Tax Deadline Day vs. Tax Freedom Day

Today -- the day many income tax returns are due -- I note some excellent recent postings on the website or the blog of the Tax Foundation.

On April 17th, the Tax Foundation summarized the results of its most recent (2007) national tax survey in a posting entitled "What Does America Think About Taxes? The 2007 Annual Survey of U.S. Attitudes on Taxes and Wealth", by Andrew Chamberlain (Special Report No. 154):

[T]he domestic issues of tax complexity, fairness and burdens continue to weigh heavily on the minds of the American people. For the third consecutive year, we find that a majority of U.S. adults say the federal income taxes they pay are "too high," that the federal tax code is complex, and that the U.S. tax system is in need of major changes or a complete overhaul.

That entire report is available here (333 KB, PDF).

On the blog of the Tax Foundation, Brian Phillips posted an entry entitled "Things to Think About on Tax Day" (April 16, 2007), where he notes these significant findings derived from the 2007 Tax Survey:

• Over 42 million filers will pay nothing in federal income taxes - up from 29 million in 2000.
• Sixty percent of the country is a net consumer of government spending. That is, they receive more in spending than they pay in taxes.
• Though the average household receives over $31,000 in government spending, nine out of ten people say they would pay less than $10,000 for the government services they receive. * * *

He then comments: "Taken together, since less and less of the country is being asked to shoulder the burden for America's priorities, there is a huge disconnect between what we're spending and the value Americans place on the services we receive. Nowhere is this more clear than the rising demand and subsequent costs for entitlement spending."

"So who exactly is paying all the taxes?"

This question is answered, regarding federal income taxes, in an excellent article entitled "Who Pays What on Tax Day", by Scott A. Hodge and Brian Phillips, published originally in the San Diego Union-Tribune and reposted by the Tax Foundation on April 15, 2007.

The truth is that the vast majority of federal income taxes are paid by high-income earners.

According to the most recent IRS data available, the top 10 percent of households - with incomes roughly $100,000 or greater - pay roughly 70 percent of all federal income taxes. That share is up from just below 50 percent in 1980. If you include the top quarter of all taxpayers, the share balloons to 85 percent.

Interestingly, the cause of these surging payments by high earners has as much to do with demographics as with tax policy. In 1967, most households in the statistical middle fit the traditional notion of the "middle class" - married couples with children living on the income from one breadwinner.

By contrast, today's statistical middle - people earning between $25,000 and $45,000 - are mostly young and single. People marry later, and they divorce earlier. Forty years ago, middle-income households looked like the family in "Ozzie and Harriet"; today, it is the cast of "Friends."

And among today's married couples, few are living on one income. Between 1980 and 2003, the number of dual-income working-age couples grew rapidly, and the extra income catapults these households into the highest income groups. * * *

But taxpayers must pay more than just federal income taxes. The burden of payroll taxes is under-appreciated. See: "Payroll Taxes Hit Most Americans Harder than Income Taxes", posted on April 16, 2007 by Gerald Prante.

In the rush to file their federal income tax forms for tax year 2006, Americans may not look closely enough at their W-2s and may not realize the true economic incidence of payroll taxes; they may not realize that they probably paid more in federal payroll taxes than in federal income taxes last year.

Most economists agree that virtually all of the payroll tax burden is borne by workers, even that portion that is legally paid by the employer.

And so when we count that as a tax on the worker, we begin to realize that this 15.3 percent tax rate can be higher than the income tax rate that these individuals are paying; most of them lie below the Social Security cap ($97,500) and fall in the 10 and 15 percent taxable income brackets (with possibly some income being taxed at the 25 percent rate).

Only for high-income earners or those who earn most of their income in non-wage form will their income tax burden exceed their payroll tax burden. * * *

For more on how different types of households are hit harder by different types of taxes, check out the full working paper on which these numbers are based.

And then, there are state & local taxes to pay too. The Tax Foundation notes the increasing burden of such taxes in a posting on April 17, 2007, entitled "Nation's State-Local Tax Burden at Record High".

The nationwide burden of state and local taxes has hit an all-time high of 11 percent of income in 2007, with Vermont's taxpayers bearing the heaviest load, according to the Tax Foundation’s annual study of state and local taxes. * * *

View the full report. Read the news release. View all states’ state-local tax burdens by state or by year.

So, with all these taxes paid by many Americans, when can we celebrate "Tax Freedom Day" this year?

The Tax Foundation addresses that too, in its recent posting entitled "America Celebrates Tax Freedom Day®":

Tax Freedom Day^® will fall on April 30 in 2007, according to the Tax Foundation's annual calculation using the latest government data on income and taxes. (Click here to read the full study).

"Tax freedom will come two days later in 2007 than it did in 2006," said Tax Foundation President Scott A. Hodge, "and fully 12 days later than in 2003, when tax cuts caused Tax Freedom Day to arrive comparatively early, on April 18."

Mark April 30, 2007, on your calendar, and do something special -- for yourself & your family.

* * *

Update: 04/18/07:

Bridget M. Whitley, an attorney in Harrisburg, PA, sent an email to me referencing an article she read that affirmed the need for, and the fairness of, a progressive tax system that taxes wealth. See: "Progressive Taxation: Some Hidden Truths", by George Lakoff & Bruce Budner (last modified 04/17/07), available on the website of the Rockridge Institute, a self-described "progressive thinktank".

Several main progressive values support the idea of progressive taxation. One is the belief that the common wealth should be used for the common good. Another is responsibility, the responsibility that citizens have to pay for the benefits we receive from our common wealth. And still another is fairness. These values intertwine on the question of progressive taxation. * * *

The wealthy have made greater use of the common good — they have been empowered by it in creating their wealth—and thus they have a greater moral obligation to sustain it. They are merely paying their debt to society in arrears and investing in future empowerment. * * *

If you agree with such an approach in a tax system, the question then arises: Who is "wealthy"? That issue likely will be the subject of a forthcoming Congressional debate as the "alternative minimum tax" provisions of the Internal Revenue Code apply to more & more Americans who would never describe themselves as "wealthy", particularly considering their support of other family relations -- like children, disabled relatives, or elderly parents.

PA DPW's Plan for Personal Care Homes?

On April 12, 2007, the Pennsylvania Department of Public Welfare announced a plan for addressing the identified crisis in its supervision of certain personal care homes in the Commonwealth.

What is the impetus for such a new plan? Could it be the public scrutiny upon the situation described in a newspaper article?

Anna Mae Edwards' family thought well of Judith Reynolds after four years watching her competently care for the 90-year-old woman at Cedarwood Personal Care Inc., where Edwards was still healthy in relatives' eyes.

That faith was shattered the morning of Aug. 25, when, police say, Reynolds left Edwards and seven other residents unattended before a replacement staff person arrived.

Edwards collapsed to the floor of her room, bruised and with no one to provide immediate help. Three days later, she died in a hospital, with a heart attack from coronary artery disease listed as the cause. * * *

For the first time since 1991, major revisions in oversight of personal care homes are pending in Pennsylvania. The Department of Public Welfare plans to publish regulations by Nov. 4 that, if approved, would set new training and competency test requirements for administrators and staff, among a wide range of changes. * * *

Not directly. That excerpt was published on Sunday, September 5, 2004, in the Pittsburgh Post-Gazette, as written by Gary Rotstein in his article, entitled "New rules on the way for personal care home operators in Pa.", when he reported that the death of a woman "who lived at Cedarwood, Indiana Township, brings attention to wider issue". That article listed documented cases of abuse that had occurred in personal care homes in Pennsylvania.

The adopted updated Personal Care Home Licensing regulations, effective October 24, 2005, can be found here (PA. Bulletin) and here (PA Code).

No, DPW is reacting to the further investigative journalism in 2006 & 2007 that resulted in publication by The Philadelphia Inquirer of its series "A Failure to Care", at the end of February, 2007.

I noted the series on March 1, 2007, in Phila. Inquirer's "Shame of the State" Investigation (03/01/07) & its Updates. See also: Legislation on "Personal Care Homes" in PA (03/07/07), & its Update. (Unfortunately, the links I had posted to those articles now are broken, since the seven day "free" access period expired; but the articles can be obtained through the Inquirer's online subscription service.)

What is the announced plan? We cannot read about it yet on DPW's website, since it has not been the subject of a formal press release, among many issued, as listed here. So we must rely on news reports to learn about it.

Charles Thompson reported about DPW's plan in the Patriot News on April 11, 2007, in his article entitled "DPW addresses home inspections backlog":

State Public Welfare Secretary Estelle Richman unveiled a plan Wednesday to attack an inspection backlog that has left, by her department's count, more than 70 percent of Pennsylvania's 1,589 personal care homes operating on expired licenses.

Richman said the Department of Public Welfare's plans to hire a short-term corps of retired workers who have worked in inspecting a variety of residential facilities for the state.

"Given that they've all had experience doing this kind of inspection before... we believe if we can hire 30 of them, we can have this done sometime around October," Richman told a House panel overseeing the state's regulation of the personal care industry.

Richman said the proposed inspection surge will allow the welfare department to focus its permanent personal care inspectors, including 15 new hires proposed this year, on more serious rule-breakers around the state. * * *

Associated Press reporter Martha Raffaele, who covers human service issues in Harrisburg, provided further details on April 12, 2007, in her AP article entitled "Welfare secretary: Retirees may help inspect personal-care homes".

The state is trying to hire 30 retired workers as temporary, part-time inspectors and may contract with a private company to help address a backlog of annual personal-care home inspections.

The retirees, who would have previous experience inspecting nursing homes and other facilities, will help the agency complete inspections of the nearly 75 percent of personal-care homes operating with expired licenses, Public Welfare Secretary Estelle Richman told a panel of state House members Wednesday. The inspections would be finished by the end of the year.

"With about 30 people, we can get through that," Richman said during a hearing on the state's oversight of personal-care homes.

Richman's testimony came three weeks after she disclosed the backlog during her Senate confirmation hearing. After that hearing, a spokeswoman for Richman said 1,190 of 1,589 personal-care homes were operating with expired licenses, and that the agency was moving to close 30 homes because of safety concerns.

But this plan is subject to debate, just as the regulations that were updated two years ago. Martha reported on this debate in her article published April 15, 2007, entitled "Advocates, operators still disagree over personal-care home rules":

Eighteen months after Pennsylvania began implementing tougher personal-care home regulations, neither the homes' operators nor advocates for the disabled are entirely happy with the results.

Their sharply contrasting views were laid out in testimony last week during a legislative hearing.

Administrators of the homes , where the elderly and disabled receive help with daily tasks such as dressing, bathing, and managing their finances , said the regulations were too costly and created time-consuming paperwork.

Advocates said while the new rules vastly improved the state's inspection and enforcement practices, some shortcomings still exist, such as a lack of adequate training for certain workers.

The Department of Public Welfare, which is responsible for 1,589 personal-care homes serving more than 50,000 residents, says it's too soon to reopen the regulatory debate just yet. * * *

The Philadelphia Inquirer continues to follow the issue that it drew to national attention. For its latest report, see: "Interim help will inspect care homes --Pa. will hire 30 retirees to clear an inspection backlog" by Martha Raffaele & Nancy Phillips, published April 12, 2007:

State Rep. Phyllis Mundy, chairwoman of the House Aging and Older Adult Services Committee, said yesterday that The Inquirer's report raised concerns that lawmakers needed to address.

"People should have peace of mind when they place a loved one in a personal-care home setting," Mundy (D., Luzerne) said.

Richman has acknowledged that her department has been slow to address health and safety issues, and she has pledged to correct that. * * *

Admittedly, DPW is addressing "interim help" with its proposed plan. Ultimately, the Legislature must envision & implement a long-term structure for personal care homes.

US Tax Court: A Ruling & Rules

On April 12, 2007, the United States Tax Court issued an Opinion in Estate of Edward P. Roski, Sr., deceased v. Commissioner of Internal Revenue Service (30 pages, PDF), 128 T.C. No. 10, on a somewhat obscure section of the Internal Revenue Code that, in a broader sense, signals a more responsive approach by that Court to taxpayers, and increased responsibilities of the Internal Revenue Service in disputes before the Tax Court.

An introduction to this federal court of distinctive jurisdiction & powers is set forth on the website of the United States Tax Court:

The U.S. Tax Court is a Federal court of record established by Congress under Article I of the Constitution of the United States. Congress created the Tax Court to provide a judicial forum in which affected persons could dispute tax deficiencies determined by the Commissioner of Internal Revenue prior to payment of the disputed amounts. The jurisdiction of the Tax Court includes the authority to hear tax disputes concerning notices of deficiency, notices of transferee liability, certain types of declaratory judgment, readjustment and adjustment of partnership items, review of the failure to abate interest, administrative costs, worker classification, relief from joint and several liability on a joint return, and review of certain collection actions.

The Tax Court is composed of 19 presidentially appointed members. Trial sessions are conducted and other work of the Court is performed by those judges, by senior judges serving on recall, and by special trial judges. All of the judges have expertise in the tax laws and apply that expertise in a manner to ensure that taxpayers are assessed only what they owe, and no more. Although the Court is physically located in Washington, D.C., the judges travel nationwide to conduct trials in various designated cities.

For further information, you can read the Taxpayer Information Section recently-posted on that website. Or you can view a PowerPoint presentation entitled "Tax Court in the United States: Background & Sources of Judicial Opinions" (26 slides), posted by the Library of the Yale Law School.

The U.S. Tax Court is altering its procedures to become more responsive in "small tax cases".

A Press Release, dated September 12, 2006, reported that Chief Judge John O. Colvin, for the Court, proposed amendment to Rule 173(b) of the Tax Court Rules of Practice and Procedure, that would require the filing of answers by the Commissioner of Internal Revenue in all small tax cases.

Small tax cases now comprise about half the Court’s docket. Petitioners in small tax cases are increasingly represented by low income taxpayer clinics, which in recent years have proliferated, partly because of funding provided by legislation. The parties as well as the Court would benefit from improved pretrial communication between the parties in small tax cases.

Because current rules generally do not require the Commissioner to file answers in small tax cases, petitioners and low income taxpayer clinics have sometimes had difficulty in identifying and contacting, until shortly before trial, the IRS attorney responsible for a case. Requiring the Commissioner to file answers in all small tax cases will provide petitioners or their counsel the name, address, and telephone number of the IRS attorney responsible for the case well before trial.

This information should facilitate essential pretrial communication between the parties, encourage earlier consideration of small tax cases by the appropriate IRS attorney, and reduce instances in which the parties and the Court are surprised by 11th-hour procedural and jurisdictional motions.In addition, small tax cases move through the administrative system relatively quickly and may present novel issues resulting from changes in the tax law. The filing of answers may promote earlier identification of such issues and assist the Court in making informed and timely decisions as to whether it might be appropriate to discontinue small tax case proceedings in particular instances, pursuant to section 7463(d). It is not anticipated that the proposed amendment will result in any significant delay in the calendaring of small tax cases for trial.

Then, in a Press Release, dated November 28, 2006, the Court reported extension of the previously-scheduled implementation of the new rule amendments, pending evaluation of written comments received. The comments, derived from four sources (including the Department of the Treasury and the American Bar Association's Tax Section), were attached to the press release.

Then, in a Press Release, dated January 12, 2007, the Court announced adoption of the final amendments to its court rules. The amendments became effective for small tax cases in which the petitions were filed after March 13, 2007.

Against this backdrop, the Roski case stands out, even though the substantive litigation related to a little-used tax election claimed by an estate.

That case related to an estate's election for treatment under I.R.C. Sec. 6166(a), which allows an estate an election to pay Federal estate tax due in installments over a 10-year period after a 5-year deferral. Otherwise, Federal estate tax is due within 9 months of a decedent’s death under I.R.C. Sec. 6075(a).

The issue before the Tax Court was the IRS requirement that the Estate post adequate long-term surety in order to make the election under the statutory provision.

A summary of the issues and holdings was set forth in the Tax Court's Opinion (Note: "R" is the Internal Revenue Service, as Respondent; emphasis is added):

The estate filed a petition with this Court requesting relief under sec. 7479, I.R.C. The estate alleged that R abused his discretion in denying the election on the basis of the estate’s failure to provide a bond.

R moved for summary judgment on the grounds that this Court does not have jurisdiction to review R’s determination because the requirement of a bond or a special lien is not within the scope of the jurisdiction granted by sec. 7479, I.R.C. The estate objected to R’s motion and filed a cross-motion for summary judgment, asking this Court to find that R has no authority to impose a bright-line security requirement and that if R had exercised his discretion properly, he would not have found a bond or a special lien to be necessary in this case.

Held: We have jurisdiction under sec. 7479, I.R.C., to review R’s determination. Nothing in the statute or its legislative history restricts our review of R’s denial of the election. R has failed to rebut the strong presumption that an action of an administrative agency is subject to judicial review.

Held, further, R has no authority to require a bond or a special lien in every case. By doing so, R is making the furnishing of security a substantive requirement of sec. 6166, I.R.C., which Congress did not intend. Further, R’s adoption of a standard that precludes the exercise of discretion is grounds to set aside R’s determination.

The Tax Court issued its ruling as an "opinion", rather than as a "memorandum", decision, which adds weight to its holdings.

The Tax Court noted that "The Commissioner has changed his position regarding whether a bond is required for a section 6166 election four times over the last 15 years". The Opinion reviewed those changing, published IRS positions, which were adopted in 1987, 1993, 1997, & 2000, and then noted: "Ultimately, the Commissioner did not adhere to the position he took in 2000." The Opinion noted "Although the published guidance discussed earlier cannot be cited as precedent under section 6110(k)(3), it highlights the Commissioner’s confusion about the proper interpretation of the bond requirement."

The Tax Court rejected the IRS arguments that, should the Tax Court ignore IRS administrative interpretations, the legislative purpose behind both sections 6166 and 7479 would be frustrated. The Court countered, citing a supportive legislative report:

Congress enacted section 7479 because “[it] believed that taxpayers should have access to the courts to resolve disputes over an estate’s eligibility for the section 6166 election, without requiring potential liquidation of the assets that the installment provisions of section 6166 are designed to protect.”

On the issue of an adequate "exercise of discretion", the Tax Court found insufficiency on the part of the IRS:

[S]ection 6165 gives the Commissioner discretion to require a bond for extension of time to pay tax, but it does not make it mandatory. Implicit in this grant of discretion is a statutory obligation to exercise discretion. Respondent, however, has not exercised discretion in spite of the fact that he concedes in his memorandum that requiring a bond under section 6165 is “unquestionably a discretionary act that could only be subject to an abuse of discretion review.”

The failure of the IRS to exercise "discretion" in this particular case, when requested by the election, frustrated both legislative and judicial concepts:

By adopting a bright-line rule in every case, the Commissioner has shirked his administrative duty to state findings of fact and reasons to support his decisions that are sufficient to reflect a considered response to the evidence and contentions of the losing party and to allow for thoughtful judicial review.

But, the case is still not over, as indicated by the concluding paragraph of the Opinion:

We have found that respondent has arbitrarily failed to exercise his discretion and may not impose a bright-line bond requirement. Therefore, for the above reasons, we will deny respondent’s motion for summary judgment. However, we will not adjudicate the merits of the dispute at this juncture as the estate requests in its cross-motion for summary judgment. The record does not contain sufficient facts for us to decide the merits of the estate’s assertion that furnishing security is not necessary in this case. The uncontested facts do not allow us to resolve the matter in favor of the estate. Therefore, we shall also deny the estate’s cross-motion for summary judgment to the extent that it seeks a final disposition of the matter.

The very broad point that can be read from both the rule amendments and the Roski case is that the IRS should be responsive to taxpayers' good faith concerns & actions when applying federal tax laws.

"Survey Says...": The Answers

"How savvy are you about the views or status of Americans on matters of taxes and their personal & estate planning?"

That was the question posed in my previous posting.

Did you take The Test -- consisting of twelve multiple-choice questions, which I drew from the results of recent national surveys -- as set forth in "Survey Says...": The Test?

To determine the correct answers, I relied upon the reported results of these recent national polls:

• 2007 Estate Planning Survey commissioned by Martindale-Hubbell & Lawyers.Com, as conducted by Harris Interactive, with a summary of the results reported in a Press Release, dated April 3, 2007, posted on the Lexis-Nexis website, here.
• 2007 Tax Survey commissioned by the Tax Foundation, as conducted by Harris Interactive, with a summary of the results reported in a Press Release, dated March 22, 2007, posted on the Tax Foundation's website, here. The full poll results are available online here.
  
• 2006 Estate Planning Survey commissioned by Lawyers.Com, as conducted by Harris Interactive, with a summary of the results reported in a Press Release, dated September 5, 2006, posted on the Lexis-Nexis website, here.
• 2005 Tax Survey commissioned by the Tax Foundation, as conducted by Harris Interactive, with a summary of the results reported in a Press Release, dated April 14, 2005, posted on the Tax Foundation's website, here. The full poll results are available online here.

Here are the correct answers (subject to a disclaimer similar to the one quoted at the end of this posting), determined according to the survey results, as explained in excerpts from the press releases. (I highlighted some text for emphasis.)

Question #1: What percentage of U.S. adults believe that the federal tax system is somewhat or very complex?

A. 58%
B. 78%
C. 83%
D. 92%

The answer is: C.

"An overwhelming 83 percent of U.S. adults believe the current federal income tax is somewhat or very complex. Nearly six in ten (58 percent) consider the amount of federal income tax they have to pay as too high. In addition, 78 percent believe the federal tax system needs major changes or a complete overhaul."

Source: 2007 Tax Survey.

Question #2: Which federal tax is considered to be the least fair?

A. Estate tax
B. Gasoline tax
C. Income tax
D. Payroll tax

The answer is: A.

"At the federal level, estate taxes edged out income, payroll and other taxes to be labeled the least fair. On a scale from one to five, with five being the least fair, estate taxes were rated higher (3.9) than federal gas taxes (3.8), income taxes (3.5) and payroll taxes (3.3). Forty-two percent of U.S. adults believe estate taxes are 'not at all fair'."

Source: 2007 Tax Survey.

Question #3: Which state & local taxes are considered to be the least fair?

A. Gasoline tax
B. Income tax
C. Motor vehicle tax
D. Property tax

The answer is: A.

"At the state and local level, the least fair tax was the gas tax (3.8). It was followed closely by property taxes (3.6), motor vehicle taxes (3.5) and state income taxes (3.4)."

Source: 2007 Tax Survey.

Question #4: In 2007, what percentage of people favor repeal of the federal estate tax?

A. 32%
B. 42%
C. 58%
D. 66%

The answer is: D.

"The number of people who favor estate tax repeal was 66 percent in 2007, down slightly from 68 percent in 2006. Less than one in five opposes estate tax repeal."

Source: 2007 Tax Survey.

Question #5: What percentage of adult Americans do not have a Will?

A. 45%
B. 55%
C. 65%
D. 75%

The answer is: B.

"[O]ver half (55 percent) of all adult Americans do not have a will, a new survey shows, a percent that has remained virtually unchanged over the past three years."

Source: 2007 Estate Planning Survey

Question #6: Which group of American citizens has the lowest percentage of adults who have a Will?

A. African-Americans
B. Companion Animals
C. Hispanic Americans
D. White Americans

The answer is: C.

"Among non-white adults, the lack of wills is even more pronounced. Only one in three African American adults (32 percent) and one in four Hispanic American adults (26 percent) have wills, compared to more than half (52 percent) of white American adults."

Source: 2007 Estate Planning Survey.

Note: If you chose B., you failed to read the question completely. It is true that "companion animals", a/k/a "pets", do indeed have the lowest percentage among the listed groups who have executed estate planning documents (we don't need a survey to tell us that). But, they are not "citizens".

Question #7: What percentage of American adults have a "living will" (also known as a medical directive) document?

A. 21%
B. 31%
C. 41%
D. 51%

The answer is: C.

"Living wills (also known as medical directives) have jumped in popularity since 2004. Two in five adults (41 percent) now have living wills in place, a full ten percent more than those who had one just three years ago. Living wills dictate individuals’ directions for receiving life-sustaining medical intervention in the event of grave illness or injury."

Source: 2007 Estate Planning Survey

Question #8: What percentage of Americans adults have a health care power of attorney document?

A. 27%
B. 38%
C. 45%
D. 55%

The answer is: B.

"Additionally, two in five (38 percent) American adults report assigning a power of attorney for healthcare purposes, compared to 27 percent in 2004. A power of attorney for healthcare legally delegates authority to another to make medical decisions for that individual, if he or she is incapacitated."

Source: 2007 Estate Planning Survey.

Question #9: What is the reason most cited by Americans who do not have any elements of an estate plan in place?

A. Cost is High -- They believe it is expensive to hire professional advisors.
B. Ignorance is Bliss -- They don't want to think about being incapacitated or dying.
C. Lack of Need -- They perceive their assets insufficient to justify advance planning.
D. Starting is Difficult -- They don't know who should prepare such plans or documents.

The answer is: C.

"Ignorance is bliss: One in ten (10 percent) American adults who do not have any elements of an estate plan say it’s because they don’t want to think about dying or becoming incapacitated.

"Where to begin?: Similarly, nearly one in ten (9 percent) adults say they don’t have an estate plan in place because they don’t know who to talk to about creating such documents. This percentage nearly doubled from 2004 (5 percent).

"But I don’t need a will: Nearly one in four (24 percent) of adults say their biggest reason for not having an estate plan is a lack of sufficient assets. This was also the top reason cited in the 2004 survey (21 percent)."

Source: 2007 Estate Planning Survey.

Question #10: What is the biggest source for legal information utilized by consumers regarding estate planning matters?

A. Books & articles
B. Family & friends
C. Internet
D. Lawyers

The answer is: D. (I think, I hope); Otherwise B.

Note: This answer could be disputed for technical reasons with reference to the 2006 Estate Planning Survey. Those results were based upon an assumption -- which is the answer -- in the way the question was posed to the individuals polled. See: U.S. Adults More Likely to Turn to the Web for Legal Information, New Survey from Lawyers.com Reveals (PDF).

Those participants were asked, "Besides a lawyer, where do you obtain advice and information regarding legal matters?" Given the answer to the Question #11 below, I think that D. would be -- and always should be -- the correct answer. However, I would give credit -- based on a strict limitation in answering the question to survey results only -- to an answer of B.

"Besides lawyers, traditional sources of legal advice, such as friends and family, are on the decline today as consumers increasingly turn to widely-available online resources to become better informed about their legal rights and responsibilities. 'The challenge is knowing what information is trustworthy,' said attorney Alan Kopit, legal editor of lawyers.com. 'Consumers need to look to reputable web sites and investigate the source of legal information they find online before they rely on it'."

"Other than family and friends (31%), and aside from asking a lawyer, the Internet [27%] is now the single biggest source for legal information, outpacing books and newspaper/magazine articles, which came in at just 12%. In fact, the percentage of consumers who rely on the Internet for legal counsel has nearly tripled in recent years (10% in 2000 vs. 27% in 2006), while the percentage that rely on friends and family has declined by about a third (49% in 2000 vs. 31% in 2006)."

Source: 2007 Estate Planning Survey.

Question #11: What percentage of U.S. adult Americans have utilized a lawyer at least once in their lives?

A. 46%
B. 51%
C. 65%
D. 68%

The answer is: C.

"Two out of three U.S. adults today have used a lawyer at least once in their lives, about the same percent as in 2000 (65% in 2006 vs. 68% in 2000). As was the case six years ago, the single biggest reason lawyers are hired today is to handle estate planning, like creating wills. Forty-six percent of those U.S. adults who have hired a lawyer say that is what drove them there, a similar percent as in 2000 (51%)."

Source: 2007 Estate Planning Survey.

Question #12: What percentage of Americans said, in 2005, that they crossed a border to shop in a neighboring area in part because it meant that they would pay less in taxes?

A. 14%
B. 19%
C. 25%
D. 28%

The answer is: A.

"28 percent said they had bought something over the Internet rather than from a local store, 25 percent said they gave more to charity, and 14 percent said they crossed a border to shop in a neighboring area with lower taxes in part because it meant that they would pay less in taxes."

Source: 2005 Tax Survey.

* * *

Disclaimer: "All questions used on "Whad'ya Know?" have been painstakingly researched, although the answers have not. Ambiguous, misleading, or poorly worded questions are par for the course. Listeners who are sticklers for the truth should get their own shows."

-- Michael Feldman, Host, "Whad'ya Know?" radio show on National Public Radio

* * *

Update: 04/12/07:

Well, call me "Michael Feldman", indeed. I just received this email from someone who took The Test seriously. He scrutinized the form of the question formerly posed in Question #6, which had been stated "Which group of American citizens has the lowest percentage of adults who do not have a Will?":

I enjoyed your Test and appreciate all the efforts you put in to keeping the rest of us informed.

As to question #6, maybe you mentioned this and I did not see it, but in addition to the trick part about the animals, did you not trick yourself by misstating the question.

If Hispanics have the lowest percentage of adults with Wills (26%), then the question should use either "highest" for "lowest" OR use "not" or not.

Keep up the good work.

James Jacquette, Esq., Ft. Washington, PA

Well, James, I did trick myself. So (it being my "show"), I rewrote & just reposted the question by deleting "DO NOT" in the last phrase. It now reads, both in the prior & this present post: "Which group of American citizens has the lowest percentage of adults who have a Will?"

There's one more reason to be an "optimist" always, even in framing questions -- it avoids any use of the double-negative.

Update: 04/12/07:

Professor Gerry Beyer, author of the Wills, Trusts & Estates Law Prof Blog, noted the "Test" in his posting entitled "What Lay Individuals Really Think About Estate Planning and Related Topics" (04/11/07), and also the "Answers" in his follow-up posting entitled Answers to "What Lay Individuals Really Think About Estate Planning and Related Topics" (04/12/07).

Due to professional confidentiality (and a whole lot of sympathy), I will not reveal his score.

This post regarding "The Answers" was also was noted, with some further comments, by the The Dreams of a Solo blog in an entry entitled "Estate Planning Survey Answers".

Update: 04/14/07:

This post was noted by attorney Michael W. Troutman, who authors the Lexington Lawyers blog, on April 14, 2007. See: "Intriguing statistics regarding estate planning" -- "I found this post by Pennsylvania attorney, Neil Hendershot, to be give an intriguing insight into how people approach (or fail to approach) estate planning." He then comments specifically on the answer to Question #9, from his experience in Kentucky.

"Survey Says...": The Test

How savvy are you about the views or status of Americans on matters of taxes and their personal & estate planning?

I constructed the following multiple-choice questions from results reported by national surveys conducted in 2005, 2006, or 2007 by reputable polling organizations, sponsored & posted by well-known companies.

Test your knowledge (or your impressions) by answering the questions below. I will reveal the answers, with explanations, and the sources, with online links, in my April 12th posting.

No prizes will be awarded in any jurisdiction. [Update: 04/12/07: For the answers, See: PA EE&F Law Blog posting "Survey Says...": The Answers (04/12/07).]

Question #1: What percentage of U.S. adults believe that the federal tax system is somewhat or very complex?

A. 58%
B. 78%
C. 83%
D. 92%

Question #2: Which federal tax is considered to be the least fair?

A. Estate tax
B. Gasoline tax
C. Income tax
D. Payroll tax

Question #3: Which state & local taxes are considered to be the least fair?

A. Gasoline tax
B. Income tax
C. Motor vehicle tax
D. Property tax

Question #4: In 2007, what percentage of people favor repeal of the federal estate tax?

A. 32%
B. 42%
C. 58%
D. 66%

Question #5: What percentage of adult Americans do not have a Will?

A. 45%
B. 55%
C. 65%
D. 75%

Question #6: Which group of American citizens has the lowest percentage of adults who have a Will?

A. African-Americans
B. Companion Animals
C. Hispanic Americans
D. White Americans

[Note: The question above was clarified since the original posting on 04/11/07. See: Update on 04/12/07 at the conclusion of posting in "Survey Says...": The Answers.]

Question #7: What percentage of Americans adults have a "living will" (also known as a medical directive) document?

A. 21%
B. 31%
C. 41%
D. 51%

Question #8: What percentage of Americans adults have a health care power of attorney document?

A. 27%
B. 38%
C. 45%
D. 55%

Question #9: What is the reason most cited by Americans who do not have any elements of an estate plan in place?

A. Cost is High -- They believe it is expensive to hire professional advisors.
B. Ignorance is Bliss -- They don't want to think about being incapacitated or dying.
C. Lack of Need -- They perceive their assets insufficient to justify advance planning.
D. Starting is Difficult -- They don't know who should prepare such plans or documents.

Question #10: What is the biggest source for legal information utilized by consumers regarding estate planning matters?

A. Books & articles
B. Family & friends
C. Internet
D. Lawyers

Question #11: What percentage of U.S. adult Americans have utilized a lawyer at least once in their lives?

A. 46%
B. 51%
C. 65%
D. 68%

Question #12: What percentage of Americans said, in 2005, that they crossed a border to shop in a neighboring area in part because it meant that they would pay less in taxes?

A. 14%
B. 19%
C. 25%
D. 28%

Check in tomorrow to learn what answers the "Survey Says . . . ."

Update: 04/11/07 @ 10:45 am:

Attorney Donald Glassberg, an ACTEC Fellow, sent an email pointing out that my original posting had two questions numbered "4".

So I renumbered all questions for a total of 12. That means that each one is worth, now, 8.333333... points.

I am still trying to decide what academic grading scale to apply to test results. Keep in mind that students of the law are graded much differently than students in other areas of graduate education (according to Wikopedia):

American law schools are notoriously out of step with mainstream graduate-level education. Most of them still require no more than a 2.0 grade point average to qualify for the professional doctorate in law. A few require 2.3 or 2.5 for post-doctoral degrees, such as the American LL.M. or S.J.D. degrees. Law schools also typically continue to award the grade 'D' whereas the industry standard is to eliminate it from the graduate-level quality index.

How about we just make it "Pass-Fail" at a 50% level?

Update: 04/11/07:

This post was noted by Professor Gerry Beyer on the Wills Trusts & Estates Prof Blog on April 11, 2007, in his posting "What Lay Individuals Really Think About Estate Planning and Related Topics", which then was noted by the The Dreams of a Solo blog in an entry posted that date entitled "The public's view of Estate Planning survey".

Update: 04/12/07:

I posted the answers at 9:15 am on Thursday, April 12th. See: PA EE&F Law Blog posting "Survey Says...": The Answers (04/12/07).

Hope you passed!

Will Contest from Bethlehem, PA

"Prominent Pa. Attorney Among 3 Killed in Plane Crash" -- this was the headline in an Associated Press article that appeared on February 3, 2007, as posted online by ABC-6 TV, reporting a fatal aviation accident in New Bedford, Massachusetts on the evening of February 2, 2007.

A prominent Pennsylvania attorney and his wife were among three killed when a small plane crashed in bad weather near the New Bedford Regional Airport.

Peter J. Karoly, 53, of Bethlehem and his wife, Dr. Lauren Angstadt, 54, died along with their pilot, according to Karoly's brother, lawyer John Karoly of Allentown, Pa.

Peter Karoly was a prominent plaintiff's lawyer in Allentown who was also known as an owner of the Allentown Ambassadors, a now-defunct minor-league baseball team. Angstadt was an Allentown endodontist -- a specialist in root canal treatment. The couple had no children. * * *

The plane left the Lehigh Valley at about 2 p.m. Friday, flew into Boston, and departed Logan Airport at 7:17 p.m. for New Bedford, where the three planned to have dinner with a business associate. The crash was about 7:44 p.m., John Karoly said.

The death of Peter Karoly has resulted in one of the more notable "will contests" in Pennsylvania.

It began with the filing of a "caveat" with the Register of Wills of Northampton County, PA.

In an article entitled "Family clash ties up Karoly estate", by Joe McDonald published February 22, 2007, the The Morning Call reported that a family dispute over Peter Karoly's last will had tied up the administration of the Estate of Peter J. Karoly.

Through an Easton law firm, two of Karoly's three sisters filed an objection Monday in Northampton County Court, but what they're contesting could not be determined.

The document, known as a caveat, is not public, said Register of Wills Dorothy Cole. Nor are the wills of Karoly and his wife, dentist Lauren B. Angstadt, she said.

''We have two wills for each estate,'' Cole said. ''They have been presented to our office, but they have not been put on record.''

On Wednesday, The Morning Call filed a request for all of the wills and court filings under the Pennsylvania open records law. * * *

That article further reported court involvement in another aspect of the administration of assets in Peter Karoly's Estate:

Karoly's law practice in Allentown, Peter J. Karoly & Associates, has been the subject of two recent court proceedings in Easton. That's because the Karolys lived in the Northampton County portion of Bethlehem.

On Feb. 23, county Senior Judge James C. Hogan expressed confusion about what constituted the practice and referred to a will. The practice ''may encompass a number of things apparently undefined in the will and undefined in general,'' he said, according to a transcript.

Then on March 15, Karoly's brother and at least a half-dozen other lawyers attended a proceeding before Hogan on who would run Peter Karoly's firm.

According to a later article entitled "Half brother calls 2006 Karoly will a fraud", published March 22, 2007, in The Morning Call, there were two last wills offered for probate to the Northampton County Register of Wills.

FIRST WILL: Written in 1985, it evenly divides the estate of Peter Karoly and his wife, Lauren Angstadt, among members of both families. Karoly's law firm is liquidated, with the proceeds going to the estate for distribution.
SECOND WILL: Written in 2006, it assigns Peter Karoly's law firm and several real estate holdings to brother John Karoly. The remainder of the estate is divided among nieces and nephews.
Source: Attorney involved in settlement of the estate of Peter Karoly and Lauren Angstadt.

That article noted the difference in the dispositions.

An attorney involved in the dispute, speaking on condition of anonymity, said the 2006 will leaves Peter Karoly's law practice and real estate holdings to John Karoly.

A 1985 will, the attorney said, liquidates the Allentown law practice and evenly splits the residual estate between the surviving family members of Peter Karoly and Lauren Angstadt.

That article also reported another development: On March 17, 2007, a half-brother of the decedent had made a report to the Bethlehem police suggesting criminal behavior in the execution of a last will.

A new will that leaves a sizable portion of Peter J. Karoly's estate to brother John P. Karoly Jr. is fraudulent, a half brother of the lawyers said in a complaint filed with Bethlehem police.

But Northampton County District Attorney John Morganelli, who reviewed the complaint, said Wednesday it doesn't warrant a criminal investigation, leaving the matter up to a probate judge to sort out.

Michael J. Karoly, 21, a college student who lives in Sommerville, S.C., alleged numerous ''discrepancies'' in the new will, Morganelli said, including a forgery of Peter Karoly's signature.

''Based on information supplied by the Bethlehem police, I cannot find any basis to open a criminal investigation,'' Morganelli said. ''You can't just start a criminal investigation because someone believes a will is improper.''

Bethlehem Deputy Police Commissioner Stuart Bedics said there was no evidence of a crime. ''It appears to be a civil matter,'' he said.

These newspaper articles have spawned nearly a hundred public comments made online. You can read them here (39 comments as of 04/09/07) and here (58 comments as of 04/09/07), both as reposted by Topix.Net in its forums.

Some comments are poignant, some irritating, and some downright disgusting. Here's a sampling containing generalized observations:

• "On Wednesday, The Morning Call filed a request for all of the wills and court filings under the Pennsylvania open records law." -- That's nice. Not even our personal and PRIVATE wills are immune from the local MCall tabloid.
• It never ceases to amaze me. Someone dies that has the slightest amount of money and family members come out of the woodwork to fight over it.
• One thing's for sure. Some lawyers are going to make a lot of money from this....and I'm not talking about the ones related to the deceased.
• [T]he delays and extensions continue to drag this case out. Will it ever be heard?
• I just wish a lot of people would UPDATE their wills and put me in them.
• I say get rid of these "paper" Wills and start videotaping every Will from now on! That way there are no discrepancy! It will be done "live" and in color, and you state "who" gets what!
• Give you stuff away when you're alive and then people will thank you for it.

Already the Peter Karoly Estate proceedings have confirmed what every high-profile will contest reinforces: Document your estate planning well with a qualified attorney to avoid unpredictability, expense, & publicity.

Update: 05/22/07:

For significant & surprising developments in this case, see PA EE&F Law Blog posting Trusts & Estates ... and the FBI: Pt. I (05/21/07).

Update: 09/26/08:

In the Karoly case, on September 25, 2008, the U.S. Attorney's Office for the Eastern District of Pennsylvania announced issuance of federal criminal indictments against three defendants. See: PA EE&F Law Blog posting Attorney in PA Indicted for Will Fraud (09/26/08).

Update: 04/07/13:

The Orphans' Court Division of the Court of Common Pleas of Northampton County issued a ruling that the contestants to the wills did not meet the required burden of proof to overturn the questioned wills. No federal charges were pursued by the Justice Department on such matters. See: PA EE&F Law Blog posting Karoly Estates Will Forgery Case Ruling (04/07/13).