In May, I sat down with Jason Howell to discuss the process of estate planning and why it is important that families “begin the begin”. Check out the podcast/video recording of our time together. #estateplanning #incapacityplanning #beginthebegin
The end of the year is always a busy time of the year particularly in estate and tax planning. 2019 was no exception as on December 20th, the Setting Every Community Up for Retirement Enhancement Act (“the SECURE Act”) was signed into law. The SECURE Act took effect on January 1, 2020 and makes significant changes to qualified individual retirement account (“IRA”) planning, including the elimination of the stretch IRA for inherited IRAs, among other changes. Treasury Regulations have not yet been issued, so some of the details in the SECURE Act are still unknown and the gaps are not yet filled.
Before summarizing the elimination of the stretch IRA provisions, a few of the other key changes under the SECURE Act included the following:
As mentioned, the most significant change under the SECURE Act is the elimination of the ability to stretch an inherited IRA (or 401(k) or 403(b)) with certain exceptions. The default rule now is that inherited IRAs must be fully distributed by the end of the 10th year following the death of the account owner. For example, if an account owner dies in 2020, leaving his or her IRA to a named beneficiary (who is not one of the defined exceptions), all monies from that IRA must be distributed by the end of 2030. The prior rule allowed beneficiaries to use their life expectancy to determine any required payout.
There are a few exceptions to this new default rule. Individuals who are permitted to stretch the inherited retirement account over their lifetime include:
The result of the new default rule for those who do not fall into an exempt category is that there will be less tax-deferred growth in the retirement account and an increase in income taxes because the rate of withdrawal has been accelerated.
There are some strategies available, which will be explained in more detail in later articles, that could help mitigate the increased tax liability. Those strategies include:
These strategies are heavily dependent on the specific circumstances faced by each IRA account holder and should be reviewed carefully.
Lastly, for many who have had their estate planning prepared, that plan may be structured around a revocable living trust with the revocable living trust being designated as the beneficiary of the IRA. As a result, those beneficiary designations and the terms of the trust need to be revisited as unintended income tax consequences may result because of the new 10 year default payout rule.
As for next steps, if you haven’t reviewed your beneficiary designations and your estate plan recently, you should consult with your team of professional advisors who can help explore the options available to you based on your situation. #estateplanning #SECUREAct #taxplanning @bgnthebgn @OFPLAW
Documentation filed earlier this week in Oakland County probate court in Michigan by Aretha Franklin’s children indicates that she died without a will or a trust. On the forms, a box was checked signaling that “the decedent died intestate”. What does this all mean?
Dying without a Last Will and Testament or a revocable living trust means that a person is intestate and the laws of the state in which they resided at death will spell out who is to receive the assets of the estate. Under Michigan law, Ms. Franklin’s estate will pass equally to her children as she was unmarried at the time of her death. Ms. Franklin’s niece has also requested that she be appointed as the personal representative or executor of the estate. Thus, it appears that the law of unintended consequences may now apply as Ms. Franklin may not have wanted her children to become the beneficiaries. She may have wanted to include charity or friends perhaps even other relatives in her estate plan. She may not have wanted to have her niece serve as the personal representative, a role that presumably will be compensated. But, without a Last Will and Testament or revocable living trust, we will never know what her true wishes were.
It will also be interesting to see how the administration of Ms. Franklin’s estate unfolds now that the process will be a public one. A number of questions will have to be asked and answered, including, but not limited to: What debts does the singer have? Michigan may not have a state level estate tax or inheritance tax, but how will the Federal estate tax be paid? Exemptions from Federal estate tax are high ($11.18 million per person in 2018), and valuations of Ms. Franklin’s will have to be done to determine the total value of her estate. What assets will each beneficiary ultimately receive? Presumably some of the assets are not standard such as royalties from Ms. Franklin’s records. Will an agreement be reached amongst the beneficiaries regarding the management and distribution of the assets? Unfortunately, the process that has begun will be lengthy, likely expensive and could result in the dismantling of a legacy if the process devolves into an ugly court battle similar to what has happened with Prince’s estate when he died without a will. And in the end, all of this uncertainty could have been avoided or at least minimized had Ms. Franklin simply planned, which means “you better think” before you decide you do not need a plan. #QueenofSoulDiesWithoutWill #QueenofSoul #estateplanning #intestacy
Check out the brief interview I did regarding my new role as President of the Virginia Academy of Elder Law Attorneys.
The Virginia Academy of Elder Law Attorneys, or VAELA, is a non-profit professional organization. Its mission is to educate and empower legal representation of elderly and/or disabled clients and their families. OFP Shareholder Catherine F. Schott Murray currently serves as VAELA’s President.
How does VAELA help protect/advocate the interests of seniors or the disabled?
Catherine F. Schott Murray: VAELA Is leading the way in special needs and elder law in Virginia by educating, inspiring and empowering legal representation of elderly and disabled clients and their families, and by advocating their issues before courts and legislatures. In representing a diverse set of individuals and families with unique issues by providing practical and common-sense advice, VAELA members help their clients to protect family members with disabilities and to age with dignity.
At a recent Moms at Work event hosted by Claire M. S. Meade, discussion was held about those who are part of the “sandwich generation”, that is those who have young children, but also older parents. In particular, the conversation centered on questions to ask retired or retiring parents to help facilitate a discussion about aging. Many earlier articles have addressed estate planning, including planning for incapacity and planning for death. But this discussion highlighted three basic questions that MIT AgeLab identified as key when considering what it means to be retired. The simple questions are: (1) Who will change my light bulbs? (2) How will I get an ice cream cone? (3) With whom will I have lunch? These seem like very basic questions, but when you start to think beyond the initial concept to the considerations that each question raises, you realize that there are a lot of details to address in each question as it relates to retirement and aging. Check out the MIT AgeLab article for more details and think about beginning the conversation with your retired or retiring family member to avoid finding yourself in a situation where it is too late to plan. @bgnthebgn @josephcoughlin #incapacityplanning #estateplanning #aginginplace #retirementplanning #sandwichgeneration
The Virginia General Assembly has passed SB 1140 and HB 1617 both of which address the issues raised in Thorsen v. Richmond Society for the Prevention of Cruelty to Animals (786 S.E.2d 453 (Va. 2016). As may be recalled, the Thorsen case involved an error in the drafting of a Last Will and Testament that resulted in the intended beneficiaries receiving a smaller amount than was originally expected. In connection with a lawsuit for legal malpractice, the Virginia Supreme Court found that a third-party beneficiary may sue to enforce its rights even though those parties are not known for many years, which is very often the case in estate planning matters.
Now under the aforementioned legislation, the statute of limitations for legal malpractice relating to estate planning is five years if the representation was based on a written contract and three years if the representation was based on an unwritten contract. The statute of limitations begins to run on the date representation is complete. Furthermore, a third-party has standing to sue “only if there is a written agreement between the individual who is the subject of the estate and the defendant that expressly grants standing…” This legislation is effective July 1, 2017. Fortunately once in force, the potential chilling impact the Thorsen case had on the estate planning process will hopefully be overcome, and attorneys and clients will be able return to having an attorney-client relationship without having to watch out for disgruntled beneficiaries who may appear decades later. #estateplanning #estateadministration #Thorsen @bgnthebgn
The IRS recently announced the estate and gift exemption levels for 2017 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.49 million per person allowing a married couple to shelter $10.98 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.49 million per person. The annual gift exclusion amount will remain at $14,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $3 million while the District of Columbia’s exemption will remain at $1 million until certain revenue surplus targets are met, which may not be until 2018, at which point the exemption will increase to $2 million. As a reminder, proposed regulations issued in August will significantly reduce the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses, and therefore, taking advantage of 2016 exemption levels is critical for some individuals, business owners and families.
For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 0.3%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $127,200. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2017 were announced. #estateplanning #estatetax #gifttax #annualgift #exemptionlimits #COLA2017 @bgnthebgn
The District of Columbia is considering enacting the Death with Dignity Act (the “Act”) that would allow terminally ill individuals with six months or less to live the ability to receive a lethal dose of medication and end their life. Several procedural steps lie ahead for the Act now that the D.C. Council has voted to place the Act on the legislative agenda for an upcoming meeting. However, it is unclear whether there is sufficient support for the Act to be made into law. Arguments in favor of the Act revolve around giving an individual control over how and when they choose to die, but advocates against the Act are concerned that individuals’ lives will be prematurely terminated.
The issue once again raises the importance of planning. Planning for incapacity and planning for death. Both sides of the death with dignity argument seem to have a common thread involving control, which is exactly what planning gives you. Planning gives you control over who is in charge of your medical decisions when you are not able to make those decisions. Planning gives you control of whether you want life-prolonging procedures when doctors have certified that nothing more can be done except provide comfort care. Planning gives you control of how you want to be remembered in those final moments. Planning gives your family members peace of mind to know that they are truly abiding by your wishes, which in turn may make them feel as if they are in control of the situation. Planning gives your family time to prepare for a life without you in it and to try to control the emotional turmoil that realization creates. Ultimately, planning is a gift to yourself to know that that particular item on a lengthy checklist can be crossed off so that you can enjoy life knowing that your end of life is in the best order you can create. So, regardless of which side of the death with dignity argument you fall, think of the planning that can be done to control your death with dignity. #endoflife #estateplanning #advancedirective #livingwill @deathwdignity @NHDD @bgnthebgn
An earlier article talked about the Virginia Supreme Court case of Thorsen, et al. vs. Richmond Society for the Prevention of Cruelty to Animals (RSPCA) that was decided in June of this year. Thorsen involved an error in the drafting of a Last Will and Testament that resulted in the intended beneficiaries receiving a fraction of what they would have otherwise received. Those intended beneficiaries sued for legal malpractice. The Virginia Supreme Court found that a third-party beneficiary who is ‘clearly and definitely’ the intended beneficiary of a contract (even one where no written agreement exists) may sue to enforce its rights derived from the contract even though the third-party beneficiary may not know it is a beneficiary for many years (as is the case in most estate planning documents). The impact of Thorsen on individual clients and estate planning attorneys was wide spread, although clients may not have directly been aware that they were being impacted.
Now, as was suggested would be the case, proposed legislation will be presented to the Virginia General Assembly in the 2017 Session that will look to address the concerns raised as of a result of the Thorsen case. In particular, a proposed amendment to Section 64.2-520 of the Virginia Code would clarify that an action for damages based on legal malpractice involving an estate plan “shall accrue upon completion of the representation in which the malpractice occurred.” Furthermore, only the individual client, his or her legal representative (in the case of incapacity) or the personal representative or trustee (in the case of death) can bring the action. The action for damages must be brought “within five years after the cause of action accrues”. The proposed legislation, if passed, would not take effect until July 1, 2017.
Furthermore, a new statute (Section 64.2-404.1) is being proposed that would allow for the court to reform a Last Will and Testament to reflect the individual client’s intentions, provided clear and convincing evidence of intent are presented and the terms were impacted by a mistake of fact or law. This new statute would also permit reformation of a Last Will and Testament to achieve an individual client’s tax objectives. The reformation action must be filed within one year of date of death and notice must be provided to all interested parties. The proposed legislation, if passed, would take effect on July 1, 2017.
Ultimately, the proposed legislation is meant to apply similar rules to wills that are currently applied to trusts under the Uniform Trust Code. The expectation is that by passing these statutes, the overall chilling impact the Thorsen case had on the estate planning process is overcome, and attorneys and clients can return to having an attorney-client relationship without having to watch out for disgruntled beneficiaries. The estate planning process can be difficult enough for individuals to begin without having both the attorney and the client leery of unintended consequences. However, at this juncture, only time will tell whether the General Assembly passes the legislation. #estateplanning #estateadministration #Thorsen @bgnthebgn
On October 1st (unless otherwise noted) a number of new laws will take effect in Maryland that may have an impact on you or those with whom you work. Below is a summary of a few key pieces of legislation of which you should be aware.
HB 507 – Maryland Fiduciary Access to Digital Assets Act: This Act authorizes a person with digital assets to direct the disclosure of information relating to those assets in certain circumstances. A previous Article provides the details.
HB 541 – Upon divorce or annulment, certain provisions of a revocable trust that relate to the spouse will be revoked. This new statute is comparable to what has been established for wills under Section 4-105(4) of the Estates and Trust Article of the Annotated Code of Maryland.
HB 887 – Section 14.5-303 of the Estates and Trusts Article of the Annotated Code of Maryland is amended to add a new subsection (7) allowing for virtual representation of a minor, incapacitated, unborn or unknown individual, by a grandparent or more remote ancestor, provided there is no conflict of interest. In addition, Section 14.5-304 is added to the Estates and Trusts Article permitting anyone to represent a minor, incapacitated, unborn or unknown individual, provided there is a ‘substantially identical interest’ and no conflict of interest exists. The purpose is to avoid having to appoint a guardian ad litem in a court proceeding involving trusts.
HB 888 – The new statute will allow trustees and beneficiaries to enter into a binding settlement agreement relating to the administration of a trust without having to involve the court. The actions that can be agreed upon within a non-judicial settlement agreement by the trustees and beneficiaries must be those that a court could have approved. For example, a non-judicial settlement agreement could address interpretation or construction of terms of the trust, approval of an accounting or trustee succession.
HB 431 – Requires the establishment of the Maryland ABLE Program to allow for savings accounts similar to 529 Plan accounts to be created for a person under a disability. This was effective as of July 1, 2016. Two previous articles discussed the ABLE Program.
HB 718 – Asset Recovery for Exploited Seniors Act: Allows for a civil action to be brought for damages against a person who knowingly and willfully takes from another, who is at least 68 years old, his or her assets. A criminal conviction is not necessary before bringing the civil action.
HB 1385 – If an individual does not have a health care directive, ‘any authentic expression’ made by such person, who is deemed to be competent, regarding his or her wishes and desires about their health care ‘shall be considered.’
#elderlaw #estateplanning #healthcare #Marylandlaw #incapacityplanning #specialneeds #digitalassets @bgnthebgn