Raleigh Estate Planning and Corporate Law Attorneys

Home | Blog

Tax Legislation in the Pipeline for Final Quarter of 2019

By

Congress recently reconvened after its August recess with several tax related items on its upcoming agenda. Both the House and Senate are slated to consider the following end-of-year proposed tax legislation:

Extenders

Congress often enacts temporary tax provisions, most of which are tax cuts. They are temporary in that Congress is forced to review them periodically for their effectiveness and impact on the economy and taxpayers.  There are over 30 of these types of bills that expired or will expire this year and need to be reviewed. These provisions are collectively known as the “tax extenders” because of the expectation that lawmakers will consider extending most or all of them.

Some of these include extending disaster tax relief,  the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the Child and Dependent Care Tax Credit (CDCTC) and possibly reversing the 2017 estate tax exemption so that it increases three years earlier than scheduled. 

Tax Extenders primarily fall in these four categories:

  • Tax Relief for Individuals
  • Green Energy Incentives
  • Employment and Economic Incentives
  • General Business Incentives

After “green energy” provisions, individual provisions represent the second largest component of the tax extenders, totaling nearly a third of the cost.

These provisions include relief for homeowners who obtain debt forgiveness on a home mortgage, a deduction for mortgage-insurance premiums and a provision that allows college students to deduct tuition and related expenses. They also include incentives for individual consumers to purchase energy efficient products for their home, as well as certain types of alternative vehicles.

General Business Incentives mostly determine when a business may utilize certain deductions and whether the costs are deductible in the first place. Most reward business and consumer investments in energy efficiency and production, as well as the use of alternative fuels. 

Also on the agenda for 2019 tax legislation is the Disaster Tax Relief Act of 2019. 

Disaster Relief

The Disaster Tax Relief Act of 2019 addresses relief for both individuals and businesses in certain designated federal disaster areas. The following provisions are included in the act:

Retirement Account Withdrawals – Qualified individuals may make early withdrawals from retirement accounts to help with expenses as they seek to rebuild their lives without incurring a 10-percent early withdrawal penalty. 

Charitable Deduction Increases- This provision temporarily  increases limits on qualified charitable contributions. Current tax law provides limitations on the ability of taxpayers to claim itemized deductions for the full value of their charitable contributions. Generally, qualified contributions are those that are paid in cash in 2019 to charitable organizations for relief efforts in qualified disaster areas.

Deducting Losses from Damages – Subject to certain limitations, a taxpayer may generally claim an itemized deduction for losses sustained during the year, not compensated by insurance or otherwise, attributable to a federally declared disaster.

In addition to helping disaster victims, the 2019 tax legislation proposals also want to help Americans save more for retirement.

Retirement Savings

To incentivize low- and moderate-income Americans to save more, the tax credit known as the Saver’s Credit provides a tax credit in the amount of money contributed to your IRA or ABLE accounts. There are income restrictions for this credit to apply. Keep in mind tax credits are not the same as deductions. A deduction lowers your tax bill by reducing your taxable income while a credit directly reduces your tax bill. The Saver’s Credit is worth up to $2,000 ($4,000 if filing jointly).

While encouraging saving for retirement, other 2019 tax legislation is looking at changing how the kiddie tax is calculated because some lawmakers think it may be too generous for taxpayers.

Kiddie Tax

The kiddie tax is a tax on a child’s unearned income, such as interest, dividends, and capital gains, not on the wages earned by minors. A child’s net earned income is taxed as normal. A child’s net unearned income that exceeds the unearned income threshold ($2,200 for 2019) is subject to the kiddie tax and is taxed at the rates that apply to trusts and estates. Policymakers designed the kiddie tax to prevent parents from passing their unearned income to their children to avoid paying higher tax rates.

Under the Tax Cuts and Jobs Act (TCJA), the method of calculating the kiddie tax may have reduced the amount owed more than lawmakers wanted so the House of Representatives is considering a bill that would revert the calculation of the kiddie tax to the method used before the TCJA.

There are several different legislative proposals to alter the treatment of a child’s unearned income, each with its own impact to consider. Finally, Congress must also address health care issues as part of the final quarter 2019 tax legislation.

“Cadillac Tax”

Recently-passed House bills include provisions repealing the “Cadillac tax” on high-cost employer-sponsored health coverage, which is one of the most controversial parts of the Affordable Care Act. It is not yet known whether the Senate will support the repeal of the Cadillac tax.

The Cadillac tax is a 40% tax on many employer-provided health insurance plans — specifically, those that cost more than $11,200 per year for an individual policy or $30,150 for family coverage . The Cadillac tax was supposed to take effect in 2018, but Congress has delayed implementation twice primarily because of the expectation that employers would cut benefits to avoid the tax. 

While both the House and Senate are motivated to finalize all of these, there are simply not enough days left in the legislative year for final resolutions to all proposed 2019 tax legislation. The Joint Committee on Taxation has also identified over 100 potential technical corrections that will need to be addressed and this is likely to cut into a significant portion of the time spent on overall tax legislation. 

For many taxpayers these late in the year changes lead to unpredictable tax bills. If you face tax debt and need legal assistance to determine your options for tax relief, contact Wilson Ratledge. Our experienced tax controversy attorneys in Raleigh can discuss options such as Offers in Compromise and Installment Agreements. There are many strategies involved in tax resolution. Let’s find a time to discuss your situation and determine which strategy will provide the best results for you.

Important FAQs About Special Needs Trusts

By

If you’re planning to leave property or money to a family member with a disability, careful planning is crucial. Without it, you may jeopardize your relative’s ability to get Medicaid, SSI, and other government benefits. By including a trust in your will, most of these problems are avoided.

Owning furnishings, a vehicle, a house, and personal belongings does not affect a person’s eligibility for Medicaid or SSI (Supplemental Security Income). However, cash and other financial assets may disqualify a disabled person for benefits. For instance, if you leave them $25,000 in cash, they’d no longer be eligible for government benefits.

Special needs trusts are a way to avoid losing eligibility. Instead of leaving assets directly to your family member, you’ll leave them in a trust. You’ll choose a trustee, who will have full discretion over the assets in the trust and can spend them on the beneficiary’s behalf. Because that person will not have control over the assets, Medicaid and SSI administrators will ignore them when determining program eligibility. The trust dissolves when it’s not needed (when the beneficiary passes away or when funding is exhausted). Here, you’ll learn the answers to some common questions about these trusts.

Special Needs Trusts: What Are They?

“Special needs” is an all-encompassing term used to describe trusts that provide benefits without causing a beneficiary to lose eligibility for government benefits.

What Kind of Benefits Can a Beneficiary Get?

Trusts can be used to protect various benefits. Commonly, they’re used to allow Medicaid and SSI beneficiaries to receive extra goods or services.

Does a Trust’s Existence Qualify a Person for Benefits?

A person benefiting from a trust doesn’t gain automatic eligibility for public benefits. They must already be eligible or they must qualify after trust establishment. If a trust is well established, it won’t cause the person to lose any benefits. However, a trust doesn’t make qualification any easier.

What are Supplemental Benefits Trusts?

Some attorneys call these “supplemental benefits trusts” instead of “special needs trusts”. The terms are used interchangeably; however, “supplemental benefits” describes the trust’s purpose rather than imposing a legal limitation.

Who May Establish Such a Trust?

Anyone may set up a special needs trust, but they fall into two categories: third-party and self-settled trusts.

Third-Party Trusts

A third-party trust may be established for another person’s benefit. The individual setting up the trust, called the grantor, decides to make some of their own assets available to the beneficiary. A third-party trust is usually established by a parent for a mentally or developmentally disabled child.

Rules of Third-Party Trusts

There are very few rules covering third-party trusts. Because a beneficiary is never entitled to the assets within the trust, the most crucial rule is quite simple: the terms of the trust shouldn’t create an entitlement. If a trustee has discretion to distribute funds to a beneficiary, the trust’s income and principal won’t be counted toward public benefit eligibility requirements.

The Benefits of Third-Party Trusts

The main rule of special needs trusts is that the trust can’t provide shelter, food, or easily convertible assets to a beneficiary. The trust may provide medical treatment, physical therapy, travel, education, entertainment, clothing, companionship, furniture, and certain utilities. Cash distributions are rarely permitted, but limited exceptions exist.

Special Needs Trusts and Rule Changes

At one time, special needs trusts couldn’t pay for articles of clothing. However, as of 2005, that prohibition was dropped by the US government. Some states may disallow clothing as an expenditure, but those rules are often challenged. A trust created before the restriction was dropped may still contain such language, and such documents should be reviewed by legal counsel before determinations are made.

Using Funding From a Trust to Pay Rent or Buy a Home for a Beneficiary

There are rules governing the use of these trusts and other third-party payments for shelter expenses. These rules are challenging to navigate and depend on a beneficiary’s status, and you should get legal advice before making rent- or mortgage-related decisions.

The Ease of Setting Up a Trust

While the concept of a third-party trust is simple, there are several choices involved in its creation. Administration is difficult, and it’s important to hire an attorney with trust and public benefits experience. Though many legal matters can be handled without an attorney’s help, or through a general practice firm, a special needs trust is complex enough to require focused services.

What Are Self-Settled Special Needs Trusts?

Sometimes, public benefit recipients might have assets that keep them from enjoying continued eligibility for those benefits. In these cases, it may be advisable and possible to put those assets into a trust to continue or regain eligibility for benefits such as SSI and Medicaid.

Which Assets Can Go into a Self-Settled Trust?

A self-settled trust is usually established by a person who has received an injury settlement (often arising from the incident that led to the disability) or an inheritance. Rarely, a person with existing wealth determines that it’s best to create a trust for a disabled family member.

If a Trust is Established by the Court or a Guardian, Is it Really Self-Settled?

Yes, it is. US law makes it explicitly clear that trusts established with funds and assets that would have belonged to a person or their conservatorship are self-settled, no matter who signs the documents. In some areas, trustees are called “guardians” instead of “conservators”, but the difference is in name only.

Why Should a Trust be Established?

Why would a person with assets wish to put their money in a trust just to gain eligibility for benefits? Many public benefits are prohibitively expensive when they’re privately paid, and some are unavailable except via the public welfare system.

Are There Any Restrictions on Self-Settled Trusts?

A self-settled trust is more complex than its third-party equivalent. In most cases, but not in every case, self-settled trusts must comply with Federal law dating back to 1993. That law mandates that a self-settled trust should be established by a guardian, a judge, or the beneficiary’s parents. Additionally, a self-settled trust must include provisions repaying state agencies for benefits received, and those payments are made upon the beneficiary’s death. These provisions are commonly referred to as “payback” provisions.

Must a Third-Party or Self-Settled Trust Include a “Payback” Provision?

No, there’s no need. Apart from cases with unusual circumstances, only a self-settled trust must include a “payback” provision that reimburses the state for benefits paid.

Is it Necessary to Hire an Attorney When Creating a Trust?

It’s important to have an experienced attorney on your side when creating a trust. State-specific, complex rules apply to certain types of trusts, and these cases should be handled by a firm with experience. With help from the team at Wilson Ratledge, you can set up a trust that protects your special-needs family member now and well into the future.

How Do I Contest A Will In North Carolina?

By

challenge a will in nc

In North Carolina, there’s a process to challenge the validity of a will. North Carolina laws are in place to give interested parties the opportunity to question a will. A will challenge, or will caveat, has specific procedures that need to be followed. Here’s what you need to know about how to contest a will in North Carolina:

You must have the standing to challenge the will

Only an interested party may challenge a will. A person with standing is any person who stands to gain or lose from the probate of the will. If you’re a family member who would inherit if the will isn’t valid, you have standing. In addition, any person or entity named in the current will or named in any prior wills also has standing. If you have an interest in the outcome, you can file a caveat to challenge the will.

To challenge a will, you must file your caveat with the clerk of court

Challenging a will in North Carolina begins with filing the will caveat with the clerk of superior court. It’s important to file the caveat with the appropriate clerk and in the right court. The court can dismiss a caveat that isn’t appropriately filed. Once you file the caveat, the other interested parties have a chance to respond and participate in the proceedings.

You must notify all interested parties

It’s up to you to notify all of the other interested parties that you’re contesting the will. You must serve them with a copy of the caveat paperwork. Providing service of the paperwork ensures that all of the parties have the opportunity to access the courts and participate in the proceedings.

There are a few legal grounds to challenge a will

There are only a few grounds to challenge the sufficiency of a will. They include:

Lack of capacity

Lack of capacity means that the person who makes the will doesn’t understand what they’re doing when they make the will. It means that they don’t understand their decisions and the impacts of their decisions on the disposition of their estate. There’s a presumption that a person who makes a will has the capacity to understand the choices they’re making. Even a person with some mental difficulties may understand the situation long enough to make an effective will.

Undue influence

The other common ground for a will challenge is undue influence. To demonstrate undue influence, the person who files the will must show that the will creator was open to influence. They must show that a person with access to the will creator tried to exert influence over them. Finally, the person who challenges the will must show the result of the influence is that the will is different than it may have been without the person’s influence.

To decide if undue influence impacts the result of the will, the jury may consider a number of factors. These factors include:

  • The age of the person who makes the will
  • Physical and mental vulnerabilities of the will creator
  • Whether the beneficiary lives with the will creator
  • If the beneficiary supervises the will creator
  • Attempts by the beneficiary to isolate the will creator
  • Revocations of prior wills
  • Changes from prior wills
  • Bequests to someone without blood ties
  • Disinheriting blood relatives
  • Whether the beneficiary helps create the will

A jury decides the case

It’s up to a jury to decide whether the will represents the wishes of the creator. The parties can’t agree to waive the jury. They also can’t stipulate to any facts. A judge can award summary disposition and dismiss the will challenge if the case is clear, but summary disposition in a will case is very rare.

The burden of proof

The jury decides the case by the greater weight of the evidence. That means they decide if the will more likely than not represents the wishes of the will’s creator. Essentially, the jury sides with the person that they think is more likely to be correct.

You may mediate the case with other interested parties

If you’re a party to a will caveat, you may mediate the case with other interested parties. You can agree on a resolution to the case that follows the terms of the will, or you can settle on different terms that you create with the other parties. Not all will caveats use mediation as a case resolution tool. You have the right to reject mediation and try your case before a jury.

You have three years to bring a will challenge

If you think a will may be invalid, you have only a limited amount of time to challenge it. You have three years from the time that probate begins in the case. If you’re under a disability, a minor or in prison, you have three years from the time your disability ends.

Practically, it’s important to bring your will contest as soon as possible. When you file your will contest, distribution of the estate stops until the contest resolves. If you don’t file your caveat until distribution is underway, you risk the added difficulty of needing to find and retrieve assets that have already been distributed to third parties.

The court may order the estate to pay attorneys fees

A will party may be costly for the estate. In most cases, the court charges the cost of the will caveat to the estate. That means the prevailing party’s award is reduced by the costs of attorney fees to all of the parties involved. If the caveat has no merits, the court can refuse to order payment of attorney fees. In addition, the court may order the person who files the caveat to pay a bond that can cover the costs of the caveat in the event that the caveat has no merits.

Each case is different, and will caveat cases are often complex. An experienced will caveat attorney will be able to help you navigate through all the requirements to get the best outcome for you and your family. For a consultation to learn more about will caveats in North Carolina, call our office today at 919-787-7711 or fill out our contact form.

Planning For An Aging Parent In North Carolina

By

Planning for one’s own potential long-term care needs is something few of us do, and typically only when it comes time that either mom or dad can’t live by themselves do we then try and figure out how to handle that dilemma. While there may be no easy choices, it is far better to be proactive and ahead of the curve than try and play catch up after the fact.

Communication is the Key

Since this issue impacts all members of the family across generations, everyone has a strong interest in addressing the specifics. Who initiates the discussion is far less important than the fact it becomes a topic of discussion. A couple of good questions to address are:

  • Have your parents made any long range plans?
  • Are there financial resources available from your parents? How about from you or your siblings?
  • Is staying in their home an option with either daily or live-in care?
  • Can your home accommodate one or both of your parents if necessary?

These are just some of the questions that must be answered, and as indicated, the sooner the better. A threshold issue is understanding the finances involved in elder care.

The Numbers

Since 2004, the Genworth Cost of Care Survey has studied long term planning costs. The most current data for monthly costs of various care options:

  • Home health care – around $4000
  • Adult day care – around $1500
  • Assisted living facility – between $3000 – $4000
  • Nursing home care – between $7000 – $8000

The Options

  • Insurance – It can truly be said of insurance that it is something you need to have but hope to never have to use. For long term care insurance, the earlier a policy is taken out and the healthier the applicant is, the lower the costs. One option to consider is if mom and dad cannot afford the premiums, perhaps the kids can. This is certainly a less expensive option than the monthly out-of-pocket costs as indicated above.
  • Public programs – Unfortunately, Medicare does not offer long term care as part of its program. For those with very limited income and few assets, Medicaid may be an option. For those who have honorably served our country, the Veteran’s Administration has certain benefits available.
  • The Family – Unfortunately, for too many people, the burden of long term care falls on the family. It’s not so much the individuals offering the care don’t want to help, more often it’s the high cost borne by the caregiver. Caregivers often need to reduce their own hours of work or stop altogether, which can have a long range negative impact on their own retirement security.

An estate planning attorney can assist you not only in financial matters involving the disposition of your estate after you pass, but also in establishing and maintaining a high quality of life in your sunset years.

Starting Steps For A North Carolina Business

By

Did you know that North Carolina is a great place to start a company? According to Forbes Magazine, North Carolina has the second-lowest startup costs in the country. Are you thinking of starting a new business? Here are some great tips on how to begin the process.

Define Your Idea

You need an idea that best fits your personal needs and interests. In other words, does it make sense to start a business involving sports merchandise when you have no interest or knowledge in sports? Your business also has to represent you and how much time or effort you are willing to put into it.

If you’re looking for a business that is mainly hands-off, you may be interested in looking to be an investor instead.

If you’re not sure where to start, just begin with brainstorming around your interests and needs that you or other people may have around those interests.

Make A Plan

You shouldn’t just start doing business and “wing it.” You need a plan that includes things like sales and marketing, people, finance, and product development. It’s also usually a good idea to have several months’ cash in savings to start a company, if not more, since most businesses take 1-2 years to break even and start paying the owner. 

You also need a reason for the product. Does your merchandise serve a purpose in your community? Do you have enough people interested in your product to legitimize the need for your company?

Business Formation

You need to have enough credibility to launch your company, financially and interest-wise. Several business experts argue that beginning under an “LLC” title is the best way to begin. They are much easier to work with and have some major tax incentives. To start a company, in North Caroline and under the LLC title, costs about $75, give or take.

EIN and Finances

An EIN, or Employment Identification Number, is a number (like a Social Security Number for your business) that you will need to be assigned to do many business financial tasks, such as open bank accounts or credit cards, apply for a line of credit, and more.

You’ll also want to keep business bank accounts separate from personal accounts, for ease of bookkeeping as well as to keep your personal assets as protected as possible in the case of a lawsuit.

Permits and Insurance

You may need permits, depending on the type of your business.

Another way of protecting your business is with the proper insurance. You will most likely need Worker’s Comp (once you hit at least 3 employees), General Liability, and Professional Liability, as well as others. Your company might need others, depending on nature. 

FYI: You will want to consult an insurance professional and business formation attorney during this process. You may need additional permits and licenses, especially if you intend to hire more than 3 people on your staff. Once again, this depends on the nature of your business.

Wrapping Up

Now is a better time than ever to start a new business in North Carolina. With the proper planning and a great business attorney at your side, you can set yourself up for success today and into the future with your new venture.

Five Common Estate Planning Mistakes To Avoid

By

challenge a will in nc

If you want to be able to have control over what happens to your assets once you die, it’s highly recommended that you create some sort of estate plan, which can be done with the help of an estate planning lawyer. While creating an estate plan can vary in complexity depending on your situation, there are a range of mistakes that you can easily make if you create one without the assistance of an attorney.

What Is Estate Planning?

Estate planning is the process of making plans for how your assets are going to be handled when you die. The estate that you have extends to every kind of property that you own. The types of property that can be a part of your estate include savings accounts, investments, cash, cars, clothes, homes, and retirement accounts. The main objectives of estate planning include making sure that the majority of your estate is given to your beneficiaries, that guardians are assigned for any minor children, and that you pay the lowest amount of taxes on the estate. 

The main components of an estate plan include a will and a trust. A will is a type of legal document that details what happens to your property once you die. When creating a will, you can denote how your property is spread to your beneficiaries. For instance, if you have two children, you might consider transferring your home to your children in a 50/50 ownership split. A trust is a type of arrangement wherein a third-party trustee manages your estate on behalf of any beneficiaries.

1. Not Planning for Unexpected Events

The most common mistake that people make when creating an estate plan is forgetting to plan for the unexpected. Maybe there’s a sudden change to your assets or one of your children gets divorced. These big life changes may require you to make alterations to your estate plan. It’s important that you update your estate plan whenever these changes occur. 

However, you might also want to consider placing your assets in a trust, which will allow you to control when your assets are distributed and to whom they are distributed to. You don’t have this level of control with a will. With a trust, you could set the ages at which your children receive assets from your estate. However, you could also deem that these assets aren’t provided to your children if they are a danger to themselves, which is a possibility that you need to take into account because of potential unseen issues such as drug addiction or other issues that you can’t fully plan for. 

2. Not Planning for Potential Death of Beneficiary

It’s also important that you plan for the potential death of a beneficiary. Many people make the mistake of believing that their beneficiaries will ultimately live long enough to obtain the assets from their estate plans. If you have two beneficiaries and one of them dies, you might want to make a note of where the money will go. You could have the assets go to the immediate family of the deceased beneficiary or to the other beneficiary. If you don’t make a note of this in your estate plan, there will likely be complications that the remaining beneficiary will need to handle. 

3. Other Beneficiary Problems

There are a range of additional beneficiary problems that you should keep in mind. If you don’t name a contingent beneficiary for your insurance policies and retirement accounts, your beneficiaries may not be able to benefit from a stretch IRA tax break. Some individuals also forget to remove an ex-spouse from an IRA once they become remarried, which can create an array of issues in the future. While your spouse will automatically become your beneficiary for a retirement account on the day that you’re married, this isn’t the case with an IRA. 

4. Not Coordinating Retirement Plans and Trusts

Many individuals will place a living trust or other type of trust as the beneficiary of their various retirement plans. While this can be advantageous in many situations, placing certain types of trusts as beneficiaries of an IRA can actually increase taxes. A trust that is the beneficiary of your retirement account must have specific language in it that marks it as a see-through trust, which should get rid of any tax issues. 

5. Not Updating Your Powers of Attorney

A power of attorney is a kind of document that denotes another individual as being able to act on your behalf when you’re no longer able to do so. The actions that a POA takes care of include handling your assets as well as a wide range of other personal, business, and financial matters.

It’s recommended to name a power of attorney for your financial decisions and a separate power of attorney for your medical decisions. Many people forget to update their powers of attorney, which can lead to numerous complications if you unexpectedly fall ill or are no longer able to make your own decisions.

If there’s an issue with your estate plan or you’re having difficulties understanding an aspect of your will, contact Wilson Ratledge today so that we can provide you with the legal assistance that you need.