Category: The Wealth Counselor

Friction between family members can escalate during a scorching summer heatwave. Likewise, a flawed estate plan has the potential to breed conflict, mistrust, and financial turmoil among your client’s beneficiaries in several ways.

Lack of a plan. If your client fails to create an estate plan altogether, it can lead to significant disputes and confusion among their family members. Without clear instructions, loved ones could argue over what the client’s intentions were, and state laws will dictate the distribution of accounts and property in a manner that could be inconsistent with your client’s wishes. This can result in some individuals feeling left out or receiving less than they anticipated.

Vague or generic plan. If your client’s estate plan lacks specificity or fails to address important questions, it can open the door for interpretation and disagreement among your client’s beneficiaries. Detailed instructions and provisions in the plan can help prevent disputes and provide clarity as to how your client prefers different situations to be handled. Without clear instructions, disputes may arise regarding distribution of the client’s accounts and property, guardianship of minor children, or your client’s intentions. This uncertainty can lead to protracted legal battles, strained relationships, and irreparable family rifts.

Outdated plan. Circumstances change over time, and your client’s plan may no longer align with their current wishes or family situation. For example, if a beneficiary named in the plan predeceases your client, it is crucial to have contingencies in place. Financial institutions may also be hesitant to accept outdated estate planning documents such as a financial power of attorney. Regularly reviewing and updating the estate plan helps ensure its relevance and effectiveness.

Unequal treatment of beneficiaries. While your client has the right to distribute their money and property as they see fit and in the manner they think best, treating beneficiaries unequally can create tension and hurt feelings among family members. Open communication and discussing the reasoning behind such decisions ahead of time can alleviate stress, help manage expectations, and minimize conflicts.

Unclear wishes regarding care and decision-making. Apart from money and property, your client’s plan should also address their wishes for medical and financial decision-making if they become incapacitated. If your client fails to provide clear instructions, it can lead to disagreements among family members who may have different opinions about the client’s care. To prevent conflicts, it is important that your client appoint reliable decision-makers and clearly communicate their wishes.

Conflicting decision-makers. Conflicts may arise when multiple individuals, such as children, are given priority to serve as decision-makers. Each person may have different philosophies or opinions about the client’s care, leading to disagreements and potential disputes. It is crucial to consider these dynamics and select decision-makers who can work together harmoniously.

Unexpected tax consequences. Inadequate estate planning can lead to significant tax liabilities that may deplete the wealth your client intended to pass on to their loved ones or favorite organizations. By leveraging effective tax planning strategies such as trusts or gifting, your client can potentially minimize estate taxes and maximize the financial legacy they leave behind.

Business succession issues. If your client owns a family business, a lack of succession planning can be particularly detrimental. Without a well-defined plan, conflicts may arise regarding leadership, ownership, and the future direction of the business. This can jeopardize the continuity of the enterprise and strain relationships among family members involved in the business.

Emotional toll on loved ones. A poorly crafted or outdated estate plan can place an immense emotional burden on your client’s loved ones during an already challenging time. Without clear guidance, your client’s family members may be left guessing their wishes, resulting in anxiety, resentment, and fractured familial bonds. By proactively addressing potential conflicts in your client’s estate plan, you can help your client alleviate potential emotional strain on their beneficiaries and foster a sense of unity.

To mitigate these potential conflicts, it is advisable for your client to consult with an experienced estate planning attorney to create a comprehensive and up-to-date plan. Regularly reviewing and updating the plan as circumstances change can help ensure that their intentions are clearly communicated, reducing the likelihood of conflicts among their loved ones and protecting their legacy.

Introduction

On March 9, 2023, the Biden administration released a proposed budget for fiscal year 2024 calling for an increase in federal spending along with a series of counterbalancing revenue raisers. The budget was outlined in a document called the “General Explanations of the Administration’s FY2024 Revenue Proposals,” otherwise known as the “Greenbook.” 

The Greenbook is a document created by the US Department of the Treasury to explain the revenue proposals in the President’s budget. The Greenbook also serves as a guide to Congress for tax legislation by describing current laws, proposed changes to those laws, the rationale behind the proposed changes from a policy perspective, and US Department of the Treasury’s revenue projections based upon the proposed changes.

Proposed Rules Regarding Retirement Plans

Prevent Excessive Accumulation

The Greenbook outlines proposals on several different topics. One proposal that could directly impact the future financial security of your clients is the proposal to prevent excessive accumulations of wealth by high-income taxpayers using tax-favored retirement accounts.

Tax-favored (sometimes referred to as tax-deferred) retirement accounts, such as individual retirement accounts (IRAs) and 401(k)s, were approved by the federal government as a method of encouraging American citizens to save money for retirement. These accounts allow individuals to contribute a portion of their earnings to an investment account without taxes being withheld at the time of contribution. The money invested can grow with tax liability being delayed until the monies are withdrawn from the retirement account. 

In 2021, 87 percent of US citizens who were sixty-years old or older had some type of retirement savings.¹ According to the latest findings, the average balance in American retirement accounts was $141,542 in 2021.² However, the Joint Committee on Taxation estimates that as of 2022 there are roughly 500 taxpayers with retirement accounts worth $25 million or more, and over 28,000 additional retirement accounts worth $5 million or more.³ 

Because of the special tax treatment afforded retirement accounts, high-income taxpayers have started using these accounts as wealth transfer tools. An individual taxpayer is in the high-income category if their modified adjusted gross income is over $450,000 if married filing jointly, over $425,000 if head-of-household, or over $400,000 in other cases.⁴ Some high-income taxpayers have been able to accumulate amounts in “tax-favored retirement arrangements that are far in excess of the amount needed for retirement security.”⁵ According to the Greenbook, “the exemption from required minimum distribution rules for Roth IRAs means that a taxpayer who has other sources of retirement income could choose to continue accumulating investment returns on a tax-favored basis until the taxpayer dies, which means that the tax-favored retirement arrangement could be passed on in its entirety to the taxpayer’s heirs.”⁶

Special Distribution Rules for Large Account Balances

To prevent such “excessive accumulations” by individuals, the Greenbook contains proposals that would modify rules related to retirement accounts. One such proposal would impose special distribution rules on high-income taxpayers with large account balances. Under the proposal, a high-income taxpayer with an aggregate vested account balance in a tax-favored retirement account exceeding $10 million would be required to distribute a minimum of 50 percent of the excess.⁷ “[I]f the high-income taxpayer’s aggregate vested account balance under these tax-favored retirement arrangements exceeded $20 million, then the required distribution would be subject to a floor.”⁸ “The floor is the lesser of (a) that excess and (b) the portion of the taxpayer’s aggregate vested account balance that is held in a Roth IRA or designated Roth account.”⁹ Commentators have suggested that this proposal is simply a rehashing of the mega-IRA proposals in the Build Back Better Act.¹⁰ Based on a $10 million threshold, the proposal would not likely affect the majority of retirement plan participants.¹¹ However, for those individuals who have accumulated more than $10 million in their retirement account, the proposed changes would greatly limit their ability to retain balances in excess of $10 million and use these accounts as wealth transfer tools.¹² 

Limit on Rollovers and Conversions

Another Greenbook proposal that could impact your clients and their financial plans is the proposed limit on rollovers and conversions to designated Roth retirement accounts or to Roth IRAs. The proposal “would prohibit a rollover of a distribution from a tax-favored retirement arrangement into a Roth IRA unless the distribution was from a designated Roth account within an employer-sponsored retirement plan or was from another Roth IRA if any part of the distribution includes a distribution of after-tax contributions.”¹³ The proposal would further “prohibit a rollover of a distribution from a tax-favored retirement arrangement into a designated Roth account if any part of the distribution includes a distribution of after-tax contributions, unless the distribution was from a designated Roth account.”¹⁴ “This proposal would eliminate the commonly used ‘backdoor’ Roth conversion for all high-income earners.”¹⁵ A backdoor Roth conversion is a strategy used by high-income earners who are prohibited from contributing to a Roth IRA because their income is above certain limits. Instead of contributing directly to a Roth, these high-income taxpayers contribute to a traditional IRA (which has no income limits), and then convert it to a Roth IRA. “Backdoor conversions would still be allowed for taxpayers with income above the Roth IRA contribution limit, but below the high-income earner limit.”¹⁶ However, according to some commentators, “this proposal does not appear to limit Roth contributions in employer retirement plans.”¹⁷

Although these are just proposals, we are committed to keeping you and your clients up-to-date on matters that may impact them and their financial future. We look forward to working with you in the future to help shape and protect our clients’ and their loved ones’ futures.

Four Improvements the Administration Wants to Make Regarding Administration for Trusts and Decedents’ Estates

When a client dies, there are often several tasks that need to be completed to properly wind down the deceased’s affairs—funerals and other preparations need to be planned, bank and investment accounts closed, property transferred, arrangements made for pets, tax returns filed, and final bills paid. There are several proposals in the Greenbook that are meant to help alleviate some of the complications that have arisen in estate and trust tax matters and simplify the process. 

Extending Duration for Estate and Gift Tax Liens

One such proposal is to extend the current ten-year duration of certain estate and gift tax liens. Current law provides an automatic lien on all gifts made by a donor and generally all property owned by an individual at their date of death to enforce the collection of gift and estate tax liabilities from the donor or from the accounts and property owned by the deceased individual upon their death, as applicable.¹⁸ “The lien remains in effect for ten years from the date of the gift for gift tax, or the date of the decedent’s death for estate tax, unless the tax is paid in full sooner.”¹⁹ As the law stands today, “the 10-year lien cannot be extended, including in cases where the taxpayer enters into an agreement with the IRS to defer tax payments or to pay taxes in installments that extend beyond 10 years.”²⁰ Therefore, this special lien has no effect on unpaid amounts due to be paid after the ten-year period.²¹ A proposal outlined in the Greenbook “would extend the duration of the automatic lien beyond the current 10-year period to continue during any deferral or installment period for unpaid estate and gift taxes.”²² The administration’s “proposal would apply to 10-year liens already in effect on the date of enactment, as well as to the automatic lien on gifts made and the estates of decedents dying on or after the date of enactment.”²³

Required Reporting on Trust Value

Another Greenbook proposal would require reporting the estimated total value of a trust’s assets and other information about trusts to the Internal Revenue Service (IRS) on an annual basis. Currently, most domestic trusts must file an annual income tax return. However, trusts do not have to report the nature or value of the trust assets.²⁴ Because of this, “the IRS has no statistical data on the nature or magnitude of wealth held in domestic trusts.”²⁵ This lack of statistical data has made it difficult for the administration “to develop administrative and legal structures capable of effectively implementing appropriate tax policies and evaluating compliance with applicable statutes and regulations.”²⁶ This in turn further hampers the administration’s “efforts to design tax policies intended to increase the equity and progressivity of the tax system.”²⁷ The proposal outlined in the Greenbook would require certain trusts to report certain information to the IRS on an annual basis to facilitate the analysis of tax data, the development of tax policies, and the administration of the tax system.²⁸ The Greenbook continues its proposal by providing that the information could be reported on an annual income tax return or other form, as determined by the Secretary, and would include the name, address, and taxpayer identification number of each trustee and trustmaker, and general information about the nature and estimated total value of the trust’s assets.²⁹ Also, each trust (regardless of value or income) would be required to report the inclusion ratio of the trust at the time of any trust distribution to a non-skip person, as well as information about trust modifications or transactions with other trusts that occurred that year.³⁰ “The proposal would apply for taxable years ending after the date of enactment.”³¹ It is anticipated that increased reporting would require increased participation by attorneys in the preparation of fiduciary income tax returns.³²

Require Defined Value Formula Clause Be Based on Variable Without IRS Involvement

A third proposal aimed at simplifying issues involving estate and trust matters requires that a defined value formula clause be based on a variable not requiring IRS involvement. Many taxpayers like to use gifts, bequests, or disclaimers as part of a particular tax strategy. To achieve this result, sometimes a defined value formula clause is necessary to determine how much should be transferred. A defined value clause is the amount transferred based on a value as determined for tax purposes and using a formula based on IRS enforcement activities.³³ After losing a number of court decisions upholding taxpayer use of formula clauses for hard-to-value assets, the Biden administration has found the defined value formula poses a number of challenges as it currently exists because it potentially (a) allows a donor to escape the gift tax consequences of undervaluing transferred property, (b) makes examination of the gift tax return and litigation by the IRS cost-ineffective, and (c) requires the reallocation of transferred property among gift recipients (donees) long after the date of the gift.³⁴ Additionally, the administration feels that “defined value formula clauses that depend on the value of an asset as finally determined for Federal transfer tax purposes create a situation where the respective property rights of the various donees are being determined in a tax valuation process in which those donees have no ability to participate or intervene.”³⁵ To address these concerns, the Greenbook proposal provides “that if a gift or bequest uses a defined value formula clause to determine value based on the result of involvement of the IRS, then the value of such gift or bequest will be deemed to be the value as reported on the corresponding gift or estate tax return.”³⁶ Transfers made by gift or occurring upon a death after December 31, 2023, would be subject to this proposal. 

Eliminating Present Interest Requirement for Annual Gifts

A fourth Greenbook proposal to simplify estate and trust matters is to eliminate the requirement that gifts must be of a present interest to qualify for the gift tax annual exclusion. Currently, annual per-donee gift tax exclusion is available only for gifts of a present interest. According to the Greenbook, “[a] present interest is an unrestricted right to the immediate use, possession, or enjoyment of property or the income from property.”³⁷ If a taxpayer wants to make a gift in trust for the beneficiary, using the annual exclusion amount, the trust beneficiary must usually be given timely notice of a limited right to withdraw the trust contribution (referred to as a Crummey notice) to qualify the gift as a present interest.³⁸ Complying with the notice requirement and record maintenance can pose a significant cost for taxpayers and the administration and enforcement of these rules also imposes a large cost to the IRS.³⁹ Under the new proposal, gifts would no longer have to be of a present interest to qualify for the gift tax annual exclusion. “Instead, the proposal would define a new category of transfers (without regard to the existence of any withdrawal rights) and would impose an annual limit of $50,000 per donor, indexed for inflation after 2024, on the donor’s transfers of property within this new category that would qualify for the gift tax annual exclusion.”⁴⁰ 

Even though we do not know for certain which or if any of these proposals will come to fruition, we are carefully monitoring the latest legislation to ensure that our clients and advisors are properly prepared if and when Congress acts.

Ways the Administration Wants to Modify the Tax Rules for Certain Trusts

Taxes are not just for individuals—they can impact certain types of trusts as well. Whether a trust pays its own taxes or whether the taxes are paid by the trust’s beneficiaries or the trustmaker depends on several factors. 

Grantor Retained Annuity Trusts

If the trust is a grantor trust (a type of trust where the trustmaker, or grantor, typically retains power or control over the money or property in the trust), then trust income is taxed to the trustmaker. Grantor trusts may be revocable or irrevocable. Irrevocable grantor trusts such as a grantor retained annuity trust (GRAT) are popular among high-income taxpayers. These are trusts where the trustmaker retains an annuity interest (a right to receive payments of income) in a trust for a term of years. 

The Greenbook proposes to modify the tax rules for grantor trusts. Currently, estate planning tools such as GRATs and other grantor trusts allow taxpayers to substantially reduce their federal tax liabilities.⁴¹ It is the position of the Biden administration that legislative changes need to be made “to close the existing loopholes and ensure the effective operation of Federal income, gift, and estate taxes.”⁴² This Greenbook proposal “would require that the remainder interest in a GRAT at the time the interest is created would need to be a minimum value for gift tax purposes equal to the greater of 25 percent of the value of the assets transferred to the GRAT or $500,000”.⁴³ Also, “the proposal would prohibit any decrease in the annuity during the GRAT term and would prohibit the grantor from acquiring in exchange an asset held in the trust without recognizing gain or loss for income tax purposes.”⁴⁴ In addition, the proposal would require a GRAT to have a minimum term of ten years and a maximum term set at the life expectancy of the annuitant plus ten years. It would also “provide that the payment of the income tax on the income of a grantor trust (other than a trust that is fully revocable by the grantor) is a gift.”⁴⁵ The unreimbursed amount of the income tax paid would be considered a gift.⁴⁶ This proposal is the same proposal that was included in the 2023 Greenbook⁴⁷ and was previously included in Greenbooks from the Obama administration.⁴⁸

Charitable Lead Annuity Trusts

Charitable trusts are also being targeted by the Greenbook proposals—particularly charitable lead annuity trusts (CLATs). A CLAT is a special type of charitable trust where the trustmaker selects a charity or charities to receive annual payments from the trust. The payments can be made either for the trustmaker’s lifetime or for a predetermined number of years. Once the trust terminates, any remaining trust money or property is distributed to noncharitable beneficiaries. The Biden administration feels that “taxpayers often design the CLAT to have an annuity that increases over the trust term, thereby largely deferring the charitable benefit until the end of the trust term.”⁴⁹ By using this and other tax planning techniques, it is possible to greatly increase the value of the trust remainder without incurring increased gift tax consequences. The Greenbook “would require that the annuity payments made to charitable beneficiaries of a CLAT must be a level, fixed amount over the term of the CLAT, and that the value of the remainder interest at the creation of the CLAT must be at least 10 percent of the value of the property used to fund the CLAT, thereby ensuring a taxable gift on creation of the CLAT.”⁵⁰ This proposal has not appeared in prior Greenbooks and it is unclear at this point in time how it will be received.

Loans from a Trust

Another Greenbook proposal modifying the tax rules of trusts “would treat loans made by a trust to a trust beneficiary as a distribution for income tax purposes, carrying out each loan’s appropriate portion of distributable net income to the borrowing beneficiary.”⁵¹ Currently, with few exceptions, loans from a trust to a borrower do not result in tax consequences to the borrower.⁵² Additionally, loans to a trust beneficiary would be treated as a distribution for generation-skipping transfer (GST) tax purposes under the proposal, “thus constituting either a direct skip or taxable distribution, depending upon the generation assignment of the borrowing beneficiary.”⁵³ 

In addition to discourage borrowing from a trust by a person who is not a trust beneficiary but who is a deemed owner of the trust under the grantor trust rules, the proposal would treat a trustmaker’s repayment of a loan from a grantor trust as an additional contribution to the trust for GST tax purposes.⁵⁴ In some instances, “this new contribution (like any other contribution) would utilize GST exemption of the borrower(s), generate a GST tax liability in the case of a direct skip on such borrower(s) or their respective estates, or increase the trust’s inclusion ratio.”⁵⁵ The trust could be liable for the GST tax payable on such a deemed direct skip if it could not be collected from a deemed owner or a deceased deemed owner’s estate.⁵⁶ This proposal would allow certain types of loans to be excepted from the application of the proposal, such as short-term loans or the use of real or tangible property for a minimal number of days.⁵⁷

When a president submits a proposed budget, it is viewed as an invitation to begin policy debates with Congress. Many people feel the proposed budget for 2024 is “dead on arrival” due to discord between congressional Democrats and Republicans and that the chance of most proposals becoming law is remote. However, the Greenbook still serves as an indicator of the current administration’s goals and agenda. As an advisor, it is important to be aware of the administration’s proposals so you can be an informed resource for your clients and help them understand what it means for them when the media reports on proposed tax increases for high-net-worth individuals.

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Footnotes

1. Share of adults with any retirement savings in the United States in 2021, by age group, Statista.com (Feb. 8, 2023), https://www.statista.com/statistics/1273812/adults-with-no-retirement-savings-by-age-us/.
2. How America Saves 2022, Vanguard, https://institutional.vanguard.com/content/dam/inst/vanguard-has/insights-pdfs/22_TL_HAS_FullReport_2022.pdf (last visited May 26, 2023).
3. Retirement Tax Incentives Supercharge the Fortunes of Wealthy Americans, Washington Center for Equitable Growth (Mar. 17, 2022), https://equitablegrowth.org/retirement-tax-incentives-supercharge-the-fortunes-of-wealthy-americans/.
4. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposal [hereinafter General Explanations] at 90, https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf.
5. Id. at 89.
6. Id.
7. Id. at 90.
8. Id.
9. Id.
10. The House approved the Build Back Better legislation in November 2021, but it was never passed by the Senate.
11. General Explanations, supra n. 4, at 90.
12. Amy E. Heller et. al, The 2024 Green Book and Tax Implications: A Primer, Skadden, Arps, Slate, Meagher & Flom LLP (Mar. 20, 2023), https://www.skadden.com/insights/publications/2023/03/the-2024-green-book-and-tax-implications-a-primer.
13. General Explanations, supra n. 4, at 92.
14. Id.
15. Analysis and Observations of Tax Proposals in Biden Administration’s FY 2024 Budget at 38, KPMG (Mar 14. 2023), https://assets.kpmg.com/content/dam/kpmg/us/pdf/2023/03/tnf-fy-2024-green-book-mar14-2023.pdf.
16. Id.
17. Id. at 39.
18. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposal [hereinafter General Explanations] at 115, https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf.
19. Id.
20. Id.
21. Id.
22. Id. at 118.
23. Id. at 117.
24. General Explanations, supra n. 18, at 115.
25. Id.
26. Id. at 117.
27. Id.
28. Id. at 118.
29. Id.
30. General Explanations, supra n. 18, at 118.
31. Id. at 119.
32. James Dougherty and Marissa Dungey, The 2024 Green Book Limits Use of Defined Value Clauses, WealthManagement.com (Mar. 17, 2023), https://www.wealthmanagement.com/estate-planning/2024-green-book-limits-use-defined-value-clauses.
33. General Explanations, supra n. 18, at 116.
34. Id. at 117.
35. Id.
36. Id. at 119.
37. Id. at 116.
38. Id. at 117.
39. General Explanations, supra n. 18, at 117, 118.
40. Id. at 119.
41. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposal [hereinafter General Explanations] at 124, https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf.
42. Id.
43. Id. at 127.
44. Id.
45. Id.
46. Id.
47. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals at 40, https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf.
48. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals, https://home.treasury.gov/system/files/131/General-Explanations-FY2016.pdf; and Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals, https://home.treasury.gov/system/files/131/General-Explanations-FY2017.pdf.
49. General Explanations, supra n. 41, at 127.
50. Id. at 128.
51. Id. at 129.
52. Id. at 124.
53. Id. at 129.
54. Id.
55. General Explanations, supra n. 41, at 129.
56. Id.
57. Id.

Important Probate Rules Everyone Should Know:

When a person dies, what happens next depends on whether the deceased person had any foundational estate planning documents such as a last will and testament (otherwise known as a will) or trust, who their living relatives are, and their relationship to the person who died. If the deceased person did not have a trust or will, the state where the deceased person resided has rules for overseeing how the deceased person’s money and property are to be distributed. If the deceased person died owning accounts and property in their own name and had a will, it will contain instructions for what is to happen to the decedent’s money and property and must be filed with the probate court. Probate is a formal legal process of proving that a will is valid (if the person had a will), appointing someone to carry out the deceased person’s wishes (known as a personal representative or executor), and supervising the distribution of the deceased’s money and property.  

While probate rules can vary by state, there are some important ones that you should be aware of for your own personal knowledge and to better serve your clients who may be in charge of wrapping up a deceased loved one’s affairs. 

Deadlines

Deadlines are important rules that must be followed during the probate process. Failing to meet these deadlines could cause trouble for those in charge of an estate administration.

When and if to file the last will and testament. If and when a will must be filed with the probate court can vary by state, but it is important that your clients understand when this task needs to be completed. Some states require that a will be filed with the probate court within a certain number of days after the decedent’s death, while others only require that a will be filed if a probate is necessary. This might occur when the decedent died owning accounts and property in their sole name that need to be transferred. Once the will is filed, the court will generally begin by reviewing the will to ensure that it was properly made and signed. If the court is satisfied, it will appoint a personal representative.  

Collecting and securing items. The personal representative must locate and secure the deceased person’s money and property and create an inventory of all items. Deadlines for filing an inventory with the court are usually calculated from the date your client was appointed as personal representative and can vary greatly among states, from sixty days in Florida to six months in New York. The inventory will include a valuation of the items as of the date of death. During this period, the personal representative may also need to establish a tax identification number for the estate and open an estate checking account for depositing estate funds.

Notifying creditors. The personal representative must notify known creditors and attempt to find unknown creditors. Generally, at the direction of the probate court and with the assistance of an experienced estate administration attorney, the personal representative is required to publish notice of the deceased’s death in appropriate newspapers to run for a specified length of time. This notice is typically published in the local newspaper where the person died. The purpose of this notice is to allow creditors, both known and unknown, time to make a claim to the estate for any debt owed. The personal representative must then determine the validity and priority of all creditor claims received and pay those claims as appropriate.

If the personal representative follows the correct steps regarding notice to creditors, any debts not brought to the personal representative’s attention during the applicable time period established by state law may be barred, and the estate may not be responsible for paying them. The creditor deadline gives creditors an opportunity to come forward with their claims, but it also provides a cutoff point for the personal representative so they can wind up the deceased’s affairs in as efficient a manner as possible.

Maintaining and providing estate accounting records. The personal representative must maintain accounting records as proof of monies coming into and going out of the estate. Depending on the circumstances, the accounting records may need to be filed with the court, and interested parties may need to sign releases at certain intervals.

Filing and paying taxes. A personal representative must ensure that the deceased’s final tax return is filed by the personal income tax filing deadline of the year following the deceased’s death. If the estate earns income after the deceased’s death, the personal representative must file estate income tax returns (sometimes referred to as fiduciary income tax returns). Finally, a personal representative may have to file an estate tax return if required by law or for further tax planning. Each of these returns will have a specific deadline.

Who Has to Know

During the probate process, there are a lot of steps that are involved, and there may be multiple individuals who need to be kept informed about what is happening. If the deceased had a will, this would include those named in the will (beneficiaries). In some states, the deceased’s relatives and the deceased’s creditors can also be interested persons. When dealing with individuals other than those the deceased named in a will, it may be tempting to leave them in the dark, especially if there has been bad blood. However, personal conflicts do not absolve the personal representative of the duty to keep an interested person informed and to provide them with the information they are legally entitled to.

Who Can Be Put in Charge

Another important probate rule is who can be appointed as a personal representative. The personal representative can be almost anyone. Many states require that the personal representative be an adult or an emancipated minor. However, some states may not appoint a personal representative who is a non-US resident, nonstate resident, or a felon. Most often, a personal representative is a surviving spouse, a family member, a close family friend, or an attorney. There is no requirement that the personal representative have any experience or expertise in handling estate matters, nor is the person required to have any financial or legal experience or background.

We Are Here to Help

Probate is a process with many rules. We understand that this can be overwhelming for some clients, and we are committed to working with nominated or appointed personal representatives to ensure that their administration is as smooth as possible with no missed deadlines and follows all the rules. If you would like to learn more about the probate process, reach out to us to schedule a meeting. 

What? You didn’t know that March 14 (3/14) is National Pi Day? We didn’t either until recently, but now we know that this celebratory day was established (you guessed it!) by a physicist (Larry Shaw) to recognize the mathematical constant (𝛑) whose first three digits are 3.14—probably as an excuse to devour lots of pie. National Pi Day is a great occasion to invite your clients in to enjoy a slice of pie and discuss their financial planning, as well as how estate planning will help them determine how they should slice their financial pie when they pass their wealth on to their children and loved ones. No complicated mathematical formulas are necessary to determine whom they would like to leave their money and property to, but it is an important subject that requires some serious thought.

How Should Clients Slice Their Pie?

With only a couple of possible exceptions, clients are free to use their estate plan to slice up their wealth for the benefit of anyone they choose. Some common beneficiaries that your clients may choose are spouses or other significant others—such as their boyfriend, girlfriend, or partner—and their children. More and more people are also leaving money in trust to be used for the care of their pets. Others want to provide a gift to one or more close friends when they pass away. Some clients may choose to include institutions as well as people or pets in their estate plan: if they have a strong relationship with a favorite alma mater, charity, or church, they may choose to leave money or property for its benefit.

It is crucial for your clients to create an estate plan to ensure that each person or institution gets the slice they intend. Without an estate plan, their money and property will be divided up according to state law, which may not provide the result they would have wanted. The state’s intestacy statute typically provides that if a deceased person had no will, the surviving spouse will inherit everything, but if the deceased person had children from a prior relationship, the estate will be divided between them and the surviving spouse. If there is no surviving spouse or children, the estate may go to the deceased person’s parents or siblings. In the absence of any surviving family members specified in the statute, the deceased person’s money and property go to the state. This means that if the deceased person had stepchildren or foster children who were beloved but not adopted, or a significant other who was not a spouse, those loved ones will receive nothing. In addition, a person who did not have family members or did not want to leave their money and property to their family will lose out on the opportunity to leave their wealth to a charitable organization or other institution of their choice; instead, their wealth will go into the state’s coffers.

By creating an estate plan, your clients can specify not only to whom they want to leave a slice of their pie but also the size of that slice. For example, they may want each of their children to receive an equal inheritance, or they may choose to divide up their wealth among their children based upon what they think each one needs. Children who are disabled and unable to provide for themselves may need more than other children who are independently wealthy. There is no right answer: it is up to your clients to determine those to whom they want to leave their money and property and the size of each gift.

Depending on state law, there may be a couple of exceptions that have at least some impact on clients’ ability to specify the size of the slices of their pie:

• Spouse’s elective share. Nearly every state has a statute that protects a surviving spouse from complete disinheritance by allowing them to elect to take a certain portion, such as one-third or one-half, of their deceased spouse’s estate. In some states, the size of the elective share may depend on whether the deceased spouse left behind children, grandchildren, or parents in addition to their spouse. The surviving spouse’s elective share may be smaller if there are other surviving relatives who would benefit from the deceased spouse’s estate.

Some states’ elective share statute applies only to the probate estate, that is, accounts and property that are held in the deceased spouse’s individual name. However, other statutes also subject money and property that the deceased spouse had transferred to a revocable living trust during their lifetime to the surviving spouse’s elective share. Elective share statutes are generally a default rule, so a surviving spouse may contractually waive or modify their right to an elective share if they sign a premarital or postmarital agreement to that effect.

• Family allowance. Under state law, the surviving spouse, minor children, and adult children with special needs may be entitled to an amount from the deceased person’s estate necessary for their maintenance if they are able to demonstrate their need to the probate court. The money and property considered in determining the amount to which the spouse or children may be entitled vary depending on state law. Often, if the family allowance is determined to be available, it will be paid to the spouse or children before gifts are made to other beneficiaries named in the deceased person’s estate plan or most other claims against the estate. If there are insufficient funds in the estate to cover the family allowance, the court may order the sale of estate property.

You Can Help Your Clients Slice Their Pie How They Want

Review beneficiary designations. In addition to encouraging your clients to create an estate plan, you can help them review the assets under your management to ensure that they have named beneficiaries on their accounts. If the accounts were established years ago, your clients should consider whether the person or entity named is still the beneficiary they would like to receive that particular slice of their financial pie. If no beneficiaries have been named on their accounts, your clients should designate one or more beneficiaries to avoid the need for the accounts to go through probate and be distributed according to the terms of their will or state law if they did not have a will.

Evaluate their accounts and property. You can also help your clients determine if their assets are sufficient to provide for their beneficiaries in the way they wish. This is particularly relevant for clients who have many beneficiaries and are concerned that their current money and property will provide smaller slices of wealth for each one than they desire. If their current accounts and other property are insufficient, you have the opportunity to suggest solutions such as additional life insurance or adjustments to their financial and investment plans. 

Determining who receives a client’s money and property, as well as how much, are important decisions that are the cornerstone of most estate plans. By working together, we can help clients legally document their wishes and ensure a smoother administration when the time comes. If you would like to discuss ways we can partner together to serve our mutual clients, please reach out to us.

We associate March with St. Patrick’s Day and Irish traditions such as searching for four-leaf clovers, which are thought to bring good luck. One thing that parents should never leave to luck is providing for their minor children. Parents work hard to create a wonderful life for their children and pass on wealth to them in the future, but they also need to create a plan for their children’s care if something happens to them. Although it will be difficult for them to think about having their young children grow up without them, they need to recognize that lack of planning for this possibility could be disastrous for their children. This is an opportunity to strengthen your relationship with clients who are young parents by providing the financial and investment advice they need to provide for their children. 

Recommend that parents of minor children create an estate plan. If clients who are parents of young children fail to create an estate plan, the fate of their children’s care will be left to a court. Instead of nominating individuals they trust to provide care for their children and manage the children’s inheritance for their benefit, the court must choose who will fill those roles, and it may not choose the people the parents would have wanted. Even worse, a lack of planning may mean that they will not leave enough money and property to fund their children’s upbringing: this is a terrible problem that you can help them avoid by evaluating whether they should obtain additional life insurance to provide for their children’s care. In addition, the lack of an estate plan will mean that the parents will not have any input into who manages their accounts and property through the probate process after they die. The personal representative that the court appoints may not be as familiar with their money and property as you are and may not continue to keep their accounts under your management. If they have an estate plan, they can provide for how their accounts are to be managed in their trust document instructions, which puts you in a better position to continue managing their accounts for the benefit of their children. 

Think twice about advising parents to name their minor children as beneficiaries on accounts. Typically, naming beneficiaries on investment and retirement accounts is important to avoid probate of those accounts. If these accounts represent most of their wealth, parents may mistakenly believe that no estate plan is necessary. In the case of minor children, however, probate may still be necessary even if their minor children are named as beneficiaries of the accounts. Although state law varies, an interested adult may request that the funds be placed in an account established under the relevant state’s United Transfers to Minors Act if the value of the account is below a certain amount, for example, $20,000, which will be managed on their children’s behalf. However, a conservator may need to be appointed by the court to manage the funds on behalf of the children until they reach the age of majority if the accounts have significant value. As mentioned, in the absence of an estate plan, the person the court appoints may not be the person your clients would have chosen and may not understand how your clients would like the funds to be used for their children. There is also a risk that whoever is appointed to manage the inheritance will liquidate the accounts or switch them to another financial advisor rather than maintain them under your management.

Parents also may not want their children to receive a substantial amount of money at the age of eighteen or twenty-one (the age of majority may vary by state). Many parents believe that their children will not be mature enough to responsibly handle a large inheritance at such a young age. However, unless the parents create an estate plan including a trust specifying that the funds should be held and distributed for the children’s benefit at a later date, the children will have full access to their inheritance and it could be spent quickly and wastefully. If the funds are quickly dissipated, not only will the parents’ goal of providing for their children be frustrated, but you will have no opportunity to continue your financial planning relationship with the next generation.

Give Us a Call

You can strengthen your relationship with your clients who are parents by encouraging them to contact an experienced estate planning attorney who can help them create or update their estate plan instead of leaving their children’s future to chance. We can not only help your clients achieve their goal of providing for their children’s needs if something should happen to them but also facilitate their purchase of financial products such as insurance that are necessary to provide sufficient funds for their children’s needs until they reach adulthood and beyond. In addition, your clients are likely to want you, as their trusted advisor, to continue managing their money for the benefit of their children. Their intentions can be included in their estate planning documents, providing you with an opportunity to establish a strong relationship with the next generation. Give us a call to discuss how we can help your clients safeguard their children’s future.

Why Women Need a Plan

In 1987, Congress passed a law recognizing March as Women’s History Month—a time to honor the contributions and achievements of women throughout American history in a variety of fields. Women have played a vital role in building the United States into a strong and prosperous nation. Likewise, women are often the backbones of their own families, frequently focusing on meeting the needs of others rather than their own. However, it is important for women to take care of themselves through financial and estate planning designed to provide for their own future needs, which may differ from those of their male family members, as well as family members who may be dependent on them.

Planning Considerations for Women

Longer life expectancies. According to Social Security Administration data, in 2021, women had an average life expectancy of 79.5 years compared to 74.2 years for men. As a result, it is important for women to create an estate plan that accounts for additional years of living expenses during retirement, healthcare costs, and possibly long-term care costs. As women age, there may be a greater possibility that they could become incapacitated and need someone to act on their behalf to make financial and healthcare decisions. Documents such as financial and healthcare powers of attorney and living wills authorize a person they trust to make decisions or take action for them if they are not able to act for themselves. Some women may not only own their own assets but also inherit wealth from both of their parents and a spouse who dies before them, and if so, they need a financial and estate plan to optimally preserve and transfer this wealth. Because women may outlive their spouses, they also may be responsible for administering their spouse’s estate or become the sole surviving trustee of a joint trust. These duties may be difficult for a woman who is experiencing health issues that often occur at an advanced age, and this possibility should be addressed in their estate planning. For example, a woman concerned that she will be unable to handle administering her trust at an advanced age can name a co-trustee or successor trustee to administer it if she is no longer able to do so.

Lower earnings. According to U.S. Census Bureau data, women continue to earn less than men, and the pay gap widens as they age. In addition, because some women have shorter employment histories due to time off to raise children or care for aging parents, they may have less saved for retirement. As a result, it is important for them to take steps to protect their money and property from lawsuits or creditors’ claims. For example, a woman could transfer her money and property to an irrevocable trust. Because she is no longer the legal owner of the property, a creditor cannot reach it to satisfy claims against her, assuming the trust is properly drafted to include appropriate distribution standards and administrative and other provisions. The woman may be a discretionary beneficiary of the trust, and the trustee may distribute the funds she needs for living expenses. Additionally, because they may have less money and property during their retirement, women need to have a solid plan in place to make sure that they are able to financially provide for their loved ones upon their death and that unnecessary costs and expenses are minimized to the extent possible.

Care for loved ones. Many women are caregivers for minor children, adult children with special needs, or aging parents. As a result, they are often concerned about who will care for their loved ones if they are no longer able to do so. If a spouse or sibling is not available to provide care, they need to make sure that another family member or trusted individual can be the caregiver (sometimes called a guardian of the person) for their loved one. The same individual—or someone else—can serve as the guardian of the loved one’s estate (sometimes called a conservator or guardian of the estate) to manage the inheritance for their benefit. In the case of a child with special needs, if no family member is able to take on the responsibility of their care, a group home or assisted living facility may be the best choice. A special needs trust may need to be established to ensure that funds are available for the child’s care but do not decrease the amount of government benefits they are eligible to receive.

Your Crucial Role as Financial Advisor

Your female clients count on you to help them invest their money appropriately to maximize their savings and inherited wealth for retirement, healthcare needs, long-term care, and care for loved ones who depend on them. As their trusted advisor, you can also advise them about whether their insurance is sufficient to provide the funds they need. They may have some disability and life insurance coverage through their employer, but you can evaluate whether it is sufficient to cover their needs if they are no longer able to work due to illness or injury, and if additional life insurance is needed to pay for the care of family members who are unable to provide for themselves or fund a special needs trust. Please give us a call so we can work together to address the unique needs of our women clients and provide them with the peace of mind they deserve.

Retirement Planning Update

Although we are still in the midst of winter, spring is on its way. As you remind clients about April deadlines for retirement contributions and required minimum distributions (RMDs) and meet with them to discuss their retirement planning, keep the following recent developments in mind. 

IRS Proposed Regulations for Required Minimum Distributions

In 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act created a ten-year payout rule for most inherited retirement assets, so that the account must be fully withdrawn by the end of the calendar year that includes the tenth anniversary of the date of the participant’s death. Although many initially believed that no RMDs were required in years one through nine following the death of the plan participant, in February 2022, the Internal Revenue Service (IRS) issued proposed regulations clarifying that RMDs are, in fact, required each year under many circumstances during the ten-year period. This caught many beneficiaries by surprise, especially those who opted not to take distributions in 2021 or 2022 in good faith based on the information they had. 

However, on October 7, 2022, the IRS issued Notice 2022-53, which states that the IRS will not penalize beneficiaries for not taking those RMDs. However, beneficiaries will have to ask for a refund of any excise tax already paid; the IRS will not automatically reimburse it. This relief applies only for the 2021 and 2022 distribution calendar years. In contrast to the February 2022 proposed regulations, which stated that the final regulations would apply to 2022 and later distribution calendar years, Notice 2022-53 also indicated that any final regulations issued by the IRS regarding required minimum distributions under I.R.C. § 401(a)(9) will apply no earlier than the 2023 distribution calendar year.

The proposed regulations also clarify the age of majority under the SECURE Act: the child of an employee with an IRA is considered to have reached the age of majority on the child’s twenty-first birthday. However, defined benefit plans that have used a pre-Secure Act definition of majority may continue to use that definition.

Extension of Deadlines for Amending Retirement Plans

On August 3, 2022, the IRS issued Notice 2022-33, which provides plan administrators with extensions to amendment deadlines applicable to certain changes under the SECURE Act, the Bipartisan American Miners Act of 2019, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In general, the following deadlines apply to make mandatory and discretionary amendments under the Acts:

• For nongovernmental qualified and 403(b) plans, the amendment deadline has been extended to December 31, 2025.
• For governmental qualified and 403(b) plans, the amendment deadline is ninety days after the close of the third regular legislative session that begins after December 31, 2023.
• For governmental 457(b) plans, the amendment deadline is the later of 90 days after the close of the third regular legislative session that begins after December 31, 2023, or the first day of the first plan year beginning more than 180 days after the date of the IRS notification that the plan was administered inconsistent with I.R.C. § 457(b).

Prior to Notice 2022-33, the deadlines for adopting the amendments were December 31, 2022, or December 31, 2024, for governmental plants and certain collectively bargained nongovernmental plans. The extension is especially important due to the extensive amendments to retirement plan provisions required by the SECURE Act, including (1) the increase in the age for required minimum distributions from age 70½ to age 72, (2) the expansion of coverage for long-term part-time workers, and (3) the elimination of lifetime stretch payments for most beneficiaries of inherited retirement accounts. The passage of the SECURE Act 2.0, which resulted in additional amendments, is likely one of reasons for the extension.

SECURE 2.0 Act 

On December 29, 2022, President Biden signed the $1.7 trillion omnibus spending bill, which included the SECURE 2.0 Act of 2022. SECURE 2.0 requires employers with existing defined contribution plans to automatically enroll new employees in a retirement plan, with investments deducted from their paychecks, unless they affirmatively opt out of it. In addition, SECURE 2.0 increases the age for the required beginning date (RBD) for RMDs from retirement plans from 72 to 73 starting on January 1, 2023, for individuals who reach age 72 after December 31, 2022. The RBD will be increased to age 75 starting January 1, 2033, for individuals who reach age 74 after December 31, 2032. These changes provide an opportunity for you to help clients who will reach 72 in 2023 or later to update their retirement planning to maximize tax-deferred growth of their retirement accounts. The original SECURE Act, passed in late 2019, increased the age at which individuals must begin taking required minimum distributions from 70 ½ to 72 starting in 2020. 

SECURE 2.0 also allows a surviving spouse to elect to be treated as the deceased employee for purposes of the RMD rules, effective for calendar years after December 31, 2023. As a result, you can alert surviving spouses whose deceased spouses were younger than them to consider making the election to delay the date at which RMDs must begin, allowing additional time for tax-deferred growth of their retirement accounts.

In addition, SECURE 2.0 increases the amount of tax-advantaged contributions older workers can make as they approach retirement age and expands opportunities for retirement savings for longer term part-time workers. You can enable your clients to maximize the growth of their retirement accounts by alerting them to these new opportunities.

The retirement planning landscape has been evolving over the past several years and we are committed to keeping you up to date on the latest developments and how they will impact your clients’ estate plans.

Spouses often work together to build wealth for themselves and their children. Congress recognized this by enacting the gift and estate tax portability election as part of the 2010 Taxpayer Relief, Unemployment Insurance Reauthorization, and Job Creation Act and making it permanent in the American Taxpayer Relief of 2012, providing married couples with a relatively simple way to potentially shield much more of their wealth from federal gift and estate taxation. You are familiar with your clients’ accounts and property, and your advice is essential to help your married clients decide if they should take advantage of the portability election.

What Is Portability of the DSUE?

In 2023, the federal estate tax exclusion amount is $12.92 million for individuals and $25.84 million for married couples, and only gross estates that exceed these amounts are subject to estate tax. Due to the unlimited marital deduction, married couples with large estates are usually able to avoid estate taxes at the death of the first spouse. However, at the death of the surviving spouse, their estate, including the amount that they inherited from their spouse, will be subject to estate taxes if the gross estate of the second spouse to die exceeds the estate tax exclusion amount. Prior to the enactment of the portability election in 2010, in the absence of complex planning, for example, forming a credit shelter trust with the deceased’s accounts and property equal to their remaining lifetime exclusion amount, the unused exclusion amount of the first spouse to die was lost, meaning that the couple’s children would inherit less of the couple’s wealth at the second death because only the second to die’s remaining lifetime exclusion amount  was available to reduce the estate tax that had to be paid. The portability election allows the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) amount to their own exclusion amount to reduce or eliminate estate tax liability when they die.

What Is the Process for Electing Portability?

To take advantage of portability of the DSUE amount, after one spouse dies, the surviving spouse must file an estate tax return (Form 706) and make a portability election that allows the DSUE amount to be applied to the surviving spouse’s subsequent transfers during life or at death. Portability must be elected properly or it will be ineffective, so clients should be encouraged to seek the help of a tax professional. 

If the deceased spouse’s gross estate exceeds the basic exclusion amount, a federal estate tax return must be filed within nine months of the date of death (although a six-month extension is available). To take advantage of the DSUE amount, the executor of the deceased spouse’s estate must elect portability and compute the DSUE amount on the timely estate tax return. No extension of time to elect portability is available in this situation.

Even if the deceased spouse’s estate does not exceed the basic exclusion amount and the executor is not otherwise required to file an estate tax return, an estate tax return must be properly and timely filed to elect portability. Treas. Reg. § 20.2010-2(a)(1) provides that in such cases, the due date of an estate tax return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension. 

In 2017, the IRS provided a simplified method for obtaining an extension of time to be used instead of the private letter ruling process that was available for a period extending to the second anniversary of the decedent’s date of death. In July 2022, the IRS issued Revenue Procedure 2022-32, which extends the time for estates that are not otherwise required to file an estate tax return under I.R.C. § 6018(a) to make a portability election under I.R.C. § 2010(c)(5)(A) from the second to the fifth anniversaryof the decedent’s date of death and allows a simplified method for obtaining the extension. Using the simplified method, an executor who wants to elect portability and has not yet filed an estate tax return—and was not required to do so under I.R.C. § 6018(a)—only needs to file a “complete and properly prepared” estate tax return (Form 706) that states at the top that it is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” The five-year deadline and simplified process make it easier and less expensive for the surviving spouse to take advantage of their deceased spouse’s unused exclusion amount, and in some cases, this could reduce or even eliminate federal estate taxes upon the death of the surviving spouse.

Why Should You Advise Clients to Elect Portability?

Although preparation of the estate tax return may seem like an unnecessary expense for clients whose estates are not currently subject to estate tax, keep in mind that the surviving spouse’s wealth could grow substantially before their death, and the DSUE amount could be used to shield wealth that otherwise would be subject to estate taxes. In addition, although the current estate tax exemption amount is historically high, it is scheduled to be reduced by half at the end of 2025, so in only a few years, many more estates will be subject to estate tax liability unless the law is changed. In addition, some states have their own estate or inheritance taxes applicable to estates of a much lower value. 

We Can Help

Portability is an important and valuable strategy to minimize your clients’ estate taxes. Please contact us if we can help your clients to determine if they should take advantage of a portability election, especially in light of the sunset of the doubled gift and estate tax exemption amount at the end of 2025.

After a long, cold winter, many of us—from the young and to the more mature—are ready to make plans for spring break. As your clients’ trusted advisor, you can provide valuable reminders to clients who will travel to take advantage of warmer weather and those who will enjoy their spring break at home. 

Tips for Clients Who Are Traveling

1. If your clients are planning a spring break trip, remind them to gather important documents they may need during their travels:

• Passport. If your clients plan to travel internationally, they will need a valid passport. If they need a new passport or to renew their existing passport, they should plan ahead: routine processing can take six to nine weeks, although expedited, urgent, and emergency processing is available under some circumstances.

• Health insurance card. Clients should bring their health insurance card with them on their trip. If your clients are traveling within the United States, they should also contact their health insurance company to ask if the state they are visiting is within their plan’s network. If they are traveling to a state outside of their plan’s network, they should ask which services are covered. In general, routine care is not covered in states that are outside of a plan’s network, but emergency services are covered. However, plans may differ, so it is important for your clients to check with their insurance company. 

• Powers of attorney. If your clients have property, accounts, or a business that need to be monitored or managed while they are away, they should make sure they have a financial power of attorney granting someone they trust the power to take care of their affairs until they return. In addition, clients should consider a power of attorney that authorizes someone they trust to handle emergencies while they are away, for example, repairs and insurance claims in the event of a flooded basement or a roof damaged by hail. The document can specify exactly what the individuals appointed under the power of attorney are authorized to do and the time period during which they may act on your clients’ behalf.

• Auto insurance information. In general, auto insurance policies cover drivers in all fifty states and sometimes Canada and Mexico. In addition, if your clients have auto insurance, it will cover a rental car. However, there may be some gaps in coverage if their rental car is damaged or stolen. If they do not have auto insurance, they will need to obtain rental car insurance if they plan to use a rental car during their travels. Clients who are traveling abroad will likely need to obtain rental car insurance and an International Driving Permit, which is a document that translates the information on their driver’s license into at least ten languages.

• Travel insurance. Your clients should also consider obtaining travel insurance, which can include trip cancellations, disruption insurance, or travel health insurance. If your client’s trip was expensive, they could lose a lot of money if they get sick and cannot travel or an incident occurs that prevents the trip from occurring as planned. In addition, if your clients are traveling internationally, their health insurance may only cover emergency care. Travel health insurance may cover out-of-pocket costs that are incurred for medical care. In addition, medical evacuation insurance is available to cover transportation expenses if clients travel to a country whose healthcare is not as good as the care they would receive if they return home or are transported to another location.

2. Remind your clients to make sure that their family members and loved ones have their contact information in case of emergency. Although your clients will likely have their cell phones with them during their travels, some areas, even in the United States, have poor cell phone coverage. As a result, they should provide landline telephone numbers and addresses of the hotels or resorts where they plan to stay during their trip.

3. If you need to be able to reach your clients to discuss important financial matters, make sure you obtain their itinerary and contact information as well. It may provide them peace of mind to know that you will be able to reach them in case an urgent matter arises.

Tips for Clients Who Are Staying Home

If your clients are taking a staycation, they can take advantage of their free time to review their existing financial and estate plans. If they have changed jobs, gotten married, had children, or experienced other life changes, it may be time for an update. If your clients need to update their estate plans, we are ready to help.

The new year brings with it important dates that may impact your clients’ financial situations and tax deadlines they may need to meet. By providing them with the following information, you can help them plan ahead to avoid financial trouble and avoid penalties for nonpayment or late payment of taxes.

March 6, 2023, is the deadline under the sixty-five-day rule for trust distributions. Under Internal Revenue Code (I.R.C.) § 663(b), distributions made to beneficiaries of nongrantor trusts (and estates) made within sixty-five days of the end of 2022 may be counted as distributions made during 2022. This could be an important tax savings opportunity for your clients, as a nongrantor trust must pay income tax at the trust level on any taxable income it retains. For 2022, a trust is taxed at the maximum rate of 39.6 percent when its taxable income exceeds $13,451, in contrast to individuals, who reach the top tax rate of 37 percent when their income exceeds $539,900. In some cases, the Medicare surtax (net investment income tax) may also apply, meaning that the trust will have an even higher marginal tax rate. As a result, the overall tax savings may be significant when distributions of trust income are made to a beneficiary in a lower tax bracket. An election to treat the distribution as being made in 2022 must be made by the trustee on a timely filed income tax return for the trust.

April 18, 2023, is the deadline for 2022 individual retirement account (IRA) contributions. Encourage clients who are still working to review their 2022 IRA contributions so they can take full advantage of tax-free or tax-deferred growth, as they are permitted to make contributions for 2022 until April 18, 2023. Due to the high rate of inflation, the limits on contributions to traditional and Roth IRAs will increase from $6,000 in 2022 to $6,500 in 2023. Individuals who are fifty years old or over are permitted to contribute an additional catch-up contribution of $1,000 (unchanged from 2022). In addition, remind older clients to take their required minimum distributions: under the SECURE Act, those who reached age seventy and a half in 2020 or later must take their first required minimum distribution by April 1 of the year after they reach age seventy-two.

April 18, 2023, is tax day. Now that a new year has started, remind your clients to gather the paperwork they need to prepare for filing their income tax returns: W-2s, Forms 1099, records of income from other sources, records of IRA contributions, health savings account contributions, and other items that can reduce their taxable income, as well as documentation that will allow them to take advantage of tax deductions or credits, such as charitable contributions and mortgage interest.

Student loan repayments resume sometime in 2023. To provide relief to students holding eligible federal student loans during the COVID-19 pandemic, the 2020 CARES Act required the US Department of Education to pause loan payments, implement a zero percent interest rate, and stop collection on defaulted loans starting March 13, 2020. The relief was extended by subsequent legislation and administrative forbearance, and in November 2022, the Department of Education instituted another extension of the pause on repayments while Biden’s student loan forgiveness plan is being litigated in the courts. However, in the absence of another extension, the pause on repayments is currently set to end sixty days after the litigation is resolved or sixty days after June 30, 2023, whichever happens first, amid a period of record high inflation. If your clients are among the millions who owe a substantial amount on their student loans, help them create a plan that will enable them to resume payments by helping them determine how much they owe, the size of their payments, how it will affect their budget, and if debt consolidation could be helpful. 

Although the Biden Administration’s plan to forgive up to $10,000 in eligible federal student loan debt for non-Pell Grant recipients and up to $20,000 for Pell Grant recipients was recently struck down by several courts as unconstitutional, if the plan is eventually implemented, be sure to advise your clients that the amount forgiven may be taxable. Although the Internal Revenue Service has indicated that the amount forgiven will not be taxable income at the federal level, it will be taxable in some states.

Your role in helping your clients assess their financial and tax situation and advising them appropriately is critical. If we can help your clients further secure their financial future by creating or updating their estate plan, please give us a call.