Tax

In December 2017, the Tax Cut and Jobs Act of 2017 was passed by Congress and signed into law. The updated 2019 exemption amount for estate taxes and gift taxes is $11.4 million per person, or $22.8 million for a married couple. If you have more than this amount when you die, your estate is taxed at 40%.
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What is the PA Inheritance Tax?

It is a tax on property that you own within Pennsylvania at the time of your death. If you’re a resident of PA, most of your property, except for out-of-state real estate, will be subject to this tax. The tax is due by your estate in the nine months following your death.

Are there excluded assets?

Not really. Life insurance is the most prominent excluded asset, and farmland may be an excluded asset, but generally, most assets are included.
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The IRS is pretty sure it owns the month of April.  Well, at least April 18th (not April 15th this year).  In the spirit of the tax day quickly heading our way, I have put together some (hopefully) useful tax information for you to recap where we’re at in the new Trump era.

Audits:

According to a Wall Street Journal article that you can

We’ve all heard at least one estate planning horror story.  Or we’ve seen one on TV.  The surprise mistress that is given a large cut, the one child that has been written out of a will or feuding family factions each producing a different copy of the will.  It all makes for great TV and great drama, but chances are, you aren’t leaving your estate to a secret lover and you don’t want your estate plan to create a lot of undue stress.  But despite your best intentions, there are mistakes you could be making – unknowingly – that could produce a lot of drama after you’re gone.

Term Life Insurance vs Whole Life Insurance - Why It Matters

Life insurance is a commonly used tool in estate planning, but often misunderstood or misapplied. It is one tool of many, and you should consider life insurance as part of a comprehensive plan.

Term life insurance is essential insurance that you rent for a period of time (typically 20 years). Term insurance is affordable if you’re young and healthy, and generally serves a specific purpose, such as premature death. You could instantly make up for income loss, supporting children, etc. Term insurance typically is used for younger people who need this affordable protection. The disadvantage of term insurance is that once your term expires, the insurance premiums skyrocket or the policy lapses. There is also no cash value or other benefits to these policies.

Whole life insurance is a policy that accumulates cash value and can offer a guaranteed death benefit. Certain types of whole life insurance policies can provide unique estate planning benefits, such as the ability to add an “accelerated death benefit” or long-term care rider. With this type of policy, life insurance is no longer just a benefit to your loved ones, but a benefit to you as well if you need long-term care (In Pennsylvania, nursing home costs are surpassing the $100,000/year mark easily). 

Life insurance generally passes inheritance tax free in Pennsylvania. Life insurance death benefits are also income tax free. Finally, you may use life insurance if you have a large estate to fund an Irrevocable Life Insurance Trust, so that the life insurance benefits aren’t included in the estate for tax purposes.

If you want to learn more about how life insurance may benefit you and your estate, contact The Law Offices of Jeremy A. Wechsler today for your consultation.

It's not uncommon to hear people confuse a will and an estate plan. A will can be part of an estate plan, but is not a complete estate plan.

The question is, what is a "complete" family estate plan? Here's my definition broken down into bullet points:

1. Provides a legacy that your loved ones will be proud of for years to come;
2. Ensures your property passes to whom you wish it to pass;
3. Protects the inheritance from outside forces, such as creditors, divorces and lawsuits;
4. Addresses incapacity and long-term illness planning; and
5. Saves your heirs every tax dollar possible, and saves them from making mistakes when inheriting your estate.

What Does The 2014 Election Mean For Your Estate Plan?

The saying goes, “elections have consequences” but poll after poll show Americans dissatisfied with the fact that government, no matter what party, can’t get anything done. Others argue that the beauty of our system is that the wheels are slow to turn. Whether government passes laws or not, there are still consequences of those actions and inactions. 

Turning to estate planning, the law is a fundamental component when sitting down to properly design a plan. Other key components are legacy planning, asset protection, family morals, values and goals. 

Now that the 2014 election has passed and voters have spoken, my prediction is that in the next two years, estate planning from a tax perspective will not fundamentally change. 

• Federal Estate Taxes: The federal estate tax exemption is already $5 million (indexed for inflation) per person, so it only affects high net worth families. Republicans, now controlling Congress, have an established goal of eliminating the estate tax. However, the ‘death tax’ issue has been minimized because for most individuals, the tax is a non-issue. I predict no action happening on the federal estate tax or federal gift tax anytime soon. 
  
  
• Stretch IRAs: There have been rumbles of discussion in Congress to eliminate the “Stretch IRA” and force beneficiaries to withdraw a Beneficiary IRA within 5 years. It’s a policy idea to generate short term tax revenue, but has never gotten out of a Congressional committee. My analysis: Congress and the President will be lucky if they can keep government open. I do not see broad tax reform on the table at this time.
  
  
• Obamacare: Part of Obamacare includes a Net Investment Income Tax (NIIT). This is a 3.8% tax that effectively raises capital gains taxes for individuals and couples with more than a threshold amount of income. I cannot envision President Obama repealing Obamacare or any part of it during his final two years in office. This tax appears to be here to stay. For more information about the NIIT, see the IRS website NIIT page.
   
• Pennsylvania Inheritance Tax: While I was following the Pennsylvania Gubernatorial election, there was no discussion of the PA Inheritance Tax that I recall. The majority of states have eliminated their inheritance tax, but Pennsylvania seems set on keeping the tax. Don’t expect our new Democratic Governor Tom Wolf to sign a repeal of the inheritance tax—-he’s been talking tax increases. Remember, life insurance remains inheritance tax-free.
   

The status quo, for the most part, is good news (save for the inheritance tax not being repealed). It gives you more opportunity to do non-tax planning like family legacy planning. Remember that tax planning is only one slice of the larger pie when it comes to estate planning.

It's time to get YOUR estate plan in order before the end of 2014. Call my office today at (215) 706-0200 to schedule your initial consultation. Together, we will design a plan that is customized to meet your needs.

The United States Supreme Court handed down a ruling this week (Clark v. Rameker Trustee) that has major implications for Inherited IRA's (also called Stretch IRA's or Beneficiary IRA's). In essence, the unanimous decision is that Inherited IRA's are NOT protected from bankruptcy proceedings or creditor claims, unlike regular IRA's. The court reasoned that the funds are not considered "retirement funds" and therefore are not afforded the same protections. Important note: A spouse that inherits an IRA is afforded bankruptcy protection.

This case really illustrates a key planning technique, which is the use of a Retirement Asset Protection Trust to protect Inherited IRA's. With the use of a Retirement Asset Protection Trust for your IRA, you can ensure your children or loved ones inherit your IRA and receive the following benefits:

• Ensuring that the IRA becomes a stretch IRA, rather than distributed as a lump sum (with ALL of the income taxes immediately due)
• Provide a level of asset protection from creditors, bankruptcy, divorce, lawsuits, etc.
• Keep the IRA in the bloodlines, perhaps creating a multi-generational IRA for your children, grandchildren and beyond.

In summary, the US Supreme Court ruled that Inherited IRA's received outright by beneficiaries are NOT protected from bankruptcy proceedings. However, by using a well-drafted and sophisticated trust, you can protect your heirs from themselves and others. 

You can read the entire Supreme Court opinion here. 

April 15th is approaching and it is time to begin crossing T's and dotting I's in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you're entitled to. Following are some things to keep in mind as you prepare your tax form.

• Gifts: Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $14,000 in 2013, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however. The IRS grants you a $5,340,000.000 lifetime exemption as of 2014.
  
  
• Medical Expenses: Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 10 percent of your adjusted gross income. (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
  
  
• Parental Deduction: If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption $3,950 (in 2014) for him or her.
  
  
• Long-Term Care Insurance Premiums: Premiums for "qualified" long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
  
  
• Social Security Benefits: Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your "combined income," including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax.
  
  
• Home Sale Exclusion: Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse's death.
  
  
• Elderly or Disabled Tax Credit: Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits.
  
  
• Tax Refunds: Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after recieving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty. For more information, click here. 

The IRS's Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. The IRS also publishes a Tax Guide For Seniors.

If you need tax assistance for your tax returns in 2014, please contact our office today at (215) 706-0200.

We talk extensively about the Federal Estate Tax. Indeed, it only applies to less than 10,000 families right now across the entire United States. Why? Because the exemption from being taxed is high for married couples -- You must have more than $7 Million in assets as a married couple for the federal estate tax to kick in. But what about the Pennsylvania Inheritance Tax? There is no minimum for that tax, unlike the Federal Estate Tax.

If you are passing assets to your husband or wife in Pennsylvania, there is no Pennsylvania Inheritance Tax.

The inheritance tax rate for passing property onto descendants, children and grandchildren is 4.5%

The inheritance tax rate for passing property onto siblings is 12%.

All others are taxed at 15%.

If you want to learn more about the Pennsylvania Inheritance Tax or Federal Estate Tax, schedule some time with me at our office.