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estate & gift

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(Updated May 21, 2020)

Shortly after stimulus checks started going out, I began receiving inquiries from taxpayers who had received checks intended for deceased relatives. Some media outlets – and politicians – wanted to make a big deal out of this, suggesting that it was indicative of something wrong at the Internal Revenue Service (IRS). Actually, it’s pretty logical. Here’s how that could happen and what you should consider doing next.

Remember that the checks are advances of a new, temporary credit for 2020. Since taxpayers haven’t filed for 2020 yet, the IRS will “advance” your payment based on your most recently filed tax return (2018 or 2019 tax return). 

In other words, the stimulus check acts like a refund for a new, temporary tax credit that you get in advance based on your 2020 income. That’s confusing because you don’t know how much you’re going to earn in 2020, but it’s why the IRS is using earlier returns. But since it’s an advance payment on a new credit does not affect your “normal” tax refund for 2020: you won’t lose out on your expected tax refund for 2020 with the check.

And of course, Social Security, Railroad retirees, VA and SSDI beneficiaries who do not usually file a tax return will receive checks automatically. 

Under the CARES Act – the law created by Congress authorizing the stimulus checks – there is no “clawback” provision. That means, for example, that a check that is sent to you in 2020 based on your 2018 that’s too much (because, say, your income will be too high in 2020) is considered a math error. You can keep it.

Sounds good, right? And the same reasoning should apply to stimulus checks sent to a decedent. There’s no mechanism for the IRS to get it back. And that’s what Congress intended because the idea was to get the money into the hands of taxpayers quickly.

That should be the case with a deceased taxpayer’s stimulus. Assuming that there’s no fraud, the checks were sent out by the IRS in good faith based on the available facts. There should be no reason to send them back.

That’s basically what an IRS spokesman, Eric Smith, told the Washington Post in April. “We are aware of all the various issues involving surviving spouses and other heirs and are still working on them,” he said, explaining that the payments may not have to be returned depending on the circumstances.

Most tax professionals – including me – agreed with that approach. 

According to Nina Olson, the founder of the Center for Taxpayer Rights and the former head of the Taxpayer Advocate Service, the Treasury Department may not even have the power to compel people to return the payments. “It may be the IRS made a mistake by making the payment to a deceased person. It can certainly ask folks to give the money back. I don’t see the legal authority for adjusting it on the 2020 return,” she told USA TODAY. (I agree.)

However, a week after Smith made his comments to the Washington Post, Treasury Steven Mnuchin told the Wall Street Journal that decedent’s checks should be returned. He didn’t offer any real support for this position, nor explain how this might happen. More importantly, no official IRS guidance has been released.

However, a taxpayer has reported that her stimulus check arrived in an envelope advising:

IF RECIPIENT DECEASED, Check here and drop in mailbox.

She even sent a picture:

(Spoiler alert: She’s not deceased, so she kept hers.)

But if she were deceased, there’s nothing in the law (so far as I see) that would oblige her beneficiaries to return the check.

And procedurally, there are still issues: 

  • What if the check was direct-deposited and not mailed?
  • What is the “cut off” for the dates of death? 2018? 2019? 2020?
  • What if the check is for joint taxpayers?

Statistically, the number of taxpayers in receipt of a check belonging to a decedent has to be very small. The U.S. population in 2019 was close to 328 million: on average, there are fewer than three million deaths in the U.S. each year. That means that less than 1% of Americans tend to die in a year. Assuming that the IRS sends checks to all decedents who would have qualified if they had lived, it’s a tiny, tiny number.

In contrast, I’ve received numerous reports from living taxpayers who have not received the right amount in their check or haven’t received payment at all. It might be a better use of Treasury’s time and other resources to track those down rather than find ways to attempt to clawback from widows and orphans.

In the meantime, I’ve been asked what to do with the checks. Some taxpayers have suggested that they want to return them: if you want to and it’s easy (like dropping it back in the mailbox), there’s nothing in the law that says you have to keep the money. But it may not be that easy. And, some tax and legal professionals have suggested that those in charge of estates might have a fiduciary obligation to keep and not return the money. It’s not clear.

On May 6, the IRS added the following FAQ answer on its website

A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000. 

I do not believe this is the correct interpretation under the statute. And as noted earlier, I don’t see how the IRS can claw it back if you don’t return it, and I don’t understand the rationale for the demand.

But this “advice” is on the IRS website. Keep in mind that if an FAQ is not published in the IRB, the IRS may change its position at any time. The IRS has made clear that FAQs “and other items posted on IRS.gov that have not been published in the Internal Revenue Bulletin are not legal authority . . . and should not be used to sustain a position unless the items (e.g., FAQs) explicitly indicate otherwise or the IRS indicates otherwise by press release or by notice or announcement published in the Bulletin.” So it’s not official guidance – the IRS even says so.

My advice: there is no direction – to date – that says you have to return the checks. I think it makes sense to hold onto the checks now and wait for official guidance from the IRS. If you have time-sensitive or more specific questions, check with your tax or legal professional. 

Taxpayer asks:

Any idea whether the filing extension applies to gift tax returns?

Taxgirl says:

AUTHOR’S NOTE: There is (finally) official word from the Internal Revenue Service (IRS) on this issue: Normal filing and payment due dates continue to apply to estate and gift taxes.

That said, my original reply remains below:

Honestly, I don’t know. My gut is no, and here’s why.

The Internal Revenue Service (IRS) has announced that the tax filing season been pushed to July 15, 2020. The IRS also issued guidance making clear that the due date for filing tax returns and making tax payments has been extended from April 15 to July 15. You can read the guidance here (downloads as a PDF).

The relief applies to federal income tax payments and federal income tax returns. According to the guidance, the relief doesn’t apply to any other taxes. In other words, there’s no automatic extension for any other type of federal tax or for the filing of any federal information return. I would interpret that to mean that gift tax returns are not covered by the relief but there is no specific guidance on this out yet.

Someone pointed out extensions language in the instructions (downloads as a PDF). It’s not terribly clear. the instructions say about the due date, “Generally, you must file Form 709 no earlier than January 1, but not later than April 15, of the year after the gift was made.” That’s not tied to the income tax return.

However, the instructions say that if you’re granted an extension of time for filing your calendar year 2019 federal income tax return, that will also automatically extend the time to file your 2019 federal gift tax return. It also says, “income tax extensions are made by using Form 4868, Application for Automatic Extension of
Time To File U.S. Individual Income Tax Return, or Form 2350, Application for Extension of Time To File U.S. Income Tax Return. You may only use these forms to extend the time for filing your gift tax return if you are also requesting an extension of time to file your income tax return.”

I don’t love the ambiguity. If this were me, I’d likely err on the side of caution by filing a Form 8892 (downloads as a PDF).

What is clear from the instructions (and Regs) is that any extension of time to pay the gift or GST taxes, you must be separately requested.

If I find out differently, I’ll let you know.

Ready to do some estate planning, but worried that the rug could be pulled out from under your feet once the Tax Cuts and Jobs Act (TCJA) expires? There’s some good news: The Internal Revenue Service (IRS) has confirmed that making large gifts now won’t harm estates after 2025.

The final Regs clarity that taxpayers who take advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025. Previously, it wasn’t entirely clear what would happen when the exclusion amount dropped to pre-2018 levels (assuming that the tax benefits under the TJCA do expire).

Now, taxpayers who hoped to make substantial gifts between 2018 and 2025 can do so without worrying that they’ll lose the benefit of the tax-free transfer.

Typically, federal estate and gift taxes are calculated using a unified rate schedule on taxable transfers of money, property, and other assets. Even you make a taxable gift during your lifetime, you generally don’t pay tax at the transfer; instead, you chip away at your lifetime exclusion amount. So, if you make a taxable gift of $1 million during your lifetime, it would merely reduce your lifetime exclusion amount. That amount for 2019 is $11.4 million. So, you’d have $10.4 million available to gift and pass at your death without paying tax. 

But what would happen if, in 2026, you made $6 million in gifts (not taxable from 2018 to 2025)? The applicable exclusion amount at that time should drop down to $5 million. So, taxable?

Not under the Regs. Currently, the applicable exclusion amount is the sum of the basic exclusion amount (BEA). The Regs now stipulate that the estate can compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.

Here’s an example from the Regs:

Individual A (never married) made cumulative post-1976 taxable gifts of $9 million, all of which were sheltered from gift tax by the cumulative total of $11.4 million in basic exclusion amount allowable on the dates of the gifts. The basic exclusion amount on A’s date of death is $6.8 million. A was not eligible for any restored exclusion amount pursuant to Notice 2017-15. Because the total of the amounts allowable as a credit in computing the gift tax payable on A’s post-1976 gifts (based on the $9 million of basic exclusion amount used to determine those credits) exceeds the credit based on the $6.8 million basic exclusion amount allowable on A’s date of death, this paragraph (c) applies, and the credit for purposes of computing A’s estate tax is based on a basic exclusion amount of $9 million, the amount used to determine the credits allowable in computing the gift tax payable on A’s post-1976 gifts.

You can find more examples in the Regs. The Regs are currently unpublished, but you can view them in advance here (downloads as a PDF). They are scheduled to be published on November 26, 2019.

The Supreme Court issued a decision in North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust—and it’s unanimous. The Court ruled that a trust beneficiary’s residence is not sufficient on its own for a state to tax a trust’s undistributed income. 

Here’s how the case arose. Joseph Lee Rice, III, created a trust for the benefit of his children in his home state of New York and appointed a fellow New York resident as the trustee. So, at first blush, you’d think it was a New York trust.

However, in 1997, Rice’s daughter, Kimberley Rice Kaestner, moved to (my home state) of North Carolina. The new trustee subsequently divided the trust into three separate subtrusts, including the Kimberley Rice Kaestner 1992 Family Trust formed for the benefit of Kaestner and her three children. With Kaestner living in the Tarheel State and a beneficiary of the trust, North Carolina attempted to tax the trust under a law authorizing the State to tax any trust income that “is for the benefit of” a state resident. That law, found at N.C. Gen. Stat. Ann. §105–160.2, isn’t so far afield: Other states attempt variations on this same thing. In this case, the North Carolina courts have interpreted the law to mean that a trust owes income tax to North Carolina whenever the trust’s beneficiaries live in the state, even if those beneficiaries received no income from the trust in the relevant tax year, had no right to demand income from the trust in that year and could not count on ever receiving income from the trust.

Under the trust agreement, the trustee had “absolute discretion” to distribute the trust’s assets to the beneficiaries. Since distributions weren’t mandatory, the trustee did not make any distributions to Kaestner for the tax years 2005 through 2008. The trust was supposed to terminate when Kaestner turned 40, which was after the tax years in question. After consulting with Kaestner, the trustee rolled over the remaining assets into a new trust instead of distributing them outright. The North Carolina Department of Revenue then assessed a tax on the full proceeds that the Kaestner Trust accumulated for tax years 2005 through 2008—more than $1.3 million. The trustee paid the tax under protest and sued, arguing that the tax violated the Due Process Clause under the Fourteenth Amendment. The state courts agreed, finding that residency of the beneficiaries alone was too tenuous a link to support the tax on the trust’s undistributed income. 

The case headed to the Supreme Court by writ of certiorari, filed on October 9, 2018, from the North Carolina Department of Revenue. That means that North Carolina asked to be heard. The Supreme Court has what is called “original jurisdiction” over certain kinds of cases. Those cases, which are defined by statute (28 U.S.C. §1251) go straight to the Supreme Court; the typical case associated with original jurisdiction would be a dispute between the states.

However, most cases don’t have original jurisdiction. To be heard at the Supreme Court level without having original jurisdiction, the losing party (in this case, the North Carolina Department of Revenue) must file a petition seeking a review of the case. If the Supreme Court grants the request and decides to hear the matter, it’s called a writ of certiorari. That’s what happened in this case. The Supreme Court granted certiorari to determine whether the Due Process Clause prohibits states from taxing trusts based only on the in-state residency of trust beneficiaries.

The Due Process Clause is found in the Fourteenth Amendment and states, in part:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Justice Sotomayor delivered the opinion for the Court. The Court, she explained, normally applies a two-step analysis to decide if a state tax abides by the Due Process Clause:

  • There must be “some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax” and
  • The “income attributed to the State for tax purposes must be rationally related to ‘values connected with the taxing State.’”

If either of those concepts sounds familiar, you can thank Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992). In Quill, the Supreme Court specifically examined the differences between the “minimum contacts” nexus required by the Due Process Clause and the “substantial nexus” required by the Commerce Clause. Quill was overturned in part last year by South Dakota v. Wayfair, Inc., 585 U. S. ___ (2018), but there are some principles that remain. (You can read Quill here and find out more about how the Supreme Court “killed” Quill last year here.)

To determine whether a state has the requisite minimum connection, the Court looked to another test, this one from International Shoe Co. v. Washington, 326 U. S. 310 (1945). Under Shoe, a state has the power to impose a tax only when the taxed entity has “certain minimum contacts” with the state. In Shoe, the Court found that only those who derive benefits and protection from associating with a state should have obligations to the state.

The Court had previously ruled in Maguire v. Trefry, 253 U. S. 12, 16–17 (1920) that a tax on trust income distributed to an in-state resident passes muster under the Due Process Clause. The Court also ruled in Greenough v. Tax Assessors of Newport, 331 U. S. 486, 494 (1947) that a tax based on a trustee’s in-state residence is allowable. Ditto under Hanson v. Denckla, 357 U. S. 235, 251 (1958) and Curry v. McCanless, 307 U. S. 357, 370 (1939) for a tax based on the site of trust administration.

But the argument, in this case, is different. North Carolina was seeking to impose a tax based on one contact: the residence of the beneficiaries. Here, the only connection to North Carolina was the residency of the beneficiaries. The trustee kept the trust documents and records in New York, and the trust asset custodians were located in Massachusetts. The trust had no physical presence in North Carolina, made no direct investments in the State and held no real property there. Contacts between the beneficiary and the trustee were minimal: There were only two meetings between Kaestner and the trustee during the time period in question, both of which took place in New York. That wasn’t enough. The Court held “that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain ever to receive it.” 

But remember what I said earlier about other states having similar rules? The Court was clear to limit the holding to these specific facts. Justice Sotomayor wrote that “we do not imply approval or disapproval of trust taxes that are premised on the residence of beneficiaries whose relationship to trust assets differs from that of the beneficiaries here.” 

The Court went on to note that when assessing a state tax premised on residency, it’s important to examine the particular relationship (whether beneficiary, settlor or trustee) between the resident and the trust assets. Those relationships aren’t all created equal: The Court explained that the specific features of that relationship sufficient to sustain a tax may vary depending on whether the resident is a settlor, beneficiary or trustee.

In this case, the focus was on the residence of the beneficiary. Under existing law, the Constitution requires the resident to have some degree of “possession, control, or enjoyment of the trust property or a right to receive that property” before a state can tax the asset. That was not, the Court found, what happened here. Under the terms of the trust, the beneficiaries had no control over the investments or the distributions. The beneficiaries could not compel the trustee to release the funds, nor could they assign any of their rights under the trust to any other person. That wasn’t enough to demonstrate “possession, control or enjoyment” over the property.

So what exactly would constitute possession, control or enjoyment to the extent that the beneficiary could be taxed? The Court declined to answer, explaining, “we do not decide what degree of possession, control, or enjoyment would be sufficient to support taxation.”

North Carolina argued that a result that doesn’t focus on residency might result in forum-hopping or delay tactics to game the system, like putting off distributions until a beneficiary has moved to a low-tax state (I’m looking at you, Florida) to avoid the payment of tax. And there’s a lot of tax to be collected: The state claims that trust income nationally exceeded $120 billion in 2014. But the Court found that “mere speculation about negative consequences” cannot make up for the lack of minimum connection presently to justify the tax.

(If you’ve read down this far, you may be wondering why there wasn’t more about the discussion about the rational relationship test. Since the tax on the Kaestner Trust did not meet Quill’s first requirement, the Court did not address the second.)

With that, the Supreme Court affirmed the decision of the lower court ruling that the North Carolina tax violated the Due Process Clause of the Fourteenth Amendment. 

Justice Alito filed a concurring opinion, in which Chief Justice Roberts and Justice Gorsuch joined, wanting to make clear that the Court is merely applying existing precedent and the decision not to answer questions not presented by the facts of this case does not open for reconsideration any points resolved by prior decisions.

You can read all of the opinions here (downloads as a PDF).

It’s my annual Taxes from A to Z series! This time, it’s Tax Cuts and Jobs Act (TCJA) style. If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.

G is for Gross Estate.

The word estate sounds fancy, but it’s quite simple. It’s not just a word to describe a giant house on a hill but is a term for all of the property owned by a person at his or her death. (Okay, it’s simple and kind of grim.)

For federal tax purposes, gross estate includes all property you own at your death, including an interest in property. That includes the things you’d expect like bank accounts and stocks, but also things you might not expect like transfers made during your lifetime without adequate and full consideration (typically, another way of saying gifts). And while it seems logical that the feds would consider your real property inside the country as part of your gross estate, the term also includes your real property outside of the United States. 

Your gross estate also includes annuities, some community property, joint assets with right of survivorship, and property over which you possessed a general power of appointment at death (think of that as the right to control where property goes even if you don’t own the property). It also includes some life insurance proceeds, even if they are payable to beneficiaries other than the estate.

If, when you add all of the assets inside the gross estate of a U.S. citizen or resident, and the amount, plus the gift tax specific exemption and any adjustment for taxable gifts, is higher than the federal estate tax exemption, the executor of the estate must file a form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (downloads as a PDF)That’s generally true even if no tax is due (some exceptions apply to transfers between spouses).

The gift tax specific exemption refers to the amount allowed for gifts made by the decedent between September 9, 1976, and December 31, 1976. Any adjustment for taxable gifts refers to taxable gifts made after December 31, 1976.

So how much is the federal estate tax exemption? Under the TCJA, the exemption changed quite a bit. In 2017 – pre-TCJA – the federal estate tax exemption was $5,490,000 per person ($10,980,000 for a married couple). That increased to $11,180,000 per person ($22,360,000 for a married couple) in 2018 and $11,400,000 per person ($22,800,000 for a married couple) in 2019. The limits are adjusted each year for inflation. 

The federal estate tax exemption generally applies to citizens and residents, but nonresidents may have to file a return, too. An executor must file a form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return Estate of nonresident not a citizen of the United States (downloads as a PDF) if the amount of a nonresident decedent’s assets situated in the United States (such as real estate) plus the gift tax specific exemption and any adjustment for taxable gifts is more than $60,000.

If an executor is required to file a form 706, he or she must file and pay any tax due within nine months after the date of death. An automatic 6-month extension of time to file (but not to pay) is available if more time is needed; use form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes (downloads as a PDF).

For more Taxes From A To ZTM 2019, check out the rest of the series:

Within Dr. Gary Chapman’s world-renowned, best-selling book, The Five Love Languages: The Secret to Love that Lasts, disappointingly absent is any reference to the Internal Revenue Code. Surprisingly, only “Words of Affirmation”, “Quality Time”, “Receiving Gifts”, “Acts of Service”, and “Physical Touch” made the cut. Surely the 74,000+ page federal tax code (which literally begins with Section 1(a): “Married Individuals Filing Joint Returns…”) would garner more attention for a sixth love language of “Favorable Tax Treatment.”

To the outsider, love and taxes go together like chocolate and a gym membership. But even if the tax code is more likely to get your blood boiling than send your heart aflutter, there is no denying it has a lot to say about love and marriage. As we venture into wedding season, you may find yourself scrambling to find the words to write a toast for a dear friend or vows to your betrothed – what better place to begin your search than the Internal Revenue Code?

One of the greatest proclamations of love within the Code can be found in sections 2523 and 2056 which allows spouses to make unlimited gifts to each other during life and death, respectively, and generally without even a penny of gift tax imposed (the wife author of this article would like to draw the husband author’s attention to the former of these two sections – hint, hint). And, of course, love wins – as the 2015 landmark Supreme Court case of Obergefell v. Hodges had the effect of extending the benefits of these provisions to same-sex couples, as well.

Some provisions promulgated by the Internal Revenue Code, however, can ruin a taxpayer’s marital bliss faster than a vacuum cleaner with a bow around it. The “marriage penalty,” as it is affectionately known to tax professionals, lurks within the IRC attempting to sour an otherwise loving relationship. In general, particularly for couples who earn relatively equal income, the marriage penalty imposes more tax on married persons than what would have been imposed had the holy matrimony never taken place. Another instance of the tax code interfering with love can be found in Klaassen v. Commissioner, a case decided in 1998 by the U.S. Tax Court. Shortly before trial, Mrs. Klaassen gave birth to their 13th child. In a tax return filed in 1994, the Klaassens had claimed a total of 12 exemptions (one for each of them, and ten for each of the children born at that time) and argued that they should not be subject to the Alternative Minimum Tax (AMT) because, among other reasons, it resulted in adverse treatment to larger families. The Tax Court decided that too much “love” could, in fact, be a bad thing and held that the Klaassens were still subject to the AMT, in this case, a $1,085.43 love offering to the IRS.

Like any good romance novel or movie, however, love prevails. Neither the marriage penalty nor the AMT can stand in the way of true love. Love and marriage will shelter up to $10.98M in assets from Federal estate taxes in 2017. Love allows married couples filing jointly to only fill out a single tax return instead of two. Love will cause you to make a grand gesture to your spouse – not unlike standing outside of a window with a boombox overhead similar to John Cusack’s famous scene in the 1989 romantic comedy Say Anything – by ensuring that your joint tax return is properly filed on time. So be sure to think of the Code the next time you wrap your arms around your additional standard deduction.

Whether the IRC gives you visions of an eternity spent with the love of your life or a 55-hour union-turned-annulment a la Britney Spears, to all of the brides, grooms, and fiancés-to-be out there, we wish you a lifetime of happiness. And remember: Love is patient, love is kind – but the IRS still expects you and your honey to file by April 15 each year – unless you file a Form 4868 Extension.

More about the authors: Ashley L. Case and Darren T. Case are tax and estate planning attorneys at Tiffany & Bosco, P.A., in the State of Arizona.  They assist families and individuals in a broad range of planning techniques, including traditional wills and revocable trusts, along with more sophisticated estate, gift, GST, and income tax planning strategies.

To connect with Ashley via LinkedIn, click here.

To connect with Darren via LinkedIn, click here.

Prince Rogers Nelson (better known as Prince) made headlines recently when his sister filed documents claiming that the entertainer died without a will. As hard as that might be to believe, it’s not all that unusual. According to a 2015 Rocket Lawyer survey, 64% of Americans don’t have a will. Not surprisingly, the number is higher for younger Americans (70% those aged 45-54) than for older Americans (54% those aged 55-64 do not have a Will). Prince was 57.
Of those surveyed without a will, most (60%) indicated they simply haven’t gotten around to making one yet while just over a quarter (27%) don’t feel that it’s urgent. Why put it off? It’s depressing for one: folks don’t like to think about wills because it forces them to think about their own death. It’s also viewed as costly: people believe that lawyers are expensive and those same folks often underestimate the value of their assets, thinking that they don’t have much to distribute.
Typically, a will spells out who will serve as the executor as well as who will receive assets belonging to the decedent and under what terms. If you die without a will, you are considered intestate. Under intestacy laws, the distribution of your assets is pre-determined according to the degree of relationship. Not only can’t you choose your beneficiaries without a will, you can’t dictate the person you want to manage your affairs. You can’t plan to reduce or eliminate inheritance and/or estate taxes, or income taxes. Simply put: without a will, you typically have no control over your own assets at death.
It’s a lot to leave up to the law but a majority of Americans do just that – including celebrities. Here are 17 famous people who died without a will:

  1. Abraham Lincoln: one of the most famous lawyers of our time and the sixteenth president of the United States.
  2. Martin Luther King, Jr.: civil rights leader and activist.
  3. Jimi Hendrix: one of the greatest guitar players of all time.
  4. Pablo Picasso: famous artist.
  5. Howard Hughes: entrepreneur and billionaire
  6. Bob Marley: Jamaican singer/songwriter.
  7. Kurt Cobain: singer/songwriter and frontman for Nirvana.
  8. Tupac Shakur: rap artist and actor.
  9. Salvatore Phillip “Sonny” Bono: entertainer turned U.S. Congressman.
  10. Barry White: soulful entertainer.
  11. Stieg Larsson: famous author.
  12. James Brown: singer known as the Godfather of Soul. (Quick disclaimer: Brown did sign a will but it is subject to litigation.)
  13. Steve McNair: former NFL quarterback and Pro Bowler.
  14. Nate Dogg: rapper and actor.
  15. Amy Winehouse: British singer/songwriter.
  16. Prince: multi-talented artist.
  17. Michael Jackson: the King of Pop. (Quick disclaimer: Jackson’s mother initially filed paperwork – much like Prince’s sister – alleging that there was no will. A will was eventually discovered.)

 

Few people have a reputation for greed like Leona Helmsley. It appears, however, that executors for Helmsley’s estate are willing to give her a run for her money after submitting an “astronomical” bill for their services.

Leona Helmsley died in 2007, leaving the bulk of her multi-billion dollar fortune to a charitable trust after carving out a nice little chunk ($12 million) for her dog, Trouble; the latter amount was eventually reduced by a court after a challenge by the Helmsley family. Helmsley’s will also included $15 million for her (now deceased) brother, Alvin Rosenthal and $10 million each for two of her grandsons, David Panzirer and Walter Panzirer; two other grandchildren, Craig Panzirer and Meegan Panzirer Wesolko, were initially disinherited but later each received $3 million.

Estates can typically take a few years to settle but complicated or very large estates can take even longer. Years after Helmsley’s estate was opened, the executors submitted a bill for services rendered: an “astronomical” $100 million. The $100 million is the charge for services performed by David and Walter Panzirer (yes, the grandchildren who each inherited $10 million); Helmsley’s former lawyer, Sandor Frankel; and Helmsley’s former business advisor, John Codey. All totaled, the bill works out to more than $6,400 per hour or $250,000 per month, according to the office of New York Attorney General Eric Schneiderman. Schneiderman’s office is challenging the fees as “exorbitant, unreasonable and improper.” The Attorney General is demanding that the fees be reduced significantly.

The executors, who had previously been awarded more than $7 million in fees, claim that the $100 million bill is appropriate because of the “extraordinarily complex estate.” The executors also claim that they increased the value of the estate despite a challenging economy; the Attorney General says that the executors relied on work performed by others to achieve that result and can’t bill the estate for the outcome.

So, notwithstanding those objections, why can’t the executors just collect their fees and go along their merry way? Why does the Attorney General even have a say?

In New York, as in most states, the Attorney General acts as parens patriae in charitable matters. Parens patriae is Latin for “parent of the nation” and refers to the state’s authority to act for those who are not legally able to manage their own affairs. That extends to charities: the charitable arm of the Office of Attorney General is tasked with reviewing the accounts of estates which leave amounts to charity. When reviewing accounts, the Attorney General may challenge fees it finds excessive in order to maximize the amounts to be paid out to charity. This is especially true when a will doesn’t include a stated fee or, as with Helmsley’s will, the fee isn’t clear.

In this case, the objections mean that the matter will go to court. A judge will then rule on the appropriateness of the fees, which may include (as the Attorney General desires in this case) an independent review of the value of the services.

It feels fitting that Helmsley’s estate has been fraught with controversy. The image of the former hotelier and socialite, known as the “Queen of Mean,” was forever cemented in popular culture when, during her tax evasion trial, a former employee testified that Helmsley said:

We don’t pay taxes. Only the little people pay taxes.

The trial followed a lengthy investigation by the Internal Revenue Service (IRS) into the Helmsley’s finances. Leona was eventually convicted on 33 felony counts of fraud, including mail fraud, tax evasion and filing false tax returns. She served a total of 21 months at the Federal Correctional Institution in Danbury (the same facility that housed Lauryn Hill and Teresa Giudice). Upon her release, she was sentenced to community service – which, allegedly, her employees performed for her – adding to her reputation as selfish and out of touch.

Australian-born Bindi Irwin has danced her way into the hearts of American television audiences with her star turn on season 21 of ABC’s “Dancing With The Stars” (DWTS). Tonight, she’ll dance with pro Derek Hough alongside just five other couples (Alek Skarlatos & Lindsay Arnold; Alexa PenaVega & Mark Ballas; Carlos PenaVega & Witney Carson; Nick Carter & Sharna Burgess; and Tamar Braxton & Valentin Chmerkovskiy) on her way towards the coveted DWTS Mirror Ball. Despite making it this far – all the way through to week 8 without elimination – there’s no guarantee that Irwin will get paid.
The 17-year-old actress and conservationist signed on as a DWTS contestant this season and quickly became a fan favorite. Under the terms of her contract, she is assured a flat fee of $125,000 for participating with additional amounts each week, provided she survives elimination. That isn’t likely to happen anytime soon: Irwin’s performance on the show has netted perfect scores of 40 (a “10” from each of the four judges) twice in a row.
Getting paid, however, is turning out to be more complicated than learning the foxtrot. In most states, an unemancipated minor cannot sign a contract on his or her own; a parent must sign on behalf of the minor. In order to further protect minors who are in the entertainment industry, California adds another layer, requiring court approval for such contracts (in some cases, a portion of the money earned must be placed in trust for the benefit of the minor). To make it clear that earnings belong to the child, parents of a minor child can waive their right to any portion by simply signing a quitclaim.
That’s exactly what happened here. Irwin’s mother, Teri Irwin, signed the quitclaim. Irwin’s father, Steve “The Crocodile Hunter” Irwin, did not: he died in 2006 after being stung in the chest by a stingray while snorkeling at the Great Barrier Reef.
Without his signature, the court found that “Petitioner has failed to show that the minor’s father has irrevocably and perpetually released, relinquished and quitclaimed to the minor any interest he may have to the minor’s earnings under the contract.” That means that “the court is unable to find that it is in the best interest of the minor to be bound by the terms of the contract.”
This quirky consequence of the law will eventually get sorted out: mostly likely, Irwin’s attorneys will provide the court with a death certificate for her dad. In the meantime, however, it provides an interesting glimpse into the difficulties faced by minors – and parents – who have circumstances don’t fit neatly into a checkbox.
The need to protect kids from their own parents isn’t as obtuse as it might seem. We’ve all heard horror stories of child celebrities being taken advantage of; as recently as 2013, Aaron Carter, whose brother Nick is also dancing this season on DWTS, declared bankruptcy after a litany of legal and financial troubles drained his finances. Among the issues raised were allegations that Carter’s mother stole huge sums from his bank account. To try and prevent that kind of result, most states, including California, have laws in place to protect minors, including requirements that money earned (or inherited) by minors be placed in special trust funds or otherwise be accounted for until the minor is no longer a minor.
Since 1986, there’s also been a special federal law in place to govern the tax treatment of money paid out to minors. Interestingly, the so-called “kiddie tax” was instituted not so much to protect children from parents taking their money as the other way around: parents who attempted to lower their tax bills by shifting income to their children in order to take advantage of a lower tax bracket. In order to put a stop to that practice, the kiddie tax limits the amount of unearned income (think dividends and interest) that can be taxed at the child’s rate: for 2015, unearned income over $2,100 is taxed at the child’s parents’ tax rate. Earned income, meaning income made from wages, salary or self-employment, is generally taxed at the child’s rate.
(You can see the 2015 tax rates here and the 2016 tax rates here.)
The kiddie tax generally applies to children who are dependents. Children who are emancipated, meaning that they are still minors as a matter of age but have petitioned the court to be treated for legal purposes like an adult, have a different set of rules when it comes to court matters and taxes. In that case, for example, children who are emancipated whose earned income is more than half the cost of their support are not subject to the kiddie tax rules.
Laws are supposed to make life better for our children but sometimes, they just make it more confusing. As with quirks in contract and tax law, what might have made sense on paper can sometimes translate into the absurd in real life. If you can’t dance your way out of a tricky legal or tax situation, it’s best to consult a professional.
Remember all those times your grandmother begged you to come visit? Apparently, some grandchildren in Austria didn’t visit… Whatever the reason, an Austrian grandmother went to great lengths to keep her family from getting her money, going so far as shredding €950,000 ($1,020,490 U.S.) just before she died. Not content to stop there, she also cut up her savings accounts books. Reportedly, the shredded bits were found on her bed at the nursing home just before her death.
Why would she go to so much trouble? In Austria, as in many countries in Europe, it can be difficult to disinherit your relatives. Absent a will, your estate will pass to your spouse and your children (or grandchildren). With a will, you must still, by law, include provisions for certain “mandatory heirs” like spouses and lineal descendants. That means you might have to take matters into your own hands – in this case, your own hands and a pair of scissors.
That should have been the end of the story. Gone grandma, gone money.
But the country’s central bank didn’t see it that way. Friedrich Hammerschmidt, the deputy head of the country’s central bank’s cashier division, the Oesterreichische Nationalban, has said that the bank will replace the shredded funds in order to pay the heirs, saying, “If we didn’t pay out the money then we would be punishing the wrong people.” The replacement of the funds assumes that the heirs still have the shredded bits (you gotta think this is one time that they hope they’re weren’t as tidy as usual).
Would those disappointed heirs have experienced the same result in the United States? Probably not – for a lot of reasons.
In most states, you can absolutely disinherit your children. It’s easily done with a few words via your will (if you don’t have a will, you’re out of luck and they will inherit by statute). Interestingly, that wasn’t always the case. It used to be that if you failed to mention your children in your will, the court acted as though you had simply “forgotten” them and would correct your “mistake” by including your omitted children in your estate. That prompted President Calvin Coolidge, in 1926, to leave one of the shortest wills in history:

Not unmindful of my son John, I give all my estate, both real and personal, to my wife, Grace Coolidge, in fee simple.

Just 23 words. But it got the point across.
Today, while you can disinherit your kids via a will (even by omission), you can’t always do the same with your spouse. Considered against public policy, most states prevent you from disinheriting your spouse and instead designate a fraction of your estate (one-third is typical) as a share intended for your spouse. That share, sometimes called the “elective share,” can generally be claimed by a spouse against your estate (and against your nonprobate assets like life insurance and retirement plans) even when you have intentionally omitted him or her inside your will. There are typically just two ways to avoid paying your spouse at your death: prenuptial agreement or divorce.
Destroying your money shouldn’t be an option. In the United States, it’s a federal crime. Per 18 U.S. Code §333 you can’t destroy cash:

Whoever mutilates, cuts, defaces, disfigures, or perforates, or unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, or Federal Reserve bank, or the Federal Reserve System, with intent to render such bank bill, draft, note, or other evidence of debt unfit to be reissued, shall be fined under this title or imprisoned not more than six months, or both.

(Or coins per 18 U.S. Code §331.)
Of course, the punishment is debatable: it’s pretty hard to throw a deceased person in jail (though not impossible). But there are loads of easier ways to accomplish your wishes.
So lesson learned? In the U.S., to make sure that your property goes exactly where you want it, proper estate planning is super important: you can accomplish a lot with a well-written will. And oh yeah: call your grandma.