James and Linda are married and have three children. James has created an investment account to be managed by James’ longtime financial planner. The financial planner meets with James to sign documents and advises James to create a limited liability company to act as the account trustee. James does so and signs the documents as “James, President of James, LLC.” James did not create or file any limited liability company documents, however.
Over 30 years, the account exponentially increases in value. James eventually retires, and uses the account to provide for his family and pay certain bills. Unfortunately, James becomes sick and dies within a matter of months. Linda needs to access the account to help pay the mortgage on the house but learns from the financial planner that James did not designate any beneficiary on the account. Additionally, no one, including the financial planner, can locate the investment account plan documents that may shed light on the issue.
The Abrahams Law Firm, on behalf of Linda, petitioned a court to name Linda as successor trustee to obtain access to the funds in the account. Additionally, The Abrahams Law Firm investigated the existence of James’ limited liability company and determined that if one existed, James had to be the sole member. The Abrahams Law Firm was successful in this approach and was able to help Linda obtain access to the needed funds to support the family.
John has worked for John, Inc. as a manager for several years, earning a substantial salary. Although a hard worker, John has difficulty keeping up with his personal and business affairs. John believes it is important to always file one’s tax returns, however.
Unfortunately, John, Inc. is neglectful in managing its business affairs and in particular, providing its employees with requested tax information to be used in filing the employees’ individual annual tax returns. Despite several requests from John, John, Inc. does not send John any W2s containing his salary and tax withholding information for several years. John decides that he cannot file his tax returns because he has not received his W2 from his employer.
One day, after repeated attempts to contact John, the IRS sends him a Notice of Deficiency for tax year 2010. The Notice provides John with 90 days to file a petition in the United States Tax Court to contest the deficiency. The IRS determined that John owed tax based upon reported income to the IRS from John’s employer. The IRS does not take into account any itemized deductions that John may be eligible for. The IRS also alleged that John was liable for certain penalties and interest.
The Abrahams Law Firm was able to help John petition the Tax Court, prepare and provide the IRS Chief Counsel’s office with a tax return, and obtain a reduction in the amount of tax due. Additionally, the Abrahams Law Firm was able to argue against imposition of an estimated tax penalty, as well as to uphold Schedule A deductions and a recovery rebate credit for John on his return.
Rick and his wife Rebecca are looking to plan their estates in order to provide for their two daughters, Kim and Karen. Rick and Rebecca own real estate and investment/retirement accounts. They also have stocks, bonds and some funds in a separate bank certificate of deposit account. Rick and Rebecca determine that they would like to keep their real estate in the family and not liquidate their assets to support their children. They decide to purchase a second-to-die survivorship universal life insurance policy to provide any needed cash for their daughters. They have heard that ownership of life insurance policies may increase their taxable estates and cause their estates to incur additional estate tax.
The Abrahams Law Firm successfully created an Irrevocable Life Insurance Trust for Rick and Rebecca, preserving their intention to provide for their children while reducing their taxable estates. The use of an Irrevocable Life Insurance Trust created savings and ensured that the children will receive additional monies for their financial support after the death of both of their parents
** This scenario was taken from a real scenario in which the Abrahams Law Firm performed legal services for a client. The clients’ names have been changed because of attorney-client privilege and confidentiality issues. This scenario is intended to be used for solely educational and informational purposes only. The facts of a particular matter vary from client to client. Therefore this scenario is not to be understood as legal advice or any offer to provide legal advice.
U.S. Treasury Circular 230 Notice: Any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties that may be imposed under the Internal Revenue Code or by any other applicable tax authority; or (b) promoting, marketing or recommending to another party any tax-related matter addressed herein. This disclosure is being provided to assure compliance with certain IRS requirements as to the form and substance of tax advice.