Service: Family Wealth and Estate Planning

February 21, 2021

2021 Anders Tax Pocket Guide

Business Transition Planning Credits and Incentives Family Wealth and Estate Planning State and Local Tax Tax Tax Planning and Compliance Broker/Dealers Cannabis Health Care Lodging, Food and Beverage Manufacturing and Distribution Not-for-Profit Real Estate and Construction Sports, Arts and Entertainment Startups and Entrepreneurs

Are you prepared to file taxes in 2021? Take a look at our guide on rates, exemptions and deductions.

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December 22, 2020

Gifting Personal or Business Assets to Children Using a Family Limited Partnership

Anders News Family Wealth and Estate Planning Tax

Passing along a business or wealth to the next generation is a goal of many individuals. There are several ways to transfer personal assets or business interests to your children or grandchildren. One often-overlooked strategy is utilizing a Family Limited Partnership to gift these assets. Below we dive into the basics and benefits of a Family Limited Partnership.

What is a Family Limited Partnership?

A Family Limited Partnership (FLP) is a limited partnership where a family of two or more individuals pool a portion of their personal or business assets together under one limited partnership. FLPs are recommended for individuals seeking to transfer these assets to their children or grandchildren while maintaining partial control, educating their heirs, and potentially saving on taxes in the process.

Similar to a traditional limited partnership, a family limited partnership is set up with general partner(s) and limited partner(s). In a FLP the general partner(s) is the family member(s) who hold the assets, typically the senior-generation. The remaining family members, typically the children or grandchildren, are receiving the limited partnership interest as a gift.  In some scenarios the limited partnership interest may be sold to at a discounted price rather than gifted.

What are the benefits of using a Family Limited Partnership?

Asset Control

Any individual who has worked hard building their wealth or business may be reluctant to the idea of giving up control. This is where the structure of the partnership is crucial.  The general partner(s) retain control over the managing of the assets. This allows them to educate their heirs on how the business is ran while simultaneously having the control to make the necessary decisions.  With this level of control, senior generation family member can also use the FLP to disperse assets to the limited partners utilizing the annual and lifetime gift tax exclusions. The structure also allows interest or ownership of an assets to be divided to family members without fractionalizing titles of the assets.

Tax Savings

A popular benefit of an FLP is the potential savings from estate and gift taxes. This has also put FLPs on the IRS radar for scrutiny.  Since limited partners maintain a lack of control in the FLP, a limited partner can receive a gift of interest in the FLP or buy interest in the FLP at a discount from the general partner. Any interest gifted or transferred to a limited partner can be utilized against the annual gift tax exclusion, which is currently set as $15,000 per recipient for 2020 and 2021. Once a family member has limited interest in an FLP, any earnings from the assets in the FLP are taxed at his/her income tax bracket.

Protection from Creditors

An FLP offers a great deal of safety in a situation where a creditor needs payment from a family member in the partnership. The structure of a FLP makes it to where the creditor does not have any control or access to the underlying property within the partnership. Instead, the creditor can only receive payment from the distributions of the partner who personally holds the debt.

Anders can work with you to decide if a Family Limited Partnership is best for your situation. Contact an Anders advisor today to discuss the many benefits of forming a Family Limited Partnership or learn more about Anders Family Wealth and Estate Planning services.

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Joseph S. Bridges

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October 29, 2020

Year-End Tax Planning for 2020: RMD Changes, Tax Law Proposals and Strategies to Consider

Anders News Family Wealth and Estate Planning Tax Tax Planning and Compliance

Being nimble has seemed like a requirement for all of 2020. We have needed to be nimble with our businesses, as we pivot product or service lines to deal with the COVID pandemic. We have needed to be nimble as Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act relief efforts and additional guidance, requirements and implementation. It comes as no surprise that year-end tax planning will also require us to be nimble during our current economic and political environment. While our planning will evolve going into 2021, below we dig into things you can do now and year-end tax planning strategies to consider.

Take Advantage of Changes to Required Minimum Distributions

There have been two big changes to required minimum distributions (RMD) over the past 12 months. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. One aspect of the bill pushed back the age at which retirement plan participants need to take their RMDs, from 70½ to 72 years of age. This extra year-and-a-half can change the landscape of which source of income to support your lifestyle, as well as, potentially providing additional opportunities for ROTH conversions.

The second big change came with the CARES Act, which was signed into law on March 27th, 2020. One piece of this bill suspended the requirement of RMDs for the 2020 calendar year. This is a great opportunity to allow the qualified retirement account to continue to grow tax deferred.

Planning considerations:

  • Have you previously had large withholdings on your RMDs to cover your federal and state tax liabilities? Don’t forget to consider making quarterly estimated tax payments if you choose not to take your RMD in 2020.
  • Are you still planning on taking a distribution? Consider utilizing a qualified charitable deduction (QCD) to fund your charitable intentions. The distribution will not be included in income, but no additional charitable deduction is available. Typically, this strategy is still more tax advantageous.
  • Will your tax bracket significantly decrease without your normal RMD? Consider a partial ROTH IRA conversion to utilize the lower tax brackets. Additional details discussed below.

Be Aware of Proposed Tax Changes

Tax laws are always evolving at their own pace. In the current political environment, differences in tax policy are on the forefront of everyone’s mind. While it is completely uncertain when, or even if, tax law changes could be implemented, here are some current proposals on the horizon and strategies to keep in mind going into the end of the year.

  • Proposal of increasing the top individual tax rate back to 39.6% and the top corporate tax rate to 28%. The normal “defer income, accelerate expenses” may not be the best strategy depending on how everything plays out.
  • Proposal on increasing net long-term capital gains tax rate on individuals making over $1 million. The current top tax rate is 23.8% when considering the net investment income tax. The top rate under this proposal could be as high as 43.4%. Careful consideration should be taken when planning for the sale of securities and recognition of capital gains.
  • Proposal to change itemized deductions. This would likely eliminate the current $10,000 limit on state and local taxes, however, would also reinstate the limitation on itemized deductions for higher-income taxpayers. This would likely limit deductions to 28% for upper income individuals. Specific scenarios should be analyzed to determine if there is a better tax benefit under current law or proposed law when considering the timing of year-end charitable giving and fourth quarter state estimated tax payments. Many factors will come into play.
  • Proposal to change current gift and estate taxes. There are many different scenarios which could ultimately transpire: The estate tax exemption could be lowered from the current $11.58 million, to pre-Tax Cuts and Jobs Act of $5.5 million, or even lower.  There is also talk about raising the top estate tax rate from 40% to 45%, as well as the possibility of eliminating the step-up in basis to the beneficiary on inherited assets.  The time is now to re-visit estate plans and consider utilizing lifetime gift tax exemptions. 

Don’t Forget Traditional Year-End Strategies

While each individual scenario warrants specific recommendations and guidance, here are some traditional items to keep in mind before 2021.

  • Qualified Business Income (QBI), also known as the “20% Business Deduction”, is a large tax planning strategy. In order to optimize the QBI deductions, careful considerations need to take place to determine year-end bonuses or if considering accelerating or deferring income/expenses.
  • Consider contributing to 529 college savings plan. Some states may allow a deduction for contributions made in this calendar year. Missouri, for example, allows up to $8,000 per taxpayer to be contributed and deducted on their return. 
  • Consider ROTH IRA conversions to utilize lower tax brackets. Whether due to COVID, RMD suspension, or if you are just entering retirement, some individuals may find themselves in a unique situation of being in a lower than usual tax bracket. This is a prime opportunity to convert some of your traditional retirement account to a ROTH retirement account. Pay a little extra tax today but will have tax-free growth going forward.  
  • Revaluate payroll deductions. Before the last paycheck of the year, see if you should make any adjustments to your pre-tax benefits. Have you contributed enough to your retirement to maximize your company’s match? Also, if you are over 50, you are eligible for an additional $6,000 catch-up contribution. Have you maximized your health savings account (HSA)? If you are over 55, you are eligible for an additional $1,000 catch-up contribution.

While I’m sure many of us are ready to put 2020 behind us, there is still time to put some of these tax planning strategies in place before the end of the year. Contact an Anders advisor below to further discuss your tax planning options, or visit our COVID-19 Resource Center for more CARES Act considerations.

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Lucas A. Luckett

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September 3, 2020

How the 2020 Presidential Election Could Impact Your Estate Planning

Anders News Family Wealth and Estate Planning Tax

With the presidential election quickly approaching, it’s important for individuals with large estates to begin considering how the presidential election may affect their estate planning. Today’s record-high estate exemption amounts are not likely to last forever, so taxpayers may want to start thinking about how they can take advantage of the current estate tax laws before they change.

Current Law

The current lifetime estate exclusion amount is $11,580,000 per taxpayer, or $23,160,000 for a married couple. Estates in excess of the exclusion are currently taxed at 40%.

Potential Changes in Estate Taxes

Depending on who is elected, estate tax treatment could change drastically. Below are the main points each candidate proposes and how it would impact estates.

Estate Taxes Under Biden

  • Repeal of stepped-up basis
  • Increase in capital gains taxes
  • Likely a lower exclusion amount

Stepped-up Basis

Biden has proposed to repeal stepped-up basis at death. Currently, an individual may hold an asset for many years, during which the asset typically appreciates in value. When the taxpayer dies and passes an asset to an heir, the basis– the owner’s original investment in the asset–rises to the market value as of the date of death. The heir then inherits this asset “stepped-up basis.” If the heir chooses to immediately sell the inherited assets, he or she can do so with minimal to no income tax on capital gains. Elimination of stepped-up basis will result in increased capital gains taxes for those that inherit the assets.

Capital Gains

The current maximum long-term capital gains tax rate for 2020 is 20% plus 3.8% Net Investment Income tax for single households with more than $441,451 in taxable income and $496,601 for married-filing-jointly. Those in lower tax brackets may qualify for 0% or 15% long-term capital gains rates.

While Biden has not proposed any specific changes to the exclusion amount or estate tax rate, he has hinted at returning to a “historical norm” which some have interpreted to be $5 million, prior to the Tax Cuts and Jobs Act (TCJA), or possibly $3.5 million as it was in 2009. This would dramatically increase the number of taxpayers that would now be subject to estate tax.

Taxpayers may want to rethink current planning and consider whether it’s advantageous to make more lifetime gifts, keeping in mind income tax vs. estate tax and their tax rates vs. their heirs’ tax rates.

Estate Taxes Under Trump

  • 40% tax on estates/lifetime gifts above $11.58 million per taxpayer
  • Expiration & reduction of exemption amounts after 2025

If President Trump is re-elected, the current estate exemption is set to expire at the end of 2025. When the TCJA sunsets, exemption amounts will be reduced to $5,000,000, or $10,000,000 for a married couple, indexed for inflation.

Estate Planning for the Future

People with net assets in excess of $3.5-5 million may want to start thinking about gifting plans to reduce their overall taxable estates. According to “anti-clawback” regulations published by the IRS, gifts made using today’s high exemption amounts are protected from future tax when the exemption amounts are reduced. These regulations offer a major incentive to use these high exemption amounts before it is reduced. Those who could be affected may want to start planning now so they’re positioned to make gifts if the lifetime exemption would drastically decrease.

Contact an Anders advisor below to see which gifting techniques could work best for your situation, or learn more about Anders Family Wealth and Estate Planning services.

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Abby M. Ferguson

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August 27, 2020

Estate Planning Review Checklist

Family Wealth and Estate Planning Tax

Use our checklist as a guide to reviewing your estate plan to ensure your assets are
preserved and eventually distributed as you wish.

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August 25, 2020

How the CARES Act Encourages Charitable Giving in 2020

Anders News COVID-19 Business Recovery Family Wealth and Estate Planning Tax Not-for-Profit

To encourage more charitable giving in 2020 and to help charitable organizations recover from the pandemic, the CARES Act provides additional tax relief for donors on their 2020 tax return. Below we explain the new above the line deduction and eliminated contribution limit for charitable giving.

Above the Line Tax Deduction for Charitable Contributions

As a result of the Tax Cuts and Jobs Act of 2017 (TCJA), fewer taxpayers were able to itemize and receive a tax benefit from their charitable contributions because of the increased standard deduction. In turn, some donors lowered the amount of their contributions. The CARES Act re-incentivizes charitable giving by creating a $300 above the line deduction for qualified charitable contributions. This deduction is available to all taxpayers that take the standard deduction on their 2020 return. 

This deduction is currently only available for 2020 contributions but could be changed by future legislation. To qualify, the donations must be in cash, not stock or donations of clothing or other property, and must be made directly to a qualifying charity, not certain private foundations or donor-advised funds.

Elimination of the 60% Charitable Contribution Limit

Under the TCJA, individuals that itemize are allowed a deduction for cash contributions to certain charitable organizations of up to 60% of their Adjusted Gross Income (AGI). If the amount of the individual’s contributions is greater than the 60% limit, the excess is carried forward and treated as a deductible contribution for the next five years.

Section 2205 of the CARES Act temporarily modifies the contribution limits for individuals and allows individuals that itemize to deduct qualified charitable contributions up to 100% of their AGI. The excess contributions will be carried forward for the next five years. These changes only apply to cash contributions made to a 50% charity, excluding supporting organizations and donor-advised funds. Stock donations and gifts to private foundations are still subject to the 30% of AGI rule.

Opportunity for IRA Distributions

Eliminating the contribution limit creates a huge opportunity for donors who want to make a significant impact to charities this year. Under these rules, a donor could take a significant distribution from their IRA, rather than the annual $100,000 limit, donate it to charity, and take a deduction for the full amount. If you’re considering leaving a large portion of your IRA to charity in your estate, this may be a year to consider a large gift especially if you are expecting to have a taxable estate. You could benefit from tax savings and also see the benefits your charitable donation produces during your lifetime.

Taxable Income Planning

More charitable contributions may allow some taxpayers to reduce taxable income to $0, which may sound very appealing. But that situation isn’t always ideal, especially if you have long-term capital gains and qualified dividend income. If you’re in the lowest two tax brackets, the federal tax on these income sources is 0%. If this is your situation, additional year end planning may be needed to make sure you’re maximizing your tax savings and coordinating with any existing charitable carryforwards.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential tax impacts and benefits. Visit our COVID-19 Resource Center for more insights or contact Anders below to discuss how the CARES Act affects your tax and estate planning.

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Nicholas E. Dall

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August 11, 2020

How Does the CARES Act Affect My Retirement Distributions in 2020?

Anders News COVID-19 Business Recovery Family Wealth and Estate Planning Tax

While the CARES Act relief efforts were largely targeted towards businesses, there were also significant changes around rules for individual retirement plans. Individuals can now benefit from suspended required minimum distributions (RMDs) and are offered relief options if they have been impacted by COVID-19.

RMDs Waived for 2020

The biggest retirement plan change brought by the CARES Act is the suspension of RMDs for 2020. This applies to most RMDs, including those for traditional IRAs, 401(k) and 403(b) plans of those reaching age 72, or age 70 ½ for years before 2020, and inherited IRAs.

Which RMD distributions are waived?

The waiver applies to distributions for 2020 and to first-time distributions for 2019 that could have been delayed to April 1, 2020 and not paid in 2019. The waiver will not change a participant’s required beginning date for minimum distribution rules in future years.

What are the tax benefits?

The waiver of the RMD creates several tax planning opportunities. If you are going to be in a lower tax bracket than normal from other income, it may be beneficial to take enough of a distribution to take advantage of the lower brackets.

Using a Qualified Charitable Distribution can also be a beneficial use of the distribution and a reason to continue to take the distribution in 2020. Up to $100,000 can be donated directly from an IRA to a qualifying charity each year. However, special charity rules for 2020 could allow a much greater distribution from an IRA to be deducted.

On the other hand, a smaller distribution could help bring your taxable income to the lowest possible tax bracket. Income from long-term capital gains and qualified dividends can be taxed at 0% if taxable income is in the lowest two tax brackets. Depending on your situation, you may prefer to skip or reduce your RMD.

What if I already took my RMD?

If you already took your RMD and are now reconsidering, you may be able to roll the distribution back to your retirement account. Notice 2020-51 provides for an extension of the normal 60-day rollover window to August 31, 2020.

Be sure to take note of your withholdings for the year if you choose to skip or reduce your RMD. Since taxes are often withheld from RMDs, you may need to adjust other withholdings or estimate payments to help avoid any penalties.

Rules for Coronavirus-Related Distributions

In addition to the elimination of the RMD requirements, there are special rules for qualified individuals who are diagnosed with COVID-19, whose spouse or dependent is diagnosed with COVID-19, or who have experienced adverse financial circumstances due to COVID-19, such as a reduction in hours, layoff, furlough, or losing child care.

How are coronavirus-related distributions treated?

Distributions taken in 2020 by qualifying individuals are considered coronavirus-related distributions, up to $100,000. Qualifying distributions are not subject to a 10% early withdrawal penalty nor subject to a 20% withholding. 

If a qualifying individual made a coronavirus-related distribution in 2020, the income can be treated as being received equally over a three-year period for tax purposes starting with the year in which you receive your distribution. For example, if you receive a $30,000 COVID-19-related distribution in 2020, you could report $10,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

How can coronavirus-related distributions be paid back?

A COVID-19 related distribution can be repaid in full or partially with contributions for up to three years from the date of distribution. If the repayment is made after the initial year, amended tax returns can be filed to adjust for the taxable income reported before the repayment. While a COVID-19 related distribution has the three-year payback, those who have taken RMDs in 2020 have until August 31, 2020 to put the money back in to avoid the tax consequences.

What about my employer’s maximum plan loan amount?

In addition to options for distributions, the CARES Act allows employers to increase the maximum loan amount available to qualified individuals. For plan loans made to a qualified individual from March 27, 2020 to September 22, 2020, the limit may be increased up to the lesser of $100,000, or the individual’s vested account value. Qualified individuals may also defer for one year any loan payments coming due through December 31, 2020.

If you have questions, Anders is here to help. Contact an Anders advisor below to learn more about the IRA changes surrounding the CARES Act. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

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Michael T. Klein

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June 18, 2020

How Low Stock Values and Interest Rates Can Work in Your Benefit for Estate Tax Planning

News COVID-19 Business Recovery Family Wealth and Estate Planning Tax

COVID-19 has changed the entire world, including how we do business, see loved ones, or even go to the store. But it has also inadvertently affected the world of estate planning. There are now many ways individuals can advance their estate planning and save tax money in the long term. Stock values are down, and interest rates are lower than they have been in years, making now the perfect opportunity to use some of the below estate tax planning strategies.

Roth Conversions

If you have a traditional IRA that is taxed upon withdrawal, it might make sense to convert to a Roth IRA that is taxed at initial investment and tax-free upon withdrawal. Currently, the market is down, so converting these now could result in a lower tax amount paid in the long run. Tax rates are also relatively low and other income may be down this year due to the economy, which may allow you to convert at lower tax rates than you would pay in retirement.

Say your traditional IRA was valued at $2 million, and now has dropped to $1 million. Because this will likely rebound back to the $2 million or even higher later, now is the time to convert some or all of this to a Roth IRA. If you convert the whole IRA, yes you will pay tax now, but you will only pay tax on the $1M Million current value, but then this will grow tax free. In comparison, if you leave it in a traditional IRA, and it rebounds to $3M, you could be paying 3x the tax when you finally withdraw from the account.

Gifting Opportunities

This is also a great time to gift to the next generation. Each year there is an annual gift exclusion, it is currently $15,000 for individuals and $30,000 for couples in 2020. Taxpayers can gift up to this amount to an individual without using any of their lifetime Estate Tax Exemption.

Stocks

Since stock values are down, gifting these depreciated stocks now to the next generation before they regain their value is a great gifting tool.

Family-Owned Businesses

This is a great time to gift family-owned businesses or family limited partnerships to the next generation as well, depending on the valuation of the company. Assuming the value is down, you can gift a larger percentage now rather than when the company is valued higher.

Loans

Intra-family loans are now a greater tool than before, due to the low interest rates. The AFR rate is at a historical low and presents an opportunity to loan to family members for very low interest.

Property

It could also be a great time to sell property, that’s expected to appreciate, to an intentionally defective grantor trust. As long as the property appreciates faster than the interest rate set by the trust at setup, then this property appreciation will be a tax-free transfer for gift and estate tax purposes.

The Estate Tax Exemption of $11.58 Million is set to revert to the old amount in 2025 and be half of the current exemption. If your estate would be in this range of concern, above $5.5 million per person, this is a great time to do some estate tax planning. Once 2025 is here, or earlier depending on the political environment, you could lose half of your gifting opportunity.

GRATs (Grantor Retained Annuity Trusts)

Due to historically low AFR rates, this is the perfect time to consider using a GRAT for your estate planning. In order to create a GRAT, an individual must transfer assets into the trust. The individual has the right to receive the trust annuity payments from the trust for the length of the term. The payments are set based on the AFR rate, which is currently very low. The individual receives these payments for the remainder of the term, and upon the end, the remaining assets pass to the beneficiaries with no estate tax exemption used.

In order for a GRAT to be successful, appreciation of the assets and the income earned from the assets must exceed the IRC Section 7520 rate.  For June 2020, this rate is only 0.6%!  With asset values down right now, it could allow for a lot of asset appreciation to be transferred with no or very low estate tax exemption used.

Contact an Anders advisor to discuss any of these estate tax planning opportunities or other personalized Family Wealth and Estate Planning.

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Abby J. Donnellan

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March 5, 2020

Christopher D. Shamel

Family Wealth and Estate Planning Tax Tax Planning and Compliance
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Anders

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March 5, 2020

Cindy A. Schulte

Family Wealth and Estate Planning Tax Tax Planning and Compliance
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Anders

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