Some Estate Planning Actions for 2020

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Many of us set New Year’s resolutions to improve our quality of life. While it’s often a goal to exercise more or eat more healthily, you can also resolve to improve your financial well-being. It’s a great time to review your estate plan to make sure your legacy is protected, especially if you are home and have some time to think about your finances and your family.

The Tennessean’s recent article entitled “Five estate-planning steps to take in the new year” gives us some common updates for your estate planning.

Schedule a meeting with your estate planning attorney to discuss your situation and to help the attorney create your estate plan.

You should also regularly review and update all your estate planning documents.

Goals and priorities change, so review your estate documents annually to make sure that your plan continues to reflect your present circumstances and intent. You may have changes to family or friendship dynamics or a change in assets that may impact your estate plan. It could be a divorce or remarriage; a family member or a loved one with a disability diagnosis, mental illness, or addiction; a move to a new state; or a change in a family business. If there’s a change in your circumstances, get in touch with your estate planning attorney to update your documents as soon as possible.

Federal and state tax and estate laws change, so ask your attorney to look at your estate planning documents every few years in light of any new legislation.

Review retirement, investment, and trust accounts to make sure that they achieve your long-term financial goals.

A frequent estate planning error is forgetting to update the beneficiary designations on your retirement and investment accounts. Thoroughly review your accounts every year to ensure everything is up to snuff in your estate plan.

Communicate your intent to your heirs, who may include family, friends, and charities. It is important to engage in a frank discussion with your heirs about your legacy and estate plan. Because this can be an emotional conversation, begin with the basics.

Having this type of conversation now can prevent conflict and hard feelings later.

Reference: Tennessean (Jan. 3, 2020) “Five estate-planning steps to take in the new year.”

Seriously, Why Do I Need a Will?

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The Times Herald-Record’s article “55 Plus: Four Reasons to Create a Will” provides some tips and important reasons for why you should make a will.

When you create a will with the help of an estate planning attorney, you are able to decide who will execute your estate.

Creating a will and appointing a trusted executor will help make certain that your estate is managed in accordance with your wishes and instructions. If you have a will, you help the people you leave behind. A legally valid will can avoid added costs of legal confusion of who is supposed to inherit your assets. If you pass away without a will, the state will decide how your estate is divided.

Creating a will allows you to determine who inherits your estate. Your estate will include your home, motor vehicles, financial accounts and any other personal property you want to pass on to your loved ones. The great thing about a will is that it clearly states the persons or organizations that will receive all or part of your estate after your death.

Consulting with an experienced estate planning attorney to help understand your state laws and probate procedures is a wise move.

In your will, you can also decide and designate the person(s) who will care for your minor children. Creating a will gives you the opportunity to appoint a guardian for your minor children, in the event of your death. If you don’t have a will stating a guardianship, a court can make the issue its own and appoint a guardian in your absence. It could be someone you don’t like or someone you hardly know.

By creating a will, you provide several benefits for yourself and your family. A will offers peace of mind that your loved ones will be cared for as you intend after you’re no longer around.

And if you are in California, it is likely that you will want a trust instead of a will because of the significant cost and time delay of the probate process. With the recent COVID-19 events, the probate process has been extended likely an additional 3-4 months on top of the already year+ long process. Many Courts are closed and filed cases will be delayed until the Courts re-open.

Finally, a reminder for those with wills and estate plans: review these documents every year or three to be certain that everything is up to date. You want to be sure that your estate plan includes any new spouse, birth or adoption of a child or grandchild, death of a relative and change in your financial situation.

Reference: Times Herald-Record (Jan. 6, 2020) “55 Plus: Four Reasons to Create a Will”

C19 UPDATE: Guide to Resources Available for Small Business Disaster Relief

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If the coronavirus pandemic has hurt your business, visit the US Chamber of Commerce resource site for a wealth of resources to help your small business survive.

Priority reading on this site includes

Other resources include expert articles on business strategy and analysis, technology, managing a remote team, and their Coronavirus Response Toolkit, with shareable graphics and helpful information suitable for posting to social media to help boost your business’s visibility online.

Resource: Coronavirus Small Business Guide, https://www.uschamber.com/co/small-business-coronavirus

If I’m 35, Do I Need a Will?

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Estate planning is a crucial process for everyone, no matter what assets you have now. If you want your family to be able to deal with your affairs, debts included, drafting an estate plan is critical, says Wealth Advisor’s recent article entitled “Estate planning for those 40 and under.”

If you have young children or other dependents, planning is vitally important. The less you have, the more important your plan is, so it can provide as long as possible and in the best way for those most important to you. You can’t afford to make a mistake.

Talk to your family about various “what if” situations. It is important that you’ve discussed your wishes with your family and that you’ve considered the many contingencies that can happen, like a serious illness or injury, incapacity, or death. This also gives you the chance to explain your rationale for making a larger gift to someone, rather than another or an equal division. This can be especially significant if there’s a second marriage with children from different relationships and a wide range of ages. An open conversation can help to avoid hard feelings later.

You should have the basic estate plan components, which include a will, a living will, advance directive, powers of attorney, and a designation of an agent to control the disposition of remains. These are all important components of an estate plan that should be created at the beginning of the planning process. A guardian (or guardians) should also be named for any minor children.

In addition, a life insurance policy can give your family the needed funds in the event of an untimely death and loss of income—especially for young parents. The loss of one or both spouses’ income can have a drastic impact.

Remember that your estate plan shouldn’t be a “one and done thing.” You need to review your estate plan every few years. This gives you the opportunity to make changes based on significant life events, tax law changes, the addition of more children, or their changing needs. You should also monitor your insurance policies and investments because they dovetail into your estate plan and can fluctuate based on the economic environment.

When you draft these documents, you should work with a qualified estate planning attorney.

Reference: Wealth Advisor (Jan. 21, 2020) “Estate planning for those 40 and under”

C19 UPDATE: Small Businesses Hurt by COVID-19 May Qualify for SBA Disaster Relief Loans

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It’s estimated that some 30 million US small businesses may fall victim to the coronavirus through closures, cancellations and other revenue losses. With no clear end in sight, the Small Business Administration (SBA) is offering eligible businesses low-interest disaster relief loans to cover operating expenses.

These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%. In order to keep payments affordable, they are offering long-term repayments, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

For more information on areas currently eligible for SBA disaster relief and to apply for a loan, visit the SBA website at https://www.sba.gov/disaster-assistance/coronavirus-covid-19 or call the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail  disastercustomerservice@sba.gov.

Resources: SBA Disaster Assistance in Response to the Coronavirus.

Ozzy Osbourne and Sharon Osbourne Have an Estate Plan

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Heavy metal rock star Ozzy Osbourne and his talk show host wife, Sharon Osbourne say that they have a plan to pass the lion’s share of their estate to their children.

Ozzy rose to fame during the 1970s as the lead vocalist of the heavy metal band Black Sabbath, and Sharon became a household name more recently, thanks to her role in the MTV reality show “The Osbournes” and her job as a daytime talk show host.

Sharon explained the couple’s plan on The Talk, while reacting to news that the late Kirk Douglas bequeathed most of his $80 million fortune to charity when he died in February 2020 at age 103, reports I Heart Radio’s recent article entitled “Ozzy, Sharon Osbourne’s Children Will Determine The Fate Of Their Fortune.”

“Everybody is different,” Sharon said. “And I just know that my husband’s body of work, that he’s written, and kept us all in the lifestyle that we love, goes to my children.”

The children will also be entrusted with determining what will happen to Ozzy’s image and likeness, Sharon also said.

“I don’t want someone that never met my husband owning his name and likeness and selling T-shirts everywhere and whatever. No, it stays in the Osbourne family.”

Ozzy’s latest solo album, Ordinary Man—which is his 12th overall—already ranks as his highest-charting solo debut ever in the United Kingdom.

Between Ozzy’s equity in Black Sabbath, the solo recordings that he and Sharon have worked so hard to control and the hours of television in which the two have starred, it’s not hard to see the fruits of the couple’s labor benefitting several future generations of Osbournes.

Estate planning is important in every field and for everyone. However, it’s particularly important in the entertainment business, where will contests and questions about inheritances frequently are publicized in the press. To that end, the estates of celebrated artists like Frank Zappa, Kurt Cobain, Prince, Tom Petty, Chris Cornell, and many others have been the subject of public battles in recent years.

Even if you are not about to release your latest solo album, you still need to work with an experienced estate planning attorney to make certain that your plans for your assets and property are carried out after your death.

Reference: I Heart Radio (March 2, 2020) “Ozzy, Sharon Osbourne’s Children Will Determine The Fate Of Their Fortune”

COVID-19 UPDATE: Emergency Estate Planning Decisions to Make Right Now

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Though it may be hard not to panic when the grocery store shelves are empty, the number of confirmed cases of COVID-19 keeps rising, and we see sobering statistics across the globe … we will not overcome this challenge with a panicked response.

Nonetheless, there are certain things we all need to be doing right now – and your public health officials are the best resource on how to stay personally safe and help prevent the virus from spreading.

When it comes to the seriousness of this outbreak, however, there also are some critical estate planning decisions you should make – or review – right now.

Ask yourself these questions:

  1. Who will make medical decisions for me should I become severely ill and unable to make these decisions myself?
  2. Who will make my financial decisions in that same situation — for example, who will be authorized to sign my income tax return, write checks or pay my bills online?
  3. Who is authorized to take care of my minor children in the event of my severe illness? What decisions are they authorized to make? How will they absorb the financial burden?
  4. If the unthinkable happens – what arrangements have I made for the care of my minor children, any family members with special needs, my pets or other vulnerable loved ones?
  5. How will my business continue if I were to become seriously ill and unable to work, even remotely … or in the event of my death?

These are the most personal decisions to make right now to protect yourself and your loved ones during this emergency. Now is also a good time to ask yourself if you have plans in place for the smooth transfer of your assets and the preservation of your legacy.

You may be stuck at home but there are still choices available to you to prepare yourself if you or a loved one contract COVID-19.  We are ready to help walk you through these decisions, understand the ramifications of your choices, and memorialize your plans in binding legal documents. We are currently offering no-contact initial conferences remotely if you prefer. Book a call now and let us help you make the right choices for yourself and your loved ones.

Employers Now May Help Employees with Tax-Free Direct Disaster Relief Assistance

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As the coronavirus pandemic emergency unfolds, it’s clear that increasing numbers of employees will likely suffer financial impacts … from quarantines, illnesses, workplace closings, etc. President Trump’s declaration of a national emergency on March 13 now allows employers to make direct disaster-relief payments to assist employees affected by the virus.

These types of payments are not treated as income/wages to the employees and are deductible to the employer as ordinary and necessary business expenses. There is no specific cap on the amount of assistance that may be provided to an employee other than it must be “reasonable and necessary” and must not be for an expense reimbursable by the employee’s insurance.

Section 139 of the Internal Revenue Code, allows that a “qualified disaster relief payment” of any amount may be paid to reimburse or pay reasonable and necessary personal, family, living or funeral expenses (not otherwise compensated for by insurance) incurred because of a “qualified disaster.” The term “qualified disaster” includes a federally declared disaster or emergency under the Stafford Act. Accordingly, due to the Declaration, Coronavirus is now a “qualified disaster” for Section 139 purposes, so disaster relief may be provided to employees on a tax-free basis (assuming all the requirements of Section 139 are satisfied).

As always check with your CPA or attorney before implementing any tax planning strategy for your business.

Read more at The National Review, Coronavirus National Emergency Declaration Permits Employers to Offer Tax-Favored Financial Assistance to Employees, March 14, 2020

Paying for Covid-19 Testing and Treatment if You Have a High Deductible Insurance Plan

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What is a High Deductible Health Plan (HDHP)?

A HDHP is a health insurance plan with a higher deductible than traditional insurance plans. Many people choose this type of health insurance for the cost savings as the monthly premiums are usually lower than traditional insurance plans. A high deductible plan (HDHP) can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with pre-tax money.

For 2020, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,900 for an individual or $13,800 for a family. (This limit doesn’t apply to out-of-network services.)

How Does This Apply to Covid-19 Testing & Treatment?

The IRS recognizes that people with HDHP plans, where in general, all costs are paid out-of-pocket before medical benefits kick in, may be reluctant to seek care or be tested when ill.

To respond to the current Covid-19 emergency, the IRS on March 11 issued guidance in Notice 2020-15 stating (emphasis added)

“a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).”

In short, the IRS said that health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA).

The IRS noted that, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP. Testing and treatment for the virus can be covered under the umbrella of “preventive services.”

This Applies Only to Covid-19 Emergencies

The IRS cautions that this new policy statement only applies to Covid-19 emergencies:

“This guidance does not modify previous guidance with respect to the requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19.”

Check with Your Provider

If you are currently enrolled in a HDHP health insurance, be sure to check with your provider for details about your specific benefits coverage.

Resources: IRS Notice 2020-15, “HIGH DEDUCTIBLE HEALTH PLANS AND EXPENSES RELATED TO COVID-19,” https://www.irs.gov/pub/irs-drop/n-20-15.pdf

Alternatives for Stretch IRA Strategies

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The majority of many people’s wealth is saved gradually from a lifetime of work and stored in their IRAs. For most of these people, a primary goal is to leave their IRAs to their children, says a recent article from Think Advisor titled “Three Replacements for Stretch IRAs.” The ability to distribute IRA wealth over years, and even decades, was eliminated with the passage of the SECURE Act.

The purpose of the law was to add an estimated $428 million to the federal budget over the next 10 years. Of the $16.2 billion in revenue provisions, some $15.7 billion is accounted for by eliminating the stretch IRA.

Existing beneficiaries of stretch IRAs will not be affected by the change in the law. But going forward, most IRA heirs—with a few exceptions, including spousal heirs—will have to take their withdrawals within a ten-year period of time.

The estate planning legal and financial community is currently scrutinizing the law and looking for strategies that will minimize the tax consequences of this new rule. Here are three estate planning approaches that are emerging as front runners:

Roth conversions. Traditional IRA owners who wished to leave their retirement assets to children may be passing on big tax burdens now that the stretch is gone, especially if beneficiaries themselves are high earners. An alternative is to convert regular IRAs to Roth IRAs and take the tax hit at the time of the conversion when the IRA owner is presumably in a lower tax bracket than their working children.

There is no guarantee that the Roth IRA will never be taxed, but tax rates right now are relatively low. If tax rates go up, it might make converting the Roth IRAs too expensive.

This needs to be balanced with state inheritance taxes. Converting to a Roth could reduce the size of the estate and thereby reduce tax exposure for the estate as well.

Life insurance. IRA owners can take distributions from an IRA to pay for a new life insurance policy to be distributed to their beneficiaries. When the beneficiaries receive the death benefit, it will not be included as the beneficiary’s income. This is being widely touted as the answer to the loss of the stretch, but like all other methods, it needs to be viewed as part of the entire estate plan. While this method is not a new strategy, it may be used more frequently due to the elimination of the stretch.

Charitable Remainder Trusts (CRT). The IRA could be used to fund a charitable remainder trust. This allows the person setting up the trust to establish an income stream for heirs with the IRA assets, and then have any amounts remaining upon the heirs’ deaths going to a named charity. The trust can grow assets tax-free. There are two different ways to do this: a charitable remainder annuity trust, which distributes a fixed annual annuity and does not allow continued contributions, or a charitable remainder unitrust, which distributes a fixed percentage of the initial assets and does allow continued contributions.

Speak with your estate planning lawyer about what options may work best in your unique situation.

Reference: Think Advisor (Jan. 24, 2020) “Three Replacements for Stretch IRAs”