How the CARES Act Affects Your Retirement Plan


The Internal Revenue Service (IRS) recently published questions and answers (click here) regarding retirement provisions in Section 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In addition to providing the well-known stimulus aid for individuals and the Payroll Protection Program and Economic Injury Disaster Loan programs for businesses, the CARES Act increases accessibility to funds and loans from certain retirement plans and accounts. The information the IRS published clarifies which individuals may benefit from the legislation and which plans and accounts are covered.

Retirement Account Rules Established by the CARES Act
Under Section 2202 of the CARES Act, individuals may withdraw up to $100,000 in “Coronavirus-related” distributions from certain retirement accounts. Distributions are deemed “Coronavirus-related” if they are withdrawn from approved plans between January 1, 2020, and December 30, 2020, by individuals who have been adversely affected by COVID-19 in a number of specified ways (discussed below). Individuals may take distributions from 401(k), 403(b), and individual retirement accounts (IRAs). Under normal circumstances, a 10 percent penalty is imposed on distributions made from these accounts by account owners under the age of 59.5 - the CARES Act now waives this penalty.

In addition to expanding access to retirement distributions, eligible individuals may also take loans of up to $100,000 from their employer-sponsored retirement plans. Prior to the CARES Act, the limit was $50,000 or 50 percent of the vested account balance. Loans taken under this CARES Act provision must be entered into by September 22, 2020. For existing loans, payment due dates have been extended, and repayment is not required through December 31, 2020.

Qualified Participants
Like much of the legislation pertaining to COVID-19, the retirement relief sections were specifically designed to provide broad coverage. According to the IRS information, a qualified participant is eligible for the expanded access set forth in Section 2202 if the participant, the participant’s spouse, or the participant’s dependent was either diagnosed with COVID-19 using a test approved by the Centers for Disease Control and Prevention (CDC) or has experienced “adverse financial consequences” caused by COVID-19. The “financial adverse consequences” experienced by the participant must be the result of one of the following:

  • The participant has been quarantined, furloughed, laid off, or has experienced a reduction of work hours due to COVID-19;

  • The participant has been unable to work due to the lack of child care caused by COVID-19; or

  • The participant has had to reduce business hours or close a business the participant owns or operates due to COVID-19.

An individual who falls within any of these categories is eligible for the expanded distribution and loan options available under the CARES Act.


Additional Benefits for Individuals of Retirement Age
The CARES Act also temporarily suspends required minimum distributions (RMDs) from IRAs, and 401(k) and 403(b) retirement accounts. In general, once an individual reaches a certain age (currently 72 years old per the SECURE Act – click here to learn more about SECURE), the government mandates that the individual begin taking out a minimum distribution to ensure that these retirement funds are not left untouched indefinitely. This temporary suspension of RMDs is unique because it is not limited to retirees impacted by COVID-19. The suspension also applies to:

  • individuals who turned 70.5 years old in 2019 and did not take their RMDs in 2019,

  • individuals who are 72 years old or older, and

  • beneficiaries of inherited IRAs for Decedents who died before 2020.

These law changes allow retirees to keep their money invested for a longer time. If you have already taken an RMD that you were not required to due to the CARES Act, please note that you may be able to redeposit these distributions via rollover provisions, but you must act quickly. In the past, the IRS allowed the rollover of funds within sixty days of withdrawal. Under the CARES Act, however, the sixty-day rollover period has been extended to July 15, 2020.

A Word of Caution
Despite the various new options available under the CARES Act, it is critical to carefully consider whether distributions should be taken from any accounts. The tax implications of these options vary, and action should be taken only after careful consideration of an individual’s personal goals and capacity.

Schedule a Meeting
We know that these are trying times. Let us help you choose the best course of action.  We are more than happy to meet with you by phone or video conference.

David Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.

Contact David at 301.762.5212 or via email. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.  


 





Don’t Procrastinate: Answer these 4 Questions to Get a Quick Jump-Start on Your Estate Plan


As the coronavirus pandemic continues to disrupt daily life and leave Americans uncertain of the future, you do not have to feel helpless. In fact, now is a great time to be proactive and organize your affairs in the event you or a loved one should fall ill. One of the most important things you can do (and should do) is get your estate plan in place. If you can answer the following questions or at least begin to think them through, you can get a jump-start on the estate planning process today.

1.    Who Do You Want to Handle Your Financial Affairs?
One major issue that must be addressed during the estate planning process is the control of your money and property. This includes what will happen while you are alive and what will happen at your death. The person(s) you choose to put in charge of your money and property should be trustworthy, detail-oriented, financially savvy, and organized. To assist you with your financial affairs, you may decide to appoint someone to serve as your Agent (aka attorney-in-fact) under a financial power of attorney and/or a successor Trustee of your revocable living trust.

The agent is responsible for carrying out the financial transactions listed in the financial power of attorney document on your behalf while you are alive. The document can be tailored to meet your needs, granting your agent as much or as little authority as necessary or desired. You could grant your agent the authority to do everything you could do (known as a general durable power of attorney), or the agent could be instructed to only open a bank account for the purposes of depositing a specific check (known as a limited power of attorney). You also have the ability to specify when your agent’s authority to act on your behalf becomes effective. With a “springing” power of attorney, the agent can act only if you become incapacitated. The method used to determine whether you are incapacitated is stated in the power of attorney (note: in general, “springing” powers of attorney are not recommended). Alternatively, an immediately effective power of attorney allows your agent to act the moment you sign the document, even though you are still able to conduct your own financial affairs. This feature, however, does not limit your ability to carry out your own transactions - it merely provides that another person can carry them out in addition to you.

Another way a trusted individual can assist you is by serving as a successor trustee of your revocable living trust. When the trust is first created and you transfer money and property to the trust, you will likely serve as the initial trustee and will be in full control of the money and property, just as you were before your transferred it to the trust. In addition to being the trustee, you will also be the current beneficiary, allowing you to continue to enjoy the money and property even though they are technically owned by the trust. For the foreseeable future, this situation will work well. However, the true benefit of the trust arises when you are no longer able to fulfill the role of trustee. At that point, the trusted individual you have appointed as your successor trustee will step in and manage the money and property for you, without court involvement. Your successor trustee can also step up at your death without court involvement. But no matter when the successor trustee takes over, i.e., when you are unable to manage your affairs or upon your death, he or she is required to follow the instructions that have been detailed in the trust document. This means that the money and property will continue to be used for your benefit during your lifetime and for the benefit of those you have chosen at your death.

2.    Who Will Communicate Your Medical Decisions to the Appropriate Medical Personnel?
In the event you are unable to communicate your medical wishes, your agent under an advance medical directive or medical power of attorney is the person who can make the life or death decisions on your behalf. Your health care agent should be level headed, able to act under pressure, and most importantly, able communicate your wishes, even if their own wishes or beliefs differ from yours. If you have family members that disagree with your choices, you may want to rethink before giving them the authority to make medical decisions on your behalf. It is also essential that you consider the individual’s availability to act for you. Medical emergencies can happen without warning. It is necessary that the person you choose as your agent is available in the required capacity to make those decisions for you. If the person you would like to choose is across the country, do they have the time and finances to travel? If your first choice has a demanding job or home life, can he or she be reached in a reasonable amount of time in the event a decision can be made over the phone?

Medical decisions are very personal. Even if you have the most capable person appointed as your health care agent, it is helpful if you can provide him or her with your wishes in writing. This can be a valuable tool for your agent. An advance medical directive or ‘living will” allows you to state your wishes regarding your end-of-life care: Do you want medication to help manage any pain? Do you want to be put on a ventilator if needed, etc.? While these decisions may take some soul searching, this information may be crucial in allowing your agent to make the best decisions on your behalf.
 
3.    Who Will Look After Your Minor Children, Even if it is Just Temporary?
If you have a minor child, you know that they require some level of supervision. In case you are not able to take care of your minor child, and the other custodial parent is not available, you must make sure to appoint someone to step in and take care of your child, even if it is just for a short period of time. This person should have the ability to take on the mental, emotional, and possibly financial day-to-day responsibilities of raising your child. Because it is impossible to know in advance the amount of time your child would need to spend with them, you will also need to consider whether the person is geographically desirable or if your child would be required to move, even temporarily.

4.    How Do You Want Your Money and Property Divided at Your Death?
When considering how to divide your money and property, think about what is in the best interests of each person. You do not have to give the money and property to your loved ones outright: You have options.

If you are concerned about giving a chosen beneficiary access to 100% of the money and property they will inherit, you could choose to stagger distributions over a period of time. For example, the beneficiary could receive 25% at age 25, 50% at age 40, and the remaining 25% at age 60. By staggering the distributions in this fashion, your younger beneficiary may be able to use the last portion as a nest egg for retirement.

In the event you would like to incentivize certain behaviors, you can set aside money or property to be distributed when a beneficiary accomplishes certain milestones (i.e., graduates college, stays sober for 180 days, gets their first full-time job). This can be helpful if you are concerned that the inheritance might derail a beneficiary from a productive path. By making the distributions contingent on certain behaviors, you can help ensure that they are staying on the right track even after you are gone.

For some beneficiaries, it may be more appropriate for any distribution to be solely within the complete discretion of the named successor trustee. Although this may sound harsh, there are many types of beneficiaries that can be safely provided for using this strategy. If your beneficiary has creditor issues, their creditors can only take the money or property that has been given to the beneficiary. So long as the money and property remain in the trust, and the trustee is not required to make distributions to the beneficiary, the money can stay out of the hands of the creditors. Additionally, a properly structured trust can prevent the beneficiary’s former spouse from taking the inheritance due to the limited control your beneficiary has over the money. This does not mean that your beneficiary will never receive any benefit from the trust - it just means that the trustee has the ability to ensure that distributions are truly in the best interest of the beneficiary, at the best time, and in the right amount.

We Are Here to Help
We are here to help you navigate through the estate planning process during these unprecedented times. Let us help you be proactive and get your affairs in order.

David Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.

Contact David at 301.762.5212 or via email. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.





COVID-19: A Reminder of Why Estate Planning Is Important


The past few weeks have been incredibly difficult for many people in communities around the world. It is crucial for everyone, particularly those who are in good health, to continue to take all the steps necessary to protect those around us who are more vulnerable to becoming seriously ill if exposed. We should all care for our neighbors and communities by staying home, washing our hands frequently, sanitizing frequently-touched surfaces, and implementing any other steps recommended by health experts.

Although most people are not likely to be in serious danger, even if they come down with the coronavirus, it is a wake-up call to those who have been putting off creating or updating an estate plan. None of us knows what tomorrow will bring, so for your own peace of mind and the good of your loved ones, it is important to stop procrastinating.

There are several key documents an estate plan should include to protect you and your family if you should suddenly become very ill or pass away:

Last Will and Testament and/or a Trust
A will enables you to specify the individuals you would like to receive your money and property. In addition, you can name a guardian(s) to care for your children or other dependents if you are unable to do so and a conservator to handle their financial needs. For many, however, a will alone is not the best solution, as it is only effective after you pass away.

In a revocable living trust, you can name yourself as a trustee and continue to exercise control over the money and property you transfer to the trust. However, it also enables you to name a co-trustee or successor trustee who can manage your money and property for your benefit and the benefit of any other beneficiaries of the trust if you become too ill to do it yourself. In addition, your trust can specify when and how the funds should be distributed to your beneficiaries when you pass away. Further, if you have transferred all of your property into the trust, it will not have to go through the probate process—which can be expensive, time consuming, and transparent to any member of the public.

For some, other types of trusts may be appropriate to achieve particular goals, for example, protecting assets from creditors or providing for a child with special needs.

  • Note: If you do not create a will or trust specifying who you would like to receive your money and property when you die, it will pass to the individuals specified in the state intestacy statute, who will receive the shares mandated by the statute. Obviously, this is not optimal, as the people and shares spelled out in the statute may be vastly different from what you would have specified in your estate planning. Moreover, probate is required for the administration of your estate if you die without a will or trust. In addition, a court will have to appoint a guardian and/or conservator to care for your children—and the person appointed may not be the individual you would have chosen.

Powers of Attorney
Using a power of attorney, you can name people you trust to make decisions on your behalf if you become ill and are unable to make them for yourself. Even if you are married, your spouse may not have the authority to make all of these types of decisions for you without the proper documentation.

A durable financial power of attorney will allow the person you have named as your agent to make financial decisions and conduct business on your behalf if you cannot handle these matters for yourself. It can be as broad or as limited as you choose: For example, you could authorize a trusted individual to run your business for you, or you could simply authorize another person to write checks and pay your bills on your behalf.

An advance medical directive/medical power of attorney/living will can be used to name a trusted person as your agent to make medical decisions on your behalf if you are unconscious or otherwise unable to communicate them to your health care provider. As your agent, the person you have named is required to act in accordance with your wishes to the extent that they are known to that individual, so it is important to communicate important information regarding your preferred providers, medical conditions, treatments you do not want, religious convictions, and other pertinent information. You can also clearly spell out your wishes for the end of your life, for example, whether or not you want to be placed on life support if you are in a vegetative state or have a terminal condition. These important documents allow your family and health care providers to understand your wishes even if you are no longer able to communicate them.

  • Note: If you do not name trusted individuals to act for you in medical and financial powers of attorney, your family members, including your spouse under some circumstances, will have to go to court to be appointed to this role. As in the situation in which you do not have a will or trust, you no longer have any control over who is named to act on your behalf. The person appointed by the court may not be the person you would have wanted to take on these important roles.

Funeral Planning
You can use a memorial and services memorandum to provide information to your family and loved ones about your wishes for your service, people who should be notified when you pass away, instructions regarding your remains, and information you would like to be included in your obituary. If you do not provide this information in advance, your grieving family will be left to guess about what you would have wanted after you pass away. This could lead to unnecessary stress and conflict at a time when they are likely to be feeling emotionally overwrought.

Give Us a Call
Certain situations can bring our own mortality to the forefront of our minds, even if they are unlikely to have a severe or direct effect on us. The pandemic provides an important reminder of just how important it is, not only to us, but also to our family members and loved ones, to have an estate plan in place in case the unexpected happens. Our foremost goal is to help you have confidence that if you become ill, your own care and the needs of your family will be addressed. Call us today at 301-762-5212 to set up a meeting, which can occur virtually or in person at your convenience. Let us help provide you and your family the peace of mind that comes with knowing you have an estate plan that accomplishes your goals and will avoid unnecessary attorneys’ fees, headaches or conflict.

David Lucas is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.

Contact David at 301.762.5212 or via email. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here
 





Top 5 Common Mistakes with DIY Estate Plans


The internet offers all the information and tools we need at our fingertips to create our own estate plan, right? For most people, this is simply not true. Several years ago, Consumer Reports®, an independent nonprofit consumer watchdog group, created wills using the forms provided by DIY websites and asked three law professors to review them. Although the professors found that the wills drafted using the DIY services were better than wills drafted by non-lawyers on their own, they were inadequate to fully meet the needs of most consumers. Although your DIY “estate plan” may initially cost only $49.95, it may end up being much more costly than an estate plan designed by an experienced estate planning attorney.  

The fact is, wills are only one part of a comprehensive estate plan that fully protects you and your family. Even if your DIY will meets all your state’s requirements and is legally valid, the will alone is unlikely to be sufficient to address all of your estate planning needs. Furthermore, DIY packages you can buy online that purport to be comprehensive may not include important documents you may be unaware that you need. Without expertise in a particular area, we simply don’t know what we don’t know—and this could lead to unnecessary heartache for you or the family and loved ones you will one day leave behind. 

Here are the top 5 most common pitfalls of the DIY approach:

1.  DIY estate plans may not conform to the applicable law. The law that applies to estate planning is determined by each state—and there can be wide variations in the law from state to state. Although the forms you can find on the internet may claim to conform to your state’s law, this may not always be the case. In addition, if you own property in another state or country, the laws in those jurisdictions may differ significantly, and your DIY estate plan may not adequately account for them.

2. A DIY estate plan could contain inaccurate, incomplete, or contradictory information. For example, if you create a will using an online questionnaire, there is the possibility that you may select the wrong option or leave out important information that could prevent your will from accomplishing your goals. In addition, some online services allow users to insert additional information not addressed by their questionnaire that could contradict other parts of the will.

3. Your DIY estate plan may not account for changing life circumstances and different scenarios that could arise. For example, if you create a will in which you leave everything to your two children, what happens if one of those children dies before you? Will that child’s share go entirely to his or her sibling—or will it go to the child’s offspring? What if one of your children accumulates a lot of debt? Is it okay with you if the money or property the indebted child inherits is vulnerable to claims of the child’s creditors? What if your will states your daughter will receive the family home as her only inheritance, but it is sold shortly before you die? Will she inherit nothing? As opposed to a computer program, an experienced estate planning attorney will help you think through the potential changes and contingencies that could have an impact on your estate plan and design a plan that prevents unintended results that could frustrate your estate planning goals.

4. DIYers frequently make mistakes in executing the plan. Under the law, there are certain requirements that must be met for wills and other estate planning documents to be legally valid. For example, a will typically requires the signatures of two witnesses, but state law differs regarding what is necessary for a will to be validly witnessed. Some states require not only that the will be signed by the will maker and the witnesses, but also that they all must sign the will in each other’s presence. In other states, witnesses are not required to be in the same room when the will maker signs the will, and they can even sign it later if the will maker tells them his or her signature is valid.  Similarly, for a valid power of attorney, some states require only the signature of the principal (the person who is granting the power of attorney) to be notarized, but some states require the signatures of both the principal and the agent (the person who will act on behalf of the principal) to be notarized. In other states, one or more witnesses are required—and these requirements may also differ depending upon the type of power of attorney (financial vs. medical) you are trying to execute. If you seek the help of an estate planning attorney, you can rest assured that all of the “i’s” are dotted and the “t’s” are crossed, and that your intentions will not be defeated because of mistakes made during the execution of your documents.

5. Assets may be left out of your estate plan. Many people do not realize that a trust is frequently a better estate planning tool than a will because it avoids expensive, time-consuming, and public court proceedings (i.e., the probate process) that would otherwise be necessary to transfer your money and property to your heirs after you pass away. Even if you have created a DIY trust, if you do not fund it, that is, transfer title of your money and property into the name of the trust, it will be ineffective, and your loved ones will still have to endure the probate process to finish what you started. Further, if you do initially transfer title of all your assets to the trust, it is likely you will acquire additional property or financial accounts over the years that must go through probate if title is not transferred to the trust. Regular meetings with an estate planning attorney can help ensure that your plan accomplishes your goals and that your grieving family members are not left with stressful decisions and challenges.

We Can Help

A DIY estate plan can lead to a false sense of security because it may not achieve what you think it does. If your DIY will is not valid, your property and money will go to heirs specified by state law—who may not be the people you would have chosen. An unfunded trust will be ineffective. Banks may not accept a generic power of attorney you found on the internet. Laws affecting your estate plan may change. These are just some of the mistakes or unforeseen issues that could cost your family dearly. An experienced estate planning attorney is aware of any trends in the law that could dramatically affect your estate plan and has the expertise needed to help you design and create a comprehensive plan.

Call Miller, Miller & Canby today at 301-762-5212 to schedule a meeting so we can help provide you and your family with the peace of mind that comes from knowing that you have an estate plan that accomplishes your goals and will avoid unnecessary attorneys’ fees, headaches, or conflict.

David A. Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.

Contact David at 301.762.5212 or via email. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.  


 





Four Incentives the SECURE Act Gives Small Business Owners


The “Setting Every Community Up for Retirement Enhancement” Act (“SECURE Act”) was signed into law at the end of 2019. The SECURE Act takes small, but impactful, steps towards addressing this country’s retirement crisis by incentivizing small business owners to sponsor retirement plans for their employees.

If you are a small business owner who has considered, or wanted, to offer a retirement plan for your employees but declined to do so because of costs or administrative burdens, now may be a good time to revisit this valuable employee benefit option. Below are four significant incentives the Act provides:

1. Broader Access for Employers
Historically, the cost, administrative burdens, and liability risks of running a sponsored retirement plan have been difficult for smaller companies to manage. Multiple-Employer Plans (MEPs) are appealing to business owners because they can reduce these problems, but many employers were left out due to the “common interest” requirement. Beginning in 2021, the “common interest” requirement will be removed and unrelated companies will be permitted to participate in and run MEPs through a pooled plan administrator. The SECURE Act also eliminates the “One Bad Apple” rule. Previously, this rule provided that a violation by one MEP participant disqualified the entire pool – this made employers understandably uneasy about joining a MEP. As a further boost, small business owners will see a substantial hike from the previous $500 tax credit offered to defray retirement package start-up costs. The tax credit has been increased to $5,000 a year for the next three tax years!
 
2. Incentives for Automatic Enrollment

Automatic enrollment is a great way to increase employee participation by encouraging them to start - and continue - saving. There is no doubt that lawmakers are pushing employers in that direction. An employee’s auto-enrollment contribution rate for certain plans used to be capped at 10%, but the cap has now been increased to 15% after an employee’s first year. By waiting until the employee’s second year for the increase, the SECURE Act is expected to reduce the number of individuals who drop out of plans due to high initial contribution amounts. The legislation also introduced a new tax credit (up to $500 a year for three years) for employers who launch new 401k and SIMPLE IRA plans with automatic enrollment.
 
3. Greater Inclusion for Part-time Employees
Many small businesses are staffed by part-time personnel, who, until now, had been essentially excluded from participating in their employer’s retirement benefits. Prior to the SECURE Act, part-time employees were required to log a minimum of 1,000 hours per year in order to qualify for their employer’s sponsored retirement plan. Beginning in 2021, a part-time employee will be allowed to participate in the retirement plan so long as they have worked at least 500 hours annually for three consecutive years. Although it may seem like an additional cost to add more individuals to a retirement plan, the SECURE Act does not require an employer to offer the same 401(k) benefits to a part-time employee as it would to a full-time worker. For example, an employer can choose to make matching contributions for its full-time employees, but opt to not offer matching to its part-time staff.
 
4. Safe Harbor for Annuities
While the benefits of annuities have been widely debated, some advisors find them to be helpful investment tools for retirement because they can provide a consistent stream of income at a future date. However, for the most part, annuities have been ignored in company-sponsored retirement packages due to the potential legal liability an employer could face in the future. Under prior law, an employer remained liable if an insurer didn’t follow through with making guaranteed payments to the employee - leaving the employer vulnerable to a future lawsuit. The SECURE Act now shifts this liability risk back to the insurance company (but only if the employer selects an annuity provider that meets several requirements). This feature now makes annuities a friendlier option for employers to include in a benefits plan.

The bottom line is: The incentives provided by the SECURE Act should encourage employers who may have been considering sponsoring a retirement plan, or were hesitant to look into it in the past, to take action.

David A. Lucas
is an attorney in Miller, Miller & Canby’s Estates & Trusts and Business & Tax practice groups. Give David a call today at 301-762-5212 to discuss how your business may benefit from the new provisions of the SECURE Act.

To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.

 





Three Liability Planning Tips for Business Owners


The risk of liability is a very real concern for today’s business owners.  There are employment-related issues including wrongful termination, sexual harassment, and discrimination; careless business partners and employees; and contractual obligations that may include personal guarantees, leases, business agreements, etc.  There are also personal liabilities like divorce, vehicle accidents, and rental real estate.

Unfortunately, our litigious society necessitates that a broad range of people, including business owners, board members, real estate investors, private practitioners and retirees, should protect their hard-earned assets from a variety of liabilities. We have outlined some strategies for business owners and practitioners that may help provide protection from risk.

Key Take-aways to Protect Yourself from Risk:

●    Types of liability insurance you need to have in place;
●    State exemptions that will protect certain assets from the claims of creditors; and
●    The role of business entities in liability planning.

Tip #1 – Insurance is the First Line of Defense Against Liability

Liability insurance is the first line of defense against any claim.  Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments.

The types of insurance you should consider include:

●    Homeowner’s insurance
●    Property and casualty insurance
●    Excess liability insurance (also known as “umbrella” insurance)
●    Automobile and other vehicle (motorcycle, boat, airplane) insurance
●    General business insurance
●    Professional liability insurance
●    Director and officer insurance

Planning Tip:  Never rely on insurance as your sole means of liability protection since the cost of a comprehensive policy may be prohibitive, and each type of policy has numerous exceptions to coverage.  Instead, you should use insurance as one of a multiple layer of strategies designed to place a barrier between your business and personal assets and the claims of a plaintiff.  Moreover, it is important to work with an insurance professional who can explain the purpose of each type of coverage, make recommendations for liability limits and deductibles, and help you consider the most cost-effective coverage on an annual basis.

Tip #2 – State Law Exemptions Protect a Variety of Personal Assets from Lawsuits

Each state has a set of laws or constitutional provisions that partially or completely exempt certain types of assets from the claims of creditors.  While these laws vary widely from one state to the next, in general, the following types of assets may be protected from a creditor seeking to enforce a judgment against you:

●    Primary residence (referred to as “homestead” protection in some states)
●    Qualified retirement plans (401(k)s, profit sharing plans, money purchase plans, IRAs)
●    Life insurance (cash value)
●    Annuities
●    Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
●    Wages
●    Prepaid college plans
●    Section 529 plans (“college savings plan”)
●    Disability insurance payments
●    Social Security benefits

Planning Tip:  If you reside in Maryland or the District of Columbia, Miller, Miller & Canby’s attorneys can help you determine which exemptions are available to you and how much protection they provide.  Our business and estate planning attorneys can also help you understand the pros and cons of each type of exemption.  For example, while tenants by the entirety co-ownership of real property between you and your spouse is simple and may make sense in the short term; in the long run, if you divorce or one spouse dies, the protection provided by tenants by the entirety co-ownership ends, thus making it completely useless.  As with liability insurance, exemption planning is best used as one layer of an overall asset protection strategy.

Tip #3 – Business Entities Protect Business and Personal Assets from Lawsuits

The various types of business entities include partnerships, limited liability companies, and corporations.  Business owners need to mitigate the risks and liabilities associated with owning a business. Business entities can also help real estate investors mitigate the risks and liabilities associated with owning real estate.  The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.

Business entities can also be an effective tool for protecting your personal assets from lawsuits.  In many states, in addition to the protections offered by incorporating, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner.  Depending on the type of business entity and the state of formation, the personal creditors of an owner may be prevented from taking control of the business.  Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee.  This is beneficial to the owners, because an assignee generally only receives distributions from an entity if, and when, the distributions are made.
 
Planning Tip:  Creating a business entity that protects your assets from lawsuits involves much more than just filling out some forms with the state and paying an annual fee.  Business formalities must be observed and documented, otherwise a creditor can attack the entity through “veil piercing” or “alter ego” arguments, which could result in personal liability for your business’s actions or debts.  Additionally, state laws governing business entities vary widely and are constantly changing due to legislative action and court decisions.  As a result, it is critical to properly chronicle business activities and modify the business’s governing documents as applicable laws change. 

Miller, Miller & Canby’s business law attorneys can help you remain in compliance to thwart any potential challenges to your entity.  And remember, as with liability insurance and state law exemptions, the use of business entities is just another layer of an overall asset protection strategy that should coordinate with other asset protection strategies.

Protecting Your Assets

We highly recommend that liability insurance, state law exemption planning, and business entities be used together to create a multi-layered asset protection plan.  The business & estate planning attorneys at Miller, Miller & Canby are experienced with helping business owners, real estate investors, board members, retirees, physicians, practitioners, and others create and maintain effective liability protection plans.

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

Chris Young
is an associate in the Business & Tax practice at Miller, Miller & Canby. He focuses his practice on corporate legal agreements, business formation, tax controversy work and helping clients deal with new tax regulations. View more information about Miller, Miller & Canby's Business & Tax practice by clicking here.
 





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.





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