FLORIDA ESTATE PLANNING AND PROBATE LAW BLOG

Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

IRS REGULATIONS PROTECT LARGE GIFTS TODAY EVEN IF GIFT TAX EXEMPTION DECREASES LATER

On November 20, 2018, the IRS announced that individuals taking advantage of the 2018 through 2025 increased gift and estate tax exclusion amounts will not be adversely impacted if, after 2025, the exclusion amount reverts to pre-2018 levels. The Treasury Department and the IRS issued proposed regulations which implement this announcement so that individuals planning to make large gifts between 2018 and 2025 can do so without concern. To learn more please contact me directly.

THE CLOCK IS TICKING TO FINALIZE YOUR DIVORCE BEFORE JAN. 1, 2019

The Tax Cuts and Jobs Act of 2017 (the “Act”) that went into effect on January 1, 2018, made important changes to existing tax laws. In the family law area, the Act eliminated the ability to deduct alimony payments made pursuant to divorces that are finalized after December 31, 2018. Under current tax law, alimony is tax deductible by the payor and taxable to the payee. This means that if you are the person paying alimony, then you get a deduction for the amount you paid. However, for divorces finalized on or after January 1, 2019, all alimony payments will be tax-neutral (non-deductible by the payor and no longer income to the recipient). The new tax law only impacts alimony payments that are required under divorce or separation instruments that are: (1) executed after December 31, 2018 or (2) modified after that date if the modification specifically states that the TCJA tax treatment of alimony payments (not deductible by the payer and not taxable income for the recipient) now applies. The reclassification of alimony payments is expected to make settlements more difficult as the higher-earning spouse will have more income taxes to pay and fewer funds with which to settle the case.

INTERNAL REVENUE SERVICE DOLLAR LIMITATIONS FOR RETIREMENT PLANS AND OTHER BENEFITS FOR 2019

The Internal Revenue Service dollar limitations for retirement plans and other benefits for 2019. 401(k)/403(b) Contributions $19,000 457(b) Limit $19,000 Catch-up Contributions $6,000 SIMPLE Contributions $13,000 SIMPLE Catch-up Contributions $3,000 Compensation Limit $280,000 Highly Compensated Employees $125,000 Key Employee Officer Compensation $180,000 Maximum Annual Benefit Defined Benefit Plan $225,000 Maximum Annual Contribution Defined Contribution Plan $56,000 ESOP Limits Dollar limit for determining lengthening of 5-year period $225,000 Dollar amount for determining max. amount subject to 5-year distribution $1,130,000 FICA Wage Base $132,900

US RESIDENTS WITH IRS TAX DELINQUENCIES BEWARE

The Internal Revenue Service (“IRS”) has a new collection tool for taxpayers with serious delinquent tax deficiencies and it was created under § 7345 of the Internal Revenue Code. The tax section authorizes the IRS to certify to the State Department individuals who have serious delinquent tax debt. Receipt of the certification allows the State Department to deny or revoke the individual’s passport or limit it to permit only a return travel to the U.S. For purposes of enforcement, a “seriously delinquent tax debt” is defined as a tax liability (tax, penalty and interest) of an individual which meets all the following requirements: (i) the tax liability has been assessed; (ii) the liability is greater than $51,000; and (iii) a levy was issued or a notice of lien has been filed and the taxpayer has either exhausted its administrative rights or failed to timely exercise those rights. An individual will not be classified a seriously delinquent taxpayer if: (i) the taxpayer is paying the liability in installment payments approved by the IRS; (ii) the liability is being paid through an offer in compromise; or (iii) collection of the debt has been suspended under certain circumstances such as innocent spouse relief. In addition, in its discretion, the IRS may not certify an individual as a seriously delinquent taxpayer where: (i) the liability is uncollectible due to hardship; (ii) the liability results from identity theft; (iii) the taxpayer is in bankruptcy; or (iv) they are serving in a combat zone or participating in a contingency operation. The IRS may reverse a certification if: (i) all certified tax modules are fully paid; (ii) the tax becomes legally unenforceable; (iii) the tax debt falls under one of the statutory exclusions; or (iv) an adjustment reduces the tax debt below $51,000. To invoke the certification process the IRS must send a notice of certification to the taxpayer contemporaneous with sending the notice to the State Department. Upon receiving this notification, the taxpayer has a right to challenge the certification.

NEW DEPARTMENT OF VETERANS AFFAIRS (VA) RULES FOR NEEDS-BASED BENEFITS

On October 18, 2018, over three (3) years after the Department of Veterans Affairs (“VA”) originally proposed them, new regulations to qualify for needs based benefits go into effect. The new regulations contain “net worth” limitations, look-back periods, penalties and definitions for those applying for benefits. The new regulations are a substantial change from current regulations which do not contain a prohibition on transferring assets prior to applying for benefits. Net Worth Limitations: An eligible applicant must have a net worth equal to or less than the prevailing maximum community spouse resource allowance (CSRA) for Medicaid ($123,600 in 2018). The term “net worth” amount includes both the applicant's assets and income and will increase annually at the same percentage as Social Security. The veteran's primary residence (even if the veteran lives in a nursing home) and the veteran's personal effects will not be considered assets under the new regulations. However, if the veteran's residence is sold, the proceeds will be considered assets unless a new residence is purchased within the same calendar year. Look-Back Period and Penalty: The regulations establish a thirty-six (36) month look-back period, beginning on the date on which the VA receives either an original or new pension claim after a period of non-entitlement, for the transfer of assets. The regulations include five (5) year penalty period for assets transferred at less than market value to qualify for a VA pension. There are exceptions for transfers made as the result of fraud, misrepresentation or to a trust for a child who is not able to support themselves. Deductible Medical Expense: The regulations define what the VA considers to be a deductible medical expense for all of its needs-based benefits. The definition includes: payments for items or services that are medically necessary; that improve a disabled individual's functioning; or that prevent, slow, or ease an individual's functional decline. This includes care by a health care provider, medications and medical equipment, adaptive equipment, transportation expenses, health insurance premiums, products to help quit smoking, and institutional forms of care.

REVERSE MORTGAGE ISSUES OF CONCERN

CASE OF INTEREST FROM GEORGIA - Estate of Caldwell Jones, Jr. v. Live Well Financial (11th Cir., No. 17-14677, Sept. 5, 2018): A Federal Court of Appeal has ruled that federal law does not prevent an insurer from foreclosing on a reverse mortgage after the death of the borrower even though their widow still resides in the residence. In 2014, the decedent, who was married at the time, obtained a reverse mortgage on their Georgia home. The contract defined the "borrower" to be the decedent, a married man. After the borrower's death, the insurer asserted a right to immediate repayment of the mortgage. When the surviving spouse did not repay the loan, the insurer initiated foreclosure proceedings. The widow then filed a claim in federal court to prevent the foreclosure, arguing that federal law prohibited the insurer from foreclosing on the house while she lived in it. Under a provision in federal law, the federal government "may not insure" a reverse mortgage unless the "homeowner" does not have to repay the loan until the homeowner either dies or sells the mortgaged property and defines "homeowner" to include the borrower’s spouse. The district court granted the insurer's motion to dismiss and the matter was appealed. The U.S. Court of Appeals, Eleventh Circuit, affirmed and held that the federal law in question only covers what the federal government can insure and does not govern the insurer's right to foreclose. Learn more by contacting Marc J. Soss, Esquire.

IRS APPROVES STUDENT LOAN DEBT REPAYMENT FROM 401(K) PLANS

On August 17, 2018, at the request of a 401(k) plan sponsor, the IRS issued a private letter ruling 201833012 (the “Ruling”). The Ruling was requested with the intent of assisting individuals, currently around forty-four (44) million Americans with student loan debt of more than $1.3 trillion dollars. The Ruling provides a method for employers, under certain circumstances, to provide a student loan repayment benefit as part of their 401(k) plans and link the amount of employer contributions made on an employee’s behalf to the amount of student loan repayments made by the employee outside the plan. The Ruling permits an employer to make a non-elective contribution to its 401(k) plan, where the amount of the non-elective contribution would be based on an employee’s total student loan repayments and would be contributed to the plan in lieu of the matching contributions that would otherwise be made to the plan had the employee made pre-tax, Roth 401(k) and/or after-tax contributions. Key features of the Ruling include: (i) voluntary participation in the student loan repayment benefit program and ability to opt out, subject to plan restrictions; (ii) the student loan repayment benefit will replace the employer matching contribution; (iii) the repayment benefit is subject to coverage and nondiscrimination testing; and (iv) is predicated on the plan sponsor not extending any student loans to employees that will be eligible for the program. The student loan repayment non-elective contributions will be subject to the same vesting schedule as regular employer matching contributions and subject to all applicable plan qualification requirements, including eligibility, vesting, and distribution rules, contribution limits, and coverage and nondiscrimination testing. However, the student loan repayment non-elective contribution will not be treated as a matching contribution for purposes of any testing.

2019 HEALTH SAVINGS ACCOUNT LIMITS

On May 10, 2018, the IRS released Revenue Procedure 2018-30 which sets forth the dollar limitations for health savings accounts (HSAs) in 2019. HSAs are subject to annual aggregate contribution limits and participants age fifty-five (55) or older can contribute additional catch-up contributions. In 2019, the maximum contribution amount will increase to $3,500 for an individual and $7,000 for a family. The catch-up contribution limit remains at $1,000.

MEN THAT HAVE CHILDREN LATER IN LIFE ARE ELIGIBLE FOR AN EXTRA SOCIAL SECURITY BENEFIT?

Under existing social security rules, men that have children later in life (it would be gender discrimination but biologically women can’t currently conceive a child after age 60) are eligible for an extra Social Security benefit. Under the rule, when a man files for his social security benefits, each of his children under the age of 18 years is entitled to one-half (1/2) of what he would receive at full retirement age (even if he collects social security benefits early). Eligibility for the child benefit requires them to be: (i) under the age of 18 years; (ii) 18-19 years old if a full-time student (not higher than grade 12). For example, if a 62-year old man with a 10-year old child began collecting social security benefits immediately, not waiting till age 70 years, he would also receive one-half (1/2) of the maximum amount he would have received had he waited to collect at age 70 years, until his child reached the age of 18 years. At present, Donald Trump is receiving an extra $15,000 per year since his son is under age 18.

STATES POSTURING TO CHANGE THEIR ESTATE TAX EXEMPTIONS

Effective January 1, 2019, residents of the state of Maryland will see their state estate tax exemption increased from $4 million to $5 million. The law went into effect on April 5, 2018, and is not be indexed for inflation. The maximum Maryland estate tax rate of 16% remains unchanged and the inheritance tax is unaltered (dependent upon how closely related the decedent was to the people who inherit from him or her, not on the size of the estate). Legislation is pending in the District of Columbia, where the estate tax exemption currently matches the federal exemption amount of $11.18 million, to “decouple” from the federal exemption. The legislation proposes an exemption amount at $2,185,800, adjusted annually for inflation, for decedents dying on or after January 1, 2019.