Jannuzzi Completes Master’s Degree in Estate Planning

IMG_1216   Yours truly is proud to report that as of May 10, 2020, I have completed my Master of Laws degree (LL.M.) in Estate Planning, with honors. The adventure began in 2015 when I applied to the John Marshall Law School, now part of the University of Illinois at Chicago, for its online master’s program. I completed 24 credits in federal estate, gift and income tax, estate planning, trust and estate administration and ethics. It was by no means easy to come home from a full day, or week, of work and to crack open the Internal Revenue Code, treasury regulations, textbooks, etc. and study and do homework.

I have practiced in the areas of probate and estate administration and litigation since 2002. Estate planning was the perfect complement to my expertise in those areas of law. Since 2015, I have been assisting clients with preparation of estate plans, drafting trusts, wills and powers of attorney to facilitate planning for disability and the end of life and the transmission of wealth to the next generation. I am gratified to have had the opportunity to deepen and broaden my experience by additional academic training, and I look forward to bringing this knowledge to bear in helping my clients.

Gifting in a Time of Uncertainty

Many are gifting their assets to family members, friends, and their communities in order to assist them through these difficult times. As discussed below, the timing of such gifts may benefit the donor as much as the recipient.

Some basics: Gift taxes and estate taxes are linked in the federal tax system. In other words, these taxes share the same basic exclusion amount (BEA) that an individual is allowed in computing their federal gift and estate tax. The current BEA adjusted for inflation is $11.58 million per individual. This means each taxpayer can transfer up to $11.58 million tax free in any combination of lifetime gifts or testamentary gifts (gifts made after death, e.g., by will or trust).

There is an important general exception: federal law allows an unlimited number of annual gifts an individual can make tax free. The current annual gift tax exclusion amount is $15,000 per donee (recipient). Taxpayers can make annual exclusion gifts to as many donees as they would like before reducing or utilizing any of their BEA.

A important recent legislative amendment: Beginning on January 1, 2018, the BEA was increased from $5 million to $10 million as adjusted for inflation. Under the current federal tax code, on January 1, 2026, the BEA—which is now $11.58 million—will revert or “sunset” back to $5 million as adjusted for inflation. Thus, the current federal tax code permits an individual or their estate to utilize the current, increased BEA to shelter from gift and estate taxes an additional $5 million of transfers made during the eight (8) year period beginning on January 1, 2018, and ending on December 31, 2025.

But what happens if you die after December 31, 2025, having transferred more than $5 million in lifetime and testamentary gifts?

Enter an IRS special rule: On November 26, 2019, the IRS adopted a special rule to address just such question. The rule precludes the IRS from recapturing or “clawing back” all, or a portion, of the benefit of the increased BEA used to offset gift tax by persons who make taxable gifts during the increased BEA period, and die after December 31, 2025. The rule ensures that a decedent’s estate is not inappropriately taxed with respect to gifts that were sheltered from gift tax by the increased BEA when made.

But what if a decedent failed to take advantage of the current increased BEA?

The critical fine print: The special rule also makes clear that the increased BEA is a “use or lose” benefit and is available to a decedent who survives the increased BEA period only to the extent that the decedent “used” it by making gifts during the increased BEA period.

*PLEASE BE ADVISED that the foregoing only provides a basic overview of particular provisions within the federal tax code and corresponding regulations, and it not intended to be relied upon for any individual’s specific circumstances. You should consult with an experienced tax professional for personalized guidance.

Do-It-Yourself (Holographic) Wills – Knowing Your Options in the Age of Quarantine

This article provides basic information on what a holographic will is and how to create one that is valid and enforceable in the State of Nevada.

The term “holographic will” refers to a document that sets forth an individual’s last will and testament and which that individual has created on their own. In this context, the person making the will is referred to as a “testator.” In Nevada, a holographic will is valid and enforceable if all of the following requirements are met:

          1. The signature and date set forth in the will are written by the hand of the testator.

          2. The material provisions set forth in the will are written by the hand of the testator.

          3. The testator is of sound mind.

          4. The testator is over the age of 18.

A holographic will that meets the statutory requirements is valid and enforceable regardless of whether at the time it is made, the testator is physically located in or out of Nevada.

PLEASE BE ADVISED that when an individual establishes a testamentary transfer of an asset to a beneficiary by holographic will, the asset becomes a part of the individual’s probate estate upon death, and in order for the beneficiary to obtain legal ownership of the asset, it will be necessary to submit the holographic will to the appropriate probate court and obtain its authorization to effect the transfer. Furthermore, where a testator disposes of an asset by holographic will, the asset is chargeable with the payment of the testator’s debts. In our firm’s experience, holographic wills are challenged in probate court with greater frequency than last wills and testaments prepared by an attorney.

We wish our clients and community safety and health during this time, in particular the most vulnerable, and we continue to stand ready to assist with your needs, questions, and concerns.

Knives Out

knives-out

My husband and I went to see Knives Out in the theater, before the theaters were closed. The movie is glorious—stunningly beautiful cinematography and wonderful performances by an all-star cast, old favorites and newcomers alike.

Harlan Thrombey, celebrated mystery writer, is dead. His housekeeper finds him in his upstairs study the morning after his 85th birthday party, throat slit with a knife—a death worthy of any of his wildly popular novels. The police have concluded it was a suicide, but they come back to the house to interview Harlan’s family members, just to make sure they aren’t missing anything. Each family member sits in the interview chair with a giant piece of artwork behind them, a thousand knives and daggers arranged in circles around a sort of empty donut hole in the middle—an objet d’art that is wonderfully expressive of the movie’s “who dunnit and why?” theme. While the police ask their questions, a gentleman lounges behind them, listening to the testimony and occasionally playing a single note on the piano. He tries to remain in the background and let the cops do their job, but he cannot stay quiet and eventually jumps up and begins questioning the witnesses.

The gentleman sleuth is Benoit Blanc, who was hired to look into the matter by—we don’t know whom. He received an envelope with cash and a newspaper article about Harlan’s death. After the unsatisfying testimony of Harlan’s children and their spouses (dissemblers, all), Blanc enlists the help of Harlan’s nurse, Marta Cabrera, to help him look into the facts and events surrounding Harlan’s death.

I will not spoil the plot for you. (Well, not much, anyway). There are two things I want to talk about. The first is the setting. In the vein of Midsomer Murders, Harlan’s mansion is every bit one of the characters. The film was shot in Massachusetts in the fall, partly at the Ames mansion and partly at an undisclosed private home. The mansion is all mahogany and stained-glass windows and filled with marvelous period pieces like a carved wood sea captain on the stair case landing, a bronze sculpture of two German shepherds, vintage magic posters, a “stash clock” on the mantlepiece, and so on. I seriously need the set decorators from this movie to give our house a makeover.

The second is, of course, Harlan’s will. Harlan’s attorney arrives at the mansion for the reading of the will, something which I guess used to be a “thing” in estate law practice but has gone the way of all flesh, as far as I can tell. Blanc tells Marta to forget the drama of the reading, to think of it instead as being like a “community theater production of a tax return.” Ha ha—wills are a lot more exciting than tax returns, I dare say. And indeed, the reading of the will is pretty exciting. Before they even get that far, Harlan’s children, their spouses and children literally get into a fist fight.

The lawyer “sets up” and summons the family in. He produces and reads aloud two documents: the first is a short statement written by Harlan and addressed to his family members, encouraging them to accept his will—“It’s for the best.” The second is the will itself, which appears to be a one-page document with no witness signatures evident and which the lawyer says Harlan drafted himself and delivered to the lawyer’s office the previous week. (Wow—really? Exactly what did he hire the lawyer for? Document storage?) Harlan needed a good estate planner: No witnesses, no trust, no named executor; just a big load of estate taxes and probate fees.

But the film, as you may imagine, centers on the big surprise Harlan had up his sleeve, one that does not please his progeny: they have all been disinherited. His children press the lawyer for help—how can this be set aside? The lawyer—who (ethics alert!) was Harlan’s lawyer even if he did not draft the will—gives them advice: if he was of sound mind, you not liking it doesn’t make it invalid. But what about undue influence, one of them asks. “Did you just Google that?” shoots back the lawyer. But there is no basis for this either—Harlan left everything to a person who impressed him by having a good heart and working hard. All they have left is the Slayer Rule: which (in Nevada, anyway) provides that one who intentionally and feloniously kills another cannot benefit from the killing by inheriting from the deceased victim. But Harlan committed suicide, the lawyer points out. No good either. Or…is it?

Go see the movie. It’s really good. Ebert gives it the thumbs up: https://www.rogerebert.com/reviews/knives-out-2019. I bet you Siskel would have liked it too.

The Coronavirus Stimulus Bill — How It May Affect Your Financial and Tax Planning

On March 27, 2020, Congress passed the $2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act, which provides for direct payments and loans to individuals and businesses, and establishes several provisions which may have a significant impact on your financial and tax planning.

New Tax Filing Deadlines:  For the 2019 tax year, the original filing and payment due date of April 15, 2020 has been extended to July 15, 2020. The new deadline also applies to contributions to a Traditional IRA, Roth IRA, SEP IRA, or HSA. For those making estimated tax payments for the 2020 tax year, such payments are still due on the original due dates, except for the first quarter payment. We strongly advise you to contact your accountant or tax adviser to understand how these new deadlines impact your personal and business tax obligations, and to determine when you should file your return, especially if you are expecting a refund.

Cash Payments for Individuals:  Individuals will receive a rebate payment of $1,200 ($2,400 for a joint return) plus $500 per qualifying child. It appears likely that such payment will be provided in the form of direct deposit or check based upon your most recently filed return or, if you did not file a return because you are a Social Security recipient, your 2019 Social Security information. The payment will be reduced by 5% of your adjusted gross income that exceeds $150,000 for joint returns, $112,500 for head of household returns, and $75,000 for single returns. In other words, the payment is completely phased out at an adjusted gross income of $198,000 or more for married filers and $99,000 or more for single filers.

Unemployment:  For those who have lost their job, the federal government will give unemployed workers an extra $600 a week for four (4) months, in addition to state benefits.

Required Minimum Distributions:  The CARES Act allows for a one (1) year waiver in required minimum distributions (RMDs) for defined contribution plans under §403(a), §403(b), IRAs, and Section 457 plans. The intended purpose of this provision is to give taxpayers a chance to let their IRAs recover. Also, inherited IRAs or retirement plan accounts required to be depleted within five (5) years can skip the 2020 year, thereby extending the required timeframe to six (6) years.

Needed Distributions:  For those needing to utilize retirement savings during these times, the CARES Act waives the 10% penalty on early distributions for 2020 coronavirus-related purposes, up to a maximum of $100,000. This applies to a variety of circumstances, including without limitation, persons, spouses, dependents diagnosed with COVID-19 and persons experiencing financial difficulties as a direct result of the disease.

Qualified Plan Loans:  The amount you can borrow from your retirement plan is temporarily increased to either $100,000 or 100% of the vested account balance, whichever is less. This will be in effect for 180 days, starting on March 27, when the Act was passed. If an existing retirement plan loan comes due between March 27 and December 31, 2020, you have a one (1) year extension to pay it.

Charitable Deductions:  Even if you do not itemize deductions, you can take an above-the-line deduction of up to $300 for charitable cash contributions made to §501(c)(3) organizations on your 2020 tax return. If you can itemize deductions on your 2020 return, the 60% adjusted gross income limitation for charitable contribution deductions is suspended, letting you deduct as much as 100% of your 2020 adjusted gross income.

Deducting Business Losses:  Under the CARES Act, you are permitted to use business losses to claim refunds on your returns, suspending some of the provisions in the Tax Cuts and Jobs Act of 2017.

Small Businesses:  Employers with fully or partially closed businesses due to the coronavirus lockdown, or whose gross receipts declined by more than 50% when compared to the same quarter in the previous year, are eligible for a refundable credit against payroll taxes equal to 50% of qualified wages paid to employees. Depending on the number of workers employed, the credit is limited to $10,000 of wages per employee for the period of March 13 through December 31 and must be reduced by any credits claimed under the Families First Coronavirus Response Act. The Payroll Protection Program provides federally guaranteed loans to small businesses with no more than 500 employees, as well as sole proprietors, independent contractors, and other self-employed individuals. Employers with fewer than 500 employees are required to provide paid sick leave or family leave to employees forced to stay home due to quarantining, caring for a family member or caring for a child whose school or daycare location is closed. Employers will be eligible for a refundable credit against the payroll portion of the tax on the qualified paid sick leave and qualified family leave.

In sum, the CARES Act provides many avenues of relief, and we encourage you to contact your tax adviser or legal counsel for further information. If you have any questions, Woodburn and Wedge is here to assist you.