d

d4A - (d)(4)(A) Back to Top

(d)(4)(A) – This refers to the federal law that created a safe harbor for self-settled trusts known as special needs trusts in 1993. It sets forth the federal requirements for these trusts, include the payback provision, so that the assets in the trusts are not countable. Money transferred to these trusts is deemed to be gifts and are not subject to a penalty period of ineligibility. This is not referring to the annual gift exclusion of $13,000 per year.

d4c - (d)(4)(C) Back to Top

(d)(4)(C) – This refers to the federal law establishing pooled trusts as safe harbor self-settled special needs trust that differ somewhat from (d)(4)(A) trusts. The trust funds are pooled for investment purposes but a separate account is maintained for each beneficiary by the non-profit fund. Some of the funds are retained by the non-profit organization on the death of the beneficiary.

Dealer Back to Top

An investor who buys and sells assets, such as real estate, so often that they are considered to be in the business of dealing in real estate. An investor who buys and sells only one or two lots or buildings every few years would not be a dealer. Dealers don't report the gain (or loss) they realize on selling property as capital gain (or loss).

Dealing with divorce Back to Top

Divorce affects a tremendous segment of the population. To properly protect yourself, your family and your assets, you should proceed by hiring a matrimonial attorney (not doing it yourself). If mediation can work to resolve key issues without the antagonism and cost of a legal battle, try to pursue it, but do so under the guidance of an attorney. Be certain to consult with an accountant about the myriad of tax implications in dealing with divorce. If you have real estate or business interests an appraiser will have to be hired. You should seriously consider consulting with a family therapist on how to best handle the situation, whatever it is. There is far to great a tendency to think that you can handle divorce matters, or even selected portions, on your own without a knowledgeable attorney. A matrimonial attorney will have familiarity with a wide range of ancillary issues, not just filling out forms. Get professional help. It can cost less, and be less antagonistic in the long run than trying it on your own.

Deceased Spousal Unused Exclusion Amount (DSUEA) Back to Top

TRA created a new concept commonly referred to as portability that endeavors to simplify the estate tax system by avoiding the need for families to undertake complex planning to maximize the use of both spouses’ exclusions. Under prior law the couple might have divided assets 50/50 and had each will include a bypass trust to benefit the surviving spouse while still avoiding inclusion of those assets in the surviving spouse’s estate. Under TRA if your spouse dies with none of this planning on your later death you may be able to utilize your prior deceased spouse’s unused estate tax exclusion.

Declining Balance Method Back to Top

A type of depreciation that is twice as fast as the straight line (ratable) way of calculating depreciation.

Decoupled Back to Top

• State estate tax planning will remain important for many taxpayers. State estate tax rates were often not the focus of planning primarily because the federal estate tax planning generally reduced state estate tax costs as well. Without the federal estate tax, many estates under the new $5 million threshold will still face hundreds of thousands of dollars in state estate tax. While those figures won’t justify the complex and costly plans that a $2 million federal estate tax exclusion and 45 percent rate might have justified several years ago, they do warrant some planning. Many states “decoupled” from the federal estate tax system and enacted their own estate tax laws, often with a lower exclusion than the federal estate tax exclusion. More states may react to the high $5 million exclusion and change state estate tax laws. See "decoupling."

Decoupled State Estate Tax and 2010 Tax Act Back to Top

: Approximately 14 states have disconnected, or “decoupled” their state estate tax systems from the federal estate tax system. It is too early at this juncture to determine how states will react to the TRA and whether more states will decouple or whether states that have decoupled will abandon their estate tax systems. Decoupled states generally require that the federal estate tax return, Form 706, be attached to a state estate tax return. But considering that so very few estates will file federal estate tax returns with a $5 million exclusion, the cost in terms of money, frustration, and effort for executors of the vast majority of estates to prepare these filings will generally be outrageously unfair. Enforcement will be difficult for these states with so few state filers having real federal returns. On the other hand, revenue hungry states that have not decoupled may. Some already decoupled states may make their systems tougher. There are also complex issues in 2010 for how state law, and legislation many states enacted to address problems of 2010 estate tax repeal, will affect not just taxes, but how dispositive provisions in wills should be interpreted.

Decoupling Back to Top

The federal estate tax laws were amended so the applicable exclusion amount (unified credit), the amount you can transfer free of federal estate tax, was increased to $2 million, $3.5 million in 2009, $5 million in 2010-2012, but it is uncertain if this will be changed by future legislation. Many states had estate taxes that tracked the federal system and realized that they would loose substantial revenues if their state estate tax exclusions increased in line with the federal increases. As a result many states changed their estate tax rules and opted for lower exclusions then the federal amount. This difference between the federal and state estate tax exclusion is referred to as decoupling. The process creates considerable complexity and confusion in planning and the rules from state to state differ considerably, often in more complex ways then just the difference in exclusion amounts. See "decoupled."

Defer Income Back to Top

A common tax-planning technique near December 31 is to put off recognizing income until the next year. That way, you may not have to pay tax on the income for another full year. Examples of income deferral include delaying the sale of stocks or property until January, selling property on the installment method and not receiving cash until the next year, and so forth.

Deferral of Estate Tax Back to Top

Where a sufficient portion of your estate is comprised of assets in a closely held and active business, your estate may qualify to pay the estate tax attributable to these assets over a 14-year period instead of within nine months of death.

Deferred compensation Back to Top

Wages for employment can be paid currently as earned. However, in many cases compensation can be paid at a later date. One advantage to the employee is that the deferral of the compensation to a later date may permit it to be reported for income tax purposes when the employee is in a lower income tax bracket, such as following retirement. The validity of this presumption is not clear because of the changes in the tax system, etc. Deferred compensation is subject to a wide array of tax rules including the provisions of Code Section 409A added by the 2004 Jobs Act. If the provisions of Code Section 409A are not met the income will have to be included in income currently and cannot be deferred.

Demand Letter Back to Top

A letter, often sent certified mail return receipt requested to prove delivery, to a person with whom you have a legal claim demanding that they address a particular issue. This type of letter is often sent as a step prior to hiring an attorney, or if sent by an attorney as a step prior to filing a suit.

Depreciation Back to Top

The writing off of an asset's cost over its useful life or using methods prescribed by the tax laws. Depreciation is based on the idea that property wears down over time to the elements, physical wear and tear from use, and so forth.

Depreciation Convention Back to Top

To calculate depreciation, certain assumptions or rules are necessary. For example, to simplify depreciation calculations, depreciation is not calculated on a daily basis for years when property is bought or sold. Instead, certain rules, called conventions, are used. For furniture and equipment (personal property), a midyear convention is generally used. This results in taxpayers getting one-half year of depreciation despite the time of year it is bought or sold. Depreciation writeoffs for real estate are calculated using a midmonth convention so that one-half month of depreciation is claimed no matter which day of the month the property was purchased or sold.

Depreciation Method Back to Top

To calculate depreciation, certain prescribed approaches, called depreciation methods, must be used. The straight-line method results in deducting equal or ratable amounts of an asset's cost over the asset's useful life or depreciation (recovery) period. For example, a machine costing $1,000 for which a depreciation period is ten years would be depreciated at a rate of $100 each year. The rate of depreciation using the straight-line method is 10 percent ($100 annual depreciation divided by the $1,000 asset cost). The 200 percent (or double) declining balance method of calculating depreciation uses a rate twice the straight- line rate, or 20 percent in our example. The 150 percent declining- balance method uses a rate that is one and one-half times as fast as the straight-line method, or 15 percent in our example.

Deviation Doctrine Back to Top

When an irrevocable (cannot be changed) trust is established over time the trust may become impractical or impossible to administer and carry out its purposes. For example, a charitable lead trust, charitable remainder trust, a foundation governed by a trust document, could have been established but the stated purpose (charitable or otherwise) may no longer be feasible. Rather than have an irrevocable trust that cannot function, the law provides through the theory of "deviation doctrine" that the courts can approve some deviation from the stated purpose of the trust in order to prevent the trust from being defeated. For example, the courts reinterpreted the trust agreement that governed the famous Barnes Foundation in Merion, Pennsylvania in order to keep the foundation and its world famous art collection available for viewing and intact.

Directed Trust Back to Top

Investment of trust assets has historically been handled by the trustee. In fact, investment management was considered a non-delegable duty of the trustee. The Prudent Investor Act, adopted in some form in most states, permits a trustee to delegate investment management to another qualified person. If the trust document and/or state law permit the trustee to not just delegate investment management, but to receive direction from a specfied person (often an investment adviser named in the trust agreement) the trustee will have less responsibility for the monitoring of investments and less liability then if the trustee merely delegated investment authority. In other words, the trust permits a designated investment adviser to direct the the trustee how to invest.

Disaster Area Relief Back to Top

Homeowners and renters whose principal residences and household belongings were damaged in a Presidential- declared disaster area after September 1, 1991 qualify for special tax relief for insurance proceeds.

Divorce Back to Top

Divorce is, as everyone knows, the dissolution of a marriage. If faced with the possibility of a divorce, endeavor to involve a family therapist to plan how to deal with the many, often difficult, emotional issues that arise. Once the divorce seems likely (which is before it is inevitable) consult with a matrimonial (family, or divorce) attorney as to what steps you should take to protect yourself, your family and your assets. Using an attorney, contrary to what many believe, can be less costly and less confrontational than attempting to structure or even conclude the divorce on your own, if handled properly. Also, consult an accountant. Even simple divorces have a range of tax issues.

Divorce Agreement Back to Top

There are many different documents that could be referred to as a "divorce agreement".

A separation agreement may be negotiated, prepared and signed when you and your spouse separate. This agreement may be later incorporated into (made part of but lawyers like to use longer words) a divorce agreement (also called a property settlement agreement). In many cases there is no interim agreement and simply the final property settlement and divorce agreement. Be REALLY careful using self help books to do these. While you can save time and money using self help books and sample forms to figure out and hopefully agree with your ex-spouse to be on some or hopefully many issues, even in "simple" divorces there can be thorny tax, legal, property and other issues. Further, there is always follow up issues -- e.g. getting your last tax return signed, assuring each of you has sufficient information for post-divorce tax audits, separating assets, tax implications of separating assets, and a host of other matters, that really require professional expertise. Strive to keep it peaceful and to minimize costs, but don't' be penny wise and pound foolish trying it totally on your own. See Shenkman "Divorce Rules for Men" available through www.amazon.com for more information (even if you're not a guy).

If you sign a living together agreement (governs rights of non-married partners), a pre-nuptial agreement (governs rights during the future marriage of non-married partners planning to marry) or a post-nuptial (ante-nuptial) agreement (also called a mid-marriage agreement) which governs the rights of married partners (done during marriage; sometimes viewed as a pre-divorce agreement) -- any of these documents could be viewed or called in some sense a "divorce agreement" because they may impact the terms of a divorce.

You could view the process even more broadly and include estate planning documents that impact an ultimate divorce as a divorce agreement. For example, your parents could set up a trust to hold assets they gift or bequeath to you (sometimes called an inheritor's trust) to prevent those assets from being reached by your spouse in a divorce). In the broadest sense these too can be considered divorce agreements.

Divorce How To Back to Top

The "How To" of divorce is not about finding free legal forms on the web and completing them on your own. The How To should be about consulting with qualified experts (therapist, attorney, accountant, and others) to be certain that you are addressing all of the personal, legal, tax and other matters you need to conclude your marriage with the least cost and destruction to all involved.

Divorce papers Back to Top

"Divorce Papers" can refer to all the documents that need to be filed to complete a divorce. We've had many inquiries to this site about divorce papers and especially free divorce papers. The papers or documents that are needed vary from state to state. Also certain documents are unique to each court. "Free" divorce papers is likely to be a mistake since "papers" can include much more than what you file with a court. You need to address the income tax returns you file with your ex-spouse, beneficiary designation changes for any insurance or retirement plans, likely a deed for your home, and more. Your entire financial picture will usually change so that property insurance, revising investment strategies, and more. Free papers may be cheap, and do it yourself legal forms may be cheaper then a lawyer, but its really unlikely to address so many of the issues. Remember the old adage, "you get what you pay for".

Donee Back to Top

A person who receives a gift. Gifts can be made to trusts as well as individuals. The remainder beneficiaries are effectively the donees of the trust, receiving the remainder interest in the residence following the term of the trust.

Donor Back to Top

A person who makes a gift. The person setting up a trust can be called donor, trustor, grantor, or settlor. In a GRAT, the donor gives his or her interest in a qualifying residence to the QPRT and retains the right to use it for the term of the GRAT.

Durable Power of Attorney Back to Top

A power of attorney is a document in which you (grantor or principal) give a person (agent) the authority to act on your behalf. If you want the appointment to remain effective in the event you are disabled (and in almost all cases you will) the power of attorney should include express language stating that it will remain valid even if you become sick or incapacitated. A power of attorney with such language is referred to as a "durable" power.

Dynasty Trust Back to Top

This type of trust can also be known as a "Perpetual trust". It is a trust formed in a state (or foreign jurisdiction) that permits a trust to last forever (or certainly for a very long time period). Technically, the dynasty trusts is to continue as long as feasible without violating the state's rule against perpetuities (the law that governs how long a trust can last). Typically such a trust is formed by a person (grantor) during lifetime (inter-vivos) or at death (testamentary). Generally such a trust is funded up to the maximum amount that can be given or bequeathed without triggering the generation skipping transfer (GST) tax ($3.5 million in 2009, but watch the $1 million gift exclusion).