Lancaster PA Probate and Estate Administration Law Blog

For parents, deciding who will raise their minor children if the parents die is one of the hardest decisions to make. In fact, the decision is so difficult that many parents avoid the topic and never do it. Not making a decisions is also making a decision and for those parents who avoid the issue, the route they choose is one of uncertainty, unnecessary costs, and perhaps a stint in foster care for their children. You need to name a permanent guardian and it can only be done in a will. More than half of the population if the US does not have a will - are you one of them?

Jacoba Urist, writing for the Huffington Post lists 4 myths that prevent parents from naming guardians in wills:

Myth No.1. There is a perfect choice who will raise your children exactly the way you would - but you haven't figured out who that is yet. Wrong. No one will do it exactly the same way you would. You must choose the best from the available options - imperfect as they may be.

Myth No.2. Someone will step up if needed. Sure family, friends, neighbors all may love your children and be ready to care for them, but who decides? A Judge who is a stranger to you and your family will make a decision. If two family members are vying for the position, a Judge, Solomon-like, may not appoint either one of them. What happens to the children while this litigation continues? They'll be meeting with lawyers, social workers, psychologists and perhaps be placed in foster care.

Myth No. 3. A letter or an e-mail expressing your wishes is good enough. Wrong again. The only way to appoint a guardian is in a will or standby appointment document. Informal writings and requests carry no weight.

Myth No. 4. There is no need to talk with the guardian. This misconception can cause very unfortunate mistakes and hardships. You should ask anyone you are considering if he or she is willing to serve and give him or her the opportunity to ask questions. Very importantly, they may want to know what financial means will be available for the child's support and education. The person you name may not be able to raise your children because of the demands of work, their own medical issues or extended family obligations.

There can be more than one guardian: One can be appointed for the personal custody of the child and another can be appointed for the child's property. Guardianship is a cumbersome and expensive way to manage financial affairs. I always recommend a trust for the minor children instead of guardianship which, by the way, ends when the child attains age 18. From then on any property left to a child is exclusively owned and controlled by the child which is probably not a good idea.

Standby Guardianships

Since July 1, 2002, Pennsylvania has had a law which allows parents to sign a document designating a standby guardian for their child or children in the event the parent(s) become incapacitated. The guardianship is not activated until a trigger specified in the document occurs, such as a health care professional certifying that the parent or parents have actually become incapacitated. At that point, a notice of the Standby Guardianship must be filed in court. The petition can be filed at anytime prior to the triggering event as well.

This is a missing piece in many estate plans. If you have minor children and have executed a will, you probably named guardians for your minor children in case you die. But what if there is a car accident and the parents are incapacitated - perhaps just for a period of time. Parents and children are taken to the hospital by ambulance. Neither parent is conscious.

Who can make medical decisions for the children? If the children are not badly hurt and can go home, who takes care of them? Who is in charge?

The parents have powers of attorney and health care directives. Their named agent steps in for them, but there is a void for who has authority and custody of the children.

Absent a standby guardianship document, the only answer at this point is to have a judge adjudicate Mom and Dad as incapacitated and appoint a guardian for children. This is expensive, time-consuming, difficult and unweildy.

The better plan is to have formally named a Stand-by Guardian which allows parents to appoint temporary guardians for their children. These Guardians can begin acting only after as specified triggering event. For example, the triggering event could be the "incapacity of both parents as designated by their attending physicians". Triggering events are not listed or suggested in the law; it is up to the parent to make the list of potential events. The Standby Guardian would have all the powers to make medical, legal and financial decisions for the children.

If the document is approved by the court before a triggering event occurs, the standby guardianship can commence immediately upon the triggering event and may continue to act until the child reaches 18 years of age. If the document is not approved by the court before a triggering event occurs, the standby guardianship can commence immediately but a petition must be submitted to the court for document approval within sixty days or else the standby guardian shall lose all authority to act as co-guardian or standby guardian. If the petition is filed within 60 days but the court does not act within the 60-day period, the authority to act as guardian is temporarily continued until the court orders otherwise.
Seems obvious, doesn't it? But many estate plans have this piece missing. Does yours?

Can you get an income tax deduction for your moving expenses? It depends. If you moved your home due to a change in your job or business location, or because you started a new job or business, you may be able to deduct your moving expenses. The move must be because of a job. It doesn't matter if it's a new job, the same job or your first job.

Moving expense is an "above the line" deduction, meaning it is taken on the first page of your 1040 and you do not have to itemize to use it.

Your move must be closely related, both in time and in place, to the start of work at your new job location. Generally, moving expenses incurred within 1 year from the date you started work at the new location is considered closely related in time to the start of work. You can move before finding work, as long as you actually go to work in that location.

You must pas a two-prong test. 1. The "distance test." Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home. 2. The "time test." If you are an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location. If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location.

If you are a member of the armed forces and you moved pursuant to a military order for a permanent change of station, you do not have to satisfy the "distance or time tests". There are additional exceptions to the time test in case of death, disability and involuntary separation.

Your home can be a house, apartment, condominium, houseboat, house trailer, or similar dwelling. It does not include a seasonal home, such as a summer beach cottage.

For a married couple filing jointly, only one spouse needs to meet both the time and distance tests. This can be a big help. For example, if husband is transferred to a new location 40 miles from home - that does not pass the distance test for deductibility. But if wife is self-employed and works at home, if they move 50 or more miles from their current home, then they could deduct the moving expenses because of the wife's self-employed status. She would then have to meet the 39 and 78 week rule.

Typical moving expense includes the cost of packing, crating and transporting house hold goods and personal effects as well as the members of the household from the old home to the new one. The cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the items have been removed form the old home before they are delivered to the new home are deductible. Also deductible are the costs of connecting and disconnecting utilities and the costs of shipping vehicles or pets to the new home (who knew the cat gets a moving expense deduction?). The cost of transportation and lodging for the employee and his or her household while traveling are deductible including one day for the day after vacating the old home and one day after arriving at the new home. The cost of meals is not deductible. Expenses are deductible for only one trip by the employer and the employer's household. They need not travel together.

If you use your car to take yourself, members of your household, or your personal effects to your new home, you can figure your expenses by deducting either: 1) Your actual expenses, including gas and oil, if you keep an accurate record of each expense, or the standard mileage rate of 16½ cents per mile. Whether you use actual expenses or the standard mileage rate you can deduct parking fees and tolls. You cannot deduct any part of general repairs, general maintenance, insurance, or depreciation for your car.

Report your moving expenses on Form 3903 which is attached to your Form 1040. If your employer reimburses you for moving expense on a tax-free basis, obviously, they cannot be deducted. You can only deduct expense in excess of any employer tax-free reimbursement. If your employer has included in Box 1 or your W-2 any payments for moving expenses, meaning the employer is reporting the payments as taxable compensation income, then you may deduct them on Form 3903.

You can deduct moving expenses on your 2010 tax return even though you have not met the time test by the date your 2010 1040 is due. If you deduct moving expenses but do not meet the time test in 2011 or 2012, you must either 1) report your moving expense deduction as other income for the year you cannot meet the test, or 2) amend your 2010 return to remove the moving expense deduction.

When a person makes a loan to a family member, friend or relative at less than the market rate of interest, there may be adverse tax consequences. There are two tax implications to consider: income tax and gift tax.

Even though the loan is interest free or carries a very low rate of interest, you may incur imputed interest income as a result of making the loan. What is imputed interest? It is interest considered by the IRS for tax purposes to have been received, even if no interest was actually paid.

Imputed interest applies to below-market loans. A below market loan is one that is interest-free or one that carries stated interest below the applicable federal rate (AFR). The AFR is the minimum rate you can charge without creating tax side effects. Every month the IRS publishes AFR's. The AFR for a loan is the interest rate for loans of that duration in the month the loan is made. .

Here is an example: A $300,000 interest-only demand loan is made in September 2011. The borrowers will be making payments of interest only, no amortization of the loan principal (although they may make any principal payments they wish). A demand loan, which means that it can be called as due any time by the lender, is a short-term obligation so it can use the short-term AFR. The annual interest on a $300,000 loan at the rate of 0.26% is $780, or $65 per month.

When the loan is a demand loan, the applicable Federal rate is the applicable Federal short-term rate in effect for the period for which the amount of forgone interest is being determined, compounded semi-annually. If a demand note is outstanding for an entire calendar year, the government's blended rate must be used. In July of each year, the government publishes the blended rate for the current year. For example, the blended rate published in July for 2010 is 0.59%.

Let's say you made a loan today. It was a demand loan for $300,000; the AFR blended rate is 0.59%. If you charge at least that much interest, and the blended rate for subsequent years, you don't have to worry about the rest of this explanation.

If you charge no interest, or interest less than the 0.59% then you are treated as if you made a gift to the borrower. This gift is the difference between the AFR and the interest you actually charged, if any. The borrower is then deemed to have paid that amount back to you as interest (this is the imputed interest). You must report the imputed interest as income on your income tax returns. The borrower may get a deduction depending on what the funds were used for.

If the loan is under $10,000, there is no problem. You can ignore the imputed gift and the imputed interest if the aggregate amount of loans between you and the individual is less than $10,000. Note that all loans outstanding between you and the individual when added up, must be less than $10,000.

If the loan is over $10,000 but less than $100,000, there is another exception to the application of the imputed interest rule which may save you. Taxable imputed interest income to you is zero as long as the borrower's net investment income for the year is no more than $1,000.

That takes care of the income tax. Now for the gift tax. Unfortunately, there is no similar $100,000 exception for the gift tax. The best way to structure the loan for gift tax purposes is as a "demand loan," that is, a note that can be called for full payment by the lender at any time. With a demand loan, the imputed gift amount is computed every year and will fluctuate with the annual blended AFRs published each July. The annual imputed gift will be well under the $13,000 annual exclusion for gifts until the loan exceeds $2 million with the current rates. If the loan, rather than being a demand loan, is a term loan, the gift tax results are less favorable. When the loan is made you are treated as making an immediate gift of the whole terms' worth of below market interest. This will likely exceed the $13,000 annual exclusion and require filing a gift tax return and use of part of your unified credit or actual payment of gift tax if your credit has already been used.

The best thing is to avoid all this complexity. If you make a loan of more than $10,000 to a friend or relative, charge the applicable federal rate of interest.

And get it in writing! If you make a below market loan to a family member, and if the loan is not repaid, the IRS may consider it a gift for tax purposes whether you intended the money to be a gift or not. If this is the case, you may be required to file a federal gift tax return, depending upon the initial amount; and you will not be able to deduct it as a non-business bad debt. If the loan is used by the family member to buy a home, make sure the note is secured by a mortgage. If it isn't, the borrower will not be able to deduct the interest that they do pay to you.

It is always possible to forgive payments on loans, converting a debt obligation to a gift. Since the annual exclusion is $13,000, you can forgive $13,000 of the debt obligation annually with no gift tax consequences .If the loan is from a married couple to a married couple, maybe Mom and Dad to Daughter and Son-in-law, up to $52,000 (4 x $13,000) in interest and principal payments could be forgiven each year with no gift tax consequences. Mom and Dad have interest income to report on their 1040. Son and Daughter-in-law are treated as having paid interest.

The cost of a pure business trip is 100% deductible. Unreimbursed hotel, airfare, car expenses, cleaning, telephone, tips, are all 100% deductible as well. Up to 50% of the cost of meals are deductible. In general, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

What if you add on a few "vacation days"? After all, here you are in Paris, are you going to skip the Louvre? If the trip is an international one, the travel cost is 100% deductible if the trip is at least 75% business. Less than 75% and then the deductible portion of airfare is generally pro-rated based on the number of business days compared to the total number of days. If the business trip is within the United States, the airfare is 100% deductible as long as the primary purpose of the trip was for business. Lodging and meal expenses for business days are deductible, not for vacation days.

With smart phones, laptops and other new-fangled technology, if you spend most of your time at the Louvre answering e-mails and taking phone calls (say 4 hours) - arguably that's a business day as well. A business day is any day you are traveling to or from the business destination, a day when you have a pre-scheduled business appointment (regardless of how long), or a day when you spend at least 4 hours on business.

If the trip is before and after a weekend and it is impractical for the traveler to go home and come back over the weekend, then those weekend days are treated as business days. One hundred percent of the hotel and 50% of meals are still deductible for those weekend days. You can deduct the standard meal allowance instead of keeping track of the cost of meals if you choose. To deduct the weekend expenses you must be able to prove business activity on Friday and Monday.

If your airline offers a special fare for a stay including Saturday night, and the savings on the fare is greater than the Saturday meals and hotel cost, then the Saturday costs are deductible.

Did you ever see those advertisements for trade associations or professional associations putting on seminars in seaside resorts? Those travel expenses are most likely 100% deductible. The seminar or conference fees are deductible as well.

If the trip is primarily for vacation, then you cannot deduct hotel and travel expenses. The IRS says that the "scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip." On the other hand, if you have actual business expenses (for example, business phone call expenses) while on the vacation, they can be deducted.

If you bring your spouse or a companion along on the trip, their expenses are not deductible unless the spouse or companion is an employee of the taxpayer and travels for a bona fide business purpose and the expense would otherwise be deductible by the spouse or companion. You can't deduct expenses for anyone who is along who is not involved in the business. This may not be such a problem. If you rent a car, the whole price is deductible whether your spouse rides along or not. If you rent a hotel room, the whole cost is deductible even if you spouse occupies the room with you.

A business cruise? To be deductible, it has to be on a U.S. registered ship and avoids foreign ports. The limit to the deduction is $2,000 annually.

It is very important to keep records. Keep receipts and a log of your travel and activities. More detail is better.

Be reasonable. Hiring a luxury limo and driver on the trip when you drive yourself in a used car at home is not reasonable.

If you are an employee, deductible travel deductions are claimed on Form 2106 and are miscellaneous itemized deductions for which you receive a tax benefit only to the extent they exceed 2% of adjusted gross income. If you are self-employed, expenses are deductible on Schedule C or the appropriate business return. You can get more information in IRS Publication 463: Travel, Entertainment, Gift and Car Expenses.