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IDGT

How Does an Intentionally Defective Grantor Trust Work?

 

How Does an Intentionally Defective Grantor Trust Work?

Using trusts as part of an estate plan creates many benefits, including minimizing estate taxes. One type of trust is known as an “intentionally defective grantor trust,” or IDGT. It’s a type of irrevocable trust used to limit tax liability when transferring wealth to heirs, as reported in the recent article “Intentionally Defective Grantor Trust (IDGT)” from Yahoo! Finance. It’s good to understand the details, so you can decide if an IDGT will help your family.

An irrevocable trust is one that can’t be changed once it’s created. Once assets are transferred into the trust, they can’t be transferred back out again, and the terms of the trust can’t be changed.  You will want to talk with your estate planning attorney in detail about the use of the IDGT, before it is created.

An IDGT allows you to permanently remove assets from your estate. The assets are then managed by a trustee, who is a fiduciary and is responsible for managing the trust for the beneficiaries. All of this is written down in the trust documents.

However, what makes an IDGT trust different, is how assets are treated for tax purposes. The IDGT lets you transfer assets outside of your estate, which lets you avoid paying estate and gift taxes on the assets.

The IDGT gets its “defective” name from its structure, which is an intentional flaw designed to provide tax benefits for the trust grantor—the person who creates the trust—and their beneficiaries. The trust is defective because the grantor still pays income taxes on the income generated by the trust, even though the assets are no longer part of the estate. It seems like that would be a mistake, hence the term “defective.”

However, there’s a reason for that. The creation of an IDGT trust freezes the assets in the trust. Since it is irrevocable, the assets stay in the trust until the owner dies. During the owner’s lifetime, the assets can continue to appreciate in value and are free from any transfer taxes. The owner pays taxes on the assets while they are living, and children or grandchildren don’t get stuck with paying the taxes after the owner dies. Typically, no estate tax applies on death with an IDGT.

Whether there is a gift tax upon the owner’s death will depend upon the value of the assets in the trust and whether the owner has used up his or her lifetime generation-skipping tax exemption limit.

Your estate planning attorney can help establish an IDGT, which should be created to work with the rest of your estate plan. Be aware of any exceptions that might alter the trust’s status or result in assets being lumped in with your estate. Funding the IDGT also takes careful planning. The trust may be funded with an irrevocable gift of assets, or assets can be sold to the trust. Your attorney will be able to make recommendations, based on your specific situation.

Reference: Yahoo! Finance (June 3, 2020) “Intentionally Defective Grantor Trust (IDGT)”

Read more related articles at:

What is an Intentionally Defective Grantor Trust (IDGT)?

Estate Planning with Intentionally Defective Grantor Trusts

Also, read one of our previous Blogs at:

Not a Billionaire? Trusts Can Still Be Beneficial

Click here to check out our Master Class!

 

Best states to retire in

Some States are Lowering Taxes to Entice Retirees to Relocate

Some States are Lowering Taxes to Entice Retirees to Relocate

The State of Maryland excludes from taxes up to $31,100 in income from pensions and 401(k) plans. However, its state and local taxes on other types of income—including distributions from IRAs—can run as high as 9%.

Kiplinger’s March article entitled “States Lower Taxes to Court Retirees” explains the good news for Marylanders willing to relocate, is that there are other states which give retirees a break. For example, Delaware and Virginia are both friendlier to tax-conscious seniors, according to Kiplinger’s state-by-state guide to taxes on retirees. Marylanders can move to Florida, which has no income tax and is on Kiplinger’s list of most-tax-friendly states.

To address his state’s image and tax issues, Maryland Governor Larry Hogan has introduced a bill that would eliminate state taxes on the first $50,000 of income for retirees making up to $100,000 in federally adjusted gross income. Therefore, retirees with incomes of $50,000 or less would pay no state tax.

Other states are also trying to find ways to keep retirees from heading off to lower-tax states. Illinois Governor J.B. Pritzker recently signed legislation that will make it easier for seniors in Cook County (which includes Chicago) to apply for a property tax break of up to $8,000 a year. Kiplinger has designated Illinois as one of the least tax-friendly states for retirees, mostly due to its high property taxes. West Virginia got a “mixed” rating from Kiplinger for the way it taxes retirees. They are phasing out taxes on Social Security benefits over three years. New Mexico lawmakers are considering several bills that would repeal or reduce taxes on Social Security. The Land of Enchantment also received a “mixed” rating from Kiplinger.

Here are the states where the most retirees are moving, based on the number of people age 60 and older who moved into a state versus the number of people who moved out.

State – Net Migration

  • Florida – 68,918
  • Arizona – 31,201
  • South Carolina – 12,001
  • North Carolina – 9,209
  • Nevada – 8,582
  • Tennessee – 8,259
  • Texas – 8,296
  • Washington – 3,964
  • Idaho – 2,966
  • Delaware – 2,605

Source: Smart Asset analysis of 2017 census data

Whether you’re planning to stay where you are when you retire or move somewhere else, it’s critical that you understand and include the cost of federal and state taxes, when estimating your retirement budget.

Reference: Kiplinger (March 4, 2020) “States Lower Taxes to Court Retirees

Read more related articles at :

The Most Tax-Friendly States to Retire

Learn Which States Are the Most Tax-Friendly for Retirees

What Are the Best States to Retire for Taxes?

Also, read one of our previous Blogs at:

How Do I Include Retirement Accounts in Estate Planning?

Click here to check out our Master Class! 

Elderly Abuse

Will the Sunshine State Crack Down on Crimes against the Elderly?

Will the Sunshine State Crack Down on Crimes against the Elderly?

Florida Governor Ron DeSantis signed a bill recently approving the creation of elder abuse fatality review teams.

These teams are authorized by Senate Bill 400, which permits, but doesn’t require the creation of elder death review teams in each of Florida’s 20 judicial circuits. The teams would review cases in their judicial circuit where abuse or neglect has been found to be linked to or the cause of an individual’s death.

The Naples Daily News’ recent article entitled “Deaths of Florida’s elderly who were abused or neglected to get increased scrutiny under new law” reports that for many years, the state has authorized teams to examine child deaths and domestic-violence deaths where abuse is involved. However, the state hasn’t had a comparable review when an elderly adult dies, even under suspicious circumstances.

State Senator Audrey Gibson, D-Jacksonville, has sponsored the bill for the last four years and remarked that it’s “incumbent upon us as a state” to review cases of elder abuse and to look for gaps in service and possible policy changes to better protect the elderly.

“It can help to reduce elder abuse, if somebody knows that it’s going to be up for review if something happens to that senior,” said Gibson, the Senate minority leader. “The other thing is to prevent what happened in the cases they’re reviewing, to keep that from happening to another senior.”

Elder advocates believe that the new elder death review teams could help decrease the number of cases of nursing home neglect and mistreatment, like those identified in a recent USA TODAY Network – Florida. The investigation looked at 54 nursing home deaths from 2013 through 2017 where state inspectors cited neglect and mistreatment as factors.

The investigation found that Florida’s Agency for Health Care Administration seldom investigated the deaths.

The new law states that these elder abuse fatality review teams can be established by state attorneys and would be part of the Department of Elder Affairs. They would be composed of volunteers and open to people from a variety of disciplines, such as law enforcement officers, elder law attorneys, prosecutors, judges, nurses and other elder care advocates.

The teams are restricted to looking at files that have been closed by the State Attorney’s Office, whether or not it resulted in criminal prosecution. Remarkably, state attorneys didn’t prosecute any of the 54 nursing home deaths reviewed in the network’s investigation.

Reference: Naples Daily News (June 11, 2020) “Deaths of Florida’s elderly who were abused or neglected to get increased scrutiny under new law”

 

Read more related articles at:

New Florida law scrutinizes elder abuse and neglect

New Laws Add Stiffer Penalties To Those Charged With Elderly Abuse

Also, read one of our previous blogs at:

Elder Abuse Continues as a Billion-dollar Problem

Click here to check out our Master Class!

Telehealth

Should Medicare Continue with Expanded Telehealth Access after COVID-19?

Should Medicare Continue with Expanded Telehealth Access after COVID-19?

 

“I can’t imagine going back,” said Seema Verma, administrator of the Centers for Medicare and Medicaid Services, told STAT during a live virtual event. “People recognize the value of this, so it seems like it would not be a good thing to force our beneficiaries to go back to in-person visits.”

STAT’s June 9 article “‘I can’t imagine going back’: Medicare leader calls for expanded telehealth access after Covid-19” reports that the comments were her strongest remarks to date on the need to preserve access to telemedicine after the outbreak. During the past three months, virtual visits have increased more than 40-fold in some parts of the country.

However, Verma remarked that the federal government must look at whether it should continue paying the same for virtual visits, as for in-person care. Equalizing payment during the pandemic was one of the big motivators in the telemedicine expansion.

“Right now for the public health emergency, we’re maintaining that equilibrium, but going forward that’s something that needs to be looked at,” Verma said. “I don’t see it as a one-to-one. think there are some potential savings for the system that do occur by having a telehealth visit.”

However, Verma was insistent in an interview that the increase in telemedicine visits has significantly improved access to care. She said weekly telemedicine visits increased to more than 1 million a week, compared to about 12,000 before coronavirus began to spread in the U.S. in March.

“It’s made a big contribution in saving lives, because it didn’t require our Medicare beneficiaries to leave their home,” she said. “It’s been an incredible response.”

Verma said action from Congress will be required to permanently expand telemedicine on a national level, because existing laws restrict coverage to people living in rural areas where access to care is particularly tight. However, Verma remarked that CMS is looking at ways to preserve access to telemedicine visits in settings, such as patient’s homes, hospice care and nursing homes. They’re also reviewing ways to permanently expand the types of services that can be provided via telemedicine, like emergency care, physical therapy and mental health consultations.

She noted that the Trump administration would back efforts to allow more telemedicine to be practiced across state lines. Currently, doctors are limited to providing care in the states where they’re licensed, which, in many instances, keeps patients from accessing care delivered by doctors who live across state lines. CMS relaxed those restrictions in the pandemic.

“For us to truly leverage the potential in the power of telehealth, we’re going to have to rethink our laws around licensing,” Verma said. “Is it really necessary to have those borders? We should allow…practicing across state lines, because it really has the potential to provide better services and reduce some of those shortages, especially in some of the highly specialized fields.”

Reference: STAT (June 9, 2020) “‘I can’t imagine going back’: Medicare leader calls for expanded telehealth access after Covid-19”

Read more related articles at:

Using Telehealth to Expand Access to Essential Health Services during the COVID-19 Pandemic

Experts Weigh in on Post-COVID-19 Telehealth Rules and Policies 

Also, read one of our previous blogs at :

Medicare is Expanding Telehealth Services During Coronavirus Pandemic

Click here to check out our Master Class!

disinherit 2

How Can You Disinherit Someone and Be Sure it Sticks?

How Can You Disinherit Someone and Be Sure it Sticks?

 

Let’s say you want to leave everything you own to your children, but you can’t stand and don’t trust their spouses. That might make you want to delay making an estate plan, because it’s a hard thing to come to terms with, says a recent article “Dealing with disinheritance, spouses” from the Times Herald-Record. There are options, but make the right choice, or your estate could face challenges.

Some people choose to leave nothing at all for their child in the will, so that if there is a divorce or if the child dies, their assets won’t end up in the daughter or son-in-law’s pocket. For some parents, particularly those who are estranged from their children, this can create more problems than it solves.

Disinheriting a child with a will is not always a good idea. If you die with assets in your name only, they go through the court proceeding called probate, when the will is used to guide asset distribution. The law requires that all children, even disinherited ones, are notified that you have died, and that probate is going to occur. The disinherited child can object to the provisions in the will, which can lead to a will contest. Most families engaged in litigation over a will become estranged—even those that weren’t beforehand. The cost of litigation will also take a bite out of the value of your estate.

A common tactic is to leave a small amount of money to the disinherited child in the will and add a no-contest clause in the will. The no-contest clause expressly states that anyone who contests the will loses any right to their inheritance. Here is the problem: the disgruntled child may still object, despite the no contest clause, and invalidate the will by claiming undue influence or incapacity or that the will was not executed properly. If their claims are valid, then they’ll have great satisfaction of undoing your planning.

How can you disinherit a child, and be sure that your plan is going to stand up to challenge?

A trust is better in this case than a will. Not only do trusts avoid probate, but (unless state law requires otherwise at death) the children do not receive notice of the creation of a trust. An inheritance trust, where you leave money to your child, names a trustee to be in charge of the trust and the child is the only beneficiary of the trust. The child might be a co-trustee, but they do not have complete control over the trust. The spouse has no control over the inheritance, and you can also name what happens to the assets in the trust, if the child dies.

This kind of planning is called “controlling from the grave,” but it’s better than not knowing if your child will be able to protect their inheritance from a divorce or from creditors.

With a national divorce rate around fifty percent, it’s hard to tell if the in-law you welcome with an open heart, will one day become a predatory enemy in the future, even after you are gone. The use of trusts can ensure that assets remain in the bloodline and protect your hard work from divorces, lawsuits, creditors and other unexpected events.

Reference: Times Herald-Record (June 6, 2020) “Dealing with disinheritance, spouses”

Read other related articles at:

If you want to disinherit someone, make sure you do it right

Four Ways to Disinherit Family Members

Also read one of our previous Blogs at :

5 Strategies to Keep Your Heirs From Blowing Their Inheritance

Click here to check out our Master Class!

retirement funds in a crisis

Using Retirement Funds in a Financial Crisis

 

Using Retirement Funds in a Financial Crisis

For generations, the tax code has been a public policy tool, used to encourage people to save for retirement and what used to be called “old age.” However, the coronavirus pandemic has created financial emergencies for so many households that lawmakers have responded by making it easier to tap these accounts. The article “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes” from The Wall Street Journal asks if this is really a good idea.

This shift in thinking actually coincides with trends that began to emerge before the last recession. People were living and working longer. Unemployment and career changes later in life were becoming more commonplace, and fewer and fewer people devoted four decades to working for a single employer, before retiring with an employer-funded pension.

For those who have been affected by the economic downturns of the coronavirus, withdrawals up to $100,000 from retirement savings accounts are now allowed, with no early-withdrawal penalty. That includes IRAs (Individual Retirement Accounts) or employment-linked 401(k) plans. In addition, $100,000 may be borrowed from 401(k) plans.

Americans are not alone in this. Australia and Malaysia are also allowing citizens to take money from retirement accounts.

Lawmakers are hoping that putting money into pockets now may help households prevent foreclosures, evictions and bankruptcies, with less of an impact on government spending. With trillions in retirement accounts in the U.S., these accounts are where legislators frequently look when resources are threatened.

However, there’s a tradeoff. If you take out money from accounts that have lost value because of the market’s volatility, those losses are not likely to be recouped. And if money is taken out and not replaced when the world returns to work, there will be less money during retirement. Not only will you miss out on the money you took out, but on the return, it might have made through years of tax-advantaged investments.

The danger is that if retirement accounts are widely seen as accessible and necessary now, a return to saving for retirement or the possibility of putting money back into these accounts when the economy returns to normal may not happen.

IRA and 401(k) accounts began to supplant pensions in the 1970s as a way to encourage people to save for retirement, by deferring income tax on money that was saved. By the end of 2019, IRAs and 401(k) types of accounts held about $20 trillion in the US.

Boston College’s Center for Retirement Research has estimated that even before the coronavirus, early withdrawals were reducing retirement accounts by a quarter over 30 years, taking into account the lost returns on savings that were no longer in the accounts. For many people, taking retirement funds now may be their only choice, but the risk to their financial future and retirement is very real.

Reference: The Wall Street Journal (June 4, 2020) “Should You Tap Retirement Funds in a Crisis? Increasingly, People Say Yes”

Read other related articles at:

How to Raid Your Retirement Funds in a Crisis

Liz Weston: How to raid your retirement funds in a crisis

Also read one of our previous Blogs at:

Should You Cut Retirement Savings Efforts During the Pandemic?

Click here to check out our Master Class!

Elderly woman being scammed

What are the Latest Senior Scams?

While we are concerned about finances and our health with COVID-19, we also must be uber-aware of four points of contact: phone calls, text messages, emails and social media.

CNBC’s recent article entitled “Beware these common scams that specifically target seniors” explains that seniors in the U.S. are more apt to be victims of ID theft, according to IDology, which provides identity protection services. The big issue is having a credit or debit card stolen—and the pandemic has likely helped create a major upswing in crime against the elderly. Looking at data from August 2019 through January with February and March, IDology found a 209% increase in the use of seniors’ personal ID to commit fraud. However, seniors were less likely to take action than other American adults. Here’s what to watch for and how to guard your sensitive info.

  1. ID theft is a commodity. A huge percentage of seniors don’t know or don’t believe that their personal information, like their Social Security numbers, can be had for a few bucks on the dark web. Protect your personal information by learning to recognize phishing scams. These can be text messages, emails, phone calls or websites that ask you for personal details. Check the validity of the entity or a person, prior to donating.
  2. Hello, IRS? Really? Let’s be 100% crystal clear: the government will never call, text, or contact you on social media to inform you that you owe money. Requests for gift cards, cash and wire transfers are always 100% fraudulent. Requests for your personal identification, like your Medicare ID or bank account information, are always 100% a scam!
  3. Bogus claims. You can reach numerous government agencies for information concerning common Covid-19 scams, bogus calls and unproven health claims. To that end, the SEC issued an alert in February about investment scams related to coronavirus. There is no vaccine or drug that’s been approved to treat the virus at this point! Nevertheless, criminals are still touting phony remedies. The FTC continues to send warnings to companies making dubious claims. Another way you can give up your private information, is by sharing your details with scammers pretending to be contact tracers working for public health departments. The FTC issued a warning in May to be on guard for spam texts that ask you to click a link. The FCC site describes scams delivered through text message or by robo-call, with some posing as government health officials.

To repeat: the government will never call, text, or contact you on social media to tell you that you owe money.

Reference:  CNBC (June 5, 2020) “Beware these common scams that specifically target seniors”

Read more related articles at :

Top 10 Financial Scams Targeting Seniors

SENIOR SCAM ALERT

Also, read one of our previous Blogs at :

How Do I Protect My Elderly Parent from Scams and Elder Abuse?

 

 

Carole Baskins

What is the Verdict on the Will of Carole Baskin’s Long-Missing Husband?

What is the Verdict on the Will of Carole Baskin’s Long-Missing Husband?

Hillsborough County (FL) Sheriff Chad Chronister recently announced that two different experts have deemed Don Lewis’ will in the Tiger King-Joe Exotic saga “100 percent a forgery,” Tampa Bay CBS station WTSP reported.

“We knew that before,” Chronister said. “Because the girl who came forward and said ‘Hey, I was forced to witness and say that I witnessed this signature.’ The problem was the statute of limitations had already expired. The will had already been executed at that point.”

People’s recent article entitled “Will of Carole Baskin’s Missing Husband Was ‘100 Percent a Forgery,’ Says County Sheriff” reported that Sheriff Chronister also said that the “only reason” a lawsuit hasn’t been initiated, is because the statute of limitations has run out.

“There’s no recourse,” the sheriff explained. “A judge deemed it valid, so the civil side of it would be execution of the will, the disbursements of the funds is one thing. But then you have the criminal side of it, it’s unable to be prosecuted because of the statute of limitations.”

The sheriff added that the determination that Don Lewis’ will was deemed a forgery “certainly cast another shadow of suspicion” on his disappearance.

“Investigators have some great leads, they’re working through them. I hope something pans out,” Chronister commented.

Fans of the Netflix docuseries Tiger King remember that Baskin’s previous husband mysteriously went missing in 1997 and was declared dead five years later. Some fans of the TV show think that Baskin was responsible for Lewis’ disappearance, but the Big Cat Rescue founder denied she had anything to do with it.

“Don was not easy to live with and like most couples, we had our moments,” Baskin said in a statement on the Big Cat Rescue website after Tiger King was released on Netflix earlier this year. “But I never threatened him, and I certainly had nothing to do with his disappearance. When he disappeared, I did everything I could to assist the police. I encouraged them to check out the rumors from Costa Rica, and separately I hired a private investigator.”

Sheriff Chronister’s comments come a day after Baskin was granted control of the Oklahoma zoo property formerly operated by Joseph Maldonado-Passage, widely known as “Joe Exotic.” He was convicted last year of paying a hitman $3,000 to kill Baskin, in addition to being found guilty on multiple charges of violating both the Lacey Act for falsifying wildlife records and the Endangered Species Act. Exotic was sentenced to 22 years in prison and is currently being held in a Dallas-Fort Worth medical center, after he was exposed to the coronavirus.

Reference: People (June 3, 2020) “Will of Carole Baskin’s Missing Husband Was ‘100 Percent a Forgery,’ Says County Sheriff”

Read more Related Articles at:

Will of ‘Tiger King’ star Carole Baskin’s missing husband forged, Chronister says

Will of ‘Tiger King’ star Carole Baskin’s missing husband was forged, sheriff says

Also, read one of our previous blogs at :

What if I Don’t Have a Will in the Pandemic?

Tapping IRA

Tapping an Inherited IRA?

Tapping an Inherited IRA?

Many people are looking at their inherited IRAs this year, when COVID-19 has decimated the economy. The rules about when and how you can tap the money you inherited changed with the passage of the SECURE Act at the end of December 2019. It then they changed again with the passage of the CARES Act in late Marc,h in response to the financial impact of the pandemic.

Things are different now, reports the article “Read This Before You Touch Your Inherited IRA Funds” from the News & Record, but one thing is the same: you need to know the rules.

First, if the owner had the account for fewer than five years, you may need to pay taxes on traditional IRA distributions and on Roth IRA earnings. This year, the federal government has waived mandatory distributions (required minimum distributions, or RMDs) for 2020. You may take out money if you wish, but you can also leave it in the account for a year.

Surviving spouses who don’t need the money may consider doing a spousal transfer, rolling the spouse’s IRA funds into their own. The RMD doesn’t occur until age 72. This is only available for surviving spouses, and only if the spouse is the decedent’s sole beneficiary.

The federal government has also waived the 10% early withdrawal penalty for taxpayers who are under 59½. If you are over 59½, then you can access your funds.

The five-year method of taking IRA funds from an inherited IRA is available to beneficiaries, if the owner died in 2019 or earlier. You can take as much as you wish, but by December 31 of the fifth year following the owner’s death, the entire account must be depleted. The ten-year method is similar, but only applies if the IRA’s owner died in 2020 or later. By December 31 of the tenth year following the owner’s death, the entire IRA must be depleted.

Heirs can take the entire amount in a lump sum immediately, but that may move their income into a higher tax bracket and could increase tax liability dramatically.

A big change to inherited IRAs has to do with the “life expectancy” method, which is now only available to the surviving spouse, minor children, disabled or chronically ill people and anyone not more than ten years younger than the deceased. Minor children may use the life expectancy method until they turn 18, and then they have ten years to withdraw all remaining funds.

There is no right or wrong answer, when it comes to taking distributions from inherited IRAs. However, it is best to do so, only when you fully understand how taking the withdrawals will impact your taxes and your long-term financial picture. Speak with an estate planning attorney to learn how the inherited IRA fits in with your overall estate plan.

Reference: News & Record (May 25, 2020) “Read This Before You Touch Your Inherited IRA Funds”

Read more related articles at:

If you inherited a retirement account, you need to think twice before you tap it this year

Tapping Your IRA in Retirement

Also, Read one of our previous Blogs at:

What are the Taxes on My IRA Withdrawal?

Click here to check out our Master Class!

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