Have a Health Savings Account? Do you know what happens to your HSA when you die?

An HSA account is a tax-exempt, medical savings account that is available to United States taxpayers who are enrolled in a high-deductible health plan. Over the last few years, HSA accounts have become more common. However, many HSA account owners are unaware of the implications of the rules governing HSA accounts in the event of their death.

Death of an HSA Holder

If you die with an HSA account and you have named your spouse as the designated beneficiary of your HSA, then the HSA will continue to be treated as your spouse’s HSA after your death. Your spouse will then be able to use the money tax-free to pay for qualified medical expenses even if your spouse is not enrolled in a high-deductible health plan. Your spouse will also be able to use the account funds to pay for any qualified medical expenses that you incurred prior to your death if your spouse pays those expenses within a year of your date of death. However, if your spouse is younger than 65, takes a distribution of funds, and uses the funds for something other than medical expenses, then your spouse will be required to pay a 20% penalty tax on the amount withdrawn plus income taxes. (This is the same rule that applies to you while you are alive.)

If you named someone other than your spouse as the HSA account beneficiary, then the HSA account stops being an HSA, and the fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. However, the taxable amount can be reduced by any qualified medical expenses that you incurred prior to your death if those expenses are paid by the beneficiary within a year of your date of death.

If no beneficiary is named or, in other words, if your estate is the beneficiary of the account, then the HSA and the account value shall be included on your final income tax return. The amount reported on your return cannot be reduced for the payment of any qualified medical expenses incurred by you and that your estate paid within a year of the date of your death. This is true even if your spouse is the sole beneficiary to your estate.

In conclusion, naming your spouse as the beneficiary of your HSA account carries numerous tax advantages. If you are not married, naming another person as the beneficiary of your HSA account is a good option, depending on the value of the account and the tax implications you might have if you named no beneficiary and had the value reported on your final income tax return.

Many sellers of real estate do not realize the costs associated with selling real estate in Wisconsin. I am frequently in meetings with clients and catch sellers by surprise when I start mentioning the fees that are associated with the standard offer to purchase form which provides for the seller to pay for an owner’s title policy, the real estate transfer return fee (charged by the Wisconsin Department of Revenue and based on .003% of the value of the property being transferred), mortgage satisfaction fees, closing service fees (normally to a title company), wire transfer fees, and unpaid real estate taxes and assessments (if any). Additionally, a seller is expected to prorate real estate taxes and give the buyer a credit at closing which is usually based on the number of days the seller owned the property in the year of closing and based on the net general real estate taxes for the preceding year.

Altogether, these charges and buyer credits add up and can result in an unexpected surprise if the seller is unprepared. It is possible to negotiate whether the buyer or the seller will pay for the above fees. Therefore, if you are aware of what fees are typically associated with the transaction, then you will know what fees to negotiate with the other party to pay for.

A Seller’s “right to cure” does not mean that the Seller must cure any defects uncovered during a home inspection. Rather, a Seller’s “right to cure” means that the Seller simply has the option to cure a defect once the Buyer notifies the Seller that there are defects to which the Buyer objects.

When the Buyer provides notice of defects to the Seller, the Buyer must include a copy of the inspection report and a list of the defects to which the Buyer objects. After delivering the inspection report and the objectionable defects to the Seller, the Seller may elect to cure such defects. If the Seller elects to cure the defects, then the Seller shall deliver written notice to the Buyer stating that the Seller is electing to cure the defects.

If Seller does not wish to elect to cure the defects, the Seller may deliver notice to the Buyer stating that the Seller will not cure the defects. The Seller also could do nothing after receiving Buyer’s notice of defects. If the Seller does nothing or delivers a notice to the Buyer stating that the Seller will not cure the defects, then the Offer to Purchase will be null and void, and the Buyer should receive its earnest money back. In conclusion, a “right to cure” does not mean that the Seller must cure any defects; it simply gives the Seller the option to cure defects.

The enactment of 2015 Wisconsin Act 358 on April 16, 2016 (Act) has caused significant changes to the Managed Forest Law (MFL) Program. The Wisconsin Department of Natural Resources (DNR) monitors the MFL Program which was created to incentivize private forestland owners to adopt sustainable forestry practices and to designate their property as “open” or “closed” to public recreation. An “open” designation allows the public to access the designated property for only the following activities without further permission from the landowner: hunting, fishing, hiking, sight-seeing, and cross country skiing. A “closed” designation allows landowners to restrict public access to the designated property. Prior to the April 16, 2016 changes, a maximum of 160 acres per ownership, per municipality (city/town/village) could be designated as “closed.” Below is a discussion of some of the significant changes to the MFL Program.

Qualification in MFL Program

Qualification in the MFL Program now requires a landowner to have at least 20 contiguous acres under the same ownership. Prior to April 16, 2016, a landowner was only required to have 10 acres of contiguous ownership. Additionally, if there is any building or improvement on the land, the DNR will not accept the application for the land’s enrollment in the MFL Program. “Improvement” includes any accessory building, structure, fixture, or landscaping. Prior to the changes, only a building that was “developed for human residence” would disqualify the property from enrollment.

No Retroactive Modification of an Order

An MFL order is now defined as a contract between the state and the MFL owner. Therefore, if the laws change after land has been enrolled in the MFL Program, the Act prohibits the DNR from retroactively modifying the order to comply with such law changes. If a new law is enacted that would materially change the terms of the order, the MFL owner may elect either to accept the modifications of the order to be consistent with the new law or to withdraw voluntarily from the MFL Program without penalty.

More “Closed” Acreage and Leases Permitted

The Act now permits landowners to have 320 acres designated as “closed” rather than 160 acres. The fee for the “closed” designation is to be distributed 80% to the local municipality and 20% to the county in which the land is located rather than 100% being distributed to the state conservation fund. MFL owners may also lease “closed” land to persons for recreational activities. Before, the law prohibited such lease agreements.

Natural Disaster Restoration

If the MFL land experiences a natural disaster (defined as damage from fire, ice, snow, wind, flooding, insects, drought or disease), the DNR is authorized to allow an MFL owner to restore productivity and thus be compliant with the MFL Program. The time period to restore the land is subject to the DNR’s discretion.

Cutting Notices

The DNR is no longer required to approve a cutting notice if the cutting is required under the terms of the management plan and the cutting notice is submitted by a forestry professional (as defined in the Act). Additionally, the DNR shall not restrict a cutting so long as the cutting conforms to the management plan and is consistent with sound forestry practices.

Severance and Yield Taxes

The Act repeals the DNR’s authority to assess 5% yield tax on MFL land for timber and forest products harvested. After April 16, 2016, MFL owners should not receive any invoice from the DNR for yield taxes. Any MFL lands with outstanding yield taxes must be voided and any payments received on or after April 16, 2016 as a result of those invoices must be refunded.

The Act makes a number of changes in addition to those discussed above. If you have questions about the changes or are planning on transferring MFL land or withdrawing from the MFL Program, it may be advisable for you to discuss the Act’s impact with a legal and/or forestry professional.

When you hear “identity theft,” you probably think of a thief stealing another person’s Social Security number, obtaining a credit card, and charging the maximum possible until the credit card is in default and is deactivated by the creditor due to nonpayment. Unfortunately, there are many types of identity theft. Tax-related identity theft is the number one complaint from consumers during tax season. From 2011 to October 2014, the IRS estimates that it has stopped over 19 million suspicious tax returns.

The most common form of tax-related identity theft occurs when fraudsters use a person’s stolen Social Security number to file a tax return and claim a fraudulent refund. Fraudsters obtain the names and Social Security numbers often with the help of corrupt insiders with access to this personal data, including tax preparers, health care billing clerks, state employees and debt collectors. The fraudsters file the phony returns by themselves electronically or even with the help of crooked tax preparers. Often, the taxpayer will discover that he or she is a victim of tax fraud when an IRS notice is received stating that more than one tax return was filed with the taxpayer’s Social Security number, additional tax is owed, or that the already-filed tax return reports wages from an employer who did not file a W-2 for the taxpayer.

In the event of a tax-related identity theft scam, the IRS urges taxpayers to immediately do the following:

(1) File an FTC complaint; (2) File a police report; (3) File the IRS Identity Theft Affidavit Form 14039; (4) Follow state-related procedures to report identity theft; (5) Contact one of the three credit reporting bureaus to place a fraud alert on the taxpayer’s account; (6) Close any financial accounts opened without the taxpayer’s permission; and (7) Respond to all IRS notices and continue to file the correct tax return.

The IRS also urges taxpayers to respond promptly to any IRS correspondence in order to facilitate resolving the situation. However, a typical tax-related identity theft scam may take roughly 180 days to resolve. If questions arise during the process, the IRS recommends calling its Identity Protection Specialized Unit at 1-800-908-4490 to assist.

Once identity theft is reported to the IRS, it will assign a unique six-digit number – an Identity Protection PIN (IP PIN) – to the victim each year in December by U.S. mail. The victim may create an account and user profile at https://www.irs.gov/Individuals/Get-An-Identity-Protection-PIN to monitor his or her IP PIN. The IP PIN is required for a victim to file all future tax returns to prove that he or she is the rightful filer of the return. If the IP PIN is ever lost, the victim can log on to his or her IRS account or can call the Identity Protection Specialized Unit. The IP PIN is not required or valid on state tax returns.

For a final note of caution, the IRS never contacts taxpayers by email or social media, and it asks taxpayers to forward any fraudulent communication purporting to be from the IRS to phishing@irs.gov. The IRS warns also that an unexpected phone call from someone claiming to be an IRS agent, either threatening a taxpayer with arrest or deportation if he or she fails to pay immediately, is a scam. Another scam variation includes the caller requesting a taxpayer’s financial information in order to send a refund. The IRS requests that any information regarding these telephone scams be reported at 1-800-366-4484 or at
https://www.treasury.gov/tigta/contact_report_scam.shtml” target=”_blank”>https://www.treasury.gov/tigta/contact_report_scam.shtml”>https://www.treasury.gov/tigta/contact_report_scam.shtml so that the Treasury Inspector General for Tax Administration (TIGTA) is able to investigate these impersonation scams.