Gifting Investment assets to Lower Income Relatives to Avoid Taxes

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

Over the last several years the stock market and other investments have experienced tremendous growth.  The resulting income that comes with this growth also increases taxes for investors.

Many investors respond to this increased tax burden by transferring some investments to family members who are in lower tax brackets in order to spread the burden around and reduce it, especially since gift tax doesn’t kick in unless gifts amount to more than $11,000,000 for a single person ($22,000,000 for married couples).

This can be an effective means for income tax reduction when the receiving family members are not minor children.  There are special “kiddie” tax provisions that prevent tax shifting to minors and some young adults who still live at home and college students. Other than gifting to these categories of family members, transferring assets to an adult in a lower tax bracket can be an effective means for lowering taxes.

For example, Dad is making $50,000 per year off of his $400,000 investment activity. His tax bracket is 32%. If he transfers $200,000 of the investment activity to adult son who is in a 22% tax bracket he can reduce taxes from $16,000 to $11,000, a $5,000 tax savings.

Tax shifting often requires considerable planning and requires consultation with a tax professional.


The Benefits of Starting both a Traditional and Roth IRA

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

IRAs contribution are a very attractive way to minimize taxes in the current year as well as in subsequent tax years for taxpayers who meet the legal requirements for eligibility. There are two main types of IRAs: A Traditional IRA, which allows a limited pre-tax contribution from earned income each year; and a Roth IRA, which allows a limited after-tax contribution from earned income each year. The combined limits for both types of IRAs are $6,000 per year ($7,000 for persons over 50) per person in 2019.

The tax benefits from contributing to a Traditional IRA are the ability to defer tax payments on the income until retirement. Rather than going to the IRS as tax payments, the funds are continuously invested in growing the retirement account. On retirement the taxes are only paid as funds are withdrawn, likely at a lower marginal rate than when a person is younger and working. You may also take a deduction against gross income in the amount of the contribution to further lower the current year tax bill. In addition, A “Savers” Credit is also available which allows a taxpayer to reduce their actual tax bill dollar for dollar on a percentage basis.

The chief tax benefit from contributing to a Roth IRA is that any taxpayer funds that have already been taxed can be diverted to the Roth Account and the income generated from those funds will not be subject to income tax at any time (as opposed to being left in a regular interest/dividend/capital gains bearing account and subject to tax). For example, if you have $7,000 in an investment account earning 5% interest, your simple interest income is $350. At a 22% marginal tax rate your tax is $77 on the income.  This is $77 you can save, increasing  year after year, by placing the $7,000 in a Roth IRA.

The “Savers” Credit mentioned above is also available for a Roth IRA, further lowering your tax bill.

A taxpayer can wait up until April 15 of 2020 to make a contribution for 2019. Unfortunately many people make the mistake of actually waiting up until this deadline to do so. You can make the contribution any time during a tax year and begin to enjoy the above benefits immediately.

Loaning Money to Family Members

By Michael Kelly, Attorney at Law

Kelly Law and Tax

It has become increasingly common for seniors to be approached by family members for financial assistance, often in the form of a loan. Many seniors, out of kindness and love toward that family member, loan money to them informally (i.e. without a promissory note or other written promise to pay it back).

Informally lending money to anyone, let alone a loved one, is never a good idea. While it is admirable to help a loved one going through difficulty, it is also important to protect yourself. A properly drafted and executed promissory note can help you accomplish that in a number of ways:

  1. It puts the loan arrangement in writing, giving you a way to enforce it in court, if necessary. This is your money and you have every right and expectation that it will be returned to you. A formal writing is therefore appropriate.


  1. In the case of fraud or deceit by the relative (or any other person you loan money to) you can take a larger tax write off for the loss than you would be able to take if it were simply a personal loan that was not repaid. The writing helps to prove fraud was involved. Lack of a writing leaves the existence of a loan in doubt (was it a gift?) without even getting to fraud. At best you are relegated to a very limited loss write off for a personal bad debt.

For Example:

Senior, retired and on a fixed income of $45,000 per year, loaned Junior $50,000 to start a business. Junior uses the money to go on exotic trips and for drugs.

Unless Senior has some evidence of a loan, the IRS is likely to consider the $50,000 a gift with no write-off. Even if he can prove it was a loan he is likely to get a deduction of no more than $3,000 under existing tax rules regarding bad personal debts. If there is a properly drafted and executed promissory note Senior may be able to write off almost 90% of the $50,000 as a casualty theft loss due to the existence of fraud and deceit, a huge tax savings for a person on a fixed-income.

The moral of this story is “Don’t let love and benevolence trump good common sense.”



How Do We Know if We Need to Go to Probate?

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

Q: A loved one recently passed away and we are not sure how to handle the real estate left behind. How do we know if we need to go to probate?

A: Often-times families are left with property due to a death of a loved one which is only transferrable through a Probate Court proceeding. Sometimes the family can legally access and use the property without going to probate

This often occurs where other persons are part owners of the property but there is no automatic right of survivorship transfer of title on the death of a co-owner. This most often happens with real estate.

Family members continue to live in or rent the property out with no apparent adverse consequence. At some point they go to sell the property and find that they cannot pass a clear and good title. They then have to scramble to clean up a mess before the buyer moves on to buy another property. Additional co-owners can also die in the meantime causing further complications. For these reasons kicking the can down the road is not the way to go.

These problems can be prevented with effective probate avoiding devices such as trusts, various forms of deeds, or a combination of both, as circumstances dictate. If the death has already occurred, a probate proceeding should be commenced immediately to transfer title to the appropriate persons who can then institute preventative measures to provide non-probate transfer when they die.

An elder law, estate planning and probate attorney can be very instrumental in putting these measures in place and should be contacted immediately to assist in this endeavor.

Michael Kelly is an attorney whose practice focuses on estate planning, elder law, special needs planning, and probate as well as tax planning and return preparation. Kelly works with older adults and families to get their personal affairs in order, regarding legal, financial and long term care matters.  His practice includes an adult care advisor who assists clients by connecting them with resources, helping coordinate care, and with many other issues. Mr. Kelly can be reached at (623) 628-1110, email:


My Spouse is becoming very forgetful – What Should I Do?

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

My spouse is becoming very forgetful about things that would normally be remembered. I’m worried that the cause may be Alzheimer’s disease or other dementia. What should I do?

An obvious first step is to have your spouse checked out by a qualified physician. The doctor can determine what, if anything is actually wrong and recommend treatment. If the doctor’s diagnosis is dementia further legal steps to provide adequate legal protections are necessary.

It is important to have the doctor spell out, as clearly as possible; exactly what your spouse is capable of doing from a decision-making standpoint when the diagnosis is made. For example, can he or she identify and understand the extent of the property he or she owns and who his or her heirs are? Is he or she capable of understanding the nature of a transaction sufficient to enter into a contract? Can he or she identify those whom she trusts enough to manage his or her affairs in order to authorize them to do so?

If the answer to any of the above questions is “yes” then it is imperative to consult an elder and estate planning attorney in order to put your spouse’s legal affairs in order with documents such as Powers of Attorney for financial and medical affairs, wills, trusts, and any other documents which apply to her particular circumstances. By doing this, we can keep your life affairs private and reduce legal fees and court costs.

If the answer to the any of those questions is “no” it may be necessary to go into probate court and petition for a Guardianship and Conservatorship in order to take over management of your spouse’s personal and financial affairs.  This is an expensive, public process that requires ongoing court supervision. This scenario will often occur once a dementia patient progresses to later stages and no longer has the capacity to enter into legal documents that would eliminate the need for a guardianship or conservatorship. This is another reason for consulting a physician and an elder and estate planning attorney as early as possible. It is strongly recommended to have legal documents in place that provide others with authority to act on one’s behalf well before dementia or any other disabling condition rears its ugly head.



Tech Support Scam

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

A recent article has appeared in the Arizona Republic discussing a substantial increase in Tech Support Fraud across the U.S. according to the FBI. The article stated that losses from this fraud in Arizona in just ½ of 2018 are 263% of losses in all of 2017. While this type of fraud can victimize anyone, it has been increasingly targeted at citizens over the age of 60.

The scams start with an unsolicited phone call, email or computer-screen pop-up notification from someone purporting to be a tech-support specialist who has identified a virus infecting the victim’s computer. They offer to fix the problem – which very likely doesn’t exist – FOR A FEE.

When a victim responds to a call, email or clicks on a pop-up, criminals will offer to help fix the victim’s technical issues, leading them to request remote access to the victim’s device. At that point the victim will have already paid them money.

NOTE: It is this writer’s experience that these scams are presented suddenly, while a person is working on their computer, and prevents the work from continuing until you call a number in a pop-up to get the problem “fixed.”  One way to combat this problem is to press the ctrl key, then press the alt key while still holding the ctrl key down, and pressing the Delete key, while still holding the ctrl and alt keys down. This will interrupt the program and you can activate a program called  “Task Manager”  by clicking it on a window that comes up.  You can then select the web browser you are using (Chrome, explorer, etc.)  to eliminate the problem. At that point you should run any anti-spyware and anti-virus program you have and scan for problems to see if there is really anything going on and to clean up your computer.

The FBI states, anyone who is online is vulnerable to this scam, perpetrated by well-organized criminal organizations around the world looking to victimize people. Fraudulent tech support companies often will advertise their services online alongside legitimate companies, seeking to trick a victim.

With this access, scam artists can download malware to the victim’s computer, launch phishing attacks against the victim’s contacts and access the victim’s personal information such as tax returns or health records.

Criminals initiate contact with the victim and convince them to allow remote access. The FBI warns that access should never be granted to an unverified company.

According to the FBI a specific form of the fraud known as the “Fake Refund” is also becoming increasingly common. This scheme involves an offer to the victim for a refund for previous support services. The scam artist will then pretend to refund too much money to the victim’s account and ask the victim to return the difference. This kind of “refund and return” process can happen multiple times, causing the victim to potentially lose thousands of dollars.


New Arizona Law Helps Protect Against Excessive Surprise (out-of-network) Medical Billings.

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

Surprise billings from medical providers who are out of the insurer’s network happen often and are a very unpleasant experience for insured patients.  This often happens when a specialist is summoned unexpectedly by an in-network provider on a medical case and can result in substantial medical bills that are in excess of what insurers will reimburse under the patient’s health plan.

A new law in Arizona seeks to protect patients by providing them with a new dispute resolution system for surprise bills that are at least $1,000 above the combined patient cost-sharing and insurer’s allowable reimbursement. The dispute resolution process includes a pre-arbitration settlement conference and mandatory arbitration to provide a final determination of the matter if it is not settled beforehand.  This will only occur if the patient has exhausted appeals with the insurer. The arbitration must occur in the county where treatment is rendered and may be by phone. The process is designed to take only a few months and there are penalties for noncooperation by either party.

This process, though falling short of limiting the practice of surprise billing like several other states have, is a significant step forward in protecting patients from this very unpleasant surprise.






By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

Most of us feel quite relieved when we get our estate planning done, particularly when it comes to naming someone to make decisions for us when we cannot (health care proxy) or providing advance directives concerning our last illness or injury (often referred to as a living will).

The American Bar Association Commission on Law and Aging has developed a smartphone app that allows users to store and distribute their living will or health care proxy. The app is called “My Health Care Wishes.”

How Does It Work?

The app makes advance directives easily accessible when they are actually needed. The app enables individuals, and their family members to store their own, and each other’s documents and important medical histories on their smartphones.  There can be a struggle to find needed information when a parent has a medical emergency and children are often scattered around the country, as is often the case. Distributing the information to each child’s phone would allow quick access to the information and any person with the information could email the information to the medical provider who needs it in real time, saving valuable time in the event of a crisis.

What Else Do I Need To Know?

Advance directives, such as a Living Will or Health Care Power of Attorney, legally authorize another person to make health care decisions if an individual loses the ability to make his own decisions. It is important for everyone to create and sign these directives and to be certain that their appointed agents know where to find the documents when needed. More info about the app can be found at

Questions? Contact us for more information.



Preventing Identity Theft After the Death of a Loved One

By Michael G. Kelly, Attorney at Law

Kelly Law and Tax

For a loved one after death to become a victim of identity theft is the last thing any of us would ever expect to happen. Unfortunately it is a regular occurrence. There are some very important steps we all can take to prevent this from happening:

  • Do not include the birth date, last address or most recent job in the deceased loved one’s obituary.
  • Make sure someone is in the deceased loved one’s home during the published visitation and funeral times, to prevent a burglary/ theft of documents with sensitive personal information.
  • Make sure each of the credit reporting bureaus gets a copy of the death certificate and ask each to add a “deceased alert,” which will freeze the credit file.

Equifax: PO Box 740241, Atlanta, GA 30374

Experian: PO Box 9701, Allen, TX 75013

TransUnion: PO Box 2000, Chester, PA 19022

  • About one month after the loved one’s death, review your loved one’s credit report at to ensure there is no suspicious activity. You may want to do this once a month for one year after the death since it takes that long for an account with a deceased notation to be removed from a credit report.
  • Make sure that your funeral director has notified Social Security about the death of your loved one. You may also want to advise the IRS by calling 800-829-1040 to prevent someone from filing a tax return and claiming a refund in the name of the deceased loved one.
  • Be sure to keep copies of any documentation you provide to these agencies, just in case a follow-up is needed