Tag: estate planning

Top Ten Tax Topics of 2021

christopherfloss

It’s April 15, which, in pre-Covid times, was considered “Tax Day” for the majority of American taxpayers. Since it still is “Tax Day” for some filers, I thought I’d share the following federal tax topics which have been circulating in the news during the first few months of 2021:

  1. Deadline Extension. The IRS extended the federal 2020 tax filing and payment deadline to May 17, 2021 for Form 1040 filers. All other returns with an April 15 deadline are not automatically extended. The first quarter federal income tax extension payment remains due on April 15.
  2. Response Times. IRS response times are still delayed due to reduced staff at IRS service centers. E-file remains the best option for efficient processing of returns. A significant number of 2019 paper-filed returns have yet to be processed.
  3. Gift and Estate Tax. Currently, the federal lifetime exemption amount remains at $11,700,000. The Biden Administration has indicated that a proposal may be coming to reduce this amount to $3,500,000. If enacted, this change will subject more estates to estate tax. Strategic planning through lifetime gifting or other techniques can be initiated now to minimize, if not eliminate, estate tax exposure.
  4. RMDs. Required Minimum Distributions from IRAs and other qualified retirement plans are in full force for 2021. For some, the 2020 hiatus demonstrated that drawing from other sources of income was sufficient for maintaining lifestyle demands. Qualified Charitable Distributions remain a viable alternative to realizing income from RMDs.
  5. Charitable Contribution Deductions. Individual taxpayers are permitted to deduct up to $300 for cash donations to public charities without itemizing deductions on Schedule A. Individual donors may continue to deduct up to 100% of their AGI for cash contributions to public charities.
  6. Unemployment Income Exclusion. The American Rescue Plan enacted in early 2021 provides for the exclusion of up to $10,200 of unemployment income for taxpayers who received unemployment income and have a modified adjusted gross income under $150,000.
  7. Recovery Rebate Credit. The Recovery Rebate Credit acts as a “true up” to the stimulus payment program initiated in early 2020. The 2020 stimulus payments were based on income reported in 2019. Taxpayers who would have qualified for a stimulus payment based on income reported in 2020 may be entitled to receive a credit up to the full amount of the first two stimulus payment amounts.
  8. PPP Loan Forgiveness. The CARES Act provided that PPP loans issued to qualifying businesses that are forgiven are not taxable income. Note that expenses paid with forgiven loan amounts are not deductible.
  9. Employee Retention Credit. The employee retention credit initially enacted under the CARES Act remains in place for the first two quarters of 2021. Eligible employers may be able to obtain a refundable tax credit against the employer’s share of Social Security tax up to 70% of the qualified wages paid to employees between January 1, 2021 and June 30, 2021.
  10. Corporate Tax. The corporate tax rate remains at 21%. The Biden Administration proposes to increase this rate to 28%. If enacted, this rate increase may force corporate entities to explore more tax favorable entities or jurisdictions.

An $11 Million Exemption?! Estate Planning Considerations and the Tax Cuts and Jobs Act of 2017

christopherfloss

January 1, 2018 ushered in more than a new year for taxpaying Americans. Tax professionals of all areas of concentration continue to study the changes to the Internal Revenue Code enacted by the Tax Cuts and Jobs Act of 2017.  Most media reports have focused on the changes affecting income tax, such as doubling the standard deduction, eliminating personal exemptions, cutting back on certain deductions and adding a new treatment of “passthrough” income.  Few reports have addressed the one change in the federal estate tax:  doubling the exemption amount.  While this change is not nearly as exciting as the changes to the income tax, it does warrant consideration as taxpayers of varying degrees of net worth attempt to implement tax efficient estate plans.

Under the new law, individuals now have approximately $11 million of exemption before they are subject to federal estate tax. The “portability” of a spouse’s unused exemption has not been changed, which means that a married couple has a collective exemption amount of approximately $22 million.  Note, however, that the new law sunsets on January 1, 2026, with a reversion to the pre-2018 exemption amount thereafter.  So, what does one do?

Taxpayers whose net worth is above the new exemption amount should consider using the increased exemption amount as a further opportunity to continue moving value out of their estates. The use of irrevocable gift trusts, grantor retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs), transfers to intentionally defective grantor trusts (IDGTs) and  family limited partnerships (FLPs) are still viable methods to move value (particularly rapidly appreciating assets) from one generation to the next by minimizing the sting of the estate tax.

Also, taxpayers subject to a state estate tax should determine whether the change in the federal law also increases the exemption at the state level. For example, Illinois has a fixed exemption amount of $4 million that is not indexed to the federal exemption amount.  Other states, such as Connecticut, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island, Vermont and Washington, also have exemptions significantly less than the federal exemption.  Delaware, Washington D.C., Hawaii, and Maine currently have exemption amounts that are indexed to the federal exemption amount.  Maryland and New York are set to have exemption amounts indexed to the federal exemption as of January 1, 2019.

Furthermore, taxpayers who are no longer affected by the estate tax due to the increase in exemption, but have previously implemented value-based estate planning techniques to remove value from their estates, should consider options to utilize the step-up in basis wherever possible. Assets that are considered part of a decedent’s estate at death receive a “step-up” in basis to the fair market value of such assets as of the decedent’s date of death.  Effectively utilizing this rule will be more important so as to minimize post-death capital gains tax.

Taxpayers with a net worth significantly less than both the federal and, if applicable, state estate tax exemptions should still be concerned with post-death income tax planning considerations, such as an effective use of the step-up rule to minimize post-death capital gains (as discussed above) and the transfer of income to taxpayers who are taxed at a lower income tax rate.

Finally, annual per donee exclusion gifting is still an option for making gifts to individuals. An individual may gift up to $15,000 per year to an individual without any gift tax implications.

Opportunity exists for planning at all levels and the implications of the increased federal estate tax exemption should be considered in the context of a taxpayer’s specific circumstances.

Who’s In Charge?

christopherfloss

A key question that should be answered unequivocally in the estate planning process is who will be in charge when you are incapable of making decisions on your own.  There are two important points in time where the answer to this question is crucially relevant:

(1) who will make decisions with respect to your property and health care when you are incapacitated and

(2) who will be put in charge to manage your estate when you have died.

Generally, a power of attorney for property and a power of attorney for health care, or other equivalents depending on your jurisdiction, provide the ability to appoint an agent to act on your behalf during periods of incapacity prior to your death.

After death, your will and, if applicable, your trust will provide for an executor and/or trustee to assume this role upon your death.

Recently, Kelley Long, a Forbes contributor, explained the importance of having someone appointed to act as your agent in the event of incapacity in her article “The Most Important Estate Planning Issue Boomers Need To Address.”     Click on the linked article and consider the points Ms. Long addresses prior to meeting with your estate planning professional.

 

Trusts and Retirement Funds: Should They Meet?

christopherfloss

A significant portion of wealth in an average estate typically exists in some form of qualified or non-qualified retirement plan.  Most people are generally aware of the common parameters governing their plans, such as contribution limitations, penalties for early withdrawal and so forth.  What most retirement plan participants overlook are the rules governing distributions after death.

Given that most estate plans include some form of trust agreement that contains the plan’s operative components, it is crucial to be aware of the requirements for trusts when they are named as a beneficiary of a retirement plan.  The article, “Designating A Trust As Retirement Beneficiary,” offers a very concise introduction to these requirements.  As always, professional counsel is imperative when addressing specific concerns about your estate plan.

Up For A Challenge In 2016?

christopherfloss

How are your 2016 New Year’s resolutions coming along?  Whatever your goals or objectives are, hopefully you’ve taken at least one small step to achieving them.  If you haven’t, it’s not too late!

A theme that’s common to many New Year’s resolutions involves planning.  Saving money, managing time more efficiently, even losing weight — the success of any goal under these very broad categories involves thinking ahead and planning.

Planning does not come naturally for some.  It’s so much easier to look at the next few hours than it is to look well into the future — 5, 10, 20, 40 years down the road.  It’s even more difficult for some to think about what will happen when a death occurs, either of someone close or, yes, even your own.  In any event, planning ahead, at least to some degree, is in everyone’s best interest.

Estate planners challenge their clients to plan ahead.  Asset management,  tax planning, and providing for loved ones are very common concepts that are typically addressed in the estate planning process.

As many of you are aware, I’ve used this blog platform to discuss relevant topics to estate and tax planning.  My challenge for this year is to provide a discussion forum for those seeking to learn more about estate planning.  While this forum will not, in any way, provide legal advice that is specific to anyone’s circumstance, it allows those who are interested in learning about the process to take the first step.  I repeat:  there is no substitute to reviewing your specific circumstances with a professional who can address your needs.  Nonetheless, hopefully the information learned from the topics discussed here will prompt further conversations with the professionals who attend to your estate and tax planning needs.

My challenge to you is to engage in the conversation in whatever way you wish.

To begin, I’d like to refer to an article I posted some time ago:  Estate Planning: Do I Need It?   This article addresses the following topics: four myths that have plagued the meaning of estate planning, five reasons why everyone should pursue some form of estate planning and a general definition of the various components of the estate planning process.  Read it through and tell me what you think.

Finally, it is my hope that the information you learn here will facilitate conversations with your trusted professionals, friends, colleagues and loved ones regarding your estate planning goals and objectives.

Stay tuned every Wednesday for further topics!

About the author:

Christopher Floss is an associate attorney at Hoogendoorn & Talbot LLP, a law firm based in Chicago. Chris concentrates his practice on matters pertaining to estate planning, tax compliance and planning, and estate administration. For more information on the content of this article or on his practice, you may contact Chris at cfloss@htlaw.com or by telephone at 312–786–2250. 

Clarity Is Key When Re-Registering Assets Into Trust

Clarity Is Key When Re-Registering Assets Into Trust

christopherfloss

Recently, an Illinois appellate court decision held that a transfer of real property could be effectuated when the settlor of a trust indicated in the trust instrument that the property was a part of the trust corpus.  See my article, Do You Really Need A Deed?, for a summary of the court’s opinion.

Estate Planning Starts Now!

christopherfloss

As many of you are aware, I concentrate a portion of my law practice on estate planning.  Personally, I find it interesting in helping clients discern the best course of action with respect to the various components that comprise the estate planning process.  Unfortunately, a majority of the population does not value the process or simply procrastinates to the point when it becomes too late to plan.  A few months ago, I published this article:  Estate Planning: Do I Need It?.  I invite you to revisit some of the ideas expressed in this article and determine what, if anything, needs to be addressed in your estate plan.

Trusts and Tax Planning

christopherfloss

Trusts have become a very common element to modern estate planning. Clients are often confused as to the different types of trusts available for various planning needs. One major distinction among the types of trusts is whether it is revocable or irrevocable. This distinction may have significant income and gift tax consequences that need to be explored in the planning process.
See this brief article to begin exploring the income tax consequences of creating an irrevocable trust.