Having the "Money Talk"
For many of us, the first time we talk about money with our kids (aka the "money talk") is when they are younger and we explain the benefits of saving some of their allowance. As they get older, we talk about the danger of credit card debt and understanding the value of delayed gratification when it comes to their pocketbook.

The bigger "money talk" comes later in life, usually with adult children, and has to do with creating a framework for future management of an inheritance, ensuring that mechanisms are available for managing wealth, and having resources that can continuously help with that goal.

Talking about wealth can be awkward. Talking about wealth transfer even more so. However, a little awkwardness now may prevent a lot of awkwardness later. Preparing your children or grandchildren for managing their inheritance can be easier if the process is formalized with a family meeting and roles and priorities are defined. Getting everyone together for this meeting can serve as an introduction to a current wealth manager or attorney that is assisting the family.

Whether or not the family plans to continue working with them after the inheritance is received, the potential heirs know who the resources are and how to contact them which will help with the eventual transition. 

Having an experienced Trust Officer from Garden State Trust Company attend this meeting creates an opportunity for the family to address objections and clarify the reasoning that went into the estate plan. It also affords you the opportunity to have a knowledgeable professional posing questions or be ready to jump in to support with nuance as you lead the meeting. Some of the basic types of questions that should be addressed are as follows:
In a couple of months a Sopranos prequel, The Many Saints of Newark, is premiering on the big screen. In deference to Tony Soprano here is the Last Will of James Gandolfini.
FAMOUS WILL FOR THE MONTH JAMES GANDOLFINI
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Read in our Informational Articles "Mega IRAs" how some in Congress are not happy that a few taxpayers have legally created multimillion dollar IRAs. In The IRS' "Dirty Dozen" for 2021 read how each year the IRS puts a spotlight on scams that could have tax implications. The scams identified in its June release show the influence of the coronavirus pandemic on the criminal activities of scamsters.

There are four categories of scams in this year's list:

  • pandemic-related scams 
  • personal information cons 
  • ruses focusing on unsuspecting victims 
  • schemes that persuade taxpayers into unscrupulous actions 

Hoping you enjoy the rest of your summer and above all, Stay Safe.
Ira J. Brower, Founder
"Mega IRAs"
A 2014 Government Accountability Office study (based upon 2011 data) found that about 9,000 taxpayers had accumulated more than $5 million in their IRAs. Some 314 had more than $25 million. Staffers from the Congressional tax-writing committees asked the Joint Committee on Taxation (JCT) to bring that report up to date. JCT discovered that as of 2019:

  • 28,615 taxpayers had IRAs worth $5 million or more;
  • 497 had more than $25 million; 
  • those 497 taxpayers' IRAs totaled $77 billion (an average of nearly $155 million).

How is that possible, given the fairly low limits on IRA contributions ($6,000 this year, $7,000 for those 50 and older)? Venture capitalists are able to contribute start-up company stock to an IRA, and they do so when the stock has very little value and is not available to the public. They may do this with many different companies, hoping that some will explode in value--and evidently, some have. If the stock was placed in a Roth IRA, those gains will never be taxed.

For example, when Mitt Romney ran for President, he revealed through financial disclosure documents that he owned an IRA worth between $20.7 million and $101.6 million (the disclosure forms use ranges, not exact figures). Bain Capital, which Romney headed, provided its employees with an SEP-IRA, a retirement plan that is somewhat similar to a 401(k) plan. Before 2001, the annual contribution limit to these plans was $30,000.

Much more important was that Bain allowed staffers to invest in its takeover deals. What's more, the staffers could allocate their holdings to taxable accounts or to their IRA, as they wished. Each investor would receive common and preferred shares. The common shares would have the greatest risk and the greatest potential for reward, should a Bain turnaround prove successful. According to an analysis by The Wall Street Journal at that time, in one noteworthy deal some Bain employees saw their IRAs balloon 583-fold over just 20 months. Those profits could then be rolled over into the next Bain deal, with all compounding happening tax deferred.

Senate Finance Committee Chair Ron Wyden of Oregon expressed displeasure at the growth of "mega IRAs," and promised that tax law changes could be coming. "IRAs were to promote retirement security for the typical American family; they weren't meant to become another tax dodge for millionaires," he said.

What form the tax changes might take, and when they might go into effect, is uncertain.

(August 2021)
© 2021 M.A. Co. All rights reserved.
The IRS' "Dirty Dozen" for 2021
Each year the IRS puts a spotlight on scams that could have tax implications. The scams identified in its June release show the influence of the coronavirus pandemic on the criminal activities of scamsters.

There are four categories of scams in this year's list:

  • pandemic-related scams like Economic Impact Payment theft and unemployment fraud;
  • personal information cons including phishing, ransomware and phone "vishing;"
  • ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and
  • schemes that persuade taxpayers into unscrupulous actions such as Offer In Compromise mills and syndicated conservation easements.

Unemployment Fraud
There has been a sharp increase in fraudulent unemployment claims during the pandemic, along with the uptick in legitimate claims. The scammer with a stolen ID filed for unemployment, and the benefits are sent to the scammer. The victim won't know what has happened until he or she receives a Form 1099-G reporting their unemployment compensation. Unless the fraud is reported and corrected, the victim will be taxed on the fraudulent benefits.

Scams Aimed at Tax Professionals
Two approaches have been reported for phishing for critical information from tax professionals. One is the "new client" approach, in which the scammer asks to become a new client and attaches a prior year's tax return and perhaps an IRS notice. The attachments may contain malware, so they should not be downloaded or opened.

The other is an email that purports to be from "IRS Tax E-Filing" and asks that the professional take steps to update or renew Electronic Filing Identification Numbers (EFIN) and Centralized Authorization File (CAF) numbers. Such emails should be reported to the Treasury Inspector General For Tax Administration.

IRS Impersonators
Happily, there has been a significant decline in telephone callers pretending to be from the IRS and demanding immediate tax payments. IRS received 36,000 reports of these scams in 2019, and only 20,500 in 2020. But that is still 20,500 too many.

The IRS normally contacts taxpayers first by mail, not telephone. When the Service does make telephone contact, it never demands payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer.

Offers in Compromise Mills
The IRS has a program for settling tax debts, and in some circumstances those debts may be reduced. There has been an explosion of radio and television advertising from firms offering to help taxpayers navigate offers in compromise. The IRS is not happy about that development. "We're increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for 'pennies on the dollar'," said IRS Commissioner Chuck Rettig.

Taxpayers may use an IRS-developed tool at https://irs.treasury.gov/oic_pre_qualifier/ to determine their eligibility for an offer in compromise.

IP Pins
IRS this year made its Identity Protection PIN (IP PIN program available to all taxpayers, not just to victims of ID theft or taxpayers in certain states as earlier. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.

It remains to be seen whether this new numerical designation will be more secure than the Social Security numbers the government has already issued to all taxpayers. The full report on the Dirty Dozen may be found at https://www.irs.gov/newsroom/dirty-dozen.

(August 2021)
© 2021 M.A. Co. All rights reserved.
New Highs in Housing Prices
Based upon the June economic reports, the national house-buying frenzy is cooling down a bit, yet new records are still being notched. For example:

  • existing home sales rose 1.4% in June compared to May, but were up 22.9% from June during the 2020 pandemic;
  • the median existing-home price reached a record $363,300, up 23.4% from the year-earlier June;
  • June sales of homes for more than $1 million were double the year-earlier figure;
  • housing starts rose 6.3% in June compared to May.

Many factors have contributed to the increasing prices and occasional bidding wars for homes for sale. The most important is likely low current interest rates, which help to hold down monthly payments. Buyers may have a sense that they have to move now, before rates increase. Existing homeowners may want to use their increased equity to trade up to a larger house. After the pandemic, when millions successfully fulfilled their job requirements by working at home, many felt a need for different quarters to continue in that mode. Another crucial factor is a severe shortage of homes for sale. There were 1.25 million homes for sale at the end of June, which represents an 18.8% drop in inventory from a year earlier. Labor and materials shortages have hampered efforts by home builders to satisfy the pent-up demand with new houses.

Higher prices have drawn some homeowners to put their houses on the market, and as supply increases the frenzy should abate. There are signs of buyers worrying about overpaying in some markets.

The harder question is, what happens when the Federal Reserve raises interest rates? Will housing prices stabilize, or actually begin to fall? Is this a bubble that might burst? 

(August 2021)
© 2021 M.A. Co. All rights reserved.
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