Thursday, November 7, 2019

Attention, Florida Entity Owners: Beware These New Scams

By Joe Lieberman, JD, LL.M., Law Clerk, Morris Law Group

We have been hearing about some new scams recently targeting owners of newly formed Florida entities. We wanted to make you aware of some of the latest threats. Unscrupulous companies and individuals are contacting and soliciting entity owners with the following pitches:
  • You have one step left in order to attain your elective Florida Certificate of Status (inferring or stating that you haven’t completed all the steps necessary);
  • Your business is required by federal law to post a current compliant labor law poster and they want to charge you for this notice. (You do need to post these notices, however, the posters are generally available free of charge from the federal government); and
  • You receive a message that corporate consent records in lieu of annual meeting minutes will fulfill the requirements of Florida law. (Don’t mistake these notices with the Florida Dept. of State’s required Annual Report filings.)
If you get mail or email like this, do not respond. Instead, call or email Morris Law Group and tell us about the scam. Reporting scams like this helps you and our other clients avoid being defrauded. Additionally, telling your friends, family and colleagues about scams is a great way to help others avoid them.  

The Florida Department of State’s website features a page with Consumer Notices listing scams that target Florida corporations. For more information about the scams out there today, visit https://dos.myflorida.com/sunbiz/about-us/consumer-notices/.

Keep in mind, if you have retained Morris Law Group to form and draft entity documents, we assure you that your entity is in full compliance with all rules and regulations. However, if you receive a call from one of these scam artists and are concerned about whether your entity is in compliance, please contact us immediately. We’ll be happy to discuss this with you at any time.


If you’d like to find out more about forming an entity, please contact us today.

Friday, November 1, 2019

The Tiers of Asset Protection

By Joe Lieberman, JD, LL.M., Law Clerk, Morris Law Group

The theory behind wealth preservation is to move assets away from a potential creditor's reach. The ideal time to consider wealth preservation planning is before being sued or threatened with a suit and while the individual is solvent. At Morris Law Group, we employ a tiered asset protection approach to create a Wealth Preservation Solution that is unique to each client’s situation. Below are the asset protection tiers, starting at the simplest form:
  1. Retirement Benefits:
Qualified plans, which include 401k plans and profit-sharing plans, are protected from the claims of creditors by federal law, namely the Employee Retirement Income Security Act of 1974 (ERISA). This law sets the minimum standards for most voluntarily established retirement plans to provide protection from creditors for individuals in these plans. Individual Retirement Accounts (IRAs) also are creditor-protected under Florida law. However, you should check with the plan manager as to whether the particular retirement or profit sharing plan is "qualified" under one of those code sections. If not, it may be at risk to the claims of creditors.
  1. Umbrella Insurance:
Often referred to as supplemental insurance, umbrella insurance supplements other liability policies, such as auto, homeowners, or, depending on your provider, renters’ insurance. The purpose of umbrella insurance is to provide coverage resulting from any liability in excess of the amount covered by other standard insurance policies. Generally, the price of obtaining personal liability coverage from an umbrella policy is relatively low.
  1. Joint and Concurrent Ownership:
There are three forms of joint and concurrent ownership; tenancy in common, joint tenancy, and tenancy by the entirety.
  • “Tenancy in Common" is ownership by two or more persons sharing only unity of possession. Each individual owner's interest in the property is freely transferable by that owner. There is no element of survivorship between the owners, and each tenant in common is free to transfer his interest during life or to devise his interest at death. An individual's interest in property held by a tenancy in common is freely attachable by creditors. This is an undesirable form of ownership if a primary goal is to protect assets from the reach of creditors.
  • "Joint Tenancy" is ownership by persons who share an undivided interest in the asset. Following the death of a joint tenant, the surviving joint tenant becomes (as of the moment of the other's death) the owner of the entire interest in the asset. Creditors may also reach a joint tenant's share of an asset during the joint tenant's lifetime. This form of ownership should be avoided as the assets may be attached by the creditor of either party. This also applies when you are added as a joint account holder for a parent or other relative as a convenience.
  • "Tenancy by the Entireties" is available only to a husband and wife. The general rule states that an asset held in a tenancy by the entireties is not reachable by the creditors of either spouse. However, if a husband and wife are jointly obligated on a debt, the creditor may reach entireties' property to satisfy the debt. (This is why most banks require a spouse's signature on unsecured promissory notes.) This form of ownership is the most desirable from a wealth preservation perspective, but it is obviously only available to persons who are currently married. To date, about half of the states (including Florida) recognize tenancy by the entireties. Please be advised that there have been two recent bankruptcy cases in Florida, a recent Michigan bankruptcy case and a United States Supreme Court case that has found that tenancy by the entireties property may be accessible by the creditors of one spouse.
  1. Entity Planning:
The Limited Liability Company ("LLC") is a more recent popular tool that has been used in the areas of wealth preservation and general estate planning due to lower filing fees and more flexibility in the way they are taxed. When properly structured, a member's assets in an LLC may be protected from his or her creditors. Generally, a creditor may attach a member’s interest in the LLC, but such attachment only allows the creditor a right to distributions from the LLC to the debtor member. There is no right to "liquidate" the member's interest to satisfy the debt. Moreover, the creditor may neither foreclose the member's interest, nor participate in the management of the LLC. In order to levy on (i.e., attach) a member’s interest, a creditor must resort to a cumbersome, expensive, and time-consuming proceeding called a "proceeding supplementary to execution," which involves a "mini-trial" to establish that creditor's right to a "charging lien" on the member’s interest. Additionally, there is an IRS ruling that states that if a creditor perfects a charging lien, the creditor must recognize the taxable income earned in the LLC and must pay taxes on their interest even if they have received no assets. For those reasons, most creditors will not usually pursue the charging lien.
  1. Wage Account:
Florida Statute 222.11 permits the wages of a head of a household to be protected from the claims of creditors, attachment and garnishment. A head of a household is defined as an individual who is providing more than 50 percent of the support of another individual. Case law has evolved where wages will fall within the statutory protection so long as it is pursuant to an employment agreement and deposited into a wage account. A wage account is a specific account, solely in the name of the employee, where only wages are deposited. This does not include corporate or partnership distributions. The wages will be exempt from claims for a period of six months after payment. No other names may be on the account; however, another may be added as a Power of Attorney. Regular monthly expenses should be paid from this account. The account should be swept on a quarterly basis and may be moved to other exempt assets to avoid creditors’ claims.
  1. Revocable Trust:
A Revocable Trust is a fundamental component of an estate plan. It is created by an individual (also known as the Grantor) during his or her lifetime, and can be revoked or amended by the Grantor at any time he or she is living and not incapacitated. While a Revocable Trust does not provide for current asset protection from the Grantor’s creditors, Morris Law Group can custom-design a Revocable Trust that includes generational spanning trusts to benefit your heirs, which would provide creditor protection for your heirs.
  1. Irrevocable Trust:
An individual may completely shield an asset from the claims of his or her creditors and remove assets from his or her taxable estate by placing an asset in an Irrevocable Trust (usually for the spouse and children). However, the individual will, by such transfer, lose ownership and control of the asset, as an Irrevocable Trust may not be set up for the Transferor's own benefit, and the Transferor may not serve as Trustee (with a few exceptions). Generally, an Irrevocable Trust will provide protection from attachment of trust assets by creditors of the trust beneficiary (called a "spendthrift clause").
  1. Domestic Asset Protection Trust (“DAPT”):
A relatively recent estate planning and wealth preservation technique available is a DAPT. Without delving into great detail, these trusts offer many of the same benefits that an Offshore Trust would offer, except that the client is not subjecting his or her assets to many of the risks associated with Offshore Trusts. To date, only a limited number of states have passed laws that make it difficult for a creditor to attach to the assets held in a qualified trust. A DAPT was designed to provide an alternative from offshore trusts, which up until now had been the only viable alternative for clients wishing to “judgment proof” themselves to the extent possible under the law. In general, state law that provides for the creation of a DAPT (the “Act”) provides that creditors who exist after the creation and funding of the trust cannot attach to the assets of the trust so long as the trust terms are consistent with the Act. Although the DAPT is irrevocable, it may be covered under the Act even if it empowers the Grantor to veto distributions, gives the Grantor a special testamentary power of appointment over the trust assets to state how the assets shall be distributed, and authorizes the Grantor to receive discretionary income and principal distributions. DAPTs may be structured to be a completed gift for federal gift tax purposes and to be excluded from the Grantor's gross estate for federal estate tax purposes. It may be effective for S-corporation shares and assets which you would otherwise own individually but fund in a DAPT in order to add an additional layer of protection between you and your assets.
  1. Offshore Trust:
An Offshore Trust, often called a Foreign Trust, is an Irrevocable Trust formed and governed under the laws of a foreign jurisdiction, unlike a DAPT, which is governed by U.S. law. Assets placed into the Offshore Trust are considered gifts and generally cannot be removed at a later date. When a creditor pursues the assets of an Offshore Trust, the creditor must post a bond to sure the trust, pay all legal fees unless they are successful, and such pursuit of a lawsuit is without a contingency fee agreement. While Offshore Trust protection currently remains stronger, DAPTs are less expensive and also provide considerable creditor protection.
The experienced attorneys of Morris Law Group create unique Wealth Preservation Solutions tailored to meet the needs of each client. However, once your solution is created, it is not complete. This is an ongoing process and the attorneys at Morris Law Group will continue oversight and maintenance of your Wealth Preservation Solution to make sure it is aligned with your changing goals and objectives.

Interested in learning more? Contact us today.

Tuesday, October 1, 2019

Should You Purchase Life Insurance?

By Joe Lieberman, J.D., LL.M., Law Clerk, Morris Law Group

Life insurance has been commonly recommended to individuals who may have an estate tax obligation. Depending upon the liquidity of your assets, you may want to purchase life insurance to provide liquidity or to replace estate tax. However, according to Thomas B. Strauchon in Life Insurance and the Highly Liquid Ultra-High Net Worth Client, Why and Where It Fits, there are a number of reasons why the Ultra-High Net Worth (UHNW) client may choose to use life insurance regardless of the size of the taxable estate or the corresponding amount of the estate tax liability. Prior to identifying several of the reasons to “hedge,” Strauchon stresses that “state-of-the-art life insurance delivers investment-grade returns of the death benefit on invested premiums at life expectancy.”

Hedging Your Bets
Strauchon suggests UHNW individuals should obtain life insurance as a “hedging strategy” against:
  1. Incomplete wealth transfer strategies that require time and favorable market outcomes;
  2. The changing income, capital gains and estate tax environment;
  3. The changing liquidity profile of the estate that reduces the amount of liquidity;
  4. Generational dilution of wealth; and
  5. Unforeseen disallowed entity or asset discounts by the IRS.
While liquidity is an important factor in determining whether to purchase life insurance, other important considerations are: asset protection, generational planning, equalization, and lifetime income to an individual, such as the surviving spouse.

An ILIT Benefits Your Beneficiary’s Heirs
One planning technique you may want to consider in conjunction with life insurance is an Irrevocable Life Insurance Trust (“ILIT”). The ILIT is a type of trust that is designed to own a life insurance policy. It is best when the trust purchases the policy at inception, however, you can also transfer the ownership of an existing life insurance policy after formation of the trust, but need to be careful to avoid the three year rule that would keep the proceeds in the estate of the insured.
The ILIT would contain generational-spanning trusts that would last up to the applicable rule against perpetuities (in Florida, 360 years). In other words, the trust would provide for each beneficiary's interest in the trust to benefit the beneficiary's heirs or nominees following the death of the beneficiary, rather than to creditors of the beneficiary's estate. Additionally, by establishing a new ILIT, the income and principal going to your beneficiaries can be protected within the trust for their lives from creditors and divorcing spouses (i.e., a "spendthrift clause").

Protecting the Future of Your Family
Morris Law Group can custom-design an ILIT for you that includes generational spanning trusts to benefit your heirs. A generational spanning trust can be contained in a revocable or irrevocable trust. The Morris Law Group Generation Spanning Trust is intricately designed and highly detailed, allowing you to set aside the maximum estate tax and generation-skipping tax exemption amount in a trust for the benefit of your descendants.


For more information about ILITs and Generation Spanning Trusts, please contact us or request a consultation with one of our knowledgeable attorneys today.

Thursday, August 22, 2019

Everything You Need to Know About the DOL Fiduciary Rule

By Mitchell Grant 

The Department of Labor (DOL) fiduciary rule, was originally scheduled to be phased in from April 10, 2017, to January 1, 2018. As of June 21, 2018, The U.S. Fifth Circuit Court of Appeals officially vacated the rule, effectively killing it.

Breaking Down the Fiduciary Rule

The DOL’s definition of fiduciary demands that retirement advisors act in the best interests of their clients and put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest and states that all fees and commissions for retirement plans and retirement planning advice must be clearly disclosed in dollar form to clients.

Key Takeaways

  • The Fiduciary Ruling was one of the most hotly debated topics in finance, with many brokers and investment firms doing all they could to halt it being enacted.
  • The Fiduciary Ruling was brought into effect to protect the interests of clients versus the financial interests of their brokers and advisors. This led to lower commissions for brokers, less income from "churning" portfolios, and increased compliance costs.
  • The DOL Fiduciary Rulings were vacated in 2018, but statements made by the DOL Secretary in May of 2019 stated the DOl was working with the SEC to reenact the controversial ruling.
  • The individual investors most affected were those with fully managed IRAs and 401(k) accounts. These investors would have benefited the most from the Fiduciary Ruling.

History of the Fiduciary Rule

The financial industry was put on notice in 2015 that the landscape was going to change. A major overhaul was proposed by President Obama on February 23, 2015: "Today, I'm calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It's a very simple principle: You want to give financial advice, you've got to put your client's interests first."
The DOL proposed its new regulations on April 14, 2016. This time around, the Office of Management and Budget (OMB) approved the rule in record time, while President Obama endorsed and fast-tracked its implementation; the final rulings were issued on April 6, 2016.
Before finalizing the ruling, the DOL held four days of public hearings. While the final version was being hammered out, the legislation was known as the fiduciary standard. In January 2017 during the first session of Congress of the year, a bill was introduced by Rep. Joe Wilson (R, S.C.) to delay the actual start of the fiduciary rule for two years.
 
While the new rules were likely to have had at least some impact on all financial advisors, it was expected that those who work on commission, such as brokers and insurance agents, would be impacted the most.
In late March 2017, the world's two largest asset managers, Vanguard and BlackRock, called for a more significant delay considering the confusion these repeated moves to delay the rule had caused. After a 15-day public comment period, the DOL sent its rule regarding the delay to the Office of Management and Budget for review. 

178,000: The number of letters the DOL received that opposed a delay to enact the new Fiduciary rulings.

After the review by the OMB, the DOL publicly released an official 60-day delay to the fiduciary rule's applicability date. The 63-page announcement noted that "...it would be inappropriate to broadly delay the application of the fiduciary definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors." Responses to the delay ranged from supportive to accusatory, with some groups calling the delay "politically motivated."
In late May 2017, then-newly appointed DOL Secretary Alexander Acosta, writing in an opinion piece for the Wall Street Journal, confirmed that the fiduciary rule would not be delayed beyond June 9 as the DOL sought "additional public input." The DOL officially reopened the public comment period for the rule for another 30 days on June 30, 2017.
 
However, in early August 2017, the DOL filed a court document as part of a lawsuit in the U.S. District Court for the District of Minnesota, proposing an 18-month delay to the rule's compliance deadline. This would have changed the final deadline for compliance from Jan. 1, 2018, to July 1, 2019. The same document suggested the delay might include changes to the types of transactions that are not allowed under the fiduciary rule. The proposed delay was approved by the Office of Management and Budget in August 2017.
 
Originally, the DOL regulated the quality of financial advice surrounding retirement under ERISA. Enacted in 1974, ERISA had never been revised to reflect changes in retirement savings trends, particularly the shift from defined benefit plans to defined contribution plans, and the huge growth in IRAs.

The Fiduciary Rule Under President Trump
The regulation was initially created under the Obama administration, but in February 2017, President Trump issued a memorandum that attempted to delay the rule's implementation by 180 days. This action included instructions for the DOL to carry out an “economic and legal analysis” of the rule's potential impact.
Then, on March 10, 2017, the DOL issued its own memorandum, Field Assistance Bulletin No. 2017-01, clarifying the possible implementation of a 60-day delay to the fiduciary rule. Full implementation of all elements of the rule had been pushed back to July 1, 2019.
 
Before that could happen—on March 15, 2018—The Fifth Circuit Court of Appeals, based in New Orleans, vacated the fiduciary rule in a 2-to-1 decision, saying it constituted "unreasonableness," and that the DOL's implementation of the rule constitutes "an arbitrary and capricious exercise of administrative power." The case had been brought by the U.S. Chamber of Commerce, the Financial Services Institute, and other parties. Its next stop could be the Supreme Court.
 
On June 21, 2018, The Fifth Circuit Court of Appeals confirmed its decision to vacate the ruling.

Fiduciary vs. Suitability

Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners, and insurance agents, who work with retirement plans and accounts. "Suitability" means that as long as an investment recommendation meets a client's defined need and objective, it is deemed appropriate.
Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments. The new rule would have therefore eliminated many commission structures that govern the industry.
 
Advisors who wished to continue working on the commission would have needed to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as the advisor receiving a higher commission or special bonus for selling a certain product). This was to guarantee that the advisor was working unconditionally in the best interest of the client. All compensation that was paid to the fiduciary was required to be clearly spelled out as well. 

Covered Retirement Plans Included:

What Wasn't Covered

  • If a customer calls a financial advisor and requests a specific product or investment, that does not constitute financial advice.
  • When financial advisors provide education to clients, such as general investment advice based on a person's age or income, it does not constitute financial advice.
  • Taxable transactional accounts or accounts funded with after-tax dollars are not considered retirement plans, even if the funds are personally earmarked for retirement savings.

Reaction to the Fiduciary Rule

There’s little doubt that the 40-year-old ERISA rules were overdue for a change, and many industry groups had already jumped onboard with the new plan, including the CFP Board, the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA).
Supporters applauded the new rule, saying it should increase and streamline transparency for investors, make conversations easier for advisors entertaining changes and, most of all, prevent abuses on the part of financial advisors, such as excessive commissions and investment churning for reasons of compensation. A 2015 report by the White House Council of Economic Advisers found that biased advice drained $17 billion a year from retirement accounts.
However, the regulation met with staunch opposition from other professionals, including brokers and planners. The stricter fiduciary standards could have cost the financial services industry an estimated $2.4 billion per year by eliminating conflicts of interest like front-end load commissions and mutual fund 12b-1 fees paid to wealth management and advisory firms.

The June 2016 Chamber of Commerce Lawsuit

Three lawsuits have been filed against the rule. The one that has drawn the most attention was filed in June 2016 by the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Roundtable in the U.S. District Court for the Northern District of Texas.
The basis of the suit is that the Obama administration did not have the authorization to take the action it did in endorsing and fast-tracking the legislation. Some lawmakers also believe the DOL itself was reaching beyond its jurisdiction by targeting IRAs. Precedent dictates Congress alone has approval power regarding a consumer’s right to sue. This is the suit that resulted in the March 15, 2018, ruling against the fiduciary rule discussed above.
After the DOL officially announced the 60-day delay to the rule's applicability, a "Retirement Ripoff Counter" was unveiled by Sen. Elizabeth Warren and AFL-CIO President Richard Trumka. Partnering with Americans for Financial Reform and the Consumer Federation of America, this counter attempts to highlight the "...cost to Americans of saving for retirement without the fiduciary rule, starting from Feb. 03, 2017." The press release from Americans for Financial Reform states, "Every day that conflicted advice continues costs them [Americans] $46 million a day, $1.9 million per hour, and $532 a second."

Who Did the Fiduciary Rule Affect?

The new DOL rules were expected to increase compliance costs, especially in the broker-dealer world. Fee-only advisors and Registered Investment Advisors(RIA) were expected to see increases in their compliance costs as well.
The fiduciary rule would have been tough on smaller, independent broker-dealers and RIA firms. They might not have had the financial resources to invest in the technology and the compliance expertise to meet all of the requirements. Thus, it's possible that some of these smaller firms would have had to disband or be acquired. And not just small firms: The brokerage operations of MetLife Inc. and American International Group were sold off in anticipation of these rules and the related costs.
 
Advisors and registered reps who dabble in terms of advising 401(k) plans might have been forced out of that business by their broker-dealers due to the new compliance aspects.
 
A similar issue occurred in the U.K. after the country passed similar rules in 2011. Since then, the number of financial advisors has dropped by about 22.5%. Ameriprise CEO James Cracchiolo said, “The regulatory environment will likely lead to consolidation within the industry, which we already see. Independent advisers or independent broker-dealers may lack the resources or the scale to navigate the changes required, and seek a strong partner.”
 
Annuity vendors also would have had to disclose their commissions to clients, which could have significantly reduced sales of these products in many cases. These vehicles have been the source of major controversy among industry experts and regulators for decades, as they usually pay very high commissions to the agents selling them and come with an array of charges and fees that can significantly reduce the returns that clients earn.
 
Reprinted from Investopedia
 
If you have any questions about the Fiduciary Rule or would like to speak with one of our estate planning attorneys, please contact Morris Law Group today. 

Tuesday, July 23, 2019

Notarization Steps Into the 21st Century in Florida

In early June 2019, Florida Gov. Ron DeSantis signed into law HB 409, the Electronic Legal Document bill (also known as the e-will bill). With this new law, the use of video technology and remote notarization for the online execution of wills, powers of attorney and other legal documents is now approved. Under the provisions of this law, an electronic will is validly executed if it is in compliance with the provisions applicable to written wills.
In a nutshell, the e-will law allows notaries to affix their seals and signatures to legal documents that are not signed in their physical presence if they witness the signature via live, two-way video links.
According to the law, “A notary public may not notarize a signature on a document if the person whose signature is being notarized does not appear before the notary public either by means of physical presence or by means of audio-video communication technology as authorized under part II of this chapter is not in the presence of the notary public at the time the signature is notarized.” Witnesses needed for wills and other documents also can appear remotely as long as they can answer certain questions probed by the notary pertaining to the document holder’s identity.
Supporters of the law, including the Elder Law Section of the Florida Bar, say it will increase access to legal services, such as wills or estate plans, for all Floridians. The new law allows the signing of documents to be conducted entirely electronically in accordance with the strict notary standards that remain in existence.
Critics of the law contend that it puts certain older Floridians at risk by making it too easy for adult children to sell an incapacitated parent’s home without permission or for others to take advantage of elders in nursing homes or long-term care facilities. The law addresses these concerns by excluding those seniors and others who are considered to be “vulnerable adults” from electronic notarization.
A previous attempt by congressional democrats to add an amendment that would have removed wills and powers of attorney from the e-will bill failed. However, the law’s sponsors agreed to prohibit the use of video technology to execute super powers of attorney, preventing the amending of wills, trusts, estates and other documents electronically, at the request of the Real Property, Probate and Trust Law Section of the Florida Bar.
This e-will bill is not without controversy. In fact, two years ago, Gov. Rick Scott vetoed the similar Electronic Wills Act, saying it failed to strike the proper balance between convenience and safety. At the time, Gov. Scott claimed the bill didn’t “adequately ensure authentication of the identity of parties to the transaction.”
The latest version of the law contains several safeguards, such as requiring notaries to question witnesses directly and to demand standard forms of identification that can be confirmed through various online platforms.
Contact us if you have questions about the new e-will law. To update your will or estate plan, request a consultation today with Morris Law Group’s experienced attorneys.

SECURE Act Would Affect Retirement Planning

By: Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group - June 27, 2019



On May 23, 2019, the U.S. House of Representatives passed The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). H.R. 1994.The SECURE Act would make significant changes to the U.S. retirement system. The SECURE Act passed with nearly unanimous support across party lines, in a vote of 417-3. The legislation now goes to the U.S. Senate for consideration in
that chamber.

The SECURE Act would make a number of changes to employer-sponsored retirement plans and individual retirement accounts (IRAs), including, among others:

  • Raising the minimum age for required minimum distributions from retirement savings plans from 70½ to 72;
  • Increasing the cap on the default contribution rate for employers with automatic enrollment plans from 10 percent to 15 percent after the first year of an employee’s enrollment;
  • Eliminating a requirement for employers to share a common industry in order to form a multiple employer plan (MEP);
  • Eliminating a provision in current law disqualifying MEPs in which one employer fails to meet requirements;
  • Providing for the distribution of assets from terminated 403(b) plans;
  • Allowing part-time workers to become eligible for enrollment in 401(k) plans following one year of service with at least 1,000 hours worked or at least 3 years of service with at least 500 hours;
  • Allowing participants to withdraw up to $5,000 without penalty from any employer-sponsored plan or IRA, and exempting repayment of the withdrawn funds from taxation;
  • Providing pension funding relief to qualified family-owned, independent newspapers;
  • Allowing home health care workers with tax-exempt "difficulty of care" compensation to contribute to employer-sponsored plans or IRAs; and
  • Requiring designated beneficiaries of IRAs to withdraw all plan assets within 10 years of the death of the account holder (within five years for nondesignated beneficiaries).
  • For purposes of this article, only modifications of required distribution rules for designated beneficiaries under Title IV-Revenue Provisions, Section 401, of the SECURE Act, will be addressed.

The SECURE Act would significantly modify the required distribution rules for designated beneficiaries. In the case of a defined contribution plan, if an employee dies before the distribution of the employee’s entire interest, nonspouse designated beneficiaries of IRAs would be required to withdraw all plan assets within 10 years of the death of the account holder (within five years for nondesignated beneficiaries). This limitation does not apply to: (i) the surviving spouse of the employee; (ii) a child of the employee who has not reached majority (a child will cease to be an eligible designated beneficiary as of the date the child reaches majority and any remainder of the portion of the individual’s interest shall be distributed within 10 years after such date); (iii) disabled (within the meaning of section 72(m)(7)); (iv) a chronically ill individual (within the meaning of section 7702B(c)(2)); or (v) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.

The determination of whether a designated beneficiary is an eligible designated beneficiary will be made as of the date of death of the employee. If an eligible designated beneficiary dies before the portion of the employee’s interest is entirely distributed, the remainder of such portion will be distributed within 10 years after the death of such eligible designated beneficiary.

In general, except as provided below, the above amendments apply to distributions with respect to employees who die after Dec. 31, 2019. In the case of a governmental plan, the above amendments apply to employees who die after Dec. 31, 2021.

The above amendments will not apply to a qualified annuity, which is a binding annuity contract in effect on the date of enactment of the SECURE Act and at all times thereafter.

This rule would essentially eliminate stretch IRAs for certain nonspouse beneficiaries whereby, under prior rules, nonspouse beneficiaries were permitted to grow their inherited IRAs tax deferred for an extended period after the death of the employee. A significant consequence of this new rule would require income tax to be immediately paid by a nonspouse beneficiary upon the 10th withdrawal year.

If you have a retirement account and would like to discuss it with us, or, if you believe that your beneficiaries may be subject to income tax upon your death and are interested in learning more about retirement planning, please do not hesitate to contact the Morris Law Group to discuss how our attorneys may be helpful to achieve such estate planning goals.

** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.

Tuesday, May 14, 2019

Domestic Asset Protection Trusts


            Asset protection during a grantor’s lifetime is often accomplished through complex entity structures (multi-member LLC’s or LLLPs) or through irrevocable trusts. However, clients are often apprehensive to transfer too much wealth to an irrevocable trust since they lose all benefit to the transferred assets, and the transfer will most likely require a gift tax return and result in a reduction the grantor’s estate tax exemption amount.  
However, there is a type of irrevocable trust that 1) protects the assets during the lifetime of the grantor; 2) provides for the efficient transfer of wealth; and 3) permits the grantor to be an active beneficiary. This specific estate planning technique is through the use of a Domestic Asset Protection Trust (DAPT).
A DAPT is an irrevocable trust established under the laws of one of the limited number of jurisdictions that permit a grantor of a trust to be a discretionary beneficiary and still protect the trust assets from the grantor’s creditors. We generally recommend the formation of a DAPT pursuant to Nevada law since it offers enhanced privacy and it is the only state that does not have any special classes of creditors that can pierce through a DAPT.
            Domestic Asset Protection Trusts offer many of the same benefits that offshore trusts provide but without subjecting the assets to the risks associated with offshore trusts.  According to the Steve Leimburg’s Asset Protection Planning Newsletter “after 22 years, there still hasn’t been even one non-bankruptcy, non-fraudulent transfer case where a creditor got a judgement or settlement, and then successfully accessed assets owned by a DAPT.”  Interested in learning more about DAPT’s? Contact the experienced attorneys of Morris Law Group.