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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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


New Guidance Released on Deductibility of Expenses Paid with PPP Funds

Nov 19, 2020

Yesterday, the U.S. Treasury Department and Internal Revenue Service (IRS) released guidance clarifying the deductibility of expenses paid with paycheck protection program (PPP) loan funds.

The two significant rulings can be found here: Revenue Ruling 2020-27 and Revenue Procedure 2020-51. Both address issues related to the deductibility of expenses paid with PPP funds.

What is the significance of the new guidance?
Previously, it was unclear what would happen if a taxpayer incurred the expenses in one year (2020), but received forgiveness in the next year (2021).

Rev. Rul. 2020-27 states if a business reasonably believes a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Meaning, if you used all of your PPP funds in 2020 and expect to receive full forgiveness, those expenses are not deductible, regardless of whether or not you have applied for or have received forgiveness notification as of the end of 2020.

What happens if loan forgiveness is partially or fully denied in 2021 after one has filed their 2020 return?
Revenue Procedure 2020-51 establishes a safe harbor for taxpayers whose loan forgiveness applications are partially or fully denied, or who decide not to apply for forgiveness after filing their 2020 tax return.

While these expenses may ultimately become deductible with a future act of Congress, we encourage you to connect with your William Vaughan Company advisor to assist you in determining the best path forward for you and your business.

Need further PPP guidance? Check out our COVID-19 Resource Center.

Categories: COVID-19, Other Resources, Tax Planning


Small Business Loans & Grants Available To Overcome COVID-19 Impact

Mar 23, 2020

Monday, March 23, 2020

The Federal Reserve announced today an unlimited expansion of bond purchasing programs to help the U.S. economy due to the near-total shutdown to fight the coronavirus.

Treasury Secretary Steven Mnuchin said is he working closely with the Fed to ensure small businesses get the money they need quickly to survive. The bill in Congress would enable small businesses with 500 or fewer employees to get an SBA-backed grant to cover approximately two months’ payroll and some overhead expenses. Methods to distribute the money quickly are being debated, including an option to route the funds through payroll companies. About 40% of all U.S. businesses use a payroll service to process their employees’ payroll.

Businesses in all U.S. states and territories are currently eligible to apply.

The SBA’s Economic Injury Disaster Loan program (in addition to the potential grant) provides small businesses with working capital loans of up to $2 million to provide economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

The Fed also announced Monday it will buy certain corporate bonds and said it will “soon” announce a Main Street Business Lending Program. These programs are meant to provide ample availability of loans to small and large businesses on top of any efforts Congress does.

Many businesses have business interruption insurance although there is debate on whether a pandemic would be considered since it is not an act of God. Now is the time to contact your insurance agent to review your policy to understand precisely what you are and are not covered for in the event of an extended incident.

Categories: Other Resources


COVID-19 Data Security Insight

Mar 23, 2020

In just a short amount of time, COVID-19 has had an immense impact on the global economy, as well as business operations around the world.  How companies stay resilient and can adapt in the face of COVID-19’s impact, will be a topic of discussion for many business leaders as new information continues to surface. Along with COVID-19’s impact, the changes business leaders implement to respond to the ongoing crisis may introduce unintentional security and privacy risks.

Our daily routines are being impacted, along with the activities we perform. This creates opportunities for hackers, and others with malintent, who thrive in this type of environment, to take advantage of uncertainties and changes to routines. What has not changed, however, is an organization’s responsibility to protect data and to secure systems to reduce the risk of a breach or unauthorized access to information.  The regulatory requirements, and other state and industry standards for protecting information, are as critical as the day they were implemented, if not more so. GDPR, CCPA, NYDFS, PCI DSS, CFIUS, HIPAA, HITRUST, SOX, and so on – still need to be adhered to.

The risk to an organization could increase if processes, implemented to help secure systems, protect data and information, and maintain daily operations, are not followed.  Personnel, who have the assigned roles and responsibilities for managing systems and the corresponding data environment, need continued support and assistance to meet their job assignments.

To add to the complexity of daily operations, organizations have been forced to consider remote work options and telecommuting to slow the spread of the virus.  There are certain technical considerations for remote workers, the first being the devices that they will use to conduct business.  For organizations that provide laptops, this is generally a non-issue, however, if your workforce is typically in the office, working remotely can present some additional challenges from an equipment standpoint.

How will businesses secure remote access to company systems and data?

Businesses across the globe have been instituting remote work requirements to decrease the likelihood of spread and impact on business operations. Due to the increase of remote workers, businesses should secure access to company systems and data to ensure secure transmission of personal information. The actions below can help secure remote access to the organizations’ systems:

  • Require secure connections to remotely access company systems. A VPN solution should be leveraged to ensure the transmission of data is secured over public networks. A common practice for many organizations is to use multi-factor authentication in conjunction with VPN to ensure authorized access.
  • Ensure session timeouts for connections into company systems. Allowing remote connections to stay open indefinitely increases the window of availability for unauthorized access.
  • Ensure workstations timeouts for remote workstations. With the increase of remote workers and remote workstations, businesses will be unable to physically secure these areas. By implementing workstation timeouts, businesses can reduce the availability of unauthorized access if a workstation were to be left unattended remotely.
  • Require email using the organization’s distributed solutions. Organizations are so dependent on email communications and in most instances, corporate email is available remotely.  Employees should be reminded not to conduct corporate business over personal email accounts, text messages or third-party apps that are not managed by the organization.  This is a great opportunity to pick up the phone and speak with people in lieu of other typical communication channels.

How will businesses secure mobile assets?

Businesses should consider how mobile workstations will be secured. Due to remote working capabilities, an increase of mobile workstations provided to employees will need to be secured. Data at rest should be encrypted. Hard drives on workstations are commonly encrypted to ensure confidentiality of data. Just to start.

We are all adjusting to the changes as a result of COVID-19.  By supporting and reinforcing your organization’s processes, procedures and solutions, which were implemented to protect your data, the risk can be better managed.

If you are concerned about the vulnerability of your organization, contact our Risk Services Leader, Tiffany Pollard (tiffany.pollard@wvco.com) to help guide you through ensuring your systems are safe and secure.

 

Categories: Other Resources, Risk Services