Tuesday, May 29, 2012

Tax incentives for Zombies

In light of the alleged LSD overdose/Hannibal Lecter/Miami Zombie attack, it is time to talk seriously about the undead.

As any good boy scout will tell you, the motto is "Be Prepared." After I read McCarthy's "The Road," I started thinking a little harder about the "what ifs."  While some people take this to a whole new level, millions are being spent on the fascination with the apocalypse, zombies, killing zombies, societal breakdowns, and just about any other scenario where you are going to need to run and hide and fight for your life.  

New to the subject? Here is a decent primer video on the basics of the zombie fascination.

If you haven't seen zombieland, do. It is well written, funny, and has Woody Harrelson at his finest. I also love the Resident Evil movies, but they are not necessarily for the casual fan.  I digress.

 Zombies have become the most sensationalized of scenarios for when society breaks down, lawlessness ensues, and it will be every-person-for-themselves in a post-apocalyptic wasteland. A dose of the supernatural never hurts, either.

This is not, however, a zombie blog, it is a legal and tax blog.

Enter Adam Chodorow , faculty at Arizona State University, and his recent article DEATH AND TAXES…AND ZOMBIES. If you have the time, read it. It is well written, thoughtful, and entertaining scholarship. He blends everything from The Walking Dead to the estate tax to Harry Potter, with a dose of Weekend at Bernies. The Bible and The Princess Bride even makes an appearance in the footnotes. The article discusses topics such as the definition of death, what qualifies, and how various taxes apply to, well, zombies and their variants. This is what all law review articles should strive to be.

One of my favorite passages:

"For instance, if someone who becomes a zombie is considered not dead (as opposed to undead) for estate and income tax purposes, neither the estate tax nor the basis reset would
be triggered. We would be in a situation similar to the one Congress negotiated as part of the Bush tax cuts, which relaxed the basis reset rules in conjunction with eliminating the estate tax.
Alternately, both the estate tax and basis reset could kick in only when a person’s zombie was dispatched. Were this the rule, people might have incentives to become zombies to delay the application of the estate tax."

Pure gold.

Kidding aside, my take away is that with ever changing definitions of life, death, function, and capacity, planning for the unexpected cannot be taken lightly. If you have a will that said "I leave everything to my family," that you wrote in 1984, does "family" mean the same thing to you now? Definitions change. Make sure you change with the times.

Just like planning for the apocalypse, every detail counts. If you have not made a plan, do it. If you have a plan, review it, and make sure it is up to date.

Remember rule #31, always check the back seat. Be careful out there.

Update: Zombies attacked colonial Williamsburg over the weekend. This is getting silly.

Thursday, May 17, 2012

The free lunch seminar scam

Let's face it: if we keep living, we are going to get old. Maybe you are already old. 

There is a growing class of predators who, instead of working and making money, look to those who have worked their whole lives and maybe saved a little up for their golden years. These people are some of the lowest of the low, and they really make me sick. And it happens every day. 

Enter the free lunch seminar. Targeting those of us who may be objectively classified as "old" and often held at your community's finest all-you-can-eat buffet, swindlers and con-men have been peddling unnecessary and often useless "products" for years. 

Companies now are claiming they are "estate planners" and "retirement specialists," and can prevent you from the costs of expensive lawyers, probate, medicaid recovery, etc.  They will try and sell you annuities. They might try and sell you life insurance or other insurance products. See a theme here? 

Much like the ongoing legalzoom travesty, I see many unnecessary "living trusts" sold at a lunch seminar or on a front porch. Next, the same people who paid these guys in order to not pay a high priced lawyer to have their affairs taken care of, pay a lawyer to fix this mess they bought into from the con-man. 

Here is the basic pitch: 

Either on your porch or at the seminar, the "salesman" tells you how you are going to lose all  your property because of future taxes, medical bills, or attorney's fees. To "save" you and have something to leave to your heirs, you need a living trust. They sell you a couple pieces of paper, that may or not be a trust, and convince you to transfer all your stuff (your house, cars, land, money, EVERYTHING) into that trust. They tell you it is safe, and you are protected. They might say "you have access to a lawyer for follow up." 

In a recent CLE lecture, the statistics that I do not have any basis for were, on average, 50% of these seminars openly distribute false information, and 13% openly perform fraudulent transactions. The same lecture told of the two-hour training that is all these "salesmen" have taken. Two key points:
1.     “treat them as if they are blind 12 year olds,” and 
2.      “scare them by telling them you can save their life savings from nursing homes and Medicaid seizures”

This is not how I want to be treated, or how anyone should be treated. Think of these the same as a telemarketer who is trying to sell you, well anything. Skeptical? You should be. Why are people not more skeptical of someone who buys them lunch?

People are taking notice, however. Several states have enacted legislation providing harsher penalties for taking advantage of the elderly. I'm not the first to write about this, and I won't be the last. 

The take away:

  • -Living Trusts are garbage for all but 5% of folks. You probably  don't need one, and it absolutely will not save you money.
    • -When placing assets in trust, to have any real benefits, it has to be irrevocable, meaning you DO NOT have control over it anymore. Is this what you really want?
    • -Placing your house in trust can cause gift tax consequences, and you can forfeit a step-up in basis that you would otherwise get upon your death if not executed properly. 
    • -Most do not help you qualify for medicaid and can disqualify you for VA benefits.
    • -Trusts pay much higher taxes than individuals. 
    • -If you have income producing assets, you likely don't want them in a trust. 
  • -Annuities are usually a bad bet. If you're 75, you have to live until you are 110 to see any benefit.
  • -There is no such thing as a free lunch. Be wary.