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Caring For Generations

Tax-Related Estate Planning Tactics Take on Several New Twists

On Behalf of | Apr 22, 2020 | coronavirus' effect on estate planning

“The Coronavirus Aid, Relief, and Economic Security (‘‘CARES”) Act contains a significant number of provisions that will impact individuals and business related to income taxes,” Barry Weins writes in a Cherry Bekaert Guidance memo. 

While at Geyer Law, our attorneys offer no direct tax advice, instead working in cooperation with tax advisors to coordinate estate planning strategy and tax strategy, we do want to bring a select number of these important new CARES ACT provisions and planning opportunities to your attention.

Recovery rebates:
The Act creates a tax credit against 2020, authorizing an advance “rebate” payment of the credit to taxpayers now. This rebate is subject to income limitations (reduced for Adjusted Gross Income of over $75,000 for individuals and $150,000 for joint filers). The rebates will not be counted as taxable income for recipients.

Increased limitations on 2020 charitable contributions:
For 2020, cash contribution deductions are raised from 60% AGI to 100% AGI.
Qualified corporate charitable contribution limits go from 10% to 25% of income.
Donations of food inventory by businesses are raised from 15% of taxable income to 25%.

Early withdrawal penalties have been waived for taxpayers facing virus-related challenges:
The 10% early withdrawal penalty and 20% tax withholding penalty are both waived up to a limit of $100,000 across all plans and IRAs.

So how can all this impact estate planning? “Many of the same estate tax savings strategies that made sense under the old law still make sense,” as an article by Wealthspire Advisors points out, beginning with annual exclusion gifts and gifts for medical or educational purposes(these must be gifts made directly to the medical provider or educational institution). .

Because of the myriad of hardships caused by the pandemic, many clients may want to lend money to friends or family members. Before handing over the cash, tax advisors RBSK Partners states“ you need to plan ahead to avoid tax complications for yourself down the road.” That’s because interest-free loans may be considered gifts, subject to “below-market interest rules”, meaning that “imaginary” interest payments are taxable to the lender. (For loans of $10,000 or less, that rule may be ignored; if imaginary interest exceeds $15,000 for the year, there may be adverse gift and estate tax consequences.

At Geyer Law, we have always emphasized the importance of “the talk”, in which adult children and their parents discuss what to do if the parents become unable to live independently. Now, with distancing requirements, it becomes crucial to have those talks. Each generation is frightened for the other; each needs reassurance of help being available – and of being able to help. With the aid of today’s technology, we are arranging video and teleconferences for family group sessions.

While tax savings should never be the primary focus of estate planning, tax-related estate planning tactics – and the way we talk to each other about them – are taking on several new twists!

– by Rebecca W.Geyer