A Stark Reminder of the Importance of Wills and Trusts Everyone needs to have a will or trust set up for their financial future. Even if you feel too young to think about it, it’s never too early to prepare for the only guaranteed milestone in life. Take Chadwick Boseman’s estate as an example. Back in 2016, the actor (best known for his starring role in Marvel’s “Black Panther”) was diagnosed with stage III colon cancer, and he hadn’t even turned 40 yet. After quietly battling this awful disease in private, Boseman died only four years later on Aug. 28, 2020, leaving behind his parents, a wife, and many more family members who were devastated by their loss. CHADWICK BOSEMAN’S ESTATE DEBACLE
HERE’S HOW I FIXED IT TOPH’S TAX TRIUMPH
In some battles with the IRS, approaching the agency with a colossal tax bill can sometimes be better than haggling over a small one.
I represented a client recently who had run a business selling household goods on eBay for just one year. She had received a Form 1099 from eBay showing total sales of $230,000, but she didn’t realize she needed to report the income. The client shuttered the eBay business, moved on to a paid job, and made a fateful mistake: She forgot all about the Form 1099. A few years later came a nasty surprise. The IRS hit her with a tax bill of $120,000 — the amount the agency said she owed on sales of $230,000, plus penalties and interest. This case was unusual in a few ways. First, the client was only delinquent for one tax year, rather than several. Also, paying a six-figure IRS bill was clearly out of the question for her financially. Finally, she had never had any problems paying her taxes before her eBay venture or since. The client wanted to backtrack and prove to the IRS that she had never owed any amount even close to $120,000. The Form 1099 from eBay didn’t take into account her costs, so her taxable income probably would have resulted in a tax bill closer to $10,000 or $15,000. As with any tax resolution case, we began with the end in mind and worked backward. Our goal for this client was to reduce her final tax liability as much as possible. The best strategy was for her to accept the fact that she owed the larger amount, and then prove that she couldn’t afford to pay it. With that goal in mind, we made an Offer in Compromise to the IRS to settle the $120,000 debt for $294. And recently, the agency came back to us with a fantastic settlement offer of only $1,284 — roughly 1% of the original bill! If we had started by calculating my client’s actual taxes owed and begun negotiations over that smaller bill, agents would likely have refused to discount her debt further and put her on a time-payment plan. Instead, our strategy left our client with a much smaller liability. Needless to say, she was thrilled with the outcome — and walked away nearly debt-free.
Tragically, he didn’t leave behind a trust for his estate. When this happens, the deceased’s financial assets must go through probate, a court-supervised process for identifying and distributing those funds to the deceased’s beneficiaries.
In California, where Boseman lived, intestacy laws require the probate courts to decide where someone’s
assets can go. His widow petitioned the court to become the estate’s representative, which she was granted, allowing her to allot her late husband’s inheritance to be split evenly between herself and Boseman’s parents. However, because he didn’t establish a trust for these funds, legal fees and the U.S. government claimed a third of his net worth, a cut worth $1.5 million. And Uncle Sam could have taken even more of his estate if Boseman had lived in a different state without intestacy laws. If this is what the system can do to a celebrity with millions of dollars, imagine what can happen to the estates of everyday people. All your planning, saving, and preparing for your family’s future in the wake of your absence could be gone overnight if you don’t have the right legal documents in place.
–Toph Sheldon
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