DECEMBER 2020
CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Dealing With Client Capacity. Because attorneys, particularly elder law attorneys, frequently confront issues relating to the legal capacity of a client, we must develop ways of addressing the ethical issues that arise when working with people with diminished capacity. Even when a client’s capacity is diminished, whether due to a mental impairment or for any other reason, an attorney is ethically obligated, as far as reasonably practicable, to maintain a normal attorney-client relationship with that client. Further, when an attorney reasonably believes that a client has diminished capacity, and is at risk of substantial physical, financial, or other harm unless action is taken, and the client cannot adequately act in his or her own interest, then the attorney is required to take reasonably necessary protective action to protect the client. This includes consulting with individuals or entities that have the ability to take action to protect the client, and in appropriate cases, seeking the appointment of a guardian. It should be noted that attorneys are held to a very high standard of client confidentiality. Information pertaining to the representation of a client, including a client with diminished capacity, is protected and confidential. However, when taking protective action, an attorney is authorized to reveal information about the client, but only to the extent reasonably necessary to protect the client’s interests. The typical lay person is not cognizant of the strict ethical and legal limitations that apply when an attorney is working with a client of questionable or diminished capacity. This is an issue that frequently arises when children are working with a parent, through a parent’s attorney, to engage in planning or to prepare legal documents for the parent. In order to more fully address these issues, the next issue of this newsletter will address some of these concerns.
Charitable Gift Annuities. As we approach the end of 2020, charitable giving becomes more important due to the immediate tax advantages that can result from making a charitable gift before the end of the year. Some people use charitable gift annuities as a way of funding a charitable gift while retaining a benefit for themselves. A charitable gift annuity involves an exchange of a donor’s appreciated securities or cash for an agreement to pay an annuity for life for one or two people. The donor is entitled to an income tax charitable deduction for a portion of the value of the gift. For example, a gift of $100,000 after July 1 of 2020, for a person 70 years of age with a 4.7% ($4,700) annuity would result in a charitable deduction of $38,750. The donor will still receive a regular income after the gift in return for the charitable annuity payments. The American Council on Gift Annuities reduced the recommended gift annuity rates again for the second time in 2020. The interest rates are designed to provide charities with a residual of at least 50% of the value at the end of the annuity period. In general, charitable gift annuity rates are lower than rates offered for commercial annuities, but an added benefit is the availability of the charitable deduction. The actual amount of the deduction depends on the so-called Internal Revenue Code § 7520 rate.
Qualified Charitable Distributions Still Allowable. Although the CARES Act enacted in response to the Coronavirus included a provision that waives required minimum distributions (RMDs) for 2020 from retirement accounts, you can still make a direct qualified charitable distribution (QCD) for 2020 even though the RMD is waived. An IRA owner who is age 70½ or older may still transfer directly to a charity up to $100,000 from an IRA without tax consequences. Married spouses may each transfer $100,000. Even though RMDs are now not required for IRA beneficiaries who are under age 72, the QCD is still available for IRA beneficiaries who are over age 70½.
IRS Issues Final ABLE Account Regulations. The May 2020 issue of this newsletter provided information concerning the proposed regulations issued by the IRS governing ABLE accounts. Readers are encouraged to review the May 2020 issue of this newsletter for more detailed information. On October 1, 2020 the IRS posted its final regulations for Achieving a Better Life Experience (ABLE) accounts. Eligible individuals may now put more money into their ABLE account and roll money from their qualified tuition programs (§529 plans) into their ABLE accounts. Also, certain contributions made to ABLE accounts by low- and moderate-income workers may now qualify for the Saver’s Credit. Funds are now allowed to be rolled over from a designated beneficiary’s §529 plan to an ABLE account for the same beneficiary or a family member. However, rollovers from §529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions based on compensation) cannot exceed the annual ABLE account contribution limit which is currently $15,000 per year in the aggregate from all sources (except in certain cases when the ABLE account beneficiary has earned income). For additional information, please refer to the May 2020 issue of this newsletter or visit the Tax Reform page of IRS.gov.
Buy/Sell Agreements. A buy/sell agreement is an agreement between co-owners of a business that controls the purchase and/or sale of shares or units of ownership as a result of a “triggering event.” A buy/sell agreement has been referred to as a sort of premarital agreement between business owners and has sometimes been called a “business will.” It can help to provide a mechanism for the purchase of a business interest and set a value if a breakup occurs. A comprehensive buy/sell agreement is essential to maintain the viability of a business once a triggering event occurs. The next issue of this newsletter will provide additional information and suggestions regarding buy/sell agreements.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.