Securing Your Financial Future After the SECURE Act

by Craig Panholzer, Esq.
and Michael L. Salad, Esq., LL.M.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) which was incorporated into an appropriations bill and became effective on January 1, 2020, includes significant changes to retirement plans.

Notably, the SECURE Act postpones the date in which an Individual Retirement Account (“IRA”) owner is required to withdraw required minimum distributions (“RMDs”) from age 70.5  to age 72 and it limits the time in which funds must be distributed to a beneficiary after an employee or IRA owner passes away.

Prior to enacting the SECURE Act, a non-spousal beneficiary of a defined contribution plan, such as an IRA, a 401(k) or a 403(b) account, could stretch distributions over their life expectancy based on a chart published by the Internal Revenue Service. However, the SECURE Act requires a non-spouse beneficiary of a defined contribution plan or eligible retirement plan to withdraw all of the funds within ten years after the year in which the account holder passes away unless the beneficiary is an “eligible designated beneficiary,” as defined in the SECURE Act.

Section 401(a)(2) of the SECURE Act states that “eligible designated beneficiaries” include surviving spouses and chronically ill individuals which is an individual who has been certified by a licensed health care practitioner as being unable to perform without substantial assistance from another individual at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity or requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.  Eligible designated beneficiaries also include disabled heirs. For purposes of the SECURE Act, an individual is disabled “if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” 26 USCS § 72(m)(7).  Surviving spouses and chronically ill individuals may withdraw plan assets during their life expectancies. A surviving spouse may roll over an IRA in the same manner that a surviving spouse was permitted to do prior to passage of the SECURE Act.

Minors are also exempt from the ten-year rule. However, after a minor beneficiary attains majority age (which varies state-by-state), the beneficiary must withdraw all funds from the plan account within ten years.  For instance, if a state deems majority age to be 18, then the beneficiary must withdraw all of the funds before that beneficiary attains 28 years of age. An eligible beneficiary also includes an individual, related or not, who is not more than ten years younger than the employee.

The SECURE Act will likely result in implementation of alternative withdrawal strategies from retirement accounts. Prior to the enactment of the SECURE Act, conduit trusts were common estate planning vehicles for retirement accounts. Conduit trusts require the annual RMD to be distributed to a trust beneficiary but the balance of the funds may remain in trust. The trust serves as a “conduit” for the benefit of the beneficiary. However, the ten-year distribution requirement created by the SECURE Act makes conduit trusts an ineffective estate planning tool in most instances.

Creating an accumulation trust, also known as a discretionary trust, as the beneficiary of a Roth IRA may create a tax-efficient distribution regime that continues for generations. Distributions from Roth IRAs are generally not subject to income taxes thereby creating an opportunity to designate an accumulation trust as a beneficiary.  An accumulation trust does not require a trustee to distribute the income from the trust.  Instead, the trustee collects the income and any profits from the sale of trust assets and holds the income in the trust until the trustee deems it is necessary to make distributions. An accumulation trust allows a retirement account holder to prevent a lump-sum distribution to a beneficiary within ten years. However, an accumulation trust must afford the trustee discretionary power to distribute the inherited funds within ten years of the account owner’s death.  The funds may remain in trust and the trustee would not have to complete distributions to the trust beneficiaries. The funds distributed from a traditional IRA will be taxed at trust tax rates, as opposed to the personal tax rates imputed to distributions from a conduit trust.

A charitable remainder trust (“CRT”) remains an attractive estate planning tool. A CRT allows a beneficiary to receive income throughout his or her lifetime.  After the beneficiary passes away, the remainder of the trust is distributed to a charity of the grantor’s choice. A CRT provides security to a loved-one along with the benevolence of providing for a charity. Appointing a CRT as an IRA beneficiary allows distributions to be stretched longer than the SECURE Act’s ten-year limit. Life insurance can replace the funds placed into a CRT in a tax-efficient manner.  The annuity payments from the CRT can be retained and used to fund a life insurance policy that names additional beneficiaries.

A silver lining from the SECURE Act is the postponement of RMDs by one and one-half years, which will provide additional time for retirement accounts to grow without being depleted by withdrawals and taxes. Additionally, the SECURE Act affords the owner of a traditional IRA additional time to convert a traditional IRA to a Roth IRA. Depending on the size of the traditional IRA, a conversion may significantly increase the amount that can be converted from a tax-deferred traditional IRA to a tax-free Roth IRA and result in a lifetime of tax savings from smaller RMDs and long-term, tax-free growth from a larger tax-free Roth IRA.

The New Year holiday generally offers time for introspection, including personal finances. Now is an opportune time to re-evaluate your estate and financial plans to ensure that your financial future is secure.

Michael Salad is a partner in Cooper Levenson’s Business, Tax and Estate Planning practice groups. He concentrates his practice on estate planning, probate, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida, New York, Pennsylvania and the District of Columbia.  Michael may be reached at 609.572.7616; 954.889.1850 or via e-mail at msalad@cooperlevenson.com.

Craig Panholzer is an associate in Cooper Levenson’s Business, Tax and Estate Planning practice groups. He concentrates his practice on estate planning, business transactions and tax matters. Craig may be reached at 954.889.1856 or via e-mail at cpanholzer@cooperlevenson.com.

 

 

New Jersey Medical Aid in Dying Act Update

A law that is as controversial as New Jersey’s Medical Aid in Dying for the Terminally Ill Act (“Act”) is bound to have its challengers.

The first challenge to the Act came in the form of a temporary restraining order (“TRO”) which was issued by a Superior Court Judge in Mercer County, New Jersey on August 14, 2019.  The TRO prevents physicians from ordering life-ending medication prescriptions to patients until at least Oct. 23, 2019. The Judge granted a TRO because state agencies and regulatory boards allegedly failed to provide guidance to the State’s physicians on how best to implement the provisions of the Act.

Supporters of the Act contend that the law provides sufficient clarity to allow physicians to act without regulations from New Jersey agencies. Physicians who do not want to participate in the Act may transfer care of the patient to another physician per the patient’s request. The suit alleges that the law violates the state constitution on religious, due process, and equal protection grounds.

Oregon, the pioneer of death with dignity laws, faced similar challenges when it became the first state to allow residents to receive life-ending medication from an attending physician. Oregon and several other jurisdictions have successfully defended their laws allowing residents to end their lives in a dignified manner. In Gonzales v. Oregon, 546 U.S. 243 (2006), the United States Supreme Court upheld Oregon’s Death with Dignity law in a six to three decision.

Michael Salad is a partner in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida, Pennsylvania, New York and the District of Columbia.  Michael may be reached at (609) 572-7616 or via e-mail at msalad@cooperlevenson.com.

Shaiful Kashem is a summer associate at Cooper Levenson. He is a candidate for a J.D. at Rutgers School of Law in Camden. Shaiful may be reached at (609) 344.3161 or via e-mail at skashem@cooperlevenson.com.

 

WHAT ARE YOUR LONG-TERM CARE OPTIONS

If you think “nursing home” as soon as you hear long-term facility, that’s not surprising. However long-term care covers a range of options.  Long-term care is provided at home, in the community, or in a variety of types of facilities.  The options for long-term care span a continuum of care, and your choices may change as a parent or loved one loses mobility or chronic conditions gradually worsen.

Long-term care decisions don’t always involve a sudden crisis, and when you can, it is important to think about long-term care before a crisis occurs.

In many cases, long-term care starts at Home with family members, friends, volunteers, and often times paid home health-care aides providing the necessary care so that your loved one can remain in his or her home.  Short-term, skilled home health care is covered by Medicare; but, if Medicare is paying, it is just a short-term solution.

In addition, most areas have community services such as adult daycare, meal programs, senior centers and transportation that can be helpful as your parent remains at home. Adult daycare for example can provide a variety of health, social, and related support services in a protective setting during the day.

Independent or Retirement Living is best suited for retirees with relatively minor needs. These self-contained communities, sometimes situated in high rise complexes,  are generally light on care but offer many planned outing and activities.  Some include wellness centers on site.  The price can vary widely.

Assisted Living Facilities offer services such as medication management and limited personal care in a supervised setting.  Like independent/retirement living options, there is a real focus on activities. Also available at many assisted living facilities are personal care, housekeeping and prepared meals, often at additional cost.  The care in Assisted living facilities spans a continuum itself, and in many facilities additional care services can be provided as the need arises.

Nursing Homes provide medical and personal services beyond that available at assisted living facilities, with 24-hour supervision, assistance with activities of daily living and three daily meals usually standard.  Skilled-nursing is on-site to meet medical needs.  There is a large range of services available at different nursing homes, and it is important to match your needs with your nursing home choice.

By checking at Medicare.gov, you can learn more about each option, and newer options being offered, as well as Medicare’s coverage for each. LongTermCare.gov also has information and resources that can help with the difficult decisions involved in long-term care.

Bard L. Shober, Esq. is an attorney with Cooper Levenson’s Personal Injury Practice Group in Atlantic City, N.J. He concentrates primarily on medical malpractice and personal injury matters.

Michael L. Salad and Jarad K. Stiles to speak on Sept. 25: Planned Giving Panel Discussion

September 25, 2018 8:00-10:00
Stockton’s Carnegie Center
35 S Martin Luther King Blvd
Atlantic City NJ 08401

Registration: www.acchamber.com/events/power-breakfast-panel 

$20.00/Chamber Members FREE

Michael L. Salad, Esq., LL.M.  (Moderator) Business & Tax and Cyber Risk Management, Partner, Cooper Levenson

Anthony Fraizer—Executive Director of the Community Foundation of South Jersey

Jarad K. Stiles, Esq., LL.M.Tax Law and Estate Planning & Administration, Attorney, Cooper Levenson

Theodore Joyce—Senior Manager in the Tax Advisory Group (TAG) of HBK CPAs and Consultants

Chris DeYoung (not pictured) President, DeYoung Financial Group

 

 

 

 

 

 

 

Jarad Stiles to speak at Absecon Business & Commercial Development meeting March 14

See our album of photos from last night’s event with the Absecon Business & Commercial Development General Membership Meeting on March 14.

PLACE: Villa Rifici’s, 308 White Horse Pike, Absecon.

MEET & GREET: 5:30 pm Meet & Greet with appetizers and cash bar

GUEST SPEAKER: 6:15 p. Jarad K. Stiles, Business Tax Attorney from Cooper Levenson, Attorneys at Law

TOPIC: “How the 2017 Tax Reform will affect Businesses and Succession Planning”

DATE: Wednesday, March 14

FEE: $10

Read more about speaker Jarad K. Stiles

 

Gifting Before Year-End

As we approach the end of 2017, it is important to note that a very powerful asset transfer technique is available but time is running out. The following information applies if a donor (the person making a gift) and donee (the recipient of a gift) of the gift are United States citizens.

A donor can make a gift to a donee of up to $14,000 without incurring gift tax or reducing the lifetime exemption amount for gifts and estates (currently, $5,490,000 per person and $10,980,000 for a married couple but will increase to $5,600,000.00 per person and $11,200,000.00 for a married couple in 2018). Practitioners refer to this exclusion as the annual gift tax exclusion. The annual gift tax exclusion is periodically indexed for inflation.  While it has remained at $14,000 since 2013, it will increase to $15,000 on January 1, 2018. As such, married individuals can make gifts of up to $28,000 in 2017 and $30,000 in 2018 to an individual without incurring gift tax or reducing the lifetime exemption amount or filing a gift tax return. This annual exclusion is authorized pursuant to 26 U.S.C. 2503(b).  During this calendar year, a donor can make annual gifts of up to $14,000 to as many donees as he or she chooses. A donor may not, however, gift more than $14,000 this year to any individual except a spouse without filing a gift tax return and reducing his or her lifetime exemption amount. Gifts in excess of $14,000 during this calendar year will reduce a donor’s lifetime exemption amount. The same will hold true in 2018, except that the annual gift tax exclusion will become $15,000.

For example, assume that Mom and Dad are United States citizens, have exhausted their lifetime exemption amounts and have three children, each of whom are married with one child. On December 31, 2017, Mom and Dad may each utilize their annual gift tax exclusions and on January 1, 2018, they may make additional gifts of $15,000 to each of their children, their children’s spouses and their grandchildren. Therefore, Mom and Dad can, between now and January 1, 2018, cumulatively gift $58,000 to each of their three children, their children’s spouses, and grandchildren resulting in $522,000 of gifts in the aggregate and $174,000 per family unit. In a matter of a few days, $522,000 of transfers may be completed without incurring gift tax. Now assume the same facts but the gift is not a present interest gift (meaning the recipient does not have immediate control of the gift or the immediate ability to use the gift). In that scenario, as mom and dad had previously exhausted their lifetime exemption amounts, the donor will be responsible for paying gift tax on the entire $522,000 at the rate of forty (40%) percent, resulting in a gift tax payable of over $208,000 on or before April 15, 2018.

Gifts of appreciated assets, such as stock, retain the tax basis of the donor. For example, assume David purchases 100 shares of stock of Company X (“Stock”) in 2012 for $12,000. Assume David then transfers all 100 shares of Stock to his daughter, Tina, on Dec. 1, 2017. On the date of transfer, the value of the stock is $24,000. David successfully transferred $24,000 of assets without triggering the gift tax. However, if Tina sells the Stock in the future, Tina will have a taxable long-term capital gain of $12,000 that will be subject to capital gains tax.

There can be many unforeseen challenges incident to making gifts. For example, gifts that are completed within 60 months of an application for Medicaid eligibility are deemed transfers for less than fair market value and trigger a penalty period of ineligibility for Medicaid purposes. Annual exclusion gifts are not exempt from the transfer for value rules.

Before making any substantial gifts, you should seek guidance from a skilled tax attorney or you may incur very costly unintended consequences.

Michael Salad  is a partner in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida and the District of Columbia. Michael may be reached at 609.572.7616 or via e-mail at msalad@cooperlevenson.com.

Jarad Stiles  is a member of Cooper Levenson’s Business, Tax and Estate Practice Groups. He focuses on estate and corporate tax planning, mergers and acquisitions, business succession planning, probate administration, tax litigation and elder law. Jarad holds an LL.M. in Taxation. Jarad is licensed to practice in New Jersey, New York, and the United States Tax Court. Jarad may be reached at 856.857.5994 or via e-mail at jstiles@cooperlevenson.com.

Charitable Giving: Donor-Advised Funds

We frequently consult with clients who inquire about making charitable contributions, but they are unsure how they wish to allocate their contributions. Many clients approach us with a tax situation which presents an opportunity to make a charitable gift, but the client may not have a clear idea as to which charities are important to them now and which charities may be important to them in the future.

Donor-advised funds (“DAFs”) may be the answer. DAFs became popular after the 2006 Pension Reform Act included guidance as to how DAFs may be managed. DAFs are private funds that are administered by a third party that manages charitable donations on behalf of an individual, family or organization. The administrator may be a brokerage company, such as Vanguard Charitable and Fidelity Charitable Services, or it may be a community foundation such as Community Foundation of Broward in Florida and the Community Foundation of New Jersey.

After a donor establishes a fund with an administrator, the donor or another person specified by the donor, retains the ability to request how the funds will be allocated to charities. A trustee, which is a person or corporation that is appointed to oversee the management and distribution of the fund, is not required to honor the donor’s requests, but the trustee will generally do so. Contributions of appreciated assets do not result in the imposition of income taxes or capital gains taxes. The contributed assets will also continue to grow tax free. Contributing an asset to a DAF removes the asset from the donor’s taxable gross estate.

A DAF is similar to a private foundation, in that a donor relies upon an administrator to manage the investments. The donor may recommend the disposition of the funds to charities; however, it is important that the administrator retains legal control of the assets to ensure that the donation is deemed a completed gift, which entitles the donor to a charitable deduction. It is also imperative that a taxable distribution is not created from DAFs, as a 20 percent excise tax on the amount of the distribution is imposed on the fund sponsor and a 5 percent tax is imposed on the fund manager who agreed to the distribution knowing it was a taxable distribution. A taxable distribution disperses to (i) a natural person or (ii) any other person if the distribution is not for a charitable purpose.

Generally, a donor is better served by contributing assets that are appreciated, rather than selling capital assets and using after-tax dollars to fund DAFs, but appreciated assets are subject to a lower ceiling on the amount of annual itemized deductions. DAFs afford donors with the ability to derive immediate tax benefits, both from an income and transfer tax perspective. A donor may also select a charity or a group of charities to receive the funds immediately. However, contributions to DAFs are irrevocable. Potential donors must properly plan their gifts before making a contribution to DAFs, and should seek the advice of financial and tax professionals before doing so.

This article is the first of a multi-part series that the authors prepared regarding charitable giving.

Michael Salad is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida and the District of Columbia. Michael may be reached at (609) 572-7616 or (954) 889-1850 and via e-mail at msalad@cooperlevenson.com.

Jarad Stiles is a member of Cooper Levenson’s Business and Tax and Estate Practice Groups. He focuses on estate and corporate tax planning, business succession planning, administration, tax litigation, elder law, and related matters. Jarad holds an LL.M. in Taxation. Jarad is licensed to practice in New Jersey, New York, and the United States Tax Court. Jarad may be reached at (856) 857-5994 and via e-mail at jstiles@cooperlevenson.com.

When Accidents Happen

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In my years of practice, I have addressed the issue of when accidents – whether due to car accidents, strokes, or other debilitating illnesses – happen unexpectedly. I have seen firsthand what difficulties this causes families.

While many people do prepare for end of life planning – i.e. a Last Will and Testament – often times people do not consider whether an accident or illness could occur and render them incapable of making decisions on their own behalf. Just like one should consider and prepare for what they want to occur upon passing, people should prepare themselves for when the unexpected happens. In this respect, a document known as a Power of Attorney is an extremely useful tool in providing another person with the ability to act on your behalf. This ensures your family’s operations will continue to run smoothly even in the face of injury or illness.

A Power of Attorney can be drafted narrowly or more broadly. This means that individual has the ability to provide broad authority or narrow authority to their “attorney in fact” to act on their behalf. Thus, when an accident or illness occurs, dependent upon what the Power of Attorney actually says, your affairs can continue seamlessly. While you may not be able to act on your own behalf, another person can.

In the event that a Power of Attorney is not in place at the time of injury or illness and you do not have the capacity to make decisions on your own behalf, your loved ones will need to institute formal guardianship proceedings to act on your behalf – a process which can be time consuming, expensive and avoidable.

Erika-Leigh Kelley, Esq.

Digital Assets in Estate Planning 2016 Florida Update

Florida has become the latest state in a nationwide trend by state legislatures to address the disclosure of digital assets from service providers to estates. Pursuant to the Florida Fiduciary Access to Digital Assets Act (“Act”), online service providers are deemed to be the custodians of their respective users’ “digital assets.” The Act defines “digital assets” as any “electronic record in which an individual has a right or interest” but the term does not include any “underlying asset or liability unless the asset or liability is itself an electronic record.”

Beginning on July 1, 2016, online service providers conducting business in Florida were required to release a decedent’s digital assets to the decedent’s personal representative upon receipt of:

(1) A written request for disclosure which is in physical or electronic form;

(2) A certified copy of the death certificate of the user;

(3) A certified copy of the letters of administration, the order authorizing a curator or administrator ad litem, the order of summary administration issued pursuant to chapter 735, or other court order; and

(4) If requested by the custodian:

a. A number, username, address, or other unique subscriber or account identifier assigned by the custodian to identify the user’s account; Evidence linking the account to the user;

b. An affidavit stating that disclosure of the user’s digital assets is reasonably necessary for the administration of the estate; or

c. An order of the court finding that:

i. The user had a specific account with the custodian, identifiable by information specified in paragraph (a); or

ii. Disclosure of the user’s digital assets is reasonably necessary for the administration of the estate.

The Act expressly invalidates any contradictory terms of service issued by online service providers. Online service providers which comply with valid digital asset requests are granted immunity from liability incident to such disclosure.

In practice, the Act provides excellent guidance regarding the administration of a decedent’s social media and e-mail accounts. However, the Act provides little guidance regarding digital assets which in itself have value, such as social media accounts with advertising appeal (accounts with the names of celebrities, goods, services, etc.). Issues also arise with regard to digital currency like Bitcoin, which are electronic records within the definition of digital assets, and as such, may be disclosed by online service providers without the typical process expected of financial institutions during the probate process. As such, despite the Act’s intent to simplify access to digital assets, dedicated estate planning is still strongly recommended in properly devising digital assets that possess tangible value.

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Michael Salad is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida and the District of Columbia. Michael may be reached at 609.572.7616 or via e-mail at msalad@cooperlevenson.com.

Peter Fu is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on sales and use tax, enterprise risk management, and commercial transactions. Peter is licensed to practice law in New Jersey and Florida. Peter may be reached at 609.572.7556 or via e-mail at pfu@cooperlevenson.com.

NEW JERSEY ESTATE TAX PHASE-OUT

While the proposed decrease in New Jersey sales tax and increase in gas tax is garnering all of the headlines, the proposed phase-out of the New Jersey estate tax will have a significant impact on New Jersey residents.

On Friday afternoon, New Jersey Governor Chris Christie announced that he reached a compromise with the Democrat-controlled New Jersey legislature to raise New Jersey’s gasoline tax by 23 cents per gallon, which will result in a 160 percent tax increase, while funding road and bridge work and reducing the sales tax from seven percent to 6.875 percent in 2017 and then to 6.625 percent in 2018. The increased gas tax is expected to become effective next month after the legislature votes on the bill and Governor Christie signs the legislation into law. The estate tax will be phased out during the next year and a half. The legislation also proposes tax credits for veterans and the working poor.

After a New Jersey resident passes away, a tax is imposed if the decedent’s gross estate plus adjusted taxable gifts exceeds $675,000. Many New Jersey residents quickly dismiss the tax as being inapplicable to them. However, the gross value of a decedent’s estate may include all assets that the decedent owned (real estate, bank accounts, stocks, brokerage accounts, IRAs, 401(k) accounts) depending on how those assets are titled. If the value of the decedent’s estate exceeds $675,000, then New Jersey estate tax is owed, unless the beneficiary of the estate is the decedent’s spouse. A surviving spouse does not incur New Jersey estate tax. According to the New Jersey Policy Perspective, approximately 3,000-4,000 estates pay New Jersey estate taxes each year. While it may not seem like a large number, a large number of people whose estate would likely incur estate tax move to a state that does not impose estate tax.