Tax

Previously, we sent you emails discussing the tax issues that arise when a financially comfortable loved one has passed away.

In this email, we dive into some of the non-tax issues you will have to deal with as the executor of the estate.

Getting Extra Death Certificates

For various reasons, a death certificate may be needed to prove that the decedent has indeed passed away. You may need originals (not copies) for some purposes. 

Get at least five originals from the applicable source. Get more if the decedent had lots going on—such as real estate owned in several jurisdictions. If in doubt, get more originals than you think will be needed. In fact, get a lot more.  

Updating a Married Couple’s Revocable Trust

If the decedent was married, a revocable trust (aka family trust, living trust, or grantor trust) may have been set up to hold the couple’s most important assets and thereby avoid probate for those assets. 

Both spouses are usually named as co-trustees. If so, the trust may have to be amended to eliminate the decedent as a co-trustee and add a new co-trustee (usually an adult child) to help the surviving spouse manage the trust’s assets. 

If the surviving spouse passes away before the desired changes are made, the trust—with all its uncorrected faults—becomes irrevocable and set in stone. That would not be good!  

Selling a High-End Home

If the decedent was widowed at the time of death, the heirs will probably want to sell the home. In most areas, there are distinct home-selling seasons. 

The real estate agent will encourage you to get the place ready for sale during that season so it can be sold for top dollar. You may be presented with a ready-for-sale deadline that’s much sooner than you would prefer—more time pressure.       

If the decedent was married, the surviving spouse may want to downsize, move closer to relatives, or move to a low-tax state. 

Changing the Title to the Home

You may have to change the title to the home before it can be sold.

For example, this can be the case if the home was owned by a revocable trust to avoid probate. If the decedent was single, the trust is now an irrevocable trust, because the person who set it up has died. 

Considering Whether the Surviving Spouse Can Live Comfortably without Selling the Marital Abode

If the answer is yes, the survivor may want to stay put. But if the survivor is quite elderly, that may just postpone all the inevitable home sale and relocation issues. 

Deciding Whether the Surviving Spouse Can Handle the Finances 

Some married couples, and many elderly couples, delegate virtually all financial matters to one spouse. The surviving spouse may not be that person. 

Checking the Surviving Spouse’s Life Insurance Policies 

The now-deceased spouse may have been the designated policy beneficiary of the surviving spouse’s life insurance policies. This is more likely than not, and it’s not a good thing. 

Getting Investment and Retirement Accounts in Order

First, you must find out whether such accounts exist, how big they are, and what investments they hold. Some investments may need to be liquidated to cover the estate’s and/or surviving spouse’s expenses. 

Investigating Safe-Deposit Boxes

Get into the safe-deposit box and deal with what you find. There may be more than one box. 

• Valuable stamps and rare coins could be in a box. 
• Property titles are likely to be in a box. 
• There could be U.S. Savings Bonds worth thousands in a box. Who knows? 

Shutting Things Down

This step might include shutting down utilities, garbage pickup, yard care, pool service, security monitoring, phone and cable services, and credit cards. 

As you can see, there’s much to do and consider when a financially comfortable loved one passes away. If you would like my help or you simply want discuss some of these issues, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 28, 2021

The IRS can waive penalties it assessed against you or your business if there was “reasonable cause” for your actions.

The IRS permits reasonable cause penalty relief for penalties arising in three broad categories:

1. Filing of returns
2. Payment of tax
3. Accuracy of information

Contrary to what you might think, the term “reasonable cause” is a term of art at the IRS. This seemingly simple phrase has a precise and detailed definition as it relates to penalty abatement.

Here are three instances where you might qualify for reasonable cause relief:

1. Your or an immediate family member’s death or serious illness, or your unavoidable absence 
2. Inability to obtain necessary records to comply with your tax obligation
3. Destruction or disruption caused by fire, casualty, natural disaster, or other disturbance

Here are five instances where you likely do not qualify for reasonable cause penalty relief:

1. You made a mistake.
2. You forgot.
3. You relied on another party to comply on your behalf. 
4. You don’t have the money.
5. You are ignorant of the tax law.

If you would like to discuss IRS penalty relief, please don’t hesitate to call me on my direct line at 

• By Leon Clinton
• February 26, 2021

How do you multiply your net worth?

Let the government help.

Here’s how: with both the SEP IRA and the solo 401(k) retirement plans, your investment in your tax-favored retirement

• creates tax deductions for the money you invest in the plan, 
• grows tax-deferred inside the plan, and 
• suffers taxes only when you take the money from the plan. 

Example. You invest $1,000 a month in your retirement. You are in the 40 percent tax bracket (combined federal and state), and you earn 10 percent on your investments. At the end of 30 years, you have $1.58 million in after-tax spendable cash, which comes from (in round numbers):

• $1.2 million in after-tax cash from the retirement plan ($2 million gross less 40 percent in taxes—we’re taking the entire amount out of the plan in this example)
• $380,000 in the side fund (created by investing the $400 of monthly tax savings—$1,000 deduction x 40 percent)

If you had no government help on the taxes and invested $1,000 a month in an investment that earned 10 percent (6 percent after taxes), you would have a little more than $950,000.

Winner. The retirement plan wins by $630,000—after taxes ($1.58 million vs. $950,000).

Okay, that’s the big picture. It tells you that tax-advantaged investing multiplies profits. So, do it.

If you would like to discuss your retirement options, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 20, 2021