Posts by Brian Berman

Brian Berman is an associate in Greenberg Glusker’s Family/Strategic Wealth Planning Group. Mr. Berman counsels high net worth individuals and families on issues involving tax planning, wealth transfer, business succession, non-profit organizations and post-death trust administration.

Three French Hens, Two Turtle Doves, and Money for My Tax Lien

With the holiday season upon us, we all have so much to be thankful for: our health, happiness, Amazon Prime shipping, and — if you’re Lindsay Lohan — an extra $100k from your Uncle Charlie* (Sheen) to help you out of your tax troubles with your Uncle Sam.

That’s right: ‘tis a season of giving and, like any holiday season, it will be filled with scrooges. The odd thing is that the scrooge Bah-Humbugging a gift is usually the giver, not the receiver. Maybe Lindsay is just not into the holiday spirit, but multiple reports have surfaced this week that Lindsay has yet to say, or even text, thank you to Charlie for his generous gift of $100,000 (maybe Charlie should have helped with her phone bill first). [Update: Lindsay finally thanked/apologized to Charlie, citing a “broken phone” and “lost contacts” for the delay — the modern social equivalent of “the dog ate my homework.”] Lindsay reportedly owes more than $200,000 in back income taxes, interest and penalties to the IRS, and Sheen had reportedlygifted Lindsay the money to help her pay off her IRS tax lien.

Generosity Is Taxing

You’re probably familiar with the concept that gifts of money or other property are subject to gift tax (if given during your lifetime) or estate tax (if given at your death), and that there is a certain amount you can give away without paying gift or estate tax (the credit against gift and estate tax). You might also know that there is an amount of money ($13,000 in 2012 but rising to $14,000 in 2013) that you can give each year to each of an unlimited number of individuals without using any part of your credit. What you might not know is that this applies to gifts of any kind and to any donor, not just to family members passing large amounts of money to each other for estate planning purposes.

That’s right — the $20 Starbucks gift card you gave your co-worker for the office’s gift exchange? Now you only have $12,980 left to give that person this year. The $10 check that grandma gave you for your birthday and that ugly sweater that your best friend bought you (on sale, of course) just because she was thinking about you? Gifts! Even those hand-me-downs that you gave your friend after you lost (or put on) that weight is considered by the IRS to be a “gift.” Generally, the IRS just doesn’t care until you hit $13,000 to the same person in one year. If the total value of all gifts you make to any one person exceeds $13,000 in one year, you are required to file a gift tax return reporting those gifts to the IRS.

Santa is very careful about keeping costs down by keeping his gifts small (and by hiring non-unionized Elves following the North Pole’s passage of a “Right to Work” bill). On the other hand, when you’re handing out $100k stocking stuffers, that’s a bit of a different story.

‘Tis Really the Season

If there has been any recent year in which to feel generous, 2012 has been that year.

Thanks to the some down-to-the-wire, eleventh-hour negotiations to avoid the fiscal cliff of December 2010 — yes, 2010 (déjà vu anyone?) — Congress gifted America the “2010 Tax Act,” bestowing upon us the well-known (and soon to expire) extensions of the 2001 Bush tax cuts. As part of the 2010 tax deal, the estate and gift tax credit was increased to $5 million for 2011 and $5.12 million for 2012. The 2010 Tax Act also unified the amount that could cumulatively be given away during lifetime (the gift tax credit) with the amount that could be passed at death (the estate tax credit), so that the wealthy-and-generous could take full advantage of the entire amount during their lifetimes. Prior to the 2010 Tax Act, only up to $1 million of credit could be used during lifetime.

But, as we prepare — again — to dive off the fiscal cliff, absent Congressional action, the estate and gift tax credit will go back to $1 million (pre-Bush era amounts) and the tax rate will increase to 55% (from its historically low rate of 35%). So, in the “use it or lose it spirit,” the proverbial 1%ers have jumped on the 2012 giving bandwagon and are racing to transfer assets to their kids before the rates change on January 1.

Say Thank You, Lindsay!

Charlie Sheen seems to follow the “use it or lose it” mentality in many areas of his life, including his giving. The good news for Charlie is that his gift of $100,000 to LiLo likely won’t cost him any gift tax — the first $13,000 will be sheltered by the annual exclusion from gift tax and the other $87,000 will probably fall within Charlie’s $5.12 million gift tax credit. This, of course, assumes that Charlie hasn’t jumped on the same bandwagon as the rest of the 1% and already given away $5.12 million over his lifetime through responsible planning under the advice of good tax advisors (stop laughing…it could happen).

But let’s just say Charlie is getting good tax planning advice and has made his $5.12 million of lifetime gifts already — the $100,000 gift to LiLo is going to cost Charlie about another $30,000 in gift tax. That’s a tax Charlie is going to owe the IRS, not Lindsay. So, really, Lindsay, you should thank Charlie twice. You just got an extra $100k from Considerate Charlie….and he is footing the tax bill, if any!

It Was a Gift, Right?

According to recent reports, it seems that maybe Charlie felt Lindsay was owed this money for work relating to Scary Movie 5, in which she appeared with Charlie, that was never paid to her. Careful, Charlie: sounds like you’re saying this is income that Lindsay earned, which would mean she has to pay income tax on it! Lucky for Lindsay, unless the IRS can demonstrate that Lindsay was employed by Charlie, this probably won’t constitute taxable earned income to Lindsay and really is just a nice gift.

Maybe this wasn’t really a gift and Charlie just loaned Lindsay the money? Well, that’s double the benefit for the IRS. Either Lindsay has to pay interest to Charlie, which is taxable interest income for him (but no gift), or Charlie will be treated as if he received the interest income and then gifted it back to Lindsay! In other words, option A is that Charlie pays income tax on the interest he receives, and Option B is that Charlie pays income tax and gift tax on the interest he foregoes (double whammy!), but every option is money in the bank — for the IRS. And if it is a loan, Lindsay better add that $100k principal debt to her liability sheet — and Charlie will take backseat to the IRS in being repaid.


So, if you are lucky enough to be like Lindsay and receive a large gift from someone who cares, thank that someone not only once, but 1.35 times, because that gift may be costing more than just the price of the gift itself — that someone may be paying the gift tax on the gift as well. On the other hand, if you, like most people, are stuck in the $10 check or ugly sweater category, you can simply thank them once (or not at all, depending on how ugly the sweater really is).


*We should note that Charlie Sheen is not actually Lindsay’s uncle. The fact that they are not related makes a difference. In addition to gift tax, the IRS imposes a “generation-skipping transfer tax” (an additional 35% tax) on any gifts made to someone who is two generations or more below you (such as in the case of grandma’s check). In the case of a non-relative, that means someone more than 37.5 years younger than the donor. Lindsay is only 21 years younger than Charlie, so Charlie is safe. Playboy mogul Hugh Hefner isn’t as lucky…the ginormous engagement ring he gave fiancé Crystal Harris (who, at only 26, is 60 years his junior) is technically a gift (subject to 35% gift tax rate) to someone two generations below (resulting in an additional 35% tax). The only way to fix this is to actually marry her, because spouses are exempt from this gift tax and generation-skipping transfer tax. Is that one of the ways Crystal convinced Heff to say “I do?” Crafty woman!


And the Oscar Goes to…the Highest Bidder!

[Ed. Note: Law Law Land’s non-calendar-compliant Oscar week continues, as Brian Berman returns to explore the fates of all of those little Oscar statuettes that were handed out during last night’s show.]

Los Angeles was lively over the weekend as Hollywood’s finest took the stage at the 83rd Academy Awards. Hollywood’s best, brightest, and most recognizable are always out in force for Oscar weekend. But perhaps no figure shines brighter than Oscar himself (although it’s not actually fair fight, as he is gold-plated).

Standing tall at 13 ½ inches and weighing in at 8 ½ pounds (that’s just over 0.6 stones for our British friends), Oscar’s gold-plated metal figure is recognized the world over. As with any Hollywood star, “Oscar” is just a stage name. Oscar’s real name is the “Academy Award of Merit.” Also, Oscar is technically a “statuette,” not a statue. And for last night’s winners, he might also be their new best friend.

But what if a winner wanted to get rid of his or her Oscar? Maybe he or she needs to raise a little extra money to pay those Ferrari lease payments and Dom Perignon bar tabs. Maybe he or she wants to give a friend or family member a token of his or her love. Or maybe he or she is just weirded out by a naked knight staring at him or her.

It is hard to imagine anyone getting rid of an Oscar, but, for argument’s sake, let’s say that someone wanted to. Could he or she do that? Continue reading the full story . . . »

Hailee Steinfeld Owns Hollywood…But Who Owns Hailee Steinfeld?

[Ed. Note: Today’s post opens up our week of Oscar coverage. On a Friday. Who are you to judge our calendar-related choices? Drop by next week for more posts addressing all the burning, tangentially Oscar-related questions you probably never thought to ask!]

At 14 years of age, Hailee Steinfeld is this year’s youngest Oscar nominee, receiving the nod for Best Supporting Actress for her role asMattie Ross in the Coen Brothers’ adaptation of True Grit. With her huge role and Oscar recognition, it appears as if young Hailee owns Hollywood at the moment. But who owns Hailee?

Child celebrities have long taken the world by storm, and while their personalities (and, sometimes, their egos) can seem larger than life, we often forget that they are still just children. As such, they are not masters of their own domain. Justin Bieber may be able to make young girls the world over cry on command, but just like every other child in America, the Biebster needed his mom’s permission before cutting off his iconic mop.

The age of majority in most U.S. states is 18. Until then, kiddies, mommy and daddy functionally own you. They control where you live, where you go to school, who you can hang out with and pretty much every other aspect of your life. On rare occasions, children become “emancipated minors,” meaning they break hold from parental bondage, usually by getting married, joining the armed forces, or going to court to ask for their freedom. Until you turn 18 or emancipate yourself, however, your parents control whether or not you can work, including acting and singing. And that has significant implications for child stars like Hailee Steinfeld. Continue reading the full story . . . »

Divorce Used To Be So Softcore

Congress is set to vote on middle-class tax cuts. President Obama is pushing to extend a nuclear arms treaty with Russia. And yet, stories about a wave of recent celebrity divorces continue to take a lion’s share of the headlines. After all, who can think about nuclear arms treaties when it’s over for Eva and Tony? Yes, you heard it here last: Desperate (Ex-)Housewife Eva Longoria Parker and her Spurs star husband Tony Parker are getting divorced. They join the ranks ofChristina Aguilera and Jordan Bratman, Mel Gibson and Oksana Grigorieva, and Kate Winslet and Sam Mendes, in what can only be considered a dark time for Hollywood and a boon for Hollywood divorce lawyers. Personally, I don’t really care. Although divorce is generally sad (or happy depending on how bad the marriage is), I don’t know these people. I seem to be in the minority, though, as many spectators seem to get as emotionally involved as the divorcing couple itself. Newspapers and websites everywhere are filled with stories of how Longoria filed for divorce amidst rumors of Tony’s infidelity.

Longoria’s divorce papers cited “irreconcilable differences.” This is a common ground for divorce nowadays, serving as a generalized “this just ain’t working” reason for ending a marriage. It wasn’t always so easy to call it quits. In the old days, you had to resort tobeheadings or breaking away with your own new religion in order to part ways. Even in the United States, it was fairly difficult to get a divorce for many decades. The modern concept of “no-fault” divorce — the notion that there doesn’t need to be a “wrong” by either the husband or the wife in order for the marriage to dissolve — took some time to develop. Continue reading the full story . . . »