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

January 16, 2023 by Pamela Avraham

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 $13,451 of income. That’s not very high.   For example, let’s say an estate has income of $213,451. The tax on the $200,000 (income in excess of the $13,451 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.

Filed Under: Estate Taxes, ESTATE, TRUST, GUARDIANSHIP, Income Taxes, Uncategorized Tagged With: 65-day rule, Estate income taxes, Fiduciary income tax, Trust income taxes

ABCs of 2022 RMDs

December 9, 2022 by Pamela Avraham

Perplexed? Need to take an RMD in 2022? 

Over age 72? – The age for withdrawing from retirement accounts was increased in 2020 from 70.5 to 72. Your first RMD (required minimum distribution) must be taken by April 1 of the year following the year in which you turn 72. After that, your RMDs must be taken by Dec. 31 of each year. However, if you became 72 in 2022, you may want to withdraw the first RMD in 2022. This will avoid having two RMDs in 2023 and bunching income into higher tax brackets. 

Beneficiary of an IRA account?- An individual non-spouse beneficiary must begin taking RMDs on the basis of his/her own life expectancy by Dec.31 of the year after the owner’s death. If the original account owner passed away in 2022 prior to taking this year’s RMD, it still must be withdrawn. The responsibility for taking the year-of-death RMD falls to the beneficiary.

Although the RMDs are calculated based on the beneficiary’s life expectancy, if the original account owner died after Jan. 1, 2020, you need to fully distribute the account within ten years from the owner’s date of death. In year ten, the balance of the account must be distributed. 

If an estate is the beneficiary of an IRA, and the account owner reached age 72, the distributions would be based on the remaining single life expectancy of the IRA owner. If the original account owner passed away in 2022 prior to taking this year’s RMD, the estate must withdraw it by the end of the year. If the owner was younger than 72, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required. 

Want to save taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2022 For IRA owners with charitable intentions, there is a huge tax benefit using a QCD. The owner contributes all or part of his RMD to charity. The portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 72. A QCD may only be made by an original account owner, not by a beneficiary. 

What happens if I don’t take the RMD in 2022? If an account owner fails to withdraw a RMD, the amount not withdrawn is taxed at 50%. 

Still perplexed? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

 

Filed Under: TAX TIPS FOR INDIVIDUALS, Uncategorized Tagged With: Qualified Charitable Deductions, Required Minimum Distributions, RMDs

Guardian? Moving Mom?

November 24, 2022 by Pamela Avraham

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.

 

 

Filed Under: Elder Care, ESTATE, TRUST, GUARDIANSHIP, Guardianships, Uncategorized Tagged With: Elder care, Guardianships, Guardianships real estate, Power of Attorney

Preserve Family Wealth with Portability

November 20, 2022 by Pamela Avraham

 

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.

Filed Under: Estate Taxes, ESTATE, TRUST, GUARDIANSHIP, TAX TIPS FOR INDIVIDUALS, Uncategorized Tagged With: Estate Taxes, Executor Duties

File now for your NJ ANCHOR Property Tax Rebate

November 6, 2022 by Pamela Avraham

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 Feb. 28, 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.

 

 

Filed Under: ESTATE, TRUST, GUARDIANSHIP, Income Taxes, TAX TIPS FOR INDIVIDUALS, Uncategorized Tagged With: NJ Income Taxes, NJ Property Tax Rebate

Seminar Invite: How to Preserve Assets in Nursing Home Situation or Long Term Care Situation

June 12, 2019 by Pamela Avraham

Urbach Avraham, CPAs

INVITES YOU TO A
Complimentary Seminar on “How to Preserve Assets
When Faced with a Nursing Home or Other Long-Term Care Situation”

 

Tuesday, July 9, 2019 from 8:00 a.m. to 9:45 a.m.
At 1581 Route 27, Suite 201, Edison, NJ 08817

As a service to our clients, we are pleased to host guest speaker,

Michael K. Feinberg, Esq. of Greenbaum, Rowe, Smith & Davis

Michael will discuss:

• How to preserve assets
• Can we keep our house? Our IRA accounts?
• Debunking the many myths about Medicaid

Michael Feinberg is a partner at Greenbaum, Rowe, Smith & Davis, LLP in Woodbridge, NJ. He is the current Co-Chair of the Elder Law Section of the Middlesex County Bar and is listed in NJ Super Lawyers in the Estate Planning and Probate Practice area. Michael concentrates in tax, estate planning, estate administration, elder law and tax controversies. Mr. Feinberg is a frequent lecturer on, and author of, various estate planning and elder law topics. He specializes in planning for incapacity and the availability of government benefits, while maximizing asset preservation.

Please RSVP to Pamela at  mailto:pma@ua-cpas.com

Bagel breakfast will be served!

Filed Under: Elder Care, ESTATE, TRUST, GUARDIANSHIP, TAX TIPS FOR INDIVIDUALS, Uncategorized Tagged With: Medicaid Planning

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