Author Archive

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.


Dynasty Trusts – A Trust that Lasts Forever

March 12, 2012

The Iowa Legislature is considering legislation that will authorize an individual to create a trust that will last forever.  If passed by the Senate (the House has passed it) the legislation will require such a trust if (i) the trustee is given the authority to sell assets of the trust or (ii) the trustee or another person is given the authority to terminate the trust.  Many other states have authorized trusts to be created that will last forever.  These trusts are called generation skipping trusts or dynasty trusts.

Although I think people should be given the option of creating a dynasty trust, I wonder how wise it would be to create a trust that exists for more than a few generations.

Of course, one of the benefits of these trusts is the possibility of avoiding estate tax in the successive generations.  For example, if Mr. and Mrs. Smith put $10 million into a dynasty trust in 2012, their three children’s estates will each be $3.3 million lower than if they had inherited that money outright. Even at a 35% estate tax rate, that saves $3.5 million of taxes at the children’s level, or $1.5 million each.  Add to that any appreciation in the assets, and the amount passing to the next generation without taxes can be very significant.  If the fund grows in value by an average of only 2% more than the amount distributed to the beneficiaries each year, the money will approximately double every generation.

On the other hand, with each generation, the familiarity between the grantors and their descendants becomes more tenuous.  I only remember one of my grandparents and certainly do not remember my great grandparents.  My mom and dad, however, had great grandchildren who will remember them well.  Once you get beyond the great-grandchildren’s generation, however, the donor is a stranger and the donor’s values will certainly be only a family legend at best.

A more interesting issue is that there may be a lot of beneficiaries as the trust continues.  If each generation is defined as 25 years, and if each beneficiary has an average of 2.5 children, the number of beneficiaries after 250 years (which is longer than our country is old) would be almost 30,000.  If the family is less prolific, and has only an average of 2 children, there would be only 1,500 beneficiaries or so after 250 years.  And if there are 3 children per family, the number of beneficiaries in the 10th generation would be almost 60,000.

That’s enough to give me pause about recommending a ‘true’ perpetuities trust to my clients.  On the other hand, potentially saving taxes in the next couple of generations is worth thinking about.

Good Work at the University of Iowa

February 24, 2012

There is some good work being done at the University of Iowa. No, I am not talking about the Hawkeye’s basketball victory over the Badgers on Thursday night, although I was happy to see it.  I am talking about the 13-week Elder Law Colloquium, “The Aging Population, Alzheimer’s and Other Dementias: Law & Public Policy,” sponsored by Professor Josephine Gittler and the National Health Law and Policy Resource Center at the University of  Iowa College of Law.

Professor Gittler is a national expert on many areas of health law and has for years been an advocate for children and health.  She has now lent her considerable scholarship and expertise to organizing this series. The colloquium will include the following topics:

  • Health Care and End of Life Surrogate Decision-Making
  • Legal Needs of the Aging Population and the Practice of Elder Law
  •  Legal and Clinical Approaches to Determination of Diminished Capacity
  • Elder Abuse and Neglect and Financial Exploitation of the Elderly
  • Long Term Care Financing and Family Caregiving
  • Governmental Regulation of Nursing Homes and Assisted Living Facilities

I was lucky enough to attend yesterday’s session on Financial Powers of Attorney.  The speaker was Linda S. Whitton, JD, Professor of Law at Valparaiso University School of Law.  Professor Whitton has been very instrumental in drafting a Uniform State Law governing financial powers of attorney.

That Uniform Act is a guide that states can use when looking to implement legislation to protects individuals from financial abuse, theft and fraud.  Iowa’s statute needs to be updated to provide more financial protection for individuals with diminished capacity.

Current Iowa law on powers of attorney, Iowa Code Chapter 633B, has a very limited scope.  It specifies that powers of attorney can continue to be effective after the principal’s disability (which was not the case before the statute was passed), provides protection for banks, other financial institutions and purchasers if they rely on the presence of a power of attorney to complete a transaction, and provides for notice of revocation of a power of attorney.  It does not specify authority an agent should or may be given, does not authorize any sort of mechanism to authorize an interested party to receive an accounting, or provide other protections to the principal and the principal’s estate of the power once the grantor is incapacitated.

About me:
My name is Margaret Van Houten and I practice in the areas of wills, trusts, estate planning and probate law, taxation, charitable organizations, and employee benefits.

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