Two women sitting on steps and talking

Estate Planning Lessons to Be Learned From the Passing of Aretha Franklin

Aretha Franklin, a.k.a. the Queen of Soul, died August 16, 2018. She influenced millions through her music and civic actions. She was a longtime resident of Michigan, where she lived until her death. Aretha Franklin left behind four adult sons, and unfortunately for them, she did not have a will or trust. Her estate has been widely estimated to be worth currently about $80 million, and under Michigan law, her four sons will divide the estate equally among themselves.

One of the biggest reasons a person, especially someone in a financial position like
Aretha, should have a trust is for the added privacy it provides. If a person has only a will or nothing at all in place, the estate would go through probate. One of the worst things about the probate process is that it is all public record, and available to anyone’s eyes. A trust would have ensured that the nature of her assets be kept private because it avoids probate, and not put on public display.

Unfortunately for her family, Aretha Franklin never had a will or trust drafted, which will result in her entire estate going through probate. Probate is notoriously time consuming and expensive to navigate, especially for an estate worth an estimated $80 million. For Aretha Franklin’s Estate, dividing her assets equitably among her four sons will be very time consuming and costly because of its valuable assets, and the complexity of the rights to her music, royalties, real estate, and many other avenues of income. A validly executed estate plan, using a trust properly, could have saved years and countless dollars by avoiding probate for the administration of her large estate.

While it is still early, and no one knows for sure how long it will take for Aretha’s estate to get settled, there are lessons to be learned. First, at the very top of your list should be not putting your estate planning on the back burner. Aretha’s attorney has said that he repeatedly suggested that she have a trust and a will, but she just never got around to it.

Another sad lesson is that Aretha could have better provided for friends and family if she had a will or trust. It is possible that she was happy with only her sons getting her assets, but had she drafted a will or trust, she could have included other close friends and family, or even charities. However, because she did not have a will or trust, the State of Michigan will now decide who gets what. Unless you want to have your state of residency decide who gets what, make sure you have a will or trust drafted that accurately reflects your wishes.

While Aretha Franklin was loved by many, and her music will live on, she did not do her family any favors by neglecting her estate planning. Had she done so, she may have wanted to include friends and family in her estate plan, saved the estate the costly time and money associated with probate, and decreased the chance that her sons may damage their relationships over what assets each son gets. If you want to make sure that your estate is properly planned, your assets are accounted for, and your loved ones will not have to endure the stress of probating your estate, call Bill Hesch, attorney, CPA, and financial planner today.

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.)

Man writing taxes on a checkbook

Tax-Saving Tips

New IRS 199A Regulations Benefit Out-of-Favor Service Businesses

If you operate an out-of-favor business (known in the law as a “specified service trade or business”) and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your Section 199A deduction is easy to compute. It’s zero.

This out-of-favor specified service trade or business group includes any trade or business

  • involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or
  • where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or
  • that involves the performance of services that consist of investing and investment management trading or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities [Internal Revenue Code Sections 475(c)(2) and 475(e)(2), respectively].

If you were not in one of the named groups above, you likely worried about being in a reputation or skill out-of-favor specified service business. If you were worried, you joined a large group of worried businesses, because many businesses depend on reputation and/or skill for success.

For example, the National Association of Realtors believed real estate agents fell into this out-of-favor category.

But don’t worry, be happy. The IRS has come to the rescue by regulating the draconian reputation and/or skill provision down to almost nothing. The reputation and/or skill out-of-favor specified service business includes you if you

  • receive fees, compensation, or other income for endorsing products or services;
  • license or receive fees, compensation, or other income for the use of your image, likeness, name, signature, voice, trademark, or any other symbols associated with your identity; or
  • receive fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

Example. Harry is a well-known chef and the sole owner of multiple restaurants, each of which is a single-member LLC—disregarded tax entities that are taxed as proprietorships. Due to Harry’s skill and reputation as a chef, he receives an endorsement fee of $500,000 for the use of his name on a line of cooking utensils and cookware.

Results. Harry’s restaurant business is not an out-of-favor business, but his endorsement fee is an out-of-favor specified service business.

If you have questions about how the law will treat your business income for the new Section 199A 20 percent tax deduction, please give us a call, and we’ll examine your situation.

Does Your Rental Qualify for a 199A Deduction?

The IRS, in its new proposed Section 199A regulations, defines when a rental property qualifies for the 20 percent tax deduction under new tax code Section 199A.

One part of the good news on this clarification is that it does not require that we learn any new regulations or rules. Existing rules govern. The existing rules require that you know when your rental is a tax law–defined rental business and when it is not. For the new 20 percent tax deduction under Section 199A, you want rentals that the tax law deems businesses.

You may find the idea of a rental property as a business strange because you report the rental on Schedule E of your Form 1040. But you will be happy to know that Schedule E rentals are often businesses for purposes of not only the Section 199A tax deduction but also additional tax code sections, giving you even juicier tax benefits.

Under the proposed regulations, you have two ways for the IRS to treat your rental activity as a business for the Section 199A deduction:

  1. The rental property qualifies as a trade or business under tax code Section 162.
  2. You rent the property to a “commonly controlled” trade or business.

Your rental qualifying as a Section 162 trade or business gets you other important tax benefits:

  • Tax-favored Section 1231 treatment
  • Business use of an office in your home (and, if it’s treated as a principal office, related business deductions for traveling to and from your rental properties)
  • Business (versus investment) treatment of meetings, seminars, and conventions

If your rental activity doesn’t qualify as a Section 162 trade or business, it will qualify for the 20 percent Section 199A tax deduction if you rent it to a commonly controlled trade or business.

How to Find Your Section 199A Deduction with Multiple Businesses

If at all possible, you want to qualify for the 20 percent tax deduction offered by new tax code Section 199A to proprietorships, partnerships, and S corporations (pass-through entities).

Basic Rules—Below the Threshold

If your taxable income is equal to or below the threshold of $315,000 (married, filing jointly) or $157,500 (single), follow the three steps below to determine your Section 199A tax deduction with multiple businesses or activities.

Step 1. Determine your qualified business income 20 percent deduction amount for each trade or business separately.

Step 2. Add together the amounts from Step 1, and also add 20 percent of

  • real estate investment trust (REIT) dividends and
  • qualified publicly traded partnership income.

This is your “combined qualified business income amount.”

Step 3. Your Section 199A deduction is the lesser of

  • your combined qualified business income amount or
  • 20 percent of your taxable income (after subtracting net capital gains).

Above the Threshold—Aggregation Not Elected

If you do not elect aggregation and you have taxable income above $207,500 (or $415,000 on a joint return), you apply the following additions to the above rules:

  • If you have an out-of-favor specified service business, its qualified business income amount is $0 because you are above the taxable income threshold.
  • For your in-favor businesses, you apply the wage and qualified property limitation on a business-by-business basis to determine your qualified business income amount.

The wage and property limitations work like this: for each business, you find the lesser of

  1. 20 percent of the qualified business income for that business, or
  2. the greater of (a) 50 percent of the W-2 wages with respect to that business or (b) the sum of 25 percent of W-2 wages with respect to that business plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property with respect to that business.

If You Are in the Phase-In/Phase-Out Zone

If you have taxable income between $157,500 and $207,500 (or $315,000 and $415,000 joint), then apply the phase-in protocol.

If You Have Losses

If one of your businesses has negative qualified business income (a loss) in a tax year, then you allocate that negative qualified business income pro rata to the other businesses with positive qualified business income. You allocate the loss only. You do not allocate wages and property amounts from the business with the loss to the other trades or businesses.

If your overall qualified business income for the tax year is negative, your Section 199A deduction is zero for the year. In this situation, you carry forward the negative amount to the next tax year.

Aggregation of Businesses—Qualification

The Section 199A regulations allow you to aggregate businesses so that you have only one Section 199A calculation using the combined qualified business income, wage, and qualified property amounts.

To aggregate businesses for Section 199A purposes, you must show that

  • you or a group of people, directly or indirectly, owns 50 percent or more of each business for a majority of the taxable year;
  • you report all items attributable to each business on returns with the same taxable year, not considering short taxable years;
  • none of the businesses to be aggregated is an out-of-favor, specified service business; and
  • your businesses satisfy at least two of the following three factors based on the facts and circumstances:
  1. The businesses provide products and services that are the same or are customarily offered together.
  2. The businesses share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources.
  3. The businesses operate in coordination with or in reliance upon one or more of the businesses in the aggregated group (for example, supply chain interdependencies).

Help Employees Cover Medical Expenses with a QSEHRA

If you are a small employer (fewer than 50 employees), you should consider the qualified small-employer health reimbursement account (QSEHRA) as a good way to help your employees with their medical expenses.

If the QSEHRA is indeed going to be your plan of choice, then you have three good reasons to get that QSEHRA plan in place on or before October 2, 2018. First, this avoids penalties. Second, your employees will have the time they need to select health insurance. Third, you will have your plan in place on January 1, 2019, when you need it.

One very attractive aspect of the QSEHRA is that it can reimburse individually purchased insurance without your suffering the $100-a-day per-employee penalty. The second and perhaps most attractive aspect of the QSEHRA is that you know your costs per employee. The costs are fixed—by you.

Eligible employer. To be an eligible employer, you must have fewer than 50 eligible employees and not offer group health or a flexible spending arrangement to any employee. For the QSEHRA, group health includes excepted benefit plans such as vision and dental, so don’t offer them either.

Eligible employees. All employees are eligible employees, but the QSEHRA may exclude

  • employees who have not completed 90 days of service with you,
  • employees who have not attained age 25 before the beginning of the plan year,
  • part-time or seasonal employees,
  • employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and
  • employees who are non-resident aliens with no earned income from sources within the United States.

Dollar limits. Tax law indexes the dollar limits for inflation. The 2018 limits are $5,050 for self-only coverage and $10,250 for family coverage. For part-year coverage, you prorate the limit to reflect the number of months the QSEHRA covers the individual 

SPECIAL NEEDS TRUSTS: Pt. 3 – Pooled Trust Mistakes

Aside from the individually structured first and third party special needs trusts, a pooled SNT is a trust that is for multiple individuals with special needs. A pooled SNT is a trust that is established and managed by a non-profit organization. It is a trust that pools together all of the assets of the disabled individuals that have accounts through the trust, as well as assets acquired through outside donations, and makes distributions to the beneficiaries based on their individual shares of the trust’s assets. Pooled SNTs are a way to relieve family members of the job of being the trustee and allows professionals to handle the tedious responsibilities of being the trustee. Some important aspects that set apart pooled SNTs from first and third party SNTs are:

  • Pooled SNTs do not have any age limits;
  • The disabled person is able to be one of the grantors of the trust; and
  • Any excess funds at death are generally kept by the non-profit.

While there are many benefits of being a part of a pooled SNT, there are many mistakes to avoid when planning to join a pooled SNT. One of the first mistakes that people make when pursuing admission to a pooled SNT is not seeking legal advice on the issue. There are many different types of pooled SNT, and all vary from the type of care they give, to the ways they handle the trust’s assets. It is vital to have an experienced legal professional help plan which trust is best for the unique needs of the disabled person. Another mistake that family members of the disabled person’s family must avoid is failing to update their own estate planning documents. Failing to update your own estate plan to make the disabled person’s pooled SNT one of the beneficiaries of your will, trust, life insurance, or retirement accounts will cause an unnecessary delay in the beneficiary receiving the money.

One of the biggest mistakes that people in this situation make is failing to plan at all. While you are alive, you may be the primary caregiver as well as the trustee of a disabled person’s SNT, whether a first party SNT or a third party SNT. But, what will happen to their care and financial security after you pass? It is essential to have a seamless plan in place to allow the disabled person to continue receiving the necessary funds and care they need to live a comfortable life. A pooled trust may be the best tool for that plan, and may be worth pursuing.

A pooled SNT may be the best plan for preserving a disabled person’s assets and ensuring quality care. If a member of your family is disabled, and has not already set up an SNT, call Bill Hesch, attorney, CPA, and financial planner, to find out if a pooled SNT would be in their best interest, or to receive a second opinion on your existing SNT plan.

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.)

SPECIAL NEEDS TRUST MISTAKES: Pt. 2 – Third Party Trust Mistakes

A Third Party Special Needs Trust is created for the benefit of a disabled person, which ensures that the disabled person will have proper care. The Third Party SNT is funded with assets typically by family and friends of the disabled person. Unlike the First Party SNT, the property is never owned by the disabled person, and there is also no payback of Medicaid or any other government benefits. When properly planned, a Third Party SNT can provide greater flexibility than a First Party SNT, and can be a very useful mechanism for providing proper care for a person with special needs.

While every state has its own requirements for Special Needs Trusts, generally, Third Party SNTs are more flexible because there are no age requirements. They also do not have to be monitored by the Probate Court in the county of their residence, and may be either revocable or irrevocable. As long as there is careful planning and proper management, there is no repayment of any governmental funds, like Medicaid.

There are common mistakes that must be avoided to ensure that the Third Party SNT works properly and will not have adverse effects on the disabled person or trustee. One of the first mistakes is improperly transferring property into the trust that may disqualify government benefits or require the trust to payback the state funds. It is essential that the property in the trust is never owned by the disabled person, and he or she have no legal right to the property. Transferring property, including money, that can be traced back to the disabled person can be considered a “step-transfer,” and would result in Medicaid and other state funds to be repaid, which could cost thousands of dollars.

Another common mistake is making the primary caregiver the trustee. The trustee position for any SNT is a demanding job, and mistakes must be avoided. Caregivers already have plenty of responsibility looking after the person with special needs. Adding to the stressful job of being primary caregiver to the trustee of the SNT, may result in careless mistakes with the transfer of money to the disabled person. For example, a disabled person on SSI cannot receive money for rent, food, and clothing. Thus, the trustee must keep accurate records to document the purpose for each distribution to the disabled person, and avoid having to repay the government for an improper SSI distribution. Also, by having the trustee and caregiver roles assumed by different people, an important check and balance is put on the primary caregiver and trustee.

A third common mistake is having a disabled person as a beneficiary of a Crummey Trust. In a Crummey Trust, the beneficiary has Crummey Powers, which allow for a Grantor to gift property under the annual gift tax exclusion, and the beneficiary is given the right to withdraw the gift for 30 days. However, the beneficiary of a Third Party SNT should not be given such right since a disabled beneficiary of a Third Party SNT would possibly be required to repay the government benefits received by them, to the extent of the withdrawal power.

Third Party SNTs are very useful vehicles to help fund the care that a disabled person desperately needs. They are a flexible and efficient way to help the disabled person financially and keep their government benefits if drafted and managed properly. If you have a member of your family who has special needs, and want the ability to provide them with financial assistance without adversely affecting their governmental benefits, please contact Bill Hesch, attorney, CPA, and financial planner to get started, or for a second opinion.

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.)

 

SPECIAL NEEDS TRUST MISTAKES: Pt. 1 – First Party Mistakes

A First Party Special Needs Trust is set up for the benefit of a person with special needs, and is funded with the disabled person’s own property. Different rules apply when a Third Party SNT that is set up by family members for the benefit of the disabled person. Typically, a First Party SNT is used in two common scenarios: the disabled person receives a lawsuit settlement for damages, or when the disabled person inherits money or property from family, who did not set up a Third Party SNT.

When a disabled person owns property outright, the person may face difficulty receiving government benefits. This is where a First Party SNT comes in; it allows the disabled person to have access to their property, while the trust retains ownership of it, which improves the disabled person’s ability to receive government funding. When formed properly, the First Party SNT is a useful vehicle for ensuring proper care for a person with special needs.

Although every state has different rules that must be met when forming a First Party SNT, the requirements are generally:

  • The trust is irrevocable
  • The trust is set up by a parent or guardian in court
  • The beneficiary of the trust is under the age of 65
  • The assets in the trust must have been owned by the beneficiary
  • Benefits received through Medicaid must be repaid after the beneficiary passes away

Proper planning is essential to ensure that all of these requirements are met and that the First Party SNT operates effectively. If the First Party SNT is not formed properly, there may be several problematic issues that arise. One of the worst problems is the disabled person losing their governmental benefits, like SSI or Medicaid. This can result as a flaw in formation or in improper management by the trustee of the SNT. Proper planning is also essential to avoid issues with Medicaid repayment after the death of the beneficiary. When formed correctly, the assets of the trust will be used to repay the costs of Medicaid. However, if the trust is not formed or managed correctly, repayment can be an unnecessary burden on the beneficiary’s estate. Likewise, the trustee of the First Party SNT may face personal liability if the funds were not managed or accounted for properly. All of these consequences can be mistakes of poor planning and management of the First Party SNT.

If you or a member of your family has special needs and will be receiving money from a lawsuit for damages, or inheriting money from your family, who have not set up a Third Party SNT, please contact Bill Hesch, attorney, CPA and financial planner for a second opinion to avoid the common mistakes that are typically made, due to lack of proper planning.

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.)

IRS Releases New Form W-4 for 2018

With the new tax law, how much will you owe the IRS when you file your 2018 tax return next April?

Now that most of our clients have their 2017 taxes filed, it is time to start taking action regarding 2018 taxes. The Tax Cuts and Jobs Act or TCJA has an impact on just about every area of tax one can think of in 2018. These changes include increasing the standard deduction, removing the personal exemption, and changing the tax rates and brackets. The impact of these changes will affect both employees and business owners. The first effect you or your employees might notice is that some employees’ take-home pay may have increased due to the adjustment in IRS withholding tables. These larger paychecks are wonderful, but employees should be cautious. An increase in take-home pay might be deceiving because you may actually be under withholding your federal income taxes. If your pay is being under-withheld, it could be a big shock come tax time when you owe the IRS money next April. In order to avoid a surprise tax bill for the 2018 tax year, employees should update their W-4 form. To help individuals deal with 2018 withholding issues, the IRS has recently released a new W-4 Form for 2018 and a Withholding Calculator.

The W-4 form is how employees tell their employers how much money to withhold from their paychecks. All new hires after March 30th, 2018 are required to use the new 2018 W-4 form. However, current employees who have filled out older versions of the W-4 are not required to update their W-4. Even though current employees are not required to update their W-4s the IRS is encouraging all employees to review their withholdings for 2018. The IRS is worried people may have dated withholding calculations based on the previous tax law. In order for employees to better understand how much tax should be withheld from their paychecks for 2018, the IRS has released a new tool called the Withholding Calculator.

The IRS Withholding Calculator is intended to help employees make changes to their W-4 based on their specific financial situation. Having a copy of one’s completed 2017 taxes will help you navigate your way through the questions asked by the IRS Withholding Calculator. The information on your 2017 taxes will help you input accurate estimates for the 2018 tax year. After imputing all the data that the IRS Withholding Calculator requires, the calculator will output the information needed to update one’s W-4. Employers should encourage employees to use the IRS Withholding Calculator. ADP has put out a sample notice employers can provide to your employees informing them be aware of withholding changes and consider filling out a new W-4. (See sample notice below)

As an employee, making sure that you are having the right amount of money withheld from your paychecks is crucial to avoiding a tax bill next April. While the IRS is advising everyone to review their withholdings it is especially important for two-income families, people with two or more jobs at the same time, people who only work part of the year, people with children who claim credits such as the Child Tax Credit, people who itemized deductions in 2017, and people with high incomes and more complex tax returns. These groups of people are specifically affected by the changes in the tax law.

However, everyone should use the IRS Withholding Calculator to estimate their 2018 withholdings. This simple action will save you from a surprise tax bill next April. Contact your tax professional if you need help determining the amount that should be withheld from your paychecks in 2018.

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.)

IRS Withholding Calculator

https://apps.irs.gov/app/withholdingcalculator/

Example Notice to Employees

Re: 2018 Income Tax Withholding

Dear ____________:

You may have noticed lower federal income tax deductions and a corresponding increase in net pay in your recent paychecks.

The recent Tax Cuts and Jobs Act (TCJA) changed federal income tax rates and brackets, among other things, beginning in 2018. New IRS withholding tables were put into effect in late January.

The TCJA generally reduced federal income taxes for most people. However, depending on your specific tax situation, you might owe additional tax when you file your 2018 income tax return, even if you normally receive a tax refund from the IRS at year-end.

You may want to consider updating your withholding allowances at this time. The IRS recently released the 2018 Form W-4, (Employee’s Withholding Allowance Certificate), and related instructions, which you can find at www.irs.gov/W4.

The IRS also offers an online “W-4 Calculator,” at https://www.irs.gov/individuals/irs-withholding-calculator. This calculator may help you determine the correct number of withholding allowances to claim.

The IRS will not require all employees to file a new Form W-4 for 2018. However, for some people it may be advisable. The TCJA made many other changes that could affect your 2018 income taxes. For questions regarding your personal tax situation, talk with your tax advisor, or visit www.IRS.gov.

New End of Life Law

Medical/Physician’s Orders for Scope of Treatment

Kentucky and Indiana (Ohio Pending)

Did you know that in the last month of life over 50% of Americans go to the emergency room and that 50% to 75% of them get admitted? However, some people might not want to spend the last month of their lives in a hospital. Hospitalization is expensive and usually not considered an ideal place to die. You can avoid these unwanted end of life experiences through proper advance care planning.

The newest tool for advance care planning is medical or physician’s orders for scope of treatment. Nationally this new tool is being referred to as a POLST, which stands for Physician’s Orders for Life-Sustaining Treatment.  The National POLST Paradigm is an organization started in Oregon that helps push for the adoption of medical order documents across the country. Over 22 states have endorsed the POLST program, and 25 others are developing similar programs. Kentucky and Indiana are two such states. In Kentucky, these documents are known as MOST or Medical Orders for Scope of Treatment. In Indiana, they are known as POST or Physician Orders for Scope of Treatment. However, Ohio has not been successful in passing a POLST initiative. Ohio’s MOLST (Medical Orders for Life-Sustaining Treatment) bill has passed the Ohio Senate and has been referred to committee in the House. These documents go by a few different names depending on the state, but generally, they do the same thing.

POLST type documents are meant to encourage patients and their health care professionals to talk about what a patient wants at the end of life. The MOST document, unlike a living will, is a doctor’s orders. The fact that they are orders instead of a legal document leads to increased compliance by emergency medical personnel and hospital staff. Unlike a living will, MOST documents are filled out jointly by the patient and their physician. The purpose of this joint involvement is informed, shared decision-making between patients and healthcare professionals. The conversation involves the patient discussing his/her values, beliefs and goals for care, and the healthcare professional presents the patient’s diagnosis, prognosis, and treatment alternatives, including the benefits and burdens of life-sustaining treatment. Together they reach an informed decision about desired treatment, based on the patient’s values, beliefs, and goals for care.

However, MOST documents are not recommended for everyone. They are highly recommended for patients for whom their health care professionals would not be surprised if they were no longer living within a year. Patients should, however, have in place a living will and possibly a MOST document. The MOST document allows for a patient to dictate how they will spend their final days. The MOST document makes sure that everyone in the healthcare field knows exactly what the patient’s wishes are and that they follow those wishes.

Conversations about end of life planning are difficult. However, if you don’t have them it can be even more difficult for your family to figure out your wishes. Have these conversations with your family members and consider putting in place a living will and if necessary a medical order for treatment document. If you need help putting these documents into place or have any questions feel free to reach out to our office.

 

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.)

For more information on POLST visit:

http://polst.org/

ABLE Accounts

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

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.

 

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.)

Top 10 Year End Tax Planning Mistakes

#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.