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  The one thing Biden’s platform does contain is a statement that the step up in basis at death should be repealed.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.

Accountants and attorneys aren’t the only people who use tax transcripts. There are a variety of non-tax purposes for transcripts, such as: verifying income for home mortgages; obtaining car loans; and applying for financial aid. But, if you’ve ever found yourself using the IRS’ fax transfer service to obtain one of these transcripts, you should make yourself aware of the newest step implemented to protect your data from cybercriminals.

While fax communication seems archaic to most, faxes are used by the IRS to send copies of tax transcripts until recently. On June 4, 2019, the IRS reported that it would no longer offer its tax transcript faxing service beginning June 28, 2019. The IRS also announced its plans to amend the Form 4506 series to end third-party mailing of tax returns and transcripts in July. This change does not prevent individual taxpayers from having copies of their returns or transcripts mailed to their address of record.

This change comes as the IRS continues to face attacks by cybercriminals. In 2017 hackers victimized 16.7 million U.S. taxpayers, cheating them out of $16.8 billion. Cybercriminals have been able to obtain your tax transcripts and use them to file fraudulent returns, closely mirroring legitimate returns. These fraudulent documents are extremely difficult for the IRS to detect.

In 2018, cybercriminals used a malware, known as Emotet, to send emails masqueraded as IRS communication. The scam email carried an attachment labeled “Tax Account Transcript” or the subject line used some variation of the phrase “tax transcript.” When opened, the emails contained malicious software that spread throughout entire networks, taking months to successfully remove from the host. Emotet Malware has been labeled as one of the costliest and most destructive malwares. Thus, the IRS hopes by no longer sending transcripts to third parties that the appeal of these masquerading emails is reduced.

Copies of returns and transcripts are still available despite IRS changes. Individual taxpayers may:

• Use IRS.gov or IRS2Go app to access transcripts online for download or print;
• Use IRS.gov or IRS2Go app to get transcripts by mail; or
• Call 800-908-9946 for an automated get transcript by mail feature.

Third parties who use Form 4506, or any of its versions, may use the IRS Income Verification Express Service to order transcripts.

In any event, you should ensure that you plan ahead. Online and phone orders can take 10 days from the time the request is received, while transcripts ordered by mail can take 30 days. Despite the slight delay, ending the transcript fax service is clearly a step in the right direction toward protecting your personal data.

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