Salt Lake City Estate Planning

Buffett's Recommendations...The Wealthy Should Pay More Tax

The video below, from CNNmoney.com, is a brief interview with Warren Buffett wherein he shares his thoughts about something that could help the economy--raising taxes on the wealthy.  Buffett does make it clear that he does not think the middle class should shoulder additional tax burden, but he also makes it clear that the wealthy have been paying tax at low effective rates and they could handle more.  The article that accompanies this short interview is interesting...and I think I may agree with Buffett--to the disappointment of some of my clients.  He makes a compelling case about his effective tax rate as compared to others in his office (which I would guess are upper-middle class types).  Also, I maintain that evenutally this type of discussion is going to lead to increasing revenue through the estate and gift tax--so keep a lookout.

 

Debt Deal: Not (Really) A Done Deal?

If there’s any lesson to be learned from the recent debacle in Washington, D.C., it’s this: Don’t run your personal finances the way the U.S. government does. “Don’t live beyond your means, and don’t increase your debt levels, especially when heading into retirement,” said Greg Rosica, a tax partner in the personal financial services group at Ernst & Young and a contributing author to the Ernst & Young Tax Guide 2011. “Don’t emulate the federal government.” – “How the Debt Deal Will Affect Retirees”

I suppose it goes without saying that the past few weeks have been rather tumultuous times, and especially so for America’s seniors. It’s quickly proving to be a vital time to take stock of the situation and prepare. Luckily, the news is awash with important reminders and advice about what’s at stake.

First, the debt deal was finally passed. It’s already been called a mixed bag by AARP, but the bad may outweigh the good and there are specific changes to watch with interest. Robert Powell of MarketWatch has put together another resource detailing what you ought to know with a special emphasis on budget cuts on programs (both the $1 trillion already going into affect and future cuts to Medicare), along with interest rates and taxes.

Immediately following on the heels of the debt deal, however, the S&P downgraded the U.S. and forced a rather volatile “market correction.” As SmartMoney points out in this article, it’s like 2008 all over again, because it’s the baby-boomers who have the most to lose and must taken action to engage strategies to protect their nest egg if market forces continue to threaten it.

And, finally, there’s looking to the future… the future of rehashing the past few months and the debt debate. The deal that was reached calls for the commission of a super committee to make more suggestions for cutting the debt. That means Medicare and Social Security might not remain safe, since the debate isn’t actually over. Indeed, if the committee’s suggestions are not implemented, then immediate spending cuts to Medicare will go into affect by Christmas. Reuter’s, for one, thinks there’s reason enough to be wary of the super committee altogether, especially if you’re concerned about retirement. In fact, they’ve found eight reasons to worry. 

 

Reference: MarketWatch (August 4, 2011) “How the Debt Deal Will Affect Retirees”

                  SmartMoney (August 8, 2011) “The 2011 Correction: Another Bad Turn for Boomers.”

                  Reuters Money (August 5, 2011) “8 ways the super committee is not super for retirement”

 

 

You Need To Make Your Minimum IRA Withdrawals

"IRA onwers turning 70 1/2 this year must comply with required minimum withdrawal rules, or pay a costly penatly."

--SmartMoney (June 22, 2011) “Don’t Blow Off Minimum IRA Withdrawals”

If you’re turning 70½ this year, get ready to start taking those mandatory annual payouts (your “required minimum distributions” or RMD’s) from your IRA accounts. Unfortunately, this is not something you can afford to put off. As SmartMoney points out in a recent article, the IRS wants you to take those distributions, and pay the additional income taxes sooner rather than later, and there are stiff penalties for non-compliance.

 In fact, if you fail to take at least the required amount each year, the IRS can assess a 50 percent penalty on the shortfall – the difference between what you should have taken and what you actually took.

SmartMoney offers a quick run-down on RMD basics, but remember this: the requirements are fairly complex, and penalties for non-compliance are pretty stiff. You are well-advised to seek qualified counsel on this one. The most important lesson here is – do not delay. If you have reached age 70-1/2 and you have IRA accounts, you have some big decisions to make now. As SmartMoney says, “If you sit on your hands, you will be in the RMD double-dip mode next year, which might result in a higher tax rate that could have been easily avoided.”

A Roth 401(k) May Fit Your Needs Better Than A Roth IRA

"The 401(k) version of the Roth is bigger and stronger in many ways than it’s little brother."

Forbes.com (May 18, 2011) “Say Hello to the Roth IRA’s Big Brother – the Roth 401(k)”

In today’s tax environment – namely, a relatively low tax rate today with the perhaps-inevitable prospect of higher tax rates in the future – many people are looking to the Roth IRA as a way to hedge their tax bets. With the Roth IRA, you pay your tax upfront on contributions to the account, and withdraw them tax-free during retirement.

You may want to investigate another lesser-known option available in many 401(k) plans called the Roth 401(k). Stuart Robertson of Forbes describes the Roth 401(k) as a Big Brother to the Roth IRA, saying the 401(k) version of the Roth is bigger and stronger in many ways than the IRA version. You can choose to put some, none, or all of your contributions after-tax into your Roth 401(k) savings up to $16,500 a year in 2011, or $22,000 if you are 50 years of age or older. The Roth IRA maximum amounts are much lower: $5,000 and $6,000 if 50 or over respectively.

Additionally, the Roth 401(k) has no income limits. Unlike the Roth IRA, anyone can have a Roth 401(k), if their employer offers it. To invest in a Roth IRA and make the maximum contribution, your modified adjusted gross income must be below $107,000 if you are single, $169,000 if you are married filing jointly.

If your company does not offer a Roth option in your 401(k) plan, you should request it. Typically, this requires an amendment to the plan, and only a minor cost to the business owner.

It’s anyone’s guess what tax rates will look like in the future, but if you believe they are only headed upward, then a Roth 401(k) may be a good way to hedge your tax bet. If you have other questions regarding taxes, contact a tax planning attorney.     

What about State Estate Taxes...Does Utah Impose a State Estate/Inheritance Tax?

"The list of states that impose their own estate or inheritance tax is constantly in flux—and recently has grown."

Forbes.com (Feb 15, 2011) “More States Want To Tax Your Estate”

Just when you thought the estate tax had lost its bite, it turns out more states want to tax your estate.  Although Utah does not currently impose an estate or inheritance tax--i recommend that you watch the news for possible changes in the next few years as the state looks for new revenue sources.

According to Forbes, the budget troubles and rising deficits hitting nearly every state are making them more aggressive about finding revenue wherever they can – including taxing your estate. Illinois recently became the latest state to impose an estate tax, making it retroactive to the beginning of the year.  All told, 12 states and the District of Columbia now impose a state estate tax of some sort. Eight states enforce an inheritance tax and two states (New Jersey and Maryland) impose both an estate and an inheritance tax.

“It’s a very confusing situation,” says Anita Sarafa, a managing director and wealth advisor with J.P. Morgan Private Bank in Chicago. “You kind of have to prepare for the worst and hope for the best.”

For quick information on your state, Forbes has an interactive map and more information here, and for some number-crunching The Wall Street Journal does some math to figure out the worst places to die in 2011 (little secret there: it is still the double-hit states of New Jersey and Maryland.)

You can learn more about Utah estate planning and estate taxes in general on the Estate Tax Practice Center on our website, where you also will find a handy calculator for determining federal estate taxes.

Retirement Planning (IRA) News...Possibel Relief from Minimum Required Distribution Rules

"Retirees with less than $50,000 in their individual retirement accounts may not have to take required withdrawals under President Barack Obama’s proposed budget."

-Bloomberg (Feb 14, 2011) “Obama Budget Would Exempt IRA Distributions for Small Accounts”

The quotation above is interesting news given that Americans hold nearly $4.2 trillion in traditional IRAs. That money has yet to be taxed, so it’s no wonder that the government requires you to take your money out and start paying taxes on it. Required Minimum Distributions generally apply once you turn 70-1/2 years old. The required distribution amount is determined by a formula based on your account balance and your age (check out the calculator from Kiplinger on at the previous link.  And yes, your IRA balances ARE included in your estate for estate tax purposes.

Bloomberg reported last week, however, that the Obama administration proposes to do away with minimum distributions on IRAs worth $50,000 or less.

If this measure passes, it could impact a lot of people. The median amount of money held in a traditional IRA is only about $40,000. And, according to the Investment Company Institute (a Washington-based mutual-fund trade group), quite a few people would prefer to leave their money in their accounts. In fact, according to their recent study, 64% of people who took money out of their IRAs in 2008 (the last relevant year with available data) said they did so only to comply with the distribution requirement.

By foregoing distributions (if your IRA is worth less than $50,000) you could let your funds continue to grow, defer the taxes, and perhaps stretch your retirement savings a little further.

As an estate planning attorney, I have an opportunity to see the composition of many clients' estates--and I an think this would be a huge benefit to a number of my clients.  Check to see if this would impact you--consider the additional tax you pay on your small traditional IRA as you prepare your taxes.

Stay tuned to this blog for updates as they develop. 

Wall Street Jounal's Economic Outlook...Preparing for the Unkown in 2011 and Beyond

“… anyone expecting those (tax) gifts from Washington to lift the cloud of uncertainty hanging over the U.S. economy will be disappointed. If anything, the outlook is hazier than ever.”

The prognosticators over at The Wall Street Journal have put together their economic outlook for 2011 and beyond, an interesting way to begin the New Year. The good news is most experts have high expectations for economic growth in 2011; the bad news is a cloud of uncertainty still hangs over the economy, and the outlook may now be hazier than ever.

Economic growth. The recent tax-cut bill is expected to pump another $850 billion of stimulus back into the economy, raising the prospect for decent economic growth in 2011. The bad news is that the government is printing money and piling up debt.

Inflation. Over at the WSJ, they’re not worried about inflation. But they are worried that the government may worry about it, and “turn off the money spigot” too soon. As former Fed Chairman William McChesney Martin once put it, “they’ll take away the punch bowl just as the party gets going.”

Employment. Experts predict unemployment rates should start falling, but slower than most would like.

Taxes. While it’s true the Piper must eventually be paid, the WSJ isn’t expecting any significant tax hikes this year – or next. They don’t think either party is in the mood to tackle that elephant in the room right now.

 

So, what do all of these predictions mean to you? For solid and simple advice, the WSJ offers a few tips: 

• Pay down your debt, or lock in interest rates, early in the year, so you don’t take a hit when interest rates start to rise.
• The lower taxes in 2011 and 2012 won’t last so enjoy them by shifting any possible income into these years, and this is especially the case for higher earners. As far as IRAs, switch over to a Roth IRA so you can pay the taxes now when they are known to be low, rather than in the future when they may be higher.
• Diversify your interests abroad, especially in developing markets like China, and thereby experience the faster growth there and shield yourself from the falling dollar here.
• Prepare for the unknown. If the last few years have taught us anything, it’s that no one can predict with certainty what’s coming next.

The final point listed above, namely preparation for the unknown, is something I am frequently involved in as an estate and tax planning attorney.  In my line of work, I help people prepare for the unknowns surrounding a death in the family, the incapacity of a family member, and legally protecting assets from exposure to legal claims (i.e., asset protection).  You can't necessarily control the state of the economy and rate of taxes, but you can make sure you have done everything you can to protect yourself from death, incapacity, or a lawsuit from a creditor.

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What Will Your Tax Situation Be in 2011...If Bush Tax Cuts Expire

As a Salt Lake City tax attorney and estate planning attorney, I have a substantial interest in tracking tax developments and news.  Recently I read a brief article entitled "Bush Tax Cuts:  Cutting Through the Noise" on CNNs financial news website.  The article includes a nice chart that summarizes the impact of the expiring income tax cuts--something that is receiving a lot of attention these days.  It is my understanding that there are some meetings planned for the President after Thanksgiving to discuss a temporary extension.  Although everyone seems very concerned about the impact of extending the income tax cuts, and I do a lot of income tax planning in my practice, I see less chatter about extending the estate tax cut/repeal.  I assume that if the income tax cuts were extended temporarily, the estate tax cut/repeal would also be extended, but I just don't know.  It is interesting to me that no extension has hit to this point.  Frankly, I think lawmakers will have more incentive to cut income taxes as estate taxes are probably an easier temorary pill to swallow (oddly, I have found that few people like to contemplate their mortality).  Only time will tell what happens--but I am not optimistic that an extension deal will be reached in time.

Keep your eye on the news over the next few weeks.  Keep watching this blog.  And visit our website for tax planning news and information.

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Medicare / Employment Past Age 65

Medicare has never been an easy program to understand (even for attorneys).  Even if you keep up on the latest developments it can be tricky to sort out. The shame of it is that now more than ever – with the economy as it is – you need to fully understand how it works and how to work with it.  I do NOT purport to be a Medicare expert of any type, although many of my estate planning, elder law, Medicaid planning clients receive Medicare benefits.  If you need inforamtion on Medicare, you should check out Medicare Interactive  (associated with the New York and Washington D.C. based Medicare Rights Center.)

If you are approaching age 65, you probably should start figuring out how to enter the Medicare program. You’ll want to learn how and when to do so, and what can go wrong if you don’t. One growing question among those nearing retirement age is how remaining employed past age 65 would affect your Medicare enrollment and benefits. For example, what happens when you remain employed and receive health insurance from your company (which becomes primary)?

I encourage you to do your own research, check out our website, and become an educated consumer. But also understand that these complex issues are extremely important, and mistakes can be costly. Sometimes there is no substitute for an expert. If you are age 64 this year, it’s probably time to sit down with both your benefits advisor at work, and with a qualified financial advisor to consider your Medicare options.  As I mentioned above, although I do a lot of estate planning, elder law work, and medicaid planning, I don't advise on Medicare and don't purport to be an expert in that area--but as with other areas that don't come into my practice, I am happy to provide a referral to you of someone that can help in the Salt Lake City, Davis County, or Weber County (Ogden) areas.  And of course, there are a lot of web resources available to you for free--check them out to get some background, but get an expert involved to make final decisions.