JULY 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.
Indiana Changes Medicaid Rules For LTC Policies. The Indiana Family and Social Services Administration has published a notice of changes to the Indiana Partnership Program, in accordance with federal law, which will eliminate total “asset protection” policies, although Indiana will continue to honor such policies already purchased. After the new Partnership Program has been implemented by the State of Indiana, Indiana residents will only be able to purchase policies that provide dollar-for-dollar Medicaid asset protection, not policies that protect all of the policy owner’s assets. Currently, until the Program has been modified, a person who purchases an Indiana Partnership Program policy that provides a large amount of benefit will receive total asset protection. A person who purchases a policy providing a lesser benefit may receive only dollar-for-dollar protection, i.e., if the Partnership Program policy pays out $250,000 over the insurance period, then $250,000 of assets would be protected. It should be noted that a very small percentage of people actually purchase long term care insurance at all, and an even smaller number purchase Indiana Partnership Program policies. Partnership Program policies tend to be more expensive because there are more mandatory provisions. However, the benefit is asset protection, while other policies that are not purchased under the Indiana Partnership Program will only buy time, and allow planning to protect assets, without actually protecting assets by virtue of the coverage itself. My recommendation to clients is that when they have reached a certain age, which would generally be when a person is in his or her 60s, if they feel they might be able to afford long term care insurance, they should become educated about it and look at alternatives. Previous issues of this newsletter have addressed various aspects of long term care insurance. Readers are encouraged to visit my website at www.rkcraiglaw.com and to look for previous issues of this newsletter which address various aspects of long term care insurance.
Planning With Digital Assets. Very few people give any attention at all to the planning issues associated with “digital” assets. However, digital assets can be extremely important, as well as complex, due to the fact that almost everyone has access to cellular phones, online subscriptions, social media accounts, web security subscriptions, and website platforms. For people who are engaged in online banking, if your family is not able to access your digital records after your death, it may be extremely difficult, if not virtually impossible, to deal with financial assets held in online accounts. It is very important in connection with your planning to provide a way of allowing your family to access electronic data under the control of a third party custodian or a social media service provider. It is very important for your family members to know how to access online accounts and other digital information. It should be noted that laws relating to digital assets vary from state to state, although most states have opted into certain uniform laws, such as the Uniform Fiduciary Access to Digital Records Act. It is important for people to keep good records relating to their online activities and provide access to passwords and other appropriate information to facilitate dealing with issues that arise after death.
Charitable Provisions Extended. The CARES (Coronavirus Aid, Relief, and Economic Security) Act, passed in 2020, included provisions relating to charitable giving that have been extended through 2021. The deduction limit for cash gifts was increased from the usual 60% of adjusted gross income to up to 100%. Gifts of appreciated securities, however, are still subject to a 30% of adjusted gross income limit (although excess deductions may be carried over for up to five additional years). The $300 above-the-line deduction for cash gifts to most charities was continued with $600 being available as the deduction for joint filers. Although not related to the CARES Act, there is no longer an age limit on making contributions to an IRA so that taxpayers of any age with earned income, subject to certain income limitations, may make deductible contributions to an IRA. Taxpayers are also still able to make qualified charitable contributions (QCDs) directly to a charity, although no charitable deduction is allowed, with the IRA distribution satisfying the donor’s required minimum distribution (RMD) and saving taxes that otherwise would be owed on the receipt of the IRA proceeds. Please note that there are income limits applicable to the ability of a taxpayer to make a QCD from an IRA.
SECURE Act Changes. The last issue of this newsletter addressed retirement benefits after the SECURE Act and noted that there are exceptions to the usual ten-year distribution period applicable for IRA distributions to a beneficiary of a deceased IRA holder. There are certain “special” designated beneficiaries called “eligible designated beneficiaries” (“EDBs”), who can receive distributions based on the EDB’s life expectancy as opposed to a 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. As previously noted, certain special trusts can receive EDB treatment. For a trust to be treated as an EDB, the trust must not only be what is called a “see-through” trust, but it must also have a beneficiary who is treated as a Designated Beneficiary (for the purpose of determining distributions), and at least one trust beneficiary must be a “disabled” EDB or a “chronically ill” EDB as defined under the SECURE Act. If a trust qualifies, there are two ways to have a distribution period based on life expectancy. First, if a trust has multiple beneficiaries, and the trust divides into separate trusts for each beneficiary upon the death of the retirement benefits owner, and there is a separate trust for a disabled beneficiary or a chronically ill beneficiary, the distribution period for the separate trust for the benefit of the “qualifying” EDB will be based on life expectancy. Secondly, if a trust qualifies, and the trust beneficiaries are all either disabled and/or chronically ill, the distribution period will be calculated on the life expectancy of the oldest trust beneficiary. In any case, upon the death of or change in the status of a designated beneficiary, the distribution period will automatically change from a life expectancy to a ten-year payout.
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.