SECURE Act: How It Affects Your Estate Plan and the Beneficiaries of Your Retirement Accounts


On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act is effective January 1, 2020, and is the most impactful legislation affecting retirement accounts in decades.

The SECURE Act contains a couple of positive changes:
•    It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age; and
•    It eliminates the age restriction for contributions to qualified retirement accounts.

However, perhaps the most significant change is one that will affect the beneficiaries of your retirement accounts: The SECURE Act requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.

Exceptions to the SECURE Act Ten-year Withdrawal Rule
The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals. Thus, proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances are imperative to ensure your goals are accomplished and your beneficiaries are properly planned for.

Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing your beneficiaries to be bumped into a higher income tax bracket.  The result is that your beneficiaries will most likely receive less of the funds in your retirement account than you may have originally anticipated.

Consider Estate Plan Goals
Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and/or a divorcing spouse. In order to protect your hard-earned retirement account and the ones you love; you should schedule a meeting with us to review your estate plan objectives.

1.    Review/Amend Your Revocable Living Trust (RLT) or Retirement Trust

Depending on the value of your retirement account, you may have addressed the distribution of your accounts in your RLT, or you may have created a special Retirement Trust that would handle your retirement accounts at your death. Your trust may have included a “conduit” provision, and, under the old law, the trustee would only distribute required minimum distributions (RMDs) to the trust beneficiaries, allowing the continued “stretch” based upon their age and life expectancy.  A conduit trust protected the bulk of the retirement account balance, and only the RMDs--much smaller amounts--were vulnerable to creditors and divorcing spouses. With the SECURE Act’s passage, a conduit trust structure will no longer work because the trustee will be required to distribute the entire account balance to a beneficiary within ten years of your death. We should discuss the benefits of an “accumulation trust,” an alternative trust structure through which the trustee can take any required distributions and continue to hold them in a protected trust for your beneficiaries.

2.    Consider Additional Trusts

For most Americans, a retirement account is the largest asset they will own when they pass away. If we have not done so already, it may be beneficial to create a trust to handle your retirement accounts. While many accounts offer simple beneficiary designation forms that allow you to name an individual or charity to receive funds when you pass away, this form alone does not take into consideration your estate planning goals and the unique circumstances of your beneficiary. A trust is a great tool to address the mandatory ten-year withdrawal rule under the new Act, providing continued protection of a beneficiary’s inheritance.

3.    Review Intended Beneficiaries

With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information. Whichever estate planning strategy is appropriate for you, it is important that your beneficiary designation is completed correctly. If your intention is for the retirement account to go into a trust for a beneficiary, the trust must be properly named as the primary beneficiary. If you want the primary beneficiary to be an individual, he or she must be specifically named. Ensure you have also listed contingent beneficiaries.

If you have recently divorced or married, you will need to ensure the appropriate changes are made because at your death, in many cases, the plan administrator will distribute the account funds to the beneficiary listed, regardless of your relationship with the beneficiary or what your ultimate wishes might have been.

4.    Other Planning Strategies

Although this new law may be changing the way we think about retirement accounts, Miller, Miller & Canby’s estate planning attorneys are here and prepared to help you properly plan for your family and protect your hard-earned retirement accounts. If you are charitably inclined, now may be the perfect time to review your planning and possibly use your retirement account to fulfill these charitable desires. If you are concerned about the amount of money available to your beneficiaries and the impact that the accelerated income tax may have on the ultimate amount, we can explore different strategies with your financial and tax advisors to infuse your estate with additional cash upon your death.

David A. Lucas
is an attorney in the MM&C's Estates & Trusts and Business & Tax practice groups, focusing his practice in Estate Planning, and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here. Give David a call today at 301-762-5212 to schedule an appointment to discuss how your estate plan and retirement accounts might be impacted by the SECURE Act.





When to Review Your Estate Plan, and Why?


Just like other important life tasks, your estate plan deserves your time and attention. It’s important that you consider a review of your estate plan once a year. Think of this as your estate plan’s annual physical exam, and remember—prevention is the best cure.

An annual exam isn’t necessarily the only time we see a doctor. Similarly, an annual planning meeting isn’t the only time you need to consider your estate plan. The occurrence of special life events may mean it is time to pick up the phone and call us.

If you experience any of the following significant life events, get in touch with us, and we’ll make sure your estate planning documents are up to date:

Marriage
Have you recently been married? Congratulations! Marriage means new ways of sharing and managing finances and assets. As a result, this is an important time to revisit your estate plan. With this life change, you’ll need to contact us to make any changes to your beneficiary designations, update your will/trust, and update your powers of attorney and advance medical directives. This is especially important if this is a second marriage and/or there are children from a previous relationship involved. Proper estate planning is the only way to ensure that you are protecting your loved ones the way you want.

New Job
A new job presents an exciting new set of challenges and opportunities to explore. It also brings very real financial changes. You may be receiving new benefits that require new beneficiary designations on your estate plan. When you are filling out these new forms, it is important that the beneficiaries are named appropriately so your estate plan will work as designed. In addition, you’ll need to make sure your estate plan reflects the change to your financial status, whether that’s a pay increase or a pay cut.

Loss of a Job
Similarly, leaving employment brings big changes to your financial situation and to your estate plan. It’s important to update your plan to reflect the loss of employer-provided benefits such as life insurance, as well as the change in financial status.

Retirement
Welcome to your golden years! Retirement brings lifestyle changes, more time for loved ones, and important financial developments. Your estate planning attorney can help you change your plan to reflect that you’ve stopped earning income and have entered the phase where you will be beginning to use your retirement account. Also, with this new-found freedom, you may find yourself traveling more, making documents such as a Financial Power of Attorney and Advance Medical Directive more crucial.

Moved
If you have moved across state lines, you’ll need to consult with a local estate planning attorney to make sure that the provisions in your estate planning document are still applicable in your new state. A new home is a new asset, and it is important that this asset is titled appropriately to carry out your overall estate plan.

Divorce
Divorce is, of course, a difficult time. But it is critical to look out for your financial health and future if it occurs. You should make any needed updates to the beneficiaries on your estate plan and ensure your beneficiary designations on any life insurance or retirement accounts are changed so that your ex-spouse does not end up with your assets upon your passing.

Death
There is so much to take care of after the loss of a loved one. Take some time, but don’t forget that your estate plan will need to be updated to reflect the change that has taken place. You may need to remove the deceased loved one as a beneficiary from any will, trust, life insurance policy, or retirement account and determine what will now happen to that person’s share. It is also important to verify that your deceased loved one was not appointed as a Trustee, Personal Representative, or Agent, or if so, to make the necessary adjustments to your documents.

Received Inheritance
The death of a loved one not only brings a loss, but may result in an inheritance. An inheritance can mean property, money, real estate, and more. An increase in assets may necessitate a change in your estate planning strategy. Also, depending on the form of the inheritance you’ve received, there may be additional asset management or asset protection concerns that your estate planning attorney will need to address with you.

Birth or Adoption
Welcoming a new child to the family is an unforgettable time. You may feel inspired to look toward the future, and you should. This is a great time to plan to provide for your new family member’s future. Due to the new arrival’s young age, it is important to consider how you would like to provide for the child and who is going to be in charge of handling the assets until they reach a responsible age.

MM&C Estate Planning Attorneys are Honored to Help
Whatever life brings you and your family, we are here to help you weather the storms and celebrate the milestones. We’d be honored to help you ensure your estate plan is up to date to reflect these life changes. Together, we can craft a one-of-a-kind plan to ensure that you and your family are properly protected.

David A. Lucas
is an attorney in the MM&C's Estates & Trusts and Business & Tax practice groups, focusing his practice in Estate Planning, and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.





Estate Planning Awareness Week: Top 3 Estate Planning Myths


Estate planning can be a very difficult process. It is estimated that over half of Americans (56 percent) do not have an up-to-date estate plan. Making the decision to begin planning requires us to face the fact that we will not live forever. This thought alone can deter many people from getting started. Others talk themselves out of seeing a qualified attorney to put together an estate plan based on common misconceptions, which may include the following:

Myth #1: Only the Rich Need Estate Planning

When we hear about estate planning, it is often a news story about a wealthy businessman or celebrity who made some error, did no planning, or has family members who are angry about the planning that was done. By comparison, when the average person thinks about their own property and planning needs, they may assume that estate planning is not necessary because their monetary wealth does not measure up.

This could not be further from the truth! Estate planning is about more than just money. While proper planning allows you to determine who gets your money and property upon your death, the planning process also addresses what happens if you become incapacitated and someone has to make decisions on your behalf--a far more likely scenario. If you have not done any planning, the court will have to appoint someone to make your medical and financial decisions for you.

Without any planning, state law will decide who gets what—and many times, the government’s best guess as to what you would want is contrary to what you actually want.

Myth #2: I Don’t Have to Plan Because My Spouse Will Get Everything

For many married couples, it is common to own property or bank accounts jointly. If these assets are owned jointly, when one spouse dies, the surviving spouse automatically becomes the sole owner. In most cases, this is the desired outcome for married individuals.

While it is convenient for assets to pass automatically to the surviving spouse, this outright distribution offers no protection. What happens if, after your spouse dies, you get into a car accident and are sued? If the assets you owned jointly automatically became yours alone, this money and property are available to satisfy any judgment that could be entered against you resulting from a lawsuit.

What if, after you die, your spouse remarries? If the brokerage account you owned jointly becomes your spouse’s only, your spouse is now able to spend it all in any way he or she wants without any consideration for your wishes or the next generation. Your spouse’s new spouse may have access to the money you intended to pass to your children.

Estate planning means the two of you can sit down and plan out what happens to your joint property and accounts upon either of your deaths, ensuring that the survivor is provided for and that any remaining money and property are gifted in a way that is agreeable to both of you.

Myth #3: A Will Avoids Probate

Many people believe that once they have created a Will—whether drafted by an experienced attorney, or using a DIY solution or online form— they have avoided probate. Unfortunately, they are wrong.

While a Will is a great way to designate a person to wind up your affairs once you have passed, determine who will get your hard earned savings and property, and, if necessary, appoint a guardian to care for your minor children, this document has to be submitted to the probate court to begin the process of distributing your money and property. The level of involvement by the probate court can vary depending on the circumstances, but this process is not private, as the Will, and the assets that your Will controls, become a matter of public record. There are various types of proceedings and filings, and an experienced attorney can assist you with the process that is most appropriate and beneficial to you and your family.

The estate planning attorneys at Miller, Miller & Canby are here to help answer any questions you may have about estate planning, the estate planning process, or probate. Together, we can craft a one-of-a-kind plan to ensure that you and your family are properly protected.

David A. Lucas
is an attorney in the MM&C's Estates & Trusts and Business & Tax practice groups, focusing his practice in Estate Planning, and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.





Join MM&C Attorney David Lucas for an Estate Planning Seminar on October 29, 2019


Estates & Trusts Attorney, David A. Lucas, will be hosting an Estate Planning Insights Seminar on October 29, 2019 from 8 - 9:30 a.m. at Miller, Miller & Canby's Rockville Office in the Founders' Room.

  • Learn about the “nuts and bolts” of estate planning and probate

  • Hear about fascinating real-life case studies that illustrate what can go wrong without proper planning

  • Gain a greater understanding of the most beneficial approach for you and your family

  • Learn about the latest Maryland estate tax exemptions

REFRESHMENTS WILL BE SERVED I REGISTRATION IS REQUIRED I ATTENDANCE IS LIMITED

David A. Lucas is an attorney in the MM&C's Estates & Trusts and Business & Tax practice groups, focusing his practice in Estate Planning, and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.





Does Your Small Business Have a Succession Plan? 6 Key Factors to Consider


After years of blood, sweat, and tears, you have built a successful small business, but have you considered what will happen to your business when you retire or pass away, or in the event you become disabled? It is often hard to fathom an event that may not occur for many years, but it is critical to put plans in place in advance. Failure to plan for the inevitable could result in the eventual loss of the business. All small business owners should genuinely consider the following factors in making plans for the future of their business.

  1. Identify a successor. Many small business owners plan for the eventual transfer of their business to a child or children, or even grandchildren. If you have more than one child or potential successor to the business, it is essential to consider which of them has an interest in stepping into your shoes and whether the successor(s) has the skills needed to do so successfully. For example, you should not assume that control of the business should automatically go to the oldest child. The continued success of the business requires that the member(s) of the next generation who will take over the reins will have the business acumen and commitment needed to run it well.

  2. Train the successor. Consider participation in the business by the next generation before transferring ownership and management duties. For the continued success of the business, your successor(s) should know the ins and outs of the business and be able to run it before you depart. Training the successor can occur over several years, after which you can start the process of transferring management and ownership of the business. Some business owners choose to transfer management control of the business to the next generation first, while staying involved to a limited extent as an advisor. Then, after some time has passed, transferring ownership of the business can be completed.

  3. Determine whether to transfer the business by gift or sale. Each family must make its own decision about how the transfer should occur and the circumstances of when that might happen. Many business succession professionals recommend that the members of the next generation have an economic stake in the success of the business by purchasing at least part of their ownership interest. If your successor does not have the money to pay a lump sum for the business, the sale can occur as a buyout that happens over several years. Alternatively, the next generation can work for the company at a reduced salary to earn ownership interest in the business. Transfer of the ownership interest in the business can happen in several ways. If the transfer happens due to a sudden illness or death, have you considered the need for an income stream to support a surviving spouse?  The business and estate planning attorneys at Miller, Miller & Canby can help you explore options best suited to your particular circumstances.

  4. Create a structure for multiple successors.  If more than one successor is well-suited to run the business, put a business structure in place that enables a smooth transition to multiple successors with minimal conflict. Incorporate provisions facilitating a smooth transfer into your partnership agreement or LLC operating agreement. If one or more family members are not interested in participating in the ownership of the business, consider providing an inheritance for them from other assets or making them the beneficiary of a life insurance policy.

  5. Think about your own needs for your retirement. Will you need a continuous stream of income during your retirement years? If the answer is yes, consider continuing to play a limited ongoing role in the business, for which you receive a salary. Another option is to require the next generation to purchase the business; this would provide the funds needed for your retirement.

  6. Plan with an eye toward minimizing your tax liability. Many business owners choose to transfer ownership in the business gradually by making gifts of shares in the business to family members each year that are equivalent to the amount of the annual federal gift tax exclusion (currently $15,000). Our estate planning attorneys can help you establish a gifting plan to accomplish the transfer of your business in a way that minimizes your income, gift, and estate tax liability.

You have invested time, effort and collateral in making your business a success and it may be difficult to think about relinquishing ownership or control of it. Nevertheless, advance planning is of utmost importance in creating a lasting legacy for your family. Miller, Miller & Canby’s business, tax and estate planning attorneys can work with you to put a plan in place that helps you pass your business on to the next generation and takes into account your financial needs in retirement. Contact our office today to set up a meeting by clicking here.

David A. Lucas
is an attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

Contact David
to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Business and Tax Practice Group, click here.
 





Truly the Season of Giving: IRS Gives the Green Light for Gifting


As explained in a prior article, the sweeping tax reform bill, commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA), temporarily doubles the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption from $5 million to $10 million (adjusted for inflation after 2011). For 2018, the exemption is $11.18 million per person.  The exemption will increase to $11.4 million in 2019. This doubled exemption will adjust for inflation each year and will remain in effect until December 31, 2025. If Congress doesn’t act before 2026, the law will sunset and the exemptions will revert back to the $5 million level (adjusted for inflation).

Shortly after passage of the TCJA, questions arose regarding taxpayers who utilize the doubled exclusion during their lifetime and then die in 2026 or later, when the exclusion reverts to the former $5 million (adjusted for inflation). This could lead to inconsistent tax treatment arising as a result of the temporary nature of the increased exemption amount. Therefore, the statutory sunset of the higher exemption amount and reversion to the lower amount could retroactively deny taxpayers who die after 2025 the full benefit of the higher exclusion amount applied to previous gifts. This scenario has been dubbed a “clawback” of the exemption.

“Clawback” Example
Jim is about to retire and has an estate worth $15.18 million. In 2018, Jim decides to gift $11.18 million to Dynasty trusts for his 3 grandchildren. Jim will rely on the remaining $4 million, social security payments, and his pension to get him through his retirement years. Jim would owe no gift tax in 2018 because his combined gift and estate tax exemption is $11.18 million.

Jim then dies in 2026, when the combined gift and estate tax exemption has reverted back to $5 million (adjusted for inflation). We can assume that the inflation adjusted exemption amount will be about $6 million in 2026. If Jim still has $4 million in assets at death, his gross estate would be $15.18 million after adding in the $11.18 million taxable gift that Jim made in 2018. Would Jim’s estate owe tax on $9.18 million, the difference between his taxable estate ($15.18 million) and the 2026 exemption amount ($6 million)?  If yes, then Jim’s estate would be hit with an estate tax bill of approximately $3.67 million! On November 23, 2018, the IRS published proposed regulations to address the “clawback” problem.  The Regulations indicate that the IRS will not seek to “clawback” into the estate the taxable gifts that the decedent made when the exemption covered those gifts.  These proposed regulations apply to gifts made after 2017 and the estates of persons dying after 2017.

So, in Jim’s example, his estate would not owe estate tax on the amount he gifted in 2018.  Of course, in 2026, he would not have any remaining exemption to use for his $4 million in assets, so his estate would owe tax on the entire $4 million remaining at death – a tax bill of about $1.6 million. It is easy to see that these new Regulations are quite favorable to the taxpayer!

Estate Planning Opportunities: What Clients Need to Know
With the uncertainty of “clawback” soon to be removed, we recommend that clients with taxable estates consider making large gifts to reduce the size of their estates and take advantage of the increased federal exemption amounts. This is especially important for clients in Maryland and the District of Columbia. These jurisdictions have stand-alone state estate taxes with exemption amounts lower than the federal exemption, and do not impose a gift tax; which makes these gifts of even greater importance.

However, prior to making any gift, it is vital to conduct an analysis of the income tax consequences of the gift. This is crucial because a recipient of gifted assets takes the donor’s basis for federal income tax purposes (a “carry-over basis”). Whereas, the basis of assets which are subject to the federal estate tax, and received as a result of a person’s death, is equal to fair market value at the date of the decedent’s death (a “stepped-up basis”).

Finally, clients should know that time is of the essence and should consider taking advantage of the increased exemption amount sooner rather than later because Congress could change the law again prior to the sunset date and those who have not used the larger exemption amount will have lost the opportunity to do so. Keep in mind also that large gifts often take some time due to planning, appraisals, and preparation of trusts and other documents.

David A. Lucas
is an Attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies.

Contact David
to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Estates & Trusts Practice, click here.





Advance Medical Directives: You Have the Right to Decide, Don’t Wait Until It’s Too Late


Do you remember the unfortunate story of Terri Schiavo? In February 1990, Terri Schiavo, a Florida resident, suffered a heart attack that deprived her brain of oxygen for several minutes and caused brain damage.  Terri slipped into what doctors describe as a “persistent vegetative state,” which is an irreversible loss of consciousness.  Terri could no longer communicate with others, her movement was limited to minor reflexive nerve and muscle activity, and she could only survive with the assistance of an artificial feeding tube.  Terri was only 26 years old.

For several years, Terri’s husband and her parents requested that Terri be kept alive with an artificial feeding tube.  Initially, the family hoped that this would give Terri some time to recuperate from her injuries.  Unfortunately, by 1998, Terri had shown no signs of improvement, and her husband requested the removal of the feeding tube because he felt that Terri would not have wanted to continue to live in this condition.  Terri’s parents vehemently disagreed with the request to remove the feeding tube - they would not let go of the hope that Terri might improve.

The ensuing legal battle over Terri’s right to die consumed her loved ones and the court system.  For seven painful years, both parties fought to convince the courts that they knew best what Terri would have wanted in these circumstances.  The Florida courts consistently ruled in favor of Terri’s husband, but Terri’s parents wouldn’t give up - they appealed the courts’ decisions again, and again, and again.

No matter how you may feel about the moral and political issues that Terri’s case brings to the forefront, most people would agree that they would not want their loved ones to suffer the 15-year nightmare that Terri and her family experienced.  Fortunately, the means to plan for end-of-life medical decisions are available.

Legal Options That Can Prevent Family Turmoil

Terri Schiavo’s case highlights the fact that the elderly are not the only people at risk of becoming incapacitated and being compelled to face life and death medical decisions.  Moreover, all Americans have the legal right to make decisions about what kind of medical treatments or procedures they choose to have, or choose not to have, if death is imminent or if they are permanently unconscious and have no reasonable expectation of recovery.  Every state in the country has passed laws detailing how to exercise those rights.  In 1990, Florida law provided Terri the right to make a Living Will which would have allowed Terri to express her wishes to her family and to prevent the years of family turmoil and court involvement.

Unfortunately, Terri did not exercise her right to execute an Advance Medical Directive, Living Will, or Health Care Power of Attorney before her heart attack.  As a result, the Florida courts had no choice but to get involved in Terri’s personal affairs once her family could no longer agree on how to treat her condition.  The most important lesson from Terri's case is that every adult should create a proper legal document expressing his or her wishes regarding end-of-life medical care.
 
Maryland Health Care Law and Advance Medical Directives

The Maryland Health Care Decisions Act provides that any competent adult can make decisions regarding the provision of health care to that individual or the withholding or withdrawal of health care from that individual.  In Maryland, these decisions are expressed in writing through the use of an Advance Medical Directive.  An Advance Medical Directive typically consists of two parts. The first part is the “Appointment of Health Care Agent,” where you name the individual who will make health care decisions for you if you are unable to make those decisions yourself.  You should also name successors or back-up agents in the event your primary agent is unable or unwilling to serve as your agent.  The second part of your Advance Medical Directive is your “Living Will,” where you express your wishes concerning end-of-life medical treatment.
 
Planning Early is Critical

An Advance Medical Directive should be prepared by an attorney who understands the laws and issues involved and can customize a plan according to your wishes.  By being proactive, you give yourself the greatest chance that your wishes will be enforced.  Terri Schiavo could have spared her family years of bitterness, strife, and public disharmony if she has just taken the time to clearly and unequivocally express her wishes.  While her tragic end may have been impossible to avoid, Terri’s family would likely have been at peace had they known that Terri would have chosen to remove the feeding tube.  Maybe if Terri had made her voice heard, her family could have remained united in the face of their common tragedy.

With appropriate planning, you can guarantee that your family is not challenged with making difficult decisions while they are already confronting a traumatic situation.  Granted, it is difficult to face our own mortality and consider the inevitable.  But by addressing these issues head on and discussing them, you will alleviate potential crises and show your loved ones how much they mean to you.  The most important step you can take in creating any plan is to discuss your intentions with those who will be affected by it before the plan is needed.

Finally, it is crucial to remember that even if you have a Will, Trust, or other end-of-life legal documents in place, if they have not been recently updated, changes in the law or your own views could prevent them from accomplishing your intended objectives.  An Advance Medical Directive is only one of several legal documents that every adult needs for an effective and complete estate plan.

David A. Lucas
is an Attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies.

Contact David at 301-762-5212 to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Estates & Trusts Practice, click here.
 





New Maryland Legislation Caps Estate Tax Exemption at $5 Million Beginning January 1, 2019


A new law changes both the exemption allowed and rules permitting use of estate tax exemptions in the state of Maryland. For individuals dying in 2018, the Maryland estate tax exemption is $4 million - a $1 million increase from the 2017 Maryland estate tax exemption. This change was part of a 2014 law that incrementally increased the Maryland estate tax exemption each year until 2019, when the exemption was scheduled to match the federal applicable exclusion amount.

Federal Estate Tax Exclusion for 2019
As a result of the recently-enacted, sweeping federal tax reform known as the Tax Cuts and Jobs Act of 2017 (TCJA), the federal applicable estate tax exclusion amount is approximately $11.2 million for decedents dying in 2018. Under the federal law, the exclusion amount will adjust annually for inflation. It is estimated that the federal applicable estate tax exclusion amount will be approximately $11.4 million for decedents dying in 2019. Accordingly, under prior Maryland law, the Maryland estate tax exemption was scheduled to automatically jump from $4 million in 2018 to approximately $11.4 million starting January 1, 2019.

Maryland Estate Tax Exclusion for 2019
However, in early April 2018, new legislation was enacted in Maryland that will cap the amount exempt from Maryland estate tax at $5 million for people who die on or after January 1, 2019. This new law replaces the prior 2014 Maryland law that was scheduled to bring the Maryland estate tax exemption in line with the federal applicable exclusion amount in 2019. In addition, the new Maryland exemption amount will not adjust for inflation each year. So, the amount that a Maryland resident can transfer estate-tax free at death will remain frozen at $5 million until new legislation is passed in the future.

Portability Allowed in New Maryland Law
The new Maryland law also provides for “portability,” a rule permitting a surviving spouse to use, under certain circumstances, the portion of his or her deceased spouse’s unused Maryland estate tax exemption. While portability has been a permanent feature of the federal estate tax scheme for several years, this marks the first time that portability will be available in Maryland, making Maryland one of the few states that provide this relief to its citizens.

How the New Law Effects Estate Planning
Keep in mind that estate tax planning is only one aspect of a comprehensive estate plan. If your estate is not likely to be subject to federal estate tax or even Maryland estate tax under the new law, you should likely focus more on incapacity planning, asset and nursing home protection, guardianship of minor children, blended family issues, special needs children planning, business succession planning, and minimizing income taxes. Current estate plans may not have the intended consequences under the new rules, and no one should wait for a death to find out if they have a good estate plan.

David A. Lucas
is an Attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies.

Contact David
to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Estates & Trusts Practice, click here.





Estate Planning Attorney David Lucas is a Featured Speaker on Trusts at NBI Estate Planning Seminar


The National Business Institute (NBI) is holding a two day conference on “Estate Planning A-Z” in Timonium, Maryland on May 9-10, 2018. The two-day comprehensive course is an ultimate guide to estate planning. From client intake through tax planning and business succession strategies, attendees will receive tips, sample forms and answers to the most pressing questions. The conference will also cover the latest knowledge on effective will and trust planning techniques.

Miller, Miller & Canby Estates & Trusts Attorney, David Lucas, will give a presentation on “Trusts 101”on the second day of the conference, May 10th. Mr. Lucas’ presentation will cover:

•    Types, Goals and Functions of Trusts;
•    Major Laws Governing Trust Creation and Administration;
•    Who are the Main Parties? Their Duties and Responsibilities to a Trust;
•    Revocable vs. Irrevocable Trusts;
•    Choosing Trust Status; and
•    Trust Funding Basics.

Who Should Attend?

•    Attorneys
•    Estate and Financial Planners
•    Trust Officers
•    Paralegals
•    Accountants
•    Tax Professionals

Click here for the NBI conference overview and to REGISTER.

Mr. Lucas
is an attorney in Miller, Miller & Canby’s Estates & Trusts and Business & Tax practice groups where he focuses his practice on Estate Planning, Trust and Estate Administration, Elder Law and Business Law. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

For more information about Miller, Miller & Canby’s Estates & Trusts and Business & Tax Practices, click here or contact David at 301-762-5212.
 





How Does Tax Reform Affect Your Estate Plan?


In December 2017, a sweeping tax reform bill, commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA), was passed by Congress and signed into law by the President. The TCJA reduces individual and corporate tax rates, eliminates a host of deductions, enhances other breaks, and makes numerous other changes. But how does the TCJA affect your estate plan?  

One thing the TCJA did not do is repeal the federal gift and estate tax, as initially planned by the House of Representative’s version of the bill. Instead, the TCJA temporarily doubles the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption from $5 million to $10 million (adjusted for inflation after 2011). For 2018, the exemption is now $11.2 million per person ($22.4 million for a married couple). This doubled exemption will adjust for inflation each year and will remain in effect until December 31, 2025. If Congress doesn’t act before 2026, the law will sunset and the exemptions will revert to the $5 million level (indexed for inflation).


New Estate Planning Opportunities

These changes open considerable opportunities for people to remove assets from their taxable estates and permanently exempt future appreciation of those assets from estate, gift, and GST tax. For example, by using the increased exemption amount to make tax-free lifetime gifts, you can protect that wealth (and any future appreciation in value) from taxation in your estate, even if smaller exemptions are reinstated before death. Be aware though, that unlike assets transferred at death, lifetime gifts will not receive a stepped-up tax basis. This could cause an increase in income taxes on any gain realized by the recipient when they sell the gifted asset. It is therefore critical to weigh the potential estate tax savings against the potential income tax costs when considering this strategy.


Lifetime Gifting Strategy with 529 College Savings Plan

If you can benefit from a lifetime gifting strategy, then you may want to consider combining that strategy with a 529 college savings plan. The TCJA permanently expands the benefits of these plans, which now permit tax-free withdrawals for qualified elementary and secondary school expenses and not just higher-education expenses. Contributions to 529 plans are removed from your taxable estate even though you can change the beneficiaries at any time and even get your money back (Note: a penalty will be assessed for any non-qualified distributions).  And, you can combine 5 years’ worth of annual gift tax exclusions (currently $15,000 per year) into one year, so an individual could gift $75,000 to a 529 plan this year (or $150,000 for married couples) without triggering gift or GST tax or using any of your exemptions.


Dynasty Trust

It may also be an ideal time to establish a “Dynasty trust.” Significant amounts of wealth can grow and compound free of federal estate, gift, and GST tax with this type of irrevocable trust, providing tax-free benefits for your grandchildren and future generations. In Maryland and a few other states, a dynasty trust can last forever, but some states restrict the length of time these trusts can exist. Avoiding the GST tax is imperative as it imposes an additional 40% tax on transfers to grandchildren and others that skip a generation. Clearly, this tax will quickly erode large amounts of wealth. The key to avoiding the GST tax is to leverage your new, doubled GST tax exemption.

For example, let’s assume that you have not yet used any of your estate and gift tax exemptions and you transfer $10 million to a properly-crafted dynasty trust. There would be no gift tax because you are within your exemption amount. Now, the funds in the dynasty trust, and all future appreciation of those funds, are out of your taxable estate. Then, by allocating your GST tax exemption to your $10 million trust contribution, you can ensure that any distributions from the dynasty trust to your grandchildren (or subsequent generations) avoid GST tax. This is true even if the trust’s funds grow well beyond the exemption amount and even if the exemption amount is reduced in the future.


Other Estate Planning Considerations

Keep this in mind though: estate, gift, and GST tax planning is only one aspect of estate planning. Given that some pundits are predicting that the TCJA has reduced the number of U.S. estates subject to estate tax from approximately 5,000 to 2,000, most families should likely focus more on non-estate tax issues, like incapacity planning, asset and nursing home protection, guardianship of minor children, blended family issues, special needs children planning, business succession planning, and minimizing income taxes.

In fact, it may be preferable to engage in strategies to reduce income tax now and then transfer those savings to your beneficiaries at death with as little transfer tax as possible. This can be done in a variety of ways, including, but not limited to:

  •  Shifting income to someone else: make a lifetime gift of an asset that produces a lot of income to a trust that distributes the taxable income to a beneficiary that is in a lower tax bracket;

  • Charitable giving: contribute more to charity. The TCJA increases the adjusted gross income limitation for deductions of cash donations to public charities from 50% to 60%; and

  • Delaying capital gains taxation: make a gift of an asset that has already appreciated and that you want to sell to a charitable remainder trust (CRT). A sale by the CRT avoids immediate capital gains taxation. 100% of the proceeds of the sale are then reinvested. Distributions from the CRT each year will be taxed to the beneficiary, but may avoid income taxation at top rates.

The TCJA is perhaps the most significant tax legislation in over 30 years. Continued review and experience with the Act will unquestionably reveal numerous new planning opportunities in the coming months and years. Don’t fall into the trap that you don’t need a well-crafted estate plan because of the increased federal estate, gift, and GST tax exemption. Current estate plans may not have the intended consequences under the new rules, and no one should wait for a death to find out if they have a good estate plan.

David A. Lucas is an Attorney in Miller, Miller & Canby’s Estates & Trusts and Business and Tax Practice Groups. David is committed to providing his clients with a well-crafted estate plan so they may avoid probate, protect their assets and legacies, and provide for the security of their loved ones. He takes a special interest in ensuring that the dreams parents have for their children and grandchildren are not lost to taxes, poor planning, or procrastination. He speaks frequently on a variety of estate planning topics to both the general public and private groups.

David has focused his practice on helping families preserve their financial wealth and legacies for future generations through the use of Trusts, Wills, Powers of Attorney, Advance Medical Directives, Living Wills, and other estate planning strategies.

Contact David
to discuss your estate plan to take advantage of the laws available today and ensure flexibility for future changes. For more information on Miller, Miller & Canby’s Estates & Trusts Practice, click here.





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