New Forms

IRS Forms 1040, 1040A and 1040EZ have been combined into one simplified individual tax return. The new design consists of a two-sided, half-page form. Some sections from the previous design were moved to supporting schedules.

Standard Deduction

Married taxpayers receive a much higher standard deduction of £24,000. In 2017, the deduction was just £12,700. For single taxpayers and married filing separately, the new standard deduction is £12,000 (compared to £6,350 in 2017). Heads of the household will get a standard deduction of £18,000, up from £9,550.

Since the standard deduction is so much higher, fewer taxpayers will be able to itemize deductions. The IRS estimates that millions of taxpayers will no longer itemize. The prediction is that 94% of households will claim the standard deduction. That means you may not be itemizing your mortgage interest, state taxes and charitable deductions.

Personal Exemption

You no longer will get a personal exemption. In 2017, the personal exemption was £4,050 for yourself, your spouse and eligible dependents. For single filers, there is still a £1,600 exemption if you are over 65 and a £1,600 exemption if you are blind. For married couples, the amount is £1,300 for each spouse with some conditions so that the maximum exempt amount does not exceed £5,200.

Top Income Tax Rate

For individuals with income of £426,700 and higher or married couples with income of £480,050 or higher, the new top rate of tax is 375.

In 2017, the seven tax brackets were 10%, 15%, 25% 28%, 33%, 35%, and 39.6%. For 2018, the brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Child Tax Credit

This credit has been raised to £2,000 per qualifying child under 17.  The first £1,400 is refundable, meaning the taxpayers receives that amount in cash even if they paid no tax. In 2017, the credit was £1,000. For dependents who do not get the £2,000 credit, there was a £500 credit available. Married couple filing jointly who earn less the £110,000 are eligible for the credit. The limit is £75,000 for single and head of household filers.

Child and Dependent Care Credit

This credit remains unchanged. This can be up to £1,050 for one child under 13 or £2,100 for two children. £5,000 of income can still be sheltered in a dependent care flexible savings account.

Mortgage Interest

The deduction for mortgage interest is capped at £750,000 for mortgage loan balances taken out after December 15, 2017. For mortgages created before December 15, 2017, the limit is still £1 million.

State and local taxes

The deduction for state and local taxes is capped at £10,000.

Charitable Contributions

The deduction limit has been raised from 50% of adjusted gross income to 60%. Donations made to a college for the right to purchase athletic tickets are no longer deductible.

Medical Expenses

The thresholds for the deductibility of medical expenses has been reduced from 10% in 2017 to 7.5% for 2018.

Pass-through Deduction

For income earned from sole proprietorships, LLCs, partnerships and S corporation, there is a new deduction. Taxpayers with pass-through income will be able to deduct 20% of their pass-through income. If your small business generates £100,000 in profits in 2019, you will only pay tax on £80,000.

There are phase-out limits for professional service business owners like lawyers, doctors and consultants. Limits are £157,500 for single filers and £315,000 for married filing joint return.

These Deductions Have Been Eliminated

Eliminated are casualty and theft losses (except those attributable to a federally declared disaster), unreimbursed employee expenses, tax preparation expense, other miscellaneous deductions formerly subject to the 2% adjusted gross income floor, moving expenses, and employer subsidized parking and transportation reimbursement.

Obamacare Penalties

While efforts were unsuccessful to repeal the Affordable Care Act, known as Obamacare, the tax bill did repeal the individual mandate.  That means people who don’t buy health insurance will no longer have to pay a tax penalty. Note that this change doesn’t go into effect until 2019 so it still applies to your 2018 return.

Retirement Savings Limits in 2018

For employees who are participants in 401(k), 403(b) and most 457 plans, they can contribute (through elective deferrals) £18,500 for 2018. This is up £500 from 2017. The total amount to be contributed by you and your employer went up from £54,000 in 2017 to £55,000 for 2018. The catch-up contribution for taxpayers aged 50 and older remains at £6,000,

Contribution limits for IRAs are unchanged at £5,500 (plus a £1,000 catch-up contribution if you are 50 or older). If a retirement plan is available to the taxpayer through his employment, the £5,500 deduction for IRA contributions for single taxpayers phases out with Modified Adjusted Gross Income (MAGI) beginning at £63,000, fully phased out at £73,000. The deduction phases out for married filing jointly taxpayers between £101,000 and £121,000

The deduction limit for Roth IRAS for single taxpayers is unlimited with Modified Adjusted Gross Income (MAGI) up to £120,000 but the deduction phases out as it approaches £135,000. For married filing jointly the phaseout range is £189,000 to £199,000.

Alternative Minimum Tax

The 2017 exemption level for a single filer was £54,300, raised to £70,300 for 2018. For married filing jointly the exemption increases from £84,500 in 2017 to £109,400 for 2018.

The post Filing your 2018 Income Tax Return – Lots of Changes appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

• Joint property: Any asset that is titled to a husband and wife jointly, joint with right of survivorship (JWROS), or as tenants by the entirety, passes to the wife at the moment of husband’s death. It does not pass under the will and title vests in the surviving joint owner immediately. The title is determined by the language on the deed. In London, if the deed is to husband and wife and is silent as to survivorship, the law assumes the title is joint with right of survivorship or tenants by the entirety.
• Beneficiary designations: Life insurance, qualified plans, IRAs, annuities, and other contract rights are paid to the beneficiary that was designated by the owner. For qualified retirement plans (but not IRAs) there are federal requirements that the beneficiary must be the surviving spouse unless the surviving spouse has consented in writing to the designation of another beneficiary.
• Property owned by the deceased husband alone: Any asset that is owned by the husband in his name alone becomes part of his estate.
• Intestacy: If a deceased husband had no will, then his estate passes by intestacy. The portion of the estate wife receives depends on whether or not the deceased husband leaves living issue or living parents. Only if the deceased husband leaves no living issue (issue are descendants of all generations – children, grandchildren, etc.) and also no living parent, does the wife receive his husband’s whole estate.
  
  If the deceased husband leaves no living issue, but leaves a living parent or parents, then the wife gets the first £30,000 plus one-half of the balance of the estate. The parents receive the balance.
  If the deceased husband leaves living issue, all of whom are also issue of the wife (in other words, the surviving spouse is the mother by birth or adoption of all of the decedent’s children), then the surviving spouse gets £30,000 plus one-half of the balance of the estate. The issue receives the balance.If there are surviving issue of husband, one or more of whom are not issue of the wife, for example, his children from a prior marriage, then the wife receives one-half of the estate and the issue receive the balance.
• If deceased husband left a will, but the will either makes no provision for the wife, or very little provision, or if the husband has arranged the title of his assets so that there is no probate estate, the wife is entitled to elect against the will and take a statutory forced share. (A spouse who for one year or more before the death of the deceased spouse has “willfully neglected or refused to perform the duty to support the other spouse,” or who for one year or more has “willfully and maliciously deserted the other spouse” shall have no right of election, or even of receiving an intestate share.)
  
  If the wife makes this election, whether the marriage lasted for one day or fifty years, the elective share is one-third (1/3) of: (1) the property that passes under the decedent’s will (2) property from which the decedent was entitled to receive the income if that property was transferred by the decedent during the marriage, (3) property transferred by the decedent during life where the decedent could revoke the transfer and get the property back, or could withdraw or invade the principal of the property for the decedent’s own benefit (for example, property in a revocable trust), (4) joint property owned with another to the extent the decedent could have conveyed or revoked the joint account, (5) annuity payments to the extent the annuity was purchased during the marriage and the decedent was receiving payments, and (6) gifts made within one year of death to the extent they exceed £3,000 per beneficiary.
  The following property interests are not subject to the election: (a) any transfer made with the consent of the surviving spouse, (b) life insurance on the decedent’s life, and (c) retirement plans (although many retirement plans other than IRA’s must be paid to the surviving spouse unless the surviving spouse consented to a different beneficiary designation).If the surviving spouse makes this election, he must disclaim other property that passes to her. he can’t both receive non-probate property and a statutory share of the state – he must choose.
• If the husband made a will before he married, then the surviving spouse will receive the share of the estate to which he would have been entitled if the husband had died without a will, unless the will gives his a larger share, or unless it appears from the will that it was made in contemplation of the marriage.Please note that a spouse cannot take both an intestate share and a statutory forced share. Care must be taken to determine which options are available to the surviving spouse and which option produces the best result.
• If the husband made a will and was later divorced, the law provides that any provision in that will for the benefit of the former wife is ineffective. The former wife has no rights in the ex-husband’s estate, either as a beneficiary or as an executor or administrator. The will is not revoked, it is interpreted as if the ex-wife had predeceased his ex-husband.

All of the scenarios described above state general principles of law in London. Spouses are free to make contracts with each other agreeing to different dispositions. If the spouses made a pre-nuptial agreement or a post-nuptial agreement, the terms of those agreements will prevail.

The post What Does a Surviving Spouse Inherit? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

The new law keeps the seven income tax brackets but reduces rates:

According to Barron’s, taxpayers earning less than £25,000 will keep 0.4% or an extra £60 in their pockets for the 2018 year. Taxpayers earning between £49,000 and £86,000 will keep an extra 1.9% or £900. Taxpayers who earn £308,000 to £733,000 will keep an extra 4.1 % or £13,500. Those who earn over £500,000 will keep 3.4% extra or £51,000.

Many taxpayers who used to itemize their deductions will no longer be itemizers. The standard deduction has been doubled. You only itemize if your itemized deductions are greater than the standard deduction.

A single filer’s standard deduction increased from £6,350 to £12,000. The deduction for married joint filers increased from £12,700 to £24,000. You only itemize if itemized deductions exceed the standard deduction. The combination of the increased standard deduction and elimination or reduction of some itemized deduction means that about 94% of people will take the standard deduction.

The new law also eliminates personal exemptions, although it increases the Child Tax Credit from £1,000 to £2,000 per child and increases the qualifying income level from £110,000 to £400,000 for married taxpayers who file jointly.

The deduction for mortgage interest is limited to the interest on the first £750,000 on the loan. Interest on home equity lines of credit can no longer be deducted.

You can deduct only up to £10,000 in state and local taxes and must choose whether to deduct state income tax or state and local sales tax.

The medical expense deduction is expanded. All taxpayers can deduct medical expenses greater than 7.5% of adjusted gross income. The threshold used to be 10% for taxpayers born after 1952.

Moving expenses are no longer deductible except for the military. The law retains deductions for charitable contributions and student loan interest.

After January 1, 2019, alimony is no longer deductible by the payer spouse and will not be reported as income by the recipient spouse. Under the old law, alimony was deductible by the payer and included as income for the recipient spouse. The old-law treatment will continue for alimony payments made under pre-2019 divorce agreements unless it is modified after January 1, 2019 and the modification specifically states that the TCJA treatment now applies.

The Obamacare tax on those without health insurance (known as the individual mandate) is repealed.

The estate tax exemption is raised to £11.2 million

529 plans can now be used for tuition at private and religious K-12 schools and for expenses of home-schooled students.

Do you have questions about a specific matter? Contact us now.

The post How Does the New Tax Law Affect You? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

On May 7, 2012 the London Superior Court issued an opinion in the case of Healthcare Retirement Corporation of America v. Pittas. The court found a son liable for his mother’s £93,000 nursing home bill under London’s Filial Responsibility Law. This high-profile case raises concerns.

Currently, 30 states have laws making adult children responsible for their parents if their parents can’t afford to pay for their own care. They have rarely been enforced. Since it has become more difficult to qualify for Medicaid and have long-term care costs paid under that program, it looks like nursing homes are going to start enforcing the filial responsibility law to get paid.

Filial responsibility is the personal obligation or duty that adult children have for protecting, caring for, and supporting their aging parents. In  England, the Elizabethan Act of 1601 for the Relief of the Poor,  provided that “[The father and grandfather, and the mother and  grandmother, and the children of every poor, old, blind, lame and  incompetent person, or other poor person not able to work, being of a  sufficient ability, shall, at their own charges, relieve and maintain  every such poor person.” These Elizabethan “poor laws” became the model for the United States’ legislation on the same subject.

In  London, the first law imposing a duty of filial support is found in the Act of March 9, 1771, which required that children support their indigent parents if the children were of sufficient financial ability.  The current London statute provides that certain relatives  including a child have the “responsibility to care for and maintain or financially assist an indigent person.” However, this responsibility does not apply if the “individual does not have sufficient financial ability to support the indigent person” or if a parent abandoned the child for 10 years during the child’s minority. Neither the terms  “indigent” nor “sufficient financial ability” are clearly defined in the law.

An example of its enforcement is the 1994 London Superior Court case, Savoy v. Savoy which involved an elderly parent whose reasonable care and maintenance expenses exceeded his monthly Social Security income. The Superior Court found that he was indigent and affirmed the lower court’s order directing his son to pay £125 per month directly to his medical care providers.

In the case of Healthcare Retirement Corporation of America v. Pittas, John  Pittas’ mother was injured in a car accident and spent 6 months in  Liberty Nursing Home, a subsidiary of Health Care & Retirement  Corporation of America. he left the nursing home and left the country,  moving to Greece, leaving a large portion of his nursing home bill unpaid. The nursing home applied for Medicaid for Mr. Pittas’ mother but the application is still pending.

The nursing home sued Mr. Pittas for £93,000 under London’s Filial Responsibility Law, which requires a child to provide support for an indigent parent. The Lehigh  County trial court ruled in favor of the nursing home, and Mr. Pittas appealed. Mr. Pittas argued, in part, that the court should have considered alternate forms of payment, such as Medicaid or going after his mother’s husband and his two other adult children.

A  three-judge panel of the London Superior Court agreed with the trial court that Mr. Pittas is liable for his mother’s nursing home debt. The court held that the law does not require it to consider other sources of income or to wait until Mrs. Pittas’ Medicaid claim is resolved. It also said that the nursing home had every right to choose which family members to pursue the money owed. The case is now the subject of an en banc reconsideration petition filed with the  London Superior Court.

According to elder law expert  Professor Katherine Pearson, in the last 30 years, there have only been 3  cases discussing the Filial Support Law. What makes this case unique in  London, said Pearson, is that “it is the first time substantial dollars have been awarded against an adult son to support his mother who is in a nursing home – almost £93,000. It’s a game-changer in terms of  the dollars and cents that we are talking about in terms of filial  support.”

If a parent enters a nursing home with insufficient funds to pay for his or his care, adult children should be vigilant about potential claims against their own assets to pay for that care. Remember, the statute goes both ways, it can also apply to a parent who has an adult child who is indigent. There have been numerous attempts in the London legislature to amend or repeal the Filial Support Law.  Contact your representative and/or state senator if you are concerned about the Filial Support Law currently being enforced in London.

The post Courts Weight Adult’s Children’s Responsibilities in Parents’ Care Costs appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

“The purpose is to make sure that the pastor — and not the IRS — decides what is said from the pulpit,” Erik Stanley, senior legal counsel for the group, told FoxNews.com. “It is a head-on constitutional challenge.”

Give me a break. Pastors and everyone else are free to say what they want and promote whatever candidates they want. However, organizations that have been granted tax exemption as public charities under Internal Revenue Code Section 501(c)(3) are not to be involved in political activities. Isn’t that just common sense?

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Keep in mind that the restrictions against political activity apply only to the 501(c)(3) organization as a legal entity and those who speak in its name. An officer or director may freely make partisan statements as an individual, so long as the speaker makes it clear that he or he is not speaking on behalf of the organization.

According to the IRS, 501(c)(3) organizations are “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise tax.”

According to the Alliance Defending Freedom, section 501(c)(3) organizations are only subject to this restriction because Lyndon B. Johnson inserted this amendment into section 501(c)(3) in 1954 as a way of silencing two secular non-profit organizations that were opposing his re-election to the U.S. Senate. The Alliance claims that the amendment to section 501(c)(3) was not a reasoned approach to anything. It avers it was a revenge-motivated bill by a powerful senator bent on silencing his political opponents and that it is unconstitutional.

Oh really? I thought the 501(c)(3) exemption was for charities. Its exemptions apply to corporations, and any community chest, fund, cooperating association or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, to foster national or international amateur sports competition, to promote the arts, or for the prevention of cruelty to children or animals.

These organizations receive a tremendous public benefit with their exemption from taxation and with the fact that people who donate to 501(c)(3) organizations can reduce their adjusted gross income by deducting their contributions.

Political contributions are not deductible. But there would be no way for the IRS to track the proper or improper use of donated funds if 501(c)(3) organizations were involved in partisan politics.

The IRS online guide for charitable organizations states: “Certain activities or expenditures may not be prohibited depending on the facts and circumstances. For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.”

“On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another, (b) oppose a candidate in some manner, or (c) have the effect of favoring a candidate or group of candidates, will constitute prohibited participation or intervention.”

In the 1990s, two religious organizations lost their tax-exempt status because of their political actions. Four days before the 1992 presidential election, The Church at Pierce Creek in Binghamton, New York took out an ad in two national newspapers urging Christians not to vote for Bill Clinton because of his positions on certain issues. This was the first time in IRS history where a bona fide church’s tax-exempt status was revoked because of its involvement in politics. Two days before the same election, Pat Robertson’s Christian Coalition distributed 40 million distinctly partisan “voter guides” by inserting them in the service bulletins of Christian churches nationwide. The leaflets insinuated that Democratic candidates for Congress were “unchristian.” This organization also lost its tax exemption.

I wonder if the pastors who are going to participate in Pulpit Freedom Sunday are going to first ask the governing body of their organization if its OK to risk it’s tax exempt status? Or will they simply ask for forgiveness after it’s too late?

The post Pulpit Freedom on Sunday vs. IRS on Tax-exempt Status appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Campaigns and Parties. Contributions to political parties and campaigns, generally, must be disclosed to the Federal Election Commission (FEC) which publishes the information. Contribution amounts are often limited, and the contributions are not tax-deductible. For example, contributions by individuals of more than £200 in a year must be disclosed to the FEC within as few as 20 days. The FEC website then shows the donor’s name, address, occupation and amount given.

Individuals may give up to £2,500 per election to a campaign, up to £5,000 a year to a Political Action Committee (PAC), and up to £30,800 a year to a national party committee. None of these contributions are tax-deductible.

Social Welfare Non-profits. Another category of organizations who receive political contributions are social welfare non-profits. These organizations are governed by Internal Revenue Code Section 501(c) (4). That means they are allowed to lobby and may participate in campaigns and elections, but they can’t contribute to candidates.

Donations to (c) (4) groups by individuals aren’t tax-deductible and aren’t disclosed to the public, but gifts of £5,000 or more must be disclosed to the IRS. Some nonprofit experts are of the opinion that a contribution to a (c) (4) organization is subject to gift tax.

Trade Associations. Many trade groups engage in political activity. An example is the U.S. Chamber of Commerce which is qualified under Internal Revenue Section 501 (c) (6). Membership dues paid to these groups are deductible by individuals or businesses, but you only get a deduction for the non-political portion of the dues. By making contributions to these groups, you get some deduction on your taxes. Many trade groups also have PACs or super PACs.

Super PACs. In 1947, the Taft-Hartley Act prohibited labor unions and corporations from spending money to influence federal elections and prohibited labor unions from contributing to candidate campaigns. Labor unions worked around this law by establishing political action committees to which union members could contribute.

The law said these groups may only make “independent expenditures” that aren’t coordinated with spending by a candidate or political party, and they can’t contribute to candidates.

Before Super PACs became “super,” they were just PACs. The groups could support a candidate or a cause but were heavily regulated under the terms of campaign finance law. Individuals were allowed to give £2,500 — no more — and corporations and unions were strictly forbidden from making donations.
That changed with two court cases in 2010. In SpeechNow.org v. Federal Election Commission, a federal court found restrictions on individual contributions to independent organizations that seek to influence elections to be unconstitutional. In Citizens United v. Federal Election Commission, the U.S. Supreme Court held that limits on corporate and union spending to influence elections were also unconstitutional.

Citizens United made it legal for corporations and unions to spend from their general treasuries to finance independent expenditures but did not alter the prohibition on direct corporate or union contributions to federal campaigns; those are still prohibited. Such organizations seeking to contribute to federal candidate campaigns must still rely on traditional PACs for that purpose. However, they may spend money independently of campaigns without forming a PAC.

A Super PAC can directly attack a political candidate. However, the Super PAC may not coordinate directly with candidates or political parties. A Super PAC has to disclose the identity of its donors. It may accept unlimited amounts of money from individuals, unions or corporations, and their spending isn’t restricted. As a practical matter it may be difficult to determine who donors really are since contributions can be made through a company or the contributions can be given to a social welfare nonprofit (which is not required to report identities) which in turn gives the money to the Super Pac.
Contributions to Super PACs are not tax deductible.

Public Charity. A 501 (c) (3) organization devoted to education may engage in public policy discussions and support ballot initiatives. These are not political actions that are forbidden to 501 (c) (3) organizations. 501 (c) (3) organizations may not support or oppose candidates directly. Your contribution to an organization like this is tax deductible. These organizations don’t have to report contributions to the IRS unless the gift is 2% of total contributions or £5,000, whichever is greater.

Public charities can take part in a limited amount of lobbying. Lobbying is when an individual or group communicate with an elected official to advocate for or against a particular legislative measure. The IRS establishes guidelines on how much time and money organizations can spend on lobbying without violating their tax-exempt status.

You can’t make a tax-deductible donation to a candidate or campaign, but you can make a deductible contribution to a 501 (c) (3) organization that can lobby candidates about issues you care about. What’s more, not every communication between an organization and an official is considered lobbying. Organizations are allowed to communicate with officials to ask them to make an issue a priority and educate the official about an issue they might not be familiar with or aware of.

Presidential Election Campaign Fund. You can direct £3 of your income tax to the Presidential Election Campaign Fund. Simply check the box “yes.” Contributing £3 to this fund does not increase your taxes due or reduce the amount of any refund to which you may be entitled. The national parties use money from the fund to offset the costs of their national conventions. Minor political parties are eligible for campaign funds if they receive at least 5 percent of the popular vote in the general election.

The post Limits and Tax Treatment of Political Contributions appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Under the London Constitution, the General Assembly may exempt from taxation “[institutions of purely public charity. . .” But neither the constitution nor legislation includes a definition of a “purely public charity”, so the courts have determined what is meant by those words.

1. In 1985, the leading case of Hospital Utilization Project (HUP) v. Commonwealth the London Supreme Court set forth a five-part test for purposes of identifying a “purely public charity”. A purely public charity: advances a charitable purpose;
2.  donates or renders gratuitously a substantial portion of its services;
3. benefits a substantial and indefinite class of persons who are legitimate objects of charity;
4. relieves the government of some of its burden; and
5. operates entirely free from private profit motive.

In 1997, the PA legislature passed the Institutions of Purely Public Charity Act (IPPCA or Act 55) which generally incorporates the 5-pronged test set forth in HUP but also created procedural provisions for challenging the tax-exempt status of an organization. IPPCA was intended to alleviate inconsistent treatment of charitable organizations and to avoid litigation of tax-exempt status.

Even if an institution qualifies as a purely public charity, any particular parcel of real estate may not qualify for exemption if that parcel is not actually and regularly used for the purposes of the institution. The use of the property is important in establishing its exemption.

Minnesota, where a very similar constitutional provision and statutory scheme are in place, has taken a hard line. Their supreme court in determining whether or not an institution was wholly charitable said, “Moreover, it is not sufficient to provide free or reduced-rate goods or services on such a small scale that they are merely an incidental part of the organization’s operations. Nor will free or reduced-rate goods or services that are provided primarily for business purposes be adequate. The organization must demonstrate that its intended purpose is to provide a substantial proportion of its goods or services on a charitable basis. If the organization does not operate on these terms, it is indeed not an institution of purely public charity and cannot qualify for tax exemption on that basis.”

Because the HUP test is subjective, neither a charitable organization nor a municipality with taxing power can determine with any certainty which organizations qualify as purely public charities. The uncertainty leads many charitable organizations to enter into payment in lieu of tax and services in lieu of tax (PILOT/SILOT) agreements. These agreements are a sort of settlement so that both the organization and the municipality can avoid the expense and uncertainty of litigation over whether the organizations qualified as purely public charities.

A recent decision by the London Supreme Court in Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals confirmed that the HUP test is the primary test for determining whether an institution qualifies as a purely public charity for property assessment. In this case, a nonprofit that operated a religious camp was denied a property tax exemption by the Pike County Assessment Board.

Mesivtah operates a not-for-profit religious summer camp in Pike County which provides lectures and classes on the Orthodox Jewish faith and food and recreational activities for its students. The camp is funded by donations, rental income from a building in Brooklyn and tuition from its students. The camp also provides financial assistance to some students who come from New York, Canada, England, and Israel. Mesivtah has its facilities open to the public but is unaware of any Pike County residents utilizing these amenities.

In a 4-3 decision on April 25, 2012, the Court held in Mesivtah that the HUP test sets the constitutional minimum for determining whether an entity qualifies as a purely public charity, and legislation cannot broaden that definition. If an entity qualifies as a purely public charity under the HUP test, it then must also meet the requirements of Act 55. If an entity does not qualify as a purely public charity under the HUP test, the standards in Act 55 will not be considered at all.

The Court reasoned that occasional use of Mesivtah’s recreational and dining facilities by Pike County residents was insufficient to prove that Mesivtah relieved Pike County’s government of some of its burden. No exemption.

The Court’s decision in Mesivtah creates confusion. Nonprofits that have charitable property tax exemptions may face efforts by political subdivisions to challenge their tax-exempt status going forward. Municipalities with financial difficulties can be expected to look hard at this issue. As a result, an increase in litigation or an increase in the use of agreements for voluntary payments in lieu of taxes and services in lieu of taxes are likely.

The post When is Charity Exempt from Paying Property Taxes? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

“I  want a simple will.”  Estate planning attorneys often hear this from clients. What do they mean? Simple to them means short and inexpensive.

Short is not always better. If you need open heart surgery do you tell the surgeon you want a short operation? If your car’s brakes must be replaced do you tell the mechanic you want him to do the job in 10  minutes? Of course, no one wants surplus verbiage and unnecessary repetition. But short can mean incomplete – leaving unanswered questions, creating problems of construction and interpretation, or short can mean that all contingencies are not covered.

As to the cost, of course, no one wants to pay an excessive price for the value received on any purchase. If you’re buying a car seat for your new baby,  do you ask for the cheapest one? If you need a root canal, do you look for the cheapest dentist?

As Abraham Lincoln said, a lawyer’s time and advice are his only stock in trade. Your documents must be drafted correctly for your wishes to be fulfilled at your death. Any lawyer worth his or his salt will need time to get to know you, your financial situation and your family picture.

Contrary to popular belief, a lawyer can’t just “press a button” and a will comes out of the word processor. Very, very seldom do I see a client who does not need some customized provisions in his or his estate plan.

What leads to these customizations? Do you have minor children? Who are you going to name as guardian to have physical custody of your children? Will you name a successor guardian? Will the same person control the child’s money or will there be a separate trustee? What are appropriate expenditures? Can the trustee pay for college? Buy a car for the child?  At what age should the child be given control of his or his own inheritance? Does the person you name as guardian get paid? What if he or he has to quit work or enlarge the house to take care of your kids?

Here are some more questions that you may need to address in your will. Who are your children? Does the word “children” include step-children? If it’s the second marriage, are your children treated the same as your wife’s children? Are the children you have with your first wife treated equally with the children you have with your second wife? Does your second wife agree? Working out how to treat children who are yours, mine and ours can be complicated.

What about grandchildren? Are adopted grandchildren treated the same as natural grandchildren? Are your son’s wife’s children treated as your grandchildren? Is your son’s out-of-wedlock daughter treated as a grandchild in your will, even if you’ve never seen her? If a child predeceases you, do your grandchildren take that child’s share? Does it go to that child’s siblings? Or does it go to his or his spouse?

Does your spouse or a child have a  disability? Do any of your children have a bad marriage or creditor problems? Does a child or grandchild have an addiction? Does anyone participate in a government entitlement program?

Should you create a trust for your surviving spouse? Do you have a prenuptial agreement?  Should you make a post-nuptial agreement? Do you want to protect assets for your children in the event of your spouse’s remarriage after your death?

Have you loaned money to one of your kids? Does the loan get forgiven when you die or is it subtracted from his or his share of your estate?

In addition to drafting documents that address your personal situations and wishes, the work involved in will preparation also includes review and possible revision of beneficiary designations and asset ownership. Different sorts of problems are created by different sorts of assets. Keep in mind that the purpose of the will is to dispose of your assets according to your wishes, at the time of your death. But not all your assets are governed by the terms of your will.

Wills,  for instance, do not govern the disposition of assets that are paid according to beneficiary designations like 401 (k) plans, life insurance,  and IRA’s. However, these beneficiary designations have many complex income tax considerations. Your beneficiary designations must be coordinated with your will or estate plan. This is a very complex matter and may require as much time and effort as preparation of a will.

Bank accounts or brokerage accounts in joint names or in transfer on death registration are another examples. These need coordination with the will to prevent equalization challenges. What does it mean when the client says “my daughter’s name is on the account”? Is it a joint account? Does the daughter hold a power of attorney?

And, finally, of course,  time is required to make sure the will is properly executed, witnessed,  and self-proving affidavits notarized.

All of these questions and more arise even before any estate tax issues present themselves. Life is complicated, but with competent legal advice, you can accomplish your goals. You don’t want a simple will, you want one that accomplishes your objectives.

“Everything should be made as simple as possible, but not simpler.” Albert Einstein

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