The holiday season is a time for celebration with family and friends. Unfortunately, it is also a time that tends to bring out the con artists, flimflammers, hustlers, and scammers who make it their holiday mission to prey upon some of the most vulnerable and trusting members of society. These criminals are always working diligently to come up with new ways to bamboozle everyone. In the movies they often only target bad guys that made their money through illegitimate means. Think The Sting, a 1973 American caper film set in September 1936, involving a complicated plot by two professional grifters to con a mob boss. In real life their favorite targets are usually seniors who spent a lifetime of hard work supporting their families and creating a nest egg for retirement. They abuse that which we hold sacred at Garden State Trust Company, a person's trust.

Here are some recent scams you should make your older loved ones aware of.

The False Authority Figure scam.
This scam is often perpetrated in person by two people posing as employees from a local electric or gas company that need to check on a "problem". While the primary resident is distracted by one "employee", the other steals from the property. Another version of this scam involves someone calling and pretending to be from the IRS or from the police, and demanding that tax issues or a bail for a loved one needs to be paid immediately.

On a Website.
A scammer steals your bank's logo and creates a login website using that branding that looks identical to the actual website. They send an email or text asking you to verify information or telling you that a credit card number was stolen and you need to login to request a new one. If you login using your current credentials on the website they built, their website captures your credentials and they are able to enter your accounts illegitimately to make transfers.

Another new twist.
A scammer knows the exact robocall script that goes along with a stolen credit card. A person gets their credit card stolen for real, gets called by their credit card company that leaves a legitimate robo-message to call them back, verify which charges are real and which to remove and get their new card. A fairly routine procedure. The recipient is suspicious, and double-checks that the number left in the message is in fact the customer service help number from their credit card provider. They call, go through the process of verification, get the new card and everything seems resolved.

However, the scammer that stole their credit card also has their phone number. They leave the same robocall message, word for word, except that the phone number has been changed. The person being scammed hears the same message that was legitimate a couple weeks ago, and is more likely to call back immediately thinking their credit card provider discovered more about the same problem or that the issue has come up again. On the second round that person is in danger of losing more than a stolen credit card number during the verification process, because the real goal of the scammer was identity theft.

Those claiming to be from the IRS.
The IRS will not call and demand immediate payment, or request payment via a credit or debit card or gift card, or threaten to bring in police or other agencies to arrest you for not paying. If you don't owe taxes, or have any reason to believe you do, do not give out any information when called and contact TIGTA to report the call. Use their "IRS Impersonation Scam Reporting" webpage. You can also call 800-366-4484 to report it.

Those claiming to be from a financial institution.
Should you receive any digital messages telling you to login, never click through a link on the message itself. Instead, enter your bank's website address directly, or search for your bank on a search engine such as Google in order to get there. Vigilance is key against scammers. They are clever and relentless, and will use the information of how they have already tried to scam you against you. Every single time your bank or a financial institution tries to initiate contact with you, utilize the same steps of verifying that it is really them by initiating contact back through their website or app directly.

Trust is hard to build, and easy to break. At Garden State Trust Company, we take these issues seriously. Please visit https://gstrustco.com/assets/Garden-State-WYW.pdf to view our booklet Keeping Our Seniors Safe-Watch Your Wallet. If you would like a copy please call 732-255-5000.
FAMOUS WILL FOR THE MONTH ELVIS PRESLEY
CLICK THE NAME TO READ
CLICK THE NAME TO READ
Elvis Aaron Presley, one of the most popular singers of all time, died with a considerable fortune which he left to his family. His Last Will and Testament is particularly interesting because it makes use of testamentary trusts to provide for his family long after he's gone.

In the Informational Article, The Incredible Shrinking Estate Tax read how the number of taxable estate tax returns has fallen by 75%, but the estate tax revenue is only down 50%. There are tax traps hidden within family loans, and they may be sprung when the loans are not repaid read Hazards of Intrafamily Loans Article.
The Incredible Shrinking Estate Tax
In October the IRS issued a report on estate tax collections during 2020. Estate tax returns are due nine months after a death, so the 2020 returns reflect deaths from both 2019 and 2020. In any event, all these estates had the benefit of the doubling of the amount exempt from federal estate tax, enacted in 2017.

Only 3,441 estate tax returns were filed in 2020. Of those, only 1,275 actually owed any estate tax. Some $9.3 billion in estate tax was collected. That is nothing to sneeze at, yet it pales compared to the total of federal tax revenue of over $4 trillion.

In 2018 estate tax collections came to more than $20 billion, paid by nearly 5,500 families. Most of those estates were governed by the 2017 law, with half the federal exempt amount. Doubling the exemption reduced collected revenue by half, but it excused more than 75% of families from having to pay the tax at all.

Why are almost two-thirds of federal estate tax returns nontaxable? The unlimited marital and charitable deductions may take credit for that. What's more, surviving spouses now may inherit any unused portion of a decedent's federal exemption amount, but to secure this right a federal estate tax return must be timely filed. According to the report, some $15.6 billion worth of exemptions were preserved through such "portability" elections.

There was considerable worry among charitable institutions that the higher estate tax exemption would lead to a loss of donations, given the reduced tax advantage for so many estates. That concern appears to be misplaced, at least so far. Charitable deductions by estates were $27.4 billion in 2020, up from $21.9 billion in 2019. Overall charitable donations reached a record $471 billion in 2020.

(December 2021)
© 2021 M.A. Co. All rights reserved.
"Mega" IRAs Are Still Targeted
The Individual Retirement Account was originally created to provide a mechanism for tax-favored retirement savings for workers who were not already covered by an employer's retirement plan. Over the years the IRA has grown in importance as a retirement planning asset, in particular as a receptacle for lump-sum retirement plan distributions to preserve tax benefits (the "IRA Rollover"). According to the Investment Company Institute's 2021 Fact Book, some $12 trillion was invested in IRAs as of 2020.

A fortunate few taxpayers have been able to accumulate IRAs and Roth IRAs in excess of $10 million, some 2,569 according to a July 2020 analysis by the nonpartisan Congressional Joint Committee on Taxation. Two factors account for such remarkable good fortune. The first is that the contribution limits for employer plans, such as 401(k) plans, are far higher than for IRAs. Such plans typically offer lump sum distribution options, and those are likely eventually to become large IRA Rollovers. The second factor is privileged access to investments poised to explode in value, such as initial public offerings.

There have been three versions of the Build Back Better Act considered by the House of Representatives this year. The first version included a "crackdown" on mega IRAs, the second did not, and the IRA changes returned with critical modifications in the third version, which was passed by the House and is before the Senate as of December 2021.

The most important takeaway is that the most important changes in the House-passed version of the bill don't take effect until 2029. Briefly, the key elements are:

New contribution limits. High-income taxpayers with aggregate IRA accounts worth more than $10 million would not be allowed to make further contributions.

New minimum distribution requirements. Those with IRAs exceeding $10 million would have to receive large minimum distributions with the aim of bringing the total down. Ordinary income tax would apply, but penalties for premature distributions would not. This rule and the new contribution limit would take effect after December 31, 2028.

Limits on "backdoor Roths." Strategies for getting around the restrictions on who may contribute to a Roth IRA would be ended effective in 2022.

Information reporting. Plan administrators would be required annually to report to the IRS all account holders or beneficiaries with a balance of at least $2.5 million. This also would take effect in 2029.

Given that the new restrictions apply only to owners of more than $10 million in IRA assets, why the much lower reporting threshold of $2.5 million? Perhaps because the JCT report said that there were 21,682 taxpayers with IRAs worth between $5 million and $10 million. That group had $137 billion in traditional IRAs, $14 billion in Roth IRAs--that may prove to be a tempting target for a future Congress.

(December 2021)
© 2021 M.A. Co. All rights reserved.
Hazards of Intrafamily Loans
Mary was in the habit of advancing funds to her children as loans, then forgiving a portion of such loans each year in the amount of the gift tax annual exclusion. However, her advancements to her oldest son, Peter, were substantially larger, in order to help him establish his architecture practice. After some initial successes, Peter suffered some financial reverses and was not able to pay the interest on his loans.

In 1995 Mary had a legal document drafted which acknowledged that Peter owed her $771,628, that he would not be able to repay it, and that this amount would be considered an advancement of his inheritance. Peter signed the document.

After Mary died in 2010, that transaction became an estate tax issue. The IRS argued that it was taxable gift to be taken into consideration when calculating the estate tax on Mary's estate.

The Tax Court agreed with the IRS that a gift occurred, but in looking at the entire record the Court concluded that the gift really took place five years earlier, in 1990. That was when Peter's financial difficulties became severe enough that Mary must have realized his loans would never be repaid.

Company Loan
In another situation, Ron Van Den Heuvel's father founded VHC in 1985 to provide services to the paper manufacturing industry. Ron worked at VHC and founded two of its subsidiaries. Between 1997 and 2013, VHC advanced $111 million to Ron and his companies. The debt grew to $132 million, including interest.

As the prospects for the profitability of Ron's ventures began to fade, in 2004 VHC began writing off its payments to Ron as "bad debts," ultimately writing off $95 million by 2013. On audit, the IRS rejected all but $3 million of the deductions.

The Tax Court agreed with the IRS, saying that Ron and VHC lacked a bona fide debtor/creditor relationship, so there were no "debts" to be written off.

In 2004, VHC's banker had insisted that VHC itself join in guaranteeing Ron's debts to the bank. VHC did so. In the Tax Court, VHC argued that to protect its lines of credit its forgiveness of the loans to Ron was essential, an ordinary and necessary business expense. The Tax Court determined that VHC had neither met its burden to substantiate its claimed business expenses nor established that the claimed business expenses, if substantiated, qualified for the deduction.

Intrafamily loans may contain tax traps. The advise of tax counsel is a must before proceeding.
 
(December 2021)
© 2021 M.A. Co. All rights reserved.
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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. ©2021. All rights reserved.