The Law Office of Stephen J. Silverberg, PC serves clients throughout metropolitan New York and New York City including Long Island, Brooklyn, Queens and Manhattan. Contact the firm if you are in need of legal assistance with New York Trusts and Estate Planning, New York Elder Law, New York Special Needs Planning or New York Business Planning and Wealth Preservation.
Estates of decedents who die during 2020 have a basic exclusion amount of $11.58 million, up from a total of $11.4 million for estates of decedents who died in 2019. An individual taxpayer may leave $11.58 million to heirs with no federal or gift taxes due. A married couple will be able to leave $23.16 million.
The gift tax exclusion remains at $15,000, the same as it was for 2019.
The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year.
For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800).The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other rates are:
35%, for incomes over $207,350 ($414,700 for married couples filing jointly);
32% for incomes over $163,300 ($326,600 for married couples filing jointly);
24% for incomes over $85,525 ($171,050 for married couples filing jointly);
22% for incomes over $40,125 ($80,250 for married couples filing jointly);
12% for incomes over $9,875 ($19,750 for married couples filing jointly).
While most of Washington is otherwise occupied, seven Republican Senators sent a letter to Senate Majority Leader Mitch McConnell, urging prompt passage of the SECURE Act (Setting Every Community Up for Retirement Enhancement).
The SECURE Act passed the House of Representatives with strong bipartisan support in May by a vote of 417 to 3. The Senate was poised to pass it before Memorial Day by unanimous consent. However, at the last-minute, Ted Cruz voiced his objections, and the bill has been languishing ever since.
The letter portrays the SECURE Act as a lot of sunshine and happy news for the middle-class, the reality is much different. It contains seismic changes to IRA distribution rules in effect for over 40 years. It also permits sponsors of 401(k) plans to expand the use of annuities to provide benefits under the plan and repeals the onerous Kiddie Tax provisions, which subjected the children of soldiers killed in action to confiscatory income tax rates.
To summarize, the major provisions of the SECURE Act include:
Sets age 72 as the required beginning date for distributions from an IRA;
Requires beneficiaries of IRAs (other than surviving spouses, children under twenty-one, disabled beneficiaries, and chronically ill beneficiaries) to withdraw the entire balance of the account within ten years. Previously, the beneficiary of an IRA could stretch the payment of the IRA over their life expectancy;
It is believed the primary motivation eliminating the ability to stretch IRA payments is to speed up the payment of income tax on the distributions. While this may be true in the short run, eventually, it appears to be counterproductive. Under the current law, a forty-year-old beneficiary can withdraw the account balance over the remaining life expectancy of 43.6 years. The SECURE Act requires complete distribution within ten years;
Using the above example, upon the death of the parent, the forty-year-old child is the beneficiary of the $500,000 IRA. Using the current rules, the child would receive over $3.42 million while paying income taxes of over $1.37 million. Under the SECURE Act, if the child waits ten years to withdraw the entire balance, they would receive $983,000 and owe $393,000 in income tax. It appears they are mortgaging the future to increase revenue now;
The Tax Cuts and Jobs Act of 2017 (TCJA) increased the Kiddie Tax income tax rates to the same rates applied to trusts and estates. Gold Star children receiving benefits are subject to a federal income tax rate of 39.5% on income over $12,000. An adult taxpayer does not reach this level until the income exceeds $625,000.
The SECURE Act attempts to remedy the situation by repealing the increased Kiddie Tax rates enacted by the TCJA by repealing them. However, just like the TCJA, which is poorly drafted and contains many unintended consequences, the outright repeal may adversely affect Qualified Disability Trusts for children with special needs. The Senate passed a fix much simpler and has no unintended consequences;
It makes it easier for plan sponsors to use commercial annuities to provide benefits in 401(k) plans. However, the Act relieves the plan sponsor from any liability if the annuity provider they select goes under, even if the plan sponsor did no due diligence, or was even negligent in selecting the annuity provider. Benefits in 401(k) plans have federal protection if a catastrophic illness occurs. Unless structured properly, the prospective annuities under the SECURE Act lose this protection and subject to a complete spend-down before any benefits are available;
unless the regulations regarding distributions from IRAs It makes, there is an adverse effect on distributions to disabled beneficiaries, and those with chronic illnesses.
Since May, the SECURE Act has hovered over planners like the Sword of Damocles. Since 2001 estate planning has been a moving target. The estate tax exemption amount changed continually until 2010 when the repeal of the estate tax went into effect. In 2011 the estate tax was re-instituted retroactively until 2017 when Congress doubled the estate and gift tax exemptions. However, this increased estate tax exemption must be passed by Congress again in 2026 or will revert to the pre-2018 level. Factor in the upcoming 2020 election and even more uncertainty lurks. If the election results in the Democrats gaining control of the government, there will likely be cuts in the estate and gift tax exemptions.
The specter of the SECURE Act Practitioners handcuffs practitioners like me. We are now ten weeks away from year-end, a time when we typically meet with clients about a year and planning. If Congress intends to pass the SECURE Act, let it do it now, so at least we know what to tell our clients. Doing nothing will delay my ability to provide my clients with accurate planning advice (to the extent I can due to the fluctuating tax laws).
The letter (a copy of which follows) sent to The Honorable Mitch McConnell, Majority Leader of the United States Senate was signed by:
With the start of the Medicare enrollment season here, more seniors are finding themselves baffled by an array of choices. How can you avoid making a mistake that may haunt you for the rest of your life?
We’re from the government. We’re here to help. Heard that before.
Here’s the first part.
To access your information, you must now log into your MyMedicare.gov account. If you don’t have an account, you must set one up. To do so, you will need your Medicare number and some “protected health information.”
The access to this information may create problems for people trying to help beneficiaries with Medicare Advantage and Part D drug plan reviews. How will this be handled? One agency says have the helping person pass the keyboard to the beneficiary so they can type in the information themselves. What if the help is being given while the two people are on the phone? The person can take the information from the beneficiary and put it directly into the system, never writing it down.
But this doesn’t follow the MyMedicare.gov requirements. You or your appointed Authorized Representative are the only people who should be able to access this information. What is an “Authorized Representative?”
There is a process for doing this, through the Medicare website. There’s a form that can be filled out and mailed. But what if the person doesn’t feel comfortable assigning this role? That also means that the pharmacist, insurance agents and plan representatives need to be made official. But that also leaves room for abuse.
With more scams targeting seniors emerging every day, how long until scammers figure out a way to cash in on this? Preying on senior’s susceptibility and trusting nature, a caller could easily offer to help the senior log into their MyMedicare.gov account and help, while accessing records and getting into who knows what kind of money-making scheme.
There’s enough confusion without adding to it.
The Legacy Plan Finder required only a user’s zip code, medication list and pharmacy information. The information is saved, a drug list ID and password date is the only information needed to access the account. There’s no protected information on the site.
Expect the next few months to give many seniors a lot of agita. Doing reviews without logging in will be time- consuming and frustrating. Even if there were no medication changes, it’s possible there may be questions during the process. Too bad – the person must start all over again.
And how many people will be willing to become personal representatives? This is a responsibility that will give them access to information they may rather not have. What is the liability if a mistake is made? In today’s culture of blame, that’s a risk that even family members may not want.
A new tool is supposed to be an improvement. This one is a step in the wrong direction.
If you think you don’t have a will, think again. You do.
It may not be the one you wanted, but you have one. It’s the one that New York State (or Florida) thinks you want to have.
You may not like that kinship generally governs the distribution of your assets. You may have a sibling who you have barely been able to be in the same room with for the past twenty years, but absent a will and a spouse, that sibling may be your primary heir.
Or you may have distant relatives whom you’ve never met who are found and notified that they are your heirs, to the dismay of closer family members, or friends whom you wanted to take care of in your will.
And you may not like the thought of your children fighting over whether you are buried or cremated, or if your business is sold to the lowest bidder because one son wants to wrap the whole thing up, fast.
These are some things easily prevented by signing a properly drafted will.
We have all read about Aretha Franklin’s three handwritten wills, which have now led her children to be in an estate battle that has become so heated that the judge has decided that the estate’s administration needs to be under court supervision.
But the rich and famous are far from the only people whose families are subject to fracturing and division because of a failure to have a will or an estate plan.
A man who dies and leaves his girlfriend of two years the entire proceeds of his life insurance policy. Her adult children had no idea she was his sole beneficiary. They want her to use the money to pay for the funeral, and she says no. When she shows up at his funeral, the family calls the police.
An older man with a much younger wife dies. He had never taken his first wife’s name off of the house or changed the name of his beneficiary on his life insurance policy. The first wife gets everything, and the new wife goes to live with her mother.
Don’t leave a disaster for your family, or put your surviving spouse in a terrible position. Call our office, make an appointment, and leave your family with a sense you were always looking out for them. That’s a much better way to be remembered.
Pre-retirement, many folks think they have only to enroll in Medicare and all will be well – including their health care budget. It would be great if it was that simple. It’s not. And not understanding how Medicare works and which plan to pick can make medical expenses a bigger part of a retirement budget than expected.
Our office now includes a conversation about Medicare when people come for estate planning and elder law matters. We have found that many educated and informed people don’t know some basics about Medicare. Few understand the complex labyrinth of rules that can have a big impact on their monthly health care budget—and their overall health care costs.
Let’s start by setting one thing straight: Medicare Part B is NOT free. You have to pay for it.
Medicare A is divided into Parts. Many Parts.
Medicare Part A is free. It covers hospital care, but: there is a deductible: $1,364 if you land in the hospital before Medicare kicks in to cover the rest of your services. You may also be responsible for coinsurance, depending on how long you are in the hospital.
Medicare Part B is not free. It covers preventive care, like doctor visits and screening tests. There is a premium to be paid, and the current standard premium is $134.40. But if you are a high earner, your premiums will be higher. For example, a married couple with an income of $170,000 to $214,000 must pay $189.60 for Medicaid Part B.
These are 2019 numbers. The numbers only go up.
For prescription drug coverage, you’ll need Part D. Here’s where it gets tricky and most folks mess up. There are any number of plans, and make the decision about which plan to select based on what medications you take routinely. Co-pays will depend upon the plan.
Medicare does NOT cover dental care, vision exams and hearing services. If you don’t want to pay out of pocket for those expenses, you’ll want a Medicare Advantage plan. But be careful—Medicare Advantage is an alternative to traditional Medicare. Costs vary by plan.
And there’s something else: Medigap, also known as supplemental insurance. You’ll pay for Medigap, but it will pick up the costs for certain deductible, coinsurance and copay costs under Medicare. But it’s another bill to pay.
There’s a lot more. Visit www.medicare.gov, and expect to be a little overwhelmed. Or make an appointment with our office for a Medicare Review Appointment. Call 516-307-1236.
As a BBQ maven, I spend a fair amount of time making sure that my tools are well maintained. They take much abuse from high heat, charred fats, and sauces. The results are delicious, but the tools get messy.
Your estate plan faces more challenges than you may know. That’s why you need to review your estate plans. Sometimes all they need is a quick swipe, and other times, they need a thorough overhaul.
There have been a lot of changes in the law regarding estate plans and taxes. Opportunities that were not available five, ten, or fifteen years ago could make the planning you did originally useless. Alternatively, there may have been changes in your financial situation that don’t work for your original will, or your will may be invalid.
Financial institutions are very cautious about Power of Attorney forms. If your Power of Attorney forms are older than five years, your loved ones will have a problem when they try to use them.
Let’s say that your financial situation improved dramatically in the last five years, but you never updated your will. You left a share of some small, unknown startup company to a nephew, thinking it might not be worth much, but you wanted him to have something. Today that startup is a global brand worth millions. Still, want to leave it to your nephew, or should your kids get it?
For parents with babies or teens when they created their estate plan, family situations may have changed. If your oldest daughter married someone whom you don’t trust, there are ways for you to ensure that she inherits assets that her husband can’t easily access.
What if you have an adult child with a substance abuse problem? Unfortunately, this touches many families today. There are planning strategies used to protect your child and ensure that they receive some financial support, using a trust with more control than one that distributes a certain amount of money at set ages.
A couple who did their estate plan while they were in their 40s and enjoying good health needs to review their estate plan if they are now in their 60s with health issues on the horizon. If either family’s relatives have diabetes, dementia, or other diseases that run in families, they likely need additional documents to prepare for several varying situations.
Any big change, like moving to a new state, divorce, death, birth, or marriage requires a review of the will. If one spouse dies, the will may have been originally prepared to continue to work for the surviving spouse, but many circumstances may have changed. It’s time for a review.
Grandchildren are perhaps the happiest reason to revise a will. Grandparents who want to help pay for college or summer camp expenses, or set up a trust fund so the money will be available later in their grandchildren’s lives, can do so as part of their estate plan. There are several strategies to make this happen in the most tax-efficient manner.
Wills and estate plans are not “set it and forget it” documents. They reflect individual lives and of the laws of the time. If it’s been years since you’ve been in our office to review your will (over three or four), please call the office at 516-307-1236 and make an appointment for a review.
We see more and more of this– a man enrolls in Medicare Parts A and B at age 65. He’s in good health and decides he need not enroll in a Medigap plan. This is fine for a few years until he receives a cancer diagnosis. He calls his insurance agent in a panic, needing to discover how fast he can sign up for a Medigap plan once the election period began mid-October.
However, with his diagnosis, he won’t be approved for coverage. Even if he did initially enroll in a Medigap plan, he probably could not even switch plans.
Open enrollment doesn’t apply to Medigap plans. It only pertains to Medicare Advantage plans and Part D drug plans. There’s no free pass to a Medigap plan without the underwriting process. You can only obtain a Medigap policy without underwriting is when you initially apply for Medicare.
While this man could have enrolled in a Medicare Advantage plan, it would not have been a good fit. His oncologist didn’t participate in the Advantage networks, and many Advantage plans charge a 20% coinsurance for chemo. He couldn’t afford that.
Understanding how Medicare’s election periods work and applying for the right program at the right time is a critical part of preparing for the health care costs of retirement and aging. Because we have seen how often people have trouble determining the Medicare benefits most suitable for them, we are offering help to clients with these decisions, and how to protect themselves from making very expensive mistakes.
Here are time limits for Medicare enrollment you need to know about:
Initial Enrollment Period –A seven-month window begins three months before you turn 65 (not your full retirement age under Social Security currently age 66) to enroll in original Medicare Parts A and B and sign up for either a Medicare Advantage plan or Part D drug plan. If you have health insurance through your employer, you must still enroll in Medicare Part A. There is no premium for Part A. If you lose your employer health insurance, your initial enrollment period expires seven months after you end your employment. Being eligible for COBRA coverage does not change this period. Generally, the maximum COBRA period is eighteen months. However, even if you choose COBRA, you must still enroll in Part B and Part D within the seven-month initial enrollment period.
Also, if you work for a company with fewer than twenty employees and are covered by your employer’s health insurance plan check with your employer before you turn 65. In this situation, the law says Medicare becomes your primary health insurer unless your employer elects opt-out of this provision. Your employer’s health insurance plan becomes secondary. If your employer has not opted out, you must apply for Medicare Parts A, B and D. If you do not, your employer’s health insurance plan will only pay for benefits Medicare does not cover.
Medigap Open Enrollment Period—A six-month window begins with your initial Part B effective date. You can use this period to apply for any Medigap plan in your area with no questions asked. For people with chronic health conditions, this may be their ONLY opportunity to get Medigap coverage without being turned down.
General Enrollment Period—If you miss your initial enrollment period, you can sign up for Parts A and B during general enrollment, which runs from January 1 to March 31 each year. Benefits begin the following July. Generally, unless you are transitioning from employer-provided health insurance after turning 65, your Medicare premiums are increased by approximately 10% for each year you are late. This increase is for life.
Medicare Advantage Open Enrollment Period – If you are enrolled in an Advantage plan and decide it’s not a good fit, you can go back to original Medicare and get a Part D drug plan or make a one-time change to a different Advantage plan. This period runs from January 1 to March 31.
Annual Election Period—Also known as the “Fall Open Enrollment” this is when you can enroll in, change or disenroll from a Medicare Advantage Plan or Part D drug plan. The benefit under either plan can change substantially from year to year. Your insurance carrier will notify you in September of the upcoming year’s changes in premiums, benefits, copays, etc. You then need to determine if the plan still suits your needs.
If you don’t like your current plan, use the annual election period to apply for a new plan starting on January 1.
However, this does not give you a free pass into a Medigap plan.
Understanding Medicare is overwhelming for everyone. In weeks to come, we will be talking more about Medicare and how our office is making it easier for seniors.
If you have questions, call us at 516-307-1236 and ask for a Medicare Review Appointment.
As you may know, being selected by Best Lawyers doesn't happen to every lawyer. The only attorneys who are permitted to nominate and give feedback are those who have already attained the recognition from Best Lawyers.
Attorneys are not permitted to self-nominate. Best Lawyers only wants to hear from our colleagues and also checks in with local bar associations to ensure that candidates are in good standing.
This is an honor that I share with the entire firm, which continues to be named also as a Best Law Firm from Best Lawyers® since 2015.
Congratulations also to my peers who have been named to the Best Lawyers in America.
I want to thank my esteemed colleague Natalie Choate, who included the strategy I uncovered and developed in the latest edition of her book “Life and Death Planning for Retirement Benefits” (available at https://www.ataxplan.com or Amazon). Natalie is the national leader in planning for retirement benefits from qualified plans and IRA accounts; I am honored to call her a friend. Natalie was gracious enough to review the pre-publication version of my article “A Clear Winner in the Tax Cuts and Jobs Act of 2017: Qualified Disability Trusts.” The article, which was published in the Tax Section of NAELA News Online, explored a wrinkle in the new tax law.
A Qualified Disability Trust (“QDisT”) is a non-grantor trust for a disabled beneficiary. The Tax Cuts and Jobs Act of 2017 (the “Act”) greatly enhances the income tax benefits for a beneficiary of a Qualified Disability Trust (QDisT). This especially true if the beneficiary is a minor or a student under twenty-five; income from a QDisT is exempt from the Kiddie Tax and taxed at the beneficiary’s income tax rate that substantially lower than the trust income tax rate or the beneficiary’s parents’ income tax rate (used for years before 2018).
Additional income tax benefits of a QDisT include:
A trust income tax exemption of $4,150 (indexed for inflation). The income tax exemption for other trusts is $100 or $300 depending on the trust. A QDisT can retain the exemption each year income tax-free.
The beneficiary of a QDisT can claim an income tax standard deduction of up to $12,000. Previously, if the parent of trust beneficiary claimed the beneficiary as a dependent on the parent’s income tax return, the maximum allowable standard deduction was $1,050. When combined with the trust income tax exemption, the first $16,150 of income is income tax-free.
As a result of the Act eliminating many deductions and exemptions, the importance of the QDisT as a planning tool is greatly enhanced. Most third-party SNT’s are grantor trusts. The grantor, usually a parent or other relative is taxed on income generated by the trust, wasting the trust exemption and child’s standard deduction.
Due to the changes in the Act, the Elder Law and Special Needs Planning attorney must discuss with clients the benefits of a QDisT to preserve their tax benefits. It is important for Elder Law and Special Needs Planning attorneys to re-examine existing third-party grantor trusts and consider the benefit of terminating the grantor trust status or decanting the trust to take advantage of the substantial income tax saving under the Act.