It’s not often that talk about taxes hits celebrity blogs and gossip sites, but the recent death of Apple CEO, Steve Jobs, and the hasty divorce application of TV reality star, Kim Kardashian, have made the headlines partly because of how Uncle Sam will affect their respective fortunes.
Steve Jobs
Steve Jobs will forever be remembered as the engineer who most shaped our technology into the future. Steve Jobs died worth $7billion and we may never know how he planned his estate, but he probably protected his assets with trusts rather than using a will. Unlike a will, a trust does not have to be submitted to probate, therefore maintaining privacy.
If Steve’s fortune goes to his wife there won’t be any tax. The spouse can inherit a fortune with no estate tax as long as she is a US citizen. But any that goes to anyplace else is subject to tax. Joe Robbie, who owned the Miami Dolphins and the stadium, died and his kids had to sell the Dolphins to pay the estate tax because it was his children who inherited, and children do not escape the estate tax.
Also, for the next 2 years we can each transfer up to $5 million tax-free to anyone else. In 2011, widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This dramatic change enables them together to transfer up to $10 million free of the estate tax, which is currently 35 percent. Tax geeks call this portability.
Finally, it is possible to set up a grantor retained annuity trust or GRAT that will result in no taxable gift. This involves putting appreciating assets into a short-term irrevocable trust (two years is typical) and retaining the right to receive an annual income stream for the term of the trust.
Kim Kardashian
Kim Kardashian filed for divorce after only 72 days of marriage. The financial and tax concerns for her will include dealing with spousal support, and retirement accounts and capital gains. When dealing with capital gains, you can exclude up to $250k if single and $500k if married on the sale of marital home. If one spouse moves out and the other stays, the staying spouse’s time counts for both spouses. Rule is that you need to have lived in the house for 2 of 5 years.
Alimony is taxable income to the recipient, and it’s tax-deductible to the payor. Child support is not taxable income of the recipient, and it’s not tax-deductible to the payor. Preferred payment depends on if you are the recipient or the payor.
If you are divorced as of 12/31, your filing status is single, even if you and your spouse lived together more than half the year. If you are not divorced, but lived apart the last 6 months, you can either file single or head of household if dependents are involved. Your marital status for tax filing is set as of the last day of the year.
One caution about filing jointly. Signing a joint return exposes both spouses to liability. There is a principle called the “innocent spouse” rule that allows a spouse to escape liability in a few cases.
Year-end planning may take on increased importance for anyone who has had a change in circumstance during the past year. A marriage or divorce, birth or death of a family member, acquisition or sale of a business, promotion or loss of a job, or any other major event will probably impact your tax obligations.
I address many of these issues in my Wealth Building Plan. Make sure you are getting the best tax advice. Let me evaluate your financial and tax situation, then develop a customized tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your own customized wealth-building plan. You can get more information at Ultimate Wealth Building Plan
