Tuesday, January 17, 2017

TRANSFER ON DEATH ACCOUNTS AND DEEDS vs. LIVING TRUST

By:  John E. Dawson


A question I am often asked is, “If I have designated my various financial accounts as transfer on death (TOD), or payable on death (POD), and I have a transfer on death deed on my house, why do I need a Living Trust?”  While it is true that one of the primary benefits of a Living Trust is to transfer accounts on death, or real property, without probate, there are other reasons for having a Living Trust.  One of the often overlooked benefits of a Living Trust is the protection it provides in the event of the incapacity of the creator of the Trust.  In the event the creator of the Trust becomes physically or mentally incapacitated, a Successor Trustee can step in and manage the assets of the Trust for the benefit of the creator of the Trust.  As a result, there is no need to establish a Guardianship or Conservatorship over the creator of the Trust to manage the assets held by the Living Trust.

           
Assets that pass pursuant to transfer on death designation, will pass outright to the beneficiary.  If the beneficiary were in the middle of a lawsuit, divorce, or bankruptcy, the assets passing outright to the beneficiary would be at risk to the prospective judgment creditor, ex-spouse or bankruptcy claims.  Whereas with a Living Trust, the Trust could provide that at the death of the Trust creator, the assets would remain in Trust for the health, education, support and maintenance of the beneficiary.  This type of trust is commonly referred to as a continuing support trust.  A continuing support trust would protect the assets from the beneficiary’s judgment creditor, ex-spouse or claims in bankruptcy.
 

If you would like to know more about using a Living Trust to protect yourself in the event of incapacity or protecting your heirs from their judgment creditors, ex-spouse and bankruptcy claims, please contact John E. Dawson in our Las Vegas, Nevada office  at 702-550-4463.

Friday, January 13, 2017

Employee W-4 Forms

By:  Tom Hammerschmidt


Employers are required to obtain a signed IRS Form W-4 when hiring a new employee.  Although Form W-4 is revised each year by the IRS to reflect current tax rates, exemption amounts, etc., the form remains valid until an employee provides a new form.  In other words, there is no requirement to obtain a new form each year. 

 
The IRS “encourages” employers to remind employees to review the form and adjust their exemptions if the employee has a significant tax overpayment or underpayment on his or her prior year tax return.

 

For more information about Form W-4 or an employer’s duties in connection with tax deposits, withholding and payroll taxes, contact Tom Hammerschmidt in the Firm’s Ann Arbor office at 734.623.1602.

Monday, January 9, 2017

What Does a Trump Presidency Mean for the Affordable Care Act?


 
President-elect Trump has stated repeatedly that one of his initial goals is to repeal and replace the Affordable Care Act (the "ACA").  Because the Republicans control both houses of Congress, it seems likely that a repeal of some or all of the ACA will take place.  The Republicans do not have 60 seats in the Senate to prevent a filibuster; therefore, it is likely they will start by repealing the revenue provisions of the ACA through the reconciliation process, which requires only a majority vote.  This means that the Cadillac tax, the medical device tax, the employer mandate, the individual mandate, premium tax credits and the Medicaid expansion could likely be repealed early in the Trump Administration.   It remains to be seen what Congress will do with the ACA’s market reforms, many of which are very popular with consumers, such as covering adult children to age 26 and prohibiting pre-existing condition limitations.

It is unclear how the new administration will deal with the approximately 22 million Americans who may lose access to coverage as a result of the repeal of the ACA.  The administration has signaled that there will be a two or three-year transition period while the Health Insurance Marketplace is dismantled. 

The outlines of a “replacement” plan are less clear.  Mr. Trump’s website on transition issues for healthcare states that some of the ideas being considered include:

§  Expansion of Health Savings Accounts;

§  Allow health insurers to sell insurance across State lines;

§  Establish high risk pools for individuals with significant medical issues; and

§  Give States block grants for Medicaid.

 

Putting all the speculation aside, what should an employer do now?  It is clear that the ACA is the law of the land for 2016. Therefore, employers should not make any material changes to health plans for 2017 until more is known.  Employers should also go forward with ACA reporting for 2016 as any changes to the law may not be retroactive.

 

If you have any questions, please contact Cyndi Moore in the Troy office at 248-433-7295 or any other member of the Employee Benefits team. 

Monday, December 26, 2016

Best Practices for 401(k) Plan Administration Includes Using Forfeiture Accounts by Year-End

By: Deb Grace


Since at least 2010, the IRS has publicly stated that forfeitures must be used by the end of the plan year in which the forfeiture occurred, or as soon as possible thereafter.  Some IRS pre-approved prototype or volume submitter plans specifically provide that forfeitures must be used no later than the last day of the plan year following the plan year in which the forfeiture occurs.  In addition, Department of Labor auditors are also asking plan administrators why forfeitures are not being used in a timely manner.  Failure to properly administer forfeitures could result in an expensive and time consuming correction process and possible claims that the plan administrator breached its fiduciary duty by not administering the plan in accordance with its terms. 

 
Forfeitures arise when an employee terminates employment prior to completing the service necessary to be fully vested in the company’s matching or profit sharing contributions that have been allocated to the employee’s account.  The forfeited amounts are placed in a suspense account to be used in accordance with directions given by the plan administrator to the record keeper. 
 

The plan document will include language describing how forfeitures may be used.  We typically see that forfeitures may be used to pay plan expenses, offset employer matching contributions, or be added to the company’s profit sharing contributions.  The plan administrator should review the plan’s forfeiture provision so to understand the administrator’s options for using forfeitures and the deadline by which such action should be taken.  The plan administrator should document the reasons for choosing one option over another, and confirm with the record keeper that its decision will be applied to all of the Plan’s forfeiture or suspense accounts.      

 

For more information about using plan forfeitures or plan administration in general, contact Deb Grace in our Troy, Michigan office at 248-433-7217.   

Monday, December 19, 2016

Consider the effect that required minimum distributions from your 401(k) Plan will have on your taxable income and you're retiring at age 70 1/2 or older.

By:  Deb Grace


Are you age 70 1/2 or older and thinking about retiring in December or January?  You may want to consider the effect that required minimum distributions from your 401(k) Plan will have on your taxable income. 
 
As a general rule, individuals are required to begin taking minimum distributions from tax deferred retirement plans, such as IRAs, 403(b)s, 401(k) plans, when the individual attains age 70 1/2.  An employee who is working after attaining age 70 1/2 may be allowed to delay until retirement the required minimum distributions from his employer’s 401(k) plan.  The 401(k) plan must specifically allow for delayed distribution for working employees, and the employee must not be a 5% or greater owner of the business that sponsors the 401(k).  Under this special rule, the first required minimum distribution is due for the year in which the employee retires, and may be delayed until April 1 of the year following the year of retirement.  Subsequent required minimum distributions are due by December 31st of each year following the year of retirement.
 
A tax savvy employee who has the option of retiring in December or waiting until the following January may want to consider the due dates for taking required minimum distributions when setting his or her retirement date.  For example, if an employee retires on December 31, 2016 without having taken the required minimum distribution from his 401(k) account in 2016, then the employee will have to take two required minimum distributions in 2017.  The 2016 distribution for the year of retirement is due by April 1, 2017, and is calculated using the employee’s 401(k) account balance as of December 31, 2015.  The 2017 distribution is due by December 31, 2017 and is calculated using the employee’s account balance as of December 31, 2016.

If the employee had waited until January 2, 2017 to retire no required minimum distribution would have been due for 2016, and the employee will avoid the additional income tax due from taking two required minimum distributions in one year. 
 
Note, this delayed distribution rule does not apply to IRAs or 401(k) accounts under a former employer’s plan.   

 

For more information about the required minimum distribution rules, contact Deb Grace in the Troy, Michigan office at 248-433-7217.

Monday, December 12, 2016

For high net worth individuals - What can you do before the end of the year to protect against potential changes in the tax laws?


 
 
President-elect Trump has posted his tax proposals on his website.  Although we are unable to say with certainty whether any of these proposals will be enacted, we address three of his proposals and our suggestions.  Any of these proposals, or some version thereof, may be implemented sometime in 2017 and be retroactive to January 1, 2017.

 
1.  One proposal provides for lower income tax rate brackets, by reducing the top income tax rate to 33% from 43.4%, and lowering the effective rate to tax capital gains, interest and dividends to 20% from 23.8% (eliminating the 3.8% tax on net investment income).
 

What to do:  If you are contemplating a transaction that would result in the recognition of significant income, such as the sale of appreciated assets, you might consider deferring the transaction until 2017.
 

2.  Another proposal is stated on the website as follows: “…contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be disallowed.”  It is unclear as to whether this proposal applies to contributions only at death or to gifts made during lifetime.

 
What to do:  If you are planning to make significant gifts of appreciated property for which you get a fair market value deduction, such as publicly traded stock, to your private foundation in the near future, you may want to consider accelerating your gifts into 2016. If you are planning to make substantial gifts at death to a private foundation, you may want to consider naming a public charity as an alternative in case you are not able to amend your estate plan if this proposal is enacted.

 
3.  Another proposal is to cap the amount of itemized deductions to $100,000 for single taxpayers and $200,000 for married joint filers.  This proposal may significantly limit the use of large charitable contributions as deductions.

 
What to do:  If you are planning on making large charitable contributions over the next several years, you may consider accelerating the contributions to 2016.

 

If you have questions about your tax situation and would like to discuss your options for action prior to the end of the tax year to possibly avoid additional tax in the future, please contact Robin Miskell in our Phoenix, Arizona office at 602-889-5329 or any one of our estate planning or tax attorneys for further information.

Monday, December 5, 2016

ACA Tax Reporting Alert


By: Cyndi Moore


Summary
 
  • In Notice 2016-70, the IRS has extended the date on which to furnish copies of the 2016 Form 1095-B or Form 1095-C to employees to MARCH 2, 2017.  
  • The IRS has also extended the "good faith" transition relief from penalties for 2016. 
 
Extension of Date to Furnish 2016 Form 1095-B and Form 1095-C
 

Recognizing that employers and insurers need additional time to prepare Forms 1095-B and 1095-C, the IRS has extended the deadline to furnish copies of the Forms to employees and other covered individuals from January 31, 2017 to March 2, 2017.   

Importantly, the IRS has not extended the deadline to file Forms 1094-C and 1095-C with the IRS.  The Forms must be filed with the IRS by:
 
  • If filing hard copies (less than 250):  February 28, 2017
  • If filing electronically (250 or more):  March 31, 2017
 
As in 2015, employees may rely on other information received from their employer or insurer in preparing and filing their individual Form 1040 income tax return, including confirming that they had minimum essential coverage in 2016.  Employees do not need to wait to receive Form 1095-C or 1095-B before filing their federal income tax returns. 
 

Extension of Good Faith Transition Relief from Penalties for 2016

 
Continuing with its protocol of providing short-term penalty relief for new filing requirements, the IRS has also decided to extend the "good faith" transition relief from penalties under Sections 6721 and 6722 of the Internal Revenue Code for 2016.  The transition relief is available to employers who can show that they have made good faith efforts to comply with the ACA reporting requirements, both as to furnishing Forms to employees and filing with the IRS.  Like the transition relief provided in 2015, the relief is only available for incorrect or incomplete information reported on the Forms.  This would include missing and inaccurate tax identification numbers, dates of birth and other information required on the Forms.  No relief is provided to an employer who fails to file the Forms with the IRS or fails to furnish Forms 1095-C to employees by the due dates. 

 

For more information, please contact Cyndi Moore in the Troy, Michigan office at 248-433-7295.