Ask the Probate Judge—Good News for the New Year
Rudd, appeared January 12, 2006, Albuquerque Journal, Business Outlook
Reprinted with permission
Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.
Here is some good news for the new year.
Notary Public Can Count as Second Witness
After reading my last column of 2005, a concerned reader wrote that when she created her will, she had the notary sign the will, along with one witness. My column said that New Mexico law requires two witnesses to a will. HOWEVER, a 1983 New Mexico case interpreted this witnessing rule to allow the notary public to "count" as a witness if he saw the decedent sign the will, signed in the presence of the decedent and other witness, and identified himself as the notary. The court ruled that the will was valid under those circumstances. Remember that notarization is optional. If people want a notarized will, despite this case, I still recommend that two witnesses, in addition to the notary, participate in the signing of the will.
Increased Federal Estate Tax Exemption
The good news for those who hope to avoid estate tax liability is that, under current federal estate tax laws, the estate tax exemption increased January 1, 2006 to $2,000,000 per person, up from $1,500,000 in 2005. With proper tax planning, married couples can now pass up to $4,000,000 without federal or state estate tax being owed.
The "annual gift tax exclusion" increased in 2006 to $12,000 per person per year, up from $11,000 in 2005. Recipients of gifts can be children, other relatives, or anyone else. A married couple can gift up to $24,000 per person per year. The donor does not have to file a federal gift tax return if the total amount of each gift is $12,000 or less per person per year. Gifts over $12,000 per person per year may be made without tax consequences if paid directly to persons who provide certain medical care or for tuition to qualified educational institutions.
Time to Shred
If you are an honest taxpayer, you can shred tax receipts, bank statements, and other documentation from 2001 and earlier because the statute of limitations (SOL) for 2001 federal income tax returns has expired. The general rule for federal tax returns is that the IRS must assess a tax "within 3 years after the return was filed." So for 2001 tax returns, which were filed by April 15, 2002, the three-year SOL expired at midnight on April 15, 2005. If you filed after April 15, the SOL runs from the date the return was filed. Be aware, however, if you omitted more than 25% of the amount of gross income stated in an income, estate, or gift tax return, tax can be assessed at any time within six years after the return was filed. If you (1) file a false or fraudulent return with the intent to evade tax; (2) make a willful attempt to defeat or evade tax; or (3) fail to file a return altogether, there is no SOL. The IRS can assess tax, penalties, and interest against you at any time. The SOL for 2001 state income tax returns expired at midnight on December 31, 2005. For false or fraudulent returns with the intent to evade tax, the state SOL is ten years; for failure to file a return seven years; and understating by more than 25% the amount of tax liability six years. These time limits apply to both state income taxes and gross receipts taxes.
© 2006, Merri Rudd & Albuquerque Journal, All Rights Reserved