IDEAS FOR THESE TRANSITIONAL TIMES

As tax lawyers and estate planners, we see that there is a lot of uncertainty and speculation in the marketplace about what the estate and gift tax system will look like if Joe Biden should defeat Donald Trump in the November 2020 election.  We all know that under current law, the estate and gift tax exemption is at an all time high of $11.58 million per person or over $23 million per couple.  Under current law, the exemption amount is designed to revert back to $5 million per person and $10 million per couple (adjusted for inflation) at the end of 2025.

Many commentators have speculated that if Joe Biden wins the presidency, the estate tax exemption will be scaled back to $5 million per person (adjusted for inflation) or even lower to the 2009 level of $3.5 million per person; however, as of October 1^, 2020, a review of Mr. Biden’s tax plan does not contain a definite proposed reduction.  Moreover, his proposed tax plan does not specifically contain an increase in estate tax rate of the current 40% tax.  The one thing Biden’s platform does contain is a statement that the step up in basis at death should be repealed.  Even in the absence of proposed guideposts, nearly everyone predicts that if there is a Biden victory, the estate tax exemption will be scaled back, and the estate tax rate will increase.  Thus, for families with gross estates in the $10-$20 million range, or above, now is the time to consider implementing tax and estate plan strategies to take advantage of lifetime gift opportunities that will likely disappear effective January 1, 2021 if Biden is elected.

Even if your net worth is not over $10 Million we have plenty of sophisticated strategies and techniques which could be implemented depending on your asset mix, goals, and objectives.  The tools in our toolbox include sales to intentionally defective grantor trusts (IDGTs) in exchange for promissory notes to fix growth, the creation of spousal limited access trusts (SLATs), creations of charitable trusts and foundations, and other sophisticated techniques which are both time tested and flexible.

If you are a current client, prospective client, financial advisor, or other interested party, please contact Jeffrey D. Moss or your Dawda attorney for more information.

The post Year End Estate Tax Planning in 2020 appeared first on Dawda PLC.

On December 20, 2019, while you were finishing your holiday shopping, Congress passed the Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019.  The SECURE Act became effective for events occurring after December 31, 2019.  This new law impacts many rules related to retirement plans, including mandatory withdrawal ages, treatment of beneficiaries, and the types of investments permitted by a retirement plan.

Here are some highlights of the SECURE Act:

• For people born after June 30, 1949, the required minimum distribution date from retirement accounts is pushed back from age 70 ½ to age 72. This allows for up to two more years without mandatory withdrawals which can allow for more tax-free growth.
• On the flip side, the use of the “stretch” IRA concept which allowed non-spouse designated beneficiaries to receive many years of tax deferred compounding is, in many situations, now limited to 10 years. Without getting into all the details, most IRA heirs, other than spouses, will be required to withdraw assets within 10 years rather than over their life expectancy.  Under the old rules, an account owner could name a younger child or grandchild as a designated beneficiary and obtain distributions over the lifetime of the much younger beneficiary, hence the “stretch”.

The surviving spouse will still have the same options available under current law.

With respect to minor children, there is a special rule for inherited accounts.  A minor child can accept distributions based upon their life expectancy until age 18 when at that point in time, there is an additional 10-year deferral which then mandates the entire account be distributed by age 28.  There is another special exception for minor children which defers the age of majority from 18 to up to age 26 if he or she has not completed a “specified course of education”.  The exceptions discussed above do not apply to grandchildren, if a grandchild is named a designated beneficiary, he or she will be required to have a 10-year payout even if the grandchild is under age 18 at the time of the account holder’s death.

• There are other exceptions when beneficiaries are disabled or chronically ill individuals. If a designated beneficiary qualifies as a disabled or chronically ill designated beneficiary, he or she would still be able to obtain lifetime payout.  There is apparently a “certification rule” for disability and chronic illness.  It is unclear whether one has to be disabled or chronically ill at the date of account holder’s death or if a person becomes disabled or chronically ill during the 10-year period whether this alters the status of the payout.
• Deferred compensation trusts such as conduit trusts and accumulation trusts may be negatively impacted by this legislation. Even in the case of a conduit trust which would require mandatory distributions to a designated beneficiary of his or her share of the subtrust, deferrals would be limited to 10 years rather than lifetime.  Thus, many people may have had expectations that their trust agreement would provide minimum distributions for the lifetime of children or grandchildren.  Individuals expectations now must change.

There are other changes resulting from the SECURE Act including permitting part time workers to participate in 401(k) plans, allowing IRA contributions after age 70 ½, allowing “small business owners” to receive a tax credit for starting a retirement plan, and allowing the withdrawal of 529 plan dollars to pay up to $10,000 in student debt over the course of a student’s lifetime.  There is expanded opportunities for annuities as investments.  ROTH IRA conversions may be favored in some situations.

The result of the SECURE Act is that all retirement account holders should review their beneficiary designation forms and estate plan documents and determine whether or not these new rules fundamentally alter his or her goals and objectives with respect to estate planning and retirement accounts.

Please do not hesitate to contact your Dawda attorney if you have any questions related to the SECURE Act, your estate plan, and the impact of your beneficiary designations.

The post The SECURE Act Makes Stretch IRAs Less Flexible appeared first on Dawda PLC.

While it is hard to believe, in 2008, Congress passed a resolution that designated the third week of October as National Estate Planning Awareness Week.  At Dawda, our group of estate planning and tax attorneys dedicate nearly every week to estate planning, and we were overjoyed to learn that Congress designated this particular week to emphasize how important planning for future transfers of wealth can be.

We have always thought our role in the estate planning process was to meet with our clients, listen to their particular situation, and draft comprehensive and holistic documents to take into account the goals and objectives of our clients.  A good estate plan should be durable, flexible, and work across a broad spectrum of circumstances.  We also believe that an estate plan should be tax efficient, avoid the probate court, and we emphasize advising and assisting our clients in funding their trusts and making proper beneficiary designation to integrate all the different items.

Good candidates for estate planning are families with young children, blended families, and families with significant assets to manage.  This is a great time to dust off your old estate plan and review it to make sure all the pieces still work, or it is a great time to establish a relationship with one of our estate planning attorneys to create your estate plan.  Please do not hesitate to contact me or your Dawda attorney for more information.

The post October 21–27 is National Estate Planning Week appeared first on Dawda PLC.

This is particularly true in the lives of two legendary men: radio star Casey Kasem and country singer Glen Campbell. Their stories reveal the potential fissures in blended families and the conflict that can ensue when the wishes of an ailing person are not in writing prior to their demise.

Casey Kasem, afflicted with Parkinson’s Disease and eventually dying from its complications, was cared for by his second wife, Jean, who did not allow her husband to have contact with the children from his first marriage. Glen Campbell, diagnosed with Alzheimer’s Disease, has now entered a nursing home, a decision made by his current wife and children, but disputed by children from previous marriages. (A documentary about Glen Campbell’s struggle with Alzheimer’s called “Glen Campbell: I’ll Be Me” is available on Netflix.)

What happens when a person declines physically and mentally and various family members disagree about care and final wishes? It appears that it is impossible to be prescient about all of the permutations that can occur at the ends of one’s life.  Indeed, older people may find it easier to focus on getting their affairs in order by ensuring that their wills are up-to-date and that their attorneys are aware of their final wishes regarding the disposition of their estate rather than finding solutions for problems that do not yet exist, particularly in complex, often hostile family dynamics.

Casey Kasem’s daughter Kerri has become a spokesperson for the rights of adult children to visit their sick parents and has gotten some traction for her cause in a few states, which have pending legislation guaranteeing visitation rights for adult children. At the time of her father’s incapacitation, Kerri found little recourse when she was allegedly blocked from visiting her father by her stepmother. Casem’s second wife, Jean Kasem, moved her husband from California to Washington and then after he died, took his body first to Canada and then to Norway, without disclosing the location of the graveyard or allowing for an autopsy.

Kerri Kasem would like states to require conservators (those who are responsible for the care of a person who is physically or mentally incapacitated) to allow reasonable accommodations for adult children to visit their parents. Further, she would like conservators to be required to inform relatives if their “charge” is hospitalized or dies and to disclose funeral arrangements and burial location to these children.

In Iowa, required adult visitation is now the law. Under the measure, adults under the care of a legal guardian have the right to receive visits from family members and others, if they have previously indicated that they wish to see these people. At this point, the guardian still retains control as to the timing of visitation, its length and frequency as well as the location of visits. Texas and California have passed similar laws.

Michigan does not have an adult visitation law, although a bill to that effect has been sponsored and introduced. Making one’s wishes known to family members as well as one’s attorney may be helpful. Enlisting an attorney who specializes in guardianship issues may also be necessary.

The post Learning from Glen Campbell and Casey Kasem: Fractured Families appeared first on Dawda PLC.

Representatives from SSA met with Lambda Legal, a gay rights legal advocacy group, to discuss the changes, although the timing of the rollout was not yet revealed.

How this ruling will Affect Michigan Residents:

Previously, surviving same sex partners who lived in states that did not recognize same sex marriage (like Michigan) were denied spousal rights. According to the Department of Justice, this change in policy will now be enacted retroactively for all pending claims (as well as pending litigation).

Social Security Benefits include a small death benefit. Even more significantly, surviving spouses receive a portion of their spouses’ Social Security for the rest of their lives, a large amount of money that same sex partners were losing upon the deaths of their spouses.

It is not clear when these changes will be officially announced. Furthermore the SSA has not divulged when the changes will take effect.

The post Social Security Benefits for Same Sex Spouses appeared first on Dawda PLC.

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Following the US Supreme Court ruling in Obergefell v. Hodges, Same Sex Married Couples have new options and pitfalls when it relates to taxes and estate planning.

Tax Filing Status: Any couple who has been married in any state now has the right and indeed the obligation to file jointly, no matter where they live. This is the case for federal taxes (where this was already the case in 2013) as well as state taxes. Members of same sex couples who are married must now file as “married filing jointly” or “married filing separately”. Couples must be married by December 31, 2015 in order to file as married for the 2015 tax year. Married couples may no longer file as “single”.

Estate Plans: Dawda attorney Jeffrey Moss, a tax and estate planning attorney says, “Estate plans can be revised to take advantage of marital deductions allowed for trusts and for new options in beneficiary designations for spousal retirement benefits. In many cases, estate plans must be reviewed and revised and pre-nuptial and/or post nuptial agreements should be considered because of spousal statutory elections which previously did not apply.

One interesting thing in Michigan is dower rights which provide a married woman rights to her husband’s real estate.  It is unknown whether these rights will apply only to different sex couples, or only to women even in a same sex marriage, or if they will be abolished for all.”

Social Security: Social Security regulation changes are slow, and should not be assumed to be immediate as a result of the Supreme Court ruling. At this point, it appears that married same sex couples will eventually be able to receive spousal benefits that are due to a widow or widower, regardless of their state of domicile. Recently, Social Security benefits used to only be applicable if one’s domicile matched states that allowed same sex marriage. It is unclear whether SSA will retroactively allow benefits in cases where a married same sex partner died prior to the Supreme Court ruling.

Because the laws regarding same sex marriage are evolving quickly, we urge you to consult with attorneys who specialize in taxes and estate planning to discuss your options in order to plan appropriately for your family. 

The post Changes in Tax & Estate Law as a result of the Supreme Court Marriage Equality Decision appeared first on Dawda PLC.

After the death of a loved one, there are lots of administrative duties that must be accomplished. Perhaps the most important of these tasks include all of the steps associated with the distribution and transfer of  your loved one’s estate. In addition, there are all sorts of smaller items you have to take care of: you must obtain many copies of the death certificate, you may have to close all sorts of accounts or change the names on accounts, you must notify Social Security and you must notify insurance companies.

One of the items that many people do not realize they will have to take care of is filing a final income tax return for your loved one or filing a complete IRS Form 706 if they desire to make a portability election.

In some situations, a surviving spouse will want to make a “portability” election which is an optional choice to “borrow” a deceased spouse’s unused estate tax exemption so that the second to pass spouse can shelter more of their assets from estate tax following their passing. Most of the time, when portability is considered, the first passing spouse will not have sufficient assets to require the filing of a full form 706. The requirement to file a complete IRS Form 706 in these situations is burdensome, in order to just make an election.

Recently, the American Institute of CPAs (AICPA) has requested that the Internal Revenue Service streamline this process by creating a form (Form 706-EZ). This would be a more simplified version of the current Form 706, which is a 31-page form. The proposed 706-EZ would be an alternative form for a taxpayer who is electing to transfer the unused portion of the spouse’s estate tax exemption.   

The 706-EZ may be appropriate for people whose estates are below the $5 million threshold. The AICPA is concerned that many who fall into this group are not even aware that the IRS requires notification of “portability”, that is intent to transfer the unused spousal estate tax exemption to the surviving spouse.

The AIPCA’s proposal has other components including allowing the surviving spouse to file these forms (as it stands now, the executor of the estate is charged with this responsibility) as well as other extension deadline proposals.

Dawda attorney Jeffrey D. Moss believes the proposed 706-EZ is a good idea, stating, “This would be a welcome change that would simplify things for people who otherwise would not need to file the  full IRS Form 706.  We have had several situations where a portability election was appropriate but the form 706 was a lot of paperwork that likely was unnecessary for the election.”

The post Funerals and Tax Forms: Estate Planning Issues for Surviving Spouses appeared first on Dawda PLC.

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A series of legislative bills (House Bills 5366-5370) are pending in the Michigan House of Representatives. The purpose of the proposed bills is to grant fiduciaries such as executors, conservators, trustees and agents under durable powers of attorney additional access to “digital assets” held by an individual, decedent, or trust.

The proposed Michigan Act incorporates provisions that are similar to the ones contained in the Uniform Fiduciary Access to Digital Assets Act, introduced by the National Conference of Commissioners on Uniform State Laws.

The Act, when passed, would require the custodians of digital property to provide a fiduciary with the requested access, ownership or a copy of the digital property of the decedent following a written request within 56 days. These laws would help fiduciaries obtain and maintain financial information, photographs, social media pages, etc. of loved ones and would prevent the digital custodian from withholding access. A “digital asset” is defined as “electronic information created, generated, sent, communicated, received, or stored by electronic means on a digital service or digital device. Digital account includes a user name, word, character, code or contract right under a terms-of-service Agreement.”

Please discuss the ownership and transfer of digital assets with your estate planner.

By Jeffrey D. Moss, Member, Dawda, Mann, Mulcahy & Sadler

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