JUNE 2021
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.
Planning For Paid Care In The Home – Conclusion. This article concludes a series of articles pertaining to planning for paid care in the home. In previous newsletters, we pointed out that, while the goal of most people is to be able to age in place in the home, accomplishing that goal can be fraught with obvious as well as hidden problems. We pointed out that Southwestern Indiana Regional Council on Aging, Inc. (“SWIRCA & More”) may be able to help make determinations relating to the level of care needed and selecting from a number of provider options which may be available. We pointed out that some hands-on care should be provided by licensed or certified caregivers, and that there are many dangers that can result from using caregivers who are not qualified to provide the level of needed care. We also pointed out that SWIRCA & More offers two services which were previously described, including Self-directed Attendant Care and Structured Family Caregiving. It may be possible for a family member to provide for paid care in the home, and there may be funding available through particular programs to help pay for that care. Many people opt for “private pay” services, and payments are often made “under the table.” Many people view this alternative as an affordable way to pay for care. However, there are significant ethical and income tax problems associated with such arrangements and there are often hidden costs. An IRS audit can result in significant penalties and interest. There can also be serious Medicaid complications. Using licensed home health care agencies, while more expensive, can provide fast replacement should caregivers quit or not show up and help to identify the right person to provide the care needed. Tax filing is simplified because all of those matters are handled by the agency. SWIRCA & More generally recommends that when outside assistance is needed, people should work with an agency that is licensed and bonded. Such agencies can help to “match” a caregiver to the person needing assistance, taking into account such issues as pets, smoking, guns on the premises, personality quirks, and similar matters. I generally recommend to my clients that they contact SWIRCA & More for guidance. If a decision is made later to find a private caregiver, that decision can then be made with full knowledge and awareness of the potential consequences of doing so.
IRA Gifts To Charity. People will frequently establish a trust and may include gifts to a charity through the trust vehicle. Often the individual will designate the trust as the beneficiary of an IRA and then contemplate that the IRA will be distributed to the charity. In general, it is a much better idea, and much simpler, to designate one or more charities as a beneficiary or beneficiaries of an IRA. When an IRA is made payable to a trust, and then distributed from the trust to the charity, there can be tax complications. The gift out from the trust may not qualify for the charitable deduction under Internal Revenue Code § 642(c). Having an IRA made payable directly to the charity will avoid a lot of tax complications and be much easier to implement. Further, if a decision is made later to change charities, or to change the percentages or amount passing to a charity, all that would need to be done is to change the IRA beneficiary designation. The trust would not have to be changed as the gift would not be made through the trust, but rather would come directly in the form of an IRA beneficiary designation. Another mistake that people commonly make is to leave a fraction or percentage of a trust or an estate to one or more charities, such as ten percent. It is much better to identify the amount that a person desires one or more charities to receive and then to fund those gifts directly from the IRA. In that way, the charity receives taxable money, on which it will not pay income taxes, while the other trust beneficiaries can receive more non-taxable dollars. If an IRA goes into a trust, and then if the trust is divided between individuals and charities, the individuals may end up paying taxes on the IRA money. The distribution process will be easier and simpler if the IRA goes directly to the charitable beneficiary.
Retirement Benefits After The SECURE Act. The SECURE Act changed the rules relating to designated beneficiaries who receive retirement benefits. Non-designated beneficiaries, such as a trust or an estate, have not been impacted. The SECURE Act did change the required beginning date (“RBD”) which is now April 1st of the year after the owner turns 72. Previously the RBD was on April 1st of the year after the owner turned 70½. If an owner dies before the RBD and the beneficiary is not a designated beneficiary, then the distribution period will be five years, which will begin on January 1 of the year after the owner’s death. If an owner dies after his RBD and the beneficiary is not a designated beneficiary, then the distribution period will be based on the owner’s life expectancy. If the beneficiary is a designated beneficiary, which would typically be an individual, but which could be a qualified trust, there is no longer a life expectancy distribution period for most designated beneficiaries. Under the SECURE Act, there is now a ten year distribution period for most designated beneficiaries instead of a life expectancy period. The ten year distribution period starts on the first day of the year after the year of the owner’s death. There is an exception to the ten year distribution period for certain “special” designated beneficiaries, who are called “eligible designated beneficiaries” (“EDB”). An EDB can receive a distribution period based on the EDB’s life expectancy as opposed to the ten year payout. EDBs include a surviving spouse, a minor child of the decedent (until the child reaches the age of majority, at which point the ten year rule kicks in), an individual with disabilities, a chronically ill individual, and an individual who is not more than ten years younger than the decedent. Certain special trusts can receive EDB treatment. Those rules will be explored in the next issue of this newsletter.
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.