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Kiddie Secure act

Unintended Kiddie Tax Change Fixed in the SECURE Act

Unintended Kiddie Tax Change Fixed in the SECURE Act. 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 is 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.

Some parents whose children have investment income may be better off using the estate-tax rate for the two years that it is in place. In 2019, those trust brackets may actually allow more capital gains and dividends be taxed at the 0% and 15% rates than by using the parents’ rates.

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

 

Read more about this at:  The SECURE Act Fixes The Kiddie Tax Glitch

 U.S. House passes retirement tax bill, includes kiddie tax relief

And check out one of our previous blogs at:

How Does the SECURE Act Change Your Estate Plan?

Elder Law

When Do I Need an Elder Law Attorney?

Elder law is different from estate law, but they frequently address many of the same issues. Estate planning contemplates your finances and property to best provide for you and your family while you’re still alive but incapacitated. It also concerns itself with the estate you leave to your loved ones when you die, minimizing probate complications and potential estate tax bills. Elder law contemplates these same issues but also the scenario when you may need some form of long-term care, even your eligibility for Medicaid should you need it.

A recent article from The Balance’s asks “Do You or a Family Member Need to Hire an Elder Law Attorney?” According to the article there are a variety of options to adjust as economically and efficiently as possible to plan for all eventualities. An elder law attorney can discuss these options with you.

Medicaid is a complicated subject, and really requires the assistance of an expert. The program has rigid eligibility guidelines in the event you require long-term care. The program’s benefits are income- and asset-based. However, you can’t simply give everything away to qualify, if you think you might need this type of care in the near future. There are strategies that should be implemented because the “spend down” rules and five-year “look back” period reverts assets or money to your ownership for qualifying purposes, if you try to transfer them to others. An elder law attorney will know these rules well and can guide you.

You’ll need the help and advice of an experienced elder law attorney to assist with your future plans, if one or more of these situations apply to you:

  • You’re in a second (or later) marriage;
  • You’re recently divorced;
  • You’ve recently lost a spouse or another family member;
  • Your spouse is incapacitated and requires long-term care;
  • You own one or more businesses;
  • You have real estate in more than one state;
  • You have a disabled family member;
  • You’re disabled;
  • You have minor children or an adult “problem” child;
  • You don’t have children;
  • You’d like to give a portion of your estate to charity;
  • You have significant assets in 401(k)s and/or IRAs; or
  • You have a taxable estate for estate tax purposes.

If you have any of these situations, you should seek the help of an elder law attorney.

If you fail to do so, you’ll most likely give a sizeable percentage of your estate to the state, an ex-spouse, or the IRS.

State probate laws are very detailed as to what can and can’t be included in a will, trust, advance medical directive, or financial power of attorney. These laws control who can and can’t serve as a personal representative, trustee, health care surrogate, or attorney-in-fact under a power of attorney.

Hiring an experienced elder law attorney can help you and your family avoid simple but expensive mistakes, if you or your family attempt this on your own.

Reference: The Balance (Jan. 21, 2020) “Do You or a Family Member Need to Hire an Elder Law Attorney?”

Read more at:

What Does An Elder Law Attorney Do?

What is Elder Law and How Can an Elder Law Attorney Help Me?

Also read one of our previous blogs at :

Elder Law Attorney Can Help Plan for Long-Term Care Costs

Dates

What Important Dates Does a Retiree Need to Circle?

What Important Dates Does a Retiree Need to Circle?

Kiplinger’s recent article entitled “A Retiree’s Guide to Key Dates in 2020” explains that the calendar below has the significant dates of importance to pre-retirees and retirees. It will give you a head start on getting organized.

January 1:

Now that we are officially into a new tax year, and as you find your documents to prepare for filing your 2019 tax return, look for ways to lessen your 2020 tax tab.

If you’re still working, you can deposit more into your 401(k)s for 2020. You can put up to $19,500 into your employer plan—$500 more than 2019. If you’re 50 or older anytime in the calendar year, your maximum contribution jumps to $26,000. You can also put funds in a traditional or Roth IRA, or a combination of both. The maximum total IRA contribution for 2020 is $6,000, plus an extra $1,000 if you’re 50 or older. Once you turn 70½, you can no longer contribute to a traditional IRA. However, you can contribute to a Roth IRA, if you’re still working. If you’ve retired but your spouse is still working, the working spouse can make the maximum contribution to a spousal IRA for you, provided the worker’s earnings cover the contribution and his or her own IRA contribution.

The first is also the start date for Medicare’s general enrollment period. It goes until March 31, and coverage begins July 1. If you miss enrolling for Medicare at age 65 and don’t qualify for a “special enrollment period” (for people who had group coverage beyond age 65), you can enroll in Parts A and B during this period. In the same time frame, Medicare Advantage beneficiaries can move to a different Advantage plan or to traditional Medicare.

January 15:

This is the deadline for the fourth quarter estimated tax payment for 2019 taxes. You can forgo this deadline, if you file your 2019 taxes by January 31 and pay the remaining balance at that point.

March 31:

This is the deadline for traditional Medicare general enrollment and Medicare Advantage open enrollment.

April 1:

If you turned 70½ in 2019, April 1 is the deadline for taking your first required minimum distribution (RMD) from your tax-deferred retirement accounts. All subsequent RMDs must be taken by December 31. To figure out a first RMD due by April 1, 2020, take the 2018 year-end account balance and divide it by a life expectancy factor based on your birthday in 2019. You can find the factor in IRS Publication 590-B. you’ll still need to take your second RMD this year, if you waited on the first RMD.

If you’re still working past 70½, you can skip the RMD from your current employer’s 401(k) if you don’t own 5% or more of the company. However, you must take RMDs from traditional IRAs and 401(k)s from previous employers.

April 15:

The federal tax filing deadline for 2019 returns is on the regular date in 2020.

You can make 2019 IRA contributions up until April 15, which is up to $7,000, if you are 50 and older.

This is the deadline for the first estimated tax payment for 2020.

June 15:

This is the deadline for the second quarter estimated tax payment for 2020.

July 1:

Here’s when you can gauge a midyear estimate of your 2020 tax bill. Be sure withholding or estimated tax payments are on track to avoid underpayment penalties. You can avoid those penalties by paying at least 90% of the current year tax tab or 100% of the prior year tax tab (110% if you have a high income).

Look for tax-saving moves to trim your 2020 tab.

September 15:

This is the deadline for the third quarter estimated tax payment for 2020. If you are off track with estimated tax payments, or just don’t want to bother, you can withhold tax from your RMD. Withholding is to be evenly paid over the year, even if you withhold tax on an RMD taken in December and it can help cover the tax on all your income for the year.

September 30:

Your “annual notice of change” from your Medicare Advantage or Part D prescription-drug plan should be delivered to your mailbox by today.

October 15:

If you filed for an extension on April 15 for your 2019 tax return, today is the deadline to turn it in.

Medicare open enrollment begins. From now until December 7, you can switch between traditional Medicare and Medicare Advantage, or choose new Advantage and Part D plans, with coverage effective 2021.

November 1:

Early retirees in most states can purchase 2021 health coverage offered on exchanges under the Affordable Care Act from now until December 15.

December 7:

This is the deadline for Medicare’s open enrollment.

December 15:

This is the deadline for the ACA’s open enrollment.

December 31:

This is the deadline for your RMD to be out of your account.

While you are at it, consider maxing out contributions to your employer retirement account, harvesting portfolio losses, making a Roth conversion, making charitable gifts and using up your annual gift exclusion of $15,000 for 2020 to give gifts to as many people as you choose.

Reference: Kiplinger (Dec. 24, 2019) “A Retiree’s Guide to Key Dates in 2020”

For more information read:

12 Important Retirement Planning Deadlines

Countdown to Retirement: 1 Year Away

And read one of our Previous Blogs: 

How Do I Include Retirement Accounts in Estate Planning?

Trusts

Not a Billionaire? Trusts Can Still Be Beneficial

Not a Billionaire? Trusts Can Still Be Beneficial. You don’t have to be wealthy to benefit from the use of a trust. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries. This can be very beneficial.

There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.

A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:

  • Protect assets from creditors
  • Allow heirs to avoid probate of assets in the trusts
  • Avoid, minimize or delay estate taxes, transfer taxes or income taxes
  • Control how assets are disbursed or invested
  • Facilitate business succession planning and manage business assets
  • Shelter assets for descendants, if a spouse remarries
  • Establish a family tradition of philanthropy

Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.

The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.

Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust, if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.

Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”

Read More about Trusts at:

Estate planning: Types of trusts

What Is a Trust?

You can also read our previous Blog about trusts at:

What Do I Really Need to Know About Trusts?

Pet Trusts

Include Fido or Fluffy in Estate Planning

Include Fido or Fluffy in Estate Planning.  If you are a pet owner, you no doubt make plans for your pet when you go on vacation. If you are a very dedicated pet owner, perhaps you have already made provisions in your will or created a pet trust. If your pet outlives you, then a Pet Trust can provide for your pet. However, what about if you become mentally or physically incapacitated, asks Next Avenue’s article “How to Make Plans to Provide Care for Your Pet If You Can’t.”

What would happen if you had Alzheimer’s and there was no plan for you or your pet? A legal process could be initiated by a family member to establish a court-supervised guardianship or conservatorship and a judge would decide who would be responsible for you and your legal and financial affairs. This person would also be responsible for decisions about your pet, since pets are treated as property by the law.

The guardian might understand how important your pet is to you, but they just as easily might not. If they decide that your beloved pet is a burden, or they don’t want to spend money on your pet’s care, they have the legal power to send the pet to a shelter or give the pet away. Writing a will with a provision or two about your pet’s care won’t help, because the will does not take effect until you die.

One option is to have an estate planning attorney prepare a durable power of attorney document, with a person named to act as your agent. This person would be legally empowered to make decisions about your finances and property, including your pet(s), without intervention by the court. However, that won’t solve the problem either.

The power of attorney document won’t include details on how you want your pet to be cared for. Those details will be entirely up to the person who serves as your power of attorney.

A revocable pet trust is an alternative. The document can be used to explain, in detail, exactly what your wishes are for your pet (as well as any other property placed in the trust). The person designated as your trustee now has a legal obligation to carry out your wishes. You can say what you want to happen to your pet if you become incapacitated, and how much money from the trust is to be spent on pet care, food, veterinarian care, grooming, toys, etc.

Your revocable trust document can also designate a caretaker for your pet or state that the pet should go to a no-kill pet shelter. You can, if you wish, use the trust document to ensure that the caretaker is paid for taking on the responsibility of caring for the pet and reimbursed for any pet expenses.

You can also direct that your pet be brought to you for regular visits, if you need to live in an assisted living facility or a nursing home. You can also instruct that you want to be placed in a facility that has a robust pet therapy program or a “house pet” that lives at the facility.

Another option is to create a standalone pet trust. This trust is solely focused on your pet and its care. All funds in the trust are designated to pay for the pet’s care and services of a caretaker. The trustee could be the caretaker or someone else. This could give you even more control over what happens to your pet.

Speak with an estate planning attorney who has helped pet owners set up pet trusts for their pets. It’s recommended that this be taken care of as soon as possible. We never know when an illness may strike, or an accident occur. Make sure you include Fido or Fluffy in Estate Planning

Reference: Next Avenue (Jan. 10, 2020) “How to Make Plans to Provide Care for Your Pet If You Can’t”

Read more about Pet trusts at:

Pet Trust Primer ASPCA

Pet Trusts: Caring for a pet that out lives its owner

PetTrusts/NOLO

And read one of our previous blogs at :

Pet Trusts Can Protect Your Pets after You’re Gone

 

Inheritance

What’s the Best Thing to Do with an Inherited Investment?

Wealth Advisor’s recent article entitled “How to Handle Inherited Investments” provides us with some of the top inheritance considerations:

Consider Cash. Besides cash, the most common inheritances are securities, real estate and art. These assets usually go up in value, but another big benefit is their favorable tax treatment. The heirs won’t pay capital gains on unsold investments that went up in value during the lifetime of the deceased (estate taxes would apply). Those taxes would only apply to the gains that happened after they took possession.  There’s a good reason to hang onto these investments. These types of property carry some risks, so you may consider putting some of your inherited investments into cash, cash equivalents, or life insurance with a guaranteed payout to avoid exposure to undue risk.

Beware of Concentration Risk. It’s not unusual for an inheritance to be heavily concentrated within a specific asset. While the deceased’s instincts may have been accurate at the time of their initial investment, there’s no guarantee that their strategy will continue to pay dividends long term.  Diversifying into other areas—even with high-volatility vehicles that are unrelated to the original inherited investment—can lessen that concentration risk. An even safer strategy would be to build a portfolio of diverse holdings that includes multiple asset classes across different sectors.

Learn about Trusts. Sometimes when people inherit assets through a trust, they don’t think it’s critical to require anything but a superficial understanding of how these work. This is because the trustee assumes nearly all the fiduciary duties. However, this could change when a beneficiary attains a certain age, which often triggers a dissolution of the trust or stipulates a transfer of trustee responsibilities to them. You should understand what will happen at that point. You may want to create your own trust to distribute part or all of your unmanaged inherited assets to heirs in a framework that suits you best, and without having to go through the probate process. In any event, you should learn how trusts work and the difference between revocable and irrevocable trusts.An inheritance is important to protect properly.

Ask your estate planning attorney about your specific situation and whether there is a trust that may be best for your circumstances.

Reference: Wealth Advisor (Jan. 7, 2020) “How to Handle Inherited Investments”

Read More about probate and inheritance from our blog.

Learn more about our unique Post-Death Adminstration Program that can help during these hard times.

Successor Trustee

What Does a Successor Trustee Do?

This is a common concern of people when they learn they have been named as a successor trustee, says nwi.com in the article “Estate Planning: The role of a successor trustee.” The first thing to do? Verify that you are a successor trustee and what authority and powers you have. If the settler is disabled, rather than deceased, you’ll need to be sure that you have complied with any requirements to take the position.

The trust that names you as such is likely where you will find details of what you must obtain to assume the authority. For example, you may need to have a letter from a physician stating that the settler is incapacitated and can no longer manage his own affairs.

If the settlor is deceased, establishing your authority as successor trustee is easier. Usually, all you’ll need is a death certificate.

Once this has been established, you’ll need to be able to prove that you have this role. Usually this is done through the use of an Affidavit of Trust and Acceptance and Oath. An estate planning attorney will be able to help you with these documents. Some affidavits affirm until the “pain and penalty of perjury that the affiant is the successor trustee” and that you are accepting the designation and agree to serve under the terms of the trust and the laws of your state.

Different estate planning attorneys may approach this differently. Some may use a “certificate of trust,” while others will simply rely on the trust agreement. The important thing is that their  authority is demonstrable.

Once the successor trustee has established that he is appointed properly, he can start administering the trust.

What about selling the family home? Real estate transfers are handled through the local government. To sell a home, you’ll need to transfer the deed, so you will need the deed to the home.

When a successor trustee transfers real estate, a copy of the affidavit of his appointment as the successor trustee and relevant documents could be recorded with the transfer documents. The transfer needs to be approved by a title examiner, and the examiner will want proof that the person in charge of the transaction has the legal authority to do so.

Other assets are transferred in a similar fashion. The asset holder is contacted, a copy of the affidavit and proof of designation as a successor trustee will be needed.

Some estate planning attorneys will add a letter of instruction to the successor trustee providing them with helpful information and tips about estate administration.

Reference: nwi.com (Jan. 12, 2020) “Estate Planning: The role of a successor trustee”

You can also get more information here:   Successor Trustee: Duties, Powers and More

THE NEW FLORIDA TRUST CODE, PART 1

And read one of our previous Blogs here:  What You Need to Know If Asked to Serve as a Trustee

 

Charitable planning in Florida

George Michael’s Charity Continues

George Michael’s Charity Continues. One of George Michael’s sisters, 55-year-old Melanie Panayiotou, was found dead on Christmas Day, exactly three years after her brother died at his home in Goring-on-Thames, Oxfordshire at aged 53.

London’s Metropolitan Police said in a statement that emergency services were called to a home in north London, due to “reports of the sudden death of a woman, aged in her 50s.”

The Wealth Advisor’s recent article, entitled “George Michael’s sister Melanie donated her share of $128m inheritance to charity before her death on Christmas,” said that George had left most of his $128 million fortune to Melanie and his other sister, Yioda.

Sources say that the former’s share will be donated to charity. George was active in LGBT causes after coming out as gay in 1998 and was also very involved in numerous HIV/AIDS charities.

George began his philanthropy in 1984, when his fame started to grow. He joined together with other British and Irish pop stars to form ‘Band Aid’ to raise money for famine relief in Ethiopia. Michael also donated the proceeds from his 1991 single “Don’t Let the Sun Go Down on Me” to 10 different charities for children, AIDS and education. He was also a patron of the Elton John AIDS Foundation.

In 2003, George joined other celebrities to support a campaign to help raise $26.3 million for terminally ill children run by the Rainbow Trust Children’s Charity. He also famously gave $20,000 to a ‘Deal or No Deal’ contestant for IVF treatment and $33,000 to a debt-ridden woman crying in a café.

After his death, numerous charities revealed he had privately supported them for years.

“George’s family share his caring spirit,” the source told the Sun, speaking about Melanie’s donation of her inheritance. “Knowing that some good is going to come out of this double-tragedy has provided a small amount of comfort.”

Melanie, who was a hairdresser, traveled around the world with her brother George during the peak of his music career and was said to be devastated over his death.

While her cause of death has not yet been revealed, Melanie is expected to be buried at the Highgate Cemetery next to her brother. Their mother was also buried in the same location.

Reference: Wealth Advisor (Jan. 7, 2020) “George Michael’s sister Melanie donated her share of $128m inheritance to charity before her death on Christmas”

Read more about George Michael’s Charitable gifts: 

After George Michael’s Death, Stories Emerge Of His Quiet Generosity

George Michael’s secret charity work still surprises years after his untimely death

We also help when you want to leave some or all of your inheritance to charity, check out our web page:

Charitable Giving in Jacksonville, Florida

 

 

elder financial abuse

Elder Financial Abuse Is Increasing

Elder Financial Abuse Is Increasing. A September 2018 Forbes report said that elder financial abuse would only get worse as we age. With 10,000 people turning age 65 every day for the decade, the demographics include a growing pool of potentially fragile retirees and the elderly, many of whom are susceptible to financial exploitation.

alphabetastock.coms recent article entitled “Elder Financial Abuse Is Rising” says that, although the criminals are out there, a lot of elder financial abuse actually begins in the retirement system, because individuals must accumulate and handle a large amount of money designed to last an entire lifetime. With $14.5 trillion in self-directed retirement accounts in the U.S., it’s a big, enticing target for financial predators.

Elder financial abuse includes all of the frauds and scams targeting seniors and because it’s a hidden crime, many victims opt not to report it. Those that do report the crimes, frequently don’t prosecute.

However, when it comes to trying to promote real changes that will provide some material protections, the investment, insurance, and financial services industries directly or indirectly have been showing some reticence about the potential compliance expense. Some of these companies are lobbying to maintain a status quo—one that’s on a course to see a steady rise in elder financial exploitation.

Many retirement investors think their professional financial advisors are fiduciaries who are legally bound to act in their best interests. However, that’s not always so. Many professional financial advisors need only adhere to a lower legal standard of behavior. They can’t outright tell you a lie—but they can make recommendations that don’t put the customer’s best interests as a top priority.

A GAO study found elder financial abuse to be a growing epidemic. Rather than being able to live out their golden years in safety and financial security, the lack of financial safeguards are leaving an entire (and growing) group of older Americans at risk. These seniors are often left on their own and confused as to how the advisors they entrusted with their financial security are permitted to make moves that are motivated by high commissions and self-interest. These so-called professionals aren’t required by the law to place interests of their clients ahead of their own.

Theft and illegal behavior is one small component of the elder financial exploitation. A bigger part comes from abusive financial practices, such as higher fees and complex and unsuitable advice and recommendations from professional financial advisors who aren’t fiduciaries.

Be sure that you are working with a financial professional who is a fiduciary. Ask your elder law attorney for recommendations.

Reference: alphabetastock.com (January 11, 2020) “Elder Financial Abuse Is Rising”

Read more :   The Rising Menace of Elder Financial Abuse

 Analysis: Financial Elder Abuse is on the Rise

For a longer read an Extensive PDF Pamphlet:  Elder Financial Exploitation

And read one of our previous Blogs:   How to Combat Elder Financial Abuse

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