Annual Gifting | Begin the Begin

Mega Millions Winnings – Imagine the Possibilities!

October 19, 2018

Currently there is a lot of focus on the Mega Millions that has a jackpot of $1.6 billion (and climbing) and many discussions are being had detailing what one would do if they won. Imagine the possibilities! Some of the considerations include making gifts and loans to friends and family members.

Although chances of winning are 1 in 302.5 million, if you do win and you are in a position to consider making gifts or loans to friends and family members, there are a few key points to remember to minimize any gift tax consequences. As highlighted in an earlier article, we each have the ability to gift during our lifetimes without incurring gift tax. The current exemption is $11.18 million per person above which a 40% flat tax is imposed. In order to utilize that exemption, a gift tax return is required.

Furthermore, each of us has the ability to gift up to $15,000 per person to an unlimited number of people each year. If you are married, a married couple can gift up to $30,000 per person each year. These annual gifts do not count against the lifetime exemption, and are therefore a separate method in which gifting can be made.

IRS regulations also permit you to pay the tuition expenses for a full-time or part-time student directly to the “qualifying educational organization” without having to claim an exemption from gift tax or incurring gift tax. Tuition expenses do not include books, supplies, dorm fees, board or other such expenses that are not direct tuition expenses.

In addition, you can pay for “qualifying medical expenses” that include expenses for diagnosis, cure, treatment, prevention as well as amounts paid for medical insurance. This exemption does not include any expenses that were reimbursed ultimately by medical insurance. Again, such expenses can be paid directly and you would not have to claim your lifetime exemption or incur gift tax.

And what about making loans to friends and family? Be sure that any loan you make is not deemed to be a gift. That is, the loan should impose interest at current fair market values. Applicable Federal Rates (AFR) for October range from 2.55% for short term loans (up to 3 years) to 2.99% for long term loans (over 9 years). Loans can be structured in myriad different ways.

Also, don’t forget about cash gifts to charity. The charitable deduction on your income tax returns was increased under last year’s tax reform act to 60% of your adjusted gross income for 2018, up from 50% of your AGI. The charities of your choice would also help facilitate a lifetime gift and/or planned gift depending your wishes.

So, while you are thinking about what you would do if you won a million dollars or more in the lottery, be sure to keep in mind a few gift or loan options that are available to you and good luck! #megamillions #winningthelottery #lottery #gifttax #estateplanning #taxplanning #planyourjourney

#GivingTuesday – Considerations for Year-End Charitable Giving

November 28, 2017

As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations. Of course, there are a variety of ways in which one can make such a charitable gift. The IRS recently published IR 2017-191, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season. In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time. I have summarized these helpful tips below.

For starters, individuals can only receive a tax deduction if the charity to which they donate is an ‘eligible organization.’ The IRS has a website, Select Check, that is a searchable online database of ‘eligible organizations’ that can be used to verify the status of an organization.

Next, charitable donations can only be deducted if the taxpayer itemizes their deductions. For some this can be a hassle because that means maintaining accurate records and receipts. If the gift is larger than $250 to the charity, then a written acknowledgement is required. The IRS has provided Publication 526 on charitable contributions to help explain what records are necessary.

Additionally, if an individual is looking to donate tangible personal property like clothing or household items, those items have to be in ‘good used or better’ condition. Household goods include furniture, furnishings, electronics, appliances and linens. The taxpayer must obtain a detailed receipt in which the donated items are described for donations worth $250 or more. Items in which a deduction of more than $500 is claimed usually have to include a qualified appraisal.

Another factor to keep in mind is if the taxpayer receives any ‘benefit’ in the form of merchandise, meals, tickets or other items. The value of such ‘benefit’ will reduce the available deduction amount. For example, a contributor membership to the Kennedy Center is valued at $120, but only $80 of that amount is eligible to be deducted.

One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund. An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund make specific charitable donations. There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns. Here is just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community.

Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations. #GivingTuesday @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving

Tax Update – 2018 Estate and Gift Tax Exemptions and More…

October 27, 2017

The IRS recently announced the estate and gift exemption levels for 2018 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.6 million per person allowing a married couple to shelter $11.2 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.6 million per person. The annual gift exclusion amount will also increase for the first time since 2013 and will be $15,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $4 million while the District of Columbia’s now $2 million exemption will rise to meet the Federal exemption beginning in 2018 so long as there is a revenue surplus.

Additionally, in the last article, the fate of the proposed valuation discounting regulations was still up in the air. However, Treasury issued a second report to the President in which those regulations were withdrawn. Therefore, the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses remains available and is currently no longer under threat.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 2.0%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $128,700. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2018 were announced. Many are watching the tax reform debate to see if any of these numbers will change, so stay tuned… #taxreform #estateplanning #estatetax #taxplanning #taxtime #COLA2018 @bgnthebgn

Five New Year’s Resolutions for Your Estate Plan

January 12, 2017

Happy New Year! Very often the New Year brings all sorts of ‘changes’ for individuals, particularly after having spent any time with family members and friends over the holiday season. Here is a quick list of five resolutions to consider for your estate plan.

Is it time to update your plan? If a plan is in place, when was the last time you reviewed it? Is it simply a binder of documents you received several year ago when you finished the estate planning process and you haven’t looked at since? Have circumstances changed that are not captured in the documents? Who are the fiduciaries (i.e., executor, trustee, healthcare power of attorney, financial power of attorney, guardian, etc.) listed? Are the fiduciaries still capable of serving? Does the plan do what you want it to do? There have been a lot of changes to estate tax laws in recent years, is your plan from before 2013? In some cases, does ‘updating’ your plan, actually mean finishing the process? Or does it mean starting the process so that your theoretical plan is memorialized?
Are there beneficiary designations? When was the last time you checked beneficiary designations on life insurance, retirement accounts (i.e., 401(k), IRAs, 403(b), 457, etc.) and annuities? What about any payable on death (POD) or transfer on death (TOD) designations you have on bank accounts or brokerage accounts…do those designations reflect your wishes? For government employees, are beneficiary designations up-to-date on your Federal, state or local benefits?
Families come in all shapes and sizes -Family Fiduciaries. Are you named as a fiduciary in any family member’s or friend’s plan? Have you touched base with that person recently to see how they are doing both health-wise and financially? Do you understand what your role is as the fiduciary? Do you know the family member’s or friend’s goals and objectives? Are you able to still serve, that is, are you distracted by a health event or financial crisis and perhaps you should not take the role? Have you considered options for a care manager if you are caring for an elderly family member or friend? How about looking at assisted living or skilled nursing or home health aides, if the circumstances warrant such considerations?
Are you charitably inclined? Do you have a charitable giving plan for this year? For future years? For at your death? Have you researched your options including direct giving, donor advised funds, private foundations and/or charitable trusts? Is there a planned gift that you would like to consider? Is now the time to investigate annual giving?
Succession planning occurs at many levels. Who will be in charge of any business whether it is a limited liability company, partnership or corporation? Are shareholders’ agreements and operating agreements up-to-date? And beyond a business interest, who will be in charge of your pets? Are there monies set aside for their care? What about digital assets? Have you ensured a smooth transition of online accounts to a successor? What about your tangible personal property? Is there an inventory? Appraisals? Designated recipients?

True, there are a lot of questions and not a lot of answers here, but that is the planning process. One has to begin with the questions to reach the answers. Working with a professional advisor can both provide you with the guidance needed to navigate these questions and ensure that you complete the process. #planyourjourney #lifeplanning #legacyplanning #estateplanning @bgnthebgn

A New Year Means New Exemptions from Estate Tax

January 5, 2017

Welcome to the New Year! As with any new year, there are usually changes to a variety of important numbers for estate planning and elder law purposes. This year the applicable exclusion amount from Federal estate tax is set at $5.49 million per person. The lifetime exclusion from gift tax is also $5.49 million per person and the exemption from generation skipping transfer tax is $5.49 million. The annual exclusion from gift tax remains at $14,000. The annual exclusion for gifts to non-U.S. citizen spouses increased to $149,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000. Maryland’s exemption from estate tax has increased to $3,000,000. Virginia continues to have no state level estate or inheritance tax.

In the elder law field, the Medicaid spousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,180 and the maximum CSRA to $120,900. The maximum monthly maintenance needs allowance is now $3,022.50 while the minimum remains at $2,002.50. The minimum home equity limit is now $560,000 and the maximum is $840,000, but be aware that local jurisdictions may apply these limits differently.

If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor. #estateplanning #taxplanning #elderlaw @bgnthebgn

The Future of Valuation Discounting…

December 29, 2016

Earlier this month, a long awaited hearing was held on the proposed regulations that would reduce the availability of valuation discounting when transferring closely held business interests. Close to forty individuals testified at the IRS hearing and all but one individual opposed the proposed regulations. Among several of the reasons why critics opposed the regulations included the following: (a) the potential for a ‘deemed put right’; (b) the creation of a three-year look back period; (c) the forced use of the ‘investment value’ standard for determining fair market value versus the ‘willing buyer – willing seller’ standard; and (d) the use of family attribution rules that could extend the reach of the proposed regulations. An attorney-advisor from the Treasury Office of Tax Legislative Council tried to assuage some of the concerns and even commented that it would be surprising if the regulations were finalized given the new administration.

What does the hearing mean for planning? It means that planning is still very much up in the air. For some, there has been a push to complete transactions by the end of year before the regulations are finalized. For others, any potential transactions are now on hold. Either way, the issue is not dead, but may be tabled until the next election and individuals and their advisors would be wise to monitor the situation to avoid getting caught without having planned. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

Five Considerations for Year-End Charitable Giving

December 22, 2016

As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations. Of course, there are a variety of ways in which one can make such a charitable gift. The IRS recently published IR-2016-154, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season. In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time. I have summarized these helpful tips below.

Next, charitable donations can only be deducted if the taxpayer itemizes their deductions. For some this can be a hassle because that means maintaining accurate records and receipts. If the gift is larger than $250 to the charity, then a written acknowledgement is required. The IRS has provided Publication 56 on charitable contributions to help explain what records are necessary.

One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund. An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund specific charitable donations can be made. There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns. Here is just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community.

Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations. @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving

2017 Estate and Gift Tax Exemptions

November 3, 2016

money-2 The IRS recently announced the estate and gift exemption levels for 2017 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.49 million per person allowing a married couple to shelter $10.98 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.49 million per person. The annual gift exclusion amount will remain at $14,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $3 million while the District of Columbia’s exemption will remain at $1 million until certain revenue surplus targets are met, which may not be until 2018, at which point the exemption will increase to $2 million. As a reminder, proposed regulations issued in August will significantly reduce the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses, and therefore, taking advantage of 2016 exemption levels is critical for some individuals, business owners and families.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 0.3%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $127,200. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2017 were announced. #estateplanning #estatetax #gifttax #annualgift #exemptionlimits #COLA2017 @bgnthebgn

The ABLE Act – Proposed Legislation Will Modify Certain Provisions

March 22, 2016

An earlier post gave a brief summary of the Achieving a Better Life Experience Act of 2014 or the ABLE Act. Three different pieces of legislation were introduced on March 17, 2016 that would change some of the provisions of the ABLE Act. Below is a brief summary of each proposed change.

Current law limits eligibility for the creation of an ABLE account to individuals with disabilities where the disability occurred before turning 26 years old. H.R. 4813 would increase that age from 26 to 46.
H.R. 4794 would allow for rollovers between 529 accounts and ABLE accounts.
Finally, H.R. 4795 would permit individuals with disabilities to save additional monies to an ABLE account above the annual maximum ($14,000.00) now in place. Such additional contributions would be allowed for those individuals with disabilities who work and earn income. The additional contribution would equal the lesser of (a) his or her “compensation…for the taxable year” or (b) “an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins.”

Updates will be posted as the legislation moves forward. #specialneeds #ABLEact #estateplanning #proposedlegislation

The ABLE Act – An Additional Resource for Families and Advisors

March 15, 2016

In 2014, the Achieving a Better Life Experience Act of 2014 or the ABLE Act was signed into law. Under the ABLE Act, certain savings accounts could be established for individuals with disabilities. Such accounts allow for monies to be set aside for an individual with disabilities without disqualifying the individual from public benefits such as Social Security Income (SSI) or Medicaid. The total annual contributions are currently capped at $14,000, but the accounts can grow and be funded up to state mandated limits. Virginia and Maryland limit these accounts to $350,000 while the District of Columbia caps the accounts at $260,000. Various other restrictions apply including restrictions that may impact an individual’s SSI benefit for a period of time and require any remaining amounts in the account to be used to pay back for Medicaid benefits that are received; generally known as a “Medicaid pay-back” provision.

Recently, the ABLE National Resource Center, an organization founded and managed by the National Disability Institute (NDI), went live with an informative website for families and professional advisors interested in learning more about the ABLE Act and establishing an account for an individual with disabilities. In addition, the website provides state specific information since each state has implemented the ABLE Act differently. Families of individuals with disabilities now have another resource in addition to consulting with their professional advisors if they are considering creating an account to ensure such planning fits within their overall goals and objectives. #specialneeds #ABLEact #estateplanning @RealEconImpact