Episode 443: What is an Attorney Ad Litem?

By on August 9, 2024   /   The Legal Play Podcast   /   Leave a comment

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Attorneys ad litem are important positions within the probate court system. An attorney ad litem can assist with representing those who cannot represent themselves, such as minor children, incapacitated individuals, and unknown heirs. A court appoints attorneys ad litem in different situations, such as heirship proceedings when there are potential unknown heirs to an estate.

Take the following scenario for example. a woman passes away and does not leave a will. The only known heir she has is her husband of many years. Because there is no will to follow, and a court must do its due diligence to determine all potential legal heirs, the court has to rule out the possibility of any children the woman may have had.  There is always the possibility that the woman had been married before, had a child, and gave up a child for a closed adoption, or that she had a child when she was very young that she did not raise and no one knows about. In a situation like this, an attorney ad litem is appointed to represent these possible children in an heirship proceeding, to explore the possibility there may be unknown children of the woman who do exist. However unlikely, the courts must make sure all known heirs are accounted for before allowing an executor or administrator of the estate to liquidate assets and disperse anything to known beneficiaries.

What Is an Attorney Ad Litem and What Do They Do?

In the case of heirship proceedings, the job of an ad litem attorney is to represent someone who cannot represent themselves. This includes people who are:

  • Physically incapacitated
  • Mentally incapacitated
  • Legally incapacitated
  • Minor children
  • Unknown heirs who may not know about specific court proceedings

In the case of the last point, a court can say they are not sure if heirs (known or unknown) have notice of the probate proceedings, and the court will want to make sure the interests of all heirs are represented. To do this, the court will appoint an attorney ad litem. This type of lawyer is particularly helpful in the event that the deceased had no will, or the original copy of the will was lost, OR beneficiaries listed in the will cannot be found and are considered transient (homeless or have long lost contact with family and friends).

Without an original copy of the will, the law requires an heirship proceeding. An attorney ad litem is tasked with determining if there could be other individuals or unknown heirs out there. Typically, beneficiaries or acquaintances of the deceased can provide the names of some witnesses that are “disinterested” (i.e. not listed in the will or not intestate heirs). If these individuals have known the decedent or their family for many years, the disinterested witness may be able to share that the witness never knew of a will the deceased put together, or the witness might share that the person was married only one time, or that they absolutely never had children.

One case example includes a woman who passed away without a known will. Subsequently, the court could not find anyone from the woman’s childhood. However, the woman had lived in the same apartment for more than thirty years. An attorney ad litem was appointed by the court to investigate any potential heirs. The ad litem spoke with neighbors on both sides of the woman’s home who said they had never seen any visitors, only pets. An ad litem could feel fairly confident that the decedent  was not married and very likely had no children. That information would then be turned over to the judge who would make the final ruling based on the information the ad litem collected.

Finding an Attorney Ad Litem

All attorneys ad litem have to take some kind of qualifying coursework and be certified to practice as an ad litem. Certain kinds of ad litem work require ongoing certification training to keep up their certification.

Another frequently asked question is if parties can choose their own attorney ad litem. It may be possible for the parties to recommend to the court who they would like to work with. However, the court has their own list or “wheel” for the probate court system which will provide an attorney ad litem for an heirship case. Theoretically, the court is supposed to go down the list from one attorney to the next and the court will assign them as necessary.

Payment for Ad Litems

In Harris County probate court, there is a flat fee of seven hundred dollars paid to an attorney ad litem. These lawyers know going into the case that this will be their compensation.

That said, some ad litems will be required to put in hours and hours of work that go well beyond the scope of what one would consider worth seven hundred dollars of payment. While the court does allow an attorney ad litem to show all of the work they have done and ask for additional compensation, that is not common.

What to Know About Ad Litem Attorneys

One of the most important things to know about working with an attorney ad litem is to have open communication, which includes providing them with all the information and tools they need to effectively do their job. Lawyers in this capacity are not opposed to the case or any party necessarily, and they are not antagonistic to any party in particular. This type of legal representative is simply trying to ensure everyone is represented and that the court has all the information it needs in order to make a ruling.

Be warned that involving an ad litem in the case adds extra costs and time to the case, so it is beneficial to take steps to avoid having to have an ad litem. However, an attorney ad litem is required in some situations, such as heirships if there is no will, probate applications where there is only a copy of a will and known heirs cannot be found, or other specific situations like guardianships.

The bottom line is that attorneys ad litem can represent unknown heirs to the best of their abilities. After collecting as much relevant data as possible, they present that information to the court and then the court will determine what weight to give that information and if more work needs to be done.

If you have the need of an attorney ad litem’s services, you can be better equipped to help them by understanding their job description and exactly what they do for the court case.

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Episode 442: Estate Planning: Navigating the Expiration of the 2017 Tax Cuts and Jobs Act

By on August 2, 2024   /   The Legal Play Podcast   /   Leave a comment

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If you are in need of estate planning, it is critical to enlist the help of a reputable tax attorney to begin navigating the expiration of the 2017 Tax Cuts and Jobs Act. Why act now? Certain provisions of the 2017 Act are set to expire on December 31, 2025, which may have a profound and possibly negative effect on a person’s taxes if they have not engaged in careful tax planning. Add to that the uncertainty of the outcome of the 2024 presidential elections, and clients who anticipate leaving behind large estates will have good reason rework their estate plan.

Provisions of the 2017 Tax Cuts and Jobs Act

Before breaking down the provisions of the 2017 Tax Cuts and Jobs Act, it is important to address the various names this legislation can go by for clarity’s sake. Some commonly used monikers for it are “Pro Tax Law” and the “Trump Tax Bill.”

Regardless of what you call it, the legislation was passed early in the Trump administration and contains some of the following provisions:

  • Minimizes corporate taxes
  • Increases the gift tax and estate exemption
  • Increases opportunity zones which give way to investments and some certain targeted investment loans
  • Takes away itemized deductions
  • Limits state and local taxes
  • Limits casualty losses to federally declared disaster areas
  • Eliminates theft loss

The bottom line for this piece of legislation is that it is a major bill that has changed the landscape of taxes and the way the government is funded.

Why Navigating the Expiration of the 2017 Tax Cuts and Jobs Act Is Important for Estate Planning

What is the big deal about this bill that has us discussing it today? Most of the provisions of the 2017 Tax Act are not permanent and are set to expire on December 31, 2025. This means that if Congress does not take any action to extend the current provisions, or change or otherwise alter the pre-existing 2016 law, taxpayers will be forced to revert back to 2016 tax laws.

This potential change is essential for estate planners to understand as well as the implications it could bring. For example, currently the estate tax exemption is around twelve million dollars for an individual and twenty-four million dollars for a couple, although it is important to note that this number changes annually based on inflation. However, if taxpayers must revert back to unchanged 2016 tax laws, that amount will revert back to around a seven million dollar exemption for individuals.

In other words, if Congress takes no action in the next year and a half, it may prove to be a major issue for people doing estate planning who also have a significant amount of wealth.

What Is Estimated to Happen Based on 2024 Election Results?

If former-President Donald Trump is reelected, one might think that since his administration created the bill that its provisions might be extended. However, this is not guaranteed to be a sure thing, primarily due to the Republican to Democrat ratio currently in Congress.

Should it be so simple as to just extend the Trump era tax cuts, it still requires both the House and Senate to pass that legislation, in addition to getting the President’s signature. If Trump is reelected and there is a Republican majority in both the House and Senate, it might be possible for the tax cut provisions to be extended.

If Trump is not elected and there is not a Republican majority in Congress, it is possible Congress could strike some sort of compromise tax bill that will yield completely new tax laws. Although, be forewarned that a divided Congress can result in no progress, and if they take no action at all, it would revert us back to 2016 tax laws.

What To Do for Estate Planning Now

Without knowing what the 2024 election results will be, or what Congress may do before December 31, 2025, there are still actions people can take now. For example, if a parent has a significant amount of wealth such that they could anticipate being able to distribute some to their children, they may have an opportunity to give away between twelve million dollars (for an individual) and twenty-four million dollars (for a couple) to their children in trusts without it being taxed, if done by December 31, 2025. The important thing to note is that this must be done irrevocably, which means parents can never get that money back.

On the other hand, if a parent has twelve million dollars to put into a trust for their child but does not do so, and that person passes away after December 31, 2025 without Congress doing anything to make changes, it is plausible that the child would be exempt from having to pay tax on only seven million dollars of the twelve million. This means the child will have to pay taxes on the remaining five million.

This is the process for money left to children. Money left to a spouse is not taxed until the spouse dies. Money given to charity is not taxed.

How an Attorney Can Help with Navigating the Expiration of the 2017 Tax Cuts and Jobs Act

Some individuals may choose to wait and see the result of the 2024 Presidential election and then try to make changes to their estate documents before December 31, 2025. That method could be difficult for people with complex estates. Drafting competent and enforceable estate documents takes time. It may be inadvisable to wait until after the election and then try to do change or put in place estate plans. In simpler cases, a reputable attorney may be able to assist despite the time crunch.

Ideally, people must realize it takes proactive work and planning to ensure that their estate planning happens as intended and in a timely way. It is wise for individuals to be thinking about what their game plan will be as election day approaches.

Every person’s situation is different, but working with a reputable tax attorney before the need is imminent can give individuals some sense of agency and control over what happens next.

Do not leave navigating the expiration of the 2017 Tax Cuts and Jobs Act until the last minute this election year. Consider reaching out to a tax attorney to help guide you now in multiple scenarios for your estate so that whether you choose to do something before or after election day, you will have a plan in place.

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Episode 441: Tax Planning for Freelance and Gig Workers

By on July 26, 2024   /   Uncategorized   /   Leave a comment

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Thousands of Americans consider themselves self-employed as freelance or “gig” workers, but understanding tax planning comes with that territory. Unfortunately, many do not understand what it takes to correctly pay their taxes, or the consequences of not doing so. The best plan of action is to follow professional legal counsel, prepare in advance, and know what to expect.

What Are Freelancers and Gig Workers?

To understand tax planning for freelance and gig workers, it is necessary to first define these terms and know examples of each.

Freelancers are individuals who are self-employed and often work on different projects for multiple clients. Freelance positions may include those for writers, graphic designers, and illustrators. These people can generally work for several different people or companies remotely and their product’s final form is usually electronic, can be emailed or posted, and often does not have to produce a piece of paper or a tangible product.

A gig worker is essentially an internet-based worker that is not necessarily tied to a location or specific employer. They are typically engaged in some sort of professional work activity that yields an end-product that can be emailed or posted. Some good examples of gig workers could be individuals who publish, draft blueprints, make accounting entries, or make anything that can be put in electronic form, emailed, and assembled anywhere in the country or world.

Regardless of which category you fall into, it is absolutely necessary that you understand tax planning for freelance and gig workers.

What Do Freelancers and Gig Workers Need to Be Aware Of?

Although being a freelancer or gig worker can be a big responsibility in and of itself, tax planning must not take a backseat to the work being done.  If proper tax planning is not taken seriously, Tax Day (aka April 15th) could be a rude awakening.

When a freelancer or gig worker gets paid, the money usually goes into a bank account. That income is how personal and business expenses are paid. Freelancers and gig workers are then expected to pay self-employment taxes on a quarterly or annual basis and can do so electronically through the Internal Revenue Service.

Some good tips for tax planning for freelance and gig workers include:

  1. You need to file your own tax returns and pay your own taxes. One of the most critical things for freelancers and gig workers to be aware of is that they will likely fall under the category of independent contractors, meaning that they are responsible for doing their own tax returns and paying their own taxes. When you are an independent contractor or self-employed, there is no W-2 form, and no client or employer withholding and paying your federal income taxes for you.
  2. Know if your state has an income tax. Fortunately, Texas does not have a state income tax on a personal level, so if you do all your work in the state of Texas as a freelancer and gig worker, there is no state income tax consideration. However, some states do have a state income tax, meaning that if a freelancer is doing work for someone in New York, the state will likely want the freelancer to pay the state income tax. This is an issue some courts are still working on today.
  3. Influencers and vloggers are considered contract workers. Technically, people in these professions should get a 1099 to account for what money they made in various states or locations. However, not all companies follow this protocol, and it is becoming a legal issue. The IRS is notifying content providers, and some influencers and vloggers are receiving an IRS notice that they have not been properly accounting. This has resulted in an influx of clients from these professions seeking legal counsel on what effect the notification may have on their taxes.
  4. There is a benefit to paying your self-employment taxes quarterly. Quarterly tax payments are more advisable because it may enable the individual to avoid penalties. It helps a taxpayer avoid the shock of having to pay hefty taxes all at once on April 15, especially if they don’t have that money.
  5. Be able to keep track of your revenue. Put the money you make in a bank account and make sure you get accounting statements so you can figure out how much money you are actually getting paid on a quarterly and annual basis so you can keep up with taxes.

A Word About International Taxes

Depending on the situation, international taxes may apply to freelancers and gig workers. If the person is working internationally, there are additional tax issues to work through. Some countries are havens for internet workers because these countries do not collect income taxes (or at least require relatively low amounts of income tax paid in to that government), and that attracts business to the country. Other countries have high income tax burdens that can make it far more complicated. Either way, a freelance or gig worker must understand the international tax implications for their revenue.

For example, if I am physically residing in and working from the United States, and I do something to get revenue from Japan, it is counted as income in the U.S. It will need to be included in my income whether I receive a 1099 or not.

If I am an U.S. citizen, but reside in Costa Rica and doing the work from there, I am still responsible for income tax to the U.S. government and can be taxed on my worldwide income. While there are tax treaties between large industrial countries which can make international taxes easier to coordinate, international tax considerations can make international freelance and gig work tricky.

In contrast, there are people who are citizens of other countries who do freelance and gig work in the United States. This can also be a tricky situation that may come with transfer pricing issues.

Will the IRS Really Know I’m Making Money If I Don’t Report It?

Although there will be people tempted to make money and simply not declare it, hoping the IRS will not take notice, this is not advised.

The money you make is traceable to an extent. For example, if someone pays for a service, the payor can deduct it on their end. This means there will be some sort of calculation triggered that lets the IRS know that money was made even if it was not reported by the earner. In this modern era, heavy with reporting by payors, the IRS has the ability to monitor payments and look at various other factors (like subpoenaing your bank records) to figure out how much money you are probably making, even if you do not report it.

Bottom line: Report your income. It will be found sooner or later, whether you report it or not.

When it comes to tax planning for freelance and gig workers, the takeaway is to keep track of revenue and deposits, be able to pay for things to run your business so you can deduct them and account for them, and make sure you have a good accountant and tax preparer. If any issues are anticipated or have already occurred, enlist the help of a reputable tax attorney.

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