I recently spent time with two friends, who happen to be financial advisors, where we discussed the proposed tax reform legislation and what it means for estate planning now and in the future. A link to the podcast is here. Enjoy listening! #estateplanning #legacyplanning #taxplanning #taxreform
Category: Estate Planning
ICYMI – Navigating Private Philanthropy During a Pandemic
In case you missed the virtual seminar this week on “Navigating Private Philanthropy During a Pandemic”, the recording can be found HERE and ask yourself, what will you do with your charitable dollars this year?
Navigating Private Philanthropy During a Pandemic
If you are looking to learn more about charitable giving and the options to engage in 2020, then please join me for a panel discussion on July 15, 2020 at 3:00 p.m. More information can be found here and below.
OFP COVID-19 ALERT
IRS Extends Tax Filing & Payment Deadline
Businesses and individuals now will have until July 15th to file and pay their Federal income taxes. This means that you have an additional three months to plan and prepare your returns without having incurring penalties on up to $1 million in tax owed. Businesses will have the same period to pay amounts due on up to $10 million in tax owed. Learn more from attorney Catherine Schott Murray.
Update for Employers – Families First Coronavirus Response Act Now Law
On March 18, 2020, the Families First Coronavirus Response Act was signed into law and will become effective not later than 15 days later, April 2, 2020. There are some differences between what was ultimately passed and what was summarized in our early article from March 16, 2020. Learn more from attorney Marina Blickley.
COVID-19 & Federal Contract Suspensions
Construction and many other contractors who cannot telework may be receiving stop-work orders or facing other unique challenges on their government contracts in the face of COVID-19. Impacts may be exacerbated for personnel working in the field who may not be receiving guidance from the government due to unavailability of their Contracting Officers (CO) or Contracting Officer Representatives (COR). Learn more from attorney Shiva Hamidinia.
COVID-19 & Gaining Control Over Your Business Finances
As the coronavirus shifts the way the world works, businesses should take this break in normal operating procedure to re-evaluate their finances. Learn more from attorney Brad Jones.
MARCH 18th POSTPONED – Join Us in April for Real Talk: The Essentials of Aging with Confidence
Out of an abundance of caution and with the utmost respect for our seniors and their caregivers, we have postponed the launch of our upcoming series, Real Talk: The Essentials of Aging with Confidence, until further notice.
We hope to proceed with our April session if it is prudent to do so. Be sure to watch for more information in the coming weeks.
This month we begin the first of a 3-part series in which we tackle topics involving The Essentials of Aging with Confidence. Details below including where to register. We look forward to seeing you there!
March 18th – Part 1: Getting Your Estate in Order
April 22nd – Part 2: Aging in Place or Assisted Living? Which option works for your lifestyle?
May 13th – Part 3: The Essential Guide to Aging and Caregiving.
@bgnthebgn @ofplaw @sandyspringbank #shepherdscenter #agingwithconfidence
Is the Stretch IRA Dead with the SECURE Act?
The end of the year is always a busy time of the year particularly in estate and tax planning. 2019 was no exception as on December 20th, the Setting Every Community Up for Retirement Enhancement Act (“the SECURE Act”) was signed into law. The SECURE Act took effect on January 1, 2020 and makes significant changes to qualified individual retirement account (“IRA”) planning, including the elimination of the stretch IRA for inherited IRAs, among other changes. Treasury Regulations have not yet been issued, so some of the details in the SECURE Act are still unknown and the gaps are not yet filled.
Before summarizing the elimination of the stretch IRA provisions, a few of the other key changes under the SECURE Act included the following:
- The age for required minimum distributions (“RMDs”) to be drawn from retirement accounts is increased from 70 ½ to 72 years old.
- The prohibition of retirement contributions after reaching 70 ½ is repealed.
- Penalty-free withdrawals of up to $5,000 from retirement accounts to cover the costs of childbirth or adoption are permitted.
- 529 college savings plans can be used to cover the costs of apprenticeships and up to $10,000 can be withdrawn to help repay qualified student loans.
- The pre-Tax Cuts and Jobs Act rates for the ‘kiddie tax’ is reinstated meaning that excess income will be taxed at a parent’s rate and not the trust and estate rates.
As mentioned, the most significant change under the SECURE Act is the elimination of the ability to stretch an inherited IRA (or 401(k) or 403(b)) with certain exceptions. The default rule now is that inherited IRAs must be fully distributed by the end of the 10th year following the death of the account owner. For example, if an account owner dies in 2020, leaving his or her IRA to a named beneficiary (who is not one of the defined exceptions), all monies from that IRA must be distributed by the end of 2030. The prior rule allowed beneficiaries to use their life expectancy to determine any required payout.
There are a few exceptions to this new default rule. Individuals who are permitted to stretch the inherited retirement account over their lifetime include:
- The surviving spouse of the account holder.
- A child of the account holder who has not yet reached the age of majority (in most jurisdictions, age 18). However, once the child reaches the age of majority, the default rule of 10 years kicks in.
- Disabled individuals (which does include special needs trusts for such disabled individuals).
- A chronically ill individual.
- An individual who is not more than 10 years younger than the account holder.
The result of the new default rule for those who do not fall into an exempt category is that there will be less tax-deferred growth in the retirement account and an increase in income taxes because the rate of withdrawal has been accelerated.
There are some strategies available, which will be explained in more detail in later articles, that could help mitigate the increased tax liability. Those strategies include:
- Qualified charitable distribution (“QCD”) – For those charitably inclined, an individual who is more than 70 ½ could make a gift directly to a charity by way of a QCD from his or her IRA. Such gifts are limited to $100,000 per year.
- Charitable Remainder Trusts (“CRTs”) – Again for those charitably inclined, using a CRT may be an option to provide an income to a beneficiary during a specified time with a charity or charities receiving the remainder once the time period has passed.
- Roth conversions – Much discussion is being had about individuals reviewing whether converting their tax-deferred IRAs to Roth IRAs is appropriate, which would alleviate the concern that beneficiaries will receive a huge tax bill.
- Life insurance – Individuals may want to consider withdrawals from an IRA to pay premiums on a life insurance policy that instead could be left to their designated beneficiary tax free.
These strategies are heavily dependent on the specific circumstances faced by each IRA account holder and should be reviewed carefully.
Lastly, for many who have had their estate planning prepared, that plan may be structured around a revocable living trust with the revocable living trust being designated as the beneficiary of the IRA. As a result, those beneficiary designations and the terms of the trust need to be revisited as unintended income tax consequences may result because of the new 10 year default payout rule.
As for next steps, if you haven’t reviewed your beneficiary designations and your estate plan recently, you should consult with your team of professional advisors who can help explore the options available to you based on your situation. #estateplanning #SECUREAct #taxplanning @bgnthebgn @OFPLAW
Estate Planning Matters
Here is a little humor to keep you going and is a gentle reminder of a situation you want to avoid. Plan your journey! #estateplanningmatters #planyourjourney @bgnthebgn
Inside the Virginia Tax Department
(h/t to my colleague, David A. Lawrence, Esq. who recently attended the Annual Virginia Tax Roundtable and provided the summary below.)
It’s time, once again, to share some of the tidbits that I gleaned from the Annual Virginia Tax Roundtable. Each year, a small group of Virginia tax lawyers convenes to meet with the Virginia Tax Commissioner, his staff, and the Attorney General’s staff to talk about what the Tax Department is thinking, the challenges that they are facing, and ideas for improved tax administration in Virginia.
In addition to responding to changes ushered in by the 2017 Tax Act, Virginia taxpayers and tax preparers should take note of several new and existing factors that could complicate your tax filing efforts.
Identity Theft & Refund Fraud Continues at High Levels
The rise in fraudulent refund filings remains a big issue for the Tax Department, and the additional scrutiny required to identify those cases continue to slow processing of Virginia tax returns. The good news: the Department believes it is catching more of these fraudulent filings before checks are issued; it denied more than $32 million in fraudulent 2017 refunds just through October 21, 2018 of this year.
More Retirements & Staffing Challenges
The State is continued to be challenged by the retirements of long experienced tax examiners, and they are trying to hire new examiners as quickly as possible. Particularly hard hit has been compliance field audit personnel in Northern Virginia and Tidewater.
Speaking of audits, the Tax Department engaged an outside consultant to help it be more proactive in its compliance and audit activities. It is considering expanding reviews of Schedule A deductions and Schedule C deductions. Further, the agency has lots of federal return data, as well as data from other federal programs. Now, according to the Commissioner, the state just needs a better, more efficient way to use that data for compliance and audits. Note that fewer appeals are coming to the Tax Department, and the Tax Department particularly hates dealing with tax appeals from local jurisdictions.
2017 Tax Act – A Great Revenue Windfall for Virginia
The changes made by the federal 2017 Tax Legislation are projected to give a windfall of additional tax revenue to Virginia from individual filers. The General Assembly loves the extra revenue, as long as it is not blamed for raising taxes. There may be some proposals this year in the General Assembly to increase Virginia’s standard deduction, increase the personal exemption, and/or permit Virginia itemizing for an individual even if that individual took the federal standard deduction. There have not been many inquiries from the Legislature to the Tax Commissioner on the business side of the 2017 Tax Act. It is expected that some type of federal conformity, with exceptions, will be in place by mid-February 2019 effective for 2018 and onward.
One of the biggest windfalls for the State is the fact that if more individuals use the federal standard deduction, they are currently required to use the Virginia standard deduction, which is very low. Furthermore, for those who do itemize, the repeal and limitation of those itemizable deductions also produces more revenue for Virginia. Finally, the limitations on loss deductions, net interest deductions, and NOL deductions produce additional revenue for Virginia. On the other hand, Virginia loses revenue with the increased Section 179 Expensing and the fact that more “small” businesses will be able to use the cash method of accounting.
Registering with the SCC Triggers Virginia Tax Filings for Businesses
The Department confirmed that if a non-Virginia corporation or entity registers with the Virginia SCC as a foreign entity, it automatically must start filing Virginia income tax returns, even if it has no income.
The Department keeps pumping out lots of rulings on Virginia residents versus non-residents for taxation purposes. They are all fact specific, and make it difficult for former residents to be treated as non-Virginia tax residents when they continue to maintain ties to Virginia after they have left the state (particularly if they try to leave the State just prior to the year in which a large sale transaction occurs).
A Brave New World in Collecting Sales Tax from Out of State Businesses – the Wayfair Decision
The U.S. Supreme Court’s decision in Wayfair this past year effectively overturned the requirement for “physical presence” in order for a state to subject nonresident businesses to collect sales taxes for other states.
As a result of the Court’s decision, if a business had a physical presence in a state, then that state may still require that business to collect and pay sales tax on sales made into that state. Additionally, states that have statutes similar to the one at issue in Wayfair, where an out-of-state business has numerous sales into a state (either in raw numbers of transactions or in the amount of dollars), then that state may now require those out-of-state sellers to collect and pay sales tax on sales made into that state.
Virginia has not acted yet to implement the Wayfair decision, but most other states have acted with various thresholds. This revenue raiser will likely be added to this coming General Assembly’s legislative calendar. As an example of taxable nexus, the Wayfair situation subjected a company to collect and pay sales taxes to a state where the company had either at least $100k in sales or at least 200 transactions in that State.
This will have a big impact on internet sellers, software sellers, and other “free shipping” product sales. A future question raised by the Wayfair case is whether states will try to use it to expand that ruling into the income tax and local tax area. The Supreme Court used old “income tax” nexus cases as part of its logic in support of the Wayfair decision. So expect more to come.
#taxplanning #businessplanning #taxreform @bgnthebgn
Mega Millions Winnings – Imagine the Possibilities!
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
“You Better Think” – Aretha Franklin Dies Without a Will
Documentation filed earlier this week in Oakland County probate court in Michigan by Aretha Franklin’s children indicates that she died without a will or a trust. On the forms, a box was checked signaling that “the decedent died intestate”. What does this all mean?
Dying without a Last Will and Testament or a revocable living trust means that a person is intestate and the laws of the state in which they resided at death will spell out who is to receive the assets of the estate. Under Michigan law, Ms. Franklin’s estate will pass equally to her children as she was unmarried at the time of her death. Ms. Franklin’s niece has also requested that she be appointed as the personal representative or executor of the estate. Thus, it appears that the law of unintended consequences may now apply as Ms. Franklin may not have wanted her children to become the beneficiaries. She may have wanted to include charity or friends perhaps even other relatives in her estate plan. She may not have wanted to have her niece serve as the personal representative, a role that presumably will be compensated. But, without a Last Will and Testament or revocable living trust, we will never know what her true wishes were.
It will also be interesting to see how the administration of Ms. Franklin’s estate unfolds now that the process will be a public one. A number of questions will have to be asked and answered, including, but not limited to: What debts does the singer have? Michigan may not have a state level estate tax or inheritance tax, but how will the Federal estate tax be paid? Exemptions from Federal estate tax are high ($11.18 million per person in 2018), and valuations of Ms. Franklin’s will have to be done to determine the total value of her estate. What assets will each beneficiary ultimately receive? Presumably some of the assets are not standard such as royalties from Ms. Franklin’s records. Will an agreement be reached amongst the beneficiaries regarding the management and distribution of the assets? Unfortunately, the process that has begun will be lengthy, likely expensive and could result in the dismantling of a legacy if the process devolves into an ugly court battle similar to what has happened with Prince’s estate when he died without a will. And in the end, all of this uncertainty could have been avoided or at least minimized had Ms. Franklin simply planned, which means “you better think” before you decide you do not need a plan. #QueenofSoulDiesWithoutWill #QueenofSoul #estateplanning #intestacy