Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Who Can Bring Forth a Challenge

Following Richard Pratt’s death in 2009, Madison Ashton claimed that she had left her profession as a sex worker to become the Australian billionaire’s kept mistress. Pratt had apparently promised the former Penthouse Pet a $500,000 per year allowance, $36,000 per year for accommodation, $30,000 per year for travel expenses, and a $5 million trust fund for her two children. The court rejected Ashton’s claim, ruling that although that conversation may have happened, Pratt clearly had no intention of entering a legally binding agreement.

However, Shari-Lea Hitchcock, another of Pratt’s mistresses with whom he had a daughter, managed to reach a $100 million dollar settlement through her will contest. The bulk of Pratt’s money went to the children he had with his wife Jeanne.

Will contests can be difficult to win, and can only be brought by certain parties. In the next three posts, we will discuss who may challenge your estate plan, what they must prove to be successful, and a few safeguards to minimize the chances that a will contest will become part of your legacy.

Who can challenge a will?

Not everyone has legal standing to contest a will. A lawsuit to challenge the validity of a trust or will may only be filed by an “interested party,” meaning a person or entity that would be personally (and financially) affected by the document being probated or administered. These people/entities typically include:

  • The decedent’s heirs-at-law. These are the people who would have inherited by law if the decedent had no will, including the decedent’s spouse/civil partner, children, and if no spouse or children, the list expands to include parents, then siblings, then other relatives.
  • The decedent’s previous beneficiaries. If the decedent left money or property to a specific individual or organization (e.g., charity) in a previous will or trust, those prior beneficiaries have standing to contest a more recent document.
  • Fiduciaries named in a prior will or trust. Named executors of a previous will, and trustees of a previous version of a revocable living trust, may also have standing since they stood to gain from fiduciary fees associated with the management and distribution of the estate.

Even if a person does have standing, they must convince the court that the will or trust should be declared invalid. In our next post in this series, we will review the grounds for contesting a will.

Filing Your Own Return

Married Tax Filing Status

Should We File a Joint Return or Married Filing Separately?

In our last post, we reviewed the main advantages and disadvantages of joint tax returns for married couples. This post will focus on when a married couple should consider filing separately, and special considerations if they reside in a community property state.

When to consider filing separately

Following are the main reasons that married individuals file separately:

  • High income. Where both spouses have high earnings, their combined income may place them in a higher tax bracket.
  • Debts. If a spouse owes back taxes, must pay child support, or has overdue student loans, filing a joint tax return could result in the IRS offsetting the other spouse’s tax refund to pay the debt.
  • Marriage problems. If a couple is going through a divorce, contemplating one, and/or one spouse is concerned about the other not reporting all of their income, they might wish to avoid liability for their spouse’s tax reporting and file their own return.
  • Income-based student loan repayment. Where one or both of the spouses is on an income-based student loan repayment schedule, the couple should have their accountant do some calculations for them. If the tax savings for filing jointly does not exceed the higher loan payments that will result from reporting their combined income, they should consider filing separately (but understand that lower payments will extend the period of the loan).
  • Itemized deductions. Sometimes filing separately is beneficial if one or both of the spouses has a lot of itemized deductions subject to an adjusted gross income (AGI) “floor,” such as medical expenses (where the deduction is limited to 7.5% of a taxpayer’s AGI) and employee business expenses (where the deduction is limited to 2% of the AGI).

Filing separately in a community property state

For married couples and registered domestic partners who file separately and reside in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), each partner must report their separate income and half of the community income on their respective tax returns.

When filing separately, married couples should be certain to have an agreement regarding how they will calculate the reporting of their income and related expenses, and whether they will be itemizing expenses or utilizing the standard deduction. A Form 8958 must be attached to each Form 1040, which provides the IRS with an itemized list of how the allocation of each spouse’s wages, interest, dividends, capital gains and losses, deductions, and credits was made.

One or the other spouse may claim the exemption for each dependent child or children, but they may not each claim half of an exemption for a single person. For more on this topic, see IRS Publication 555.

Changing your filing status

When you file a joint return, you cannot switch to a separate return after the filing due date. If you file separate returns, however – as a single, head of household, or as married filing separately, you can usually change to a joint return at any time within three years of the filing due date (not including extensions).

Full service San Francisco tax firm

The full service tax law and accounting firm of Moskowitz, LLP is staffed by a knowledgeable and highly experienced team of tax lawyers, accountants, paralegals and support staff who have successfully prepared tens of thousands of current and delinquent individual income, corporate, partnership, trust and estate tax returns. Contact our office today to learn about our practice.