Monthly Archives: January 2015

New Considerations for Gift Planning

Recent law changes should cause many folks to rethink which is more important:  estate/gift planning versus income tax planning.  Fewer estates will now be subject to the death tax, and even if it does apply, the top rate of 40% is more favorable than in the past.

Gifting has long been a staple of estate planning — get rid of value during life time, and save the death tax on not only the value as of the gift date, but also the appreciation in value from gift date to death date.  And annual exclusion gifts have been particularly favored for a variety of reasons.

But consider that gifts of appreciated property carry a potential income tax cost to the beneficiary, because the donor’s income tax basis becomes the donee’s basis.  No different than before.  Sale by the donee triggers an income tax liability to him or her right away.  Also, an appreciated asset held by the donor until death allows a stepped up basis to the heir, thus wiping out income tax on pre-death appreciation altogether.

Push a pencil before deciding whether estate tax savings may outweigh income tax cost in each situation.

Rethinking Transgender Discrimination Under Title VII of the Civil Rights Act

SLGBT flagaks & Co. is facing a discrimination lawsuit by a former sales associate who alleges that she was harassed and fired for being transgender. Last month, Saks & Co. filed a motion asking a  federal Texas court to dismiss the case on grounds that Title VII of the Civil Rights Act does not protect transgender employees from discrimination.

This prompts the question: Is it illegal to discriminate against transgender employees under Title VII of the Civil Rights Act? Thirty years ago, the answer might have been a clear “no.” In support of its motion, Saks relied on a line of federal circuit court cases beginning in 1984, which expressly state that discrimination based on an individuals’ gender identity is not discrimination based on “sex” within the meaning of Title VII. Based on this, Saks argued that it’s “well-settled” that transgender individuals are not protected under federal antidiscrimination laws.

However, the answer might not be as clear-cut as Saks hopes. In recent years, the U.S. has seen a changing tide when it comes to LGBT issues. An increasing number of states and cities have passed laws to prohibit discrimination based on gender identity and sexual orientation (although Texas isn’t one of them). The Defense of Marriage Act was also struck down by the U.S. Supreme Court, paving the way for federal recognition of state-sanctioned same-sex marriages. LGBT issues have also been increasingly highlighted in pop culture through television shows, movies, books, and the media.

Perhaps most importantly, though, Saks’s position is in direct opposition to that of the Equal Employment Opportunity Commission (EEOC), the federal agency responsible for enforcing Title VII of the Civil Rights Act. The EEOC’s position is that discrimination based on “sex” includes discrimination based on gender identity (and sexual orientation for that matter). In a landmark decision in 2012, the EEOC ruled that discriminating against a transgender employee is the same as discriminating against an employee based on sex-stereotypes, which is illegal under Title VII. Since then, the EEOC has filed cases against a Florida employer and a Michigan employer for discriminating against transgender individuals.

Just last month, the Department of Justice followed suit. In a memo issued in December of 2014, the Attorney General announced that it will consider discrimination against transgender employees by state and local public employers to be illegal sex discrimination under Title VII.

For now, we’ll have to see how the issue plays out in court. But, regardless of what the Texas courts decide, the issue won’t be resolved nationwide unless the U.S. Supreme Court takes up the issue or Congress amends Title VII to specifically protect transgender employees.

 

ObamaCare and 2014 Taxes

If you purchased your health insurance coverage via one of the now famous “exchanges” in 2014, get ready for a new, related tax filing obligation with which you may be burdened.

You should soon receive from your exchange IRS Form 1095-A (“Health Insurance Marketplace Statement”).  And particularly if you expected at the outset to be entitled to a subsidy to help pay for your coverage, you will need Form 1095-A to allow you to compute and properly claim the premium tax credit, and to reconcile the actual credit amount with your original estimate, as you complete your 2014 individual income tax return.

Be aware that if your premium tax credit was originally estimated before you knew exactly how much income you would have in 2014, the credit may not be as much as you expected.  It gets complicated; check out the instructions to Form 1095-A and the related Form 8962.

FHA Reduces Mortgage Insurance Premiums for FHA Loans

Scissors_Cutting_MoneyThe Federal Housing Administration recently announced that as of January 26, 2015, it will reduce the annual mortgage insurance premiums for FHA loans by .5%.  On average, the reduction could save an FHA loan borrower about $900 per year. (Learn more about FHA Loans.)

What Are FHA Mortgage Insurance Premiums?

If you get an FHA-insured loan you’ll have to pay mortgage insurance (mortgage insurance protects the lender in the event you default on loan payments). There are two types of mortgage insurance premiums (MIPs) that you must include in your FHA loan agreement:

  • Upfront premium. This is a one-time payment that you make when you first get the loan. It is currently 1.75% of the loan amount. The new FHA rules do not change this premium amount.
  • Annual premiums. Unless your loan-to-value rate is substantial, you’ll also be required to pay annual mortgage insurance premiums. Although called annual premiums, you pay them monthly. The amount you pay is based on the length of your loan, the amount you borrow, and your loan-to-value rate.

Reduction in FHA Annual Mortgage Insurance Premiums

The FHA’s new rules reduce the annual premium by .5% for loans that are greater than 15 years. While the total percentage that you must pay for annual premiums varies based on a number of factors, most people are currently paying 1.35% for loans greater than 15. The new rates for these loans will be .85%. (The MIP rates on loans that last less than 15 years will not change; those loans already have a rate lower than .85%.)

U.S. Department of Housing and Urban Development Secretary Julian Castro predicts the new rates will save the average FHA loan borrower about $900 per year.

When Does the Premium Reduction Go Into Effect?

The new rates will apply to loans made on or after January 26, 2015.

What If You Already Have a Loan With Higher Premiums?

The FHA announced two fixes if you already have a loan with higher premiums or if you are currently in the loan process.

Cancel loans in process. The FHA will allow lenders to cancel loan files already in process so that borrowers can start over and get the lower premium rate.

Refinance. If you have an FHA loan made after May 31, 2009, you can refinance in order to get a new loan with the lower premium. (Loans made prior to May 31, 2009 already have lower rates.)

Can I Extend My Chapter 13 Bankruptcy Plan Beyond Five Years to Pay a Claim?

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Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I have been in Chapter 13 bankruptcy for five years and just made my last plan payment. But the trustee now says I have to pay an additional $8,000 before I am done with my bankruptcy and can get a discharge. The trustee has filed a motion to dismiss my case. 

I have talked to several bankruptcy lawyers, and they all agree that the trustee is correct – I do in fact have to pay the additional $8,000 into my Chapter 13 plan. 

I don’t have the money right now and my five year plan is over. I’m worried that if the trustee dismisses my case, the unpaid interest on my credit cards will become due. But I don’t have the money to make the $8,000 payment. 

Can I extend my case beyond the five years in order to spread this payment out over time?  I have a hearing next month on the trustee’s motion to dismiss. 

Sincerely,

Grace 

Dear Grace,

Unfortunately you are not allowed to extend your Chapter 13 payment plan beyond five years (60 months). (Learn more about the Chapter 13 bankruptcy plan and how long it can last.) If the trustee dismisses your case, you’ll owe the $8,000 plus interest on all the debt you paid through your plan over the past five years. This could be a lot of money.

Another Way Around the Five Year Plan Limit

But you might be able to get extra time to pay a different way. Hire a lawyer and have that lawyer file an opposition to the trustee’s motion to dismiss.

In the opposition, explain what happened, tell the court that you need six more months to pay off the $8,000, and ask the court to continue the hearing on this matter, giving you time to finish the job. After filing the motion, your lawyer should ask the Chapter 13 trustee if he or she will agree to continue the hearing. I think any decent trustee will agree, probably giving you a series of continuances over the next six months so you can pay as promised.

Why This Might Work

While you can’t officially modify your plan to extend it to 66 months, there is nothing in the law preventing the trustee from accepting your voluntary payments, even after your plan is over.

If the trustee will not agree, then make your argument to the judge. I think there is a good chance the judge will agree to the proposal if you have had a good Chapter 13 payment record up to now.

Good luck.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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