Estate Planning, Tax, and Probate Law

By James R. “Sonny” Chastain, Jr.

On June 21, 2018, the Louisiana First Circuit Court of Appeals addressed the right of publicity and right of privacy in connection with Barry Seal (“Seal”) and the movie titled “American Made”.  In 2014, Universal City Studios, LLC (“Universal”) entered an agreement to purchase the life story of Barry Seal from his surviving spouse and children of his third marriage (“Seal Defendants”). Thereafter, Seal’s daughter from his first marriage, Lisa Seal Frigon (“Frigon”), as the administratrix of the estate of Adler Berriman Seal, filed suit against Universal and the Seal defendants seeking to nullify the agreement and claiming violation of right of privacy, right of publicity and asserting other causes of action.  Frigon claimed the right to control the commercial appropriation of her father’s identify and public image.  In response, Universal and the Seal Defendants filed a peremptory exception of no cause of action seeking dismissal of the claims which was granted by the district court.

On appeal, the First Circuit affirmed the district court ruling concluding that the right of privacy protects the individual.  Seal’s right of privacy was held to be strictly personal, not heritable, and died with Seal.  Moreover, the Court found no right of publicity has been recognized under Louisiana state law.  The court cited Prudhomme v. Procter & Gamble Co., 800 F.Supp. 390 (E.D. La. 1992) in which a federal court noted the possibility of a civil action to enforce a right publicity being recognized in Louisiana. However, the First Circuit said it could not find where such recognition had occurred.  The Court noted that judicial decisions are not intended to be an authoritative source of law in Louisiana, but are secondary.  The Court concluded, “Hence, for us to hold jurisprudentially that a right of publicity exists would constitute an unwarranted intrusion into an area in which the legislature has not seen fit to act”.  It declined to supply a cause of action through jurisprudence that it concluded Louisiana law does not.

We will see if Frigon files for a rehearing or seeks review at the Louisiana Supreme Court.

By Carey J. Messina and Kevin C. Curry

Do you want to find out more information about the organization asking you for money?

The Internal Revenue Service has launched a new tool on that gives fast and easy access to information about exempt organizations.  The new tool is called the Tax Exempt Organization Search (“TEOS”).

You can now find the following information at TEOS:

  • TEOS provides images of an organization’s Forms 990, 990-EZ, 990-PF and 990-T filed with the IRS.  Initially, only 990 series forms filed in January and February 2018 will be available.  New filings will be added monthly.
  • TEOS is more friendly, which provides access to the search tool using smartphones or tablets.
  • Users can access favorable determination letters.  These are issued by the IRS when an organization applied for and met the requirements for tax-exempt status.  A limited number of determination letters will be available.  Eventually, determination letters issued since January 2014 will also be available.

You can determine whether an organization:

  • Is eligible to receive tax-deductible contributions.
  • Has had it tax-exempt status revoked because it failed to file required forms or notices for three consecutive years.
  • Has filed a Form 990-N annual electronic notice with the IRS; this applies to small organizations only.

Publicly available data from electronically-filed 990 Forms is still available through Amazon Web Services.

This can be a useful tool to determine whether or not your donation to an organization will be deductible for income tax purposes, and to some extent generally how an organization is using its contributions.

By Carey J. Messina and Kevin C. Curry

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “TCJA”). The TCJA enacts a number of important tax changes, including some significant changes to the federal gift tax and the federal estate tax that take effect in 2018. Specifically, the TCJA doubles the amount of the “applicable exclusion amount” for both gift tax and estate tax purposes (as well as the generation-skipping transfer tax exemption). Under prior law, the applicable exclusion amount in 2018 would have been $5,600,000 per person but it will now be approximately $11,200,000 per person. This increase in the applicable exclusion amount will serve to make the estate tax a “non-issue” for more individuals.

Any individuals who included formula bequests in their wills that were tied to the applicable exclusion amount should review the terms of their wills to make sure the increase in the applicable exclusion amount does not create unintended consequences (such as leaving too much money to trusts for children to the detriment of a surviving spouse). Also, the new applicable exclusion amount may allow spouses to structure their wills differently without estate tax consequences (such as simply leaving all property to a surviving spouse in full ownership rather than a usufruct or trust structure).

For those individuals who continue to have estate tax exposure after the TCJA, those individuals now have additional gift tax exemption and may consider making additional gifts to reduce their estate if they had otherwise used most of their applicable exclusion amount previously. The gift and estate tax changes by the TCJA will expire and revert back to the prior law on January 1, 2026 (unless extended in the future) so taxpayers with taxable estates may want to take advantage of the changes before the provisions expire or are changed by a later law.




On December 22, 2017, President Trump signed into law H.R.1, also known as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes the most significant and sweeping changes to the federal taxation of business and individuals in more than a generation.  Due to the unusual speed with which the TCJA went through the legislative process, the new law raises several technical issues and contains numerous drafting errors that are expected to be addressed in a 2018 technical corrections bill.

This blog post summarizes several of the TCJA’s most significant tax changes for businesses and individuals.  The Kean Miller Tax and Transactions Groups will post additional summaries of specific, identified provisions in the coming days.

Corporate Tax Changes

Reduced Corporate Tax Rate – The TCJA permanently reduces the corporate income tax rate from 35% to 21% for tax years starting in 2018.

Capital Expenditures – For the next five years (or, for certain property, six years) the TCJA allows corporations to fully expense the cost of “qualified property,” including tangible personal property and computer software.  This provision is phased out after five years and does not apply to property currently in use.  In addition, the TCJA alters the cost recovery period for certain real property and leasehold improvements.  The Section 179 expensing cap is increased from $500,000 to $1 million.

Dividends Received Deduction – The TCJA reduces the 80% dividends received deduction to 65% and the 70% dividends received deduction to 50% for tax years beginning after December 31, 2017.

Repeal of the Corporate AMT – The Corporate AMT is repealed for tax years beginning after 2017 and taxpayers can claim a refund for previously paid AMT amounts.

Net Operating Losses (“NOLs”) – The deduction for NOLs is limited to 80% of taxable income for losses arising in tax years after 2017.  NOLs generated in tax years ending after 2017 may be carried forward indefinitely, but the two-year carryback provisions are repealed (with certain exceptions).

Interest Expense Limitation –  For tax years beginning after December 31, 2017, the deduction for interest expense is limited to 30% of earnings before interest, taxes, depreciation and amortization through 2021 and of earnings before interest and taxes beginning in 2022.

Section 451 Revenue Recognition – Under the TCJA, and for tax years beginning after 2017, an accrual-method taxpayer is required to recognize income that is subject to the all-events test no later than the tax year in which the income is taken into account on the taxpayer’s financial statements (except for certain income).  The deferral method of accounting for advance payments for goods and services in Revenue Procedure 2004-34 is codified.

Research and Experimental Expenditures – Amounts paid or accrued for Research &Experimental expenditures after 2012 are capitalized and amortized over five years (15 years for certain foreign research expenditures).

Section 199 Domestic Production Deduction – The Section 199 deduction is repealed for tax years beginning after 2017.

Entertainment Expenses and Fringe Benefits – The 50% deduction for entertainment expenses is repealed, as are deductions for qualified transportation fringe benefits.  Deductions for other fringe benefits are also reduced or eliminated.

Like-Kind Exchanges – Under the TCJA, like-kind exchanges will be tax free, but only for real property exchanges.

Cash Accounting Limit Raised – More businesses will be able to use cash accounting as the upper limit in average annual gross receipts (measured as of the prior three years) has been raised from $5 million to $25 million.

Self-Created Property – The TCJA amends Section 1221(a)(3) and excludes patents, inventions, models or designs (whether or not patented), and secret formulas or processes that are held by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property, from the definition of a capital asset.  This provision is effective for dispositions after December 31, 2017.

Affordable Care Act – While the TCJA reduced the Affordable Care Act (the “ACA”) individual penalty to zero for months beginning after December 31, 2018, the ACA’s employer mandate rules have not been repealed and remain in full effect.

International Tax Changes

The TCJA’s most significant changes are to the US international tax regime.  Those changes include implementing a quasi-territorial tax system, imposing a one-time transition tax on accumulated foreign earnings, and imposing anti-deferral and anti-base erosion rules.

Pass-Through Deduction

The TCJA creates new Section 199A, which permits an individual to deduct up to 20% of their “qualified business income” earned through a partnership, S corporation or sole proprietorship, and qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income.  This deduction expires on December 31, 2025.

Qualified businesses includes partnerships; S corporations; sole proprietorships; REITs; cooperative and master limited partnerships.  However, specified service trades or businesses with income over $315,000 of taxable income for joint filers or $157,500 for other filers (with the deduction phased out over the next $50,000/$100,000 of taxable income) are excluded, including:

  • Any trade or business in the fields of accounting, health, law, consulting, athletics, financial services, brokerage services; or
  • Any business where the principal asset of the business is the reputation or skill of one or more of its employees

Qualified business income includes the net amount of qualified items of income, gain, deduction, and loss of a qualified trade or business that is effectively connected with the conduct of a US trade or business.  Certain specified investment-related income, deductions, or losses, and an S corporation shareholder’s reasonable compensation, guaranteed payments, or—to the extent provided in regulations—payments to a partner who is acting in a capacity other than his or her capacity as a partner are excluded from the definition of qualified business income.

Qualified business income deduction is limited to the greatest of 50% of wages paid by the business to its employees or 25% of wages paid plus 2.5% of the cost (unadjusted basis) of certain qualified business property.  Taxpayers with less than $315,000 of taxable income (joint return) or $157,500 (other filers) are not subject to this limitation (the wage limitation is phased in over the next $50,000/$100,000 of taxable income).

Individual Income Tax Changes

The TCJA reduces individual tax rates for taxable years beginning January 1, 2018 and ending December 31, 2025.  The top marginal tax rate is reduced from 39.6% to 37% and bracket widths are modified.  The new tax brackets are summarized below:

Single Individuals:

  • 10% – $0-$9,525
  • 12% – $9,525-$38,700
  • 22% – $38,700-$82,500
  • 24% – $82,500-$157,500
  • 32% – $157,500-$200,000
  • 35% – $200,000-$500,000
  • 37% – $500,000+

Married Filing Jointly and Surviving Spouses:

  • 10% – $0-$19,050
  • 12% – $19,050-$77,400
  • 22% – $77,400-$165,000
  • 24% – $165,000-$315,000
  • 32% – $315,000-$400,000
  • 35% – $400,000-$600,000
  • 37% – $600,000+

In addition to temporarily reducing the individual income tax rates and modifying the bracket widths, the TCJA also increased the standard deduction for married individuals filing jointly from $12,000 to $24,000 and for single filers from $6,350 to $12,700.  The TCJA also imposes significant limits on certain itemized deductions and eliminates several other deductions.  Notably, the TCJA limits the state tax deduction to $10,000, limits the mortgage interest deduction to the first $750,000 in principal value, and eliminates the home equity debt deduction and the personal exemption.  The limitation on itemized deductions, which phased out 3% of a taxpayer’s itemized deductions once income exceeded a threshold, is also suspended through 2025.  The Alternative Minimum Tax (“AMT”) is retained but the exemption is increased.

The Affordable Care Act required individuals not covered by a health plan that provided minimum essential coverage to pay a penalty with their federal tax return, unless an exception applied.  The TCJA permanently reduces that penalty to zero for months beginning after Dec. 31, 2018.

The legislation also permits distributions from retirement plans for persons who suffered losses as a result of the 2016 severe storms and flooding in Louisiana without penalty (but subject to tax, which may be spread over 3 years).  The distributions must be made before January 1, 2018.  Retirement plans may be amended to permit such distributions, and the amendment must be made by the last day of the first plan year beginning on or after January 1, 2018.  Also, distributees are permitted to repay such distributions within 3 years and treat them as rollovers.  This is an extension of the IRS guidance issued in 2016.


The TCJA is a significant and substantive, yet flawed revision to the US federal income tax regime.  The business tax consequences of the TCJA are only beginning to come into focus, but it is clear that most businesses should consider whether restructuring would make sense to maximize the tax benefits available under the TCJA.  In addition, certain provisions of the TCJA, such as the limitation on the interest expense deduction, could negatively impact certain businesses.  Those businesses should consider whether it is possible to restructure operations or financing to avoid or minimize the tax impact of the TCJA’s limitations on interest expense deductions.  For example, a highly-leveraged business could consider exploring alternative financing arrangements that do not generate interest expense.  Owners of flow-through entities that are not eligible for the 20% qualified business income deduction should also consider restructuring their operations in a manner that allows them to claim all or a portion of the deduction.

The TCJA will also have substantial state and local tax implications.  It is not clear at this time whether or to what extent states will conform to the provisions created by the TCJA.  But states like Louisiana that use federal taxable income as a starting point for computing state taxable income will certainly be impacted by the TCJA.

Kean Miller’s Tax and Transactions Group will continue to post updates as the implications of the TCJA for business and individual taxpayers become clearer.  For additional information, please contact:  Jaye Calhoun, Willie Kolarik, Jason Brown, Kevin Curry, Linda Clark, Bob Schmidt, and David Hamm.


By Kyle McInnis and Kevin Curry

On August 2, 2016, the Treasury Department issued new proposed tax regulations that would substantially eliminate many of the valuation discounts used for transfer tax purposes by family-owned businesses.  The regulations disregard restrictions on the redemption and liquidation of a family-owned business for valuation purposes.  In effect, this would mean that the value of an ownership interest in a family-owned company would be valued as if the recipient could immediately cause a liquidation of the company and receive their proportionate share of the proceeds.

The new regulations provide that agreements (and even state laws) that restrict the ability of an owner of a family-owned business to force a liquidation of the business will be ignored for purposes of valuing an ownership interest.  Provisions of a company governance document, such as an Operating Agreement, or state law restricting the ability of an owner to force liquidation would be disregarded under such a valuation approach if the family members are able to change or remove the restriction.  Other disregarded restrictions will include any restriction on the timing of payments in liquidation beyond six months or any limitations on the value an owner would receive in liquidation.

These proposed regulations could severely limit the application of valuation discounts for lack of marketability or lack of control for transfers of closely-held business ownership interests between family members.  This type of discount planning is often used to great success in estate planning.  The proposed regulations, if adopted as final regulations as presently proposed, will present significant challenges to this type of planning in the future.

The regulations do not become effective immediately but will be effective for transfers of property that occur on or after the date the final regulations are adopted and published in the Federal Registry.  The Treasury Department will receive comments from the public and hold a public hearing on the proposed rules December 1st in Washington.  There is a minimum thirty day waiting period after that before the regulations can be adopted as final regulations.  Thus, taxpayers have at least until the end of the year to continue to use discount planning techniques.  If (or more likely when) the final regulations are adopted, a significant estate planning tool may be effectively eliminated so individuals and families with family businesses or significant wealth should consider transferring property prior to the end of 2016 or else risk losing the benefit of this type of discount planning to reduce their estate tax liability.




By Kyle C. McInnis

The recent downturn in energy prices has given consumers a welcomed break at the gasoline pump. The people producing the energy, however, from landowners, to oil companies, to oil field service providers, have felt the full negative effects of the steep price decline. Those producers are seeing price pressure at every turn, reducing their net incomes and eroding their enterprise valuations. Things aren’t always as bad as they seem though. Today’s mix of low energy prices, low interest rates, and the recent rise in the federal estate tax rate make estate freeze transactions particularly attractive to those people in the oil and gas industry.

While this significant price drop is painful for those in the oil and gas industry, it presents a significant estate planning opportunity. For people lucky enough to be concerned about federal estate taxes (those with a net worth in excess of $5.45 million dollars individually or $10.9 million for a married couple) the 40% tax rate presents a significant threat to their family wealth. Therefore, these taxpayers try to minimize the value of their taxable estate, thereby minimizing their exposure to the federal estate tax. Taxpayers often use discount entities and other tax strategies to reduce the taxable value of their estates.

The recent energy price dip, however, has done much of the work of minimizing asset values already. The taxpayer’s current goal is freezing the current low values of their oil and gas assets in anticipation of a recovery in energy prices later. Several estate planning strategies can effectively freeze the current value of assets in a taxpayer’s estate. When energy prices eventually recover, the value of the taxpayer’s taxable estate is frozen at today’s values, being a function of today’s lower prices. The value of the assets grows with the subsequent increase in energy prices, but outside of the taxpayer’s taxable estate.

An example will illustrate the point. Assume Martin, a single man, has oil and gas holdings currently worth $10 million when the price of crude is $30 a barrel. Martin engages in an estate freeze transaction at current prices. Two years later, Martin dies. At that time, oil prices are at $60 a barrel and Martin’s former holdings are worth $20 million. The $10 million increase in value from the price jump is excluded from Martin’s taxable estate because Martin engaged in an estate freeze transaction when oil was at $30 a barrel. For federal estate tax purposes, Martin only has his $10 million frozen estate. The freeze transaction has avoided inclusion of the additional $10 million in Martin’s taxable estate and saved Martin’s estate $4 million in additional federal estate taxes!

Freeze transactions take a variety of forms. They include grantor retained annuity trusts or unitrusts in which the taxpayer transfers assets to a trust in return for a stream of payments that the trust promises to pay the taxpayer over time. Some taxpayers prefer a sale to a special type of trust called an “intentionally defective grantor trust.” Certain of these transactions allow for a freeze in estate tax values, but still allow the taxpayer to share in the appreciation of the sold asset through variable repayments that can increase as the value of the assets sold increase.

These transactions work best when interest rates are low. Historically, we are still in a low interest rate environment, a further incentive to consider a freeze transaction.

The attractiveness of these transactions won’t last forever. Oil prices will eventually recovery. Additionally, interest rates were hiked by the Federal Reserve last year and are forecasted to rise again in the near future.

For those in the oil and gas industry, today is a challenging business environment. But, this environment presents an exceptionally good opportunity to implement an effective estate planning strategy to save future federal estate tax liabilities.

Kyle McInnis is a partner in the Shreveport office of Kean Miller and practices in the estate planning, tax, and business and corporate practice groups. He represents business clients in entity formations, corporate acquisitions and dispositions, and all matters pertaining to closely held businesses. He represents individuals and families in all aspects of the estate planning process, including devising and implementing transfer tax minimization strategies. Kyle is a Tax Law Specialist and an Estate Planning and Administration Specialist certified under the Louisiana Board of Legal Specialization. He was named the Best Lawyers’ 2013 and 2015 Shreveport Trusts and Estates “Lawyer of the Year” and the 2016 Shreveport Tax “Lawyer of the Year.”



By Kevin C. Curry

On July 31, 2015, President Obama signed into law the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (the Act).  The Act was primarily designed as a temporary extension of the Highway Trust Fund and related issues.  However, the Act also includes a number of important tax provisions, some of which are outlined below.

New Due Dates for Certain Income Tax Returns.

The Act changes the due dates for both partnership and C corporation income tax returns.  Effective generally for returns for tax years beginning after December 31, 2015, partnerships will have to file their returns by the 15th day of the third month after the end of the tax year.  Thus, a calendar year partnership will have to file its return by March 15th of the following year.  This due date is the same as the due date for S corporations.  Both organizations are “flow through” entities and the earlier due date will assist individuals having to file their returns timely.  The prior due date for partnerships was the same due date as individuals which often created the difficulties in filing individual returns timely.

C corporations will have to file their returns by the 15th day of the fourth month after the end of the tax year.  The former deadline was the 15th day of the third month so this amounts to an extension of one month for C corporation returns.

New Extension Periods for Certain Income Tax Returns.

The new law also revises the extended due dates for many returns that will be effective for returns for tax years beginning after December 31, 2015.  The Act directs the IRS to modify it regulations to provide that the maximum extension for the following returns will be as follows:

  • Partnerships (Form 1065) – 6 month period ending on September 15th for calendar year taxpayers.
  • Trusts (Form 1041) – 5½ month period ending on September 30th for calendar year taxpayers.
  • Exempt organizations filing Form 990 – 6 month period ending on November 15th for calendar year filers.

The Act also included a number of other revised extension dates for other less common types of returns.

New Basis Consistency and Reporting Rules.

The Act requires consistent basis reporting for transfer tax and income tax purposes requiring a taxpayer to use the value as finally reported on a federal estate tax return for income tax basis purposes.  The Act implements a new information reporting requirement for inherited property requiring the executor of an estate required to file a federal estate tax return to submit an information return as prescribed by the IRS.  This is effective for any estate tax return filed after July 31, 2015.  While only required for estates that are required to file federal estate tax returns, the Secretary is given the authority to prescribe regulations to apply a similar rule to property where no estate tax return is required to be filed.  Therefore, it appears that the intent of the Act is to implement an information reporting system to connect that transfer tax system to the income tax system for purposes of basis reporting.

The Act also overrules a Supreme Court case that had held the overstatement of one’s basis was not an omission of gross income for purposes of a 6 year statute of limitations for the IRS to assess a deficiency.  The Act provides that the overstatement of basis will be an omission of gross income that could trigger the 6 year statute of limitations as opposed to the general 3 year statute of limitations.  This change is effective for returns filed after July 31, 2015 and for returns filed on or before that date if the assessment period under the prior law had not yet expired as of July 31, 2015.


Dogs and Cats

By Mark D. Mese and Carey J. Messina

The Louisiana Legislature added a new chapter to our Trust Code in 2015 entitled:  “Trust for the Care and Benefit of an Animal” (click here).  The statute is new and is modeled on similar provisions in the Uniform Trust Code and the Uniform Probate Code.

Under the new law, a person may designate a caregiver to one or more animals, and a trustee of the trust for an animal or animals.  The statute also allows for reasonable compensation to be provided for the trustee and for the animal caregiver.

If a court determines that the amount of property held by the trust substantially exceeds the needs of the animals covered by the trust, a court may reduce the amount of property held by the trust and allow the property to be distributed to the designated person or entity named as beneficiary.

The trust terminates with the death of the last animal covered by the trust.  Upon termination of the trust, the remaining property is distributed to a designated person or entity named as beneficiary.

Act No 219 (2015)


The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law on December 17, 2010, and included a key provision – providing for “portability” between spouses of the unified credit. On January 2, 2013, the American Tax Relief Act of 2012 (“ATRA”), was signed into law, including a provision making portability a permanent feature.

Generally, portability allows a surviving spouse to elect to take advantage of any unused portion of the unified credit of his or her predeceased spouse, provided that the deceased spouse died on or after January 1, 2011. Thus, a surviving spouse will be provided a larger exclusion amount to be used for his or her own gift or estate tax purposes. The portable amount that can be used by a surviving spouse is referred to as the “deceased spousal unused exclusion amount” (“DSUE amount”).

Historically, the applicable exclusion amount, or the maximum dollar amount the unified credit will allow to be transferred tax free at a decedent’s death are as follows: $5,000,000 in 2011; $5,120,000 in 2012; and $5,250,000 in 2013.

Assume for example that Jack and Jill are married. In 2011, Jack makes multiple taxable gifts in an amount equaling $3,000,000. In 2013, Jack dies having no taxable estate and is survived by Jill. Jack is considered to have used only $3,000,000 of the $5,250,000 exclusion available in 2013. Thus, Jack has $2,250,000 remaining. A timely filed estate tax return with a portability election will allow Jill to use not only her entire $5,250,000, but also the remaining $2,250,000 from Jack. Thus, Jill will be able to transfer up to $7,500,000 tax free.

One caveat of portability is that in order for a surviving spouse to use the predeceased spouse’s DSUE amount, the executor or representative of the predeceased spouse’s estate must file a federal estate tax return and affirmatively elect portability. Although estate tax returns are not required to be filed unless a decedent’s gross estate exceeds the basic exclusion amount, for decedents dying on or after January 1, 2011, an estate tax return must be timely filed, even if no estate tax is due, in order to affirmatively elect portability.

Estate tax returns generally are required to be filed within nine months after the date of a decedent’s death, unless an executor claims the available six-month extension. An estate tax return filed solely for the election of portability must meet the same filing deadline. However, there is good news for executors of the estate of decedents dying in 2011, 2012, or 2013, who were not required to file an estate tax return and who in fact did not file an estate tax return – portability may still be elected even if the deadline for filing the estate tax return has passed.

In order to file an estate tax return electing portability, an executor can file the otherwise late return with a notation at the top which provides: “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” The deadline for filing an otherwise late return filed in this manner is December 31, 2014.


By Kyle C. McInnis

New parents have to make a number of adjustments to their lives. From dealing with diaper rash to sleep deprivation, they have a lot to deal with. But parenting duties are not limited to physical care of a child. There are numerous financial parenting tips that every new parent must consider. This article is intended to hit the high points on the list of financial and estate planning tasks that every new parent should consider.

1) Adjust Income Tax Withholdings.

The easiest and quickest way to get extra cash into a new parent’s hands is to adjust their income tax withholdings as soon as possible. A new child should allow a new dependency withholding exemption, assuming the child qualifies as a dependent of the parent. A taxpayer qualifies for a dependency exemption in the year of the dependant’s birth and for so long as the dependent continues to satisfy the definition of a “dependant” under Internal Revenue Code (“IRC”) § 152. The additional dependency exemption should work to reduce a parent’s required tax withholdings from his or her paycheck.

The parent should adjust his or her withholding certificate as soon as possible to take advantage of the new withholding exemption. The IRC allows for almost immediate adjustment to an employee’s withholding certificate. The IRC even allows prospective adjustments to withholding calculations if furnished before December 1 of the prior year under IRC § 3402(f)(2)(C). The sooner a parent’s withholding certificate is adjusted, the sooner his or her take home pay gets a much needed bump.

2) Identify Applicable Tax Breaks.

The IRS grants taxpayers several child related tax breaks, in addition to the dependency exemption under IRC § 151. Every parent should examine these tax benefits in calculating their income tax liability.

First, parents are granted a child tax credit of $1,000 under IRC § 24. The child must be a qualifying child under IRC § 152(c), but this definition should cover almost all children living with the parent and less than seventeen years old. The credit is allowable against the alternative minimum tax, but begins to phase out for joint return filers making more than $110,000. For single parents, the phase out starts at $75,000. The phase out is complete at $130,000 for joint filers and $95,000 for individuals. In limited cases, the credit can be refundable under IRC § 24(d).

Parents with less than $15,000 in adjusted gross income are entitled to a tax credit for amounts paid to care for children, if such expenses allow the parent(s) to continue gainful employment. This credit is equal to thirty-five percent of the expenses incurred in caring for a child, up to a maximum amount of $3,000 for one child or $6,000 for two or more children.

Adoptive parents of special needs children also have a special tax break designed solely for them. Under IRC § 23, adoptive parents of children who are less than eighteen years old and physically or mentally incapable of caring for themselves are entitled to a tax credit for adoption expenses of up to $10,000. This credit is subject to a phase out for high earners.

3) Review or Create an Estate Plan.

Most new parents don’t have an estate plan because they’ve never thought they needed one. In a sense they are right. Louisiana law generally provides a spouse substantial rights in the community property of a decedent during the surviving spouse’s lifetime if the couple has no children. For single people, property usually stays within their family at death. But, when children arrive, a will is a must.

Continue Reading Financial Planning for the Growing Family – Seven Important Tips for New Parents