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July 2020 - In This Issue:
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NEW LABOR DYNAMICS
FLEXIBILITY IN PAYROLL PROTECTION
REDUCE ESTATE TAXES TO ZERO
ARTICLES OF INTEREST
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For many of us COVID-19 has caused a reaction to reality: Should I reassess my risks? We all have a renewed sense of just how fragile we are, and are evaluating the steps we can take to reduce that fragility.
In terms of family financial security, there are steps you can take to reduce some risks immediately, moves that have little or no costs associated with them. A recent
Forbes article highlights a survey that suggests a renewed focus on estate planning has arisen as we consider our mortality, and lists the following strategies that
we often recommend:
- Share passwords and make arrangements for digital assets.
- Create a medical directive (Living Will).
- Inventory your assets.
- Create a Will, Power of Attorney, or Trust.
Communication is one of the keys to success, and the key to communication is information. If you don't know what you own and how you own it, it's going to be difficult for others to get that information too. If your passwords are all in your fingerprint or face ID, what happens when that fingerprint is no longer available to unlock those accounts?
Once an inventory of both physical and digital assets is created, you can move on to the next step of creating an asset distribution plan.
The plan should answer these questions: Who will inherit? What or how much will each beneficiary inherit? When will they inherit (immediately or at a future date)? If the inheritance is delayed, who will manage the assets in the meantime?
Once you have the answers to these questions, it will be much easier to create a will or trust. At that point you can also better assess your own needs, and consider the divesture of particular assets to reduce confusion and arguments and take them out of the estate settlement process. The sentiments, value, or origin stories of particular objects often get lost because it is believed that the beneficiaries already know those details. Approaching the divesture head-on can preserve that sentimental value because a conversation is had about the divesture as it's occurring.
Having an estate plan in place provides some peace of mind that may be really needed right now for loved ones, and also could have a tremendous impact should the worst come to pass. Proper estate planning helps preserve not only assets, but also independence, dignity, and values.
Every situation is unique to each individual considering a plan. We will be more than happy to help you get started or review what is already in place.
Stay well!
Sincerely,
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The report on jobs and unemployment in June blew past the predictions of experts. Some 4.8 million jobs were added in the month, and the unemployment rate fell to 11.1%. What's more, May had a better record than previously thought, as the May figures were adjusted upward. Of course, 11.1% unemployment remains a terrible problem to be solved, but the fact that there has been this much progress is very good news indeed.
One major contributing factor to employment being as strong as it is has been the move toward working from home. Stanford economist Nicholas Bloom has conducted a nationwide survey of employment practices, and has published his findings at the Stanford Institute for Policy Research. Key observations:
- 42% of U.S. workers are working full time from home. They account for about two-thirds of economic activity.
- Only 26% of those in the survey are working on their employer's premises. These are primarily essential service workers.
- Speed of internet in the home is an important variable. Some 35% of respondents have such slow internet connections that they are not able to participate in workable video calls.
Bloom expects working full time from home to continue as the norm after the coronavirus pandemic subsides, even if a vaccine is developed. Employees appreciate the absence of commuting, employers are rethinking how much office space they really need. At the same time, employers are reducing density in the office environment to promote social distancing.
These changes in work habits suggest that the growth of city centers will stall, which would have follow-on effects on restaurants and entertainment in downtowns. In an interview about the survey, Bloom concluded, "If I were a company right now planning the future of my office, I would be looking to the suburbs."
(July 2020)
© 2020 M.A. Co. All rights reserved.
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FLEXIBILITY IN PAYROLL PROTECTION
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The House passed the Paycheck Protection Program Flexibility Act of 2020 [H.R. 7010] by a 417-to-1 vote on May 28, and the Senate followed up by unanimous consent on June 3. Key flexibility added with the act:
- businesses have 24 weeks instead of eight to spend the loan proceeds;
- only 60% of the proceeds must be used for payroll;
- loan maturity expanded to five years for the portions of the loan not forgiven;
- qualified employers may defer payroll taxes even if they have received a PPP loan, a result explicitly forbidden in the CARES Act.
When the CARES Act was enacted, most observers expected the economic lockdowns to last for only two weeks, so the original eight-week bridge seemed enough. Unfortunately, as the lockdowns extended on, the federal government was demanding some small businesses spend money on payroll while their state governments were demanding they stay closed. That severely diminished the efficacy of the PPP loan program.
If a business has a PPP loan forgiven because the proceeds were used for payroll as Congress intended, are those payroll expenses still deductible? No, said the IRS in Notice 2020-32, that would be double dipping. "So what?" some senators have responded, as that was the result that they intended with the law because of the severity of the economic calamity. A bill to reverse the IRS notice, S. 3612 [the Small Business Expense Protection Act of 2020] has advanced in the Senate.
(July 2020)
© 2020 M.A. Co. All rights reserved.
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REDUCE ESTATE TAXES TO ZERO
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With the temporarily doubled exemption from the federal estate tax ($11.58 million per person in 2020), not many families need to worry about this aspect of estate settlement. For those who still have that concern, or who expect to live until 2026 when the exemption is scheduled to fall roughly in half, a recent private letter ruling shows an IRS-approved method to bring that tax down to zero.
A taxpayer's estate plan includes a marital deduction trust should his spouse survive him. At the spouse's death, the trust becomes a charitable lead annuity trust (CLAT). This kind of trust pays income to a charity for a set period, after which the assets pass to private beneficiaries without additional tax. The annuity in this case will be 5% of the initial value of the trust. The term of the trust will be determined by a formula, rather than set as a fixed number. The trust will last the number of years required to create a charitable deduction large enough to bring federal estate tax obligations down to zero.
Should the spouse die first, the CLAT will be created by Taxpayer's estate, with the same formula--a 5% annuity for the number of years needed to zero out the federal estate tax then due. (Separate trusts were created to use of the value of the unified transfer tax credit.)
In private advice (Private Letter Ruling 201933007) the IRS held that the formula will provide numbers that are determinable as of the date of creation of the CLAT, and therefore the charitable deduction will be allowed.
Interestingly, by using a formula instead of a set number of years, this plan will bring the estate tax down to zero regardless of what Congress does about the estate tax in the future. Should the amount exempt from estate tax drop on schedule, the income going to the charity will last longer, long enough to offset that change. If this element of the estate plan is not earlier amended, there will be no estate tax due for either Taxpayer or spouse, regardless of the order of death.
(July 2020)
© 2020 M.A. Co. All rights reserved.
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Cherry Hill, NJ
Lebanon, NJ
Linwood, NJ
Toms River, NJ
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856-251-1300
908-287-7188
888-323-5535
732-255-5000
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2017. All rights reserved.
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