The increase in the Federal Estate Tax Exemption ($5,125,000 in 2013) and matching Federal Gift Tax Exemption have made the “kiddie tax” a radar issue for many families. The kiddie tax was enacted to prevent individuals from avoiding federal and state income taxes by shifting investment assets into their children’s names.  Once the transfer is completed, the child becomes the legal owner of the asset(s) and its income and gains are taxed at his or her lower income tax rates (typically 10% or 15% for ordinary income from interest and short-term capital gains and 5% or less for long-term capital gains and dividends). That's a significant difference from the income tax rates that high-bracket parents pay (as high as 39% plus on ordinary income and 15% on long-term gains and dividends).

In 2013, “children under age 20 and full time students living with the parents will pay income taxes at the parents highest marginal tax rate on all unearned income above $2,000.”  But there are methods of avoiding the kiddie tax or at least minimizing it. The following is a non-exclusive list of methods to avoid the kiddie tax and ensure that the unearned income the child receives does not exceed $2,000: (i) limit gifts to assets that are non-interest bearing or that pay no dividends; (ii) create a 529 savings account (if the assets are used for qualified educational expenses, all gains and income are tax-deferred and then tax-free); (iii) U.S. savings bonds and tax-deferred annuities; and (iv) interests in wholly owned entities.  Regardless of the method selected, individuals should always be aware of the risk of transferring assets to children and strongly consider the use of a trust to control the flow of money.

An unexpectedly huge collection of inheritance taxes in Connecticut, along with a spike in income tax revenue, helped turn a budget deficit into a surplus. The simple reason, "a lot of wealthy people died this year,'' said Connecticut officials.  The state's inheritance and gift taxes have been combined into one category since 2005, and this year's total is more than double the level of seven years ago. The numbers also increased because wealthy individuals made huge transfers of wealth as gifts in December in order to avoid the higher federal gift tax rate that increased to 40 percent, up from 35 percent, on Jan. 1.

On May 7, 2013, Delaware became the eleventh state in the nation to legalize same-sex marriage.  While the state had an existing civil unions law, the new measure allows gay and lesbian couples to legally marry. Rhode Island, Iowa, New York, Vermont, New Hampshire, Massachusetts, Connecticut, Maine, Maryland, Washington and the District of Columbia all allow same-sex marriage.

The Rhode Island legislation states that religious institutions may set their own rules regarding who is eligible to marry within the faith and specifies that no religious leader is obligated to officiate at any marriage ceremony and no religious group is required to provide facilities or services related to a same-sex marriage.

Under the new law, civil unions will no longer be available to same-sex couples as of Aug. 1, though the state would continue to recognize existing civil unions.

Delaware could be the next state to approve same-sex marriage. Legislation legalizing same-sex marriage has narrowly passed the Delaware House and now awaits a vote in the state Senate.

On April 23, 2013, the Seventh Circuit Court of Appeals in In Rameker v. Clark, No. 12-1241 & 12-1255, United States Court of Appeals (7th Cir. 2013), held a non-spousal inherited individual retirement account to not be an exempt asset in bankruptcy proceedings. The Seventh Circuit opined that the account funds did not represent the debtor’s retirement funds as it had to be distributed to her earlier than the debtor’s retirement. The ruling directly contradicted the ruling in the Fifth Circuit which held that funds maintained in a non-spousal inherited individual retirement account were an exempt asset in bankruptcy court proceedings.  

Retirement Accounts Under Bankruptcy Law:

11 U.S.C. §522(b)(3)(C) and (d)(12) protect retirement funds from retirement debts and from creditors’ claims in bankruptcy. Each code section exempts from creditors’ claims any “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.”

Conclusion:

The rulings in Clark, which was contrary to the rulings in Chilton and Nessa create a conflict among the respective circuits. The Judge in Clark reasoned that “inherited IRAs represent an opportunity for current consumption, not a fund of retirement savings” and it was not necessary to determine whether the principles of federal law (for federal exemptions) and state law (for state exemptions) would apply. This ruling makes it even more important for states to specifically incorporate the inclusion of a non-spousal inherited IRA into any statutory exemption they may provide for under bankruptcy law.

The U.S. Court of Appeals has affirmed the invalidity of Section 400.145 of the Florida Statutes and the obligations of medical providers under Florida law. The issue originated from several nursing home providers being cited by the Florida Agency for Health Care Administration ("AHCA") for failing to provide records to spouses or "attorneys in fact" of deceased residents because they were not authorized to receive the records pursuant to HIPAA. The nursing homes objected to releasing a patient’s medical records in violation of federal law. A federal trial court in Opis Management Resources, LLC v. Dudek, No. 11-400 (N.D. Fla. Dec. 2, 2011) had declared the Florida law invalid and was appealed.

The Florida law provided that nursing homes "shall furnish to the spouse, guardian, surrogate, proxy, or attorney in fact . . . of a former resident . . . a copy of that resident's records which are in the possession of the facility." Also, "Copies of such records . . . may be made available prior to the administration of an estate, upon request, to the spouse, guardian, surrogate, proxy, or attorney in fact." These legal requirements directly conflicted with the federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which provides that nursing homes may only release medical records to a patient or his/her personal representative. 45 C.F.R. 164.502(a)(1), (g)(1).

The U.S. Court of Appeals concurred with the trial court's view that Florida's less stringent protection of confidential information frustrated HIPAA' s purpose and was, therefore, invalid. As a result, Section 400.145 is invalid and AHCA cannot sanction a nursing home for failing to abide by it.

The President's new budget proposal would cap multimillion-dollar tax-favored retirement accounts. The budget plan, to be unveiled April 10, would prohibit taxpayers from accumulating more than $3 million in an individual retirement account.  The argument is that “[u]nder current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.” IRAs have evolved from a retirement-planning technique into an estate planning tool for some wealthy families because tax laws allow the accounts to be passed on to heirs.