A recent court case involving a power of attorney demonstrates the problem with using online estate planning forms instead of hiring an attorney who can make sure your documents are tailored to your needs.  

Mercedes Goosley owned a home in Pennsylvania. In 2013, she named one of her six children, Joseph, as her agent under a power of attorney using a boilerplate online power of attorney form that Joseph downloaded from the internet. Unbeknownst to Joseph, the power of attorney required Mercedes to be declared incompetent for Joseph to act as her agent. 

Immediate vs Springing Power of Attorney

Powers of attorney can be either immediate or springing. An “immediate” power of attorney takes effect as soon as it is signed; while a “springing” power of attorney only takes effect when the principal becomes incapacitated. The problem is that springing powers of attorney create a hurdle in order for the agent to use the document. When presented with a springing power of attorney, a financial institution will require proof that the incapacity has occurred, often in the form of a letter from a doctor.  In this situation, using an online power of attorney form did not allow Joseph to receive the counseling and education he needed to be informed and act in the proper manner for his mother.

In this case, Joseph began acting for Mercedes without getting a declaration of her incompetency. After she moved into a nursing home, Joseph listed her home for sale in 2018 and accepted a purchase offer as agent for his mother under the power of attorney (which was the online power of attorney form). At the time, Joseph’s brother, William, was living in the home, and Joseph instructed William to move out. This resulted in a dispute that ended up in court, with William arguing that Joseph did not have authority to act as his mother’s agent.

A Pennsylvania appeals court eventually determined that Mercedes had intended to execute an immediate power of attorney, as evidenced by the fact that Joseph had held himself out as Mercedes’ agent since 2013 and routinely conducted affairs on her behalf without Mercedes restricting or objecting to his agency.

While the court ultimately ruled in Joseph’s favor, Joseph and Mercedes could have saved time and money by consulting with an attorney before signing the online power of attorney form. An attorney would have been able to explain the difference between an immediate and springing power of attorney and tailor the power of attorney to Mercedes’ needs. 

To read the court’s decision in the case Stecker, et al v. v. Goosley, et al (Pa. Super. Ct., No. 1266 EDA 2020, April 15, 2021), click here.  

It is extremely important to talk with your attorney before creating any estate planning documents, including power of attorney, which is arguably the most important and powerful estate planning document for many individuals.  Consult with the estate planning attorneys at Elville and Associates to make sure you have all the estate planning documents you need.  The firm offers free consultations for estate planning clients to understand your situation and goals and create a path forward for your family and you, offering peace of mind along the way.  To set your initial consultation, contact Community Relations Director Jeff Stauffer at jeff@elvilleassociates.com, or by phone at 443-343-8424 x117.  

#elvilleducation

Posted in Blog | Comments Off on Court Case Illustrates the Danger of Using Online Power of Attorney Form

By: Stephen R. Elville – Managing Principal and Lead Attorney with Elville and Associates, P.C.

At the outset, you should understand that my purpose here is to alert clients, professional advisors, and others that the following information should be given credence and thoughtful consideration for the protection of assets, inheritances, and your general legacy, all of which may now be considered to be under attack (for all practical purposes) in 2021. Let’s begin with the following alert: the long-awaited Biden Administration legislative discussion about tax increases has begun. How do we know this? Because what was up until now only speculation throughout the 2020 presidential campaign, then further suggested in President Biden’s Green Book, now continues to take form and substance. On March 25, 2021, the “For the 99.5% Act” was introduced by Senator Bernie Sanders. Then, on March 29, 2021, the Van Hollen “Sensible Taxation and Equity Promotion (STEP) Act” was introduced by Senator Chris Van Hollen, Senator Sheldon Whitehouse, Senator Elizabeth Warren, and Senator Sanders. Then, on April 28, 2021, President Biden’s “American Families Plan”, was released by the White House. The 99.5% Act, as I will refer to it throughout the remainder of this Article, was co-sponsored by other prominent Senators, and according to Forbes, the bill is slated to be introduced into the House of Representatives (Forbes Magazine, Alan Gassman, Senate Estate and Gift Tax Bill Will Reduce Exemption to $3,500,000 And take Away Many Opportunities, March 27, 2021). The proposed 99.5% Act, in my view, represents the beginning of the real discussion, and is potentially the most impactful. Among many things being proposed (collectively) in these three Act proposals are the following: a reduction in the federal estate tax exemption to $3.5 million per person ($7 million for a married couple), but indexed for inflation and with no loss of “portability”; a reduction in the federal gift tax exemption to $1 million per person, but not indexed for inflation (it should be noted that if the federal estate tax exemption is decreased to this level, it is reasonable to think that the Maryland estate tax exemption will surely decrease as well, possibly to $1 million); progressive rate increases for the estate tax to 45%-65% (from the current 40%); capital gains tax increases – no stepped up basis at death for property owned by certain grantor trusts, and there are at least four (4) ideas being floated about potential changes/limitations in how capital gains are treated, including switching to a Canadian system-type approach where all capital gains are paid upon death (no cost basis adjustment), a system where capital gains are “trued up” and payable each year (“market to market”), or a carry-over basis; significant limitations on valuation discounting rules; limitations on annual exclusion gifts to $10,000 per donee (!), $20,000 per donor(!), and $30,000 per year to trusts! – these types of changes, if passed into law, would, for example significantly impact the traditional funding of common life insurance trusts; effective elimination of grantor retained annuity trusts (GRATS) as a viable planning tool; Generation Skipping Tax changes that impose significant limitations on the tax effectiveness of dynastical trusts (GST exemption limited to 50 years, for example); and more. Some good news – the Van Hollen (STEP) Act would provide for a $1,000,000 exclusion from capital gains tax, deductibility of capitals gains tax against estate tax owed at death, and a $500,000 capital gains tax exclusion for a primary residence – but with the downside that STEP would be retroactive to January 1, 2021! The American Families Plan would provide for a $2,500,000 exclusion from capital gains tax for a couple, bring back the SALT deduction, and leave the current $11.7 million per person (indexed for inflation) ($23.4 million per couple) basic exclusion amounts from estate and gift tax as is (at least for now at this stage in the discussions), but would otherwise increase the top income tax rate on individuals back to 39.6%, increase corporate tax rates from 21% to 28%, increase capital gains rates to 39.6% plus the 3.8% net investment income tax (combined 43.4%), or higher; and limit annual exclusion gifts in similar ways to the other proposals. But we simply do not know the outcome and what the compromises will ultimately be. The proposed tax changes in the 99.5% Act, STEP Act, and American Families Plan will have far reaching impacts on a substantial number of Americans for their estate and tax planning. Because the real discussion has begun, the question appears to be when and not if significant tax increases will occur. The real question is whether you (clients, professional advisors, and others) will be ready. Initial indications are that the coming six (6) months remaining in 2021 represent the ticking clock of time remaining to anticipate and prepare for these changes, subject to the retroactive provisions of the STEP Act and other potentially retroactive laws. Yes, let me repeat that. Political and economic indicators, a general consensus among many in the legal community (the estate planning community), and the effective dates set forth in these Acts (most are January 1, 2022) suggest that while there are no clear answers as to when such potential changes to the tax laws may or will occur, it is more likely than not that major changes in the laws will occur, and for those who have not already proactively engaged in advance planning, the remaining months of 2021 may be the last chance to do so. 

So what does being proactive mean right now and what should clients (along with their professional advisors), and others do? Here is a brief checklist: As soon as possible: 

(1) Contact your estate planning attorney, CPA, and financial advisor (your advisory planning team) to begin a discussion of the impacts of this possible legislation on your estate planning and tax planning. This discussion should include the very serious question of “how can we be assured that the advisory planning team you have assembled are working together in an organized and collaborative fashion?”;

(2) Review all advanced planning strategies for implementation in 2021 well before the proposed effective dates of these various Act proposals or other similar legislation (proposed effective dates mainly reference January 1, 2022, but some proposed legislation is slated to become effective January 1, 2021), including: 

a. Educate yourself about the potential use of the current (large) temporary estate and gift tax exemption amounts before they go away (i.e. review gifting strategies – such as potentially making large gifts prior to 1/1/2022). This discussion should include understanding how gifting works in this context, and that only “larger gifts” will succeed in using the “temporary” exemption amounts, along with the possibility of “retroactivity” and how to protect against the possibility that any changes to the estate tax exemptions could be made effective retroactively to a date prior to any such gift(s); 

b. Project future estate values; 

c. Explore accelerating the implementation of grantor trusts in 2021; 

d. Organize and potentially use annual exclusion gifts in 2021; 

e. Plan for the possible end of the step-up in basis; 

f. Understand all capital gains issues and how you could be affected; 

g. Gain a working knowledge of the concept of “Portability” and how the Deceased Spouse’s Unused Exemption Amount (DSUE) is utilized; 

h. Consider capturing valuation discounts in 2021; 

i. Contemplate potentially paying estate tax for gifts prior to 2022; 

j. Analyze the possibility of harvesting capital gains in 2021; and … 

k. Grasp the many other proposed income tax, estate tax, gift tax, and GST tax changes being proposed by working closely with your Advisory Team. 

(3) Review all basic planning considerations for implementation before (or as soon as possible after) the proposed effective dates of the possible legislation (proposed effective dates mainly reference January 1, 2022, but some proposed legislation is slated to become effective January 1, 2021). In closing, there are many flashing red lights and cautionary yellow lights in our lives, and oftentimes fewer green lights or completely clear paths for us to choose and follow. And certainly the state of political, civil, and cultural unrest in our country over the past few years has left many with more questions than answers. 

But our job and commitment at Elville and Associates is to keep our clients, professional referral partners, and the community at large informed about changes in federal and state law affecting estate planning, elder law-related planning, and special needs planning. Along these lines therefore, the advice of this writer is to view the potential ramifications of the For the 99.5% Act, the Van Hollen STEP Act, and the American Families Plan and any similar proposed legislation that may arise in 2021, for what it is – a bright white light coming towards us in a straight line, seemingly from a fairly long distance away, but with a strangely familiar sound – a sound that as it gets closer begins to roar, reverberate, and shake the earth, as the shape of a locomotive comes into view. Our job and yours, is to be ready when this train arrives, and to not be left behind after the Biden-era tax law change caboose rolls past us and into the distance. I’ll leave it to your imagination about who the conductor will be. 

Posted in Blog | Comments Off on Potential 2021-2022 Tax Increases – What You Should Know and What You Can Do About Them

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A Message from Elville and Associates’ Managing Principal and Lead Attorney Stephen R. Elville

Surely our times are challenging. History teaches us that during the punishing winter of 1776, Thomas Paine’s pamphlet, The Crisis, intended to bolster the willpower and determination of George Washington’s soldiers, many of whom were ready to quit, changed the course of the Revolutionary War. Some historians assert that the meaning behind Paine’s famous work was to encourage the ordinary men comprising Washington’s army not to give up, even during very difficult times. Some of my favorite excerpts include: “Yet panics, in some cases, have their uses; they produce as much good as hurt. Their duration is always short.”

“The mind soon grows through them (challenges), and acquires a firmer habit than before. But their peculiar advantage is, that they are the touchstones of sincerity and hypocrisy, and bring things and men to light, which might otherwise have lain forever undiscovered.” 

“Let it be told to the future world, that in the depth of winter, when nothing but hope and virtue could survive, that the city and the country, alarmed at one common danger, came forth to meet and to repulse it.” 

“I love the man that can smile in trouble, that can gather strength from distress, and grow brave by reflection.” and …

“This is our situation, and who will may know it. By perseverance and fortitude, we have the prospect of a glorious issue.” 

Although I’ve taken liberties with Paine’s words, written and set in a different time but not a different place (Philadelphia, Pennsylvania), they help to clarify so much that’s been on my mind (and probably yours) during the COVID-19 pandemic, the 2020 political cycle, the current state of strife and division in our country, and the recent January 6, 2021 crisis at the U.S. Capitol. Regardless of our beliefs and convictions, our differences, our interests, and our backgrounds, our unprecedented times are calling us to meet the challenges. And we are – you are. As I reflect on the life battlefield that has been the last 12 months, I am amazed at what I see in my mind’s eye, what I have observed and witnessed first-hand. I see you, our clients and client families, resilient and strong amidst so much tragic loss; so much economic devastation; so much fear; so much deprivation; so much change in your daily lives and routine; so much isolation; and so much uncertainty. This is not to deny reality – that individually and collectively we’ve spent the lion’s share of the past several months in our figurative personal and economic bunkers wondering when we can emerge back to life. When will grandparents be able to see their grandchildren in person again? When will businesses be able to fully reopen their doors? When will jobs lost be restored? When will shattered lives be healed? And yet you, our clients, are answering the call to change. You are being attentive to the things you can control, such as your estate planning. You are listening, reading, and learning. You are contacting us and updating your estate planning, elder care planning, and special needs planning documents. You are attending our virtual events – our webinars, workshops, and Client Care Programs events in record numbers. You are asking questions and keeping up with your personal and family legal continuing education. Furthermore, I see you working collaboratively with your financial and tax advisors, and creating your own collaborative advisory team; and I see you overseeing that team to ensure it is working together in furtherance of the accomplishment of your goals and the protection of your loved ones. I also see you taking great care in the selection of your fiduciaries, and using memorandums of intent and letters of wishes to expand the knowledge and understanding of your trustees, personal representatives, and agents, and to set forth your goals, values, advice, and directions. You are doing your due diligence!! You are exercising your rights to determine your own estate planning destiny, and to write the story of your own life for the generations. Truly, you are not only the narrator of the story, you are the protagonist. You are a hero (the hero). I hope you will accept this from me, someone who has had the privilege of working on thousands of estate, elder care, and special needs plans. You have not quit, despite great hardships and obstacles. I salute you, all. As many reasons as there have been for updating and maintaining your planning documents over the years, and especially during the past year (i.e. COVID-19 related changes; asset alignment; advisory team issues; changes in Maryland law; changes in the tax laws; and more), there are likely more to come as the health crisis continues, the Maryland Legislature considers its legislative agenda for 2021, and the Biden Administration introduces its new policy agenda over the coming months. Therefore, you will need to stay connected, diligent, and flexible in the months ahead, knowing that you can count on Elville and Associates to keep you abreast of the planning issues you need to know. Due to the sometimes slow-rolling nature of the forces at work, I will not spend time here speculating about the potential changes to come in 2021-2022 since we have been closely watching and addressing many of those issues over the past eight to 12 months, and our Client Care Program members, as well as those who frequently attend our webinars, are well-educated as to the broad spectrum of potential tax changes being proposed, both before and after the Georgia runoff elections. But is it crucial to mention that only the automatic, habitual, and repetitive nature of our Client Care Program, and the commitment it entails on the part of clients and Elville and Associates, can ensure the success of your estate planning (your estate, elder-related, or special needs, or business-related plan) (please see my article on in our website’s Blog section titled The Philosophy of a Client Care Program – Intentionalism). Elville and Associates is the only law firm in Maryland, along with our Of Counsel attorney, Gary Greenwald, P.C., to have an accredited Client Care Program (CCP) by the Client Care Academy in Boston. Along these lines, let me take this opportunity to invite you to join Elville and Associates’ CCP. If you have questions or would like to join the CCP, please contact Jeff Stauffer at jeff@elvilleassociates.com, or visit www.elvilleassociates.com. At our March 6th CCP event, and in all subsequent CCP events for 2021, we will discuss, study, provide analysis, and recommend action items relating to the critical planning and health-related issues ahead. Having discussed our collective challenges and how you have bravely and successfully dealt with them and continue to do so, I am sincerely grateful to know you and honored to have you as part of the Elville and Associates family of clients. Since our founding in June, 2010, Elville and Associates has endeavored to be Maryland’s top-tier estate planning, elder law, and special needs planning law firm, known for leading edge legal-technical solutions delivered with our signature client education, collaboration with professional advisors, and compassion for and attention to all of our clients and their individual needs. Our commitment to you is that neither the challenges of 2020, nor any future challenges we are certain to face, will detract from that mission and purpose. In conclusion, I encourage you to continue to take heart, and to continue to focus on those things you can control. Paraphrasing the above now in my own words, “may our minds grow through (these) challenges, and acquire firmer habits than before.” And “may we smile in trouble, gather strength from distress, and grow brave by reflection.”

Warm regards and best wishes,

Stephen R. Elville, J.D., L.LM.

 

Stephen R. Elville works with individuals and families to provide a unique attorney-client experience and peace of mind through a proactive and collaborative approach based on leading edge legal-technical knowledge. Mr. Elville has extensive experience in working with clients involved in crisis situations and brings a unique and personalized approach to pre-crisis planning. Mr. Elville routinely handles client matters in elder law, estate planning, special needs planning, tax planning, guardianship, asset protection, estate and trust administration, and fiduciary representation, and more. Mr. Elville may be reached at steve@elvilleassociates.com, or 443-937-3691 x108

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Posted in Blog | Comments Off on The State of “Us” (the Heroes)

Most Americans hold a variety of assets and information digitally, and this has become a crucial issue for estate planning. Not only are valuable assets such as PayPal balances, cryptocurrency, bank and brokerage accounts, and software licenses maintained online, assets of practical or sentimental value may also only be accessible digitally, like photos, music, and contact lists. In addition, there may be memberships and subscriptions that continue to automatically renew after the decedent’s death and automatic bill payments that will unexpectedly deplete bank accounts or charge credit cards. It is impossible to properly protect and handle an asset that nobody knows about or has access to. For all of these reasons planning for digital assets has become something everyone needs to consider. Join business law attorney Charles Borek, Special Counsel to Elville and Associates and Founder of The Borek Group, LLC, for a discussion regarding “Protecting and Dealing with Your Digital Assets.” After this session you will be able to:

— Distinguish between ownership and access revealing some surprising realities

— Recognize federal laws that have an impact on planning for digital assets Identify the three different types of state laws affecting digital assets

— Determine the steps necessary to properly plan regarding digital assets

— Choose the correct method to document your digital assets

— Select the proper fiduciary to handle your digital assets and the powers to grant

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By:  Ellen S. Platt, MEd, CRC, CCM, Certified Aging Life Care Manager with The Option Group, LLC – Guest Contributor

As Sheila Martin (name changed to protect patient confidentiality) walked down the hallway of the hospital after her mother’s emergency admission, the realization hit her hard that, had she educated herself on care options earlier, she would be in a much better position than she was now.  She was forced to make quick, seemingly rash decisions on care for her mother that she felt ill-equipped to make.  It was clear that these important decisions should not be made with a knee-jerk reaction, nor should they be made rashly or without careful thought and consideration of the circumstances.   These important decisions should be made while empowered with information and with an educated knowledge base, which Sheila did not seem to have.  Whether it be understanding her mother’s medical conditions and medications, gaining knowledge on Medicare benefits, investigation of skilled nursing facilities, or seeking out options to help someone age in place, it behooves all of us to gain a better understanding of the vast array of services available … or not available in some cases.

It is never too early to take proactive measures to educate oneself on services, resources and professional assistance available to help families navigate longevity.  Being proactive will facilitate not only better health, but better outcomes in a crisis and more options to overcome an unexpected event.  Human nature is to “cross that bridge when we get to it,” but that has proven time and time again to have negative effects on the senior and the family unit in the way of not having needed services, falling short on resources, increasing caregiver stress, upsetting the family dynamic and maxing out the family from a financial, emotional and psychological perspective.  Planning for a crisis (although details of which may be unpredictable) is extremely important to do, as is doing an honest assessment of how well the current situation is, how sustainable it is, and how it would hold up in a crisis.   Often, many more options are available to the patient when this pre-planning is done.

Ideas of items to explore include:

• Ensuring legal documents such as advance directives and individuals identified to make health care decisions and/or financial decisions are in place.  An attorney who specializes in elder law would be a good resource for these documents and further information.
• Researching care options along the continuum to know what is available in your geographic area.  These may include home care, adult day care, independent senior living, respite care, assisted living, dementia or memory care, and skilled nursing facility options.  Knowing what to ask is critical during this time.  Visiting facilities and doing your research will help you understand the differences and allow you to know which ones you would go to … and which ones you wouldn’t.

• Doing some financial planning to have a safety net in place to help pay for care options.  Much to the surprise of many, more care options are paid privately than are paid by Medicare or other insurances.
• Knowing the pitfalls of the family situation and finding a system that works within the dynamics of a family.  Finding objective, impartial professionals that are equipped with knowledge and information you need to guide families through difficult decisions and focus the discussion on the needs of our loved ones.
• Creating a “care village” of trusted family, friends, and professionals to be a supportive network to the individual receiving care, and allowing respite for the primary caregiver.
• Having an emergency plan in place, in the event a caregiver is suddenly unavailable or weather conditions are such that a senior may be stranded without food, heat, or assistance with care needs.
• Creating a system for managing medications, diagnosed conditions and coordinating medical care
• Creating and implementing a care plan that facilitates safety, wellness, function and as much independence as possible.  Knowing how to quickly address changes in care needs, ensure access to necessary medical follow up, and provide needed supports. 
• Understanding medical conditions, the pros and cons of medical recommendations or decisions, and truly understanding the wishes of our loved ones, in the event they are not able to communicate those desires at some point.
• Having and knowing the resources to intervene in a crisis.  This will allow families to avoid a crisis or lessen the impact of one. 
• Some family circumstances are such that the primary caregiver or caregivers are trying to manage long-distance.   Finding those professionals to be the boots-on-the-ground in the family’s absence is of utmost importance.

The above list is not an exhaustive one, and are merely ideas to start the conversation.  These are only touching the tip of the Aging Iceberg when it comes to the volumes of information out there.   I encourage you to begin your journey by sifting through the information out there, collecting resources, seeking advice from professionals, and beginning your quest to obtain solid, helpful and accurate information that will form your base for making sound, educated decisions for ourselves and those that we love.

Ms. Ellen S. Platt, MEd, CRC, CCM is founder and owner of The Option Group, LLC.  She is a Certified Rehabilitation Counselor, Certified Care Manager, and a Certified Aging LifeCare Manager, with a span of over 30 years providing care management, advocacy, placement and case coordination services to those with catastrophic injury, chronic diseases and disabilities, as well as those that are aging and navigating longevity.

Under her leadership, The Option Group has been a trailblazer in the senior industry, by collaborating with other leaders to provide high quality, high skilled services that help families navigate very complex situations.  Ellen may be reached at eplatt@theoptiongroup.net or 410-667-0266.

Posted in Blog | Comments Off on The Benefits of Being Proactive with Decisions on Aging

The American Rescue Plan of 2021 is designed to provide economic relief to millions of Americans in the wake of the COVID-19 pandemic. In addition to “stimulus” payments, the Plan includes several lesser-known tax provisions. Understanding how they may affect you can help your income tax planning and withholdings in 2021 and beyond.

Tax Changes for Individuals

Exclusion of Unemployment Benefits from Income

Under the American Rescue Plan of 2021, as of the 2020 tax year, if the adjusted gross income (AGI) of the taxpayer for the tax year is less than $150,000, the gross income of the taxpayer does not include so much of the unemployment compensation received by the taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200.

Checkmark Observation. New Code Sec. 85(c) does not provide for a phase-out based on AGI. Therefore, if a taxpayer makes $150,000 or more, the exclusion does not apply, and all the individual’s unemployment compensation would be included in gross income.

The same $150,000 limit applies to returns filed jointly, as head of household, or with single status. However, in the case of a joint return, the $10,200 exclusion applies separately to each spouse.

Some taxpayers already filed their returns before the passage of the American Rescue Plan Act of 2021. If these taxpayers included unemployment compensation in their gross income, they should file amended returns if they qualify for the exclusion.

Under the American Rescue Plan Act of 2021, an eligible individual is allowed an income tax credit for 2021 equal to the sum of: (1) $1,400 ($2,800 for eligible individuals filing a joint return) plus (2) $1,400 for each dependent of the taxpayer. The credit is refundable. For purposes of the credit, an “eligible individual” is any individual other than a nonresident alien or an individual who is a dependent of another taxpayer for the tax year. Estates and trusts aren’t eligible for the credit.

The amount of the credit is ratably reduced (but not below zero) for taxpayers with adjusted gross income (AGI) of over: $150,000 for a joint return; $112,500 for a head of household; and $75,000 for all other taxpayers.  

The credit is completely phased out (reduced to zero) for taxpayers with AGI of over:   $160,000 for a joint return; $120,000 for a head of household; and $80,000 for all other taxpayers. (Code Sec. 6428B(d), as added by ARPA Sec. 9601(a))

Changes to the Child Tax Credit

Before the American Rescue Plan Act of 2021, the child tax credit (CTC) was $2,000 per “qualifying child.” A qualifying child was defined as an under age 17 child, whom the taxpayer could claim as a dependent (i.e., a child related to the taxpayer who, generally, lived with the taxpayer for at least six months during the year), and who was a U.S. citizen or national, or a U.S. resident.

Under the American Rescue Plan Act of 2021, for tax year 2021 the CTC is temporarily expanded as to eligibility, and amount, as follows:

1. The definition of a qualifying child is broadened to include a child who hasn’t turned 18 by the end of 2021.

2. The CTC is increased to $3,000 per child ($3,600 for children under age 6 as of the close of the year). But, the increased credit amounts are phased out at modified AGI of over $75,000 for singles, $112,500 for heads-of-households, and $150,000 for joint filers and surviving spouses. at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold.

This phaseout is limited—so that it only applies to the temporarily increased amounts for 2021 (i.e., to $1,600 per child under age six, and $1,000 per child age six or older), and doesn’t apply to the $2,000 of CTC permitted under existing law. After applying this phaseout, the taxpayer’s $2,000 of CTC is subject to the phaseout rules under existing law.

3. The CTC is fully refundable for 2021 for a taxpayer (either spouse for a joint return) with a principal place of abode in the U.S. for more than one-half of the tax year, or for a taxpayer who is a bona fide resident of Puerto Rico for the tax year. That is, refundability will be determined without regard to either the earned income, or alternative, formula.

Child and Dependent Care Credit Enhanced and Made Refundable

An individual taxpayer who has one or more qualifying individuals (certain dependents) may qualify to receive a credit for expenses the taxpayer paid (“employment-related expenses”) for the care of the qualifying individual(s) so that the taxpayer can be gainfully employed.

Before the American Rescue Plan Act of 2021, the expenses considered in determining the credit couldn’t exceed $3,000 for one qualifying individual or $6,000 for more than one. Before ARPA, the credit was 35% of employment-related expenses for taxpayers whose adjusted gross income (AGI) for the tax year was $15,000 or less. So, the maximum credit was $1,050 ($3,000 x 35%) if there was one qualifying individual and $2,100 ($6,000 x 35%) if there were two or more qualifying individuals.

The American Rescue Plan Act of 2021 makes several child and dependent care credit changes that apply for tax years that begin in 2021. The child and dependent care credit is refundable for taxpayers who have a principal place of abode in the U.S. for more than one-half of the tax year.

Increase in limits

For tax years beginning in 2021, the dollar limit on the amount taken into account is increased to $8,000 (from $3,000) if there is one qualifying individual with respect to the taxpayer, or $16,000 (from $6,000) if there are two or more qualifying individuals with respect to the taxpayer.

The applicable percentage is increased to 50%, reduced by one percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s AGI for the tax year exceeds $125,000. Thus, for taxpayers with AGI of $125,000 or less, the maximum amount of the credit is $4,000 ($8,000 x 50%) for taxpayers with one qualifying individual and $8,000 ($16,000 x 50%) for taxpayers with two or more qualifying individuals. The applicable percentage is not reduced below the “phaseout percentage;” the phaseout percentage is 20% reduced (but not below zero) by one percentage for each $2,000 (or fraction thereof) by which the taxpayer’s AGI for the tax year exceeds $400,000.

Therefore, the applicable percentage is 50% for taxpayers with AGI of $125,000 or below. The applicable percentage decreases one percentage point for every $2,000 by which the taxpayer’s AGI exceeds $125,000 until AGI reaches $185,000. The applicable percentage is 20% for taxpayers with AGI greater than $185,000 but not greater than $400,000. For taxpayers with AGI above $400,000, the applicable percentage again decreases one percentage point for every $2,000. Thus, for taxpayers with AGI greater than $440,000, the credit is phased out completely.

Student Loan Discharges

The American Rescue Plan Act of 2021 excludes from gross income certain discharges of student loans after December 31, 2020, and before January 1, 2026. The “student loan discharge” exclu­sion applies to these types of loans:  

1. Loans provided expressly for post-secondary educational expenses if the loan was made, insured, or guaranteed by a federal, state, or local governmental entity or an eligible educational institution.

2. Private education loans.

3. Any loan made by any educational institution qualifying as a 50% charity (for purposes of the income tax charitable deduction) if the loan is made under an agreement with any governmental entity or any private education lender that provided the loan to the educational organization, or under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt charitable organization.

4. Any loan made by an educational organization qualifying as a 50% charity or by an tax-exempt organization to refinance a loan to an individual to assist the individual in attending any educational organization but only if the refinancing loan is under a program of the refinancing organization

But, the discharge of a loan made by either an educational institution or a private education lender is not excluded under the above rules if the discharge is on account of services performed for either the organization or for the private education lender.

Tax Changes for Businesses

COBRA Premium Subsidy

Assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage during the period beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021. An AEI is a COBRA qualified beneficiary (i.e., employee, former employee, covered spouse, or covered dependent) who, with respect to a period of coverage during the period beginning on April 1, 2021, and ending on September 30, 2021, is eligible for and elects COBRA coverage due to a qualifying event of involuntary termination of employment or reduction of hours.

Extended election period

Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be an AEI if they did, are eligible for the subsidy. In addition, individuals who elected but discontinued COBRA coverage before April 1, 2021, are eligible if they would otherwise be an AEI and are still within their maximum period of coverage. Individuals meeting these criteria may make a COBRA election during the period beginning on April 1, 2021 and ending 60 days after they are provided required notification of the extended election period.

COBRA coverage elected during the extended election period will commence with the first period of coverage beginning on or after April 1, 2021 and may not extend beyond the AEI’s original maximum period of coverage.

The subsidy is available for any period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021, or if the qualified beneficiary becomes eligible for coverage under another group health plan (other than coverage consisting of only excepted benefits, or coverage under a health flexible spending arrangement or qualified small employer health reimbursement arrangement) or Medicare.

Group health plan sponsors may, but are not required to, allow AEIs to elect to enroll in different coverage. Enrollment must occur within 90 days after the date of notice informing the individual of the enrollment option. Enrollment in different coverage may be permitted only if:

1. The premium does not exceed the premium for the coverage in which the individual was enrolled at the time of the qualifying event.

2. The different coverage is also offered to similarly situated active employees at the time of the election, and

3. The different coverage is not coverage that provides only excepted benefits, or is a qualified small employer health reimbursement arrangement or health flexible spending arrangement.

AEIs must notify the group health plan if they cease to be eligible for the subsidy because they become eligible for another group health plan or Medicare. Notices must be provided in the time and manner specified by the Department of Labor.

Penalties of $250 (or more for intentional failures) may be assessed for failure to provide such notification. No penalties will be assessed for failures due to reasonable cause and not to willful neglect.

Group health plans must provide the following notices to AEIs:

1. Notice of assistance availability. Informs AEIs of the availability of the subsidy and the option to enroll in different coverage (if permitted by the employer). Must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021 and ending on September 30, 2021. This notice requirement may be met by amending existing notices or including a separate document along with them. Specific content requirements apply.

2. Notice of extended election period. Must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021.

3. Notice of expiration of subsidy. Must be provided between 45 and 15 days before the date on which an individual’s subsidy will expire, unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare. (ARPA Sec. 9501(a)(6))

Within 30 days of enactment, the Department of Labor is to issue model notices which can be used to notify eligible individuals of the availability of assistance and the availability of an extended enrollment period. Within 45 days, the Department is to issue model notices regarding the expiration of the subsidy.

Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as a refundable overpayment. The quarterly credit may be paid in advance according to forms and instructions to be provided by the Department of Labor.

AEIs are not eligible for the health coverage tax credit (HCTC) for any period of coverage in which they receive a COBRA subsidy. Subsidy amounts will not be included in the gross income of AEIs.

Increase in the Exclusion for Employer-Provided Dependent Care Assistance

For 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500, and from $2,500 to $5,250 in the case of a separate return filed by a married individual.

Targeted Economic Injury Disaster Loan Advances

Under the American Rescue Plan Act of 2021, eligible small businesses may receive targeted economic injury disaster loan (EIDL) advances from the Small Business Administration. Amounts received as targeted EIDL advances are not included in the gross income of the person who receives the amounts.

No deduction or basis increase is denied, and no tax attribute is reduced by reason of the gross income exclusion.

In the case of a partnership or S corporation that receives targeted EIDL advances, any amount of the advance excluded from income is treated as tax-exempt income. Since the targeted EIDL advances are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests. Under the single-class-of-stock rule, shareholders receive allocations of tax-exempt income from the targeted EIDL advances in proportion to their ownership interest in the S corporation.

Restaurant Revitalization Grants

Under the American Rescue Plan Act of 2021, eligible restaurants, food trucks, and similar businesses may receive restaurant revitalization grants from the Small Business Administration. Amounts received as restaurant revitalization grants are not included in the gross income of the person who receives the amounts. No deduction or basis increase is denied, and no tax attribute is reduced by reason of the gross income exclusion.

In the case of a partnership or S corporation that receives a restaurant revitalization grant, any amount of the grant excluded from income is treated as tax-exempt income. Since the restaurant revitalization grants are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests. Under the single-class-of-stock rule, shareholders receive allocations of tax-exempt income from the restaurant revitalization grants in proportion to their ownership interest in the S corporation.

Expansion of Rule on Deduction of Compensation of Publicly Held Corporation Employees

A publicly held corporation’s compensation deduction is limited to $1 million per year for compensation paid to any “covered employee.” For tax years that begin after December 31, 2026, the above rule is changed to provide that “covered employee” includes the eight other highest-paid employees, rather than the three other highest-paid employees.

However, the above rule regarding employees who were in one of the covered employee categories in preceding years, does not apply to employees who are covered employees only because of the new rule.

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Mr. Charles A. Borek is Special Counsel to Elville and Associates and Founder of The Borek Group, LLC.  He is a business and tax attorney with almost 30 years of experience representing individuals, small businesses, and nonprofits. He has taught law students as a visiting professor and adjunct professor of law at American University and the University of Baltimore and has lectured at Dickinson Law School of Penn State University. Chuck has written for Thomson-Reuters, Bloomberg BNA, and the American Institute of Certified Public Accountants. His book on contract drafting is used by lawyers throughout Maryland and has been cited by the Maryland courts.  Additionally, Chuck presents seminars to CPAs and lawyers around the country though his company, The Borek Group, LLC, including presentations to “Big 4” accounting firms and Fortune 500 companies. Mr. Borek may be reached at chuck@elvilleassociates.com, or 443-393-7696.

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By: Dr. Michelle Fritsch – PharmD and founder of Retirement Wellness Strategies – Guest Contributor

Is your attitude the RESULT of what is happening around you?  Is it what others do to you?  Is it the RESULT of your life circumstances?  OR – is your attitude your CHOICE?

I propose your attitude is your CHOICE!

We live in such a blame society.  People are called haters, shamers, intolerant, biased, and worse. 

So often we try to claim that others made us the way we are – sullen, angry, withdrawn, hurt, rejected.

We give others and situations the power to determine how we are going to go through each day and how we are going to approach life.

If you are a balloon bouncing in the winds of circumstances, there is hope!

How to Choose Your Attitude

What are your first thoughts in the morning?  How do you approach your day?  What music do you choose?  What do you read, think about, and how do you plan for your day? 

These aspects of your life are associated with maintaining health even in the midst of negative events:

• friends to talk to
• people who care about you
• a sense of self-worth
• forgiveness
• security
• conflict management skills
• religion/spirituality

The items on this list have all been linked with improved health.

And I will add having a source of HOPE.  I believe hope is powerful in the midst of difficulty.

Gratitude and Attitude

Another way of thinking that improves your attitude and your health is gratitude.  For what are you thankful?  No matter how many bad things are around you, what is good?  You’re still here if you’re reading this!  What parts of your body work?  What are you able to do?  Who do you care about?  Where are your safe places?  Where is the beauty around you – pictures, nature, architecture, music, literature, videos, clouds, trees, or babbling water? 

Find those good things and be thankful for them.  Fill your bucket with all of the good in your life.  It makes the bad much more tolerable.

Make It About Someone Else

Doing something for or being kind to someone else can be a real attitude adjuster.  Rather than focus on yourself and your own needs, raise your head and look at the people around you.  Find something small you can do to make someone else’s day.  You will be amazed that you benefit from those actions at least as much as the person you blessed.

Health Benefits of a Good Attitude

No one can choose your attitude except YOU!  This is such a liberating concept.  In the midst of and despite the difficulties of life, you can each day CHOOSE to have a GOOD attitude! 

When you do, your physical health (blood pressure, breathing, kidney function); your mental health (calm, clearer thinking, more creativity); your emotional health (less reactive, more even emotions); and your spiritual health (happiness, hope, joy) benefit.

Dr. Michelle Fritsch is an author, nationally renowned speaker, and founder of Retirement Wellness Strategies.  You can call her at 410-472-5078, learn more here or visit her website at www.retirewellness.com.  You can also call to talk about strategies to improve your attitude by scheduling a free call here. 

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By:  Jeffrey D. Stauffer – Executive Director – Elville Center for the Creative Arts, Inc.

“Music enhances the education of our children by helping them to make connections and broadening the depth with which they think and feel. If we are to hope for a society of culturally literate people, music must be a vital part of our children’s education.”  – Yo-Yo Ma

As the Elville Center for the Creative Arts approaches its six-year anniversary in June, the foundation of its mission remains the same as we work to “Make a Musical Difference in the Lives of Children” each day by providing them the opportunity to learn music theory and application, experience cultural events related to the musical and creative arts, and to use music and the promotion of music-related activities to transcend social and economic divisions. The Elville Center partners with school music programs and local businesses to give the gift of music to children of all ages who want to participate in music but don’t have the means to do so on their own. The Elville Center refurbishes donated musical instruments, purchases new instruments for programs, provides rental instruments, offers support to develop music programs, partners with professional symphonies and other organizations to fund music education initiatives, and much more.

Due to COVID, now more than ever the support of interested clients and community members like you is critical to the Elville Center’s continued ability to keep music alive, and in many cases, help restore music to schools and the thousands of student musicians in Maryland that aren’t afforded the opportunities they desire to participate in music. School music programs are being defunded, and countless programs in existence don’t have the necessities to function properly to give student musicians the experiences they deserve in music education. Teachers do not have their own money to pour into their programs to pay for needed equipment, supplies, and instruments.  With COVID having affected schools since early 2020, music programs have been deemphasized even more with music teachers having to find creative ways to offer music remotely and in person.  As schools prepare for full-time in person learning in the fall, the Elville Center is being counted on to support our school music partners so they are fully prepared for a successful fall semester.

Since our last update, the Elville Center has been busy strengthening current relationships and building new ones as we work to assist as many music programs and student musicians as possible.  Some of our stories are below.  And to reiterate – these stories would not be possible without donations from people like you who support organizations like the Elville Center!

The Annapolis Symphony Orchestra Sponsorship and Educational Initiative

For a fifth consecutive season, the Elville Center is continuing its support as a major sponsor of the Annapolis Symphony Orchestra, a professional orchestra in Annapolis based in the historic Maryland Hall for the Creative Arts. Last year, the Center’s sponsorship paid for the bus transportation and tickets for 625 children, all from Title 1 schools, to attend the Annapolis Symphony Orchestra’s Concerts for Schoolchildren. The Symphony performs annual music education concerts for more than 2,600 elementary schoolchildren from Anne Arundel County Public Schools. Taking place during the school day, these educational performances expose students to symphonic music in a theater setting, regardless of their socio-economic status. The Symphony strives to introduce elementary schoolchildren to live music performed by a professional orchestra; to teach students about the four instrument families; to engage young listeners with multi-media elements, such as theater, dance, magic or puppetry; and to reinforce that music is fun and accessible.

Continuing our funding for this ASO’s music education initiative is our largest and arguably most important venture of the year, as it positively affects so many underprivileged students and directly fulfills our mission to give children the opportunity to experience cultural events related to music they never would have experienced otherwise.

The Annapolis Symphony Academy

As an offshoot to our relationship with the ASO, the Elville Center was recently introduced to the Annapolis Symphony Academy.  Led by Founder and Director Netanel Draiblate, the Academy’s mission is to provide a high-level music education to students of all cultural and economic backgrounds, while addressing the under-representation of minority musicians in the classical music field.

According to the Academy’s “Model for Diversity” on its website, “Half of the Annapolis Symphony Academy student body is comprised of underrepresented minorities (in today’s U.S. orchestras) in a model that emphasizes interaction and mutual respect. Regardless of a student’s cultural background, and through the incredible generosity of our donors, the Academy awards up to fifty percent of its annual tuition revenue in need-based scholarships. We believe this model provides a truly diverse student body, as it merges two overlapping, yet nonidentical, concepts of equality onto one program. Students are selected for the program strictly based on merit as well as their drive to learn and become better musicians.”

Beginning in June, the Elville Center will be providing high-level donated refurbished musical instruments of all kinds to support the Academy’s mission and student musicians as they pursue their musical dreams in through this groundbreaking educational opportunity.

Wiley H. Bates Middle School

The Elville Center continues to partner with its good friends at Bates Middle School, led by Director of Bands Dr. Maximus Vanderbeek and Orchestral Program Director Ms. Kirsten Taylor.  This longstanding partnership is important as the instruments and equipment we provide Dr. Vanderbeek are divided among Bates Middle’s feeder elementary schools, expanding our reach to hundreds of additional student musicians in Anne Arundel County.  Along with our continuing monthly financial support of its guest artist/student teacher program, over the past several months the Elville Center has provided Bates with over 20 instruments for the school’s large band program and Performing Visual Arts Program, and has begun to offer instruments to its orchestral program as well.  A beautiful cello, a long-sought euphonium and tuba, violins, trumpets, flutes, and a rare cornet with a remarkable sound are now in the hands of Bates’ student musicians as music resonates through its halls in preparation for its next performance.

The Elville Center also orchestrated the delivery of a fine Roland KR-7 digital piano to Bates in May, which was donated to the charity by a former music instructor at Loyola University.  While pianos are not typically something we delve into at the charity, when there is a need from one of our partners and an opportunity presents itself, the Elville Center will make it happen!

REACH! Partnership

In one of our most important endeavors to date, this April the Elville Center reconnected with the REACH! Partnership, a Baltimore City charter school whose band program is in its relative infancy; however, this does not mean the dreams and desire to enhance its students’ lives with music education is not there – because it is with wholehearted enthusiasm!  Hard work has been poured into the school’s band and choral programs over the past three years as they continue to grow in scope and sound each year.  The Elville Center recognizes this and wants to be part of the movement that is REACH! Partnership Music!  With the assistance of the school’s remarkable Community Engagement Coordinator, Ms. Rhonda McKinney, the Elville Center delivered a large donation of instruments and supplies to the school, which included a five-piece Tama swingstar and ride drum set with high hat and crash symbols; a Peavy amp; three Fender guitars with attachments for the amp; two trumpets; two clarinets and a flute.  In May, the Elville Center received information regarding how it can support the school’s choral program as well, so our donation to the school as the fall semester begins will include support for not only the band but that program as well. 

Mr. Dick Clark, band director at the school, remarked, “Music is the soundtrack of Life!  “When music programs were removed from schools as part of the curriculum or even as an extracurricular activity, we lost that soundtrack from our students. We missed that sound of creativity of art through various instruments and even in voice.  It has always been the dream and desire of my principal, Dr. James Gresham, to have a music program at our school where we can bring that sound back to life!  Thanks to Mr. Stephen Elville, Mr. Jeff Stauffer and to the support of the Elville Center for the Creative Arts, this dream has now become a reality! We have a brand new 21^st-century building with a music room, where we can now not only teach our students how to play various instruments but to learn how to appreciate music as an art. We have a choir that made their debut at our Christmas program in 2019! They have been going strong ever since! We appreciate the generous donations and are excited about hearing that soundtrack of life throughout our building.”

Ms. McKinney continued with her thoughts about the importance of partnerships such as that of the Elville Center to REACH! Partnership’s growth and success, saying, “It is with sincere appreciation and a grateful heart that we say thank you for supporting the mission of the REACH Partnership School. We are excited about your contribution to support our students and staff.  Your contribution of the musical instruments and other musical supplieshas allowed us to better serve our school community.  Having supportive partnerships is essential to the success of our Community School model.  Our partnership remains a promising vehicle in our collective efforts to serve the needs of our students and their families.”

The Columbia Orchestra

The Elville Center is proud to support the Columbia Orchestra’s Young People’s Concert for a fifth consecutive year.  This year’s Concert took place on May 22^nd at the Chrysalis amphitheater in downtown Columbia and was a hit with the kids and their families as it has been for years.  A wonderful way to introduce children of all ages to music and the Orchestra, an ensemble, dancers from Dance Connections, and narrator Greg Jukes performed Prokofiev’s Peter and the Wolf!  In addition, music from Moana, Wizard of Oz, and more was enjoyed by all.

Germantown, West Annapolis, and Annapolis Elementary Schools

Not only is Dr. Vanderbeek at Bates Middle a valued partner of the Elville Center, he is a great referral partner as well, having suggested we reach out to Mr. Andrew Ritenour, Band Director at the three above-mentioned schools.  In speaking with Mr. Ritenour, he shared with me some information about his music education programs, including the challenges COVID has presented over the past year.  His schools serve high-poverty neighborhoods, and this year he had half the number of band students he would have in a typical year.  Instruments are always needed at his schools, as students’ families typically don’t have the resources available to rent them. 

As we receive our next batch of donated refurbished instruments from our valued partner, Music & Arts Center of Severna Park, as he’s asked, we’ve assured Mr. Ritenour to expect a delivery of trumpets, saxophones for his bands, as well as violins for the orchestral programs at his schools.

“My students and I are grateful for the instruments you send our way!” noted Mr. Ritenour.  “Thank you so much for all you’re doing to put instruments in the hands of students who wouldn’t otherwise be able to play – sometimes their participation in these groups is the primary reason they want to come to school!  Music education is that important to us here!”

The Elville Center needs your support to further its important work and help develop new relationships that are depending on the charity. Every one of the refurbished instruments and equipment the Elville Center provides school music education programs along with other educational initiatives we support are not possible without donor support. We need those instruments that you don’t use anymore and are taking up space. And, most importantly, we need your monetary support to help refurbish those instruments, purchase supplies, and facilitate cultural learning experiences for student musicians in need. As a 501(c)(3) non-profit corporation, all donations made to the Elville Center are tax-deductible. To donate or learn more about the Elville Center for the Creative Arts, please visit www.elvillecenter.org, contact Jeff Stauffer at jeff@elvillecenter.org, or call 443-676-9691.  We value and appreciate your support!

“Music is a more potent instrument than any other for education, because rhythm and harmony find their way into the inward places of the soul.” Plato

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By:  Olivia R. Holcombe-Volke, J.D. – Senior Principal and Estate Planning Team Leader – Elville and Associates, P.C.

Initially, my thoughts on this topic – “Financial Planning Aspects of Estate Planning” – were to elucidate and emphasize the importance of working with a financial planner (as well as a tax planner) as part of the estate planning process.  I find that many potential clients with whom I meet do not yet have a financial or tax planning professional as part of their growing cadre of advisors, and some even (innocently, but mistakenly) expect that I will be able to provide such guidance and expertise.  However, as I further developed this idea, I realized that the topic of the “Financial Planning Aspects of Estate Planning” covers much more than just that one important piece – and there is a lot more that I want to say when trying to explain the vital role that financial planning plays in any successful estate plan, and why, and how.

As is true with the subject matter of “estate planning,” I find that, while many people may have a vague sense of what “financial planning” means, it can be useful to start with a basic description.  At its core (and, keeping in mind that, as previously indicated, I myself am not a financial planner, so this is a very basic description), financial planning involves performing an analysis of personal life circumstances (including family, health, age, life stage, etc.), taking into account goals, and tolerance for risk, and determining how, amongst the choices available for investments and uses of assets, when combined with appropriate budgeting and tax planning, someone can achieve personal financial goals.  In sum?  It involves planning for and ensuring that the necessary sources of assets exist to adequately fund lifetime and after-death goals.

When juxtaposed to this, it is interesting to see how similar the structural description of “estate planning” is.  Estate planning involves performing an analysis of personal life circumstances (family, health, age, life stage, etc.), and taking into account goals, and tolerance for risk, as well as the financial/asset picture (i.e. what assets comprise the estate?), and determining how, with the appropriate legal documents and structure, someone can achieve personal estate planning goals.  In sum?  It involves planning for and ensuring that the necessary legal structures are in place to accomplish lifetime[1] and after-death goals.  All of which sounds remarkably similar to the basic structure and description of financial planning.

Thus, the financial planning aspects of estate planning can best be described as 1) determining if you have sufficient assets (perhaps of particular types and structures) to accomplish your estate planning goals, and 2) ensuring that your assets are structured properly with your estate planning documents to successfully accomplish your goals. 

This latter point is called “asset alignment,” and it is a vital and often overlooked aspect of estate planning.  Thorough and accurate asset alignment is absolutely necessary for the success of an estate plan.  Its importance truly underscores the utility of working with professional financial advisors, tax, and estate planning advisors, who will have the knowledge and ability to assist in the necessary alignment of assets, to ensure that a client’s goals and intentions don’t end up suffering from failure due to entirely innocent missteps on the client’s part, based upon common misconceptions regarding how asset structures work in terms of lifetime access and after death distribution.    

An example of one such common misconception is that a Last Will and Testament document covers every asset that someone might own – that is, that what the Will says will apply to every asset owned by the person signing the Will.  This, in fact, may not, and regularly, is not, true.  For example, how an asset is titled will have an impact on whether or not the Will applies to it.  Is the asset owned individually, or is it owned jointly with another person (or multiple people)?  Furthermore, if an asset has a beneficiary designation, or a Payable on Death (POD) or Transferable on Death (TOD) designation, this will have an impact on whether (and how) the Will applies to it.  Thus, depending upon the answers to these asset specific questions (and more), an individual’s Will may not actually apply to and control the distribution of everything that individual owns.  Without taking a comprehensive look at both the estate planning goals AND the assets and how they are structured, the assets may not in fact correlate with the plan in the manner that is believed or intended.

Another example of common and entirely innocent missteps that can occur when actions are taken without the assistance of professional advisors, or, more specifically, without a thorough understanding of the financial planning aspects of estate planning, is with regard to a seemingly simple action (adding someone else’s name onto an account or property) with the potential for grave and unintended consequences.  Many people conclude that they do not need formal or complicated estate planning documents, but will instead skirt that necessity by simply adding someone’s name (like their adult child) to their accounts or real estate.  The risks of which most people are unaware is that by adding someone’s name to an asset, you are also adding exposure of that asset to that person’s creditors (of which the most common ones are divorce and car accidents) – not to mention possible gift and capital gain tax consequences (among other things).

A successful estate plan is one that includes the necessary legal documents AND the comprehensive alignment of assets with those legal documents (and the goals covered therein).  None of this is intended to imply that a successful estate plan is one without any reliance on Payable on Death/Transferable on Death or other beneficiary designation structures, or joint ownership of property.  Rather, the point is that a successful estate plan requires a comprehensive review and understanding of how the various assets and legal documents and structures work, to ensure that they are structured to successfully work together in the desired and intended manner.  Not to mention that taking financial planning into account in conjunction with estate planning can go a long way toward ensuring tax minimization and avoidance, asset protection, the use of the most appropriate assets to accomplish particular goals (charitable goals, for example), and adequate preparation for an unknown future with regard to potential healthcare needs and costs.

^{[1] An oft overlooked reality of estate planning is that it is not isolated to what happens after death.  It also addresses what, whom, and how you want your physical and financial realities handled if you are alive but incapacitated (or otherwise need assistance) for any reason.}

To listen to and watch this year’s April 22^nd webinar I presented on this topic, please visit our website’s “Webinar Recordings” section or click the link here. 

Ms. Olivia Holcombe-Volke is the Senior Principal, Estate Planning Team Leader and member of the Executive Management Team of Elville and Associates.  She handles all aspects of estate planning, including the initial drafting of wills, trusts, advance directives, and powers of attorney, as well as the continued revision and updates of those documents as life and statutory changes occur. She also regularly works with clients who have elder law and/or special needs concerns, whether on behalf of themselves or a family member, assisting with Medicaid and Veteran’s asset protection efforts, special needs planning, and the difficult issues attendant to mental and physical incapacity.  Olivia can be reached at olivia@elvilleassociates.com, or 443-393-7696 x120.

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The Setting Every Community Up for Retirement Enhancement (SECURE) Act is one of the most significant pieces of retirement legislation in more than a decade. On March 7, 2020 at Elville and Associates’ Client Care Program continuing legal education event, the firm’s Managing Principal and Lead Attorney, Stephen Elville, stated that the SECURE Act, and the income tax ramifications it has for most of our clients (mainly, the acceleration of income tax to beneficiaries of inherited IRAs), is arguably the most important tax and asset protection issue clients have been presented with in the past 10 years. In his view, there are basically two main issues (or questions) clients and their families need to address. They are: (I) determine whether any changes need to be made to your estate planning documents; and (II) determine whether you wish to (or should) address the income tax and other impacts of the SECURE Act on your retirement plan assets, your non-exempt beneficiaries, and your estate plan as a whole, including the acceleration of income tax to your beneficiaries, loss of tax deferral to your beneficiaries, and potential loss of asset protection to your beneficiaries.

Mr. Elville will discuss The SECURE Act – One Year Later, and how it will impact your estate planning and retirement. Key topics for discussion include:

• Limiting Stretch IRAs

• Annuity allocations in 401(k)

• No IRA contribution age limit

• Small employer retirement plans

• RMDs, required minimum distributions, at age 72

• Expansion of 401(k) plan participation to more part-timers

• More informative statements for defined contribution plans

• Limited penalty-free distributions on birth or adoption of a child

• Acceleration of RMDs for most inherited retirement accounts

• “Kiddie tax” provision

• Expansion of section 529 plans

 

More Webinars from Elville and Associates

The education of clients and their families through counseling and superior legal-technical knowledge is the mission of Elville and Associates.  We hold multiple educational events every month. Click to view our calendar of educational webinars and events or visit the Elville and Associates YouTube channel to view recordings of our past webinars.

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