Guest post, by Stonehenge Consulting

Congress recently passed – and the President signed into law – the SECURE Act, landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means that now is the time to consider how these new rules may affect your tax and retirement-planning situation.

Setting Every Community Up for Retirement Enhancement Act (SECURE Act)

Key provisions affecting individuals:

Repeal of the maximum age for traditional IRA contributions

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.

Required minimum distribution age raised from 70½ to 72

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy. For distributions required to be made after Dec. 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72.

Partial elimination of stretch IRAs

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and non-spousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary’s life or life expectancy (in the IRA context, this is sometimes referred to as a “stretch IRA”).  However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively-bargained plans and governmental plans), distributions to most non-spouse beneficiaries are generally required to be distributed within ten years following the plan participant’s or IRA owner’s death. So, for those beneficiaries, the “stretching” strategy is no longer allowed.

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than ten years younger than the plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).

Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans

A Section 529 education savings plan (a 529 plan, also known as a qualified tuition program) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary’s qualified higher education expenses.

Before 2019, qualified higher education expenses didn’t include the expenses of registered apprenticeships or student loan repayments. But for distributions made after Dec. 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.

Kiddie tax changes for gold star children and others

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), which made changes to the so-called “kiddie tax,” which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after Dec. 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel (“gold star children”), first responders, and emergency medical workers.

The new rules enacted on Dec. 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. And starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child

Generally, a distribution from a retirement plan must be included in income. And, unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59-1/2 is subject to a 10% early withdrawal penalty on the amount that can be included as income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and so could not be used as the basis for making IRA contributions.

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.

Tax-exempt difficulty-of-care payments are treated as compensation for determining retirement contribution limits

Many home healthcare workers do not have taxable income because their only compensation comes from “difficulty-of-care” payments that are exempt from taxation. Because those workers do not have taxable income, they were not able to save for retirement in a qualified retirement plan or IRA.

For IRA contributions made after Dec. 20, 2019 (and retroactively starting in 2016 for contributions made to certain qualified retirement plans), the new rules allow home healthcare workers to contribute to a retirement plan or IRA by providing that tax-exempt difficulty-of-care payments are treated as compensation for purposes of calculating the contribution limits to certain qualified plans and IRAs.



by Bill Bereza, Associate Attorney

We still don’t know why the helicopter carrying Kobe Bryant and his daughter, among 7 others, crashed into a foggy hillside on January 26, 2020. Like with many unexpected deaths of celebrities, journalists have been speculating about what will happen to Kobe’s sizeable estate. The assumption seems to be that Kobe, who was known as being savvy with his finances, would probably have a well-planned estate.

We can all assume that if he did not have an up-to-date plan, there will be fights and news about his estate for years. We’ve all heard the stories when celebrities die without a will, or with an old will. Aretha Franklin was one of the recent, but the past includes Prince, Kurt Cobain, Jimi Hendrix, Bob Marley, Howard Hughes, and Pablo Picasso.

The fights that break out among the family members of deceased celebrities don’t just happen to the rich and famous. The same kind of long, drawn-out fights over estates happen in the families of many “regular folks” who leave their families with no plan for managing their estate. It doesn’t take $500 million to lead to a fight, fights happen over $50,000, $5,000 or even five family heirlooms.

When a loved one dies, people often fight hard over little things far exceeding their actual cash value. The fight over possessions is a way to fight over their connection to that dead parent, spouse, sibling. The thought often seems to be, “If mom loved me, she would have wanted me to have this thing. And because I loved her so much, I have to fight for it.”

Why Kobe Needed an Estate Plan and Why You Need One, Too

Your Kids

Parents should be concerned about who is going to care for their children should the worst happen. Would your parents and siblings all agree on who should raise your kids? Are they the people you would want to raise your kids? You don’t need wealth to need a plan when it comes to children.

Kobe had a spouse, living parents, siblings, and four minor children.

In 2011, Vanessa Bryant, Kobe’s wife, filed for divorce. Even though the divorce case was eventually dismissed and the couple reconciled, any time a person is dealing with divorce or possible divorce, they should think about what would happen to their things if they were to die.

In 2013, he was in a public legal dispute with his parents over some valuable memorabilia. Any legal dispute with a parent is an indication that you may want to avoid letting them get control of  your estate if you were to die. This is because, in most states, a parent would have the right to manage the estate of a deceased person or become the guardian of their children. Parents are also often the first in line to inherit if a person dies without a spouse or children.

Your Charitable Contributions

Kobe cared about charitable causes. In 2011, he and his wife formed the Kobe and Vanessa Bryant Family Foundation to provide education and support for at-risk and disadvantaged youth and their families. About his charity, Kobe said, “I wanted to help make a difference in homelessness and what better place to start than in my own back yard.”

In addition to this foundation, Kobe also supported the After-School All-Stars, the Make-A-Wish Foundation, Stand Up to Cancer, and the National Museum of African American History and Culture. If Kobe wanted to keep his charity wishes going, he would likely have planned for managing his foundation after he died, and for funding the charities from his estate.

Your Business

Kobe also had several business interests, include Bryant Stibel, a venture capital firm he co-founded, investments in companies like Body Armor, and a well-known brand, “Black Mamba”. All these interests would need management and planning to continue following his death. A man who sets up his own foundation and venture firms would likely have planned for his possible death.

Along with any type of business or personal investments comes the possibility of debts and liabilities. Part of what a good estate plan can do after death is to shelter your family and heirs from the liabilities of your life. For the average family, a good estate plan protecting a house from a spouse or parent’s credit card debt can make the difference between preserving the home and ending up being evicted by creditors.

Your Personal Net Worth

Finally, Kobe had a significant personal net worth of about $600 million according to recent reports. However, it’s not the money that makes an estate complicated, it’s the items, the family, the history, and the legacy that makes things tough.

So, why are celebrities important to estate planning? It’s not for the drama and money. It’s because it gets people talking about planning for the life of others after your death. No matter your beliefs on the afterlife, we all live on after death in the memories of others and the legacy we leave behind. Making a good last impression is just as important as making a great first impression.

If you’re interested in setting up an estate plan – or reviewing an existing plan – Carrier Law offers free consultations to help you determine the best plan for you.

Coming soon to your mailbox will be a notice of assessment for all real estate you own in Michigan. These are important notices, that can have serious consequences if ignored. You need to read this letter carefully because it shows the taxable value for the upcoming year.

If anything is wrong, you can appeal with the local Board of Review in March. In some cases, if you miss the March appeal, you lose the chance to ever appeal a decision by the assessor and in other cases, you might have to wait until next year.

Property Classification

There’s a lot of information on this form and it can be very confusing. The first part of the form shows the classification of your property. Some classifications are residential, agricultural, commercial, and timber. This matters when you’re transferring property. Depending on the property’s classification or your use, there are different types of property tax exemptions available.

The second part of the form is the most important, and often the most confusing for people: this covers Taxable Value, Assessed Value, and State Equalized Value (SEV).

Taxable Value

This is the value that is used for calculating your tax. Millage multiplied by taxable value is what you pay in property taxes. This number should only go up slightly from one year to the next. If this number has gone up significantly, or if it equals your assessed value, then your property taxes were probably “uncapped”.

Uncapping is when the taxable value is set to the assessed value after a transfer of ownership of the property. You should contact your assessor immediately if your taxable value was uncapped to find out why. In most cases, if you do not appeal this to the Board of Review in March, you may be stuck with the uncapping.

Assessed Value and State Equalized Value (SEV)

These two numbers are typically the same. The Assessed Value is supposed to be 50 percent of the market value of the property – the local city or township determines the assessed value.

State Equalized Value is the assessed value with an “equalization factor” applied. The equalization factor is determined by the county and state to correct for differing assessments across the townships and cities in a county. Two times SEV is often used as a rough estimate of the value of property.

If the Assessed Value doesn’t match half the actual value of the property, you can appeal to the Board of Review in March to have this corrected. In most cases, people only appeal when the assessment is too high. 

Tax Exemptions

The next part of the assessment shows the tax exemptions that apply to the property. The most common exemption people see is the Principal Residence Exemption (PRE) for their primary home. This reduces your property tax by the amount of the local school millage, up to 18 mills.

If you should have been receiving this exemption but weren’t, you can always reapply for the exemption next year. You can only claim the PRE on one property at a time. It’s up to you to make sure that you aren’t accidentally receiving this on multiple properties. The state will usually catch up to you with an audit, even if it takes years, and you could have a significant tax bill.

It’s important to be sure to rescind the PRE if the property is no longer your primary residence. This often gets missed by children after a parent dies, and the children keep the home. This mistake is often unnoticed until they receive an audit from the state asking for years of owed taxes.

It can be possible to claim the PRE on your home even if you’re in a nursing home or assisted living if you meet certain requirements. There are other exemptions for industrial facilities, renaissance zones, farmland, disabled veterans, forest land, and for reasons of poverty, among others.

Ask Questions

Any time you have questions about your assessment, the first place to start is to ask your local assessor. They will have the ability to provide information and advice about your individual situation. You can also go to an attorney who will advise you on your rights in appealing property tax problems with the local assessor, or with the State of Michigan.

Remember, there are important deadlines that apply to property tax. Your assessment is something that you should review every year because in some cases you only have one chance to appeal a mistake.