Timely Estate Planning Strategies: Part Three

Nov 01, 2021

Charitable Gift Planning Opportunities

In the third installment to our Timely Estate Planning Strategies Series, we outline how traditional income and estate planning may incorporate an individual’s desire to fulfill philanthropic goals. Giving can be done both while living (receiving current income tax deductions) and through one’s will at the time of death (garnering estate tax deductions). However, given the current ‘perfect storm’ we outlined in the first blog of the series, there is no better time to address your giving strategies.

The estate tax exclusion is currently $ 11.7 million per individual which means persons with an estate less than this will NOT benefit from charitable bequests in their wills. The emphasis for these individuals should be obtaining current income tax deductions while fulfilling their charitable intent. Individuals with taxable estates greater than $ 11.7 million can receive a double tax benefit by making lifetime charitable gifts. The donation is deductible for income tax purposes when the gift is made; the property along with any future appreciation is removed from the taxable estate.

Several opportunities to benefit from current charitable gifts are available. It is important to note, total itemized deductions including charitable deductions must exceed the standard deduction to receive a current income tax benefit. Some of your options include:

  1. Bunching contributions into one year to make sure you exceed the standard deduction.
  2. Contributing to Donor-Advised Funds (DAFs). A large contribution to the fund in year one provides the income tax deduction. After which, amounts can be paid from the fund to charities over a designated number of future years.
  3. Donating to Charitable Remainder Trusts. The remainder interest in a given property is donated to charity, obtaining a current income tax deduction, and retaining an annuity (income) interest in the property during the donor’s lifetime. Or the reverse of this,
  4. Giving to Charitable Lead Trusts. This provides a charity an annual distribution while the remainder interest passes to a Trust beneficiary in the future.
  5. Making Qualified Charitable Distributions (QCDs). Taxpayers over the age of 70 1/2 contribute directly from their IRA to a specified charity. The distribution is not taxable and no charitable deduction is taken. Structured properly, this can convert required minimum distributions into nontaxable withdrawals from the retirement account.

Your WVC advisor would love to meet with you and your estate planning team to see how charitable transactions could help you meet your philanthropic goals in a tax-efficient manner.

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wvco.com | 419.891.1040

Categories: Estate Planning


Timely Estate Planning Strategies: Part Two

Oct 21, 2021

Low-Interest Rate Opportunities

An important component of personal financial and estate planning often includes transferring assets and future growth of those assets to younger generations or to charitable organizations while reducing current income taxes and future potential estate taxes. Once properly made, appreciation of such transfers and any future income generated thereon can be free of transfer taxes.

The current low-interest-rate environment provides an excellent opportunity to shift wealth to future generations. While we cannot predict the future, we can anticipate the writing on the wall. As noted in our previous post, Estate Planning Strategies Before Year-End: Part One, recent and proposed massive spending by the federal government will likely put pressure on rates. This coupled with various proposals to modify tax laws relating to gift and estate taxation, individuals should plan on implementing any such plans sooner rather than later.

Planning techniques benefitting from lower rates include the following:

1. Charitable Lead Annuity Trust (CLAT). This trust can be set up to provide annual distributions to charity for a specified number of years. Any growth in the value of the assets above the applicable federal interest rate passes to the non-charitable remainder beneficiaries (i.e. the taxpayer’s children) free of estate or gift tax at the termination of the trust.

2. Intra-Family Loans. It’s a good time to loan money to family members or trusts for members’ benefit. Interest can be charged at very low rates; to the extent the borrowers are able to leverage the funds to generate a return greater than the stated rate, wealth will be transferred without any transfer tax.

3. “Defective” Grantor Trusts. When a taxpayer (grantor) transfers assets to fund this trust, certain rights might be retained causing the trust to be “defective”. This may include the right to substitute other assets of equal value in future years. As a result, the annual income of the trust remains taxable to the grantor even though the income inures to the benefit of the beneficiaries. The effect of this is to reduce the grantor’s taxable estate by the amount of the income taxes paid annually. These trusts are often used to sell assets expected to grow in the future to the trust in exchange for a low-interest rate promissory note. The grantor does not recognize gain from the sale, and no income is recognized on the interest payments. The appreciation in the assets will be realized by the next generation without any transfer tax.

4. Charitable Remainder Trust. If a current income tax deduction is more important than saving transfer taxes, this trust may be implemented. The trust will make annual payments to its beneficiaries for a period of time. At the termination of the trust, the principal balance goes to the specified charity. This “remainder interest” is calculated at a present value to determine the current charitable contribution income tax deduction available to the donor. Lower interest rates translate to a larger remainder interest, and thus larger income tax deduction.

5. Grantor Retained Annuity Trust (GRAT). A grantor transfers assets to the trust and retains the right to receive specified payments from the trust for a specified number of years. At the end of the trust term, the accumulated principal of the trust passes to the specified donees, often the grantor’s children.

The annual payments can be structured so that the present value of the annual payments will equal the value of the property transferred to the trust. The trust is said to be “zeroed-out” because the donees’ remainder interest has no value for gift tax purposes, thus no gift tax exemption is used and no gift tax is due. To the extent, the increase in the value of the assets exceeds the annuity stream paid to the grantor, the assets remaining in the trust pass to the beneficiaries becoming a tax-free gift.

These are just some of the planning opportunities your William Vaughan advisor can discuss with you. We encourage you to take this important step now to avoid potentially detrimental changes which have been proposed in Washington. Early adoption and implementation have perhaps never been more important.

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wvco.com | 419.891.1040

Categories: Estate Planning, Tax Planning


New Mandatory Requirement For Cyber Insurance

Oct 19, 2021

During the past year, ransomware attacks and other cyber breaches have skyrocketed leading to significant changes in the cyber insurance marketplace. Historically, obtaining cyber insurance was simple and renewals were a matter of updates based on major changes within an organization. Fast forward to now and notable shifts in insurance policies and regulations are taking shape. Underwriters are now asking for more information related to cyber controls and IT risk management.

Multi-Factor Authentication (MFA)

Multi-Factor Authentical (MFA) is now a minimum requirement for cyber insurance through most carriers. The message, if you have not incorporated MFA into your current IT environment, your organization may be considered a high risk which would disqualify you from coverage.

MFA provides an additional layer of security above and beyond your traditional password protection. It requires users to validate their identity with additional credentials. These credentials could be the answer to a security question, the click of a button in an app for approvals, or even a biometric identifier such as a fingerprint. This extra layer of protection stops attackers as they won’t be able to access an account without all required credentials, even if they have stolen a password. The additional proof points confirm the person attempting to enter the system is truly who they say they are.

According to both Microsoft, ‘up to 99% of cyber identity attacks can be prevented with MFA’. Google has also supported this with their research ‘which shows that simply adding a recovery phone number to your Google Account can block up to 100% of automated bots, 99% of bulk phishing attacks, and 66% of targeted attacks.’

If you already have cyber insurance you more than likely will find stricter requirements during your renewal. If you are in the market for cyber insurance, you will need to incorporate MFA before you seek coverage. Carrier data proves those without MFA are at a much higher risk for extortion and therefore coverage is not obtainable.

Our WVC Technologies team can assist with your MFA initiatives to help you: one, qualify for cyber insurance quotes from multiple carriers, and two, help reduce your claims activity which can improve your insurance pricing.

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Greg Gomach, WVC Technologies Senior Client Rep.

greg.gomach@dmctechgroup.com

Categories: Risk Services


Timely Estate Planning Strategies: Part One

Oct 11, 2021

Current Ideal Estate & Gift Planning Environment On Its Way Out

For the past few years, we have experienced a near-perfect environment for estate and gift planning purposes given the vastly expanded exemption amounts, low-interest rates, and retention of step-up in basis at death.

The Perfect Storm

How did we get here you ask? When Congress passed the 2017 Tax Cuts and Jobs Act (TCJA), substantial changes were made to the estate, generation-skipping transfer, and gift tax laws. Most notably, the TCJA included:

  • A doubling of the basic exclusion amount from $5 million to $10 million, indexed for inflation, and an exclusion amount of $11.7 million for 2021. Coupled with proper planning around the concept of portability of a spouse’s amount, this could allow a married couple up to $23.4 million of assets to be exempt from the estate tax.
  • The retention of the concept of “step-up” in basis at death. With the increased estate exclusion amount, income tax savings from the basis step-up at death sometimes became more important than trying to avoid estate tax via gifting or other transfer techniques.

These provisions were to be effective from 2018 through the end of 2025. Furthermore, regulations subsequently issued by the IRS stated there would be no clawback or adjustment of increased amounts taken by taxpayers during this period when the amounts reverted back to the old amounts on January 1, 2026.

This coupled with recent ultra-low interest rates left taxpayers and their planners taking a renewed interest in reviewing family gift and estate plans to take advantage of the perfect storm.

Changing Winds

While these conditions were expected to remain until 2026, the political winds have changed and with that is incredible uncertainty regarding what changes might be coming and when.

A number of proposals have been outlined which would greatly impact gift and estate plans—both existing and those contemplated. Among the proposed changes:

  • drastic reduction in the basic estate exclusion amount
  • possible increase in estate tax rates
  • restrictions on certain transfers in trust
  • restrictions on discounts when valuing property

More critical are the various effective dates proposed which may be retroactive to earlier this year.

While no one can predict the future, these potential changes make for increased risks and uncertainty in planning in the current environment. What is clear, however, is that regardless of what changes are ultimately made and when their effective date might be, the estate and gift tax rules will be far less liberal or beneficial than they are right now.

What Should I Do Now?

We believe significant planning opportunities exist under the current law and urge you to review your personal plans now. If new trusts or other asset transfer plans are contemplated, you will need to act immediately.

Here are some basic recommendations. Stay tuned to our series as we will delve into two other opportunities you should be considering before year-end:

  • Make Gifting A Priority – Your timeframe to complete gifts may be much shorter if your plan involves an irrevocable grantor trust or gifts of interests in nonbusiness assets held in a limited liability company (LLC), partnership, or other private entity.
  •  Fund Grantor Trusts – Irrevocable grantor trusts allow you to gift assets and continue to be the owner of those assets for income tax purposes. Under the new proposals, these tax benefits would no longer be possible as soon as the new law is enacted.
  • Complete Gifts of Nonbusiness Assets in LLCs or LPs – Currently, if you gift a minority or non-controlling interest in a private entity, the interest is valued at a lower price to account for the lack of control and marketability. Under the new proposals, these discounts would go away if the LLC’s assets include publicly traded securities, non-operating cash, or other passive, non-business assets.

We highly encourage you to not only contact your William Vaughan Company practitioner but also your financial advisors so your personal situation can be reviewed and updated before your potential risk may increase.

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wvco.com | 419.891.1040

Categories: Estate Planning, Tax Planning


SBA Announces Opening of Paycheck Protection Program Direct Forgiveness Portal

Aug 23, 2021

The SBA has published new guidance on PPP loan forgiveness on loans of $150,000 or less. A new portal has been established in which borrowers can request forgiveness directly w the agency instead of going through their lenders. The portal, launched in early August, is the latest attempt by the SBA to make the PPP loan forgiveness process easy and streamlined.

“The SBA’s new streamlined application portal will simplify forgiveness for millions of our smallest businesses — including many sole proprietors — who used funds from our Paycheck Protection Program loans to survive the pandemic,” said Administrator Isabel Casillas Guzman.  “The vast majority of businesses waiting for forgiveness have loans under $150,000. These entrepreneurs are busy running their businesses and are challenged by an overly complicated forgiveness process.

The SBA has also created a PPP customer service team that will answer questions and directly assist businesses with their loan forgiveness applications. This team can be reached at 877-552-2692, Monday through Friday from 8 a.m. to 8 p.m. EST.

Click here to access the Paycheck Protection Program Direct Forgiveness Portal.

Categories: COVID-19