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NOVEMBER 2016 - In This Issue:
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SECRET CLAUSES IN TRUSTS
DOMICILE AND TAXES
IRS ANNOUNCES 2017 RETIREMENT PLAN LIMITS
ARTICLES OF INTEREST
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November is a month to acknowledge gratitude.
For Veteran’s Day we offer a very special thank you to our courageous armed forces and our beloved veterans for placing service above self so that all of us can continue to enjoy the freedoms we often take for granted as citizens of this great country.
Thanksgiving provides us the opportunity to express our sincere gratitude to all of you with whom we have worked with this year and contributed to our continued success. We extend to you and your loved ones our best wishes for a happy and healthy Thanksgiving Day.
We hope that you enjoy the new format of our Newsletter this month. Also, we recently refreshed the look and content of our website. For example there is now a page dedicated to our Lebanon Office run by Kurt Talke and our Cherry Hill Office run by Sean Rice. Take a few moments to visit www.gstrustco.com. We are always working to bring you a great experience when you visit our site by including important, informative and relevant content
Again, from all of us at Garden State Trust we wish you a warm and enjoyable Thanksgiving filled with family and friends!
Sincerely,
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When Dmitri remarried in 1989, he created a revocable trust for his wife and his two sons from his first marriage, his only descendants. The sons were to receive a distribution from the trust at Dmitri’s death, but most of the assets were to remain in trust for the life of the surviving spouse. At the survivor’s death, the trust would terminate in favor of the sons or their descendants. The sons were named the trustees of this trust.
Some 23 years later, Dmitri had a change of heart. In August 2012 he had the revocable trust restated, removing the sons as trustees, and he also removed the distribution to them at his death. The sons were very unhappy with this development, and they let their father know about it. They were particularly displeased with the choice of Celia Rafalko as successor trustee, as they believed that she was a close confidant of their stepmother. Dmitri took umbrage at their communications, which, he felt, impugned the character of his wife and showed a lack of confidence in his judgment.
Dmitri died in December 2012. In January 2013 one brother wrote to his stepmother proposing that they all agree to terminate the trust, splitting the principal equally among the brothers and the stepmother. He also asked that all records of trust administration be preserved carefully.
Unbeknownst to the brothers, Dmitri had a second restatement of the trust done in September, after the disagreement with the sons. This time the trust included an in terrorem clause, which disinherited any beneficiary who interfered with the administration of the trust. When they learned of the secret clause, the first son backed off on his suggestion, and the second son disavowed any knowledge of the suggestion to terminate the trust.
In accordance with the September trust, Rafalko sent the sons releases to be signed, in which they promised never to contest any aspect of the trust’s administration. They signed. Nevertheless, Rafalko warned the sons that she was going to consider whether they had violated the in terrorem clause. In May 2013 she told the sons that they were disinherited. This would have no effect on the stepmother’s trust interest, but it did result in Rafalko having the power to direct the trust assets to charities at the stepmother’s death.
The sons challenged their disinheritance, and the Virginia courts found that the trustee had acted in bad faith. Communication regarding a change in the trust’s administration is not the same thing as mounting a legal challenge to it, and the brothers instantly backed off when they learned of the in terrorem clause. As the purposes of that clause were fully achieved, the trustee’s further “punishment” of the sons was an abuse of discretion. The sons were also awarded some $45,000 in attorney’s fees, to be paid out of the trust.
© 2016 M.A. Co. All rights reserved.
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Thomas Campaniello had apartments in New York City and in Florida. He also had a sizeable income. In 2006 Campaniello decided to change his domicile to Florida but still spend time in both states. That is easier said than done, as far as the taxing authorities are concerned. You can’t just declare where you want to be taxed. Under New York State law one must prove “by clear and convincing evidence” that the New York domicile has been abandoned.
Here’s what Campaniello did right. He kept very clear records, proving that he spent less than six months in New York (169 days, to be exact). He provided the tax authorities with summaries of his trips, copies of his passport pages proving his foreign travel, credit card and cell phone statements for all of 2007. He had a Florida driver’s license, owned his car there, and kept important personal items, such as his doctoral diploma, in his Key Biscayne apartment.
Here’s what Campaniello did wrong, according to the Administrative Law Judge who heard his case. Although he spent more time in Florida than in New York, he did return to New York for some portion of almost every week. He received bills at his New York address, had family ties in New York, kept personal belongings and clothing in his New York apartment, ran his Florida and New York businesses from his New York offices, and continued seeing medical professionals in New York. He did not clearly surrender his New York domicile, in the eyes of the taxing authorities.
The conclusion: Campianeillo owed New York tax as a full-time resident, not as a part-time resident, as he had filed. That meant that there was a shortfall of $319,009.00 in New York State taxes, $169,772.00 in New York City taxes, plus penalties and interest that brought the total owed to $709,429.00.
What else might Campaniello have done to bolster his argument, short of ending his contacts with New York completely? Planners sometimes suggest such actions as registering to vote in the new domicile, joining a local place of worship, having all mail sent to the new address, and retaining new lawyers, accountants and doctors in the new domicile. If one is moving to Florida, it may be useful to apply for the Homestead Exemption on the Florida residence.
© 2016 M.A. Co. All rights reserved.
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IRS ANNOUNCES 2017 RETIREMENT PLAN LIMITS
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To make it possible for voluntary retirement savings to keep up with inflation, the various numerical limits embedded within qualified retirement plans are indexed for inflation. In October the IRS announced the numbers that will apply in 2017, as shown in the following table:
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Note that the deferral limits for 401(k) and 403(b) plans are unchanged from 2016. Catch-up contributions are permitted by those employees who are 50 years of age or older during the calendar year.
Personal saving for retirement never has been more important. These tax benefits make saving a bit less painful.
© 2016 M.A. Co. All rights reserved.
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Toms River, NJ
Lebanon, N
Cherry Hill, NJ
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732-255-5000
908-287-7188
856-251-1300
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2016. All rights reserved.
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