Archives for July 2013

Clearing Up The Confusion: Tenancy by the Entirety

I recently heard from a couple, who were about to close on a new home. Their closing attorney recommended the home be titled tenancy by the entirety but they were not familiar with this term and contacted me for definition. During our conversation, they explained that their last house was titled joint with rights of survivorship.

Whenever possible I recommend this form of home ownership. Tenancy by the entirety (TBE) is only available to married couples. Not all states have this form of ownership, as was the case with your previous home. Also, TBE is not available in states, which recognize community property.

There are three types of ownership of property held by two or more persons: tenancy by the entirety (TBE), joint tenancy (JT), and tenancy in common (TIC). A tenancy by the entirety can only be created by a married couple. In the majority of states a married couple is presumed to take title to property as tenants by the entirety, which is what your closing attorney suggested to you. Also, in a few states, same-sex couples that reside in a state, which recognizes same-sex marriage, may hold property as TBE.

[Read more…]

Financial Planning for Same-Sex Married Couples

Author’s note: While this article is longer than I normally post, the material is very timely and needs to be presented in its entirety. It is scheduled to be published in the September 2013 issue of The Tax Adviser. For further discussion and information, you can contact me at

According to the 2010 U.S. Census, there are more than 130,000 married, same-sex couples in the United States. Presently, they have the right to marry in 13 states and the District of Columbia. Up to now planning for our clients in same-sex marriages has been a “belt and suspenders” approach.

We addressed their issues with “layers” of planning: revocable living trusts, limited liability companies, management trusts, grantor retained income trusts (GRITs), IRA trusts, and the like. Though these same-sex couples did not have the same benefits as traditional married couples, we were able to come reasonably close to those benefits with appropriate planning. This column will provide practitioners with an overview of the the impact of the recent decision by the Supreme Court striking down the Defense of Marriage Act (DOMA), P.L. 104-199; a preliminary checklist of areas to be addressed with same-sex clients; and a listing of additional resources.

[Read more…]

The Right Perspective of the S Election

There are many questions circulating regarding the S election for a corporation. I always welcome the opportunity to put into writing the financial planning issues, which an S election creates. I also want to address the down side, too. Let’s begin with what an S corporation is: an S corporation is a corporation treated for tax purposes, as a pass-through entity. In a pass-through entity all items of income and expense “pass through” to the shareholder: this is the genesis of the problems in planning with an S corporation.

I do want to acknowledge that from a planning perspective, S corporations do fit in a limited set of facts and circumstances:  the need for a corporate veil to provide asset protection and the “pass through” of losses to the shareholder’s form 1040. Frankly, in 20 years no one has said to me, “I really need some pass-through losses on my 1040.”

Distributions, also called pass-through income, from an S corporation have been under IRS scrutiny for several years. Why is this? S corporation pass-through income enjoys an employment tax advantage. This advantage was created in Revenue Ruling 59-221, which held that a shareholder’s undistributed share of S corporation income is not treated as self-employment income.

[Read more…]

Small Things Count!

Today, we are going to start with a word study. A little etymology always livens up a party. According to West’s Encyclopedia of American Law, “De minimis” is an abbreviated form of the Latin phrase maxim de minimis non curat lex, which means, “the law cares not for small things.” This is a legal doctrine by which a court refuses to consider trivial matters.

While De minimis fringe benefits are excluded from an employee´s income and wages, they are deductible by the employer. But the value of the de minimus benefit is not subject to withholding of income, FICA or FUTA taxes.

As you might expect, the IRS is hesitant to specifically classify an item as a de minimis fringe benefit. In the current economic environment, this classification is becoming increasingly relevant as employers think of new and interesting ways to keep employees happy without incurring the costs of raising salaries.

[Read more…]

A Critical Question — A Surprising Answer

A question that I’m often asked, particularly by other advisors, has to do with retirement income analysis. People want to know if I will recommend a financial planning program for this area that is unbiased, objective, and not product-driven.

Before I answer, I want to offer an observation on software used in financial planning. No software is a ‘be all and end all’ for financial planners. The software used in financial planning is not yet at the place where an advisor is able to input the data, push go, and have the results displayed.

[Read more…]