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.

Audit Focuses

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.

Non-Resident Rulings

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

Learn More About the Virginia Academy of Elder Law Attorneys (VAELA)

Check out the brief interview I did regarding my new role as President of the Virginia Academy of Elder Law Attorneys. 

The Virginia Academy of Elder Law Attorneys, or VAELA, is a non-profit professional organization. Its mission is to educate and empower legal representation of elderly and/or disabled clients and their families. OFP Shareholder Catherine F. Schott Murray currently serves as VAELA’s President.

How does VAELA help protect/advocate the interests of seniors or the disabled?

Catherine F. Schott Murray: VAELA Is leading the way in special needs and elder law in Virginia by educating, inspiring and empowering legal representation of elderly and disabled clients and their families, and by advocating their issues before courts and legislatures.  In representing a diverse set of individuals and families with unique issues by providing practical and common-sense advice, VAELA members help their clients to protect family members with disabilities and to age with dignity.

What are the biggest challenges to protecting the legal interests of older Virginians and those with special needs, and how can VAELA help to drive change?

CSM: Each year members of VAELA tackle changes to the rules and regulations relating to guardianship, financial exploitation, Medicaid, estate planning, and estate and trust administration.  Given that VAELA members are very often the first responders to incidents involving these issues, these same members are among the most knowledgeable in providing advice and guidance to navigate those changes.  Furthermore, members of VAELA can provide invaluable input into proposed legislation that may impact an individual’s life.

What are your key priorities this year as you take the helm of VAELA?

CSM: One of the key priorities this year is for VAELA to help cultivate the next generation of elder law attorneys through its mentorship program and annual conferences such as its Fall Conference and annual UnProgram.  Through these programs, VAELA can ensure that the elderly and people with disabilities receive the specialized service and advice they need by educating this next generation.

How can elder law attorneys learn more and get involved with VAELA?

CSM: Anyone interested in learning more about VAELA should visit our website: www.vaela.org.

A New Year Means New Exemption Levels

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 $11.18 million per person thanks to tax reformThe lifetime exclusion from gift tax is also $11.18 million per person and the exemption from generation skipping transfer tax is $11.18 million.  The annual exclusion from gift tax will be at least $14,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000 last year and this year has increased the threshold further to match the Federal exemption.  Maryland’s exemption from estate tax has increased to $4,000,000.  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 $24,720 and the maximum CSRA to $123,600.  The maximum monthly maintenance needs allowance is now $3,090.00 while the minimum remains at $2,030.00.  The minimum home equity limit is now $572,000 and the maximum is $858,000, 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 #taxreform #HappyNewYear @bgnthebgn

#GivingTuesday – Considerations for Year-End Charitable Giving

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

Valuation Discounting Regulations Await Final IRS & Treasury Report

A year ago Treasury proposed new regulations to Section 2704 of the Internal Revenue Code that would significantly reduce or eliminate the ability to use valuation discounting in certain transactions where business interests are transferred.  The proposed regulations would mean that the parties to those types of transactions could incur estate or gift tax.  Towards the end of last year, a public hearing on the regulations was held in which many expressed concerns about how these proposed regulations would impact small businesses and the like.  However, at the time the future of the regulations was unknown given the change of administration, 

Earlier this year, the President issued Executive Order 13789 in which the President instructed Treasury to review all “significant tax regulations” and identify those regulations that (a) impose an undue financial burden, (b) add undue complexity to our tax laws, and (c) exceed statutory authority of the IRS.  Treasury issued Notice 2017-38 in which the proposed regulations to Section 2704 were identified as meeting these criteria.  A comment period followed the issuance of the Order and has now closed.  During the comment period, a study was submitted by The S Corporation Association that showed the detrimental impact of such regulations should they be finalized.  A final report is due to the President within the next month that is to suggest possible reforms to the identified regulations ranging from modification to the regulations to a full appeal.  Until the future is certain, valuation discounting remains available.  #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

Back to School – Three Documents Every College Student Should Have

Going back to school is right around the corner…what!?   How can that be?  However, it is true that as August approaches families will be sending kids back to school.  For those families with children starting college, this time is fraught will all sorts of emotions, checklists, logistics and large bills.  It is also often a time that parents forget that their little one, who has now grown to an adult, is treated as an adult in the eyes of the law.  Furthermore, this is also a time when ‘adult’ children are not fully independent of their parents, but their parents may not be permitted to help because the child is deemed to be an adult.  Age 18 is the age of majority for pretty much every activity, including signing contracts and making healthcare decisions.  To avoid circumstances where parents and their children are separated by legal requirements, here are three key documents every 18-year-old should have. 

General Durable Power of Attorney – This document permits the child to name his or her parents to help make financial decisions.  It allows the parents to deal with financial institutions, housing issues, such as speaking with a landlord, insurance questions, like car insurance or renter’s insurance, and generally stand in the shoes of the child.  It also allows parents to speak with the educational institutional and gain access to their child’s grades, which may be a downside for the child and he or she may hesitate to sign the financial power of attorney.  However, most other sources on the subject argue that if the parents are footing the bill for the education, the parents have a right to make certain demands and receive certain information like the child’s grades.  But, regardless of the motive, the discussion surrounding the need for a financial power of attorney should hopefully generate some thoughtful discourse between parents and children regarding how financial transactions and other legal, contractual transactions will be handled.

HIPAA – The Health Insurance Portability and Accountability Act of 1996 (“HIPAA“) regulates the use and disclosure of protected health information.  HIPAA was intended to add a layer of protection for individuals so that their medical history or health status could not be wrongfully used against them.  However, HIPAA brought with it many more hoops to clear in order to receive medical information.  Having a familial relationship, like parent and child, does not get around the requirement that an adult child has to have given their parents access to their medical records.  Thus, if a child is in a car accident and ends up in the hospital unable to communicate and there is no HIPAA release in place, the parents may be left in the dark regarding their child’s status.  A separate HIPAA release allows the child to nominate individuals who can give and receive medical information.  It does not necessarily mean that those same people have a right to make medical decisions.  It does, however, at a minimum, allow parents to be present.  

Advance Medical Directive – This document permits the child to name his or her parents to make medical decisions.  College is a time when lots of new adventures occur, and sometimes, those adventures go awry.  There are times when accidents do indeed just happen, like car accidents or a slip and fall.  In those circumstances, if a child is at a medical center on campus or off campus, the parents have no right to find out what is going on and to help make decisions unless their child has given them access and authority to do so.  Access can be granted by way of the HIPAA release mentioned above, which could also be a part of the Advance Medical Directive.  But, actual authority to make decisions is only granted by way of an Advance Medical Directive or healthcare power of attorney, if the child is unable to communicate or make decisions for themselves.  Without an Advance Medical Directive, parents may be able to be present, if a HIPAA release is in place, but have no right at the decision-making table.  Thus, similar to the financial power of attorney, the discussions surrounding the need for a healthcare power of attorney should help enlighten parents and children about medical wishes and desires.  It is also a good time to talk about extraordinary measures if a catastrophic event occurs, which may lead to conversations supporting the creation of a Living Will (a fourth document).  Although, for an 18-year-old, it may be too difficult to focus on that specific possibility.

At this back to school time when checklists are aplenty, add these key documents to the checklist.  Having these documents in place will help avoid added stress during emergent situations.  Moreover, both parents and children get to plan their journey during life’s next chapter.  #estateplanning #collegebound #backtoschool #incapacityplanning #powersofattorney @bgnthebgn

Revision to Proposed Rule Banning Arbitration Clauses in Nursing Home Admissions Agreements

Last year, the Centers for Medicare and Medicaid Services (“CMS”) issued a rule banning the use of binding pre-dispute arbitration agreements by nursing homes that accept Medicare and Medicaid patients.  The result of the new rule would have been that families who have an issue with a nursing home regarding care, abuse, and the like, would have been able to sue in court to have their case heard versus having to go through a binding arbitration process.  However, the American Health Care Association along with four long-term care providers filed suit against the Health and Human Services Secretary and CMS arguing that the agencies overstepped their authority in issuing the rule.  Injunctive relief was granted preventing the rule from going into effect.

In May of this year, the U.S. Supreme Court in Kindred Nursing Centers L.P. vs. Clark, overturned a ruling by the Kentucky Supreme Court in which the Kentucky Supreme Court stated that durable powers of attorney must explicitly permit an agent to enter into an arbitration agreement or otherwise risk violating the Kentucky Constitution where access to the courts and a trial by jury is ‘sacred’ and inviolate’.  Instead the U.S. Supreme Court held that Kentucky’s ruling violated the Federal Arbitration Act by treating arbitration agreements differently.    

As a result, earlier this month CMS issued proposed revisions to its arbitration agreement requirements for nursing homes and long-term care facilities.  CMS is no longer proposing a ban on arbitration agreements in admissions agreements, but it is requiring greater transparency as to the meaning and understanding of such provisions in admissions agreements.  Thus, it appears at this juncture that CMS is trying to find some middle ground between a complete ban on arbitration agreements and the decision in the Kindred case, but only time will tell if that middle ground has been found between the rights of the families of patients and the long-term care facilities.  #elderlaw #elderabuse #nursinghome #arbitration #CMS #SCOTUS @bgnthebgn