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ESTATE, TRUST, GUARDIANSHIP

Israel now Taxing US Trusts with Israeli Beneficiaries

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If you have family living in Israel for whom you set up an irrevocable trust, Israel now wants its share. Until 2014, irrevocable trusts settled by foreign residents in favor of Israeli resident beneficiaries weren’t taxed by Israel unless the beneficiaries exercised “control or influence” over the trust. This is no longer the case.

Beginning January 1, 2014, Israel is taxing any trust anywhere in the world that has an Israeli resident beneficiary. There are two types of Israeli Beneficiary Trusts.

A Relatives Trust (or Family Trust) is a trust where the settlor is the parent, spouse, child, grandchild or grandparent of the beneficiary.

A Non-Relatives Trust is all other Israeli Beneficiary Trusts.

If the trust is a Relatives Trust, the trustee must choose between two possible tax regimes. Israel will impose a tax rate of 30% of income distributed to beneficiaries. Alternatively, it’s possible to elect to be taxed at a rate of 25% on annual trust income regardless of distributions.  An irrevocable election must be made by June 30, 2014 to choose the tax regime.

An exception applies to new and senior returning residents (who lived abroad 10 years) who arrived after 2006. They enjoy a 10-year Israeli tax holiday regarding overseas income, gains and asset reporting.

Thinking about excluding Israeli resident beneficiaries? It’s not so simple. The new 2014 rules impose Israeli tax on all trusts that ever had Israeli resident beneficiaries since inception. Consultation with qualified and competent U.S. and Israeli tax professionals is critical to deal effectively with the new tax liability.

 

 

Executors Beware: NJ Law Requires Child Support Search Prior to Distribution

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If you are executor of an estate in New Jersey and intend to make a distribution to the beneficiaries, there’s one important step you need to take first. NJ law requires an executor/administrator to initiate a child support enforcement order for any beneficiary receiving in excess of $2,000 prior to the distribution. The executor is personally liable for making a distribution without initiating the order, as the Child Support Judgment is a lien against the net proceeds of any inheritance in NJ.

The search must be conducted by a private judgment search company that will verify results. Urbach & Avraham’s estate administration services include the performance of Child Support Searches. If you would like assistance with your Child Support Search, call us at 732-777-1158 or email Pamela at pma@ua-cpas.com

 

 

 

Hit by the NJ Exit Tax for Selling Real Estate? Recover Your Money Quickly

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If you’re a non-resident selling investment real estate in New Jersey, there’s a unique NJ tax you should be aware of. Both residents and non-residents always had to pay income tax on the gain upon the sale of real estate. This tax is required to be withheld for non-residents.  The “Exit Tax”, which came into law six years ago, requires the seller to file a GIT/REP form (Gross Income Tax form) in order to record a Deed for the transfer of his property. When a non-resident sells the property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

You Can Recover Your Money

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the tax liability. When the seller eventually files his NJ tax return he is refunded the difference between what was withheld and what was owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Often Recover Most if Not All of the Tax Withheld

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. If a taxpayer has excess withholding it would be prudent to file Form NJ1040 (individual) or NJ1041 (estate) quickly to expedite the recovery of the excess withholding. 

 So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”

 

Lesson from James Gandolfini’s Estate: Look at the Whole Picture

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When it comes to planning an estate, it’s important to look at the whole picture.  There was recently a lot of buzz surrounding the will of James Gandolfini, the actor from the Sopranos. The media was quick to point out that Mr. Gandolfini‘s last will and testament exposed most of his $70M to estate taxes. The general reaction was one of criticism at clumsy and ill-advised estate planning.  We at Urbach and Avraham don’t believe such a reaction is fair.

The goal of estate planning is not just to save taxes; the goal is to provide for your loved ones in the proper manner. Mr. Gandolfini left 20% of his estate to his wife, who was not the mother of his son. Only her portion was protected from estate tax, the other 80%, of which 30% went to each of his sisters and 20% went to his daughter, was exposed. Often in situations involving stepparents and children of previous marriages, parents are reluctant to leave all their money to a surviving spouse, as they want to ensure that their children won’t have to rely on their stepparent to provide for them. What critics fail to mention is that Mr. Gandolfini utilized an excellent estate planning strategy by setting up an irrevocable life insurance trust for his son. By placing his life insurance into the irrevocable trust, he avoided its exposure to estate taxes. Mr. Gandolfini also wanted to provide for his sisters. The portion passing to his sisters does not qualify for the marital deduction and therefore it is subject to estate taxes.

Urbach & Avraham, CPAs, has over two decades of experience working in conjunction with estate attorneys to guide individuals with their estate planning needs. We always take into careful consideration each family’s unique dynamics and needs. Contact us today for a free consultation and for a recommendation for a suitable estate attorney.

Supreme Court Decision Impacts Same-Sex Couples

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The Supreme Court’s ruling that a key component of the Defense of Marriage Act (DOMA) is unconstitutional was perceived by most as a victory for same-sex couples. The Court decided to leave the definition of a “marriage” to the States, 12 of which currently permit same-sex marriages. Same-sex couples living in one of those states will now be entitled to the same federal benefits as traditional couples. The 12 states include NY and all of the New England states, MD and DE. This has many far-reaching implications, including:

  • Medical insurance coverage will become more affordable, as they will now be recognized as a married couple. Employers must offer insurance to same-sex spouses of employees in the 12 states.

 

  •  They will be able to file jointly on their federal tax returns to ensure tax savings, and will be able to amend prior year tax returns (most likely as far back as 3 years).

 

  • Federal benefits, such as Social Security, military and veteran benefits, pension and health benefits for federal employees will be available.  

 

  • The federal gift and estate tax marital deduction will be available to same sex married couples. As a result, they will be able to transfer assets between one another without payment of a transfer tax. This also means they can amend prior year estate tax returns to claim refunds previously disallowed due to DOMA.

 

 Sounds like cause for celebration, right? Welcome to married life. While the ruling is clearly a victory for equality, it actually has a negative tax implication for many same-sex couples. They will now be subject to the “marriage penalty,” a penalty that has become more significant due to several recent changes in tax law. Under the Patient Protection and Affordable Care Act (“Obamacare”), for example, an additional 0.9% Medicare tax on wages and self-employment income, as well as a 3.8% tax on investment income will be imposed. While the threshold is $200,000 for a single taxpayer, married taxpayers only get a $250,000 threshold. As a result of this ruling, many married same-sex couples that would have previously avoided the new tax by filing their federal income tax returns separately will now have to pay the tax.

All this is just the beginning. With over 1,000 federal rules and regulations that need rewriting, aside from tax, time will tell just how far reaching the implications will be.