Court Deems A Foundation A Foreign Trust - Greenlighting Penalties

Foreign assets are always tricky for U.S. tax reporting. A recent court decision also shows that differentiating a foundation from a trust is pivotal.

The levying of tax penalties stood in a recent federal appeals court decision on whether a private foundation was a foreign trust subject to such penalties.

In the Rost v. U.S., the U.S. Court of Appeals for the Fifth Circuit upheld tax penalties against U.S. citizen John Rebold, who failed to report his personal-use Liechtenstein “Stiftung” (a non-charitable private foundation) as a foreign trust.

The decedent Rebold formed the Enelre Foundation in 2005 for the general support and education of him and his children. He transferred $2 million to the foundation in 2005 and $1 million in 2007 and did not disclose the transactions to the IRS.

Rebold later learned that the IRS would consider his foundation a foreign trust with the associated reporting requirements. He filed the reports belatedly, in 2013, and the IRS assessed penalties.

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MITCHELL MILLER - Estate Planning Attorney In Los Angeles, CA
Here are some of the most significant changes in taxation for 2018 – 2025:

Individual Tax Changes

1. Individual tax rates have been reduced – maximum rate reduced to 37%

2. Miscellaneous itemized deductions – not deductible from 2018-2025!

a. Applies to total of all miscellaneous deductions

b. Includes home office, auto, and similar deductions

3. State and local tax deduction – $10,000 limitation

Some states have enacted (or are preparing to enact) laws that permit taxpayers to make a charitable contribution in lieu of taxes, hoping to get around the $10,000 limit on deducting state and local taxes.

In the case of individuals, the IRS has announced that it will issue regulations which disallow any such payments as charitable contributions. The $10,000 limit will certainly apply to such payments.

The IRS has issued rules that allow business entities that make such payments to deduct them as ordinary and necessary business expenses, but not as charitable contributions. The rule doesn’t spell out what happens to any remaining balance of tax payments made that exceed $10,000, but it appears likely that any such will not be deductible.

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Mitchell R Miller
If you own a family business, you are facing one of the most difficult issues in planning your estate. Not the tax issues — those are easy to handle by comparison, but the family dynamics surrounding to whom you are leaving your business.

Often, you — the founder — will have a very different view of the business than do your adult children — the future beneficiaries.

  • To you, the business may represent the heart of the family legacy; to your children, it may be unimportant, or even an outmoded and unwanted burden.
  • There may be some children involved in the business, and others not involved; how do you ensure that all are treated equally?
  • Suppose one or more of the children not involved in the business wants to become involved — or the child or children in wants out?
  • Maybe the time has come for the business to transition to professional or employee management — although you just cannot imagine giving up control.
  • Perhaps a sale to a competitor or even liquidation is the right move; how will you feel to see your life’s work on the auction block?

These are just a few of the situations that can cause difficulties in arriving at a plan which meets your family’s needs. You can see why the statistics show that only about 30% of family businesses survive through more than one generation, and only about 10-15% make it through the third generation.

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Mitchell Miller

Warren Kozak’s April 27, 2018, Wall Street Journal article titled “You Can Limit Death’s Financial Costs, if Not the Emotional Ones” features several excellent points – what the author describes as his own “real rookie mistakes that led to hours of extra work and substantial fees” and which inspired him to write the article to save other people from his mistakes.

Here is just one important issue from his article:

Issue One: When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise. [In California, the costs could be even higher — MM.]

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

These are just some of the seemingly “simple” money matters that can cause trouble and expense for your intended beneficiaries if estate planning and documentation is not done correctly.

Have questions on estate planning? Contact Mitchell R Miller.


Mitchell R. Miller - Estate And Trust Lawyer, Beverly Hills, CA

In spite of the IRS’s information campaign, many people still do not know that the IRS has mounted a huge enforcement effort in the international arena to get people to report foreign accounts and foreign income. And if you have foreign assets, you might be surprised that this enforcement effort could apply to you.

Specifically, the IRS has for all practical purposes eliminated bank secrecy for U.S. citizens and residents, forcing foreign banks to identify all their U.S. account holders. In many cases, foreign banks have simply kicked out all their U.S. depositors. And the penalties for not reporting foreign accounts, income and transactions grow larger every year.

In one recent case, a federal jury held that a man who had failed to report the existence of his foreign account or include the interest from the account in his income was liable for a penalty of 150% of the highest value of the account. That’s right — ONE AND A HALF TIMES THE ENTIRE VALUE OF THE ACCOUNT!

And that’s only the penalty. There’ll be tax, interest on the tax, and interest on the penalty to boot!

What types of foreign items are you required to report?

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Haik Chilingaryan - No Estate Plan Is The Same - Part 2

For all of our existence, one common misconception among the general public was that estate planning was only for rich people and “Trust Fund Babies”. However, this notion could not be further away from the truth, especially when considering the recent changes we have seen in family dynamics and financial opportunities.

The three major financial institutions of the United States consist of the banking industry, stock brokerage industry, and insurance industry. Under the Glass-Steagall Act, each major industry could not engage in activities that fell within the scope of the other two industries. In 1999, the Glass-Steagall Act was repealed and the door was left open for each major industry to conduct activities and transactions that fell within the scope of the other two industries. This in turn increased the probability for both unlimited prosperity and financial collapse.

The second part of this two-part article (View Part 1)analyzes financial planning from an estate planning standpoint. Financial planning is an essential component of estate planning. The amount of wealth you generate prior to retiring will generally determine whether you will have a comfortable retirement and have anything left over to pass on to your descendants after your death. When choosing a retirement plan, you ideally want some combination of the following tax efficient strategies: for the contributions to be tax deductible, the appreciation to be tax deferred, and the distributions to be tax-free.

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Haik Chilingaryan - Estate Planning- Families

For all of our existence, one common misconception among the general public was that estate planning was only for rich people and “Trust Fund Babies”. However, this notion could not be farther away from the truth, especially when considering the recent changes we have seen in family dynamics and financial opportunities.

Families have historically been composed of one male parent, one female parent, and a child (or children). While traditional families are still very much in existence, there are now compositions of family structures of virtually every imaginable scenario. This includes families with children raised by single mothers or single fathers, cohabiting couples with or without children, and people who neither have children nor domestic partners. By no means is this an exhaustive list. Therefore, the internal makeup of virtually every household is unique, which in turn requires carefully crafted planning techniques to be implemented for each individual family.

The first part of this two-part article analyzes planning considerations for families with young children, families with adult children, married couples, unmarried cohabiting couples, and people who neither have children nor cohabiting partners.

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Haik Chilingaryan, Estate Planning Tax Lawyer, Los Angeles, CA

What Is Estate Planning?

An estate plan includes trusts, wills, health care directives, financial directives, guardian designations, and living wills. However, proper estate planning does not merely include the delivery of these documents, but the process of identifying the objectives sought by our clients and putting in place the strategies that help them achieve their goals. Thus, estate planning primarily consists of the advice and guidance that you get from a professional who can be a steward in the preservation of your wealth.

In a nutshell, our firm takes the comprehensive approach to estate planning, which includes not only the methods in which a person’s assets are distributed upon death, but also the implementation of strategies that preserve the most amount of wealth during one’s life. It follows that the most amount of wealth that can be preserved during one’s life can increase the overall value of the estate, which the beneficiaries will receive upon one’s death. Our firm also uses the various tools available in the legal realm in order to protect the assets of our clients from creditors and predators.

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