Author: heschlawadmin

ABLE Accounts

Posted by heschlawadmin on February 15, 2018

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

So you might be asking, which planning tool do I need? A Special Needs Trust or an ABLE Account? The answer could be both. ABLE Accounts allow for more accessibility of funds, with a prepaid debt card feature. The card does not pull money directly out of your ABLE Account. Instead, you get to choose a specific amount of money to load onto your card. This way, you can better control budgets and plan for your Qualified Disability Expenses. They also allow the disabled person to easily receive and save funds from employment without affecting government benefits. If a disabled person is able to work, SSI limits benefits for that person if they have a balance in personal bank account exceeding $2,000. ABLE Accounts allow a person on SSI to work and retain income without diminishing their maximum SSI benefit. However, the money in an ABLE Account will be counted as a resource for SSI purposes if the balance increases over $100,000.

Unfortunately, the funds placed in a ABLE Account are not protected long term because of the medicaid payback provision upon the account holders death. If a family member, by gift or inheritance, plans to leave money for a disabled person the Special Needs Trust is the preferred planning tool. The Special Needs Trusts discussed last month can hold unlimited funds while also allowing for the disabled person to continue receiving SSI.

There are many considerations to look at when trying to protect government benefits for a disabled person and making sure to plan properly is so important. The rules for both Special Need Trust and ABLE Accounts are very complex and it is highly recommended that you work closely with your attorney, CPA, and financial advisor.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Providing For and Protecting a Disabled Child

Posted by heschlawadmin on January 23, 2018

Do you have your disabled child written into your will? Or are they disinherited and you are relying on their siblings to take care of them? This is potentially problematic and you should consider a Special Needs Trust.

Both of these methods of attempting to care for a disabled child, after your death, have undesirable risk. If your child is receiving Supplemental Security Income (SSI), Medicaid, or other needs-based state or federal government funds, leaving your child assets in your will can cause them to become disqualified for this type of government assistance. If you are disinheriting your disabled child in anticipation that your other children will see to it they are taken care of, you are also taking on risk. The other children do not have any obligation to provide top-notch care for their disabled sibling. One way to eliminate these risks and make sure that your disabled child is provided and protected for long after you are gone, is to set up a Special Needs Trust.

Special Needs Trusts are a unique way to make sure that your disabled child’s comfort, dignity, and joy are maintained while also making sure that your child does not lose out on government benefits. A properly constructed Special Needs Trust is not counted as an asset as applied to eligibility for government benefits. This means that your disabled child will be allowed to receive things like, social security and Medicaid for food and shelter, and the trust will be able to provide for things like, medical and dental expenses not covered by third parties, clothing, electronic equipment, training programs, education and education supplies, treatment and rehabilitation, private residential care, telephone, cable, internet, transportation, vacations, participation in hobbies and sports, and much more. As long as the trust is paying for things other than housing and food, items that social security and other government assistant programs are meant to provide, the special non-support needs paid for by the trust will not be considered income to the disabled child. Setting up as Special Needs Trust can be a great way to ensure that your child is taken care of in the future.

Planning for the provisions and protection of a disabled child can be difficult for a parent after they are gone but it is not impossible. Through proper planning, your child can receive the benefit of your estate while still maintaining government benefits.

Top 10 Year End Tax Planning Mistakes

Posted by heschlawadmin on December 13, 2017

#10 – Failure to rebalance your stock portfolio’s asset allocation and harvest capital losses to minimize 2017 recognized capital gains. Beginning in 2018, under the new tax law proposals, taxpayers will no longer be able to choose stocks with a higher tax basis to sell.

Taxpayers will be required to use the FIFO method, first-in first-out method for identifying the cost basis for stocks being sold. This method usually results in lower cost basis for stock being sold and thus higher taxes! December, 2017 is the last month in which taxpayers have a choice in determining which stocks to sell at a higher tax basis.

#9 – Failure to purchase furniture, equipment, tools, computers and other fixed assets by December 31, 2017. If business owners plan to purchase those assets during the first six months of 2018, they should consider purchasing those assets in December, 2017. In doing so, business owners may save more taxes on those purchases because tax rates for business owners are expected to be lower in 2018.

#8 – Failure to set up your solo 401k plan or other retirement plan by December 31, 2017! Some retirement plans can be set up by the due date of your tax return but other retirement plans are required to be set up by the end of the year. Keep in mind that your company can set up a retirement plan in December and have until the due date of the tax return in 2018 in which to fund the contributions to the plan.

Contact your CPA to advise you on what type of retirement plan would be most advantageous for you as a business owner in order to maximize the contributions to be made by the business for the owner and to minimize the contributions to the plan for your employees. Plan design is very important!

#7 – Failure how to fully pay your 2017 state and local taxes by December 31, 2017. Under the new tax law proposals, state and local income taxes will no longer be deductible in 2018. Therefore, you should be estimating how much your 2017 state and city tax liabilities will be and make sure that you make estimated payments by the end of the year to pay those tax liabilities in full.

However, if you are subject to Alternative Minimum Tax (AMT) , then you would not need to pay your state and local taxes in December since you will not get any tax benefit in doing so for 2017.

On the other hand, if you are in Alternative Minimum Tax, you may want to accelerate income into 2017 since that additional income may not increase your taxable income. Your CPA should be contacted to make your projected 2017 tax computations for AMT and regular tax purposes.

#6 – Failure to meet with your CPA and estimate your 2017 taxable income and determine whether you expect 2018 to be better or worse. It is imperative that you review year-end tax saving strategies in December, 2017 with your CPA to take advantage of the Trump tax law proposals that we expect to be effective January 1, 2018.

After you meet with your CPA, if you need a second opinion or do not fully understand the tax planning strategies being recommended to you, call Bill Hesch, attorney, CPA and financial advisor to get a second opinion at 513-509-7829. Peace of mind is only a phone call away.

#5 – Failure to review your choice of entity with your CPA! The question is whether under the new tax law to be effective in 2018, should you continue to be a sole proprietor, partnership, S corporation or C corporation for your business? Keep in mind that the decision to terminate or make an S election for 2018 must be filed with the IRS by March 15, 2018. However you should be reviewing the new tax law with your CPA as soon as it becomes final. We are expecting Congress to pass the new tax legislation by Christmas, 2017.

#4 – Failure to review your divorce decree and identify whether it would be advisable for you to pre-pay 2018 alimony payments in December, 2017. Under the new tax law proposals, alimony payments may not be deductible beginning in 2018. You may also need to contact your divorce attorney to review your divorce decree and identify what changes, if any can be made to your divorce decree as a result of the changes in the tax laws in 2018. It may be advisable to agree to share the additional tax savings for 2017 between the two parties for the 2018 alimony payments made in December, 2017.

In addition, if alimony payments are no longer deductible and alimony received is no longer includible in income, the change in the tax law will penalize the person making the alimony payments in future years and benefit the person receiving the alimony payments. Due to the change in the tax laws, the party paying the alimony may want to consult with their divorce attorney to see if the divorce decree could be amended for the change in the tax consequences to both parties.

#3 – Failure to prepay your 2017 tax return preparation fees by December 31, 2017. Under the new Trump tax law proposals, tax return preparation fees will no longer be tax deductible in 2018. It may also be advisable to pay not only your 2017 tax return preparation fees but also 2018 estimated tax return preparation fees too.

#2 – Failure to maximize your charitable donations in 2017! The new tax laws are expected to lower personal tax rates in 2018. Therefore by paying Charities your expected donations for 2018 through 2020, in 2017, you will save more taxes. However if you do not want to make a large donation to your charities covering future years, it may be advisable to make a significant charitable donation to a Greater Cincinnati Foundation Donor Advised Fund. In doing so, you or your designated family member will be able to direct what payments will be made to what charities in future years out of your Donor advised fund.

Due to the increase in the standard deduction for single persons to $12,000 and married couples to $24,000, individuals may not get a tax benefit from charitable donations in future years. Beginning in 2018, with the changes in itemized deductions, most taxpayers will only get deductions for real estate taxes, mortgage interest and charitable donations.

Mortgage interest on home equity loans will not be tax deductible beginning in 2018. Taxpayers should pay all interest owed on their home equity loan by 12/31/2017. Also, they should consider restructuring that debt into a loan that is tax deductible beginning in 2018.

The higher standard deduction may result in many taxpayers not getting a tax benefit from their donations beginning in 2018. Therefore it may be advisable to make a significant donation to your Greater Cincinnati Foundation Donor Advised Fund by the end of December, 2017, to make the donations that you would be making over the next three to five or more years.

#1 – Failure of cash basis taxpayers to prepay 2018 operating expenses in December, 2017 and defer income from 2017 to 2018. The proposed tax law changes will typically result in business owners having lower tax rates in 2018. Therefore by taking deductions in 2017 or deferring income to 2018, business owners will pay less taxes in 2017 when the tax rates are higher. It is advisable to meet with your CPA to review the tax rules for accelerating deductions and deferring income so that your tax savings are protected from IRS challenge.

Two Common Pitfalls for Traditional IRA Beneficiary Designations in Blended Familis

Posted by heschlawadmin on November 22, 2017

Baby Boomers Beware!

I have found over the years that many of my baby boomer estate planning clients share the same common facts: (1) their IRAs, 401(k)s, or other qualified retirement accounts are typically their largest asset; and (2) they increasingly have blended families – meaning, they are in their second or third marriage and have children from prior relationships. Since most baby boomers’ largest assets are their IRAs, they need to be careful when designating their beneficiaries for these accounts. This becomes especially important when the account owner has a blended family. Failing to properly plan their IRA beneficiary designations can result in the accidental disinheritance of a child, create unnecessary legal fees, and trigger significant income tax consequences for their family. Unfortunately, most IRA account owners are unaware of the complicated rules surrounding beneficiary designations and so the estate plan they thought was in place does not become a reality. This article will address common pitfalls for IRA beneficiary designations for blended families.

Pitfall 1: The Account Owner Names His or Her Spouse as Beneficiary

Most commonly, an IRA account owner will designate his or her spouse as beneficiary. In some situations, this designation works just fine, but other times, and especially for those in blended families, naming the spouse as beneficiary will make their estate plan inconsistent with their overall estate planning goals.

When a surviving spouse inherits an IRA, they can choose how the IRA is paid out, including, but not limited to: (1) rolling it over into their own IRA; or (2) cashing it in, paying taxes, and spending the proceeds at their discretion. To learn more about the different options surviving spouses have, please click here. Surviving spouses also have the opportunity to designate their own beneficiary on their inherited IRA. Oftentimes, a surviving spouse will designate a beneficiary who is inconsistent with those who the account owner originally intended, such as the surviving spouse’s new spouse or to the surviving spouse’s own children. The surviving spouse has no obligation to leave the IRA asset to any of the account owner’s children from a prior relationship. Most baby boomers with blended families want to provide for their own children upon the death of their surviving spouse, but are unaware that simply naming their spouse as beneficiary of the IRA could compromise their estate planning goals if their surviving spouse leaves the IRA to someone other than their own children. An IRA account owner can avoid this problem by setting up a trust and naming the trust as the IRA beneficiary instead of the surviving spouse. This solution is discussed in further detail below. IRA account owners are encouraged to consult with their attorney, CPA, and financial advisor to determine if naming their spouse as their IRA beneficiary is an appropriate option to meet their estate planning goals.

Pitfall 2: The Account Owner Names His or Her Trust as Beneficiary

Naming a trust as the IRA beneficiary instead of their spouse is a typical option for clients in blended families who want to ensure that their IRA will pass down their blood line. A typical trust for a baby boomer client provides that upon the first spouse’s death, the trust provides for the surviving spouse, and upon the survivor’s death, the remaining assets are distributed to the designated children and stepchildren in equal shares. As long as the IRA account owner’s children are beneficiaries under the trust, naming the trust as the IRA beneficiary will ensure that his or her children from a prior relationship will not be left out. This prevents the spouse from inheriting the IRA outright and leaving it to someone other than the account owner’s children. However, naming a trust as the beneficiary of an IRA comes with its own faults, as discussed below.

The biggest problem with naming a trust as IRA beneficiary is that if the trust is not drafted properly to optimize tax deferral for IRAs, there could be significant income tax consequences for the account owner’s family. There are certain requirements a trust must have to qualify as a designated beneficiary of an IRA to receive favorable tax treatment. If these specific requirements are not met, the trust will not receive a favorable “stretch” payout method option that individual beneficiaries otherwise enjoy. The stretch IRA payout method “stretches out” the distributions from the IRA over the life expectancy of the oldest identifiable beneficiary of the trust, which in turn stretches out the annual income tax liability for each beneficiary. When a trust is not drafted properly, the trust beneficiaries will be disqualified from receiving this favorable tax treatment. Instead, the beneficiaries are required to take either a lump sum distribution of the IRA or take distributions over a 5 year period. For more discussion on payout options for trusts and other non-spouse beneficiaries, please click here.

Another issue that arises when an account owner names a trust as IRA beneficiary is that the account owner does not properly fill out the beneficiary designation form with the IRA custodian. If proper language is not used on the beneficiary form, the account owner may encounter difficulty with the custodian accepting the designation. Furthermore, depending on the language of the trust, if the trust is split into sub-trusts for the children and the sub-trusts are not specifically identified as the beneficiaries of the IRA, the children may not be able to use their own life expectancy for the tax-preferred stretch payout method.

It may seem simple in theory, but designating the right IRA beneficiary can be complicated. Baby boomers in blended families need to be aware of the consequences of naming the wrong beneficiary of their IRAs. IRA account owners are encouraged to meet with their attorney, CPA, and financial advisor before naming their spouse or trust as their IRA beneficiary so that their IRA beneficiary designations will meet their overall estate planning goals.

Inherited IRA Options for the Surviving Spouse

Posted by heschlawadmin on October 26, 2017

Did you know that when you inherit an IRA you can limit your income tax liability by deciding how distributions are made to you? Unfortunately, many IRA beneficiaries don’t know they have distribution options and so they cash in their inherited IRA and expose themselves to significant income tax liabilities. The options available to IRA beneficiaries vary depending on if the beneficiary is a surviving spouse or a non-spouse and if the IRA is a traditional IRA or Roth IRA. This article will focus on the typical traditional IRA distribution options for a surviving spouse to limit the surviving spouse’s tax liabilities. Click here for options for non-spouse beneficiaries. Not all distribution options work best for every beneficiary, so beneficiaries are encouraged to consult with their financial advisor, CPA, and attorney to find out which option works best for them.

Option 1: Treat IRA as Own

One option surviving spouses have is treating the IRA as their own. Surviving spouses can treat inherited IRAs as their own by naming themselves as the account owner or by rolling the inherited IRA into their own IRA account. This is often the best choice if the deceased spouse was older than the surviving spouse because it allows the surviving spouse to delay taking the IRA’s Required Minimum Distributions (RMDs) until he or she reaches age 70½ rather than using the deceased spouse’s age. The benefits of this option are best described using an example: Husband dies at age 73 leaving his IRA to his wife who is age 62. Wife subsequently chooses to roll over the IRA into her own. Although Husband started taking his RMDs at age 70½, Wife is not required to take RMDs on the rollover IRA until she reaches age 70½. This choice effectively resets the IRA’s RMDs using the surviving spouse’s younger age and offers the surviving spouse additional years of tax-deferred growth.

Option 2: Leave Ownership in Deceased Spouse’s Name

The second option for a surviving spouse beneficiary is leaving ownership of the IRA in the deceased’s spouse’s name, for the benefit of the surviving spouse. This is often the best choice for a surviving spouse if the deceased spouse was younger than the surviving spouse. If the surviving spouse chooses this option, the RMDs are determined using the deceased spouse’s age at the time of death instead of the surviving spouse’s age, which presents two possibilities:

(1) if the deceased spouse died after age 70½: the RMDs must be taken on the longer of the deceased spouse’s life expectancy based on his/her previous RMD schedule or the surviving spouse’s life expectancy; or

(2) if the deceased spouse died before age 70½: the surviving spouse can defer RMDs until the deceased spouse would have been required to take them.

Keep in mind that in order for this option to work properly, ownership of the IRA must stay in the decedent-owner’s name, for the benefit of the surviving spouse beneficiary. If the surviving spouse has already transferred the IRA ownership into his or her name, the surviving spouse will not receive the advantages of using this option.

Option 3: Rollover IRA with 5 Year Distribution

Another option for a surviving spouse beneficiary is to rollover the IRA into their name and cash out the IRA within five years of December 31 of the year following the deceased spouse’s date of death. This option gives the surviving spouse access to money relatively soon and spreads out the tax liability over a five year period, rather than in one year if a lump sum distribution is taken.

Option 4: Lump Sum Distribution

A surviving spouse beneficiary also has the option to cash in the IRA and take a lump sum distribution; however, the spouse will be responsible for paying income taxes on the distribution in the year the distribution is made. This option gives the surviving spouse immediate access to money but can potentially subject the IRA income to higher tax rates.

The traditional IRA distribution rules and options for surviving spouse beneficiaries are complicated. If you are a surviving spouse and listed as the beneficiary of your deceased spouse’s IRA, meet with your CPA or tax attorney to decide what option will work the best minimize your taxes.

Inherited IRA Options for the Non-Spouse Beneficiary

Posted by heschlawadmin on September 27, 2017

Did you know that when you inherit an IRA you can limit your income tax liability by deciding how distributions are made to you? Unfortunately, many IRA beneficiaries don’t know they have options and so they cash in their inherited IRA and expose themselves to significant income tax liabilities. The options available to IRA beneficiaries vary depending on if the beneficiary is a spouse or non-spouse, so this article will focus on the three distribution options non-spouse IRA beneficiaries typically have to limit their tax liabilities. Not all distribution options work best for every situation, so IRA beneficiaries are encouraged to consult with their CPA and attorney to find out which option works best for them.

Option 1: Rollover IRA with Five Year Distribution

If an IRA owner dies and designates a non-spouse beneficiary, such as a child, parent, sibling, or friend, the beneficiary can choose to rollover the IRA into their name, but the entire IRA must be distributed to the beneficiary within five years of December 31 of the year following the IRA owner’s date of death. This option gives the non-spouse beneficiary access to money relatively soon and spreads out the tax liability over a five year period, rather than in one year if a lump sum distribution is taken.

Option 2: Stretch IRA

The second option for a non-spouse beneficiary is a stretch IRA. With a stretch IRA, the non-spouse beneficiary receives the IRA’s annual required minimum distributions (RMD) over the beneficiary’s remaining life expectancy. The beneficiary’s remaining life expectancy is determined by the beneficiary’s age in the calendar year following the year of death and reevaluated each year. For example, if the IRA owner dies and his 50-year-old daughter is the sole beneficiary, the daughter may choose to stretch out the IRA over her remaining life expectancy and will only receive the RMD each year. Beneficiaries who elect this option are only responsible for paying income taxes on the RMD they receive each year. This option has more favorable tax rules but limits the amount of money available to the beneficiary on an annual basis.

Beneficiaries who choose a stretch IRA need to be aware that ownership of the IRA must stay in the decedent-owner’s name, for the benefit of the beneficiary. If the beneficiary has already transferred the IRA ownership into their name, the IRA will be subject to the IRA Rollover rules over a 5 year period.

Option 3: Lump Sum Distribution

A non-spouse beneficiary also has the option to completely cash in the IRA and take a lump sum distribution. The beneficiary will be responsible for paying income taxes on the distribution in the year the distribution is made. This option gives the beneficiary immediate access to money but can potentially subject the IRA income to higher tax rates.

The IRA distribution rules and options for a non-spouse beneficiary are complicated. If you are the beneficiary of an inherited IRA, meet with your CPA or tax attorney to decide what option will work the best minimize your taxes.

Don’t Shoot Yourself in the Foot: Protect Your Firearms in Your Estate Plan

Posted by heschlawadmin on August 7, 2017

Kentuckians love their guns. According to CBS News, Kentucky ranks number 16 in the number of registered firearms among all 50 states with almost 60,000 federally registered firearms. Ohio, although much more populated than Kentucky, ranks in at number 23. Much like items of personal property like jewelry and antiques, firearms aren’t cheap and can also hold sentimental value among family members and friends. As such, firearms need to be accounted for in an estate plan. Failure to properly account for firearms in an estate plan could result in excessive fines or even jail time for the recipient.

Laws Relating to Transfers of Firearms

Federal law addresses the issue relating to receipt of firearms, stating that “it shall be unlawful for any person to receive or possess a firearm which is not registered to him in the National Firearms Registration and Transfer Record; or to transport, deliver, or receive any firearm in interstate commerce which has not been registered as required by this chapter.” These laws are regulated strictly and are enforced with a zero tolerance policy. Violations can create potential criminal liability of up to ten years in prison and a $250,000 fine.

Kentucky state law has few restrictions on the transfer of firearms, although it does prohibit transferring firearms when the person transferring the firearms knows the recipient is prohibited from possessing firearms under Kentucky law.

Applying These Laws to Estate Planning

In light of the current state and federal laws relating to the transfer of firearms, there are several estate planning and probate considerations gun owners need to think about. The owner should list alternate recipients of the weapons in case the primary recipient is not legally allowed to receive firearms at the time of the owner’s death. Another solution for gun owners is setting up a gun trust for their firearms. Gun trusts are considered “individuals” in the eyes of the law, so the trust can legally own the firearms and provide instructions for the Trustees and beneficiaries. Gun trusts also streamline the distribution of the firearms upon the owner’s death and avoid the probate process.

Upon a gun owner’s death, the Executor of the Estate or Trustee of the Trust should take possession of firearms immediately. A new 2016 federal law says that Executors of Estates can take possession of a decedent’s firearms without triggering a transfer. This can protect the Executor from liability for possessing unregistered firearms under federal law. However, the Executor should forfeit all previously-unregistered firearms to law enforcement to avoid potential criminal liability for its recipient.

If you are one of the many people who own firearms, you need to be aware of the laws and regulations relating to the distribution of your guns upon your death. Contact your estate planning attorney to discuss your estate planning goals for your firearms. Your attorney can give you peace of mind that your loved ones won’t run into problems upon your death.

Is Your Old A-B Trust a Tax Burden for your Family?

Posted by heschlawadmin on March 3, 2017

Save Taxes by Updating your Estate Plan

If you have an old A-B Trust in place, you may be unaware that recent tax law changes have transformed your A-B Trust from an estate tax shelter into an income tax burden for your loved ones. An A-B Trust, also known as a Credit Shelter Trust or Bypass Trust, typically provides that on the death of the first spouse, a particular share of the married couple’s assets are transferred into an irrevocable sub-trust (the “B” trust), rather than to the surviving spouse directly. Traditionally, using an A-B Trust was an estate planning strategy to preserve the deceased spouse’s estate tax exemption to be used upon the death of the surviving spouse. Without sheltering the first spouse’s unused exemption in the “B” trust, any assets in excess of the survivor’s exemption amount would be exposed to very high federal estate taxes.

However, tax law changes in 2013 made permanent an individual federal estate lifetime tax exemption of $5 million (adjusted annually for inflation – 2017 is $5.49 million). If you and your spouse won’t surpass the combined $11 million threshold, your A-B Trust may need to be changed from an estate tax planning perspective. Married couples whose combined assets including life insurance proceeds are less than $5.49 million clearly need to review whether their A-B Trust structure needs to be changed. BEWARE – if you keep your old A-B Trust in place, you might actually be creating a negative income tax consequence because of a specific tax basis rule.

The Internal Revenue Code provides that the tax basis in inherited property gets “stepped up” to its date-of-death fair market value when it is included in a decedent’s estate. When the first spouse dies and the couple has an A-B Trust in place, the assets passing to the “B” Trust get this “stepped up” tax basis. However, when the surviving spouse dies and there are assets remaining in the “B” trust, those assets will not receive the same basis adjustment since those assets are not included in the surviving spouse’s estate. As a result, when the surviving spouse dies and the beneficiaries of the A-B Trust sell the “B” trust assets, the beneficiaries will be responsible for paying any capital gains taxes associated with those assets. If a long amount of time has passed between the spouses’ deaths and the “B” trust assets are valuable, the income tax liability for the beneficiaries could be significant.

While the non-tax reasons for having a trust in place may ultimately drive your estate plan, saving income taxes should now be an important consideration. There are several strategies your estate planning attorney can use to help you maximize income tax savings, and each strategy has its own advantages and disadvantages. Your estate planning lawyer can give you peace of mind by identifying and implementing strategies to help your family save income taxes when you pass away. If you have an old A-B Trust in place, contact your estate planning lawyer today to review your estate plan.

The Top 3 New Year’s Resolutions for the Long-Term Success of your Small Business

Posted by heschlawadmin on January 20, 2017

As a small business owner, how many times have you set lofty New Year’s resolutions for your business that never amounted to anything? This year, you can set three achievable resolutions that are simple to accomplish yet stay focused on the long-term success of your business. These resolutions will finally address those lingering tax savings, succession planning, and estate planning issues that you have put off for too long. Accomplishing these resolutions will affect your bottom line and give you peace of mind for years to come.

Resolution #1: Implement Simple Choice of Entity Strategies for Tax Savings in 2017

Do you know if your business is taxed as a sole proprietorship, partnership, C-Corp, or S-Corp? Do you know what tax bracket you are in? Did you know that if you are single, your business is a sole proprietorship, and you make between $37,650-$91,150, or if married, and you make between $75,300-$151,900, that your taxable rate on your business profits is 46%? A business’ choice of tax entity can have major tax implications, but many small business owners are unaware that such issues exist. As a result, many small businesses are often taxed as the wrong type of entity and they end up paying too much in taxes. This year, meet with your attorney and CPA to review your choice of entity options and see if you can save taxes by being an S-Corp.

Resolution #2: Establish a Succession Plan for Your Business that gives you Peace of Mind

A recent study found that only 30% of family-owned businesses survive the 2nd generation. Many advisers believe this statistic is due to the fact that business owners have not established a plan for succession. Have you ever thought about what will happen to your business if you get sick, become disabled, or pass away? If you have a business partner and they get sick, become disabled, or pass away, do you really want to run the business with your partner’s spouse or children? Do your key employees know your daily, weekly, and monthly responsibilities to keep the business afloat if tragedy strikes? Most small business owners often fail to discuss these business succession issues with their partners and key employees. They also fail to implement an Operating Agreement or Buy/Sell Agreement that identifies what happens to the business in the event of disability or death. That is why 70% of businesses don’t make it past the 2nd generation. This year, schedule a time with your partners, key employees, CPA, and attorney to discuss and implement a successful succession plan.

Resolution #3: Avoid the Top Mistakes in Estate Planning and Plan for Potential Nursing Home Care for Your Aging Parents

There are many mistakes you want to avoid when considering your estate plan. For example, statistics show that half of Americans die without a Will – creating headaches and uncertainty for their loved ones. Many more Americans become sick or disabled and don’t have Powers of Attorney in place, forcing their families to go through the grueling guardianship process to pay bills and make medical decisions. Not utilizing a trust in your estate plan can also create problems, especially in blended family situations. Without a trust in place, the surviving spouse in a blended family could potentially disinherit the deceased spouse’s children and leave them nothing.

Additionally, don’t ignore the fact that your aging parents might need nursing home care in the future. If you delay your parents’ long-term care and elder law financial planning for too long, your parents will be required to spend all of their hard-earned assets on their nursing home care before they qualify for government assistance. However, if you and your parents timely set up the right kind of financial plan, your parents can successfully protect their assets from the nursing home, and still qualify for government assistance. This year, meet with your estate planning attorney and CPA to review your estate plan and to discuss potential Medicaid planning options for your aging parents that will give you peace of mind.

These three simple resolutions for your small business will be discussed in further detail at the 2017 Ultimate Workshop – Tax, Succession, and Estate Planning for Business Owners on February 2, 2017 at the Northern Kentucky Chamber of Commerce. At this free interactive workshop, Bill Hesch and Amy Pennekamp will discuss relevant tax, succession, and estate planning issues that are often overlooked by small business owners and their attorney, CPA, and financial advisors. Those in attendance are eligible for a free one hour consultation from Bill. Ohio Attorneys and CPAs will receive 2.5 hours of continuing education credit. For more information or to register for this year’s Ultimate Workshop, please click here or call Bill at (513) 509-7829.

How to Have “The Talk” with Your Aging Parents

Posted by heschlawadmin on November 10, 2016

Remember having “the talk” with your parents in middle school? That awkward conversation you had with your mom or dad where they tried to explain the facts of life to you while you desperately searched for an excuse to end the conversation? Well get ready to have another “talk” with your parents, only this time, you’ll be discussing their end-of-life planning, not the birds and the bees.

What does this “talk” need to cover? Generally, this conversation needs to address the issues surrounding your parents’ twilight years, such as retirement planning, nursing home preferences, funeral arrangements, wills and trusts, powers of attorney, and possible Medicaid planning. Specifically, an estate planning and elder law attorney can identify your parents’ unique estate planning and elder law planning issues and assist with implementing their end-of-life planning strategies. To have a successful “talk” with your parents, consider using this four-part strategy:

Don’t wait for tragedy to strike

Don’t wait for tragedy to strike before having the conversation. I often see that families put off talking about these issues until an unexpected illness or death shocks the family, at which time it may be too late to do anything.

Have the conversation with your parents right away, while they are still healthy and able to make informed decisions for themselves. This becomes even more important if your parents are older or if you think a parent is showing signs of memory problems or is not feeling well on a regular basis. Having these discussions in advance can mitigate problems down the road and can remove any feelings of doubt you may have if you need to make a decision on their behalf.

Such topics are sensitive and your parents may try to avoid having the conversation with you altogether. Schedule a specific time and place with your parents to have this conversation so that they can be prepared for it. If you unexpectedly spring the discussion on them, they may get defensive or shut down. If your family will be in town for the holidays, Thanksgiving and Christmas can be ideal times to schedule the family meeting. You might also consider getting your parents’ attorney and CPA involved in the meeting.

Make estate planning documents a priority

Not every family needs a complicated trust or an aggressive Medicaid planning strategy. Your parents’ estate planning attorney can assess your parents’ unique situation and make a recommendation for what they might need. If your parents feel overwhelmed and choose to do nothing, you need to at least advocate that they implement or update their Last Wills and Testaments, Financial Powers of Attorney, and Health Care Powers of Attorney and Living Wills. These are the basic estate planning documents that every person needs in place, and having them will make everyone’s lives much easier. If your parents don’t have an attorney or are unable to leave their home, help them find an estate planning and elder law attorney who is willing to come to their home and will handle their situation in the safety of their home.

Address finances carefully

Many in your parents’ generation are cautious and secretive about their finances. Don’t assume that your parents will be comfortable sharing details of their wealth or debts with you. If they aren’t comfortable with sharing this information, don’t be pushy. Simply find out the names of their financial advisor, attorney, and CPA so you know who to contact in case of a financial emergency and encourage your parents to do elder law, financial, and estate planning with them.

Don’t be overly persuasive

Remember that this conversation is about planning for what is best for your parents in their twilight years, not maximizing your inheritance. You may need to walk a fine line between arguing a position you feel is right for them and not coming off as being greedy. You don’t want to ruin your relationship with your parents because they think you’re more concerned about their money than what they want to do regarding their nursing home needs in the future. I recommend that you discuss what nursing home they would want to go to if the need arose unexpectedly and suddenly (i.e. rehab following a stroke or a fall).

Also remember that your parents will be feeling vulnerable, so if you disagree with something they feel strongly about, respectfully present your arguments and recommend that they speak with their attorney and CPA for professional advice.

Much like in middle school, having “the talk” with your parents will be uncomfortable for everyone involved. However, having open, respectful, and honest dialogue with your parents will give them peace of mind that you are looking out for their best interests.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning matters. He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.