Friday, July 10, 2020

New Video: The Three Essential Estate Planning Core Documents

Watch this video by Stuart R. Morris, Esq., CPA, B.C.S., founding partner of Morris Law Group about the three core documents that are the basis for estate planning - a Will, a Revocable Trust and an Irrevocable Trust. For more information, visit www.law-morris.com or call (561) 750-3850.


Who Will Make Healthcare Decisions for You If You Are Unable Due to Illness or Injury?


During these unprecedented times, as unpleasant as it is, people have been thinking more about estate planning and ensuring that their end-of-life healthcare wishes are followed. There are two legal documents that state your wishes as far as what end-of-life care you would like done and who makes those decisions if you are unable to: a living will and a designation of health care surrogate.

A Living Will Expresses Your Wishes

A living will, despite its name, does not deal with whom your property and assets will go. Instead, it states the type of healthcare you would like to receive toward the end of life. Some examples of what a living will includes are:
  •  your wishes regarding a feeding tube and artificial nutrition,
  • whether you would like pain relief
  • if and how long you would like to be on a ventilator and life support
  • and other life-saving measures you may or may not want done.
By putting this down in writing, your health care surrogate will have no doubts about what type and how much care you would like to receive in the event that you are unable to voice this yourself. This is not to be confused with a Do Not Resuscitate (DNR) form. This is a form you would get from your doctor that says if you code (i.e., your heart stops during an operation or while you’re in the hospital), you do not want cardiopulmonary resuscitation (CPR) to be performed on you. It does not address other possibilities and care options.

You Designate the Decision-Maker

A health care surrogate is the person you designate to make health care decisions for you if you are no longer able to do so. Typically, this is a person’s spouse, but does not have to be. It is vitally important to have this document on file with your doctor and given to your surrogate.

An unmarried person who becomes incapacitated and does not have a health care surrogate becomes a ward of the state and the state makes the decisions, which may not be made in accordance with that person’s wishes. As such, it is critical to pick a person who agrees with your wishes and will execute them as you desire. For example, if you would like to have life support ended after two weeks of no improvement, but your surrogate does not agree with this perspective, he or she may not do what you wanted.

While a spouse is the obvious choice, if he or she has conflicting opinions on end-of-life care, it is better to pick another relative or close friend that agrees with your choices.

Everyone Over 18 Needs These Documents

These are documents that every adult needs to have in place, regardless of age. A life-changing accident or illness can happen to anyone at any time, and it is essential to have a plan enacted to ensure your wishes are followed. Another document called a HIPAA release authorizes the people you name to be able to talk to your doctor and receive information about your medical condition. 

Parents, please note, if your children are headed off to college soon or leaving the nest, make sure they sign a living will and health care surrogate document before they go. Even though you may think of them as children, if they are over age 18, they are considered legal adults in the eyes of the law. In the event of your child suffering a critical injury or illness, you wouldn’t be able to make medical decisions or even speak to the doctor without these legal documents naming you as the health care surrogate.

A well-known example of a person not having these documents in place that resulted in many years of contentious litigation and the incapacitated person’s wishes not being followed is Terri Schiavo. You may recall this landmark case that attracted both “right to life” and “right to die” advocates. She did not have a living will or health care surrogate, and her husband and family had a long court battle over what they thought Terri would want.

Without a living will, doctors are compelled to keep you alive with heroic measures, including putting you on a respirator and feeding tube, doing CPR, using multiple drugs to maintain blood pressure and heart function, dialysis, amputation, other surgery and more. With a living will, you can specify if you want food or water to continue or be withheld, if you want experimental measures or even if you want to be kept alive for a certain amount of time so that your children living out of state have time to say goodbye.

Get Help from a Professional for Peace of Mind

These documents can be confusing. To make certain that they are filled out correctly and in accordance with your wishes, discussing it with you lawyer is by far the best option. 

Morris Law Group is here to help you and your family members set up your living will and health care surrogate documents. Having them in place will give you peace of mind and will provide your loved ones with the guidance needed to make the decisions you would want if you are incapable of making them. For assistance with your advance directives, please contact us or give us a call today at (561) 750-3850.

3 Core Estate Planning Techniques and Documents

Estate planning is a complex process that entails a detailed evaluation of your goals, desires, potential income, taxes, asset protection and charitable planning, among many other considerations. It starts, however with three basic core techniques: your Last Will and Testament (Will), a Revocable Trust and an Irrevocable Trust.
A Will is the legal document where you can express your final wishes for the management of your estate. This includes the distribution of assets, guardianship for minor children and burial instructions. Without a properly executed Will, a person is deemed to die “intestate,” and his or her assets will be distributed according to the state’s intestacy laws. Although a Will can adequately provide for the distribution of assets upon your death, it does not sufficiently provide for your necessary care in the event you become incapacitated. It also must proceed through the costly and very public probate process after you pass. Once a Will is probated, it becomes a public record and can be viewed by any member of the public.

Trusts, on the other hand, would not be subject to probate and public recording. There are two main types of trusts: Revocable and Irrevocable trusts. They work as the names suggest, in that Revocable Trusts can be modified during your lifetime, and Irrevocable Trusts typically cannot be modified without the consent of the beneficiaries. This makes Irrevocable Trusts sound like an unwise choice, when in actuality, they are extremely useful for tax and estate planning purposes.

There are two basic types of Irrevocable Trusts: Inter Vivos and Testamentary. Inter Vivos Trusts are created when the Grantor is still alive, and Testamentary Trusts are created from the Grantor’s Will after he or she passes. While all Testamentary Trusts are Irrevocable, not all Inter Vivos Trusts are; the status of an Inter Vivos Trust is up to the Grantor.

Due to the fact that Irrevocable Trusts cannot be modified, anything in them is removed from the Grantor’s estate and therefore will not be subject to the estate tax. Therefore, it is important that they are set up correctly.

A classic example of a commonly used Irrevocable Trust is an Irrevocable Life Insurance Trust (ILIT). An ILIT is used to keep the value of a life insurance policy out of the owner’s estate. The policy is sold to the owner’s ILIT and the ILIT is the owner of the policy, safely removing it from the Grantor’s estate. It also makes the distribution of the policy upon the insured’s death go more quickly and smoothly. An ILIT also provides more creditor protection than merely distributing the proceeds of the policy directly. Additionally, it helps to prevent wealth transfer problems for the recipient of the proceeds.

Inter Vivos Irrevocable Trusts may also be used to give gifts to grandchildren with the proper tax planning. Giving a gift to someone two generations under you triggers the Generation Skipping Transfer Tax (GST Tax), which is currently 40 percent. The GST Tax has an exemption equal to the estate tax exemption. It is a complicated tax, making it imperative to set up this kind of trust properly. This will ensure the recipient of the gift receives the amount you actually want them to receive without them having a pay a high tax.

Revocable Trusts also have many uses in estate planning. They are commonly used as a way to avoid probate administration after death. Probate can be costly and takes time to sort out the affairs of the deceased person. A Revocable Trust sets out what the Grantor would like done with his or her property before death, ensuring a smoother administration. Another key advantage of using a Revocable Trust in the place of a Will is that Wills become public record after a person dies, whereas the provisions of a trust stay private. In order to make sure all of the Grantor’s bases are covered, a Revocable Trust should be accompanied by a Pourover Will. This type of Will states that any property not titled to the trust should be retitled to the trust. People often forget to retitle all of their assets to the trust or acquire new assets and do not think about it. 

Revocable Trusts also remove the need for ancillary probate. This is required probate when the deceased person has real property in another state. By putting the real property into a Revocable Trust, there is no need for ancillary probate.

It is also a creative way to plan financially for incapacity. A Revocable Trust operates free from court interference, and, if set up while the Grantor still has “capacity,” the Grantor may choose Trustees who will serve in the event of incapacity. This is much more advantageous than the court appointing a guardian or conservator. Both are extremely expensive and, in the event that capacity returns, incredibly difficult to remove.

Morris Law Group’s experienced attorneys can help you plan for your future with the most effective estate planning techniques for you and your situation. It’s imperative not to postpone your estate planning. Without any form of estate plan in place, you are subject to the state’s intestacy laws that will dictate how your assets will be divided upon your death. In addition to the possibility of your assets being distributed to a relative you may dislike or hardly know, your family could be faced with significant tax and fiduciary issues.

Contact us today at (561) 750-3850 for more information about estate planning and to set up a consultation with one our attorneys. 

Friday, June 19, 2020

New Video: What You Need to Know Before Hiring an Estate Planning Attorney

In the video below, Morris Law Group's founding partner, Stuart R. Morris, Esq., CPA, B.C.S. discusses some crucial information you need to know if you are seeking to hire an estate planning attorney soon. For more information about Morris Law Group or Stuart R. Morris, please visit https://law-morris.com or call (561) 750-3850


The Key Benefits of an Investment LLC


An Investment Limited Liability Company (LLC) is a unique estate planning technique that Morris Law Group uses to provide clients with protection from creditors.  An Investment LLC is a multimember holding company whose primary purpose is to own non-qualified investment accounts in a manner that is protected from creditors. Since the LLC has more than one member, a personal creditor of any individual member cannot attach the LLC’s assets. Additionally, our client maintains control over the underlying investments (buying, selling, etc.) by acting as the manager of the LLC. Please watch our video below on Investment LLCs by Morris Law Group founding partner Stuart R. Morris, Esq., CPA, B.C.S.  


Florida Requirements

In order to form an LLC in Florida, you must file the Articles of Organization with the state. This document lists the name of the LLC, its address, and the names of the managing members. You also will need an Operating Agreement. This sets up how the LLC will function, specifies the requirements of the members, determines how new managers are chosen, details a succession plan, and so on, but unlike the Articles of Organization, the Operating Agreement is private.

Tax Considerations

Investment LLCs are typically taxed like partnerships and are pass-through entities. This means that the tax that the LLC owes is passed through to the members. This sounds like it could be costly, but it actually provides a better result than being taxed as a corporation. Unless it is taxed as an S Corporation, corporations are taxed at the corporate level and then the shareholders are taxed on distributions, resulting in two taxes instead of one. However, it is important to note that LLCs can elect to be treated as a corporation (including as an S Corporation) for tax purposes if the members desire.

Married Couples Can Equalize Estates

In addition to the asset protection benefits, the Investment LLC also provides married clients the ability to equalize their estates better for estate tax purposes. In cases where one spouse owns the majority of the assets, their estates can be equalized by transferring such investment accounts to an investment LLC owned equally by each spouse. Furthermore, because all investment accounts will already be titled within the LLC, none of the accounts need to be retitled upon a client’s death (only the interest in the LLC needs to be retitled) resulting in significant savings on post-death administration costs.

Gifting Benefits

Lastly, Investment LLCs also provide significant upside in the event a client wishes to make gifts to trusts for the benefit of their descendants, as it can lead to a valuation discount. Consider the following example where Jim owns an investment account valued at $10 million. If Jim gifts $1 million from the account directly to his daughter, Heather, it will result in a gift of $1 million. However, if instead, Jim owns the $10 million investment account within an Investment LLC, and gifts a 10% interest in the LLC (actual value of $1 million) to Heather, a valuation discount for lack of marketability and control (that can exceed 20%) can be applied to the transfer, resulting in the gifting of a $1 million asset while only utilizing approximately $800,000 of Jim’s estate tax exemption.   

For more information on this specialized planning technique, please contact us or call Morris Law Group at (561) 750-3850.

Monday, May 18, 2020

Irrevocable Trust Compliance Examination

irrevocable trust annual compliance examination, morris law groupAt Morris Law Group, we can assist you in setting up a customized Wealth Preservation Solution to meet your unique wealth preservation goals. One way to protect your assets and ensure that they are preserved for your beneficiaries is through an irrevocable trust. These trusts are commonly designed to hold assets that will be outside of your taxable estate for estate tax purposes.

Annual Compliance Requirements

In order to maintain the integrity of the trust, as well as reap the estate and gift tax benefits, there are compliance actions that need to be taken on an annual basis. With respect to trusts that hold life insurance, if the cash flow needs of the trust exceed the annual exclusion gifting threshold, Split Dollar Arrangements and other techniques are used to avoid or minimize gift taxes.

The 2020 gift tax exclusions amount is $15,000 per individual and $30,000 for gifts made by a married couple to each donee. In order to pay the premiums, you, as the Grantor, can contribute an amount directly to the trust, and the trust will then pay the premium when it’s due.
The contribution to the trust for the insurance policy will not qualify for the gift tax exclusion unless the trust grants the trust’s beneficiaries certain limited rights to he gifted assets (these are known as “Crummey” withdrawal powers). If the trust contains these beneficiary withdrawal powers, it is essential that the beneficiaries receive Crummey letters (notice of withdrawal right) whenever a contribution is made to the trust.

Morris Law Group Will Handle the Particulars

Our team will oversee the timing, preparation and verification of the required documents including these Crummey letters to confirm all necessary formalities are being met with irrevocable trusts. Please be advised that failure to properly document these transactions on a timely basis may result in increased gift and estate taxes.
If you are interested in designing a customized Wealth Preservation Solution, or what we call a Generational Planning Solution,SM that can be put into place to give you and your loved ones peace of mind that your legacy will last for generations, contact Morris Law Group at (561) 750-3850 or visit www.Law-Morris.com and schedule a consultation with one of our attorneys.

Monday, May 4, 2020

New Video: Update Your Planning During This Low Interest Rate Environment

In this unprecedented time in the midst of the coronavirus, now is a good time to update your estate plan to take advantage of the low interest rates. For more information, watch this important video and call Morris Law Group at (561) 750-3850 to make an appointment to speak to one of our attorneys. 


New Video: Crummey Powers

Watch this informative video about irrevocable trusts and Crummey Powers, as part of an estate planning technique to take advantage of the gift tax exclusion. For more information, call (561) 750-3850 to speak to one of the Morris Law Group attorneys today.


New Video: Fiduciary Roles

Watch this video for more about the roles of a financial fiduciary. For more information, call Morris Law Group at (561) 750-3850.




New Video: The SECURE Act

Find out more about The SECURE Act and how it could affect you or your beneficiaries in this video. For more information, call (561) 750-3850 and make an appointment to speak to one of our attorneys today.

New Video: Introduction to Wealth Preservation and Estate Planning Series

Morris Law Group introduces its new Wealth Preservation and Estate Planning Series of videos. Watch the introductory video here. For more information, please call Morris Law Group and ask to speak to one of our attorneys at (561) 750-3850.


Morris Law Group Introduces New Wealth Preservation and Estate Planning Series of Videos on Its Website and YouTube

FOR IMMEDIATE RELEASE:
Morris Law Group Founding Partner Stuart R. Morris, Esq., CPA, B.C.S. has created a new video series featuring helpful, actionable videos to help clients and consumers protect their assets, reduce taxes and create family harmony.
Boca Raton, Fla. (5/4/2020) – Morris Law Group, an AV® Preeminent-rated law firm headquartered in Boca Raton, Fla. has introduced a new YouTube video channel featuring a new series of videos on wealth preservation and estate planning. These videos are being recorded by the Morris Law Group team of expert attorneys and professionals. New videos will be offered each month on the firm’s website, www.law-morris.com, Wealth Preservationist blog and on YouTube.

Morris Law Group’s founding partner, Stuart R. Morris, CPA, B.C.S., introduces the video series in this informative introductory video here. The series also includes videos on various topics including:

Planning in the Current Low-Rate Environment – In the midst of the coronavirus with the lower interest-rate environment, some estate planning opportunities have arisen. Attorney Morris explains some of these estate planning and asset preservation techniques that should be considered. Watch this important video here.

The SECURE Act – Attorney Morris explains how this newly enacted law may affect estate planning as well as individuals and their beneficiaries. Among other changes, the SECURE Act changed the entire landscape of how beneficiaries are going to receive IRA, pension or other retirement accounts from the deceased owners of these accounts. Watch the video here.

Irrevocable Trusts and Crummey Powers – Crummey powers are critical powers contained in an irrevocable trust to ensure that contributions made to the trust qualify for the annual exclusion gift. Proper documentation including a contribution letter is required for this technique. Find out more about it here.

Fiduciary Roles – What are the roles of a financial fiduciary, how do they serve, where are they appropriate, and how do you choose them? Attorney Morris explains fiduciary roles here.
In these videos, you will find helpful, actionable information on recent topics in the news, interesting events, in-depth strategies and cutting-edge techniques to help you protect your assets, reduce taxes and create family harmony. To subscribe to Morris Law Group’s Wealth Preservation Channel, please visit here: https://www.youtube.com/channel/ucex_tgl_l0dr16mmogygktq/.

Morris Law Group’s staff and attorneys are working and remain available to serve clients in Florida during regular business hours, Monday through Friday from 8:30 a.m. to 5 p.m. either through phone or video conferencing. For more information about anything seen in these videos or to schedule a consultation with an attorney, please contact Morris Law Group, email Info@Law-Morris.com or call (561) 750-3850.

Attorney Stuart R. Morris is board-certified in Wills, Trusts and Estates and is a Certified Public Accountant. He founded Morris Law Group in 1991, and practices in estate and gift tax planning, probate and trust administration, wills and trusts, business structuring and succession planning, asset preservation planning, domestic and international tax planning, and special needs planning. He is recognized as one of Worth magazine’s nation’s Top 100 Attorneys, a Florida Super Lawyer, Florida Trend Magazine’s Florida Legal Elite, Palm Beach Illustrated’s list of Top Attorneys, and he has received an AV® Preeminent Peer Review Rating, the highest rating afforded an attorney, from Martindale-Hubbell. He is a member of The Florida Bar, the Society of Trust and Estate Practitioners (STEP), Florida Institute of Certified Public Accountants and the American Bar Association.

About Morris Law Group, Wealth Preservation AttorneysMorris Law Group, a South Florida law firm with four conveniently located offices, specializes in wills, trusts, probate, estate and tax planning, asset protection, and business and succession planning, and provides personalized, discreet services custom-designed to help protect your wealth now and in the future. The Morris Law Group team of knowledgeable and qualified attorneys and paralegals has more than 100 years of combined experience in managing complex estate planning, tax planning, trust and estate administration, and business structuring and succession planning for clients. Expertly drafted documents are just the beginning of your Wealth Preservation Solution at Morris Law Group. You will be able to take advantage of a wide variety of sophisticated estate planning, tax planning, and business structuring and succession planning techniques to help you achieve your goals. An AV® Preeminent-rated law firm by Martindale Hubbell, Morris Law Group is adept at translating these strategies into easy-to-understand, jargon-free language, so you will be able to make informed decisions about your assets now and in the future. 

Visit www.law-morris.com or contact Morris Law Group today to schedule a consultation at (561) 750-3850.
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Tuesday, April 7, 2020

Charitable Estate Planning Considerations

By Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group, April 7, 2020

Last month, we addressed the Federal Reserve Bank's interest rate decreases in response to COVID-19, and discussed several planning considerations, including Intra-Family Loans, Grantor Retained Annuity Trusts (GRATs) and Sale to Grantor Trusts to take advantage of the reduced interest rates.

Significant Tax Benefits Available

For individuals who are charitably inclined during this reduced interest rate environment, Charitable Lead Annuity Trusts (CLATs) are a great vehicle to consider right now for the transfer of cash or other assets. Upon creation of a Grantor CLAT, the Grantor receives a gift tax charitable deduction based on the present value of the trust’s required future distributions to the charity.
Additionally, the Grantor will receive an immediate and sizeable income tax deduction. The CLAT pays an annuity to charities that the Grantor chooses, and then, after a period of years, the principal is paid out to the Grantor’s children or grandchildren. The trust income will be taxed to the Grantor annually during the trust term.
The assets passing to the Grantor’s children or grandchildren (intended beneficiaries can be anyone, even individuals unrelated to the Grantor) are affected in part by the 7520 rate. As a result, in this reduced interest rate environment, more assets will pass to the Grantor’s intended beneficiaries. Another advantage of the CLAT is that when the assets pass to the intended beneficiaries, any appreciation on the value of the assets is free of either gift or estate taxation in the Grantor’s estate.
It may be possible to establish a CLAT that “zeros out,” so that the gift or estate tax charitable deduction will be substantially equal to the full value of the charitable income interest. Thus, if a completed gift is made of both the charitable income interest and remainder interests when the assets are transferred to the CLAT, the value of the trust is not included in the Grantor’s gross estate.
Take a look at this example: Assume that a Grantor contributes $1,000,000 to a zeroed-out Grantor CLAT when the applicable 7520 rate is 1.2%. The CLAT will pay an annuity equal to $56,530 to the charity for 20 years. The value of the charitable income tax deduction is $999,863, which equals the present value of the annuity. There is no gift or estate tax as the annuity is payable to a charity and qualifies for a charitable gift tax or estate tax deduction. At the end of the 20-year lead term, if the principal grows at an annual rate of 6%, there will be $1,127,646 remaining for the Grantor’s children or grandchildren.

Contact Us for More Details!

If you’re interested in setting up a CLAT or would like to discuss other estate planning opportunities in this reduced interest rate environment, contact Morris Law Group and schedule a consultation with one of our attorneys.

Monday, March 23, 2020

Federal Income Tax Guideline Extended to July 15, 2020

The federal government announced on Friday, March 20, that the federal Tax Day is moving from April 15 to July 15 for both filing and tax payments. U.S. Secretary of the Treasury Steve Mnuchin tweeted, "All taxpayers and businesses will have this additional time to file and make payments without interest or penalties." The White House had announced previously they were deferring tax payments for 90 days as a way to blunt the damage from the coronavirus crisis.

Mnuchin encouraged all Americans who are expecting to receive refunds to go ahead and file now to get their money. If you haven't filed your taxes yet, you now have the extra time you need to take care of that. Keep in mind, if you pay state taxes, you may still have to file with your state by April 15 (that will be up to each state to make any changes to its schedule).

Here at Morris Law Group, we continue to monitor the situation and will keep you apprised of any important developments. We hope you and your family are safe and well. Watch your inbox for additional messages as we navigate this unprecedented time together. If you have any questions or need our assistance, please contact us or call (561) 750-3850.

Sunday, March 22, 2020

Update Your Planning to Take Advantage of the Low-Interest-Rate Environment

By Stuart R. Morris, Esq., CPA, B.C.S., Founding Partner, Morris Law Group

I hope you and your family members are well and weathering these unprecedented times in our country with the COVID-19 coronavirus and its impact on financial markets. There is no doubt we're in uncharted territory here, but we are all in this together. That's why it's important to have each other's backs and look out for each other now more than ever before. Here at Morris Law Group, we continue to have our clients' best interests in mind. It is along those lines that we wanted to keep you apprised of certain planning opportunities to consider in this low-interest-rate environment.

The Applicable Federal Rate (AFR) Has Dropped
The AFR is the minimum interest rate that the IRS permits for private loans. The AFR is determined by the IRS on a monthly basis and is published during the last week or two of the preceding month. The IRS has recently published the new AFR for April 2020, and it is near an all-time low (the minimum interest rate on all loans under nine years has fallen below 1%, with a minimum rate of 1.44% for all loans longer than nine years). Therefore, we feel that it is advisable for our clients to be aware of such low interest rates, as it may be directly applicable to their estate planning. Below is a list of areas where the new figures are applicable. Additionally, any private loan below the AFR threshold may have gift tax implications.

Promissory Notes
These low AFR numbers are significant for two reasons:
  1. It is now a good time to loan money between family members should the need arise; and
  2. It may be a good time for individuals with existing promissory notes to renegotiate these notes to utilize the new interest rates.
Grantor Retained Annuity Trusts (GRATs)
As many are aware, a GRAT is an extremely useful estate planning technique used to minimize taxes on large financial gifts to family members. Specifically, a GRAT is created by transferring one or more high-yield assets into an Irrevocable Trust and retaining the right to an annuity interest for a fixed term of years. When the retention period ends, assets in the trust (including all appreciation) go to the named "remainder" beneficiary(ies).

GRATs provide a fixed annuity payment, usually expressed as a fixed percentage of the original value of the assets transferred in trust. For example, if $100,000 is placed in trust and the initial annuity payout rate is 3 percent, the trust would pay $3,000 each year, regardless of the value of the trust assets in subsequent years. If income earned on the trust assets is insufficient to cover the annuity amount, the payments will be made from the principal. Therefore, the client-transferor is assured steady and consistent payments (at least until the principal is exhausted).

All income and appreciation in excess of the amount required to pay the annuity accumulate for the benefit of the remainder beneficiary(ies). Consequently, it may be possible to transfer assets to the beneficiary(ies) when the trust terminates with values that far exceed their original values when transferred into the trust and, more importantly, that far exceed the gift tax value of the transferred assets.
The minimum interest rate for GRATs is also determined on a monthly basis by the IRS and is currently at a very low 1.2%. Therefore, GRATs may be beneficial for clients with high-yield assets.

Sale to Grantor Trusts 
Another common beneficial estate planning technique is through the sale of appreciating assets to an (intentionally defective) Grantor Irrevocable Trust in exchange for a promissory note. In general, a “defective grantor trust,” now more simply known as a “grantor trust,” is a trust that is disregarded for income tax purposes. Thus, all the trust’s income, deductions, etc. are treated as though they are received by (or paid by) the grantor.

Furthermore, although the trust is disregarded for income tax purposes, it is respected for estate and gift tax purposes, thereby enabling a grantor to transfer assets outside of his or her estate without any income tax consequences.

The result of this technique is twofold. First, for estate tax purposes, all future appreciation of the assets sold to the trust will grow outside of the grantor’s estate. Second, for income tax purposes, the grantor does not need to recognize any income tax on the sale, because the sale to a grantor trust is deemed to be a sale to the grantor himself or herself. In addition, all income from the trust will be taxed at the grantor’s individual tax rate rather than the rate for trusts. Once again, with the AFR close to an all-time low, such transactions can be entered into in exchange for promissory notes with very low interest rates.

If you have any questions about these techniques or would like to discuss how the low-interest-rate environment can be used to your advantage with your estate plan, please contact us. We will continue to monitor the situation and keep you apprised of any further developments. For the time being, you can still meet with our attorneys by calling (561) 750-3850. Stay well!

Thursday, February 13, 2020

The SECURE Act and Why You Need to Know About It

By Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group, Feb. 13, 2020

Morris Law Group discussed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) in our newsletter previously but it has now taken effect, so we thought we would go over the main points. As a reminder, the SECURE Act passed the U.S. House of Representatives on May 23, 2019. On Dec. 20, 2019, President Trump signed the SECURE Act into law that took effect January 1, 2020. This article will address several of the changes in the law. Stuart R. Morris, Esq., CPA, B.C.S., the founding partner of Morris Law Group, created a video about the SECURE Act highlighting what you need to know. You can watch it here.
Before the enactment of the SECURE Act, upon the death of a person who established a defined contribution plan, including an Individual Retirement Account (IRA), 401(k) or 403(b) (whether traditional or Roth), for certain designated beneficiaries, the beneficiary of an inherited IRA could “stretch” the distributions over his or her lifetime permitting tax-deferred growth.
The SECURE Act significantly modifies the required distribution rules for designated beneficiaries. In the case of a defined contribution plan, if an account owner dies after December 31, 2019, and before the distribution of their entire interest, the non-spouse designated beneficiaries would be required to withdraw all plan assets within 10 years of the death of the account owner (within five years for non-designated beneficiaries). This limitation does not apply to:
  • The surviving spouse of the employee;
  • 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);
  • A disabled person;
  • A chronically ill individual; or
  • An individual not described in any of the preceding sub-clauses who is not more than 10 years younger than the account owner.
Additionally, with respect to account owners who died prior to 2020, the accelerated distribution rules are imposed upon the beneficiary who steps into the shoes of the original designated beneficiary who dies prior to the end of his or her life expectancy.
While this particular change means beneficiaries of traditional IRAs will have to pay income taxes sooner rather than later, with respect to Roth IRAs, the shorter withdrawal period means a loss of future tax-free growth.
Several other changes, which have been previously addressed while legislation was pending and we believe are important to highlight again as the law is now in effect include, among others:
  1. Raising the minimum age for required minimum distributions from retirement savings plans from 70½ to 72;
  2. 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;
  3. Eliminating a requirement for employers to share a common industry in order to form a multiple employer plan (MEP);
  4. Eliminating a provision in current law disqualifying MEPs in which one employer fails to meet requirements;
  5. Providing for the distribution of assets from terminated 403(b) plans;
  6. 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;
  7. Taking penalty free withdrawals of up to $5,000 with respect to a qualified birth or adoption distribution;
  8. Providing pension funding relief to qualified, family-owned, independent newspapers;
  9. Allowing home health care workers with tax-exempt "difficulty of care" compensation to contribute to employer-sponsored plans or IRAs; and
  10. Prohibiting loans from being made by plans through a credit card.
If you have retirement accounts (or retirement accounts payable to a trust), contact Morris Law Group and schedule a consultation for one of our attorneys to review your accounts, as there may be alternative opportunities to plan around the newly required distribution rules.
For more information about the SECURE Act and how it relates to your personal situation, please contact us today.
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Monday, January 13, 2020

The New Year Brings Higher Estate and Gift Tax Limits

By: Joe D. Lieberman, J.D., LL.M., Law Clerk, Morris Law Group - January 13, 2020

Morris Law Group, gifting strategy, 2020 estate tax applicable exclusion amount
With Trump’s tax law changes doubling the federal estate tax exemption base level amount last year to $10 million until 2026, some affluent people decided to make big gifts in 2019. However, many high net worth individuals took more of a cautious approach and decided to wait on their gifting. Now with impeachment and the 2020 presidential election looming, some fear that the estate tax exemption might be going back down sooner rather than later.
While Republicans plan to make the doubled exemption permanent, some Democratic presidential candidates are vowing to bring the exemption back to its 2009 level of $3.5 million, with a graduated tax rate of up to 45 percent. Regardless of the election outcome later this year, now is the perfect time to examine your gifting strategy and discuss your options with an expert.
2020 Applicable Exclusion Amount and Gifting Strategy
The IRS imposes an estate tax at a current rate of 40 percent upon all assets in excess of an individual’s “applicable exclusion amount.” An individual’s applicable exclusion amount is the amount of money and other assets each individual can gift during life or pass by Will or Trust to someone other than his or her spouse free of federal estate taxes.
The amount for 2020 has been adjusted up to $11.58 million for federal estate tax purposes (increasing from $11.4 million in 2019) and is reduced by any prior taxable gifts. Additionally, through the concept of portability, the IRS permits married individuals to utilize the full $11.58 million exclusion of the first deceased spouse by the surviving spouse, effectively providing an individual and his or her spouse a combined estate tax exemption of $23.16 million.
Furthermore, the annual gift tax exclusion amount for 2020 remains at $15,000. You can give away $15,000 to as many people as you like, including your kids, your kids’ spouses, your grandchildren and their spouses. You also can make unlimited direct payments for medical and tuition expenses. If an individual is married, the married couple is entitled to gift $30,000 per individual per year. Any gift that exceeds that amount given to a single individual in one year decreases an individual’s applicable exclusion amount. If your gift does exceed the gift tax annual exclusion amount, you have to report it on a gift tax return (IRS Form 709).
While the applicable exclusion amount continues to grow larger each year as it is indexed for inflation, the amount is scheduled to sunset back to $5 million (adjusted for inflation) after December 31, 2025, unless future legislation makes these changes permanent. Additionally, the current political climate threatens to cut short the date the applicable exclusion amount is set to sunset.
SLATs and GRATs as Planning Techniques
We recommend that with the combination of the increased applicable exclusion amount, scheduled sunset date and current political climate, individuals should begin or reconsider their current estate planning. Consideration should be made whether to gift your assets now.
There are many techniques available, such as gifting to varying types of irrevocable trusts, spousal lifetime asset trusts (SLATs), grantor-retained annuity trusts (GRATs), and installment sales to grantor trusts. Gifting not only decreases the value of an individual’s estate, it also removes any potential appreciation of an asset outside of an individual’s estate, which reduces any estate tax the individual’s estate may have to pay after death.
If you are interested in learning more about the various options available, or would like to request a consultation with one of our experienced attorneys, please contact us.