Monday, October 27, 2014

The Crummey Trust: Still Relevant After All These Years

Traditionally, trusts used in estate planning contain “Crummey” withdrawal powers to ensure that contributions qualify for the annual gift tax exclusion. Today, the exclusion allows you to give up to $14,000 per year ($28,000 for married couples) to any number of recipients.
Now that the gift and estate tax exemption has reached an inflation-adjusted $5.34 million, fewer people have to worry about gift and estate taxes. But, for many, the annual exclusion continues to be an important estate planning strategy. Thus, Crummey powers continue to be relevant.
 
Why make annual exclusion gifts?
Despite the record-high exemption, there are two important reasons to make annual exclusion gifts. First, if your wealth exceeds the exemption amount, an annual gifting program can reduce or even eliminate your liability for gift and estate taxes.
Second, even if your wealth is well within the exemption, annual gifting guarantees that the amounts you give are permanently removed from your taxable estate. If you rely on the exemption, there’s no guarantee that Congress won’t reduce the amount in the future, exposing your estate to tax liability.
 
What are Crummey powers?
The annual exclusion is available only for gifts of “present interests.” But a contribution to a trust is, by definition, a gift of a future interest. To get around this obstacle, trusts typically provide beneficiaries with Crummey withdrawal powers. By giving them the right to withdraw trust contributions for a limited period of time (usually 30 to 60 days), it’s possible to convert a future interest into a present interest, even if the withdrawal rights are never exercised.
In order for Crummey powers to work, the trust must give beneficiaries real withdrawal rights. Generally, that means you can’t have an agreement with your beneficiaries — express or implied — that they won’t exercise their withdrawal rights (although it’s permissible to discuss with them the advantages of keeping assets in the trust).
It also means that the trust should contain sufficient liquid assets so that beneficiaries can exercise their withdrawal rights if they choose to. Suppose, for example, that you set up an irrevocable life insurance trust and use annual exclusion gifts to cover the life insurance premiums. If contributions are used immediately to pay the premiums, any Crummey powers conferred by the trust are illusory: The trust has no liquid funds with which to satisfy a withdrawal request.
To avoid this problem, it’s best to keep sufficient liquid assets in the trust to cover potential withdrawals or to time contributions so that life insurance premiums aren’t paid until the Crummey withdrawal period has expired.
In designing a Crummey trust, keep in mind that excessive withdrawal rights can trigger adverse tax consequences for the beneficiaries. (See the sidebar “Beware the 5&5 rule.”)
 
Must beneficiaries know withdrawal rights?
The IRS has long taken the position that a trust contribution isn’t a present-interest gift — and, therefore, is ineligible for the annual exclusion — unless beneficiaries receive actual notice of their withdrawal rights and a “reasonable opportunity” to exercise those rights. In at least one case, the U.S. Tax Court ruled that the notice wasn’t required. Nevertheless, to avoid an IRS challenge, it’s prudent to provide beneficiaries with written notice of their withdrawal rights, preferably via certified mail.
There’s no specific requirement regarding the amount of time that constitutes a “reasonable opportunity.” The IRS has indicated in private rulings, however, that 30 days is sufficient, while three days is not. Common practice is to give beneficiaries between 30 and 60 days to exercise their withdrawal rights.
 
Handle with care
If you wish to make annual exclusion gifts to a trust, be sure the trust provides the beneficiaries with Crummey withdrawal powers. Crummey trusts present several potential traps for the unwary, so be sure your trust is drafted by an experienced professional.
 
Via JdSupra An Article From ©Adler Pollock & Sheehan P.C.


For legal help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.

Form 5500-EZ Pilot Penalty Relief Program

Friday, October 24, 2014

Information For Employers About Their Responsibilities Under Obamacare

If you are an employer, the number of employees in your business will affect what you need to know about the Affordable Care Act - Obamacare. 

Employers with 50 or more full-time and full-time-equivalent employees are generally considered to be “applicable large employers” (ALEs) under the employer shared responsibility provisions of the ACA.  Applicable large employers are subject to the employer shared responsibility provisions.  However, more than 95 percent of employers are not ALEs and are not subject to these provisions because they have fewer than 50 full-time and full-time-equivalent employees.

Whether an employer is an ALE is determined each calendar year based on employment and hours of service data from the prior calendar year. An employer can find information about determining the size of its workforce in the employer shared responsibility provision questions and answers section of the IRS.gov/aca website and in the related final regulations.

In general, beginning January 1, 2015, ALEs with at least 100 full-time and full-time equivalent employees must offer affordable health coverage that provides minimum value to their full-time employees and their dependents or they may be subject to an employer shared responsibility payment.  This payment would apply only if at least one of its full-time employees receives a premium tax credit through enrollment in a state based Marketplace or a federally facilitated or Marketplace.  Also, starting in 2016 ALEs must report to the IRS information about the health care coverage, if any, they offered to their full-time employees for calendar year 2015, and must also furnish related statements to their full-time employees.

For 2014, the IRS will not assess employer shared responsibility payments and the information reporting related to the employer shared responsibility provisions is voluntary.  In addition, the employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.  Specifically, ALEs that meet certain conditions regarding maintenance of workforce size and coverage in 2014 are not subject to the employer shared responsibility provision for 2015.  For these employers, no employer shared responsibility payment will apply for any calendar month during 2015 (including, for an employer with a non-calendar year plan, the months in 2016 that are part of the 2015 plan year). However these employers are required to meet the information reporting requirements for 2015.  The employer shared responsibility provision questions and answers section of the IRS.gov/aca website and the preamble to the employer shared responsibility final regulations describe the requirements for this relief in more detail.  Both resources also describe additional forms of transition relief that apply for 2015.  

Small employers, specifically those with fewer than 25 full-time equivalent employees, may be eligible for the small business health care tax credit.  
Regardless of the number of employees, if an employer sponsors a self-insured health plan, it must report to the IRS certain information about its health insurance coverage plan for each covered employee. 


For legal help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.


November 2014 Federal Prescribed Interest Rates Published

Revenue Ruling 2014-28 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274. 

The rates are published monthly for purposes of sections 42, 382, 412, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.


For legal help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.


Blazing A New Trail On Long-Term Care Underwriting

The nation’s largest long-term care insurance (LTCI) underwriter is blazing a new trail for the industry on how policies are underwritten. Genworth informed its sales agents in August that it has begun considering not only the health of applicants, but also the health history of their parents, in underwriting policies.

Genworth now weigh any history of early onset coronary artery disease or dementia in applicants’ parents. The new rules took effect for applications received starting September 2nd. For underwriting purposes, Genworth is defining early onset as age 70 for dementia, and age 60 for coronary artery disease. A spokesman notes that the company has included questions about applicants’ parental history since 2006; only now has it started using that information in underwriting.

Other LTCI underwriters probably aren’t far behind Genworth.



For legal help with your business, asset protection, and estate planning needs contact a business law and estates, trusts, and asset protection lawyer at the offices of AttorneyBritt.

 

Thursday, October 23, 2014

Fostering Innovation Through Medicaid Managed Care

The CMS Innovation Center is building its agenda for innovation through health plans and seeking innovative ideas in the areas of pharmacy and medication therapy management, value-based insurance design, remote access technologies, hospice care, long-term services and supports, behavioral health and provider incentive arrangements, among others.

Long-term services and supports is an area that even the most exemplary special needs plans are beginning to explore and represents one of the highest areas of Medicaid spending. Best practices in care management also should be figured out. What other areas may warrant a spot on CMS’s innovation agenda?


By Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP


For legal help with your business contact a business law and health care law attorney at the offices of AttorneyBritt.

IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.  Highlights include the following:
  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.
Below are details on both the adjusted and unchanged limitations.
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2014, by 1.0178.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2015 are as follows:
  • The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,500 to $18,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $260,000 to $265,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,050,000 to $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $115,000 to $120,000.
  • The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,500 to $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $2,500 to $3,000.
  • The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $385,000 to $395,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $550 to $600.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,000 to $12,500.
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $17,500 to $18,000.
  • The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $210,000 to $215,000.
The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2015 are as follows:
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,000 to $36,500; the limitation under Section 25B(b)(1)(B) is increased from $39,000 to $39,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $60,000 to $61,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,000 to $27,375; the limitation under Section 25B(b)(1)(B) is increased from $29,250 to $29,625; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,000 to $45,750.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,000 to $18,250; the limitation under Section 25B(b)(1)(B) is increased from $19,500 to $19,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,000 to $30,500.
  • The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.
  • The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $96,000 to $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $60,000 to $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $181,000 to $183,000.
  • The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $181,000 to $183,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $114,000 to $116,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.
  • The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,084,000 to $1,101,000.

 

For legal help with your small business contact a small business law and corporate law attorney at the offices of AttorneyBritt.

Still Time to Act to Avoid Surprises at Tax-Time

Even though only a few months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps now to avoid owing more taxes or getting a larger refund than you expect.  Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:
  • Adjust your withholding.  If you’re an employee and you think that your tax withholding will fall short of your total 2014 tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee's Withholding Allowance Certificate and give it to your employer. Enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. Use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form.
  • Report changes in circumstances.  If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance.
  • Change taxes with life events.  You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W–4 at work or change your estimated tax payment.
  • Be accurate on your W-4.  When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.
  • Pay estimated tax if required.  If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax.
For more see Publication 505, Tax Withholding and Estimated Tax. You can get it and IRS forms on IRS.gov, or call 800-TAX-FORM (800-829-3676) to get them by mail.
If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media and subscribe to IRS Tax Tips or any of our e-news subscriptions.
Additional IRS Resources:
  • Publication 5152: Report changes to the Marketplace as they happen  English | Spanish
IRS YouTube Videos:
IRS Podcasts:

 

For legal help with your small business contact a small business law and corporate attorney at the offices of AttorneyBritt.