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Money September 2016

Dollar Sense

Taxes and Mortgage Scams: Stuff You Should Know to Protect Your Money and Other Assets

By Teresa Ambord

What if you don’t take your required minimum distribution? The penalty is harsh. It equals 50% of the amount you should’ve taken. So if your RMD was $10,000 you’ll owe a penalty of $5,000. Ouch!

Will You Turn Age 70½ in 2016? If So, Be Prepared!

If you have at least one retirement account (other than a Roth IRA), in the year you turn 70½ you’ll need to take a required minimum distribution (RMD). Anyone who turns 70½ during 2016 has until April 1, 2017, to take his or her first RMD, and must take at least one each year going forward. Generally the deadline is December 31, but in your first year only, you have ‘til the April deadline.

Be aware, if you do wait until April 1, 2017, to take your first RMD (which in this case is for 2016), you will need to take another one for 2017, by December 31, 2017. You can avoid taking two in one year by taking your very first one by December 31, 2016.

  • What if you don’t take your RMD? The penalty is harsh. It equals 50% of the amount you should’ve taken. So if your RMD was $10,000 you’ll owe a penalty of $5,000. Ouch!
  • How do you know what your RMD is? If you have a financial adviser, ask him or her to calculate it for you. Just don’t make the mistake of waiting too long to ask. Many people don’t think about it until a few weeks before the deadline. By that time, your adviser may be overrun with requests, and not be able to help you. You can also calculate the RMD yourself, by dividing the balance in the account by the appropriate life expectancy factor from the IRS.
  • Use your required RMD to make a charitable IRA rollover. If, because of your age, you must take an RMD, you can make direct contributions from your IRA of up to $100,000 to qualified charitable organizations, without owing any income tax on the distributions, according to the tax experts at Accounting Today.    

A direct charitable contribution using an IRA rollover satisfies your RMD. So if you don’t need the RMD to live, you fulfill the requirement, don’t trigger any tax liability, and take care of a charity you care about. While this charitable IRA rollover was temporary, in 2015 it was made permanent.

You can, of course, just go ahead and take your RMD and then donate the money to your charity. But that’s a bit more complicated and could have some unexpected tax repercussions. You’d have to recognize the RMD as income and deduct the charitable donation with other itemized deductions. But this way could also push you into a higher tax bracket and could even affect your Social Security and Medicare benefits. Also if your donation is too high, some of it could be rendered nondeductible for the current year. By making a charitable IRA rollover, you avoid those potential tax consequences.


Thieves, Trolls, and Scam Artists to Beware

Mortgage relief scams. Suppose you’re having a tough time paying your mortgage, and one day in the mail you get an offer of relief. The Federal Trade Commission (FTC) says, beware of empty promises. They’ve just filed charges against Brookstone Law and Advantis Law for defrauding people who were already in financial distress, making their troubles even worse. The FTC says these companies convinced people to pay $895 each, up front (plus recurring monthly fees in some cases) to join a mortgage fraud lawsuit targeting banks and lenders. The mailers said the lawsuit would help them avoid foreclosure, would eliminate their mortgages, or would deliver cash to them from their lenders.

Sounds good! Except… it’s illegal. The Mortgage Assistance Relief Services rule prohibits companies from collecting fees until and unless, a homeowner actually receives an offer of relief from his or her lender, and accepts it.

The lawsuits may have been real, but baseless, and were quickly dismissed by the courts. For some, the homeowners who paid the fees were not even added to the cases. While this case was against Brookstone Law and Advantis Law, mortgage relief scams can pop up anywhere, especially in areas that are heavily hit by a faltering economy.

The FTC says, if your mortgage is becoming unmanageable, forget mortgage relief plans and contact your lender directly. They have various plans that may help.


What Not to Do if You’re the Executor of an Estate

Don’t distribute assets until you’re certain there’s no taxes owed, or you could find yourself owing the taxes yourself.

Suppose you agree to serve as the executor of your elderly aunt’s estate. After she passes away, you discover her estate owed half a million dollars in tax. Can you be forced to pay that bill yourself? Under certain circumstances, yes.

Merely being the executor of an estate does not make you liable for the taxes of the deceased’s estate, assuming there is a tax bill. The key is, what you do with the assets. Take a look at what happened to this executor.

In the case of U.S. v. David Stiles, the Pennsylvania District Court found the executor (Stiles) knew the estate owed more than $2 million in taxes. Yet, he distributed the assets of the estate to himself and his siblings, without paying the taxes. Because he knowingly depleted the estate’s assets before paying the tax bill, the court deemed him personally liable to pay the taxes. (U.S. v. David Stiles, Pennsylvania District Court, December 12, 2014, 114 AFTR 2d 2014-6809.)

Don’t make the mistake Stiles made. If you are an executor of an estate which is substantial enough to owe federal estate or gift tax, tread carefully. According to estate experts at Thomson Reuters — a multinational information firm — when the estate’s assets are insufficient to pay the federal income tax and gift tax owed by the deceased, you as the executor could be held liable for the unpaid taxes, if:

  1. The estate has debts that are paid before paying the tax bill, or money in the estate is distributed to heir and beneficiaries before the tax bill is paid, and
  2. You as the executor or representative of the deceased knows that the remaining assets are not sufficient to pay the tax owed.

Being an executor may or may not be a complex process, depending on what’s in the estate. Whatever you do, don’t take the job lightly. Get the advice of a legal and/or financial professional.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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