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Saturday, December 28, 2019


Taxpayers who fail to file an FBAR to report a foreign account can escape penalty if they can show reasonable cause for the failure (if the failure to file was nonwillful). A recent district court case failed to allow for reasonable cause - click here for a condensed summary of the good and bad facts and the court’s conclusions. The case illustrates that the failure of a taxpayer to disclose the account on Schedule B of their Form 1040 is a big obstacle to a finding of reasonable cause.

U.S. v. AGRAWAL, 124 AFTR 2d 2019-6970 (DC WI 2019)

Saturday, December 21, 2019

Taxpayers with Conduit Trust Planning Should Consider Revising that Planning ASAP

Taxpayers often direct their IRA accounts to be paid into trust for beneficiaries at their death. This is often done to accomplish the usual benefits of trusts, including limiting beneficiary access to funds, protection of trust assets from creditors, and third party management over trust assets. If accomplished through properly drafted trusts, the trusts can allow for the payouts to be stretched out over the lifetime of the trust beneficiaries. Such stretching of distributions also stretches out the taxability of those distributions, thus allowing for substantial income tax deferral opportunities.

Qualifying a trust for maximum deferral involves meeting various regulatory requirements in the form of what is commonly referred to as an “accumulation trust.” As a safe harbor method of meeting some of these requirements, accumulation trusts often are drafted so as to qualify as “conduit trusts.” A conduit trust for these purposes requires the distribution to the beneficiaries of no less than the required minimum distributions received by the trust from the subject IRA account in the tax year of receipt. Such required distributions are not usually problematic since as a stretch IRA, the required minimum distributions in any given year are usually not that large.

Along now comes the Setting Every Up Community for Retirement Enhancement (SECURE) Act. Enacted into law on December 20, 2019 and effective January 1, 2020, one aspect of the Act is an end to stretching distributions over the lifetime of trust beneficiaries other than spouses (with some exceptions). Instead, such accounts must be paid out no later than 10 years after death of the account owner.

This may adversely impact taxpayers who have conduit trusts named as beneficiary of their IRA accounts. Commentators are noting that the distribution at the end of the 10 year term out of the IRA into the trust will likely constitute a required minimum distribution that must be paid out to the trust beneficiary pursuant to the conduit provisions. If this turns out to be correct, then the purpose of having a trust to receive the IRA payouts will be materially dominished or defeated, since all of the IRA balances will have to go into the trust, and then out to the beneficiary, within 10 years of the death of the account owner.

So taxpayers with conduit trusts built into their planning may want to consult with their planners to see if some adjustment in planning is called for, such as removing the conduit aspects from the trust so that the trust can continue for periods longer than the 10 year deferral period. Mixing these rules with the limited circumstances under the Act that may allow for deferral (e.g., as to spouses and minors) may also complicate the original planning and provisions. How any new regulations may impact these conclusions and planning remains to be seen.


On December 20, 2019, President Trump signed into law the Setting Every Up Community for Retirement Enhancement (SECURE) Act, which was incorporated into the Further Consolidated Appropriations Act.

The SECURE Act makes significant changes to the tax rules applicable to qualified retirement plans and IRAs. Key changes include deferring of the commencement of required minimum distributions until age 72, and requiring payouts after the death of an account holder to be completed within 10 years of death (with some exceptions).

The Act should cause taxpayers to revisit their planning for dispositions and distributions of their retirement and IRA accounts and plans.

I’ll be writing separately regarding the impact of the Act on conduit trusts shortly.

Sunday, December 08, 2019


For liability protection, the question regularly comes up who in the family should own the cars. Ask a number of lawyers and you are likely to get a number of different answers.

Note that there are generally two (or more) people who can be liable when a negligently driven vehicle injures another person or another person’s property. The driver is going to be responsible for their own negligence. This is the primary liability, and is unlimited. The owner of the car is also liable - but this liability is limited to $500,000. If the driver has their own property and bodily injury insurance coverage, then this cap is even lower. See Fla.Stats. §324.021(9).

As between spouses, my rule of thumb is that when the wealth differential or earning potential between the spouses is not too great, the principal driver of the car should own that vehicle. If one spouse owns the car and the other drives it and injures someone, then both of them are on the hook (albeit with the liability limits above as to the owner). If the driver owns the car, then only the driver has liability. Aside from the general desire not to have both spouses liable, joint liability also exposes joint assets of the spouses to claims of the injured party.

What if one spouse has most of the wealth in the family, or is the major source of income? Here, we still want the unwealthy spouse to own his or her own car, to keep liability away from the wealthier spouse. As to the wealthier spouse, since he or she will have unlimited liability as driver of his or her car, changing our general rule above to have the car owned by the less wealthy spouse yields no real benefits and exposes the less wealthy spouse to limited liability as owner. However, if the less wealthy spouse also drives the auto of the wealthier spouse from time to time, then perhaps it is worthwhile to put that vehicle in the name of the less wealthy spouse - then, if the less wealthy spouse runs over a brain surgeon who is crossing the street while driving her wealthier spouse’s car, all the liability is on the less wealthy spouse.

In almost no circumstances does it make sense, from a liability perspective, to have the automobiles owned jointly by the spouses. That guaranties joint liability to the spouses at least as to the limited liability obligations of the owner.

These are rules of thumb only - the particular facts may warrant a different conclusion. I’d be curious to hear from anyone who disagrees with the above rules of thumb - please contact me directly or through the comments below.

Of course, your automobile insurance policy with high liability coverage, and better yet an umbrella policy for extra liability insurance coverage, are the first lines of defense against these liability exposures.

Another general rule is to have any children own their own vehicles, to avoid parental liability as vehicle owner. However, this may have gift tax implications as to funding the purchase of the car, may increase premiums, and may make obtaining insurance more difficult. Note that for persons under age 18, the parent who signs their driver license application has full liability for the minor, although the full reach of that provision (Fla.Stats. §322.09) is uncertain. Therefore, some attention should be paid between which spouse signs that application - perhaps the less wealthy spouse should be the signatory, and if the child will not own the car, that spouse should also be the owner of the car.