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Entries in IRA (4)

Monday
Dec282015

Congress Forges PATH in Tax Laws for Business, Individuals

Tax Law Certified SpecialistTax Law Certified Specialist (State Bar of California Board of Legal Specialization)

 

by Michael Hackman
818.907.3279

 

 

 

Tax Attorney

 

Congress has avoided a government shutdown by agreeing to a new budget in its Consolidated Appropriations Act, and the adopted legislation [cynically named the Protecting Americans From Tax Hikes (PATH)], includes some significant tax changes. 

Some of these changes are “permanent” – which even though they’ll be subject to future legislation, at least end the government practice of allowing a provision to expire and then retroactively extend it in late December for the year about to end – but leave uncertainty for future years.

Among the provisions are:

A. Reinstating and making permanent the ability of a taxpayer who has reached age 70 ½ to make a charitable contribution of up to $100,000 from an IRA. These distributions to charity can be part of a Required Minimum Distribution (RMD). This provision has been around since 2006, but lately it has not applied to the current year until revived in late December.  

B. Making permanent the five-year period in which an S corporation is subject to a built-in gains tax (essentially a double tax) when an S corporation sells assets. Initially a 10-year period, and then a seven-year period, the extra tax won’t apply if five years from conversion to an S corporation has elapsed before the start of a year of sale.

C. Eliminating the tax when up to $2 million of mortgage indebtedness obtained to acquire the principal residence is cancelled. This temporary rule starting in 2007 is now in effect through the end of 2016.

There are many other tax provisions in the legislation, some of which will be the subject of a future blog.

 

Michael Hackman is a Certified Specialist in Tax Law (State Bar of California Board of Legal Specialization), and Chair of our Tax Planning and Trusts & Estates Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Dec032015

Tax Planning Before Turning 70: What You Should Know About RMDs

Trusts & Estate Planning

 

 

by Kira S. Masteller

818.907.3244

 

 

Tax payers aged 70 ½ or older this year must take a Required Minimum Distribution, or RMD, from their traditional IRAs (Individual Retirement Arrangements), SEP (Simplified Employee Pension) IRAs, SIMPLE (Savings Incentive Match PLan for Employees) IRAs, or retirement plan accounts. RMD reporting is required for inherited IRAs as well.

Those who do not take distributions in time may be subject to a 50 percent excise tax on excess IRA accumulations.

RMDs: The Devil in the Details

Keep in mind:

1. Defined Contribution Account owners may be able to wait until retirement to file a report. 

2. Those who turned 70 ½ in 2015 must report a RMD before April 1, 2016 – unless they turned that age in the first half of the year. If that’s the case, the first RMD report must be made before December 31st of this year. 

3. First year reporters who wait to report in April will be required to report twice (which could raise tax obligations) because they are required to report an RMD again before December 31st. This is why it’s important to begin tax planning for RMDs at age 69. 

After the first year, IRA owners are required to report annually by year’s end. 

4. Life expectancies of the taxpayer and the taxpayer’s spouse will play a factor. See the IRS’s resources for calculating RMDs for more information, but it essentially comes down to the taxpayer’s account balance the preceding year’s end, divided by an IRS life expectancy factor. 

5. Taxpayers who have forgotten to take RMDs in the past should take all of them as soon as possible, because of the excise tax mentioned above.

Retirees and other tax payers who don’t need their RMDs might consider reinvesting those funds into a Roth IRA, which won’t require withdrawals until after the account owner passes, or a grandchild’s 529 college savings account. And there are other planning tools available to help reduce your taxable estate. Simply speak with your accountant or trusts & estates attorney for more information.

 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. She may be reached by email: kmasteller@lewitthackman.com or by phone: 818.907.3244.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
Jul082014

Inherited IRAs Not Exempt From Bankruptcy Proceedings

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

Individual Retirement Accounts or IRAs, are retirement funds – at least until you pass the asset on to heirs other than your spouse. Then, according to a recent decision handed down by the Supreme Court, they become fair game for creditors.

The case at issue was Clark v. Rameker. Heidi Heffron-Clark and her husband Brandon Clark declared Chapter 7 Bankruptcy in 2010, and listed a $300K IRA inherited from Heffron-Clark's mother in 2001, as a primary asset exempt from the bankruptcy estate. The bankruptcy trustee, William Rameker, maintained that the funds in the account did not qualify as retirement funds and should be used to pay off about $700K of the Clarks' debts. The Bankruptcy Court agreed with the trustee.

A District Court reversed the decision though, citing that the exemption covered any account in which the funds were originally accumulated for retirement purposes, and a Seventh Circuit Court reversed the District Court's opinion.

Nine Said No: Supreme Court Justices Unanimously Decide Inherited IRAs Not Protected

When the Seventh Circuit sided with the Bankruptcy Court, the Clarks petitioned the Supreme Court.  Justice Sonia J. Sotomayor delivered the opinion that inherited IRAs do not count as retirement funds because:  

1. Bankruptcy code is written to ensure creditors recover losses but also to ensure debtors can meet their essential needs. Inherited IRAs do not fall in the category of an essential need; and

2. Inherited IRAs cannot prevent the heir from blowing the entire balance on luxuries or non-essential needs.

So where does this leave you and your IRA?

Spendthrift Trusts Protect Assets

When considering your assets and who's going to get them when you pass, think about how best to give your heirs the most benefit while minimizing risk of loss. Most of you would rather see your money go to your designated beneficiaries rather than credit card companies or Uncle Sam.

A spendthrift trust will limit your beneficiary's access to the principal – but it also limits his/her creditors' access to the funds. Instead of direct access to all of the money at any given time, you could ensure your heir gets regular payments, or certain goods/services purchased by the Trustee.

Which beneficiaries will most benefit from this type of trust? Consider the heirs that are:

1. Prone to addictions

2. Generally bad with money

3. Prone to fraud

4. Engaged in a business venture with a high potential for failing

5. Overextended with credit

If you need further information regarding managing your IRA, spendthrift trusts or other estate planning matters, contact me directly. 

Kira S. Masteller is a Trusts and Estate Planning Attorney at our firm. Contact her via email: kmasteller@lewitthackman.com, or by phone: 818.907.3244.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Jul252013

How Does the DOMA Ruling Affect Estate Planning?

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

 

The United States Supreme Court's ruling on Section 3 of the Defense of Marriage Act (DOMA) on June 26, declaring the definition of marriage as a union between one man and one woman unconstitutional, means same-sex couples in several states can now take advantage of certain tax savings when estate planning. For federal tax purposes, homosexual married couples will now be treated the same as heterosexual married couples.

Granted, the IRS is still struggling to determine how they will deal with individual and joint tax returns for same-sex couples. But federal estate planning benefits may now apply to same-sex married couples in California:

  1. Company Retirement Plans: The Employee Retirement Income Security Act of 1974 gives spouses the right to be sole beneficiaries of certain accounts.

  2. IRA Rollover Rights: When a spouse inherits funds from an IRA or other qualified plan, s/he can roll those assets into her or his own IRA account to postpone the required minimum distributions.

  3. Annual Exclusion Gifts: Any individual taxpayer can gift up to $14K per year, to as many beneficiaries as needed, without triggering gift taxes. Together, spouses can gift up to $28K either from individual or joint accounts.

  4. Lifetime Gift Tax Exclusion: This one amounts to $5.25M for individuals, and $10.5M for married couples – significant savings for your estate.

  5. Portability: Speaking of the gift tax exclusion, portability allows the widow or widower to add the deceased spouse's unused exclusion to their own exclusion, totaling up to the limit of $10.5M.

  6. Other Tax Breaks: Using a marital deduction, spouses can make transfers to each other during life or at death.

Keep in mind that a same-sex spouse who moves to a state where gay marriage is not recognized, may not qualify for these benefits. The ruling in United States v. Windsor simply says the federal government will recognize a couple's marriage if the state where they reside recognizes the union.

Remember too, that the Prop 8 and DOMA rulings broke new ground in the legal landscape, and that for same sex couples in California and other states that recognize gay marriage, estate planning may be constantly changing for a while. Contact me if you need help keeping track of the current benefits and financial liabilities.

Kira S. Masteller is an Estate Planning Attorney and Shareholder at our firm. Email her at kmasteller@lewitthackman.com for more information.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120