We hope you
and your family are staying safe and taking care during this difficult
time. As you know, we are working
remotely. We are all still available
during regular business hours and eager to help you.
sending this newsletter because one of the provisions of the recently enacted
CARES Act directly impacts many of our clients.
The CARES Act changed the rules for required minimum distributions
(RMDs) from retirement plans for 2020.
All RMDs from retirement plans (including IRAs,
inherited IRAs, and employer plans, such as 401Ks) for 2020 are suspended.
If you are over 70 ½ or you are the beneficiary
of an inherited IRA and you have not taken all of your RMDs for 2020 and
do not wish to take the remaining RMDs, you do not have to do so.
If you have taken RMDs, you maybe
able to roll them back into the plan if it is within 60 days of the distribution
or, if it is more than 60 days, you may be able to contribute the
distribution to an IRA.
If you are under 59 ½ you may be
able to take a penalty-free distribution or loan from your retirement plan, up
to $100,000. Generally, there is a 10%
penalty for distributions before age 59 ½.
Income taxes on the distribution will still be due.
consult your financial advisor about your specific situation. If your RMDs are distributed automatically,
you may wish to reach out to your financial advisor to delay the distributions.
understand this is a time of great anxiety.
We wish you continued good health and prosperity in the months to come.
Good TV and movies may be the key to survival in the coming weeks. Add these great movies – with Estate Planning themes – to your #SocialDistancing binge list.
– This new release ensemble film is an Agatha Christie style murder mystery
with an Estate Planning twist. Novelist
Harlan Thrombey is found dead in his Massachusetts mansion. His extended family members are all
suspects. When the family finds out
Harlan recently amended his Estate Plan to leave his mansion and $60 million
fortune to his young Lantinx private nurse, the quest for his killer gets even
more interesting. I found the meeting
with the exasperated Estate Planning attorney laugh-out-loud funny. Who doesn’t love those clients that require
detailed explanations of testamentary capacity, undue influence, and the Slayer
Millions – This one is an oldie but goodie! Monty Brewster (played by Richard Pryor, at
the height of his career) is a struggling minor league baseball player who learns
his recently deceased uncle left him a $300 million fortune. But Uncle Rupert was no dope, and like most
of us, he worried about Monty’s spending habits. So the inheritance comes with a
contingency. Monty has a choice – he can
forego the fortune in exchange for $1 million outright OR he can spend 30 days
spending $30 million of it and, if successful, get the entire remainder of the $300
million. The hitch, however, is that he
can’t own any assets at the end of the 30 days. Uncle Rupert hopes to teach
Monty to hate wasteful spending. Monty
accepts the challenge.
Rain Man –
After his father dies, luxury car dealer Charlie Babbitt (played by Tom Cruise)
learns that the bulk of dad’s estate has been left to a special needs trust for
the benefit of Charlie’s autistic brother, Raymond (played by Dustin Hoffman),
who Charlie never knew. Charlie travels
to meet Raymond with the hope of getting his half of the fortune. An ensuing road trip results in the brothers’
bonding, and Charlie gives up his plan to contest the Will.
Willy Wonka and the Chocolate Factory – Yes, you read correctly! Willy Wonka has a wildly successful candy business, but he is nearing the end of his career and has no heirs to carry it on. His golden ticket scheme is his attempt at a business succession plan. It’s not a plan I typically recommend to clients, but the legal work to transition the business to Charlie would be interesting.
If you need a break from talk of the coronavirus, stock
market crash, and politics, I highly recommend Season 10 of Larry David’s Curb Your Enthusiasm. Once you get past cringing at Larry’s social
fumbles, it’s great entertainment. As
he always has, in Season 10, Larry takes on the problems and annoyances of
everyday life in a laugh-out-loud way.
In fact, the most recent episode (Season 10, Episode 8) includes an
Estate Planning storyline.
Here is what happens.
Larry and Cheryl meet up at Jeff’s house. Cheryl tells Larry that her sister, Becky, is
selling the house Larry and Cheryl gifted to her fifteen years ago. Becky is Cheryl’s down-on-her-luck sister – a
self-dubbed “Princess Margaret” to Cheryl’s “Queen Elizabeth”. When Larry finds out Becky is selling the
house at a profit, he gets annoyed. He
tells Cheryl the profit should be his.
He then goes directly to Becky and proposes another solution – he’ll
recoup his investment from the sale proceeds, and she can keep the profit.
All three women (Cheryl, Becky and Susie) argue that Larry did
not retain the right to keep the profit or recoup his initial investment. “You gave it to her. It was a gift,” says Susie, brashly. The
women argue with Larry on principle, but they are also right under Estate
Presumably, Larry and Cheryl filed a gift tax return when
they gifted the house to Becky. They made
a completed taxable gift and deeded the house to her (or perhaps to a trust for
her benefit). Larry can’t take back the
gift, or any part of it, including the profit.
Larry can’t have retained an interest in the house. If he had retained an interest, the gift
would be incomplete. Furthermore, under
Section 2036 of the Internal Revenue Code, the full value of the house would be
includible in Larry’s estate on his death and subject to federal estate
taxes. (California does not have a state
estate tax, although many states, including Massachusetts, still do.) Because Larry has a very large estate,
inclusion of the full value of the house in his estate would be a bad result. That’s not “pretty, pretty good”.
For those with substantial estates, making gifts to family
members is an important estate planning strategy. We can advise you about the best way to make
gifts and minimize estate taxes.
At the end of December, Congress passed a new law – the
SECURE Act – that dramatically changes the post-death income tax treatment of
retirement accounts, including IRAs and 401(k) plans. The new law affects many clients, and may require
you to make changes to your estate plan.
Changes to distributions after death
The SECURE Act eliminated the “Stretch IRA” – the
opportunity for most retirement account beneficiaries to receive distributions
slowly over the remainder of their lifetime. Now, most beneficiaries who inherit a
retirement account in 2020 or later must withdraw all the assets within ten
(10) years of the account owner’s death. In most cases, the 10-year required withdrawal
period will increase income taxes.
Some beneficiaries are still eligible for a lifetime payout
period. These “Eligible Designated
Beneficiaries” are exceptions to the 10-year required withdrawal rule and
The surviving spouse of the retirement account
A disabled or chronically ill beneficiary;
A minor child of the retirement account owner
(but not a minor grandchild); and
A beneficiary who is less than 10 years younger
than the retirement account owner.
Other changes during account owner’s lifetime
The SECURE Act also amended the laws governing retirement
accounts in other important ways. It increased
the age at which the account owner must begin required minimum distributions
from 70 ½ to 72 for those who did not reach 70 ½ by the end of 2019. It also eliminated the age limit for
deductible IRA contributions.
Under the new law, if you are over 70 ½, you may still make
qualified charitable distributions up to $100,000 per year from your IRA. However, that amount is reduced by deductible
IRA contributions you made in the same year.
Do these changes impact you?
The SECURE Act has broad impact. Many clients will need to make changes to
their beneficiary designations or their estate plans. If you have
a retirement account, you may need to make changes to your estate plan if:
Your retirement accounts are large (valued at
several million dollars and more). The
impact of the increased income tax will be significant.
You named as beneficiary a minor or young adult,
or a trust for his or her benefit.
You named as beneficiary a disabled or
chronically ill person, or a trust for his or her benefit.
You want your retirement account to provide long
term support to a beneficiary who is disabled, ill, or unable to manage money.
Please reach out to us so we can provide specific, expert
advice to benefit your family.
How can we help you?
The SECURE Act also offers some new estate planning
opportunities to consider.
You may wish to do a Roth conversion of all or
part of an existing IRA to save your beneficiaries income taxes. Although income taxes will be due at
conversion and the 10-year rule will still apply, the beneficiaries will not
pay income taxes on the accelerated distributions.
If you are charitably inclined, you may wish to
leave all or part of your retirement account to charity or to a charitable
remainder trust, which do not pay income taxes, and leave other assets to individual
You may want to reconsider the division of assets
among your beneficiaries. For instance,
you may want to leave your retirement account to a disabled child (who is an
Eligible Designated Beneficiary and qualifies for a lifetime payout period) and
leave other assets to other beneficiaries.
You may consider purchasing additional life
insurance to replenish retirement assets lost to income taxes.
What about your trust?
Most clients will not have to revise their trust to
accommodate the new law, even if retirement benefits will pass to the trust at
death. The trust provisions will still
work. Nonetheless, an amendment to the trust
may be required if a trust beneficiary is disabled or chronically ill.
It’s early January which means it’s time to make your New
Year’s resolutions. Consider adding these
Estate Planning resolutions to your 2020 list.
Resolution #1 – Confirm and/or Change your Beneficiary Designations
If you have been advised to make changes to the beneficiary
designations of your retirement accounts and life insurance policies (as we
often do) and you haven’t yet done so, make the changes in 2020. If you
have not yet received good advice, seek it out.
Proper beneficiary designations
are essential to ensure your Estate Plan works as intended.
Resolution #2 – Understand how the SECURE Act will affect you
The SECURE Act – a federal law signed on December 20, 2019 –
dramatically impacts the post-death treatment of IRAs and other retirement
accounts. The most significant change is
the elimination of the “stretch” life-expectancy payout for most
beneficiaries. The new 10-year payout
rule will mean higher income taxes for many IRA beneficiaries. You should understand how your family is
(One of my own resolutions is to understand the new law, how
it will impact our estate planning clients, and new planning opportunities. More advice from us to come soon!)
Resolution #3 – Plan for State Estate Taxes
Although the federal exemption is now very high, the
Massachusetts exemption remains $1 million.
Many Massachusetts residents must plan for state estate taxes. Make sure you have an estate plan that
includes state estate tax planning.
Resolution #4 – Make Lifetime Taxable Gifts
Lifetime taxable gifts (gifts in excess of the annual
exclusion) can substantially reduce both federal and Massachusetts estate
taxes. If you have significant assets,
consider making taxable gifts to (or for the benefit of) your children or
grandchildren in 2020. It is important
to seek out good advice before you do!
Resolution #5 – Name a Guardian for your Minor Children
If you have minor children and have not yet named a guardian
in the event of your death, prepare an estate plan in 2020 that names one. This can be a difficult and emotional decision
for some parents. Remember, an
imperfect choice is better than no choice at all. If you do not choose, a court may choose for
I’ve had the opportunity to read many unusual estate
plans. And I’ve certainly heard of
highly unusual (and problematic!) celebrity estate plans. But the story of vaudeville performer Edgar
Bergen’s Will may “take the cake” as the most unusual.
Edgar Bergen was a vaudeville actor, comedian, and performer
who was most well known as a ventriloquist.
He performed with his dummy, Charlie McCarthy, for over forty years, beginning
in the 1930s, first in theatre, then radio, and later in television and
films. Bergen was also the father of
actress Candice Bergen, most famous for her role as Murphy Brown in the
television series Murphy Brown which
first aired in 1988.
Edgar Bergen died in 1978 and his Will included a very unusual
provision. Bergen left $10,000 for the benefit of his dummy, Charlie
McCarthy. He directed his Executor to pay
the gift to the Actors Fund of America, a charity still in existence today, to establish
a fund to be known as the “Charlie McCarthy Fund”, so that Charlie could
continue to perform. Bergen expressed
his wish that the money be managed and invested so that Charlie could give
charitable performances for those in need, especially destitute and disabled
children. Bergen explained in the Will
that the gift was intended for “sentimental reasons” because of the
companionship he had received from Charlie throughout his life. Notably, Bergen failed to leave anything to
his daughter whose career had not yet taken off.
A trust for a dummy!
That’s a new, and certainly strange, one for me! You may be wondering… would this even be
legal now? Sort of. Massachusetts law does not allow trusts to be
established for the benefit of tangible personal property (which a dummy
is). It does however allow charitable purpose trusts – trusts without
specified (human) beneficiaries that are established for certain charitable
purposes. This law became effective in
Massachusetts in 2012 when the Uniform Trust Code was enacted. I believe the Charlie McCarthy Fund is a
charitable purpose trust that would be legal in Massachusetts.
I am not sure if Charlie ever actually performed after
Bergen’s death. Charlie was later gifted
to the Smithsonian Museum by the Bergen Family Foundation. If you want to learn more about Bergen’s Will
and the impact of this unusual gift on his family, check out Candice Bergen’s
2015 autobiography, A Fine Romance.
sharing a real email I sent my Dad recently.
He sought my advice about how best to prepare a list of his financial
information so I would have it if he died or became disabled. This is right up my alley, so I happily
complied and now want to share.
some background on my family. Dad is a
retired physician. He is in his early 70s,
healthy, responsible, and fully capable.
Mom died many years ago and Dad is unmarried but in a long-term
relationship. I have one brother. He and I are responsible, close, and
Like most dads, mine does not like to take advice from his children. (The fear of dying on an extended European cruise seems to have led him to go against his better judgment!) Listing financial information, and keeping the list up-to-date, is not an easy task for any of us. Discussing the process with family members can be difficult too. Hopefully, my email outline will help your family.
you make a list of your financial information and try to keep it current.
It can be in an Excel spreadsheet, Word document, or even just
handwritten. Since keeping track of information can be burdensome over
time, keep it simple. I would maintain an electronic AND a hard copy of
the list somewhere where we would look if you died or lost capacity. It
shouldn’t be locked in a safe or safe deposit box. I encourage you
to continue to get paper statements for all accounts, including all
credit cards and bills.
Here is what
you should put on the list. I am making
some assumptions about what you own, so please add to this if I am missing any
List all Bank, Brokerage, Non-Retirement
Investment, Pensions and Retirement accounts. For each account list the following 4 things:
(1) The name of the Institution/Bank; (2) The account number; (3) How the
account is titled. Is it in your
individual name? Is it in the name of a
Trust? Is it owned jointly with someone
else? (4) If the account has a beneficiary, who is it?
Be sure to include on the list any accounts titled in the
name of Mom’s Trust.
List all Life Insurance Policies. For each policy list the following 5 things: (1)
The name of the life insurance company; (2) The policy number; (3) Who owns the
policy. Is it owned by you or by a Trust?
(4) Who is the beneficiary? (5) The location of the policy, if you have it.
List any important additional information about your assets,
including a safe deposit box, tangible items or stock certificates stored
elsewhere, and the title to your car.
Please list the item, location and information needed to access it.
List all Mortgages,
HELOCs, and Car loans. For
each account list the following 2 things: (1)
The name of the Lender; and (2) The account
List all Credit cards. For each card list the following 3
things: (1) Name of the credit card company; (2) The account number; (3) Is
the amount due paid automatically?
HEALTH CARE INFORMATION
Medicare Number. List your
Supplemental (Medigap) Health Plan and Member Number. List your Long Term Care Insurance
carrier and Account Number. Where is the
LTC insurance policy located? List name and contact info of Primary
List name and contact info of Estate Planning Attorney and location of original Estate Plan documents. List name and contact info of Accountant. List name and contact info of Financial Advisor.
best to keep a list of usernames and passwords for your online accounts. This should include bank/investment accounts
you manage online, credit cards, email accounts, photo accounts, service/shopping
accounts (like Amazon, Netflix, etc.), and social media accounts (like Facebook). Do your best on this! It is hard to keep up to date. I struggle with this too. I don’t think it is essential (or even
possible) for it to be perfect. If you
have a Master Password for Phone or Computers, be sure to put that on the
discovered a hidden
historical gem on the streets of Philadelphia this week. 13th Street,
right in downtown Philadelphia, has been re-named in honor of Philly native and
local hero Edith “Edie” Windsor. Edie Windsor was a LGBT civil rights
activist. After her wife Thea died in 2009, Windsor, as Executor and
beneficiary of Thea’s estate, was required to pay $363,000 in federal estate taxes
on the assets she inherited. Had Windsor been married to a man, the
assets would have passed to Windsor completely estate tax free because they
would have qualified for the unlimited Federal estate tax marital
deduction. Windsor could not benefit from the unlimited marital
deduction even though she and Thea were legally married under state law because
the Defense of Marriage Act (DOMA) limited marriage to a union between a man
and a woman. DOMA prevented same-sex
married couples from receiving federal benefits available to heterosexual
sued the federal government alleging that DOMA was unconstitutional. She
asked the court to order the IRS to extend the estate tax marital deduction to same-sex
married couples and refund her the estate taxes.
2013, the Supreme Court agreed with Windsor. The court found that DOMA
was unconstitutional. It held that
assets left after death to a same-sex spouse are eligible for the federal
marital deduction and should not be subject to estate tax. Windsor was entitled to an estate tax refund
2017, the IRS issued a Notice that provided some retroactive relief for same-sex
taxpayers. A taxpayer who had used
estate tax exemption or allocated generation skipping transfer tax exemption to
gifts to a same-sex spouse can now apply to the IRS to restore his or her
exemptions. Same-sex marriage became
legal in Massachusetts in 2004.
Massachusetts same-sex married couples can obtain this relief
retroactive to the Windsor decision.
Windsor advocated for same-sex marriage for the rest of her life. She died in 2017 at the age of 88.
interest rates are low – as they are this summer – some estate tax planning
strategies become particularly advantageous.
In my last post I wrote about the benefits of intra-family loans with a
low applicable federal rate (AFR). It is
also a good time to consider the following other estate tax planning strategies
– Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts
Grantor Retained Annuity Trusts (GRATs)
GRAT is an irrevocable trust funded by a grantor for the ultimate benefit of
children, grandchildren, or other beneficiaries. During the trust term, the grantor retains
the right to an annual annuity. In a
“zeroed-out” GRAT, the value of the annuity is equal to the value of the
original gift to the trust plus interest at the Section 7520 rate set by the
IRS each month. Any appreciation above
the annuity amount passes to the beneficiaries gift tax-free. It is a tax-advantaged way to pass assets to
children or grandchildren.
work especially well when interest rates are low. The 7520 rate has been falling since the
beginning of 2019. The August 2019 rate
is 2.2%, which is low. For that reason,
it may be a good time for you to established and fund a GRAT. You will retain the right to an annuity for
the GRAT term and your children or grandchildren will benefit from a tax-free
gift at the end of the term.
Charitable Lead Annuity Trusts (CLATs)
CLAT is another type of irrevocable trust that is effective when interest rates
are low. During the CLAT term, an
annuity of a set amount is paid to a charity.
At the end of the term, whatever is left in the trust passes to the
trust beneficiaries – typically children and grandchildren – gift and estate
present value of the charitable annuity must be equal to the initial gift to
the trust, but the present value is discounted by the 7520 rate. A low 7520 rate means that more will pass to children
and grandchildren. CLATs are a great
tax-advantaged way to support a charity as well as benefit your family. A low 7520 rate makes CLATs an even more appealing
estate tax planning strategy.
rates have hit a low point this summer.
Low interest rates set each month by the IRS (the applicable federal
rate (AFR) and the 7520 rate) make some estate tax planning strategies particularly
effective. For this reason, it may be a
good time to take a break from the heat and sun this August to do some estate
tax planning. It will save your family
some money, and perhaps pay for next year’s summer vacation.
estate tax planning strategy that is very effective when interest rates are low
are intra-family loans. Intra-family
loans are loans to family members. They
can be made outright to a family member or to a trust for his or her benefit. Often parents or grandparents wish to loan
money to children or grandchildren to buy a new home, renovate an existing
home, or make a business investment.
The loans can be forgiven over time to take advantage of the lender’s
gift tax annual exclusion and to maximize wealth transfer planning.
IRS requires that the lender charge interest on an intra-family loan at the applicable
federal rate (AFR). This rate is set
each month by the IRS, and has been trending downward since early 2019. The August 2019 AFR for a mid-term loan (with
up to a 9 year term) is very low – 1.85%.
In fact, quite surprisingly, the mid-term AFR (1.85%) is lower than the
short-term AFR (1.89%) which means the loan can be for a longer term with a
A low interest rate makes intra-family loans an appealing estate tax planning strategy. If you are considering a loan to your children or grandchildren, this may be a good time to make one. In addition, if you have an existing outstanding loan, this may be a good time to refinance it. But be careful, and get good advice. The loan must be documented by a Promissory Note and the lender must charge interest at the AFR. Otherwise the IRS may view it as a taxable gift.