Domicile is "the place where a man has his true, fixed and permanent home and principal establishment, to which whenever he is absent he has the intention of returning". A person can have only one domicile, no matter how many residences he owns.

Your state of domicile determines (1) to which state you pay state income taxes, (2) where your will is probated and where your estate will be administered (3) to which state your estate pays inheritance and estate taxes and (4) which state's laws govern the enforcement of judicial orders.

The state of domicile also determines spousal rights in property. Most of the states, like Pennsylvania, are common law states. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states. A move to any of these states requires special planning.

It is very possible for more than one state to claim that you are a domiciliary. When this happens all of the states that have claims can assess income tax and inheritance or estate tax. Some states are parties to agreements to resolve these issues as they affect death taxes, but many are not. The battle over Howard Hughes' estate went on for years, with Texas, Nevada and California all claiming him as a domiciliary. In perhaps the most famous estate tax domicile case, the estate of Mr. Dorrance, the founder of Campbell's Soup Company, was taxed by both Pennsylvania and New Jersey, in each case as if he was domiciled there. Each of Pennsylvania and New Jersey collected about $17 million. The U.S. Supreme Court upheld this result.

Since domicile depends on where you intend to return, it is a subjective concept. Nevertheless, many objective actions can give indications of your intention. There are lists available for actions that should be taken to give evidence of your intention to change your domicile. You don't have to do everything on the list. None of these things, except the requirement for physical presence in the new domicile, are absolute requirements. However, you have to do enough of them, especially the more significant ones, to convince the tax authorities that you have truly moved your domicile. Here are some actions that show intention to change domicile:

• Buy or lease property in the new domicile state, furnish it as a permanent residence, not a vacation place.
• Spend more than 183 days per year in the new state - this is the most important requirement. In some states this is an ironclad rule for tax purposes. For example, if you maintain a residence in New York and spend more than 183 days per year there, New York considers you a resident for tax purposes regardless of your intentions.
• Obtain a driver's license in the new state.
• Register your cars in the new state.
• Register to vote in the new state, and vote.
• Go to doctors, dentists, lawyers and other professionals in the new state and have your records moved from the old state to professionals in the new state.
• File your federal income tax return with the appropriate IRS service center and show your new state as your address.
• File a Declaration of Domicile if your new state has such a procedure.
• Move bank accounts and safe deposit boxes to the new state.
• Send notifications of a change of address to family, friends, business associates, professional organizations, credit card companies, brokers, and insurance companies
• Use the new state as a home base. When you travel, leave from and return to the new state.
• Keep your family heirlooms, furniture and keepsakes in the new state.
• Change legal documents to reflect residency in the new state.
• Update your estate plan and have your estate planning documents identify you as a resident of the new state.
• Join organizations such as clubs, religious groups and become active with local charities in the new state.
• Apply for a homestead in the new state if applicable.

Not only must you adopt a new domicile, but your old domicile must be abandoned. In your former state of domicile:

• Have your name removed from the voter registration list.
• Turn in your driver's license.
• Pay income tax as a non-resident if applicable.
• Mark your last state income tax return "FINAL" and use the new state's address.
• Spend as little time in the old state as possible.
• Close accounts in the old state.
• Change all club membership, religious and social affiliations to "non-resident" status.

Timing of the change in domicile can be important. If you sell your business or your home in the old state, where you are domiciled at the time of the sale can impact how the gains are taxed. If you are creating trusts, the "resident state" of the trust will often depend on your domicile at the time you create the trust. This means a trust could remain taxable in the old state even though you move your domicile to the new state.

If you stop filing taxes in your old state, this doesn't mean that they have no claim on you. Remember that if you don't file a return for a year, the statute of limitations never starts running. There is no limit to the number of years they can go back and assess tax. Consider filing a non-resident return.

Be consistent. If you want to be a Floridian to escape Pennsylvania income tax, don't register your car in Pennsylvania to get lower insurance rates. Use common sense. Does your neighbor who has lived in Florida all her life have her car registered in Pennsylvania? Of course not. Does she belong to a church or synagogue in Pennsylvania? No. Just imagine yourself explaining that to a tax auditor.

There is always only one original will. If you sit down at a table and sign 5 wills, only the last one you signed is your will. Making a new will automatically revokes all prior wills.

It is common practice to make photocopies of the executed will. Can you probate the copies if you can't find the original? It depends.

There is a conflict between the policy of the law to carry out the decedent's wishes as expressed in a will and, on the other hand, to protect against fraud. Since the person who made the will is no longer alive and cannot tell us what happened to the will and whether or not he or she destroyed it; the law takes special precautions.

When a will cannot be found, a presumption arises. A presumption is a rule of law by which finding of a basic fact gives rise to existence of presumed fact, until the presumption is rebutted. In the case of a missing will, the known fact is that the will is missing, which gives rise to the presumption that it was destroyed with the intention of revoking it. In order to have a copy of a will probated, therefore, the proponent of the will must adduce evidence to overcome that presumption.

To overcome the presumption, evidence must show that (1) someone other than the testator destroyed the will, (2) the decedent did not have access to it and, therefore, could not have destroyed it, or (3) that the decedent made statements up until the time of death that he had a will. The proponent of the copy of the will must also prove by the testimony of two witnesses that the will was executed by the decedent when he or she had testamentary capacity, a diligent search did not turn up the will, and the contents of the lost will are as presented in the copy. Providing actual proof of any of these circumstances can be very difficult and often impossible.

Since the original will is so important, where should you keep it?

I recommend keeping your will in a safe deposit box at your bank so long as no one has access to the box who could benefit by the destruction of the will. I recommend that you drive immediately from the lawyer's office to the bank to put your freshly signed will into your safe deposit box.

In Pennsylvania, a decedent's safe deposit box can be searched, in the presence of two bank officers, for a will. A will and cemetery deed can be removed. This is so even if no one else's name is "on the box," meaning that no one is designated as deputy or attorney-in-fact on the card maintained by the bank. Also, when the box is searched after death, an original will can only be turned over to the named executor, which provides some additional safeguards.

For clients who do not have a safe deposit box and do not wish to rent one, the will can be kept with other important papers at home. Most folks in this category have a safe, strong-box, or "fire-proof" box. I always caution folks that there is no such thing as "fire-proof" - these boxes are fire-rated to withstand high temperatures for a given period of time, say one or two hours, and this is often inadequate for a fire which stays hot long after it appears to be "out." These boxes are nice little ovens.

If the will names a bank or trust company as executor and/or trustee, often the bank will offer safe-keeping services and hold the original document. This is also a good solution to the problem of where to keep the original will.

Some folks let the lawyer who wrote the will hold it in "safe-keeping" for them. This is usually a service provided by law firms at no charge. Sometimes the law firm's motivation for offering the safe-keeping service is to make sure that the family has to come to that law firm to retrieve the original will and, thus, that firm gets first crack at the business of settling the estate. In fact, some lawyers just assume that is the case, taking over the estate settlement, and the executor and family members don't even realize that they have a choice.

Whatever the law firm's motivation for offering to hold your will, this could provide the needed safety. It is a good option so long as the executor and family members understand that the will is being held in safe-keeping and that the executor is free to interview other law firms and make an informed decision about what lawyer or law firm is going to be attorney for the estate. This gives the executor the opportunity to compare fees and the expertise of other lawyers before making a decision.

When a person dies intestate, that is, without a will; the law determines who are that person's heirs. The general rule for an adopted child is that the adoption severs the parent-child relationship between the adopted child and his or her natural parents including severance of all inheritance rights.

Thus, under Pennsylvania law, for purposes of inheritance by, from and through an adopted person, the adopted person is considered as a natural child of his or her adopting parents; and an adopted child is not considered to be a child of his or her natural parents. Pennsylvania provides a limited exception to this rule. A child who has been adopted may inherit from his or hernatural kin (but not natural parents) when the natural kin has maintained a family relationship with the adopted person. The comment to the statute when it was enacted says that "[t]he exception recognizes that family relationships frequently continue for grandparents and others where an adoption may have occurred after the death or divorce of a parent."

Here is an example: John and Katie are married and have a son, Buddy. John dies. Katie remarries. Her new husband, George, adopts Buddy. John's parents, Buddy's natural grandparents, are very much involved in his life, are frequent visitors and maintain a family relationship with Buddy. Under the Pennsylvania Statute, if John's parents die intestate, Buddy, even though adopted, would inherit from them.

What about step children? If they are not adopted, they do not inherit from their parent's spouse. This can create some unfortunate results. Let's say Amy has a child, Josh. Amy marries David who is not Amy's natural father. They live together as a family for years, but David never adopts Josh. That means that Josh is not Dave's heir. If David dies without a will, Josh has no rights to Dave's estate as an heir.

In these days of blended families, where the children can be yours, mine, and ours, it is extremely important that parents make wills that spell out the rights of their children. It can completely destroy a family if only some of the children in a household inherit and others are cut out because of these rules of inheritance.

What if a will or trust directs distribution to a person's children. Does that include adopted children? In construing a will making a devise or bequest to a person described by relationship and not by name (e.g. "my children" or "John's issue"), any adopted person shall be considered the child of his adopting parent or parents. In construing the will of a testator who is not the adopting parent, an adopted person shall be considered the child of his adopting parent or parents only if the adoption occurred during the adopted person's minority or if an earlier parent-child relationship existed during the child's minority.

Why the age limit? You can adopt and be adopted at any age. Mrs. Dowager left a will providing for distribution to her children and grandchildren. Mrs. Dowager's 65 year old son, Libertine, is unmarried and has no children. However, he has a lady friend, Floozy age 45. Libertine adopts Floozy. If Libertine dies, Floozy is Mrs. Dowager's grandchild by adoption. However, since the statutory rule of interpretation provides that in interpreting Mrs. Dowager's will, an adoption has to occur during a person's minority (under age 18) to be given effect, Floozy would not inherit any part of Mrs. Dowagers' estate. (And that's probably the way Mrs. Dowager would have wanted it.)

The Wall Street Journal ran an editorial in May 2009 describing the situation in Maryland. In 2008 Maryland enacted a "millionaire's tax." The legislature increased the marginal income tax rate to 6.25% on incomes of more than $1 million. Since cities like Baltimore and Bethesda also impose income taxes, the state and local combined rates could be as high as 9.45%. The millionaire's tax was estimated to bring in an additional $328 million in revenue over three years to the state coffers. In 2008 roughly 3,000 income tax returns with a million or more dollars of reported income were filed by Maryland residents. In 2009, there were only 2,000. The revenue from this groups of taxpayers was down $100 million (not up as predicted). The net result is that state of Maryland actually collected less tax from the millionaires by raising the tax rate, instead of the increase they projected. The WSJ surmises that Maryland's millionaire population fell by a third. They changed which state they claim as their legal residence. That's why the legislation is referred to as the "Get Out of Maryland Tax Act."

Rochester New York billionaire Tom Golisano made a highly publicized move to Naples, Florida because of high taxes in New York State. Golisano said the new New York State budget would result in his paying $5 million in income tax to New York State. In Florida he will pay zero income tax. Read his piece on "Why I'm Leaving New York."

Toronto attorneys Lesperance & Associates, who advise wealthy U.S. citizens on the "how to" of expatriation, have created a video called "Flight of the Golden Geese." It is about Goldie, a goose who lays golden eggs. (You can see it here.) In the video, Goldie alone was covering over 40% of the cost of the farm. The farmer said he needed more eggs. Goldie responded that the other animals should contribute, as well. The other animals called Goldie names - greedy, disloyal, selfish and disloyal to the farm. The Farmer said "Let's vote on it. Everybody in favor of Goldie giving more eggs raise your hoof, paw, or wing." What happened to the goose who laid the golden eggs? She left the farm, flying to another country where she didn't have to give up so many of her golden eggs to the farmer. As did Goldie, some individuals will choose to move to lower-tax countries.

Concerned about crushing estate, capital gains, and income taxes as well as personal security risks and the threat of litigation in the U.S.; wealthy U.S. citizens are looking at other countries. Other U.S. citizens who we would not classify as "wealthy" are looking to move to lower-tax jurisdictions as well. It is happening at such a rate that Congress enacted the Heroes Earnings Assistance and Relief Tax Act of 2008 (the "HEART Act") which contains provisions to deter high net worth U.S. citizens or long term residents from avoiding payment of U.S. taxes by imposing an immediate exit tax on both the U.S. and foreign assets of individuals who relinquish their citizenship or who give up their green cards. How wealthy? The exit tax applies if you meet on of these three criteria: (1) for the period of five taxable years ending before the year of expatriation the individual has an average annual income tax liability of at least $145,000, (2) a net worth at the date of expatriation of at least $2 million, or (3) the individual would have failed to satisfy all applicable U.S. tax obligations for the five tax years before the year of expatriation.

Before you decide to take flight, there are things to consider. What about your health insurance? Medicare only pays in the U.S. - will your supplemental coverage cover you in the country where you are relocating? Will you be able to get the immigration status you need in the new country Will your retirement income support the lifestyle you want in the new country? What are the estate tax considerations?

Likewise, taxing authorities should consider the ability of geese who lay golden eggs to assume ever-increasing tax burdens.

Enelly Betancourt, staff writer for the Lancaster Newspapers reports:

Low-income taxpayers can receive free legal assistance or advice at a new taxpayer clinic.

The new Community Action Program clinic helps taxpayers who have tax controversies with the Internal Revenue Service.

It also informs individuals who have a limited English proficiency about their rights and responsibilities under federal tax law.

The clinic, at CAP's 601 S. Queen St. headquarters, is open Monday through Friday from 9 a.m. to 5 p.m.

Appointments are required.

"We currently provide income-tax preparation services, but there is a tremendous need in the area of tax controversy assistance," Mark Esterbrook, CAP's chief executive officer, said.

The clinic's primary goal is to prevent additional hardship among the working poor by ensuring that low-income taxpayers always have a source of free legal assistance.

"We understand that this is the first clinic of its kind between Philadelphia and Pittsburgh," Brian Sweigart, CAP communications officer, said.

Named manager of the new CAP clinic is Douglas Smith. He is one of two lawyers nationwide named public service fellows by the American Bar Association's Section of Taxation. His two-year ABA fellowship covers his salary and benefits.

Smith previously was in private practice as a tax and estate planning attorney.

Also helping to fund the clinic will be an IRS Low Income Taxpayer Clinic grant, in an amount that's yet to be determined, Sweigart said.

For information or to request an appointment, call 299-7388, ext. 3911.

For loans of $10,000 or less, you don't have to worry about any of this. Such a loan may carry little or no interest, and there are no income tax consequences or reporting requirements.

For loans of $10,001 to $100,000 (all loans between the borrower and lender are added together for this threshold), the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. If the borrower's net investment income is less than $1,000, it is deemed to be zero.

What does the borrower's net investment income have to do with it? One of the purposes of these rules is to prevent taxpayers from shifting income to kids or other family members who are in lower tax brackets. For example, Dad loans his 19 year old Son $100,000. Son invests it, receives interest, dividends, and capital gain income which Son reports on his own 1040 and pays no income tax. Then Son repays the $100,000 to Dad. The effect of this has been (1) Dad has made a gift to Son of the income and (2) the income has been taxed at lower brackets, in fact, at zero.

If, on the other hand, Dad lends Son $100,000 to buy a house, or to pay for college, and Son uses the loan proceeds for the intended purpose, then there has been no income-shifting. No income is being generated by the loaned funds. Interest will be imputed to this type of gift loan only to the extent that the son has investment income.

The IRS publishes applicable federal rates (AFRs) monthly. There are interest rates for short, mid, and long-term loans. Short-term rates are for demand loans and term loans of 3 years or less; mid-term is for 3-9 years; and long-term is over 9 years. For example, the short-term AFRs for January 2010 are short-term 0.57%, mid-term 2.45%, and long-term 4.11%.

For demand loans, the difference between the interest calculated using the stated rate and the applicable federal rate is generally treated as income to the lender and a gift from the lender to the borrower on December 31 of each year that the loan is outstanding. A demand loan is payable in full at any time on the lender's demand.

For term loans, a lender who makes a below market rate (BMR) loan is treated as having made a gift of the difference between the amount of the loan and the present value of all the scheduled payments, using the applicable federal rate on the date the loan is made. When making a term loan it is usually best to state an interest rate. The Lender may forgive interest payments as they come due. The forgiveness of the interest is a gift and the lender must, nevertheless, include the amount of the interest in income.

The Lender can forgive $13,000 of interest and principal payments using the annual gift tax exclusion. If the loan is from a married couple to a married couple, maybe Mom and Dad to Son and Daughter-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. If the loan was used by Son and Daughter-in-law to buy a home, and if the loan is secured by a mortgage on the home, the interest will be deductible for them as interest on their primary residence mortgage.

For any of these arrangements, make sure the terms are in writing. This accomplishes two things: (1) the terms of the arrangements are clear to the lender, the borrower, and other family members and (2) the loan documentation can stop the IRS from claiming that the transfer of cash was a gift. This is very important. Without written documentation that the transfer is a loan, the IRS can argue that there was no loan at all; it was just a gift. Plus, if the borrower can't make good on the loan, you would need to have this documentation in order to deduct it as a non-business bad debt.

Undocumented loans can become particularly contentious when the lender dies. Documentation establishes whether the loan is to be repaid to the estate or was a lifetime gift. Many times, a family lender, especially to children or grandchildren, does not expect a loan to be repaid after the lender's death. If this is so, it is necessary for the lender to state in his or her will that the balance of principal and accrued interest on the loan is forgiven. Otherwise, the loan will have to be repaid, or will be a set-off against the borrower's distributive share of the estate. Simple documentation can avoid this set-up for a sibling fight and the expense and time that usually ensues.

Roth IRA Conversions

Starting in 2010 the income cap for converting a traditonal IRA to a Roth IRA is eliminated. Now anyone can do a Roth conversion. If the conversion is done in 2010, taxpayers can spread the income tax attributable to it over two years: 2011 and 2012. Note that while the income cap is removed for purposes of qualifying for the conversion of a traditional IRA to a Roth IRA, there remains an income cap on regular contributions to a Roth IRA. The income phase-out begins at $167,000 for joint filers.

New Vehicle Sales Tax

Individuals will no longer be able to take an itemized deduction or increase the standard deduction for the sales tax on the purchase of a new motor vehicle. Vehicles had to be purchased after February 16, 2009 and before January 1, 2010 to qualify for the deduction.

No More Sales Tax Deduction

The choice to deduct state sales tax payments instead of deducting state and local income taxes is gone. This provision was very important for taxpayers in states like Florida where there is no income tax.

No Phase-outs for Personal Exemptions and Itemized Deductions

In 2010 there will be no phase out of deductions and exemptions for higher income taxpayers. This will greatly benefit high earners.

Teachers' Deduction

The $250 deduction for teachers who buy classroom supplies with their own money is eliminated.

Tuition and Fees

The $4,000 deduction for college tuition and fees expires after 2009. This deduction was permitted "above the line", meaning it could be taken even if the taxpayers didn't itemize.

Contribution to Charity from IRAs

IRA owners older than 70½ who make contributions from their IRAs directly to charity will no longer be able to exclude these withdrawals from income.

No More Property Tax Deduction

Non-itemizers will no longer be able to deduct up to $1000 in property taxes paid. This provision had been a help to home-owners who had no mortgage so that there was no interest deduction to help make itemization worthwhile.

Alternative Minimum Tax Exemptions Reduced

The Alterative Minimum Tax exemption levels fall back to $45,000 for married filing jointly and $33,750 for singles an heads of household. (In 2009 the exemption was $70,950 for married filing jointly and 46,700 for singles and heads of household.) Some commentators say that as many as 1 in 5 taxpayers will be subject to the AMT in 2010.

No Exclusion for Unemployment

The first $2400 of unemployment benefits will no longer be tax-free.

Energy Credit Reduced

The 30% tax credit for the cost of energy-saving home improvements is reduced to 19% and is capped at $500.

Section 179 Expensing

The maximum amount of equipment that can be expensed (instead of depreciated) is reduced to $135,000 to $250,000. Businesses can no longer claim 50% bonus depreciation on assets placed in service in 2010.

Income Tax on Dividends

For taxpayers in brackets higher than 15%, qualified dividends are taxed at a maximum rate of 15% through December 31, 2010. For taxpayers in the 10% and 15% brackets, qualified dividends are taxed at 0% through December 31, 2010. The provisions sunsets on December 31, 2010, and dividend taxation reverts to former 2002 rates.

Mileage Reimbursement

The mileage rates effective January 1, 2010 are 50 cents for business, 16½ cents for medical and 14 cents for charitable purposes.

Home Buyers Credit

If you used the Home Buyers Credit in 2008, you must start paying it back in 2010. The qualification period for first-time home buyers to purchase a home and qualify for the credit continues through May 1, 2010.

Contributions to Retirement Accounts

Remember you have until April 15, 2010 to contribute to a traditional or a Roth IRA. If you have Keogh or SEP and you get a filing extension for your 2009 return until October 5, 2010, you have until that date to make contributions.

No Estate Tax

The federal estate tax is repealed for individuals who die in 2010.

Wild Cards

If the Senate and House eventually hammer out a health care bill that becomes law, there are various provisions in the current legislation on how to pay for it. The House bill includes a 5.4% surtax on high earners and would curtail flexible spending accounts. The Senate bill includes a 40% surtax on high-end employer-sponsored health plans - that provide health coverage valued at more than $8,500 for individuals and $23,000 for families (they call them "Cadillac plans") and increases the Medicare payroll tax. Hold onto your wallet.

January 1, 2010 there will be no estate tax. At all. And there will be carry-over basis.

Who would have thought our Congress woudl be so irresponsible?

As the Wall Street Journal points out:

"The possible expiration of the federal-estate tax has sent the normally staid world of estate planning into a frenzy of activity, as taxpayers try to cope with uncertainty.

Without the old estate tax in place, some new rules will come into play, potentially forcing families to dig up decades-old records or face big tax penalties. Some other onerous taxes will lapse, potentially cutting bills by two-thirds on transfers to grandchildren. And a debate is raging about whether Congress can pass a bill next year that would be retroactive to Jan. 1.

"These changes bring planning opportunities but also dilemmas, because we don't know what will happen," said Carol Harrington, head of estate planning at law firm McDermott, Will & Emery.

The problem dates back to 2001, when Congress passed an estate-tax law that cut rates and increased the size of estates that would be hit by the tax. Right now, there is a federal tax of up to 45% on estates valued at more than $3.5 million, which applies to only about 5,500 estates a year. The law mandates that the estate tax disappear entirely in 2010, but then reinstated in 2011 at a 55% rate, with an exemption of slightly more than $1 million.

Democrats said they will resurrect the law retroactively, in January. Some Republicans likely will oppose making any new law retroactive. But questions swirl around the constitutionality of making the tax retroactive.

The House of Representatives voted this month to make the current law permanent, but Senate Democratic leaders have failed to push through an extension. Some lawmakers are supporting a higher exclusion of $5 million and a lower tax rate, 35%.

Estate-tax lawyers and planners are shocked and livid. "We never dreamed Congress would be this irresponsible," Ms. Harrington said. "It is the stupidest policy imaginable. People will die, and executors need to move quickly. But no one knows what the law will be."

To get any agreement before Jan. 1, a "phoenix would have to rise from the ashes," said Clint Stretch, a principal with Deloitte Tax LLP, a tax-consulting firm. The House has recessed for the year and would need to be called back. The Senate, still sitting, is enmeshed in the health-care debate."

The first thing you will learn about is the marriage penalty. The marriage penalty is a holdover from an earlier era when single income families were the norm. Since the tax code was written to tax household income instead of individual income; a married couple, both with similar earnings, pays more tax than the total tax of two single taxpayers with the same incomes as the married couple. This higher tax is what is referred to as the "marriage penalty."

The penalty manifests in two ways: 1) the standard deduction for a married filing jointly return is less than twice the single standard deduction; and 2) the combined income can push the couple higher into the tax brackets. Often the first tax return a couple files after marriage results in a big tax due because of under-withholding or underpayment of estimates. Even if you get married on the last day of the year, for tax purposes you are considered married for the entire year.

The marriage penalty does not apply to all married couples, it depends on the husband's and wife's respective incomes. Tax laws in more recent years have actually eliminated the marriage penalty for tax payers in lower tax brackets. So here's the good news: there's no marriage penalty built into the tax rate schedules in the 10% and 15% tax brackets.

Having decided to combine their lives, newly weds now combine their income. The decision as how to report this combined income on tax returns should be a topic of discussion with the tax advisor. Many credits and deductions are based on the total income reported on the return. When two taxpayers get married, their combined income may now be too high for certain tax credits. For example, a single mom qualifies for the Earned Income Credit. She marries a man making a good salary, and now their combined income on a joint return is too high for the Earned Income Credit.

Worse, the woman has a low amount withheld on her earnings because she expects to get the Earned Income Credit. After the marriage, she finds out the amount withheld is not enough to cover her share of the tax.

A single person can deduct up to $3,000 in excess capital losses against ordinary income, but the amount doesn't double to $6,000 for a married couple - it remains $3,000.

A single person who actively participates in renting out real estate can deduct up to $25,000 of losses against his or her earned income if his or her modified adjusted gross income is $100,000 or less. This deduction is the same for a married couple as it is for a single person.

While filing a joint return results in a lower tax for most couples, they don't have to file joint returns. They can file as "married filing separately." Married filing separately is not like filing two single returns. In our example, the earned income credit can't be claimed at all on a married filing separate return. Some other credits and deductions , such as the Child and Dependent Care deductions, American Opportunity and Lifetime Learning credits, the student loan interest deduction and the up to $25,000 of rental real estate losses are not allowed on a married filing separate return.

On the plus side, newly married couples may have increased limits for tax-deductible IRA contributions. If the couple's income meets certain limits, they could qualify for more of a deduction. In some scenarios, one spouse also may "borrow" from the other's earnings to meet the limits.

Likewise, if a spouse claims medical expenses or other itemized deductions that are limited by their adjusted gross income, filing separately may be the way to go because the single income produces a lower limit. However, if the spouse wants to claim credits or deduct his or her IRA contribution, the couple probably needs to file jointly.

Sometimes only after the wedding, you find our that your spouse has debts, back child support, defaulted student loans, unpaid income taxes, you name it. All of these things can be offset against taxpayer refunds. You might find your tax refunded scooped to pay your spouse's debts. This can be a nasty surprise. There is a procedure, the Injured Spouse Allocation, whereby the debt-free spouse can get his or her share of the refund, but it takes months to actually get the money.

Everyone's situation is different, so it is important to consult with a tax professional before making any important decisions, especially the decision to marry.

As it was originally proposed by President Obama, the Act would have provided a $4,000 credit in exchange for 100 hours of community service. That didn't make it to the final version, although the Act does direct the education secretary and the treasury secretary to conduct a feasibility study on requiring community service in order to get the tax credit.

The American Opportunity Tax Credit that was enacted is available in 2009 and 2010 and is an expansion and re-naming of the existing Hope credit. It makes the former Hope credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax, and allows the credit to be claimed for four post-secondary education years instead of two. However, the American Opportunity Tax Credit is for amounts paid in 2009 and 2010 only. You may be eligible for the lifetime learning credit for any tuition and fees required for enrollment you pay after 2010.

The maximum annual American Opportunity Tax Credit is $2,500 per student. That is a $700 increase from the previous Hope credit.

You can claim the American Opportunity Tax Credit if you pay qualified tuition and related expenses for an eligible student who is either yourself, your spouse, or a dependent for whom you claim an exemption on your federal tax return. You cannot claim the American Opportunity Tax Credit if your tax filing status is married filing separately. Students must attend school at least half-time.

Eligible educational institutions are any college, university, vocational school or other post secondary educational institution eligible to participate in student aid programs administered by the United States Department of Education.

Up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year qualify for the credit. The credit is student-based, meaning that the credit may be claimed for each eligible student (for example, if a family has two students in college) rather than just one per tax return.

The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials." For the purpose of this credit, "course materials" means books, supplies and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. The cost of a computer would qualify for the credit if the computer is needed for enrollment or attendance at the educational institution. Expenses such as insurance, medical expenses, room and board, transportation, or similar personal, living, or family expenses are not included.

The amount of the credit is calculated as 100 percent of the first $2,000 of tuition, fees and course materials, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. If the amount of the American opportunity tax credit for which you're eligible is more than your tax liability, the amount of the credit that is more than your tax liability is refundable to you, up to a maximum refund of 40 percent of the amount of the credit for which you are eligible.

You can't claim the American Opportunity or Lifetime Learning credits for any expenses that were paid from the tax-free portion of a distribution from a 529 plan or a Coverdell Education Savings Account. The credit also can't be claimed for payments made from tax-free scholarships and fellowships, Pell grants, employer-provided tuition reimbursement, Veteran's educational assistance, or other tax-free educational assistance.

Though the income limits are higher than under the existing Hope and Lifetime Learning Credits, this credit also phases out. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit.

A tax deduction of up to $4,000 can be claimed for qualified tuition and fees paid. However, you must choose whether to take a tax deduction or receive a tax credit. You may not claim the tuition and fees tax deduction in the same year that you claim the American opportunity tax credit or the lifetime learning credit. You also cannot claim the tuition and fees tax deduction if anyone else claims the American opportunity tax credit or the lifetime learning credit for you in the same year. Though the credit will usually result in greater tax savings, taxpayers should calculate the effect of both on the tax return to see which is most beneficial -- the tax credit or the deduction.

The credit is claimed using Form 8863, attached to Form 1040 or 1040A. For more information, see IRS Publication 970, Tax Benefits for Education at www.irs.gov.

BUT Beware of Bed Buffaloes!
Read the Wandering Tax Pro's OI VEY! AN UPDATE ON MY LAST POST

Florida's homestead exemption which provides an exemption from a forced sale is among the most protective in the United States. It provides no limit to the value of homestead real property that can be protected from creditors. This is how O. J. Simpson can own an expensive home in Florida despite a huge unpaid civil judgment against him. Various World.com and Enron executives bought lavish homes in Florida.

Florida has no individual income tax. (It does have a corporate income tax.) Florida has no estate or inheritance tax. (Since the Florida estate tax "picks up the federal state death tax credit and that credit has been eliminated from the federal estate tax; Florida estate tax is zero. Unless there is a change, the state death tax credit and Florida's estate tax will be back. in 2010.) It has a 6% state sales tax. Some counties charge an additional sales tax.

Florida did have an intangibles tax but that was repealed in 2006. The intangibles tax applied to stocks, bonds (excluding Florida municipal bonds), mutual funds, and notes receivable. Retirement accounts, life insurance or annuities were exempt. The rate was .5 mills, and there was a $250,000 exemption per resident. ($500,000 per couple).

In 2007 the Florida legislature passed a Reform Bill that proposed to create a new "super-homestead" exemption. After a legal battle, a Constitutional Amendment appeared on the ballot to increase the exemption from the tax and "portability" of the Save Our Homes exemption. The amendment passed on January 29, 2008. This tax savings is available only to Florida residents.

The Amendment increases the homestead exemption from $25,000 to 50,000 but only for taxes other than school taxes and just for homes valued at more than $50,000.

Since 1995, Florida has had a property tax law that capped the increase in assessment value of residents' property at 3% per year. The actual value of the properties often far outstripped the 3% per year growth. The gap between the assessed value and the actual fair market value of the home is called the Save-Our-Homes (SOH) differential. Many residents fear moving from their homes because they don't want to lose the tax advantage of paying taxes on their much lower assessed value. The new constitutional amendment allows up to $500,000 of value from the gap between the assessed amount and the fair market value to be applied towards the tax base of .any new home purchased in Florida within two years. In other words, the SOH differential is "portable." This benefit is available only to residents.

For snowbirds who have a principal residence in a northern state and also a home in Florida, the new Florida Constitutional Amendment may be bad news. Not only do they not qualify for the 3% cap or the portable SOH benefit, but the gap in the real estate taxes they are paying compared to their homesteaded neighbor is likely to increase. The taxing authorities whose budgets are reduced because of the new tax breaks for homesteaders will need revenue. A likely source is to increase the tax rate on non-residents. This will probably lead to more northerners deciding to change their domicile to Florida.

In the meantime, what is the State of Florida doing for revenue? Reduction of property taxes benefits homeowners, but hurts education. Empty-nesters are moving in, but families are moving out. Instead of an anticipated increase of 30,000 pupils, the state has seen virtually no increase. Non-residents can pay twice the property tax of their resident neighbor with the same house. Attorney Jerome Lanning of Birmingham, Alabama, is suing to seek relief from the disparity, and when the case reaches the U.S. Supreme Court, things might well change.

Mr. Tate dies leaving an estate consisting of $700 in household goods. He also owned certificates of deposit, a checking account, money market account, life insurance policy dividend and cable refund with a total value of $39,300.

Mr. Tate died leaving a will that was apparently prepared by a local notary (practicing law without a license) who used a pre-printed form and filled in the blanks. Mr. Tate's will said: "I give, devise and bequeath all my personal property, jewelry and furniture, to my niece, Valarie Nichols." . . . "I give, devise and bequeath all the remainder of my estate, which I may own at the time of my death or to which I may thereafter become entitled, to my friend, Janet Geisel."

So what's the problem? The question is who gets the $39,300 - Valarie Nichols or Janet Geisel? Why is this a question? Because personal property, as understood in the law, means any kind of property other than real property. Thus, bank accounts, certificates of deposit and other cash items are personal property.

The will says all personal property goes to niece Valerie Nichols - which would mean she would get all of the assets - bank accounts, certificates of deposit, etc. Janet Geisel, the other beneficiary disagreed. She said that since the decedent had no real estate she would get nothing and that what the decedent meant was tangible personal property should go to niece Valarie and everything else should go to friend Janet.

Had the will included one more word, "tangible," there would have been no dispute. "Tangible personal property" is a well defined class of property under the law.

The first point I want to make is that if there has to be a lawsuit over a $39,000 estate, how much do you think is going to be left for any beneficiary? If writing your own will means you need a court to interpret what you meant, you have made a serious mistake.

What do you think? What did Mr. Tate intend? And how do we know? We can't ask him.

In this case, the court applied a doctrine of construction called "ejusdem generis" to reach its holding. "Ejusdem generis" is Latin for "of the same kind." As applied to Mr. Tate's will, this phrase means that "where general words follow enumerations of particular classes or persons or things, the general words shall be construed as applicable only to persons or things of the same general nature or kind as those enumerated." In other words, since the will said "all my personal property, jewelry and furniture" the general words "personal property" should be interpreted to mean property of the same type as jewelry and furniture.

So Janet Geisel gets the $39,300. . . . minus the costs of the lawsuit. It reminds me of the plumbers fees: $50 per hour; $75 per hour if you help; $100 per hour if you try to fix it yourself first. This is only one of innumerable such stories. In my experience, almost every self-written will contains at least one ambiguity or problem that must be interpreted (by a judge) when the estate is being administered.

Have you ever noticed that wills written by attorneys are often much longer than those from "kits?" That is because the attorney adds many clauses and definitions that are added to clarify and protect the testator's intent. Do-it-yourselfers are usually thinking about what they want to put into a will and are not focused on important words, phrases, and clauses they may be omitting.

Moral of the story: Writing wills is not for amateurs. You may think you are being clear, covering all the possibilities, and complying with all the legal requirements. And maybe you are - but there is no way you can know for sure that what you have written will accomplish what you want or create a dispute.

Here is some more information about mediation:

Why not mediate trust and estate disputes?

"Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser - in fees, expenses and waste of time."
-- Abraham Lincoln 1850

Lincoln's words are doubly true today. Our society is beset with litigation - and all too often, there are no winners, except, perhaps, the lawyers. The time for Alternative Dispute Resolution (ADR), the private resolution of disputes outside of court, has come. There are two main forms of ADR - arbitration and mediation.

In arbitration the dispute is submitted to a third party, the arbitrator, who renders a decision after hearing arguments and reviewing evidence presented in a less formal and more expeditious fashion than in court. In binding arbitration, the parties are bound by the arbitrator's decision. In non-binding arbitration, the parties can go to court for a trial if unsatisfied with their results.

In mediation an experienced neutral party attempts to assist the parties to air their concerns, understand each other's point of view, and find a common ground. No decision is rendered; the mediator facilitates the parties' arriving at their own solution.

Both litigation and arbitration seek a winner and a loser and are adversarial procedures - usually further alienating the parties from each other . Many professionals believe that only through mediation is it possible to resolve the dispute and at the same time achieve reconciliation - restoring and improving the relations between the parities.

Because of the possibility of reconciliation, mediation is an excellent approach for family disputes, including disputes over estates and inheritances.

Mediation in Estate Settlement

The death of a family members often sets the stage for conflict within the family. As John Gromala and David Gage point out in the November 2000 issue of Trusts and Estates: "Where estates are concerned, intricacies of fact and law can combine with emotion, misperceptions, and complicated family dynamics to form a highly combustible mixture. Mediation can put out the fires before they consume both money and family harmony."

The traditional method of settling disputes that arise in estate administration is the litigation process from the formal pleading and response, trial and appeal. This can be extremely time-consuming and astonishingly expensive. As a result of the litigation process, family relationships can be completely destroyed or left in tatters. Not only is the inheritance consumed by fees, but the family is consumed by anger and hatred.

Mediation has been widely used in divorce and child custody disputes but few jurisdictions look to mediation in disputes involving wills and trusts. The time has come to give these disputants the same chance at resolving issues and maintaining family relationships. There is nothing to stop disputants from seeking mediation privately. Parties to any dispute can seek mediation. Lawyers need to be alerted to the possibility of seeking this kind of resolution and trained away from the immediate reaction of pursuing claims in court. (A friend remarked that it takes 10 times longer to train a lawyer to be a mediator than to train anyone else; the adversarial approach must be unlearned.)

We hope that the courts will move toward recommending, or even requiring mediation before setting hearing dates.

In mediation the parties control the process, and there is no risk of an adverse decision, since the mediator does not render a decision or judgement. Nothing said during the mediation can be used as evidence later at trial. The process is completely confidential and solutions can be arrived at that could not be ordered by the court as legal or equitable remedies - for example, an opportunity to air grievances or receive and apology.

Mediation in Estate Planning

Estate planning aims at the transfer of wealth from one generation to another in a way which minimizes taxes and maximizes economic gain. At bottom, it usually involves parents making gifts to their children, grandchildren or charities. The problem is that while many clients spend hours with attorneys, accountants and financial advisors crafting an estate plan, they spend no time with their intended beneficiaries explaining what they have done and why. After Mom and Dad are gone, the family acrimony begins - brother sues brother and sisters stop talking to one another for years.

Since your typical (dysfunctional) family has trouble communicating about day to day activities such as what to have for dinner, perhaps it is no surprise that the typical family cannot and does not communicate about dying, property division, and settling estates. Nevertheless, communicating the plan and addressing the issues before death is the best gift you can give your beneficiaries.

It is not bad manners to talk about the estate plan, and it will not make matters worse. What makes matters worse is, leaving the children to fight it out after Mom and Dad are both gone. If you are afraid to tell your kids what your estate plan is you are leaving them a legacy of acrimony. A mediator will recognize that it is up to Mom and Dad what they do with their assets and that they want all family members to feel as good as possible about the estate plan and not feel cheated or disappointed. Bringing all the parties together can ensure that hidden agendas are brought out into the open, get the most buy-in from the parties and get the best protection against the plan being contested.

Mediation is not family therapy. It is a short-term process aimed at resolving a dispute while attempting to preserve family relationships. It depends on opening lines of communication and coming up with solutions.

Mediation can also be used to discuss long term care issues with parents, to determine how siblings can equitably share the responsibility of helping aging parents, and how to deal with caregivers and medical personnel.

As far as the estate planning documents themselves go, it is entirely possible to include provisions that require the parties to submit disputes to arbitration rather than resort to the courts. Many arbitration texts point out that George Washington's will contained such a provision:

"That all disputes (if unhappily they should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chose by the disputants each having the choice of one, and the third by those two - which three men thus chosen shall, unfettered by law or legal construction, declare their sense of the Testator's intention; and such decision is, to all intents and purposes, to be as binding as if it had been given in the Supreme Court of the United States."

Much is at risk in estate planning, and the most important is not estate taxes. The most important factors are the beneficiaries, their lives and their relationships - in other words, your family.

There are two basic types of timeshares: (1) the owner of the unit actually owns a piece of the real estate and (2) the owner of the unit has a lease or right to use the unit for the specified time.

If you own a unit of a condominium for a week, then you own real estate. A condo is an interest In real estate, part of the whole parcel of real estate. If you own a unit in a co-operative apartment for a week, you don't own real estate. The building that is a co-op is owned by a Co-operative Housing Association which is a corporation. Owners of co-op units own shares in the corporation with a right to occupy a particular unit. Since the ownership interest is corporate stock, co-op owners to not own real estate - they own personalty. Most timeshares are condominiums since co-ops have caught on in only a few markets, most notably New York City.

As with other real estate and personalty, timeshares can be resold to another party, transferred as gifts, or inherited by beneficiaries. Beware - in some cases the lease-type timeshare cannot be transferred to your heirs.

What happens to your timeshare when you pass away? Like any other property, if there is a joint owner it passes to the surviving joint owner. If you are the only owner, it passes under your will to your beneficiaries or if you have no will, under the intestacy statute to your heirs.

If your timeshare is in another state or country - you could be leaving quite a problem for your family. If the timeshare interest is real estate because it is part of a condominium, its transfer and inheritance is governed by the laws of the state or country where it is located. That means that your executor will have to arrange for an ancillary probate in the state (or states) or country (or countries) where you own timeshares. That, in turn, means expense. The executor will need an attorney in the ancillary state as well as in the domiciliary state. There will be costs and filing fees.

Probate is a legal process by which title to property is formally transferred at death. A primary probate proceeding is opened in the state where the deceased is domiciled at time of death. Ancillary probate is a probate proceeding opened in another state to transfer property owned by the deceased in that state. Real estate, including a timeshare interest, if located in a non-domiciliary state (or another country) must be transferred via an ancillary probate proceeding in that jurisdiction(s). The cost of a single ancillary probate proceeding can be thousands of dollars just to transfer a single timeshare week.

Beneficiaries who are faced with this dilemma sometimes choose not to go the route of ancillary probate and just abandoned the timeshare. In general, timeshares are hard to sell unless they are the cream of the crop. The beneficiary has no obligation to deal with the timeshare - they don't own it until there is an ancillary probate. If a beneficiary truly doesn't want the time share, he or she may be better off skipping the cost of ancillary probate rather than being saddled its costs and the maintenance fee on a timeshare that he doesn't want and can't sell.

If you have a timeshare, do some estate planning and save your beneficiaries from these headaches. If you have a revocable living trust, change the title to your timeshare from your name to the name of your trust as owner. The trustees become the owner, and no probate is required on your death.

If you don't have a trust, it is probably not worth getting one only because you have a timeshare. In that case, consider adding beneficiaries as joint owners so that, on your death, the timeshare passes to the beneficiaries by operation of law, and no ancillary probate is necessary.

In some states (Pennsylvania is not one of them) you can have a beneficiary deed. A beneficiary deed is one in which you can name the next owner in the deed, the same way you do with a life insurance policy or a "pay on death" savings bond or bank account. If the ancillary state permits beneficiary deeds, you could change the title to your timeshare unit by keeping it in your name but adding a beneficiary to be the next owner on death. This mechanism also avoids the necessity for an ancillary probate proceeding.

The law generally requires taxpayers over age 70 ½ to take a Required Minimum Distribution (RMD) from their IRA or other defined contribution plan every year. The RMD for each year is determined by dividing the retirement account balance as of the end of the prior year by a factor found in an IRS life expectancy table.

The Act gives a special waiver for 2009 only. No RMD need be withdrawn in 2009. The tax policy concern was that with the drop in the financial markets over the last year or more, the market value of these plans was already drastically reduced. Congress wanted to give taxpayers a break by letting them skip the 2009 withdrawal.

The Act's suspension of RMDs for 2009 will help retired taxpayers who do not need to rely on their RMDs for living expenses. By skipping the 2009 RMD, they will have less taxable income for 2009, and, possibly, avoid adjusted gross income (AGI) based phase-outs of tax breaks. They will also have more tax-sheltered amounts to leave to their beneficiaries. Older recipients will benefit the most, because the shorter the life expectancy, the larger the percentage of required RMD payout.

The 2009 waiver of the RMD provides no benefit at all to those taxpayers who must make regular withdrawals from their retirement plan accounts and IRAs in order to get by each month. The amount withdrawn in 2009 will still be taxable income.

If you inherited an IRA from a decedent who died in 2008, be careful. If the IRA account owner named multiple beneficiaries, in order for each beneficiary to withdraw over his or her life expectancy, the IRA must be split up into separate inherited IRAs by the end of the year following the owner's death. Because of the waiver, if the IRA owner died in 2008, you don't have to take an RMD in 2009. That might lead you to assume you can put off dealing with the inherited account. Not so. You still must split the IRA up into separate accounts by December 31, 2009. The 2009 RMD for each beneficiary of a separate account is waived.

For beneficiaries who are required to take RMDs using the five-year rule, the five-year period under that rule is determined without regard to calendar year 2009. For example, for an IRA owned by an individual who died in 2007, the five-year period ends in 2013, instead of 2012.

If you turned 70 ½ in 2008, you had until April 1, 2009 to take your 2008 RMD. If you waited until 2009 to take your 2008 RMD, then ordinarily, you would also have to take your RMD for 2009 also, making 2 RMD withdrawals in one year. For 2009 only, you can make just one withdrawal, the 2008 RMD that you put off until 2009. That 2008 RMD is not waived by the Act. Only the 2009 RMD is waived.

If you turned 70 ½ in 2009, in the absence of the 2009 RMD waiver, you would have been required to take your first RMD (the 2009 RMD) by April 1, 2010, and then take your 2010 RMD (the second RMD) by December 31, 2010. The Act waives the first RMD (the 2009 RMD) for account owners who turn 70 ½ in 2009. The 2009 RMD waiver does not affect RMDs required for 2010. If you turned 70 ½ in 2009 you are still required to take your second RMD by December 31, 2010.

What happens if you already took your 2009 RMD? Maybe you didn't know about the special waiver for 2009 passed by Congress. You can put the RMD back. There has always been a 60 day rollover period to repay a distribution. For 2009 only, the rollover has been extended to Nov. 30, 2009. If you took a distribution in 2009, you can put back up to the amount of your RMD, or roll it into an IRA, and not pay taxes on the returned money if you can get it back into an IRA within 60 days or November 30, 2009, whichever is later. Rollovers are limited to one a year from each account; this has not changed.