Archive for December, 2012|Monthly archive page

Ask Your Husband if He is Still Married to Someone Else!

Originally published in the Cedar Street Times

December 14, 2012

As professionals dealing with trust and estate issues, CPAs and attorneys talk a lot about making sure your beneficiary designations are up-to-date on any kind of retirement assets you may own, as they generally trump your estate plan.  There are many sad stories of widows or widowers losing assets to their deceased spouse’s ex-wife or ex-husband simply because they did not update the beneficiary designation forms.  But sometimes, even that is not enough.

At a tax seminar I attended last week, we discussed an interesting court case which makes you think you can never be too careful.  The case goes something like this: Wayne and Cleta Lee were married in the state of Washington in 1979.  In the early 1990s, Wayne moved to Mississippi.  They never got a divorce, but they went their separate ways.  In 1995, Wayne decided to marry a woman in Mississippi named Lois, but he did not bother to divorce Cleta.

Wayne was an electrical worker and was entitled to a pension when he retired in 1997.  On the pension application he listed himself as married and Lois as his wife.  He designated her specifically as the beneficiary and even attached a copy of the marriage certificate.  They both signed the application and he started receiving his pension.   In January 2007 Wayne passed away and Lois started receiving pension benefits in February.  Later that month, his first wife from Washington applied for pension benefits from the company as well!

The case eventually went to court and the district court ruled in favor of Lois since she was specifically identified in the pension application as the beneficiary for spousal benefits.  Cleta appealed and the case went to the U.S. Court of Appeals.  The U.S. Court of Appeals cited Employee Retirement Income Security Act (ERISA) rules and state laws and said the district court made its decision on the wrong basis.  They overturned the ruling and have now sent it back to the district court to determine the legal spouse.  They said the benefits go to the legal spouse at the time of his passing regardless of who was specifically named as the spouse.  If the district court determines Cleta to be the legal spouse, which the U.S. Court of Appeals hinted at quite heavily, Lois will lose out on her pension benefits.  (IBEW Pacific Coast Pension Fund v. Lee (2012) U.S. Court of Appeals for the Sixth Circuit, Case No. 10-6433)

So for all of you with spouses that have multiple wives or husbands, you may want to have a little chat!  Obviously the scary situation would be if you never knew your spouse was not officially divorced from a prior marriage, or worse, never knew they were married before.

Does this mean we will be advising clients in the future to have background checks done before picking out a ring?  I sure hope not.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Retroactive Tax Increase on Highest Taxed State

Originally published in the Cedar Street Times

November 30, 2012

Depending on how you look at it, Californians could now consider themselves the highest taxed state in the U.S. after our recent passage of Proposition 30 on our November ballots.  Proposition 30 increased income tax rates by one to two percent on people earning over $250,000.  It also made these increase retroactive as of 1/1/2012.  If you are subject to these higher tax rates, be aware that your state withholdings are likely inadequate and you should talk to your tax professional about making an additional payment by April.  No penalties will be assessed for under withholding to the extent that it is attributable to the tax hike, and you pay it by April 15, 2013.

Our top rate on our highest earners is now 13.3%, commanding an impressive 2.3% margin over second place Hawaii (11%), and 3.4% over third place Oregon (8.9%).  Other states in the high eights include Iowa, New Jersey, Washington D.C., Vermont, and New York.

You do have to keep in mind that some places have city taxes also.  But even a penthouse occupant in New York City that has a state tax of 8.82% and a city tax of 3.876% (combined 12.696%) would not have to muster up the cash of a wealthy dessert dweller in California.

Of course, there are many ways that states bring in revenue, such as sales tax, property tax, inheritance tax, auto taxes, etc.  So you cannot really base overall tax burden on income taxes alone. If you are looking for overall low tax burden states you may wish to consider Wyoming, Alaska, Florida, the Dakotas, Montana, Texas, Tennessee, Mississippi, South Carolina, Louisiana, or Alabama.  Different states also have distinct advantages for people earning different types of income or have different types of deductions.  The more you have at stake, the more tax planning may become a factor in where you choose to reside.

If you want to know more specifically how California’s new increases may affect you, here are the details:  California taxable income over $250,000 for single filers, $500,000 for married filers, and $340,000 for Head of Household filers will be taxed at 10.3%. Taxable income over $300,000 single, $600,000 married, and $408,000 HOH will be taxed at 11.3%.  Taxable income over $500,000 single, $1,000,000 married, and $680,000 HOH will be taxed at 12.3%.  And anyone with over $1,000,000 taxable income will also be assessed an additional 1% mental health tax.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.