Category Archives: Estate Planning

The New Tax Law Means It’s Time to Review Your Estate Plan

February 27, 2019

While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn’t mean you should ignore its impact on your estate plan.

In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.

While most estates won’t be subject to the federal estate tax, you should review your estate plan to make sure the changes won’t have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent’s children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.

For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.

Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is “stepped up,” which means the tax basis would be the current value of the property. If the same property is gifted, there is no “step up” in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.

In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.

Does Your Estate Plan Include Your Pets?

February 5, 2019

Have you considered your pet or pets when planning your estate? If not, you should, according to The Humane Society of the United States, the nation’s largest animal protection organization.

Pets usually have shorter life spans than humans, but people don’t always include their pets in their estate plans. If a pet owner doesn’t make plans for his or her pet, the animal can be left homeless and end up in an animal shelter.

To help pet owners ensure that that their wishes for their pets’ long-term care won’t be forgotten, misconstrued or ignored, The Humane Society has created a printable fact sheet, “Providing for Your Pet’s Future Without You.” The five-page fact sheet, which is available in English and Spanish, provides sample legal language for including pets in wills and trusts, plus suggestions on protecting pets through a power of attorney.

The Humane Society says that all too often, people erroneously assume that a long-ago verbal promise from a friend, relative or neighbor to provide a home for a pet will be sufficient years later. Even conscientious individuals who include their pets in their wills may neglect to plan for contingencies in which a will might not take effect, such as in the event of severe disability or a protracted will challenge.

Key Elder Law Numbers for 2019: Our Annual Roundup

February 4, 2019

Below are figures for 2019 that are frequently used in the elder law practice or are of interest to clients.

Medicaid Spousal Impoverishment Figures for 2019

The new minimum community spouse resource allowance (CSRA) is $25,284 and the maximum CSRA is $126,420. The maximum monthly maintenance needs allowance is $3,160.50. The minimum monthly maintenance needs allowance remains $2,057.50 ($2,572.50 for Alaska and $2,366.25 for Hawaii) until July 1, 2019.

Medicaid Home Equity Limits

Minimum: $585,000

Maximum: $878,000

For CMS’s complete chart of the 2019 SSI and Spousal Impoverishment Standards, click here.

Income Cap

The income cap for 2019 applicable in “income cap” states is $2,313 a month.

Gift and estate tax figures

Federal estate tax exemption: $11.4 million for individuals, $22.8 million for married couples

Lifetime tax exclusion for gifts: $11.4 million

Generation-skipping transfer tax exemption: $11.4 million

Annual gift tax exclusion: $15,000 (unchanged)

Long-Term Care Premium Deductibility Limits for 2019

The Internal Revenue Service has announced the 2019 limitations on the deductibility of long-term care insurance premiums from income. Any premium amounts above these limits are not considered to be a medical expense.

Attained age before the close of the taxable year Maximum deduction
40 or less $420
More than 40 but not more than 50 $790
More than 50 but not more than 60 $1,580
More than 60 but not more than 70 $4,220
More than 70 $5,270

Benefits from per diem or indemnity policies, which pay a predetermined amount each day, are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $370 per day (for 2019), whichever is greater.

For these and other inflation adjustments from the IRS, click here.

Medicare Premiums, Deductibles and Copayments for 2019

  • Part B premium: $135.50/month (was $134)
  • Part B deductible: $185 (was $183)
  • Part A deductible: $1,364 (was $1,340)
  • Co-payment for hospital stay days 61-90: $341/day (was $335)
  • Co-payment for hospital stay days 91 and beyond: $682/day (was $670)
  • Skilled nursing facility co-payment, days 21-100: $170.50/day (was $167.50)

Part B premiums for higher-income beneficiaries:

  • Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $189.60.
  • Individuals with annual incomes between $107,000 and $133,500 and married couples with annual incomes between $214,000 and $267,000 will pay a monthly premium of $270.90.
  • Individuals with annual incomes between $133,500 and $160,000 and married couples with annual incomes between $267,000 and $320,000 will pay a monthly premium of $352.20.
  • Individuals with annual incomes between above $160,000 and married couples with annual incomes above $320,000 will pay a monthly premium of $433.40.
  • Individuals with annual incomes above $500,000 and married couples with annual incomes above $750,000 will pay a monthly premium of $460.50

High-earner premiums differ for beneficiaries who are married but file a separate tax return from their spouse. Those with incomes greater than $85,000 and less than $415,000 will pay a monthly premium of $433.40. Those with incomes greater than $415,000 will pay a monthly premium of $460.50.

For Medicare’s “Medicare 2019 costs at a glance,” click here.

Social Security Benefits for 2019

The new monthly federal Supplemental Security Income (SSI) payment standard is $771 for an individual and $1,157 for a couple.

Estimated average monthly Social Security retirement payment: $1,461 a month for individuals and $2,448 for couples

Maximum amount of earnings subject to Social Security taxation: $132,900 (was $128,400)

For a complete list of the 2019 Social Security figures, go to: https://www.ssa.gov/news/press/factsheets/colafacts2019.pdf

IRS Announces Higher 2019 Estate And Gift Tax Limits

December 24, 2018


Ashlea Ebeling Forbes Staff

The Internal Revenue Service announced today the official estate and gift tax limits for 2019: The estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $22.8 million. The annual gift exclusion amount remains the same at $15,000.

For the ultra rich, these numbers represent planning opportunities. For everybody else, they serve as a reminder: Even if you don’t have a taxable estate, you still need an estate plan.

The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2018-57. Forbes contributor Kelly Phillips Erb has all the details on 2019 tax brackets, standard deduction amounts and more. We have all the details on the new higher 2019 retirement account limits too.

The Trump tax cuts slashed the number of estates subject to the federal estate tax, by doubling the exemption amount from a base level of $5 million per person. So, there were only an estimated 1,890 taxable estates in 2018 (according to the Tax Policy Center). That compares with 4,687 taxable estates in 2013 reflecting a base $5 million exemption, and 52,000 taxable estates in 2000 when the exemption was $675,000 (Table 2, JCT 2015 Wealth Transfer Tax System Report).

For now, death tax foes are trying to make the new doubled exemption amounts permanent; the Trump tax cuts are scheduled to expire at year-end 2025. “Permanence [of the doubled exemption] would make the score of repeal much cheaper and provide predictability,” says Palmer Schoening of the anti-death tax Family Business Coalition, noting that the ultimate goal is still to repeal the estate tax. The mid-term elections, however, put a damper on the viability of Tax Reform 2.0, the Republicans’ latest push to make that doubled exemption permanent.

In the meantime, the wealthy will continue to plan around the estate tax, whittling down their estates with lifetime wealth transfer strategies to keep below the new threshold and avoid the 40% federal estate tax. Now, a couple who has used up every dollar of their exemption before the increase has another $440,000 of exemption value to pass on tax free. For planning tips, see Trusts In The Age of Trump: Time To Re-Engineer Your Estate Plan.

What about the $15,000 annual exclusion amount? You can give away $15,000 to as many individuals as you’d like. A husband and wife can each make $15,000 gifts. So, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption. See The Gift Tax Return Trap And How To Avoid It.

Warning: The $22.8 million number per couple isn’t automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption – a move called “portability”—you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don’t know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill.

And note, if you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate. Several states were in line to match the federal exemption amount for 2018, but state legislators determined the new doubled exemption was just too high. See States Rebel, Won’t Conform To Trump’s Estate Tax Cuts. Most states haven’t announced their inflation-adjusted numbers yet for 2019, but we’ll keep you posted.

IRS Announces Higher 2019 Retirement Plan Contribution Limits For 401(k)s and More

November 26, 2018

NAELA news:
Ashlea Ebeling, 

Get ready to save more for retirement in 2019! The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2019, and there are a lot of changes that will help savers stuff these accounts.
After six years stuck at $5,500, the amount you can contribute to an Individual Retirement Account is being bumped up to $6,000 for 2019. The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs.

That means that many high earners and super-savers age 50-plus can sock away $32,000 in these tax-advantaged accounts. If your employer allows aftertax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $56,000, from $55,000.

Do these limits seem unreachable? During 2017, 13% of employees with retirement plans at work saved the then-statutory maximum of $18,000/$24,000, according to Vanguard’s How America Saves. In plans offering catch-up contributions,14% of those age 50 or older took advantage of the extra savings opportunity.

We outline the numbers below; see IRS Notice 2018-83 for technical guidance.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $19,000 for 2019—a $500 boost over 2018. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

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The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans stays the same at $6,000 for 2019. Even if you don’t turn 50 until December 31, 2019, you can make the additional $6,000 catch-up contribution for the year.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.

Aftertax 401(k) contributions. If your employer allows aftertax contributions to your 401(k), you also get the advantage of the $56,000 limit for 2019. It’s an overall cap, including your $19,000 (pretax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions). For how to rollover aftertax 401(k) money into a Roth IRA, see Roth Road To Riches.

The SIMPLE. The limit on SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000. Here’s how a SIMPLE works in practice.

Defined Benefit Plans. UPDATE The limitation on the annual benefit of a defined benefit plan goes up from $220,000 in 2018 to $225,000 in 2019. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.

Individual Retirement Accounts. The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) is moving up to $6,000 for 2019, up from $5,500. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2018 IRA contributions can be made until April 15, 2019.)

Deductible IRA Phase-Outs. You can earn a little more in 2019 and get to deduct your contributions to a traditional pretax IRA. Note, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute; it’s just nondeductible.

In 2019, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000, up from $63,000 and $73,000 in 2018. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019, up from $101,000 to $121,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000 in 2019, up from $189,000 and $199,000 in 2018.

Roth IRA Phase-Outs. The inflation adjustment helps Roth IRA savers too. In 2019, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $193,000 to $203,000 for married couples filing jointly, up from $189,000 to $199,000 in 2018. For singles and heads of household, the income phase-out range is $122,000 to $137,000, up from $120,000 to $135,000 in 2018.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, see Congress Blesses Roth IRAs For Everyone, Even The Well-Paid.

Saver’s Credit. The income limit for the saver’s credit for low- and moderate-income workers is $64,000 for married couples filing jointly for 2019, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married filing separately, up from $31,500. See Grab The Saver’s Credit for details on how it can pay off.

QLACs. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract remains unchanged at $130,000. See Make Your Retirement Money Last For Life for how QLACs work.

D.C. and Maryland Lower Estate Tax Exemptions

October 5, 2018

BackyardProduction/iStock/Thinkstock

ELA News:

Richard S. Franklin, George Karibjanian, Lester B. Law | Sep 13, 2018

In 2017, both the District of Columbia and Maryland were on track to match the federal estate tax exclusion amount; in 2018 and 2019,D.C. and Maryland, respectively. However, both jurisdictions were apparently caught off guard by the federal government doubling its estate tax exclusion to $11.18 million for 2018. We last reported that both D.C. and Maryland were considering legislation to limit their exclusions to levels consistent to the federal estate tax exclusion in 2017. Now, we confirm that both jurisdictions are breaking away from the federal government with lower estate tax exclusion amounts.

D.C.

On Feb. 6, 2018, 10 of the 13 D.C. City Council members joined in a bill to change the D.C. estate tax exclusion to $5.6 million for 2018 and have this amount adjusted for inflation in future years. These changes were later added to D.C.’s budget bill as the Budget Support Act, which was enacted on Sept. 5, 2018. Pursuant to this legislation, D.C.’s estate tax exclusion amount is $5.6 million retroactive back to Jan. 1, 2018.

Maryland

For individuals dying in 2018, the Maryland estate tax exemption is $4 million which is a $1 million increase from 2017. The Maryland increase is part of a 2014 law that gradually increases the Maryland estate tax exemption each year until 2019, when it was on schedule to match the federal basic exclusion amount. Pursuant to legislation passed on April 5, 2018, Maryland will limit its estate tax exclusion to $5 million in 2019. Maryland’s change doesn’t involve any element of retroactivity as does the D.C. legislation.

How Long $1 Million in Retirement Will Last in Every State

September 12, 2018

Anywhere between 12 and 26 years, depending on the state.

By Joel Anderson
ELA News
August 6, 2018

About 10,000 people turn 65 in the U.S. every single day. The average American retirement age is 63, and the life expectancy for retirees is about 79. That means Americans should plan to spend 16 years in retirement. However, many Americans lack the savings needed to survive retirement.

Conventional wisdom suggests a retirement income nest egg of at least $1 million, but the buying power of $1 million varies wildly depending on where you live. So if you’re asking “how long will my money last in retirement,” the answer is “it depends on your state.”

In order to determine how long $1 million will last the average retiree in every state, GOBankingRates found the average total expenditures for people 65 and older, which includes groceries, housing, utilities, transportation and healthcare, then factored in the cost of living index in each state to find the average budget for a retiree.

Dividing a theoretical $1 million by the costs per state reveals the number of years $1 million will last retirees in every state. Click through to learn just how long that is, and see if $1 million is enough for retirement in your state.

Read full article: How Long $1 Million in Retirement Will Last in Every State.

When Are IRA Distributions Not Included in a Spouse’s Gross Income?

September 10, 2018

Private letter ruling deems rollover made by decedent’s wife to be valid.

Susan R. Lipp | Aug 07, 2018

In Private Letter Ruling 201831004 (released Aug. 3, 2018), the Internal Revenue Service ruled that a decedent’s individual retirement account wasn’t an inherited IRA and that his surviving spouse would be treated as the payee of the IRA proceeds because she made a valid rollover of the assets; thus, she didn’t have to include those assets in her gross income.

Survivor’s Trust

A husband and wife established a revocable trust consisting entirely of their community property. When the husband died, the wife became the sole trustee of the trust. Also, the husband had an IRA, which listed the trust as the beneficiary. As per the terms of the trust, all of its assets, including the IRA, were allocated to a subtrust, the Survivor’s Trust. The Survivor’s Trust provided that the wife would receive the right to income for her life and as much principal as was needed for her health, support, maintenance, comfort and happiness. She also had the power to distribute any of the trust’s property, including to herself. Through that power, she distributed and transferred the IRA assets to a non-IRA account of the Survivor’s Trust. Within 60 days, those amounts were distributed from the non-IRA account held by the Survivor’s Trust and paid to a rollover IRA, established in the wife’s name.

Rulings Requested

The wife asked the IRS to rule that:

  • She be treated as the payee or distributee of her husband’s IRA.
  • Her husband’s IRA isn’t an inherited IRA for purposes of Internal Revenue Code Section 408(d)(3)(C ) with respect to her.
  • Her rollover of IRA assets was valid under the same section.
  • She won’t be required to include in her gross income for federal income tax purposes in Year 1 or Year 2 the amount distributed from her husband’s IRA and rolled over.

The IRS granted all of the wife’s requests.

Rationale

Under IRC Section 408(d)(1), an amount distributed from an IRA is included in the payee’s gross income. But, there’s an exception for a rollover contribution that satisfies the following requirements: (1) the entire amount received (including money and any other property) is paid into an IRA for the benefit of the individual for whom the IRA is maintained) not later than the 60th day after the day on which the individual receives the payment or distribution; or (2) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of the individual no later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount that may be paid into such plan may not exceed the portion of the amount received that’s includible in gross income (without regard to Section 408(d)(3)).

Note, the above exception doesn’t apply to an inherited IRA where the inheritor wasn’t the surviving spouse of the decedent.

In the present case, the wife, as the sole beneficiary of the Survivor’s Trust, was entitled to receive all of its income and principal to which the IRA was allocated. This is because the wife had the right to, and did, in fact, direct the trustee in writing to pay her any such amounts from the Survivor’s Trust, which included directing the assets from the IRA to first be distributed from the IRA and then, within 60 days, rolled over to the rollover IRA (notwithstanding the fact that the assets were held in a non-IRA account before being paid to the rollover IRA). Accordingly, for purposes of applying Section 408(d)(3)(A) to the IRA, the wife is effectively the individual for whose benefit the IRA is maintained. As such, she was entitled to roll over such amounts.

Finding the Best Retirement Calculators

June 27, 2018

Figuring out how much to save for retirement and when you can safely stop working can be difficult. A growing number of online retirement calculators, many of them free, are available to help. Although these calculators may yield vastly different results, they can still be useful tools.

Based on information about you and your finances, retirement calculators try to predict how much you must save in order to achieve your retirement goals. There are many different types of calculators; some are web-based while others require you to download a program or an app. The amount of information needed also varies from calculator to calculator.

While retirement calculators can be useful, you need to keep in mind that results are not always 100% accurate. A 2009 study found that while such calculators “can provide a rough idea of whether the user is on target for retirement,” they inadequately assess the risk of running out of money, and it may be a good idea to use several different calculators to obtain a range of predictions.

Before getting started with any retirement calculator, you will need to gather information about your finances to have at your fingertips. Even the most basic calculator will want to know how much you currently have saved for retirement and how much you are saving each month. More advanced calculators might require more detailed investment information.

To help you find the best calculator for you, below are three sites that evaluate these financial tools. You can decide how much detail you want to provide and receive.

  • Can I Retire Yet? has a long list of retirement calculators with details about cost, platform, and how well it reproduces reality.
  • The Balance provides its own assessment of the accuracy and usability of what it considers the best retirement calculators.
  • Forbes shares information on five free retirement calculators, ranging from simple to more complicated.

Choosing Retirement Account Beneficiaries Requires Some Thought

May 1, 2018

Source: ELA news

While the execution of wills requires formalities like witnesses and a notary, the reality is that most property passes to heirs through other, less formal means.

Many bank and investments accounts, as well as real estate, have joint owners who take ownership automatically at the death of the primary owner. Other banks and investment companies offer payable on death accounts that permit owners to name the person or people who will receive them when the owners die. Life insurance, of course, permits the owner to name beneficiaries. Continue reading