Importance of Senior Tax Deduction Returns in 2021

A tax break for seniors that all but disappeared last year has resurface this year. This tax break benefits retirees in their 70s and up. These tax breaks are qualified charitable distributions (QCD), "which allow individual retirement account holders to divert some of their federally taxable required distributions to charity." The deductions allow IRA holders to make donations and reduce their federally taxable income. 

The pandemic limited the effectiveness of this deduction last year.  The Cares Act effectively cancelled required minimum distributions (RMDs).  Even though you could still use QCDs, their effectiveness was almost completely eliminated due to the cancellation of RMD requirements in 2020:  those who didn't want the taxable income could simply forego the RMD, and thus, there was no need to take take advantage of the QCD.

Now, retirees can take advantage of these contributions. However, if considering QCDs, you should consult with your financial or tax  advisor to discuss the best way to take advantage of these contributions, or possibly to stay away from them.  There are limitations and possible pitfalls. 

For more information, go here.

Source: Allan Sloan, "A tax break for retirees is back. Here’s how to use it — and what to avoid," Washington Post, March 18, 2021. 

Family Conflict is Biggest Threat to Your Estate Plan

For the second consecutive year, family conflict is considered by professionals as the leading threat to estate planning. The three greatest threats to estate planning are family conflict, market volatility, and tax reform.  These conclusions represent the consensus of estate planning experts, at least according to a recent survey conducted by TD Wealth.

The survey included 105 respondents who attended the 53rd Annual Heckerling Institute on Estate Planning in January, including attorneys, trust officers, accountants, charitable giving professionals, insurance advisers, elder law specialists, wealth management professionals, educators and nonprofit advisers.  Nearly half of these estate planning experts identified family conflict as the biggest threat to estate planning in 2019. 

The survey explored the various causes of family conflict when engaging in estate planning, citing the designation of beneficiaries as the most common cause of conflict. Other leading factors included not communicating the plan with family members and working with blended families.

“Family dynamics have always played a critical role in estate planning. As we start to see more blended families, we expect these conversations to become even more prevalent and challenging,” said Ray Radigan, head of private trust at TD Wealth . “Estate planning comes with the responsibility of motivating families to communicate through difficult times, which requires regular dialogue and complete transparency. To minimize risk, we encourage families to invite everyone to the table to participate in open and honest conversation about their shared goals and objectives.”

Fortunately for Ohio residents, recent law changes make arbitration clauses in trusts more powerful, discouraging expensive and protracted contests.  Moreover, when combined with in terrorem ("no contest") clauses, a trust can be a powerful tool to eliminate the cost and expense of what may be unavoidable family conflict and disagreement.     

Market volatility was also identified  as a threat by respondents in 2019, with nearly a quarter of respondents identifying volatile markets as the biggest threat to estate planning this year. This was up from 12% in 2018.  According to Radigan, this is not surprising because many clients view lifetime gifting as an important component to their estate plan.

“These gifts, however, should only be made if enough assets are retained to provide support during retirement years,” Radigan said in a statement. “While market fluctuations are certainly worth watching and can cause concern for potential gift givers, we encourage our clients to keep a long-term view when investing and remember that short-term market movements are no match for a robust estate plan and a well-balanced portfolio.”

The sweeping tax overhaul enacted in 2017 is making a broad impact on estate planning, according to the survey.  Following the increase in the federal gift and estate tax exemption, estate planners are introducing various strategies to allow clients to take advantage of the exemption. About one-third of respondents propose clients consider creating trusts to protect assets, while 26% suggest clients plan to minimize future capital gains tax consequences and 21% agree to gift now while the exemption is high.

“Estate planners are now emphasizing the importance of creating trusts for the benefit of their loved ones so that assets can be protected from future claims,” Radigan said in a statement. “For example, rather than provide a child with an outright gift or bequest, many parents are creating trusts as a means of protecting assets from future divorce claims. Additionally, these trusts can be used to ultimately protect loved ones from themselves or other loved ones.”

Additionally, 40 percent of planners believe clients will continue to give the same amount to charities as they did in 2018, and 21 percent expect clients to donate more.  That is good news for charities, and welcome news to those who might be considering charitable giving since it means a consensus of planners agree that charitable giving can accomplish at least one objective in  an estate plan.  

Art Collector's Estate Claims Attorney's Drafting Error Cost It $25 Million

The estate of a prominent art collector has sued the attorney who drafted the art collector's will for legal malpractice. The lawsuit, filed in the New York Supreme Court, claims the attorney's error will cost the estate $25 million in taxes.

Collector Robert Ellsworth, whom The New York Times once called “the king of Ming” for his renowned collection of Asian art, hired attorney George Bischof to draft his will. In 2010, Bischof drafted a will that left Ellsworth's estate outright to his friend, Masahiro Hashiguchi, with six charities as contingent beneficiaries. In 2013, Ellsworth changed his will to name Bischof as the sole trustee of a residuary trust. Under the new will, the residue of the estate was left to a discretionary trust that benefited Hashiguchi during his life and then the remainder of the trust was left to charity.

The lawsuit alleges that Bischof drafted the will in a manner that did not allow the trust to qualify as a charitable remainder trust and therefore meet the criteria for the federal estate tax charitable deduction. According to the lawsuit, because of the "negligently and carelessly" drafted trust, the estate will have to pay $25 million in estate taxes that it wouldn't have had to pay if the trust had been properly drafted.

For more about this case from artnet, click here. 

Salvation Army: Partners in Caring

I just received my annual "thanks" for supporting the Salvation Army.

Your compassionate support is providing struggling families with food, clothing, shelter and much-needed hope. Thank you!

You are having a tremendous impact in our community! Through your concern and generous support of The Salvation Army, you are reaching out to our neighbors in greatest need.

Thanks to you, hungry children are being fed. Families are finding safe shelter. And people in crisis are being helped back on their feet.

This past year you have helped us reach out with:

• Food services for the hungry

• Nights of safe shelter

• Disaster Emergency help for families in need

• Clothing and furniture distributions for the less fortunate

• Counseling and spiritual direction for lost souls.

And so much more, more than we can count. Thank you so much!

Of course, no thanks is necessary.  I have witnessed first hand the difference this fine organization makes, and have  testimony in abundance from clients and friends recounting the beneficial efforts of the Army of volunteers.

It strikes me though, that I never see slickly produced commercials by the Salvation Army tugging at my heart-strings, asking me to adopt a child, a pet, a family, or a community.  I can recall no television or radio advertisement with the haunting voice of a popular singer rising and falling as a voice-over urges me to donate and "donate now."

I cannot recall the Salavation Army paying to sponsor a sports event,  professional sports franchise, concert, or music festival as have so many other charities.  Yet the Army continues to wage war against poverty, hunger, homelessness, substance addiction, and to fill physical, and spiritual needs.

My wife and I have numbered as amazing clients three who owe their very lives to the Salvation Army.  One family recounted to us how, following WWII, their entire family and community in Eastern Europe were dispossessed of home, property, and wealth- for being German.  Despite that these families had no ties or connection to Germany for five generations before the war, Germanic names were despised after the war. The fact that the patriarch of the family had died fighting Nazi Germany alongside the rest of the free world saved these families for a time, but the service was soon forgotten and they were made refugees. But, there were no aid programs, and traditional charities refused to help.  The Salvation Army, however, came to the rescue.  The family recounted an eerie and ironic journey by train during which Jewish refugees and Christian refugees shared the similarities of their plight as they were rescued from Eastern Europe, some to ultimately reside in Akron, Ohio.

The family serves the Army to this day.

A Dutch family described a. similar situation in a more recent time.  Political upheaval in Central America stranded their father.  The company for whom he worked maintained kidnapping insurance, and often retained experts to rescue kidnapped employees, but because their father was not kidnapped, they simply abandoned him.  Working through local churches in the region, the Salvation Army was able to rescue those otherwise trapped and abandoned.

The Salvation Army does amazing work.   

You can help.  Consider a donation here.