Covid-19 UPDATE: Delay Payroll Taxes OR Get Paycheck Protection?

Estate Planning, Tax Planning / Aid for Small Businesses, Assistance for Small Businesses, CARES Act, Paycheck Protection Program, Payroll Tax Deferral, St. Petersburg Estate Planning Attorney

These are tough times for everyone, but if you are a business owner you have a few additional tough decisions to make right now.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed on March 27, authorized a number of relief and aid programs for individuals and businesses. But figuring out how to move forward with applications and quickly getting needed relief isn’t easy.

Case in point – the CARES Act authorizes businesses to defer paying the employer contribution of payroll taxes (approximately 7 percent of payroll) through the end of this year with what is essentially a short-term, interest-free loan. This money must eventually be paid. Half is due on December 31^st, 2021 and the other half on December 31^st, 2022. While this sounds good and allows businesses to hang on to some cash during these difficult times, there is another program that may be more helpful … but you cannot use both. In other words, these offers cannot be combined.

The Paycheck Protection Program, also authorized in the CARES Act, allows small businesses to apply for a loan that can be partially or completely forgiven. The loan can be up to 2.5 times your average monthly payroll and associated costs. The loan amount will be based upon 2019 expenses for wages paid by your business (up to $100,000 per employee), costs for retirement plans, health insurance, self-employment earnings (again capped at $100,000/year) and state or local taxes imposed on wages.

Resource: COVID-19 Emergency Legislation Offers Substantial Relief to Employers (CARES Act), https://www.adp.com/spark/articles/2020/03/covid-19-emergency-legislation-offers-substantial-relief-to-employers.aspx and US Department of the Treasury, Assistance for Small Businesses, https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

IRS Postpones Gift and GST Tax Filing Deadline to July 15

Estate Planning, Tax Planning / Generation Skipping Transfer taxes, Gift tax filing deadline, gift taxes, GST tax filing deadline, GST taxes, St. Petersburg Estate Planning

The IRS has expanded the list of deadline extensions for federal taxes and tax returns to include gift and generation-skipping transfer (GST) tax returns. An earlier notice had applied only to federal income tax returns and payments (including self-employment tax payments) due April 15, 2020, for 2019 tax years, and to estimated income tax payments due April 15, 2020, for 2020 tax years.

Notice 2020-20 updates earlier guidance to include the gift and GST deadline extensions.

What Are Gift and GST Taxes?

Gift Taxes. The Internal Revenue Code imposes a gift tax on property or cash you give to any one person, but only if the value of the gift exceeds a certain threshold called the annual gift tax exclusion, $15,000 per person in 2020. You can give away the amount of the exclusion each year without incurring a tax. The giver is responsible for paying this tax, not the recipient.

GST Taxes. The generation-skipping transfer (GST) tax can be incurred when grandparents directly transfer money or property to their grandchildren without first leaving it to their children. These types of transfers share the same lifetime exemption as the federal estate and gift taxes, and are also subject to an annual exclusion limit of $15,000 per person.

Resource: Financial Planning, IRS postpones deadline for gift and GST taxes due to coronavirus, https://www.financial-planning.com/news/irs-offers-relief-on-gift-and-generation-skipping-transfer-taxes-due-to-coronavirus

Unintended Kiddie Tax Change Fixed in the SECURE Act

Estate Planning, Financial Planning, Tax Planning / Earned Income, Investment Income, Kiddie Tax, Military Families, SECURE Act, St. Petersburg Estate Planning Attorney, Unearned Income

Families were hurt by a change in the kiddie tax that took effect after 2017, but they’ll be able to undo the damage from 2018 and 2019 now that a fix has become law. The SECURE Act contains a provision that fixed this unintended change, as reported in the San Francisco Chronicle’s recent article, “Congress reversed kiddie-tax change that accidentally hurt some families.”

The kiddie tax was created many years ago to prevent wealthy families from transferring large amounts of investments to dependent children, who would then be taxed at a much lower rate than their parents. It taxed a child’s unearned income above a certain amount at the parent’s rate, instead of at the lower child’s rate. Unearned income includes investments, Social Security benefits, pensions, annuities, taxable scholarships and fellowships. Earned income, which is money earned from working, is always taxed at the lower rate.

The Tax Cuts and Jobs Act of 2017 changed the kiddie tax in a way that had severe consequences for military families receiving survivor benefits. Instead of taxing unearned income above a certain level—$2,100 in 2018 and $2,200 in 2019—at the parent’s tax rate, it taxed it at the federal rate for trusts and estates starting in 2018.

Hitting military families with a 37% tax rate that starts at $12,750 in taxable income seems unthinkable, but that’s what happened. Low and middle-income families whose dependent children were receiving unearned income, including retirement benefits received by dependent children of service members who died on active duty and scholarships used for expenses other than tuition and books, were effectively penalized by the change.

Under pressure from groups representing military families and scholarship providers, Congress finally added a measure repealing the kiddie tax change to the SECURE Act, which seemed as if it was going to be passed quickly in May. The bill was stalled until it was attached to the appropriations bill and was not passed until December 20, 2019.

There is a specific provision in the bill: “Tax Relief for Certain Children” that completely reverses the change starting in 2020. It also says that subject to the Treasury Department issuing guidance, taxpayers may be able to apply the repeal to their 2018 and 2019 tax years, or both.

The IRS has not yet issued guidance, but the expectation is that amended returns will be required, if a taxpayer elects to use the parents’ tax rate for that year. If you have questions about how this you should discuss them with your CPA or tax preparer.

Reference: San Francisco Chronicle (Jan. 20, 2020) “Congress reversed kiddie-tax change that accidentally hurt some families”

5 Good Reasons to Update Your Estate Plan

Estate Planning, Guardian, Protecting Children, Tax Planning, Trusts, Wills / Beneficiary Designation, Estate Planning Attorney, Guardian, Long-Term Costs, minor children, Retirement Plan, St. Petersburg Estate Planning Attorney

Most people already know that there are lots of good reasons to update your estate plan, and every estate planning attorney will tell you that they meet with people every day, who sheepishly admit that they’ve been meaning to update their estate plan, but just haven’t gotten to it. Let the guilt go.

Attorneys know that no one wants to talk about death, taxes or illness, says Wicked Local in the article “Five Reasons to Review Your Estate Plan.” However, there are five good reasons to update your estate plan and even an appearance before the Queen of England has to come second.

You have minor children. An estate plan for a couple with young children must do two very important things: address the care and custody of minor children should both parents die and address the management and distribution of the assets that the children will inherit. The will is the estate planning document used to name a guardian for minor children. The guardian is the person who will determine where your children will live and go to school, what kind of health care they receive and make all daily decisions about their care and upbringing.

If you don’t have a will, the court will name a guardian for you. You may not like the court’s decision. Your children might not like it at all. Having a will takes care of this important decision.

Your estate is worth more than $1 million. While the federal estate plan exemptions currently are at levels that remove federal tax from most people’s estate planning concerns, there are still state estate taxes. Some states have inheritance taxes. Whether you are married or single, if your assets are significant, you need an estate plan that maps out how assets will be left to your heirs and to plan for taxes.

Your last estate plan was created before 2012. There have been numerous changes in state estate planning laws regarding wills, probate and trusts. There have also been big changes in federal estate taxes. Strategies that were perfect in the past, may no longer be necessary or as productive because of these changes. While you’re taking the time to update your estate plan and making these changes, don’t forget to deal with digital assets. That includes email accounts, social media, online banking, etc. This will protect your fiduciaries from breaking federal hacking laws that are meant to protect online accounts, even when the person has your username and password.

You have robust retirement plans. Your will and trust do not control all the assets you own at the time of death. The first and foremost controlling element in your asset distribution is the beneficiary designation. Life insurance policies, annuities, and retirement accounts will be paid to the beneficiary named on the account, regardless of what your will says. Part of a comprehensive estate plan review will also cover beneficiary designations on each account.

You are worried about long-term care costs. Estate planning does not take place in a vacuum. Your estate plan needs to address issues like your plan, if you or your spouse need care. Do you intend to stay in your home? Are you going to move to live closer to your children, or to a Continuing Care Retirement Community? Do you have long-term insurance in place? Do you want to plan for Medicaid eligibility?

All of these issues are great reasons to update your estate plan. If you’ve never had an estate plan created, this is the time. Put your mind at ease, by getting this off your “to do” list and contact an experienced estate planning attorney.

Reference: Wicked Local (Aug. 29, 2019) “Five Reasons to Review Your Estate Plan”

What Are the Basics About Trusts?

Estate Planning, Estate Tax, Inheritance, Tax Planning, Trustee, Trusts / Asset Protection, Estate Planning Lawyer, Estate Tax, Inheritance, Tax Planning, Trustee, Trusts

Forbes’s recent article, “A Beginner’s Guide To Reading A Trust,” says that as much as attorneys have tried to simplify documents, there’s some legalese that just can’t be avoided. Let’s look at the basics about trusts and a few tips in reviewing your trust.

Basis about trusts — Understanding basic trust terms is essential.

First, familiarize yourself with the terms. There are basic terms of the trust that you’ll need to know. Most of this can be found on its first page, such as the person who created the trust. He or she is usually referred to as the Donor, Grantor or Settlor (here in Florida we use the term Settlor). It is also necessary to identify the Trustee and any successor trustees, who will hold the trust assets and administer them for the benefit of the Beneficiaries.

You should next see who the Beneficiaries are and then look at the important provisions concerning asset distribution. See if the trustee is required to distribute the assets all at once to a specific beneficiary, or if she can give the money out in installments over time.

It is also important to determine if the distributions are completely left to the discretion of the trustee, so the beneficiary doesn’t have a right to withdraw the trust assets. You’ll also want to check to see if the trustee can distribute both income and principal.

The next step is to see when the trust ends. Trusts usually end at a specific date or at the death of a beneficiary.

Other important basic trust provisions include whether the beneficiaries can remove and replace a trustee, if the trustee has to provide the beneficiaries with accountings and whether the trust is revocable or irrevocable. If the trust is revocable and you’re the settlor, you can change it at any time.

If the trust is irrevocable, you won’t be able to make any changes without court approval. If your uncle was the donor and he passed away, the trust is most likely now irrevocable.

In addition, you should review the basic trust boilerplate language, as well as the tax provisions.

Talk to an estate planning attorney about any questions you may have and to help you interpret the basic trust terms.

Reference: Forbes (June 17, 2019) “A Beginner’s Guide To Reading A Trust”

Are Inheritances Taxable?

Estate Planning, Inheritance, IRA, Life Insurance, Tax Planning / 401(k), Bank Accounts, Beneficiaries, Capital Gains Taxes, CDs, Inheritance, IRAs, Life Insurance Proceeds, Lump-Sum Payment, Real Estate, St. Petersburg Estate Planning Attorney

Inheritances come in all sizes and shapes. People inherit financial accounts, real estate, jewelry and personal items. However, whatever kind of inheritance you have, you’ll want to understand exactly what, if any, taxes might be due, advises the article “Will I Pay Taxes on My Inheritance” from Orange Town News. An inheritance might have an impact on Medicare premiums, or financial aid eligibility for a college age child. Let’s look at the different assets and how they may impact a family’s tax liability.

Bank Savings Accounts or CDs. As long as the cash inherited is not from a retirement account, there are no federal taxes due. The IRS does not impose a federal inheritance tax. However, there are some states, including Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, that do have an inheritance tax. Speak with an estate planning attorney about this tax.

Primary Residence or Other Real Estate. Inheriting a home is not a taxable event. However, once you take ownership and sell the home or other property, there will be taxes due on any gains. The value of the home or property is established on the day of death. If you inherit a home valued at death at $250,000 and you sell it a year later for $275,000, you’ll have to declare a long-term capital gain and pay taxes on the $25,000 gain. The cost-basis is determined, when you take ownership.

Life Insurance Proceeds. Life insurance proceeds are not taxable, nor are they reported as income by the beneficiaries. There are exceptions: if interest is earned, which can happen when receipt of the proceeds is delayed, that is reportable. The beneficiary will receive a Form 1099-INT and that interest is taxable by the state and federal tax agencies. If the proceeds from the life insurance policy are transferred to an individual as part of an arrangement before the insured’s death, they are also fully taxable.

Retirement Accounts: 401(k) and IRA. Distributions from an inherited traditional IRA are taxable, just as they are for non-inherited IRAs. Distributions from an inherited Roth IRA are not taxable, unless the Roth was established within the past five years.

There are some changes coming to retirement accounts because of pending legislation, so it will be important to check on this with your estate planning attorney. Inherited 401(k) plans are or eventually will be taxable, but the tax rate depends upon the rules of the 401(k) plan. Many 401(k) plans require a lump-sum distribution upon the death of the owner. The surviving spouse is permitted to roll the 401(k) into an IRA, but if the beneficiary is not a spouse, they may have to take the lump-sum payment and pay the resulting taxes.

Stocks. Generally, when stocks or funds are sold, capital gains taxes are paid on any gains that occurred during the period of ownership. When stock is inherited, the cost basis is based on the fair market value of the stock or fund at the date of death.

Artwork and Jewelry. Collectibles, artwork, or jewelry that is inherited and sold, will incur a tax on the net gain of the sale. There is a 28% capital gains tax rate, compared to a 15% to 20% capital gains tax rate that applies to most capital assets. The value is based on the value at the date of death or the alternate valuation date. This asset class includes anything that is considered an item worth collecting: rare stamps, books, fine art, antiques and coin collections fall into this category.

Speak with an estate planning attorney before signing and accepting an inheritance, so you’ll know what kind of tax liability comes with the inheritance. Take your time. Most people are advised to wait about a year before making any big financial decisions after a loss.

Reference: Orange Town News (May 29, 2019) “Will I Pay Taxes on My Inheritance”

What Do I Tell My Kids About Their Inheritance?

Asset Protection, Estate Planning, Estate Tax, Financial Planning, Inheritance, Tax Planning / Asset Protection, Beneficiaries, Estate Planning Lawyer, Estate Tax, Financial Planning, Inheritance, St. Petersburg Estate Planning, Tax Planning

knowing whether to tell your kids about their inheritance can be tough decision

For some parents, it can be difficult to discuss family wealth with their children and knowing whether to tell your kids about their inheritance can be tough decision. You may worry that when your kid learns they’re going to inherit a chunk of money, they’ll drop out of college and devote all their time to their tan.

Kiplinger’s recent article, “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth,” says that some parents have lived through many obstacles themselves. Therefore, they may try to find a middle road between keeping their children in the dark and telling them too early and without the proper planning. However, this is missing one critical element, which is the role their children want to play in creating their own futures.

In addition to the finer points of estate planning and tax planning, another crucial part of successfully transferring wealth is honest communication between parents and their children. This can be valuable on many levels, including having heirs see the family vision and bolstering personal relationships between parents and children through trust, honesty and vulnerability.

For example, if the parents had inherited a $25 million estate and their children would be the primary beneficiaries, transparency would be of the utmost importance. That can create some expectations of money to burn for the kids. However, that might not be the case, if the parents worked with an experienced estate planning attorney to lessen estate taxes for a more successful transfer of wealth.

Without having conversations with parents about the family’s wealth and how it will be distributed, the support a child gets now and what she may receive in the future, may be far different than what she originally thought. With this information, the child could make informed decisions about her future education and how she would live.

Heirs can have a wide variety of motivations to understand their family’s wealth and what they stand to inherit. However, most concern planning for their future. As a child matures and begins to assume greater responsibility, parents should identify opportunities to keep them informed and to learn about their children’s aspirations, and what they want to accomplish.

The best way to find out about an heir’s motivation, is simply to talk to talk to your kids about their inheritance.

Reference: Kiplinger (May 22, 2019) “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth”

What You Need to Know about Trusts for Estate Planning

Estate Planning, Tax Planning, Trustee, Trusts / Beneficiaries, Charitable Remainder Trusts, Estate Planning Attorney, Federal Estate Tax, Grantor, Irrevocable Trusts, Revocable Trusts, St. Petersburg Estate Planning Attorney, Trusts

There are many different kinds of trusts used to accomplish a wide variety of purposes in creating an estate plan. Some are created by the operation of a will, and they are known as testamentary trusts—meaning that they came to be via the last will and testament. That’s just the start of a thorough look at trusts for estate planning offered in the article “ON THE MONEY: A look at different types of trusts” from the Aiken Standard.

Another way to view trusts for estate planning is in two categories: revocable or irrevocable. As the names imply, the revocable trust can be changed, amended or revoked entirely, and the irrevocable trust usually cannot be changed.

A testamentary trust is a type of revocable trust, since it may be changed during the life of the testator. However, upon the death of the testator, it becomes irrevocable.

In most instances, a revocable trust is managed for the benefit of the grantor, although the grantor also retains important rights over the trust during her or his lifetime. The rights of the grantor include the ability to instruct the trustee to distribute any of the assets in the trust to someone, the right to make changes to the trust and the right to terminate the trust at any time.

If the grantor becomes incapacitated, however, and cannot manage her or his finances, then the provisions in the trust document usually give the trustee the power to make discretionary distributions of income and principal to the grantor and, depending upon how the trust is created, to the grantor’s family.

Note that distributions from a revocable trust to a beneficiary other than the grantor, may be subject to gift taxes. Those are paid by the grantor. In 2019, the annual gift tax exclusion is $15,000. Therefore, if the distribution is under that level, no gift taxes need to be filed or paid.

When the grantor dies, the trust property is distributed to beneficiaries, as directed by the trust agreement.

Irrevocable trusts are established by a grantor and cannot be amended without the approval of the trustee and the beneficiaries of the trust. The major reason for creating such a trust in the past was to create estate and income tax advantages. However, the increase in the federal estate tax exemption means that a single individual’s estate won’t have to pay taxes, if the value of their assets is less than $11.4 million ($22.8 million for a married couple).

Once an irrevocable trust is established and assets are placed in it, those assets are not part of the grantor’s taxable estate, and trust earnings are not reported as income to the grantor.

The downside of using irrevocable trusts for estate planning is that the transfer of assets into the trust may be subject to gift taxes, if the amount that is transferred is greater than $15,000 multiplied by the number of trust beneficiaries. However, depending upon the size of the grantor’s estate, larger amounts may be transferred into an irrevocable trust without any gift tax liability to the grantor, if the synchronization between gift taxes and estate taxes is properly done. This is a complex strategy that requires an experienced trust and estate attorney.

Trusts for estate planning are also used to address charitable giving and generating current income. These trusts are known as Charitable Remainder Trusts and are irrevocable in nature. In this type of trust there is a current beneficiary who is either the donor or another named individual and a remainder beneficiary, which is a qualified charitable organization. The trust document provides that the named beneficiary receives an income stream from the income produced by the trust assets during the grantor’s lifetime, and when the grantor dies, the remaining assets of the trust pass to the charity.

Speak with your estate planning attorney about how trusts might be a valuable part of your estate plan. If your estate plan has not been reviewed since the new tax law was passed, there may be certain opportunities that you are missing.

Reference: Aiken Standard (May 17, 2019) “ON THE MONEY: A look at different types of trusts”

What is a Transfer on Death (TOD) Account?

Estate Planning, Financial Planning, Inheritance, Probate, Tax Planning, Wills / 401(k), Estate Planning Lawyer, Financial Planning, Inheritance, Pension, Probate Court, St. Petersburg Estate Planning Attorney, Tax Planning, TOD (Transfer on Death), Wills

Transfer on Death accounts allow for assets to avoid probate and be transferred directly to a beneficiary after the death of the account holder.

Most married couples share a bank account from which either spouse can write checks and add or withdraw funds without approval from the other. When one spouse dies, the other owns the account. The deceased spouse’s will can’t change that.

This account is wholly owned by both spouses while they’re both alive. As a result, a creditor of one spouse could make a claim against the entire account, without any approval or say from the other spouse. Either spouse could also withdraw all the money in the account and not tell the other. This basic joint account offers a right of survivorship, but joint account holders can designate who gets the funds, after the second person dies.

Kiplinger’s recent article, “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning,” explains that the answer is transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts, and payable-on-death accounts).

In some states, this type of account can allow a TOD beneficiary to receive an auto, house, or even investment accounts. However, retirement accounts, like IRAs, Roth IRAs, and employer plans, aren’t eligible. They’re controlled by federal laws that have specific rules for designated beneficiaries.

After a decedent’s death, taking control of the account is a simple process. What is typically required, is to provide the death certificate and a picture ID to the account custodian. Because TOD accounts are still part of the decedent’s estate (although not the probate estate that the will establishes), they may be subject to income, estate, and/or inheritance tax. TOD accounts are also not out of reach for the decedent’s creditors or other relatives.

Account custodians (such as financial institutions) are often cautious, because they may face liability if they pay to the wrong person or don’t offer an opportunity for the government, creditors, or the probate court to claim account funds. Some states allow the beneficiary to take over that responsibility, by signing an affidavit. The bank will then release the funds, and the liability shifts to the beneficiary.

If you’re a TOD account owner, you should update your account beneficiaries and make certain that you coordinate your last will and testament and TOD agreements, according to your intentions. If you fail to do so, you could unintentionally add more beneficiaries to your will and not update your TOD account. This would accidentally disinherit those beneficiaries from full shares in the estate, creating probate issues.

TOD joint account owners should also consider that the surviving co-owner has full authority to change the account beneficiaries. This means that individuals whom the decedent owner may have intended to benefit from the TOD account (and who were purposefully left out of the Last Will) could be excluded.

If the decedent’s will doesn’t rely on TOD account planning, and the account lacks a beneficiary, state law will govern the distribution of the estate, including that TOD account. In many states, intestacy laws provide for spouses and distant relatives and exclude any other unrelated parties. This means that the TOD account owner’s desire to give the account funds to specific beneficiaries or their descendants would be thwarted.

Ask an experienced estate planning attorney, if a TOD account is suitable to your needs and make sure that it coordinates with your overall estate plan.

Reference: Kiplinger (March 18, 2019) “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning”

When Should I Review My Estate Plan?

Estate Planning, Executor, Guardian, Health Care, Personal Representative, Power of Attorney, Protecting Children, Retirement Planning, Tax Planning, Trusts, Wills / Estate Planning Lawyer, Executor, Guardian, Life Insurance, Medicaid, Power of Attorney, St. Petersburg Estate Planning, Trustee, Will

As life changes, you need to periodically review your estate-planning documents and discuss your situation with your estate planning attorney.

WMUR’s recent article, “Money Matters: Reviewing your estate plan,” says a common question is “When should I review my documents?”

Estate Plan Review — You should review your estate plan each time a major life event occurs or every 5 years, whichever comes first.

Every few years is the quick answer, but a change in your life may also necessitate a review. Major life events can be related to a marriage, divorce, or death in the family; a substantial change in estate size; a move to another state and/or acquisition of property in another state; the death of an executor, trustee or guardian; the birth or adoption of children or grandchildren; retirement; and a significant change in health, to name just a handful.

When you conduct your review, consider these questions:

Does anyone in your family have special needs?
Do you have any children from a previous marriage?
Is your choice of executor, guardian, or trustee still okay?
Do you have a valid living will, durable power of attorney for health care, or a do-not-resuscitate to manage your health care, if you’re not able to do so?
Do you need to plan for Medicaid?
Are your beneficiary designations up to date on your retirement plans, annuities, payable-on-death bank accounts and life insurance?
Do you have charitable intentions and if so, are they mentioned in your documents?
Do you own sufficient life insurance?

In addition, review your digital presence and take the necessary efforts to protect your online information, after your death or if you’re no longer able to act.

It may take a little time, effort, and money to review your documents, but doing so helps ensure your intentions are properly executed. Your planning will help to protect your family during a difficult time.

Reference: WMUR (January 24, 2019) “Money Matters: Reviewing your estate plan”