_________________________________________________________________________________________________________ July 2014:
IRA DISTRIBUTIONS TO CHARITY BACK IN PLAY?
Until its sunset on December 31, 2013, Section 408(d)(8) of the Internal Revenue Code allowed individual taxpayers to make charitable contributions from their IRAs of up to $100,000.00 per year to public charities by "Qualified Charitable Distributions" (QCD). This Section allowed the taxpayer to make the donation without first treating the distribution as taxable income and seeking a charitable deduction for the donation. Under a QCD, the distribution is treated as not having been received by the taxpayer at all and the taxpayer got no charitable deduction but the distribution did not get added onto the taxpayer's adjusted gross income. That's a good thing, as you may well know if you looked at your form 1040 line for net investment income tax of 3.8% based on adjusted gross income, and the gradual loss of exemptions and itemized deductions with increases in adjusted gross income. The House of Representatives sought to fix this lapse by including in "The America Gives Act", HR4719, passed on July 17, 2014, a permanent reauthorization of the QCD, effective as of January 1, 2014. Note however that the Senate still has to pass on this legislation and rumor has it that it won't be taking it up until after the election or….whenever. So stay tuned and start thinking about the possibility that your IRA may be a good source for your contribution to the "steeple fund"
John A. Scott
This communication is not a "written opinion" within the meaning of Treasury Circular 230.
In a recent American Bar Association web article we received some advice on the use of cloud services. This advice may have applications to our clients as well and we pass it onto you (with minor modifications):
Choosing a cloud service provider and how to avoid making the 5 biggest mistakes:
A large number of consumers are moving their software and data to the cloud. As a matter of fact, it is predicted that 36% of consumers will have jumped to the cloud by the year 2016. It is important to do your research and ask the right questions to ensure you select a cloud service provider that will help you meet the high standards of your ethical obligations, service, and efficiency.
The 5 common mistakes made when choosing a cloud provider are:
1) Not knowing where your data lives
2) Assuming that you own your data
3) Not integrating all of your systems
4) Relying on multiple parties for support and maintenance
5) Disregarding "best practices" and focusing solely on price.
Not all clouds are created equal. Scott & Huff continues to keep their data safeguarded.
 Colleen Miller, Data Center Knowledge 7/2/2012
If your spouse died in 2011, 2012, or 2013 and filing a Federal Estate Tax return was not required, you may still avail yourself and your family of the benefits of portability of the unused Estate Tax exemption in your deceased spouse's estate. The IRS is now giving surviving spouses an extension until December 31, 2014, to file an appropriate return to claim the benefit. This could, in some circumstances, protect significant amounts of assets that may otherwise be taxed or use up the surviving spouse's available Federal exemption on gifting or death. If you have a question about whether this extension will benefit your family, contact us.
The American Tax Relief Act of 2012 (ATRA 2012) has now settled upon us and those of us who were concerned about the jump, or fall, off of the fiscal cliff can breathe a sigh of relief. Congress, in its infinite wisdom, waited until after the last possible moment to save us from substantial tax increases to be brought on by the end of the extended "Bush Era Tax Cuts."
Many tax increases were in play but for those of us interested in estate planning matters, the effects on the estate, gift, and generation skipping transfer taxes of the ATRA 2012 were the most important. They provide that the new maximum rate will be 40%. This is an increase from 35%, which it was for the years 2011 and 2012. Is this good news? Well, it is if you consider that without ATRA 2012, the maximum rate would be 55%. Similarly, and possibly even more significant, is the continuation of the unified exemption for estate and gift taxes at $5,000,000.00 and the exemption for generation skipping transfer taxes, probably at $5,250,000.00, due to cost of living adjustments. Without ATRA 2012, those exemptions would have descended to $1,000,000.00. Without ATRA 2012 many more people would have had taxable estates, requiring extensive tax planning measures and inconvenient estate divisions.
But of the greatest significance from the standpoint of estate planning is the fact that these changes are permanent instead of having a 10 year sunset that the Bush Era Tax Cuts had. We can now make more or less permanent plans, with no more concern that there will be changes in the tax laws than the sure knowledge that nothing is absolutely safe so long as Congress is in session (but we have lived with this uncertainty for many years).
Also continued by the American Tax Relief Act of 2012 is the so-called "deceased spousal unused exclusion" (DSUE). Started in 2010, this provision allows the surviving spouse to make use of the Estate Tax exemption that was available but not used in the first dying spouse's estate for gifts and later at death. In order to make use of the portability function, the fiduciary of the first dying spouse's estate has to file an estate tax return, with its attendant expense, even though it would otherwise not be required. There may be good reasons why making use of portability is not preferred as when one may be concerned that after the death of the first dying spouse, the assets from the deceased spouse transferred to the surviving spouse are expected to increase substantially in value. Porting such assets would mean that on the second dying spouse's death, such assets would possibly be taxed in that estate at much higher values than they would have had and been protected in the estate of the first to die. Of course, if there is never any estate tax to be paid, then the increase in value would be a good thing for the cost basis of these assets in the hands of the beneficiaries.
In our view:
· Couples with combined estates in the $5,000,000 to $10,000,000 range in appropriate circumstances should plan to make use of the portability election if tax avoidance is a principal goal.
· Couples with combined estates that are well under $5,000,000.00 in which both persons are the parents of all children and have identical wishes for giving to their descendants or other beneficiaries when both are dead, can probably safely continue to hold joint property in that fashion. They can depend upon Wills and a jointly created revocable Trust to pass on their property as desired.
· Couples that wish to make use of Trusts to control the disposition of assets after one or both of the spouses are deceased, as in cases of second marriages, should continue to make use of separate Trusts.
· Couples needing asset protection upon the death of the first dying spouse should continue to make use of separate Trusts.
· Couples that have currently funded separate Trusts may find it cumbersome to retitle assets (e.g. brokerage accounts and real estate) into a joint trust. These people may find that the restrictions of the earlier separate Trusts on the surviving spouse's use of the Trust Estate of the deceased spouse may be alleviated by amending the Trusts to give the surviving spouse a power to demand distribution of the entire trust estate.
· Couples or single persons that believe that they can afford to make substantial gifts during lifetime can now do so without danger of future uncertain tax results. We always advise clients to make use of their annual per donee exemptions, now $14,000.00, before using their lifetime exemption of $5,000,000, and only use it for very compelling reasons. If portability was elected on the first dying spouse's estate, the DSUE amount may be available to make even larger gifts.
As is always the case, there is no one-size solution that fits all. ATRA 2012 does not do away with the need for estate planning documents. It does allow estate planning attorneys to focus on estate planning designs that, in more ways than before, are functions of client wishes rather than tax planning artifices.
We at Scott & Huff, P.C. look forward to the opportunity to consult with our clients, old and new, with regards to the estate planning options made available by the American Tax Relief Act of 2012.
If you believe that your estate plans (or lack of them) are affected by ATRA 2012, please give us a call for an appointment to review your situation, and to chart a new course or confirm an existing one.
The House of Representatives and the Senate have each approved The Worker, Retiree, and Employer Recovery Act (H.R. 7327). It is reported by the American Benefits Council that such legislation will allow for a waiver of the MRD rules for 2009 for qualified plans and IRAS, presumably allowing retires to not be required extract assets from plans at this time of substantial depression of asset values. While the legislation does not purport to deal with MRDs in 2008, it appears that the Treasury Department and the Internal Revenue Service intend to issue MRD relief for 2008 in the next few weeks. We will report more when it becomes available and note further that among those who have studied the matter are some that are skeptical that relief is possible for 2008.