Identity Theft
It seems there are an increasing number of reports of identity theft ID). I recently saw an article by Sid Kirchheimer that was published by AARP about the use of identities of people that have died. “Postmortem identity theft may be shocking but it’s hardly rare, especially because the victims.”
One of the best known sources of information for ID is the Social Security Administration’s Death Master File. The list is maintained to allow employers, financial institutions and government agencies to identify fraud. That file’s use is intended to be restricted to those entities.
“But federal law requires a version known as the Social Security Death Index be made available to the public.” Social security numbers are not on the list. Information on the list is often enough information for ID theft. The details maybe available free on genealogy and other websites.
Kirchheimer’s article includes the following to block ID theft of the deceased:
- “Immediately send death certificate copies by certified mail to the three main credit reporting bureaus. Request that a ‘deceased alert’ be placed in the credit report.
- Mail copies as soon as possible to banks, insurers and other financial firms requesting account closures or change of joint ownership.
- Report the death to the Social Security Administration at 800-772-1213 and the IRS at 800-829-104. Also notify the DMV.
- In obituaries, don’t include the deceased’s birth date, place of birth , last address or job.
- Starting a month after the death, check the departed’s credit report at www.annualcreditreport.com for suspicious activity.
IRS Taxpayer Guide to Identity Theft:
Office of the Inspector General Social Security Social Security Administration – Report Fraud:
Supreme Court Upholds Health Insurance Subsidies
The case of “King v. Burwell” challenged the interpretation of a portion of the Affordable Care Act (ACA). The ACA provided health insurance subsidies for quailed persons. One requirement was that the insurance be purchased through state-based exchanges (marketplaces). Only 16 states and the District of Columbia operated their own state-based exchanges. Most consumers purchased insurance through federal exchanges through the federal government websites. June 25, 2015 the U.S. Supreme held that insurance subsidies were available to those that qualified for subsidies purchased insurance through the federal exchange.
Reverse Mortgage Changes
Several changes have been made to the federally insured Home Equity Conversion Mortgage (HECM) reverse mortgage program to shore up the viability of the program. The changes are generally designed to improve the odds that homeowners taking out a reverse mortgage will be able to meet their obligations and not become a burden on the program. The changes are generally effective for new reverse mortgages after September 30, 2013 (but prior rules generally apply to case numbers assigned before September 30, 2013, if closed on or before December 31, 2013). Additional financial assessment and set-aside requirements take effect January 13, 2014.
Initial disbursements limited
One change generally restricts the amount that can be disbursed to you within one year of your obtaining the reverse mortgage. Under the new rules, the maximum amount that can be disbursed to you at closing or during the first 12-month disbursement period is equal to the greater of (a) 60% of the principal limit or (b) the sum of your mandatory obligations plus 10% of the principal limit (not to exceed 100% of the principal limit). Mandatory obligations include items such as the initial mortgage insurance premium, the loan origination fee, recording fees and taxes, credit reports, a survey, a title examination, title insurance, a property appraisal fee, fees for warranties or inspections, funds to pay any required repairs, and amounts used to discharge liens, debt, and taxes. Except in the case of a single disbursement lump-sum payment option, additional amounts can be disbursed in later years, up to 100% of the available principal limit.
New mortgage insurance premium rates
Another change increases the basic initial mortgage insurance premium, and applies an even higher rate if more than 60% of the principal limit can be disbursed to you in the first year. Under the new rules, an initial mortgage insurance premium fee of 0.5% of the maximum claim amount will generally be charged. The initial fee is increased to 2.5% of the maximum claim amount if required or available disbursements to you at closing or during the first 12-month disbursement period are greater than 60% of the principal amount. In either case, there is also an annual fee equal to 1.25% of the mortgage balance.
Financial assessment and set-asides
Finally, changes are made to improve the odds that you will be able to meet certain of your obligations under the reverse mortgage. For case numbers assigned on or after January 13, 2014, you must undergo a financial assessment prior to approval and closing on a reverse mortgage. Based on your assessment and as a condition of loan approval, you may be required to use proceeds from the reverse mortgage to fund a lifetime expectancy set-aside for payment of property charges or authorize the mortgagee to pay property charges from your monthly payments or your line of credit. Property charges include property taxes, hazard insurance, and flood insurance.
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New Mortgage Rules Scheduled to Take Effect in January
The Consumer Financial Protection Bureau (CFPB) has issued new mortgage rules that are scheduled to take effect on January 10, 2014.
In 2008, the rise in home foreclosures was viewed by many as the result of substandard mortgage lending practices. Subsequently, Congress passed the Dodd-Frank Act in 2010, which created the CFPB and set forth a number of financial industry regulations aimed at protecting consumers, including some pertaining to mortgage lending. In January 2013, the CFPB issued mortgage rules that implement the mortgage provisions set forth by Congress under the act.
Highlights of the new mortgage rules
The new rules broaden coverage of existing ability-to-repay rules, which require a lender to make a reasonable, good faith determination that a consumer has the ability to repay a loan. The rules extend coverage of the ability-to-repay rules to the majority of closed-end transactions secured by a dwelling (with certain exceptions).
In addition, the rules set forth specific procedures a lender must follow when determining a borrower’s ability to repay a loan, including the consideration and verification of certain consumer information (e.g., income, employment status) and the calculation of the borrower’s monthly mortgage payment.
The rules also center on what are referred to as Qualified Mortgages. According to the Dodd-Frank Act, lenders that issue Qualified Mortgages will receive a presumption of compliance with ability-to-repay rules, thereby reducing their risk of challenge from a borrower for failing to satisfy ability-to-repay requirements.
The rules specify various requirements that a loan must meet in order for it to be considered a Qualified Mortgage, including:
- Limits on risky loan features (e.g., negative amortization or interest-only loans)
- Cap on a lender’s points and fees (3% of the loan amount)
- Certain underwriting requirements (e.g., 43% monthly debt-to-income ratio loan limit)
What do the new rules mean for consumers?
The new mortgage rules were mainly put into place as a way to end irresponsible mortgage lending and ensure that borrowers will only be able to obtain a mortgage loan that they can afford to pay back. Proponents view the rules as welcome industry safeguards that simply mirror responsible mortgage lending practices that are already in place.
However, some mortgage-industry experts fear that the new rules may end up making obtaining a mortgage loan more difficult than it has been in the past–especially for borrowers who have a high debt-to-income ratio. Borrowers may also find themselves burdened with the task of providing lenders with additional documentation that they may not have had to in the past.
For more information on the new mortgage rules, you can visit the CFPB website at http://www.consumerfinance.gov/
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DOMA RULING POTENTIAL TAX IMPACT
The Supreme Court’s Ruling in the Defense of Marriage Act (DOMA) Same-Sex Marriage Rights Case impact planning.
Background
On June 26, 2013, the U.S. Supreme Court ruled on a landmark case related to same-sex marriage (SSM) (United States v. Windsor). The 5-4 decision increases the federal tax (and non-tax) benefits available to married same-sex couples. The ruling affords same-sex couples, who are married and reside in a state which recognizes same-sex marriages, with the same federal rights and obligations (including tax benefits and rules) as heterosexual married couples. As discussed further at the end of this letter, there are many remaining issues that need to be clarified, including if and how the right to federal benefits will be protected when a couple marries in a state where same-sex marriage is legal, then moves to a state where the marriage is not recognized. For many of the possible impacts of this ruling mentioned below in this letter, it may depend on how the federal government interprets the decision and modifies the rules. The IRS is already working on clarifying guidance, so we expect to know more details in the coming months.
Same-sex couples who have not been legally married are unaffected by this ruling until their marital status is legally changed according to state or foreign country law.
The case has broad federal tax planning and compliance implications. This letter will provide:
- An overview of the Supreme Court’s decision and what it may mean for you;
- Considerations with respect to estate, retirement, income tax, and health and welfare benefits plans; and
- Actions to consider with respect to long term planning and tax return preparation.
Tax Implications
Tax benefits that may now be available to and issues facing legally married same-sex couples include:
- Joint filing of federal income tax returns
- Amending of prior tax returns
- Filing of protective refund claims
- Pre-tax basis of employer-provided health-care benefits
- Deductible and includable alimony
- Income tax-free transfers between spouses
- Lifetime gift tax-free property transfers to spouses
- Estate tax relief for surviving spouses
- Spousal IRA contributions, rollovers, required minimum distributions
Filing of Tax Returns
Following the decision, same-sex couples that the federal tax law now recognizes as married may have the option or even be required to use married filing joint or married filing separate filing status. Filing joint returns may also allow married same-sex couples to exclude up to $500,000 of gain from gross income on the sale of a principal residence, as opposed to $250,000 for unmarried individuals. Married same-sex couples with foreign assets may want to reconsider their foreign information reporting requirements as filing thresholds for a married couple are often lower than the combined filing thresholds for two unmarried individuals and constructive ownership rules apply to spouses.
Amending of Tax Returns
Consideration should be given to amending federal income tax returns and gift and estate tax returns (for years that are still open under the tax law’s statute of limitations) to change marital and filing status and other information that will alter the tax calculations and potentially result in a lower tax liability. State tax implications also should be reviewed. Returns may be amended to correct filing status, dependents, income, deductions, or tax credits. Couples may want to estimate the income tax liability that would have been due in previous years if the couple had been able file a joint return. Even basic items are impacted, such as standard deductions, child-related tax credits, and phase-outs of certain benefits, such as the education expense deduction. Another example of a tax change is where one spouse could have had capital losses on investments in prior years that the other spouse’s gains would offset if they could have filed joint federal returns. However, the “marriage penalty” could be applicable for some couples and the married filing joint or married filing separate filing status may result in a higher tax liability, especially high-earning couples where both spouses are working. Each situation will need to be reviewed carefully.
Amending returns most likely means that both spouses need to amend. It is likely that one spouse will owe taxes (and interest) and the other will receive a refund. Upcoming IRS guidance may indicate how these returns are to be filed, such as with some explanation or filed together. IRS guidance may indicate whether amended returns are required or optional.
Filing of Protective Refund Claims
If the right to a refund is contingent on future events (including issuance of guidance by the IRS) and is not determinable until after the time period for amending returns expires, a taxpayer can file a protective claim for refund. The claim is often based on current litigation (constitutionality); expected changes in tax law; changes in legislation, or regulations. A protective claim preserves the right to claim a refund when the contingency is resolved. Generally, the IRS allows taxpayers to amend returns for up to three years after the filing deadline or up to two years after the taxes are paid. Some couples may have more time if they filed protective claims for previous tax years that would give them an extension for amending returns. If the statute is soon expiring on an extended return or estate tax return, we should discuss immediately the possibility of filing a protective refund claim, even if the forthcoming IRS guidance is not yet issued.
Excludable Employer-Provided Fringe Benefits
Employer-provided fringe benefits used by the same-sex spouse of an employee should also be excludable from gross income. Now that taxes should no longer be a factor, some couples may want to re-evaluate their health insurance choices. One spouse may now be able to move onto the other’s more generous plan, which may also be more affordable.
Also, even if not changing health plans, some couples may be able to file an amended return to collect the taxes they may have paid on those benefits in previous years. Consideration should be given to claiming refunds of overpaid income and payroll taxes based on previous denial of tax-free extensions of employer-provided medical and dental benefits.
Adoption Credit
Some couples may want to consider any adoption tax credit and whether a change in federal filing status will have an impact on the credit.
Deductible and Includable Alimony
Married same-sex couples who later divorce should be able to take a deduction for alimony, which would be includable in the income of the recipient.
Income Tax-Free Transfers of Property Between Spouses
In addition, gain or loss should not be recognized on the transfer of property between same-sex spouses or between former spouses incident to a divorce.
Gift and Estate-Tax Free Transfers/Unlimited Marital Deduction
Married same-sex couples should be able to claim the unlimited marital deduction for federal estate and gift tax purposes, allowing a spouse to transfer an unrestricted amount of assets to his or her spouse at any time, including at the death of the transferor, free from gift and estate tax. The unlimited marital deduction is considered an estate preservation tool because assets can be distributed to surviving spouses without incurring estate or gift tax liabilities. Some couples that set up trusts to avoid double taxation on assets being passed along to their partners may find that a trust is no longer necessary now that assets can be passed directly to a spouse tax-free. Others may want to update their trusts to give their spouses tax-free access to the trust’s income or principal, an option this is now available to married same-sex couples.
In addition, married same-sex couples should be able to elect to split gifts in order to take advantage of a doubled annual gift tax exclusion ($14,000 for 2013, for a total tax-free gift of $28,000). The ruling could also make it possible for married same-sex couples to share assets without being subject to gift taxes. For example, prior to the ruling, couples that owned a house together but did not equally split mortgage payments and other expenses may have had those expenses covered by one spouse be subject to gift taxes if they exceeded $14,000 annually. Now that those marriages are recognized by the federal government, some married same-sex couples may feel more comfortable adding spouses name to the property title, knowing that they have more flexibility on how they choose to split those expenses and with no gift tax implications.
Portability of Unused Estate Tax Exemption Amount
The American Taxpayer Relief Act of 2012 extended permanently the concept of portability, which generally allows the estate of a surviving spouse to utilize the unused portion of the estate tax applicable exclusion amount ($5.1 million in 2012, and $5.25 million in 2013) of his or her last predeceased spouse. Now, the surviving spouse of a married same-sex couple should be able to take advantage of portability of the unused estate tax exemption amount of their deceased spouse.
Related Party Rules
Same- sex married couples who are now considered married for federal income and gift and estate purposes are subject to related party rules. This could impact the tax consequences of transactions between same-sex spouses. Prior to this ruling, married same-sex couples were treated for tax purposes as not related for certain transactions such as selling property between them and recognizing a loss. After this ruling, recognition of this same loss would not be allowed under the related party rules.
Spousal IRA Contributions, Rollovers, and Required Minimum Distribution
Married same-sex couples now have many more retirement plan options and issues to consider, including spousal IRAs, contributions, beneficiary designations, rollovers, and required minimum distribution (RMD) rules. Married ame-sex couples with the only beneficiary a spouse who is more than 10 years younger can now use the joint table rather than the “uniform table” for distributions. A surviving spouse can now consider whether to make a spousal rollover of a deceased spouse’s IRA or 401(k).
Other Federal Benefits
In addition, below are some of the federal benefits or protections that may now be available to legally married same-sex couples:
- Social Security, Medicare, and Medicaid benefits
- Certain veterans benefits, such as pensions and survivor’s benefits
- Military spousal benefits
- Family medical leave rights
- Spousal visas for foreign national spouses
- Private pension benefit options (e.g., survivor annuities)
- Application of the thresholds for the tax penalties and health insurance subsidies available under the Patient Protection and Affordable Care Act
Income and Estate and Gift Tax Planning Issues
Some of the specific individual income tax and estate and gift tax planning issues that may be impacted and should be considered are:
- Income Tax Planning Issues
- Joint tax returns
- Amended income tax returns
- Income tax returns beyond the statute of limitations
- Rollover IRAs at death
- Spousal IRA contributions and rollovers
- IRA required minimum distributions
- Divorce tax issues
- Application of the adoption tax credit
- Estate & Gift Tax Planning
- Updated estate plans and documents
- Inter vivos Gifts
- Amended gift tax returns
- Gift and estate tax returns beyond the statute of limitations
- Portability of unused applicable lifetime exemption
- Grantor trusts
- Spousal rollover
- Beneficiary designations
- Retirement plans
- Community property rules
- Marital Agreements
IRS Guidance Expected Soon
The Supreme Court’s DOMA ruling means that married same-sex couples are entitled to the same federal benefits as heterosexual couples, but it does not necessarily make financial planning and tax compliance for married same-sex couples less complicated. Even though federal benefits are immediately extended, it may take some time to fully implement the Supreme Court’s decision. Marriage is the “trigger” for more than 1,000 tax and benefit provisions in the Tax Code and other statutory provisions.
Federal government agencies, including the Treasury Department and Internal Revenue Service, will need to review and modify rules and regulations. Employers will need to review and revise their policies and procedures regarding benefits and withholding. Married same-sex couples will need to consider the new rules and policies, including their tax situation. Affected couples should consider updating their estate plans based upon the estate and gift tax impact, as well as their financial plans.
One tax issue to be addressed is the reality that at least 30 tax rules use the term “husband and wife” rather than married couple or spouses. Another issue to resolve is whether the federal tax law treats a couple as married based on the law of the state of celebration (where the marriage was performed) or the state of domicile (where the couple resides). The answers may not be the same for the federal tax law and Social Security law. This may be a matter that Congress may need to address rather than the IRS.
There may be some state tax issues to address as well. For example, federal employees may be entitled to certain benefits that others are not, and states likely will need to clarify what the state tax treatment is if the state does not recognize same-sex marriage. Also, if the federal tax law uses the state of celebration to determine if a married same-sex couple is married and the state of domicile does not respect that, the state will need to provide guidance on how to convert the federal joint return to separate state returns.
The day after the ruling, on June 27, 2013, IRS issued a statement that it will “move swiftly to provide revised guidance in the near future,” so we will keep you informed when such guidance is issued and what you should consider doing based on that guidance. We expect that various IRS publications and website information that provide guidance to married individuals will likely be revised.
It may take longer than expected for the IRS to respond. The IRS has been given increased responsabilities and the congressional budget process reduced their funding. With reduced staff and training any resources they devote to these matter will reduce their ability to administer the tax laws that Congress has passed.
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Two Supreme Court Rulings Boost Same-Sex Marriage Rights
On June 26, 2013, the U.S. Supreme Court announced its rulings on two landmark cases related to same-sex marriage. The 5-4 decisions bolster the federal benefits available to same-sex married couples and clear the way for same-sex marriages in California.
In the first case, the court struck down Section 3 of the Defense of Marriage Act of 1996 (DOMA), which defined marriage as the union of a man and a woman. This case involved a claim by Edith Windsor, who sought a refund from the IRS of the $363,000 in estate taxes she paid because the federal government did not recognize her marriage to her long-time partner and spouse, Thea Spyer. Her suit contended that DOMA violated the principles of equal protection.
In their written opinion, the court’s majority agreed, stating that DOMA “violates basic due process and equal protection principles applicable to the Federal Government … Its unusual deviation from the tradition of recognizing and accepting state definitions of marriage operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages.”
The second case, Hollingsworth v. Perry, concerned California’s Proposition 8, which banned same-sex marriage in that state. The justices ruled that the petitioners did not have standing to defend Proposition 8 in federal court. This left in place a lower federal court decision that threw out the ban on gay marriage in California, effectively legalizing same-sex marriage in that state.
What effect do the rulings have?
In California
The Supreme Court’s decision allows California to resume same-sex marriages. Marriage licenses will be issued once legal details are worked out, most likely by the end of July.
In states that have legalized same-sex marriage
Because the Supreme Court justices struck down Section 3 of DOMA, couples in the 13 states (including California) and the District of Columbia that have legalized same-sex marriage will be allowed to receive federal benefits and protections that were previously available only to opposite-sex married couples.
Striking down Section 3 of DOMA means that the legal definitions of “marriage” and “spouse” under federal law now include legal unions between same-sex partners as well as opposite-sex partners. The effect of this change is enormous, because more than 1,000 federal laws reference marriage or spousal status.
The following list details some of the federal benefits or protections that may now be available to legally married same-sex couples:
Social Security survivor’s and spousal benefits
Certain veterans benefits, such as pensions and survivor’s benefits
Lifetime gift tax-free property transfers to spouses
Estate tax relief for surviving spouses
Military spousal benefits
Family medical leave rights
Spousal IRA contributions
Spousal visas for foreign national spouses
Joint filing of federal income taxes
Private pension benefit options (e.g., survivor annuities)
Employer health-care benefits may be received on a pretax basis
In states that have not legalized same-sex marriage
States still retain the authority to define marriage, and some states may choose to continue to define marriage as a legal union between a man and a woman. In other states, same-sex marriage may eventually be legalized. States still do not have to recognize same-sex marriages as legal if they were performed in other states.
Stay tuned
The Supreme Court’s DOMA ruling means that same-sex couples are entitled to the same federal benefits as opposite-sex couples, but it doesn’t necessarily make financial planning for same-sex couples less complicated. For example, even though federal benefits are immediately extended, it may take some time to fully implement the Supreme Court’s decision. Federal government agencies will need to review and modify rules and regulations, and employers will need to review and revise their policies, benefits, and paperwork. In addition, questions remain. It’s unclear if and how the right to federal benefits will be protected when a couple marries in a state where same-sex marriage is legal, then moves to a state where it isn’t. And along with these new protections, same-sex couples will now have new options and obligations that will need to be considered when developing and executing a financial plan.
The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.
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Social Security has improved the information available online
“my Social Security” provides improved information applicable to you. Information and tasks available includes: your benefit verification letter, your benefit and payment information, your earnings record, ability to change your address and phone number. Start or change your direct deposit of your benefits,
This allows you to obtain information when you need it. It will save your time and eliminate the need to travel to a social security office to obtain this information. It avoids the delay of getting information that is helpful in your financial planning.
The website address is: http://www.socialsecurity.gov/myaccount/
Some people cannot receive or acknowledge LinkedIn endorsements
I am such a person. I greatly appreciate all the endorsements I have received. The current state of financial regulations prohibits testimonials. LinkedIn’s “Skills & Expertise” are endorsements that are considered testimonials. The spirit of these regulations is to prohibit comments about the conduct or performance of an adviser. The best information currently available is that making endorsements would also be prohibited.
I am permitted to have your endorsement in LinkedIn as long as it is hidden. When and if the regulations are changed I can quickly unhide them.
Increasingly people are using the new features available through social media. Those of us that are subject to the restriction are frustrated. A recent article in “Reuters” discusses this matter in more detail at http://www.reuters.com/article/2013/01/23/us-social-media-idUSBRE90M1G020130123
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