bank statements, statements for investment accounts, mileage logs, and canceled checks. The three years represents the time period in which the IRS can audit your return and assess additional tax. If you failed to report income, that time period is 6 years, and there is no time limit if the return was fraudulent or if you failed to file (and should have).
  2. Organize/store the documents in a way that is sensible to you. There is no specific way to keep the records, though logically the information would be broken down by tax year. The important part is that you can find a specific piece of information if the IRS asks for it two or three years from now. Most documents can be kept electronically now, making it easier to organize (but be sure to back up those files).
  3. Certain documents need to be kept longer. These include records for a home purchase or sale, purchase or sale of stock, and IRA contributions. The records should enable you to determine your basis in the investment so you may determine gain or loss when you sell the property. Real estate used for business or as a rental property also requires more detailed records.

When in doubt, DON’T throw it out.  I am by no means telling you to keep every receipt for a tax return you filed 10 years ago, rarely would that be useful, but if it relates to an asset you still have (such as a home or retirement accounts) you likely still need it.

Identity Theft and the IRS

April 5, 2012

A client called the other day to say that she had received correspondence from the IRS. The first line of the letter read:

Dear Taxpayer: 

We have received your income tax return and are holding your refund until we complete a thorough review of your return.

The problem is my client has not yet filed her tax return.

Someone had stolen her identity and filed a fraudulent return using her social security number. My client and I are working on straightening out this situation. Listed below are the steps recommended to her by the IRS:

  • Review the portion of the IRS Website devoted to identity theft
  • Call your state Department of Revenue to report the identity theft. In Iowa, the number is 1-866-339-7912 or visit the Iowa Department of Revenue’s website.
  • If you receive a similar notice from the IRS (it will come by regular mail, not email), call them immediately.  It is a long wait on the telephone this time of year, but you need to report it right away.  Follow up with a letter to the IRS even if they say it is not necessary.
  •  Call the FTC Hotline – 877-438-4338 – and report that a fraudulent tax return has been filed using your social security number.
  • Call the Social Security Administration at 1-800-772-1213 and report the theft of your identity.
  • Call one of the three credit bureaus to report the fraudulent activity and to see if there is theft other than the fraudulent return.  If you call one bureau, they will report to the others:
    • Experian – 1-888-397-3742
    •  Trans Union –  1-800-888-4213
    • Equifax – 1-800-685-1111

Although you will not lose your refund, you can expect delays in the processing of your return if a fraudulent return has been filed using your name and social security number. A special affidavit concerning the identity theft must be filed with your actual return and the return must be filed in paper form. An electronic filing will not be acceptable.


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