Austin – 512-480-8828 | *Georgetown – 512-869-1435 | *Highland Lakes – 830-598-1700 | *San Antonio – 210-510-4143 | *All other areas – 877-545-8828 | *By Appointment Only | Principal Office: 1601 Rio Grande, Suite 550, Austin, Texas 78701
The Wiewel Law Firm, an estate planning law firm in Austin, Texas
The Peace of Mind People®

Category: Coronavirus

charitable contribution deductions from an estate

Coronavirus Stimulus Allows Retirees to Tap Funds Early, With Little or No Penalties

For a limited time, Americans will now be able to withdraw money from tax-deferred accounts without penalties, under the Coronavirus Stimulus law. Rules on taking loans from 401(k)s will also be loosened up, and some retirees will be able to avoid Required Minimum Distributions (RMDs) that otherwise would have been costly, says the article “Coronavirus stimulus lets struggling Americans tap retirement accounts early” from the Los Angeles Times.

In some cases, these changes reflect what has been done for retirement savers in previous disasters. However, for the most part, these are more intense than in other events. The chief government affairs officer of the American Retirement Association, Will Hansen, says that we are now in uncharted territory as a result of the Covid-19 pandemic. The numbers of people filing for unemployment make it likely that many people will be tapping their retirement accounts.

One provision in the bill would allow investors of any age to take as much as $100,000 from their retirement accounts without any early withdrawal penalties. If the money is put back in the account within three years, there won’t be any taxes due. If the money is not put back, taxes can be paid over the course of three years. The law says that the money must be a “coronavirus-related distribution,” but the rules are loose.

People who test positive for the virus, along with anyone who experiences adverse financial consequences as a result of the pandemic, including being unable to find work or childcare, are permitted to make these withdrawals.

The bill also makes it easier to borrow money from 401(k) accounts, raising the limit on these loans from $50,000 to $100,000. The payment dates for any loans due in 2020 are extended for a year.

Retirees in their early 70s were previously required to start taking money out of tax-deferred accounts and start paying taxes on those distributions. The bill also waives these rules.

U.S. individual retirement accounts held nearly $20 trillion in assets at the end of 2019. While those amounts have certainly dropped due to market volatility, Americans still hold a lot of money in retirement accounts.

However, pre- and post-retirees need to think carefully about withdrawing large sums of money now. For pre-retirees, this should only be a last resort. Some professionals think the 401(k)-loan amount is too high and that people will jump to take out too much money, which will never find its way back.

According to a U.S. Government Accountability Office report from 2019, Americans ages 25-55 take approximately $69 billion a year from their retirement accounts. Once the money is gone, it’s not able to earn future tax-deferred returns.

Reference: Los Angeles Times (March 27, 2020) “Coronavirus stimulus lets struggling Americans tap retirement accounts early”

 

charitable contribution deductions from an estate

Requests for Estate Plans Reflect Fears about Coronavirus

Estate planning lawyers have always known that estate planning is not about “if,” but about “when.” The current health pandemic has given many people a wake-up call. They realize there’s no time to procrastinate, reports the article “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes” from InsuranceNews.net. Legal professionals urge everyone, not just the elderly or the wealthy, to put their end-of-life plans in writing.

The last time estate planning attorneys saw this type of surge was in 2012, when wealthy people were worried that Congress was about to lower the threshold of the estate tax. Today, everyone is worried.

Top priorities are creating a living will stating your wishes if you become incapacitated, designating a surrogate or a proxy to make medical decisions on your behalf, granting power of attorney to someone who can make legal and financial decisions and preparing advance directives, such as “Do Not Resuscitate” orders.

An estate plan, including a last will and testament (and often trusts) that detail what you want to happen to assets and who will be guardian to minor children upon your death, spares your family the fights, legal costs and hours in court that can result when there is no estate plan.

The coronavirus has created a new problem for families. In the past, a health care surrogate would be in the hospital with you, talking to healthcare providers and making decisions on your behalf. However, now there are no visitors allowed in hospitals and patients are completely isolated. Estate planning attorneys are recommending that specific language be added to any end of life documents that authorize a surrogate to give instructions by phone, email or during an online conference.

Any prior documents that may have prohibited intubation need to be revised, since intubation is part of treatment for COVID-19 and not necessarily just an end-of-life stage.

Attorneys are finding ways to ensure that documents are properly witnessed and signed. In some states, remote signings are being permitted, while other states, Florida in particular, still require two in-person witnesses, when a will or other estate planning documents are being signed.

There are many stories of people who have put off having their wills prepared, figuring out succession plans that usually take years to plan and people coming to terms with what they want to happen to their assets.

Equally concerning are seniors in nursing homes who have not reviewed their wills in many years and are not able to make changes now. Older adults and relatives are struggling with awkward and urgent circumstances, when they are confined to nursing homes or senior communities with no visitors.

Reference: InsuranceNews.net (April 3, 2020) “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes”

 

charitable contribution deductions from an estate

Massive Changes to RMDs from Stimulus Plan

Several of the provisions that were signed into law in the relief bill can taken advantage of immediately, reports Financial Planning in the article “Major changes in RMDs and retirement contributions in $2T stimulus plan.” Here are some highlights.

Extended deadline for 2019 IRA contributions. With the tax return filing date extended to July 15, 2020 from April 16, the date for making 2019 contributions to IRA and Roth IRA contributions has also been extended to the same date. Those contributions normally must be made by April 15 of the following year, but this is no normal year. There have never been extensions to the April 15 deadline, even when taxpayers filed for extensions.

When this tax return deadline was extended, most financial professionals doubted the extension would only apply to IRA contributions, but the IRS responded in a timely manner, issuing guidance titled “Filing and Payment Deadlines Questions and Answers.” These changes give taxpayers more time to decide if they still want to contribute, and how much. Job losses and market downturns that accompanied the COVID-19 outbreak have changed the retirement savings priorities for many Americans. Just be sure when you do make a contribution to your account, note that it is for 2019 because financial custodians may just automatically consider it for 2020. A phone call to confirm will likely be in order.

RMDs are waived for 2020. As a result of the Coronavirus Aid, Relief and Economic Security Act (CARE Act), Required Minimum Distributions from IRAs are waived. Prior to the law’s passage, 2020 RMDs would be very high, as they would be based on the substantially higher account values of December 31, 2019. If not for this relief, IRA owners would have to withdraw and pay tax on a much larger percentage of their IRA balances. By eliminating the RMD for 2020, tax bills will be lower for those who don’t need to take the money from their accounts. For 2019 RMDs not yet taken, the waiver still applies. It also applies to IRA owners who turned 70 ½ in 2019. This was a surprise, as the SECURE Act just increased the RMD age to 72 for those who turn 70 ½ in 2020 or later.

IRA beneficiaries subject to the five- year rule. Another group benefitting from these the rules are beneficiaries who inherited in 2015 or later and are subject to the 5-year payout rule. Those beneficiaries may have inherited through a will or were beneficiaries of a trust that didn’t qualify as a designated beneficiary. They now have one more year—until December 31, 2021—to withdraw the entire amount in the account. Beneficiaries who inherited from 2015-2020 now have six years, instead of five.

Additional relief for retirement accounts. The new act also waives the early 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for ‘affected individuals.’ The tax will still be due, but it can be spread over three years and the funds may be repaid over the three-year period.

Many changes have been implemented from the new legislation. Speak with your estate planning attorney to be sure that you are taking full advantage of the changes and not running afoul of any new or old laws regarding retirement accounts.

Reference: Financial Planning (March 27, 2020) “Major changes in RMDs and retirement contributions in $2T stimulus plan”

 

charitable contribution deductions from an estate

You Can Complete Your Estate Plan During the Coronavirus Quarantine

The coronavirus lockdown is happening in many states, following the lead of California, Illinois, Florida and New York. Kiplinger’s recent article entitled “How to Get Your Estate Plan Done While Under Coronavirus Quarantine” says that these isolation orders create unique issues with your ability to effectively establish or modify your estate plan.

The core documents for an estate plan are intended to oversee the management and distribution of your assets, after you pass or in the event you are incapacitated. Each document has requirements that must be met to be legally effective. Let’s look at some of these documents. Note that there’s proposed federal legislation that would permit remote online notarization, and Illinois and New York have passed orders to allow notarization utilizing audio visual technology.

Will. Every state has its own legal requirements for a will to be valid, and most require disinterested witnesses. Some states, like California, permit a will, otherwise requiring the signature of witnesses, to be valid with clear and convincing evidence of your intent for the will to be valid. An affidavit indicating that the will was signed as a result of the emergency conditions caused by the COVID-19 virus should satisfy this requirement.

Power of Attorney. This document designates an individual to make financial decisions regarding your assets and financial responsibilities, if you’re unable to do so. This can include issues regarding retirement benefits, life and medical insurance and the ability to continue payments to persons financially dependent on you. The durable general power of attorney is typically notarized.

Advance Health Care Directive. This document states whether you want your life extended by life support systems and if you want extraordinary measures to be taken. It may state that you wish to have a DNR (Do Not resuscitate) in place.

HIPAA Authorization. Some states have their own medical privacy laws with separate requirements, and most powers of attorney provide that the designated persons can act, if you’re unable to do so. Financial institutions typically require confirming letters from your doctor that you’re unable to act on your own behalf. To be certain that this agent can act on your behalf if needed, they should be given written access to see your medical information.

With the pandemic, these requirements can be fluid and may change quickly. Be sure to work with an experienced estate planning attorney.

Reference: Kiplinger (March 30, 2020) “How to Get Your Estate Plan Done While Under Coronavirus Quarantine”

 

charitable contribution deductions from an estate

The Coronavirus and Estate Planning

As Americans adjust to a changing public health landscape and historical changes to the economy, certain opportunities in wealth planning are becoming more valuable, according to the article “Impact of COVID-19 on Estate Planning” from The National Law Review. Here is a look at some strategies for estate plans:

Basic estate planning. Now is the time to review current estate planning documents to be sure they are all up to date. That includes wills, trusts, revocable trusts, powers of attorney, beneficiary designations and health care directives. Also be sure that you and family members know where they are located.

Wealth Transfer Strategies. The extreme volatility of financial markets, depressed asset values,and historically low interest rates present opportunities to transfer wealth to intended beneficiaries. Here are a few to consider:

Intra-Family Transactions. In a low interest rate environment, planning techniques involve intra-family transactions where the senior members of the family lend or sell assets to younger family members. The loaned or sold assets only need to appreciate at a rate greater than the interest rate charged. In these cases, the value of the assets remaining in senior family member’s estate will be frozen at the loan/purchase price. The value of the loaned or sold assets will be based on a fair market value valuation, which may include discounts for certain factors. The fair market value of many assets will be extremely depressed and discounted. When asset values rebound, all that appreciation will be outside of the taxable estate and will be held by or for the benefit of your intended beneficiaries, tax free.

Grantor Retained Annuity Trusts (GRATS). The use of a GRAT allows the Grantor to contribute assets into a trust while retaining a right to receive, over a term of years, an annuity steam from the Trust. When the term of years expires, the balance of the Trust’s assets passes to the beneficiaries. The IRS values the ultimate transfer of assets to your intended beneficiaries, based on the value of the annuity stream you retain and an assumed rate of return. The assumed rate of return, known as the 7520 rate comes from the IRS and is currently 1.8%. So, if you retain the right to receive an annuity stream from the trust equal to the value of the assets plus a 1.8% rate of return, assets left in the trust at the end of the term pass to your beneficiaries transfer-tax free.

Charitable Lead Annuity Trusts. Known as “CLATs,” they are similar to a GRAT, where the Grantor transfers assets to a trust and a named charity gets an annuity stream for a set term of years. At the end of that term, the assets in the trust pass to the beneficiaries. You can structure this so the balance of the assets passes to heirs transfer-tax free.

Speak with your estate planning attorney about these and other wealth transfer strategies to learn if they are right for you and your family. And stay well!

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

 

charitable contribution deductions from an estate

C19 UPDATE: If You Have Not Yet Named Someone with Medical Power of Attorney, Do It Now

If you have not yet named someone with Medical Power of Attorney, stop procrastinating and get this crucial planning in place now.

What is a Medical Power of Attorney?

A medical power of attorney is a legal document you use to give someone else authority to make medical decisions for you when you can no longer make them yourself.  This person, also known as an agent, can only exercise this power if your doctor says you are unable to make key decisions yourself.

Other Terms for Medical Power of Attorney

Depending on the state where you live, the medical power of attorney may be called something else. You may have seen this referred to as a health care power of attorney, an advance directive, advance health care directive, a durable power of attorney for health care, etc. There are many variations, but they all mean fundamentally the same thing.

Be aware that each state has their own laws about medical powers of attorney, so it’s important to work with a qualified estate planning attorney to ensure your decisions will be enforced through legally binding documents. Also, some states may not honor documents from other states, so even if you made these decisions and created documents in another state, it’s wise to review with an estate attorney to ensure they are legally valid in your state now.

What Can My Medical Agent Do for Me?

Just like there are many different terms for the medical power of attorney, there also are different terms for the medical agent – this person may be referred to as an attorney-in-fact, a health proxy, or surrogate.

Some of the things a medical POA authorizes your agent to decide for you:

  • Which doctors or facilities to work with and whether to change
  • Give consent for additional testing or treatment
  • How aggressively to treat
  • Whether to disconnect life support

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.

 

C19 UPDATE: Emergency Estate Planning Decisions to Make Right Now

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 preservation of your legacy.

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 or email us and let us help you make the right choices for yourself and your loved ones.