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ESTATE, TRUST, GUARDIANSHIP

March 5, 2023 Deadline to Reduce 2022 Estate & Trust Income Taxes

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If you are the executor of an estate or the trustee of a trust, you should know that egregious high income tax rates apply to estates and trusts at very low levels of income.  In 2022, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $14,451 of income. That’s not very high.   For example, let’s say an estate has income of $214,451. The tax on the $200,000 (income in excess of the $14,451 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope!  Estates and trusts only pay tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%.  Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return.  This year’s deadline is March 5, 2023. 

Are there Other Factors to Consider?

Yes.  Frequently, the main purpose for a trust is not to save taxes, but rather control. If a beneficiary can’t manage money, is a spendthrift, gambler, drug addict or is mentally unstable, you may not want to distribute the funds. These Factors may outweigh the tax savings of distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

Guardian? Moving Mom?

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A Financial Guardian has a myriad of responsibilities to handle. If the ward’s living situation isn’t safe or suitable, the Guardian should pursue moving the individual to a home or facility which provides supervision, medical care and socialization.

The Guardian/POA must coordinate the relocation:

  • Moving  parent’s possessions to the new location
  • Inventory contents of home
  • Engage relocators to select furniture & possessions suitable for new smaller home
  • Monitor relocators who distribute remaining home contents to relatives or charity
  • Engaging certified real estate appraisers to determine value of home
  • Working with real estate agent to sell the home
  • Working with elder law attorneys to file Court motion for approval to sell home

The Guardian has additional responsibilities:

  • Locating assets of ward
  • Budgeting for the ward’s personal & health needs
  • Investing liquid assets
  • Maintaining real estate of ward
  • Review terms of traditional or reverse mortgages
  • Review and update of all insurance policies
  • Preparing court accountings
  • Handle tax matters

Our CPA firm assists Financial Guardians with the administrative, relocation and accounting requirements. Several members of our firm have taken care of their elderly parents. We have experienced the many trials and tribulations of providing for their medical needs and handling their financial affairs.

 

 

Guardian Accountings 101

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Does your parent need a Guardian?

If Dad becomes mentally incapacitated to the point where he should not be handling his own financial affairs, he may need a Guardian.  We work with many attorneys who specialize in Guardianships. They can apply to the Court to have a Financial Guardian appointed and a Personal Guardian also if necessary.

Guardian vs. Power of Attorney- What’s the Difference?

A Financial Guardian has a myriad of responsibilities to handle. In contrast to a Power of Attorney who has the right to handle many of these functions, the Guardian is Court-appointed and has the obligation to perform all these jobs.

Accounting Obligations of Guardian:

  • Locating assets of ward
  • Handling all tax matters
  • Preparing court accountings
  • Establishing budget for the ward’s personal and health needs
  • Investing liquid assets
  • Review and update of all insurance policies
  • Review of terms of any traditional or reverse mortgages
  • Maintaining real estate of ward

NJ Guardianship Accounting Requirements

In all States, the Guardian must file an annual report of the financial affairs of the incapacitated person. In NJ, many counties now require that the Guardian of the Estate report using Judiciary forms as to the financial affairs. There are two different periodic reporting forms:  the Periodic EZ Accounting form and the Periodic Comprehensive Accounting form.  The Comprehensive Form requires numerous attachments to substantiate the figures reported. The Judgement of Incapacity should specify which form you are required to file, as well as the deadline for filing.

Instead of filing a Judiciary form, it is possible that a Judgement may direct periodic filing of a formal court accounting. All of these types of accountings are complex. Urbach & Avraham can relieve you of this burden and prepare these accountings for you.

An accounting? No problem! After all, you kept all the bank statements and receipts for every expense. However, unfortunately, a formal accounting must be in a specific format strictly mandated by NJ Statutes in the Uniform Principal and Income Act. The following do not constitute a formal accounting:

• A stack of all the bank and brokerage statements
• Boxes, envelopes and binders of all receipts for all expenses paid
• The check register for the estate checking account
• The fiduciary income tax returns for the trust or estate (Form 1041) or the individual income tax returns (Form 1040)
• An Excel summary of all expenses paid
• A profit and loss summary from Quickbooks
• Mom’s medical records

Preparing a formal account can be an overwhelming process for a fiduciary. The starting point is a list of all assets for the first day of the account period. All receipts, disbursements, gains and losses from disposition of assets, transfers and distributions are detailed.
We can relieve your burden, take your crates of documents and convert them into a formal accounting. If there is a dispute about a specific asset or disbursement, we will add additional documentation to clarify, strengthen and justify our client’s position.

Working with Urbach & Avraham, CPAs is unique because we truly know what you’re going through. Several members of our firm have taken care of their elderly parents. We have experienced the many trials and tribulations of providing for their medical needs and handling their financial affairs. Please contact us to see how our CPA firm can assist you.

 

 

 

 

Preserve Family Wealth with Portability

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Extension of Time to Elect Portability of the DSUE

and Preserve Family Wealth

In 2011, the IRS introduced the concept of portability of the estate tax exemption from a deceased spouse to a surviving spouse. Currently, with the federal estate tax exemption at $12 million, a married couple can transfer up to $24 million to heirs without a federal estate tax. One of the tools enabling this large tax-free transfer is electing the DSUE, the “Deceased Spouse Unused Exclusion.”

What is Portability and How to Obtain it?

Portability occurs when a surviving spouse files a US Form 706, Gross Estate Tax Return, for the sole purpose of calculating and capturing any unused estate tax exemption from the estate of the first spouse. Completing a Form 706 to make the DSUE election is no easy task.

Why should one elect Portability/DSUE?

If the surviving spouse has an estate worth much lower than the current $12 million estate exemption, why file for the DSUE?

  1. Congress may reduce the estate tax exemption to 5 or 3.5 million
  2. The estate of the surviving spouse may appreciate substantially if there are businesses and/or real estate
  3. A young healthy spouse has many years to accumulate more wealth and have a potential taxable estate
  4. The surviving spouse may inherit from other relatives

When must one file to elect Portability/DSUE?

Good news! This year the IRS extended the time to file for the DSUE election to on or before the fifth anniversary of the decedent’s death.

Conclusion

With the current federal tax exemption so high, spouses should take advantage and claim any unused estate tax exemption after the death of the first spouse. Given the factors mentioned above, even smaller estates should consider filing for portability.

File now for your NJ ANCHOR Property Tax Rebate

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Be Thankful for the NJ ANCHOR Property Tax Rebate

New Jersey recently launched the ANCHOR program to help homeowners and renters save on property taxes. It is an expansion of the Homestead Benefit Program. ANCHOR stands for Affordable NJ Communities for Homeowners and Renters. The current year ANCHOR program covers 2019.

Who is eligible for the 2019 Anchor program?

  • Homeowners with income of $150,000 or less will receive $1,500
  • Homeowners with income over $150,000 and up to $250,000 will receive $1,000
  • Renters with income of $150,000 or less will receive $450

You are considered a homeowner if you owned a house or condominium on Oct. 1, 2019 and paid property taxes. You are a renter if on Oct. 1, 2019 you rented an apartment, condominium or house.
How do I apply?
Homeowners need an ANCHOR ID and PIN to apply online on the NJ Division of Taxation website or by phone at 877-658-2972. Informational mailers with the ID and PIN numbers were sent the first week of Oct. 2022. If you didn’t receive the form, call the ANCHOR hotline at 888-238-1233. If you applied for the Homestead Rebate last year, you can get your ID and PIN online at ANCHOR ID and PIN .
Tenants can and should apply online at Tenant Online Filing. Tenants do not have an ID and PIN.
Owned a home in 2019 but recently moved?
If you did not receive a mailer, access the online ID and PIN Inquiry System   to retrieve your ID and PIN. Or call the ANCHOR hotline.

Paper applications
Some homeowners must file paper ANCHOR applications. They include:

  • You shared ownership of your home with someone who was not your spouse
  • You are a widow(er) and the deed lists both your name and the name of the deceased spouse
  • You are the executor filing on behalf of a deceased homeowner
  • You are filing for property held in trust
  • You are divorced- you should report your percentage of ownership

When will I receive the ANCHOR payment?
Payments will be sent out in late Spring 2023. ANCHOR payments will be paid in the form of a direct deposit or check, not as a credit to your property tax bill.
When is the ANCHOR application deadline?
The initial deadline was December 30, 2022. The new extended deadline is Jan. 31, 2023!
Eligible homeowners and tenants should file as soon as possible to anchor in their 2019 rebate. You’ll be happy when the rebate floats into your bank account in the Spring of 2023.

 

 

Unfiled tax returns?

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“Better late than never” applies when it comes to filing income tax returns.

Here’s what you should know. 

Maybe you didn‘t get your 1040 done in time in a previous year and figured you couldn’t still file your income taxes. Or you thought you owed money that you didn’t have. The IRS knows that people file late sometimes, and it has systems in place to deal with that.

It’s absolutely critical that you file every year, for a variety of very good reasons. Failure to file means that you might:

  • Incur interest and penalties.
  • Lose a refund (you can claim a refund for up to three years after the return due date).
  • Reduce your Social Security benefits. If you’re self-employed and don’t file, you will not be credited for income that year.
  • May not qualify for credit and lending opportunities.
  • Certain professional licenses (CPA, legal) may be revoked in some states.
  • May be prohibited from serving in public office

Extenuating circumstances? Don’t Panic!

Were you or a family member extremely ill or disabled? Did you suffer severe hardships due to natural disasters? If you didn’t file because of hardships, we at Urbach & Avraham, CPAs can assist you in requesting an abatement from the IRS of penalties imposed due to the late filing.

File It ASAP

As soon as you realize you have a past-due tax return, you should prepare and file it.

If you can’t pay what you owe when you file, you can ask for an additional 60-120 days to fulfill your financial obligation. If that’s not enough time and/or you’re going to need to pay in installments, you can apply for an IRS Payment Plan.

What If You Don’t File?

The IRS may file a substitute return for you. If this happens, you may not get all of the deductions and credits that you should. We advise you to still file a tax return that includes everything, even if the IRS already prepared a substitute return. The IRS usually adjusts the return they created to reflect credits, deductions, and exemptions when they’re made aware of them.

The IRS will notify you if they file a substitute return. If you don’t’ file or submit a petition to Tax Court, the IRS will proceed with its proposed assessment, which will trigger a tax bill. Failure to pay it will result in your account going into the collection process. This can include the filing of a federal tax lien or a levy on your bank account or wages. If you continue to ignore the bill, you may be subject to additional penalties and/or criminal prosecution.

If prior year information is required, we can assist you in obtaining IRS transcripts. These transcripts provide all sources of payors of wages, interest, dividends, pensions and proceeds from sale of securities and real estate.

On Your Mark, Get Set, File!

Any correspondence from the IRS can create anxiety, as can realizing you missed a tax deadline. At Urbach & Avraham, CPAS, we encourage you to contact us if you’re concerned about a return you didn’t file. We can help you understand what your options are and how to proceed. We can assist you in abating penalties and obtaining IRS Transcripts if necessary. We can also help with tax planning throughout the year, so you don’t have to deal with a past-due return again.