Author: Henry Grix

The IRS this week issued Information Release 2020-187 to remind IRA owners and beneficiaries, as well as participants in workplace retirement arrangements, that they have until August 31 to return required minimum distributions (“RMDs”)received earlier this year and, thereby, avoid paying income tax on the distribution in 2020.  The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, provides that RMDs need not be made during 2020.  A taxpayer who returns an unwanted RMD by August 31 can avoid paying income tax on that distribution, allowing the returned funds to be invested tax-free for another year.  This opportunity applies to IRA owners and beneficiaries, including beneficiaries of “inherited” IRAs.

The CARES Act also expanded the ability of certain retirees and certain beneficiaries to withdraw or borrow from retirement arrangements under favorable terms.

For more information, please contact Henry Grix at hgrix@dickinsonwright.com or review the IRS website questions and answers at https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Lifetime charitable giving, properly planned, may afford income tax savings. Under current federal income tax law, the income tax charitable deduction is available to taxpayers who itemize deductions rather than take the standard deduction. The standard deduction is $24,400 for a married couple, filing jointly in 2019 and half that amount for a single individual. Given the amount of the standard deduction and the $10,000 cap on the deductibility of state and local income and property taxes, the charitable income tax deduction is useful in years when a taxpayer can afford to be generous. For example, a taxpayer may consider making one or more substantial charitable gifts in a single year when the taxpayer will itemize deductions by establishing a donor advised fund with a financial institution, favorite charity or community foundation. The taxpayer then can itemize and take the charitable deduction in a single year when the gift is made but can recommend grants out of the donor advised fund to favored charities over the course of several years.

To learn other tax efficient ways to give to charity, contact Henry Grix in the Troy, Michigan office at 248-433-7548 or another DW trusts and estates or tax lawyer.

The 2017 Tax Cuts and Jobs Act raised the amount that can be sheltered from federal estate tax in 2019 to $11.4 million for an individual and double that amount, or $22.8 million, for a married couple. Why undertake any estate planning in this relatively tax-free environment? Here are some compelling reasons:

• After 2025, the current high exclusion amount is scheduled to be cut in half. Given the instability of our current law, individuals and couples with larger estates need to monitor whether their current plans will accomplish their intentions now and into the future. For example, should very affluent individuals act now to lock in the benefit of the current high exclusion through lifetime gifts?
• Income tax planning is an important component of estate planning. For individuals and couples with nontaxable estates, does their current planning provide appropriately for their loved ones and take adequate account of income tax planning? At death, assets (with certain important exceptions) receive a basis adjustment to date of death values with the result that income tax on built in gain can be avoided. Have individuals and couples planned to maximize this potential benefit?
• All individuals and couples need to make advance planning for the potential financial risks associated with lifetime disability. The uncertainty of our current law spotlights the benefit, in the proper case, of granting trusted family members or friends authority to adjust a disabled person’s planning if and when our law produces unintended estate planning consequences.

If you have any questions or would like further information, please contact Henry M. Grix in the Troy, Michigan office at 248-433-7548.