FINAL-LOGO-SMALLER-FOR-WEBSITE-Trusts-Estates-Business-Succession-Blog-2

Trusts, Estates & Business Succession Blog

This blog is published by the attorneys in Capehart Scatchard’s Wills, Trusts & Estates group. It addresses issues related to estate planning, wills, trusts, succession planning, tax and tax codes.

Are you in a long term relationship? Do you know what will happen if you or your partner have a medical emergency?

In 2021, it is much more common for couples to cohabitate together for long periods of time prior to getting married, if they even decide to take the next big step. While the couple might think they have everything figured out regarding paying the bills and groceries, most do not stop to think “What if something happens to one of us?”

People who have been in long term relationships should consider who has the right to know about their medical situations and/or make decisions if something catastrophic were to happen to them. They also need to consider who they would want to accompany them into a medical procedure.

Depending on the couple’s relationship, they may want to have each other appointed as their agent under their medical power of attorney or have a HIPAA release form executed to allow their partner to be able to speak with the doctors or other medical professionals.

There are plenty of times when an individual has a medical procedure or a medical emergency and their partner is barred from seeing their loved one and is unable to receive medical updates from the doctors or medical staff.

Sitting in the waiting room hoping for good news at some point is almost everyone’s nightmare. Unfortunately, non-married couples who do not have the proper documents in place live through this nightmare scenario all too frequently.

An individual may want their partner to be able to make medical decisions for them as they may be the most up to date with the individual’s wishes and medical history. Without a Living Will or Health Care Power of Attorney, this is not possible and an individual’s next-of-kin has priority.

These conversations are not always the most pleasant or even easiest to have. Although, at some point in the relationship, it needs to happen. If this applies to you, have you had this conversation?

These days, we hear much about “going green”, leaving an “environmental footprint”, “climate change”, etc.  We are all responsible to do our part to preserve and protect our environment while we are alive.  But, what about after we die?  Can you still do your part? Hmmmmm.

Think about how much wood is used to make caskets.  How many tons of steel and/or concrete are used for burial vaults?  And, what about the amount of embalming fluid used? 

The numbers are staggering – 30 million board feet of wood, 90,000 tons of steel, 1.6 million tons of concrete and 800,000 gallons of embalming fluid.  That would be enough metal to build a Golden Gate Bridge every calendar year!

Many individuals are grabbing the idea of eco-friendly funerals and some of the ideas are centuries old for certain cultures.  This has also created new industries for society. 

Here are but a couple of eco-friendly ideas for consideration:

  • If you are firm with a ground burial, you could consider a coffin made out of seagrass, bamboo or woven willow.  These materials decompose naturally.  Also, certain burial garments are made out of materials (such as mushrooms) which will decompose naturally.  Kosher caskets are made of soft pine or poplar wood, with no metal parts – totally biodegradable.  Likewise, Muslim burial traditions are naturally green.  Jewish and Muslim rituals allow for the preservation of a body for a couple of days to give time for families to gather for a funeral, as embalming is avoided.  This keeps formaldehyde out of the ground and the deceased is gently washed and dressed in cotton or linen which will biodegrade naturally.
  • If you prefer cremation, biodegradable urns come in a wide range of materials, including handmade paper, sand and gelatin, cornstarch, bamboo and recycled paper. A biodegradable urn in the earth will decompose over time; the rate depending on the material chosen and environmental conditions.  If you wish to be cremated and have your remains scattered, scattering tubes made from recycled paper ease the process from opening a plastic bag.  These scattering tubes are allowed for placement in carryon luggage for airline travel. 
  • If you would like to have a part in regeneration of our environment, you might want to explore an Italian burial pod, which focuses on the life cycle.  A biodegradable egg-shaped burial container has been designed for cremated remains and full bodies folded in a fetal position. The Capsula Mundi project has created burial pods meant to be paired with a live tree in a natural burial ground with the pod being buried as a seed planted beneath a tree chosen in life by the deceased.  It is hoped that family and friends would continue to nurture the tree as it grows.
  • If you love the ocean, cremains can be cast to the sea in a seashell or turtle-shaped urn that floats for a few moments, then gracefully sinks under the surface. Biodegradable urns for water are made of a variety of natural materials, including recycled paper, rock salt, gelatin and sand.

Regardless of your preference for disposition of your body/remains, it is vital that you have a conversation with your loved ones to let them know your wishes.  Without having what may seem to be a difficult conversation is really a conversation that will relieve your loved ones of trying to decide what your preferences would be.  In fact, you can make the task easier by doing some pre-planning and telling your loved ones that you have done so and exactly where to find the details when that time comes. 

Don’t delay.  It would be a great burden off of your loved ones, whatever choices you make.

If you are a senior or a retiree, do you know that you can file your income taxes for free using Free File online, including the ability to use direct deposit for refunds?  This is available from various tax software companies, free of charge, and is accessible through the IRS website – irs.gov.   

Using electronic filing enables refunds to be issued faster and avoids the delay of paper-filing.  Last year, with the shutdown of the IRS and backlog of the USPS, many returns were delayed in processing or even delivery.  Some paper filers may still be awaiting refunds. 

So, what are the factors to determine if you qualify for Free File? 

While each Free File partner sets its own eligibility standards, the usual factors include age, income and state residence.  If your adjusted gross income is less than $72,000, you have the ability to use Free File.

Most forms are available using Free File. Even if you have a more complex return, as long as you meet the eligibility standards, you most likely will be able to complete your return. 

Using this resource may help you claim credits and deductions you otherwise may not have claimed. 

Free File enables many state returns to be prepared and filed, although some state returns may have a fee for filing.

Returns can be prepared using a computer, tablet or a smartphone.  All you need is online access to irs.gov.

Some of the software is available in Spanish as the IRS expands resources in various languages.

The Department of Defense has online software available to certain veterans called MilTax.  Happy preparing!

We received a little gift in that the deadline for our 2020 income tax returns was extended until May 17, 2021. While that extension may have allowed us to breathe a sigh of relief, one should not delay preparing and filing their returns. The extra month will come and go before we know it.

If you have filed your return, congratulations. For those who haven’t yet filed, here are some important things to remember:

Deadlines are just that – a DEADLINE.  Individuals have a slight reprieve this year, but don’t get comfortable. If your return is not filed by May 17, 2021, be prepared for penalties – penalties for failure to timely file, penalties for failure to timely pay your tax – and interest on any unpaid taxes. These penalties and interest add-ons could result in a significant increase to your tax obligation. The failure to file penalty could reach a maximum of 25 percent of unpaid taxes. Penalties for late payment could reach 6 percent per annum. 

If you can’t file your taxes by May 17, 2021, file for an extension. That can give you a five month extension until October 15, 2021 and could save you the late filing penalties. 

If you owe taxes, you can pay by credit card or check. If paying by check, make certain that your social security number is on the check along with a notation of Form 1040 and the year to ensure proper crediting to your account. 

Keep in mind that the stimulus checks you may have received during these COVID times are not taxable as they are not considered income. 

If you received unemployment benefits, they are not taxable for federal purposes. 

Did you make charitable contributions last year but can’t itemize deductions?  This year, you can deduct up to $300 in cash contributions made to qualified charities during 2020 directly on your Form 1040. Bear in mind that this is a maximum deduction per household, not per taxpayer. 

If you are age 65 or older, you can take advantage of a larger standard deduction based upon your filing status, age and blindness. This could increase the deduction by $1,300, $1,650 or even double those amounts depending upon your qualifiers.

These are but a few important tips to keep in mind when thinking taxes. Happy filing!  (And don’t wait until May – do it sooner rather than later!)

The IRS has announced that the filing deadline for individuals – Form 1040 – has been extended until May 17, 2021.  More information will be forthcoming, but if you were beginning to panic, you can now relax. 

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig.

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

PLEASE NOTE:  This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15, which is the first quarterly payment toward 2021 income tax obligations.

While there has been no formal announcement for the extension of time to file New Jersey Individual Income Taxes, it is expected that an extension announcement will be forthcoming to sync with the federal filing deadline. 

When engaging in estate planning for individuals, attorneys must be diligent in asking the right questions, not only for financial purposes and the objects of one’s bounty, but also for religious beliefs and practices and to complete the planning by honoring the wishes of the individual doing their planning.  If you are doing your estate planning, don’t be intimidated or shy when stating your wishes to your attorney. 

So, what are some areas that are important to be recognized in estate planning, according to religion? 

First of all, the selection of fiduciaries is important to anyone doing their estate planning.  Deeply religious individuals may wish to have trustees, executors and agents under powers of attorney and health care directives who are strong in their religious beliefs and who share the same faith.  However, this person may not be the choice for investing and other responsibilities that come along with the role.  Selection of persons to fulfill these fiduciary roles is extremely important. 

Next, let’s look at a few important considerations impacted by religious beliefs:

  • Are there provisions for specific priority of distribution of one’s assets based upon relationship?
  • What are the beliefs with regard to end-of-life matters?  Be kept alive regardless of the prognosis or allow nature to take its course, and, if so, what comfort measures are permitted? 
  • Is organ donation permissible?  If so, are there limitations on the allowable organs for donation? 
  • Funeral arrangements and timing?  Is embalming allowed?  Is cremation permitted?  Manner for interment or disposition of cremains?

These are but a few very important matters which should be addressed in your estate planning.  To ensure that your beliefs and wishes are carried out, there should be a form of a statement of last wishes prepared and left, not with your Last Will and Testament, but where your fiduciaries can easily locate the same and be informed to carry out your wishes. 

While estate planning is done between the client and the attorney, it is important that once you have completed your planning, you let your fiduciaries know where to find documentation for guidance and perhaps consider having a conversation with them as to your wishes.  You want to avoid something being done against your wishes when it is too late. 

Please do not assume that your attorney knows what your beliefs are.  Within any religion, practices range from very conservative to very liberal and the only way to ensure that your practices are fulfilled is to be open with your attorney.  Ask them for their suggestion on how to make your wishes known to your loved ones. 

Communicating with loved ones with regard to estate planning is so important.  While your fiduciaries may be very much loved and respected, why would you want to place the burden on them to know what your wishes are without you sharing the same? 

Today, many people are planning to age in their homes, which may result in the need for in-home paid health care.  There are many considerations to be made for the protection of the person being cared for, the caregiver, and the family of the aged. 

Are you hiring a companion or a health aide?  The definitions are quite different, with a companion providing transportation, social interaction, and small simple domestic chores.  However, a health aide is responsible for providing hands-on care according to a care plan under the supervision of a medical professional.  A certified health aide is licensed through an agency having medical supervision.  If they are not through an agency, then they are considered to be only a companion. 

Compensation payment is a HUGE consideration.  When you have engaged the services of an aide through an agency, you will be billed by the agency, the aide will be covered by insurance and you will have no income tax consequences.  However, if you opt to hire someone and pay them “under the table”, then you could be faced with some potential problems.  What are the income tax implications to you or to the person providing “services”?  Are you considered an employer responsible for employment taxes and filing certain employment returns?  Are you ethically responsible for reporting the amount paid to that person via a Form 1099?  What happens if you don’t?  What happens if that person becomes injured while caring for the aged – after all, back problems are very common with caregivers. Who will pay the medical bills?  Who could be sued? 

Let’s say that you are using someone that is not through an agency.  What will happen if the caregiver is unable to provide services?  Do you have someone as a backup?  When using an agency, there would be backup available should the need arise.  Not to mention the income tax, insurance possibilities mentioned above would be non-existent. 

If your loved one does not require assistance, but merely is in need of companion services, there is no licensing requirement for this type of service.  Perhaps transportation is all that is needed.  Or maybe social companionship.  This is considered a direct-hire arrangement, allowing you to dictate the terms of employment – as needed, etc. 

Regardless of engagement of companion or health aide services, it is best to check with an attorney regarding what could be needed for the protection of all.  You would not want to find out later that you may have been deficient in tax reporting or could be the defendant of a legal action due to injuries. 

When it comes to estate planning, “it’s not just about valuables, but about values; not just about principal, but about principles.” [Dr. Barry Baines, “Ethical Wills, Putting Your Values on Paper”]  Transferring values and ideals, in addition to your monetary wealth, is an important part of leaving a legacy.  In other words, what your children and grandchildren inherit should be more than just real estate, the family business, or stocks and bonds, but the value of hard work, respect for family traditions and recognition of one’s heritage.

Creating an estate plan that serves your unique needs and reflects your beliefs and values requires a group of skilled advisors from a variety of disciplines.  Sound estate planning is built upon a multidisciplinary approach among a group of professionals that work together as a team, with clear communication, established roles and a desire to work together cooperatively and collaboratively.

Our professionals are well versed in working with accountants, financial advisors and bankers to provide each client the optimal planning experience.  We pride ourselves in our holistic approach in planning for each client’s goals and circumstances to reflect individual values, principles and objectives.  We appreciate the accounting, investment and banking professionals with whom we have had the privilege to work and look forward to expanding and building those relationships.

L to R: Andrew Bradley, paralegal, Yasmeen Khaleel, Esq., Renee Vidal, Esq., Kay Sowa, EA, AEP, CTFA

Abbreviations, acronyms, slang, metaphors, simile, hyperbole, puns, idioms – all types of figurative languages.  When you think about it, we have so many forms of languages that the basics – English, French, German, Spanish – seem to be lost in the shuffle. 

In Estate Planning, we have many acronyms that are used and I thought that I would share some of them with you and give you a short simple explanation of them. 

SNTSpecial Needs Trust – usually created for the benefit of someone who may be receiving special financial benefits due to a disability.  If the funds were to be paid to the individual outright, they could be disqualified from their benefits.

SLATSpousal Lifetime Access Trusts – Trust utilized for transferring wealth outside of an estate with the opportunity to take advantage of the current federal exclusion while providing the donor limited, indirect access to the trust assets.

GRAT, GRUTGrantor Retained Annuity Trust, Grantor Retained UniTrust – These types of trusts provide for the Grantor to report the income on the trusts while providing for Trust assets to pass to designated beneficiaries upon the Grantor’s death.  There are different payout options within Grantor Trusts – as an annuity or as income. 

DAPTDomestic Asset Protection Trust – The grantor of the trust, as well as designated others, can receive distributions from the trust in the discretion of an independent trustee.

ILITIrrevocable Life Insurance Trust – An irrevocable trust funded with life insurance to avoid having the life insurance considered part of one’s estate and thereby saving estate taxes.

QTIPQualified Terminable Interest Property Trust – a trust benefitting the spouse upon the trustor’s death and then to the children after the death of the second spouse. 

CRTCharitable Remainder Trust – a trust which can benefit the grantor during lifetime with the remainder passing to charities post death.

CLTCharitable Lead Trust – Donor can donate an asset’s income stream for a period of years to a charity instead of to the remainder interest (a third party).

AEAApplicable Exclusion Amount – The amount someone can leave free of estate tax (changes annually).

DSUEADeceased Spouse Unused Exemption Amount – Amount of unused lifetime exemption from estate tax of deceased spouse able to be available for surviving spouse’s use at time of death to minimize federal estate tax.

QPRTQualified Personal Residence Trust – used to transfer interest in residence over a period of years to a designated beneficiary.

These are but a few examples of common estate planning acronyms that are used.  All trusts are not feasible in all situations and, with the help of estate planning counsel, can the identification of appropriate trusts be made given your situation. 

Retirement – for some people, they have achieved that stage in life. For others, they may be planning for retirement either in the not-so-distant or distant future.  However, in whatever pre-retirement stage of life you are in, it is never too early to think about it. 

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year, either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2021:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000, up from $196,000 and $206,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
  • The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Key Employee Contribution Limits Remain Unchanged

The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remain unchanged at $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.