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


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