Your estate plan should generally be reviewed at least every two years to determine whether it needs to be revised or updated. Additionally, if any of the following life events or financial developments occurs, you’ll probably need to adapt your estate plan to your new circumstances:

• Divorce,
• Marriage,
• Birth/adoption of child,
• Death of spouse or child,
• Sale of residence,
• Purchase of residence,
• Retirement,
• Move to another state,
• Major increase or decrease in personal assets, or
• Enactment of new tax laws.

Upon the occurrence of any of these events, you may need to:

• Revise your will or trust instruments to change beneficiaries or bequest amounts,
• Change your executor,
• Reassess your life insurance needs,
• Add or change a power of attorney,
• Change your post-mortem letter to reflect new assets, changes in executors, or other changes, and/or
• Change legal documents to comport with state laws (if you move to a different state).

There may be other steps you should take based on your particular situation. Professional guidance may be helpful here.

Only deposit accounts at federally insured depository institutions are protected by federal deposit insurance. Shares in mutual funds, annuities and other such products offered by these institutions are generally not covered.

Note: The government protects the money you have on deposit to a limit of $100,000. Accounts for special relationships, such as trusts or co-owners, may also have some effect on the amount of insurance coverage you have.



TIP: Ask the bank how the deposit insurance rules will apply to your deposit account.

What to do about an employee’s home when the employer moves him or her to a new job location? Typically, the employer wants to protect the employee against financial loss on a “forced” sale of the home. Here are the most common ways to do that, and their consequences to the employee:

Employer reimburses employee’s financial loss. Here the employer has the home appraised and agrees to pay employee the difference between that appraised fair market value and any lesser amount the employee gets on sale. Such reimbursement would cover the employee’s costs of sale.

Note: The financial loss here is not the same as a tax loss. The financial loss is the home’s value less what the employee collects under “forced sale” conditions. A tax loss is the property’s tax basis (cost plus capital investments) less what’s collected on sale.

If the employee has a gain on the sale (amount collected on sale exceeds basis), gain can be tax-exempt up to $250,000 ($500,000 on certain husband-wife sales). Tax loss on sale of one’s residence is not deductible.

The employer’s reimbursement of the employee’s financial loss is taxable pay to the employee. Employers who want to shelter the employee from any tax burden on what is usually an employer-instigated relocation may “gross up” the reimbursement to cover the tax. But gross-up can be costly. For example, a grossed-up income tax reimbursement for a $10,000 loss would be $14,575 for an employee in the 35% bracket—more, where social security taxes or state taxes are also grossed up.

Employer buys the home. Few employers directly buy and sell employees’ homes. But many do this indirectly, effectively becoming the homes’ owners, through use of relocation firms acting as the employers’ agents. A new IRS ruling shows how to do this with no tax on the employee:

Option 1. The relocation firm as employer’s agent buys the home for its appraised fair market value, and later resells it. The firm collects a fee from the employer, which will cover sales costs and any financial loss to the firm on resale. IRS now says that this fee is not taxable to the employee. Also, the employee’s gain on sale to the relocation firm qualifies for the tax exemption under the limits ($250,000 etc.) described above.

Option 2. The relocation firm offers to buy the home for its appraised value, but the employee can choose to pursue a higher price through a broker he or she chooses from a list provided by the relocation firm. If a higher offer is made, the relocation firm pays that price to the employee (whether or not the home is then sold to that bidder). Here again, the employee is not taxed on the firm’s fee and gain is tax exempt under the above limits.

TIP: Either option works for the employee, letting him or her realize full value on sale of the home (with possibly greater value through Option 2), without an element of taxable pay.

Warning: If the deal is structured so that the relocation firm facilitates a sale from employee to a third party buyer (rather than to the relocation firm), the employer’s payment of the relocation firm’s fee is taxable to the employee.

The employer’s side:

Reimbursing the employee’s loss. This is fully deductible as a business expense, as would be any additional amount paid as a gross-up.


Note: Fully deductible, but maybe more costly, before and after taxes, than buying the home for resale through the relocation firm.



Note: Paying the relocation fee only, without buying the home, as in the WARNING above, is also fully deductible, as would be any gross up amount on that fee.


Buying the home. The new IRS rule was good news for employees, but gave nothing to employers, whose tax treatment wasn’t covered. The official IRS position is that employer costs here are capital losses which, for corporate employers, are deductible only against capital gains. Taxpayer advocates tend to argue that employer costs here are fully deductible ordinary costs of doing business.

TIP: Where employee relocation is in prospect—and that can include relocating new hires—employee and employer need to consult their professional advisers for the wisest financial and tax course.

Edith was a licensed real estate agent working as an independent contractor for Coldwell Banker. She put commissions and other income earned as agent into the S corporation she owned. She reported her share (all) of the S corp income, for income tax purposes. She took no salary from her corporation. Instead, she treated any withdrawals she made from the S corp as loans, giving a promissory note.

This, as you will have noticed, means that she paid no employment tax—social security or self-employment tax—on her earnings, and IRS would have none of that. It denied that amounts Edith dropped into her S corp were properly income of the S corp, and the court agreed. She was assigning her personal income to the S corp. But assigned earnings are taxable to the one who earned them. If that earner is self-employed, the earnings are subject to self-employment tax.

The court then spelled out how those earnings could have been made income of the S corp:

(1) She should be an employee of the S corp. She met that test, as president of the S corp. And—

(2) The S corp must have a contractual right to direct her services as its employee. There was no such contract here, so earnings from her services aren’t S corp earnings.

Note: Oral contracts to direct services are technically okay, but professional advisors often recommend and draft written ones. This would be especially true where corporate income derives primarily from services by its owners. The writing is an agreement of one person wearing two hats, signed by the individual as S corp employee and then for the S corp by that individual as its president.

Of course, IRS will expect an S corp owner providing valuable services to be paid reasonable compensation. That pay will be subject to social security tax on employee owner and on S corp.

TIP: Reasonable pay need not be everything earned. Tax advisors can suggest what portion of the S corp’s income the IRS or courts will likely accept as reasonable pay. That pay reduces S corp income. The pay is subject to employment tax (social security tax) on the S corp (the deduction for this tax reduces S corp income further) and on the owner-employee. The balance of S corp income, though subject to income tax (on the owner), avoids employment tax.

Edith’s misguided path led to employment tax on all her earnings.

Tax treatment for members of partnerships can be especially tricky, but this case may at first have looked simple:

Tim was a 50% partner of the Tim-Jeff partnership, whose earnings were to be divided based on how much business each partner brought in. The partners came to disagree on who brought in what, and so decided to put all partnership receipts (less operating expenses) into escrow until the question could be definitively settled. Tim reported no income from the partnership while the funds were in escrow.

IRS said he owed tax on his share of partnership income, despite the escrow, and the court agreed. Tax law says that partners are taxable on their share whether or not it is distributed. The fact that it wasn’t distributed—that while in escrow it couldn’t be distributed—doesn’t matter.

It was no excuse that Tim didn’t know the exact amount of the partnership’s income (Jeff had pocketed a then-unknown amount of partnership receipts). His reportable share could be based on what he knew about, to be corrected later.

Nor did it matter that the amount of his share of known income was in dispute. The dispute doesn’t allow postponement of reporting until the dispute should be resolved.

Note: There are situations where an individual need not report income in dispute until the dispute is resolved. This does not apply to a partner’s disputed share of partnership income.


In effect, the partner is obliged to make his or her best determination of what partnership income is and what his or her share is of that income. If later discoveries reveal different numbers, file an amended return.


Note: Partners must also report their share of partnership income in figuring self-employment tax.

TIP: Partnership agreements can be drafted or amended to address the practical problem of paying taxes on amounts not yet received because distribution of partnership earnings must be postponed: Have the partnership distribute the amount needed to cover the tax on the partner’s share of partnership income, or a reasonable
estimate thereof. If necessary, this could be done as a loan.


TIP: Partnership tax rules offer many advantages, including avoiding income tax on the partnership entity and the ability, within limits, to allocate income and deductions for tax purposes between partners. But it’s a complex world, calling for professional tax guidance.


Note: Limited liability companies (LLCs) with two or more members are treated as partnerships, unless they elect tax status as corporations. The rules and risks described here therefore apply to most LLCs.

You might want to check your homeowner's insurance policy to see if your coverage is sufficient to cover your home's replacement value. Most lenders require homeowner's insurance only up to the amount of the mortgage, which may not cover you completely in the event of a total loss. For a slightly higher premium, you can be covered for replacement cost, which takes both equity and appreciation into account. Experts advise insuring a home for its full replacement cost.

>> back to top

Does Juggling Credit Cards Hurt Your Credit?

If you have shopped around for low-interest-rate cards, taken advantage of low introductory offers, and then moved your balance to another card when the preferential rate expired, you may have wondered whether juggling credit cards to chase low rates would come back to haunt you. You will generally not be penalized for shifting credit-card accounts. However, you should close credit lines you no longer use. Too much available credit could hurt you if you apply for a loan, and some lenders may not like it if you've had accounts open only a short period of time.

>> back to top