Stapleton Elder Law

More Changes Coming to Medicare in 2018

Higher fees are coming to high earners, when income thresholds for the highest surcharge tiers drop even further next year.

If you were hit with premium surcharges for Medicare Part B and Part D already, these costs will increase again in 2018, according to a recent article in Kiplinger, “Medicare Surcharge Thresholds to Drop.”

This recalibration of the trigger points was a part of the Medicare Access and CHIP Reauthorization Act of 2015, also called the "Doc Fix" law, which ended the annual battles over fee schedules for doctors' Medicare payments. To help pay for the permanent fix, lawmakers have asked high-income beneficiaries to foot the bill.

There’ll still be four surcharge tiers for 2018, and there’s no surcharge for beneficiaries whose modified adjusted gross income (MAGI: AGI plus tax-exempt interest) is less than $85,000 for single filers or $170,000 for married taxpayers filing jointly.

However, the tops of the other tiers are going to be compressed. As a result, some income levels that were in tier two will move to tier three, and some beneficiaries previously in tier three will jump up to the most expensive tier four. The highest surcharges were previously triggered when MAGI passed $214,000 for singles and $428,000 for married couples. Now the trigger points will drop 25% in 2018, to $160,000 and $320,000 respectively.

Your 2016 tax returns are used to determine your 2018 Medicare premiums. Those returns have already been filed. Therefore, you could be stuck with higher premiums, unless you qualify for a waiver because of a life-changing event like retirement or the death of a spouse.

But if you think your income will be at similar levels in 2017, you still have some time to try to lower your MAGI for this tax year to reduce your 2019 Medicare premiums.

If you might be on the border of a tier threshold, consider tapping into sources of income that are exempt from MAGI, such as Roth account distributions, health savings account distributions, loans from cash-value life insurance, a portion of nonqualified immediate annuity payouts and reverse mortgage proceeds.

Another move to consider: if you were planning on supporting a local not-for-profit anyway, 2018 may be a good year to plan on making a direct charitable contribution from your IRA, if you are required to take RMDs (Required Minimum Distributions) from your retirement accounts. A qualified charitable distribution won’t count towards your MAGI.

Reference: Kiplinger (June 2017) “Medicare Surcharge Thresholds to Drop”

To learn about estate planning and asset protection strategies in retirement and beyond, please visit our website. 

How Do Donor-Advised Funds Work?

For families with a tradition of philanthropy, DAFs provide a way to make donations, minimize paperwork and, if desired, keep those donations private.

There are many different ways to support organizations and causes that share your family’s values, but one that is growing in popularity is the Donor Advised Fund (DAF). Before deciding whether or not to use a DAF, consider the type of assets that you would like to donate, the size of your gift and the timing of your gift.

Many folks take advantage of donor-advised funds (DAFs) to simplify their giving and take an immediate tax deduction. DAFs let the donors set the pace in determining recipients and distributing funds. There are no IRS requirements for minimum annual distributions. These and other features have made DAFs the fastest-growing giving vehicles in the U.S., says Kiplinger’s article “Are Donor-Advised Funds the Best Charitable Giving Vehicle for You?”

DAFs are maintained by major financial institutions like Fidelity and Vanguard. They manage the recordkeeping and tax reporting for a fee. Contributions within these accounts can be invested to the donor’s specifications and grow tax-free.

As far as IRS value calculations, directly donating securities is like donating cash. The charity has to be set up to accept publicly traded or private securities. The donations of securities and other appreciated assets are limited to 30% of adjusted gross income (AGI), and cash donations are limited to 50% of AGI. The same limits apply to DAFs. Moving appreciated stock into a DAF results in the donor taking an immediate tax deduction for its full market value and protection against the tax-dollar hit. DAFs have no payout requirements in terms of timing or funding, so the donor can take time to plan the charitable distributions.

The benefits of direct giving include writing a check, making a contribution with a credit card, or donating a used vehicle, which you can do on the last day of the year for tax purposes. Writing a check is still the simplest option for many, but the catch there, is that you have to do the recordkeeping.

Wealthy families who are in the public eye, often chose DAFs because the donation is made through the financial entity that holds the DAF, which means that the donation is completely private. Another nice feature: you can make the DAF a family affair, naming it after your family, having members of the family work to create a mission statement and decide what cause or causes the family wishes to support.

Reference: Kiplinger (November 2016) “Are Donor-Advised Funds the Best Charitable Giving Vehicle for You?”

 

To learn more about including charitable giving in your estate plan, please visit our website.

Mary Tyler Moore Succeeded as an Entrepreneur, Philanthropist and Actress

Once known as “America’s Sweetheart,” Mary Tyler Moore made smart decisions as an entertainment business mogul that gave her the financial wherewithal to control her career and support causes that were meaningful to her.

In 1969, Mary Tyler Moore learned that she had diabetes. She made defeating the disease a central part of her life. She used her celebrity status to raise awareness, helped raise millions of dollars for research and proved her doctors wrong by living many years after her initial diagnosis. Trust Advisor’s article, “Mary Tyler Moore: Will Charities or Estranged Relatives Inherit?”, details her success over the years and how her estate is likely to be distributed.

Mary lived as comfortably as her health permitted, courtesy of the television empire she built after her signature roles ended. As far as estate planning, Mary buried her only son and never bonded with ex-husband Grant Tinker’s children. She called them “his” family, when he died a few months ago.

Since we can assume the stepchildren won’t receive a sizeable chunk of her estate that leaves her husband of 33 years, Connecticut cardiologist Robert Levine as her primary heir. He’s legally entitled to at least a third of whatever Mary left behind under state rules.

Even though there were rumors and reports of domestic disputes during Moore’s declining health, she could have divorced him and cut him out of the will at any time. But Moore died married. As a result, Connecticut law says her husband will get the spousal share, estimated to be about $20 million.

One of her best career moves was withdrawing from active celebrity life in the early 1980s. Intentional or not, moving out of the limelight gave her time to focus on the TV production empire she’d built with then-husband Grant Tinker.

The company, MTM Productions, bore her initials and was very profitable into the late 1980s. The company produced shows like “Hill Street Blues,” “Newhart,” and “St. Elsewhere,” and MTM earned more than $40 million a year.

Once Tinker was gone, Moore got a quarter of that cash flow. This steady income allowed her to decline roles she did not like. The sale of the company in 1988 realized $60 million and one last stock payout of $5 million. It was a smart executive exit.

Mary Tyler Moore will be remembered as a star, but she lived like an entrepreneur—generating a great deal of passive income. She gave much of her corporate payout to her favorite charities, such as juvenile diabetes research and animal protection. She also began her philanthropy early.

Many philanthropists don’t see the results of their generosity, because their support occurs after they have passed on. Mary Tyler Moore established her philanthropic role early, got to see the results of her efforts and made a difference in the organizations that were meaningful to her. As a result, she left a legacy in many different arenas, from popular culture to medicine and animal protection.

Reference: Trust Advisor (January 30, 2017) “Mary Tyler Moore: Will Charities or Estranged Relatives Inherit?”

To learn more about including charitable gifts in your estate plan, please visit our website.

Modest California Couple Leaves an Unexpected Legacy to Area Organizations

This unassuming couple will be long remembered by community groups who will benefit from their generosity. A garden will be named for them at local hospital.

Rideout Health Foundation and four other local not-for-profits will receive generous donations from the estate of Doug and Jean Goss. The $2.2 million donation to the hospital foundation was completely unexpected, although Jean Goss had been a patient at the facility in the last few years of her life.

The (Marysville, CA) Appeal-Democrat reported in “Couple leaves $2.2M donation to Rideout” that the couple, who did not have children, donated their estate to area charities. $2.14 million will go to the hospital foundation's general fund—with more than $100,000 to benefit the foundation's scholarship fund.

Rideout CEO Gino Patrizio said, "The majority of the gift will go into the foundation's general fund, which we are using to create a lasting endowment to support the organization in perpetuity."

Jean was known to all as an avid gardener who tended to 75 rose bushes and 12 citrus trees. In light of this, the foundation plans to name the Healing Garden in the new hospital tower at Rideout Regional Medical Center after the Goss family. They will also plant rose bushes in their honor.

Doug grew up in Marysville and spent 40 years working as an electrical engineer for Pacific Gas & Electric. Jean was born in Dana, Indiana and moved to Yuba City in 1950 after marrying Doug. She was employed part-time in the County Assessor's Office.

The couple started working on their estate plan in the early 1990s. Long-time friends of the Goss family, Gene and Joan Erfle, didn’t know how much money they had until Gene was named as a trustee of the estate. As trustee, Gene followed the Gosses' wishes to give donations to Rideout Health Foundation, the Museum of the Forgotten Warriors, Sutter Buttes Canine Rescue, Mary Aaron Museum and the Community Memorial Museum of Sutter County.

In her later years, Jean had a heart condition that required frequent care at Rideout. She developed good relationships with the staff.

The Gosses created a legacy that will have a positive impact for many years to come on a community that was clearly very important to them. It should be noted that this kind of planning is not limited to “modest millionaires.” An estate planning attorney can help create a legacy for your family and your community—at any level of giving.

Reference: The (Marysville, CA) Appeal-Democrat (August 6, 2016) “Couple leaves $2.2M donation to Rideout”

To learn more about creating a legacy for your family and your community, please visit our website. 

Reap Tax Benefits from Sharing Your Art Collection

Building an art collection is deeply satisfying, but when preparing for estate planning, art collections present a myriad of challenges. One solution is a win for the owner and the art institution.

Here's how a little creative thinking and a lot of attention to detail creates a solution for art collectors who need to address their collection for estate planning but are not ready to part with their artwork. The icing on top is a terrific tax deduction.

Barron's recent article, "The Benefits of Owning Art Part-Time," explains that you can make this happen by gifting a "fractional interest" in your artwork to a museum or charity of your choice. So you'll be sharing ownership of your painting with a worthwhile nonprofit.

If you were to donate 50% of a painting worth $2 million to your local art museum for their fall and winter exhibits, the IRS would permit you to bring the work back to your home and enjoy it during the spring and summer and still claim a tax deduction of $1 million, or one-half of the artwork's market value.

You can't cut a painting in half, but sometimes clients want to gift the piece and still keep it for a while longer before they give it away altogether.

You should create and sign a detailed document outlining the gifting agreement. The document needs to carefully address several issues, such as the time frames each party will use the artwork, the party responsible for its maintenance when it's out of the original owner's control, the party responsible for insuring the art, and any specific uses for the art while under a party's control. You should also note any restrictions on the new co-owners loaning out the artwork to third parties when it's in their possession.

The IRS says the artwork must be gifted in entirety no later than 10 years after the agreement was signed. In our example, your remaining 50% has to be gifted to either the same museum or another charity within 10 years. If you fail to do so, your deduction on the initial gift becomes income. In Year One, you received a $1 million deduction; however, in Year 10, you can't go back and amend those taxes. As a result, it shows as $1 million in income. But once you make a gift of the remaining half, you receive a second tax deduction of $1 million.

If you don't live in a large metropolitan area, the art gallery at a local university or an arts-related charitable group may be open to this kind of sharing arrangement. Consider any of the places in your community where art is displayed well and where a highly trained curator is in charge of exhibits. This might be a public space associated with a hospital or a corporate center. It is rewarding to collect art, but it is also rewarding to know that you are sharing your art with an appreciative public.

Reference: Barron's (May 17, 2016) "The Benefits of Owning Art Part-Time"

To learn more about estate planning strategies to help protect your assets, please visit our website. 

Retirees Should Know These IRS Audit Red Flags

The odds of the IRS auditing your tax returns are pretty low, but why take that chance?

Certain transactions and situations that tend to occur more in retirement than during working years are red flags for the IRS. Even though only 0.84% of all individual tax returns are audited, knowing about these tips from Kiplinger's "9 IRS Audit Red Flags for Retirees" will help minimize your chance of being among the "lucky" ones.

Math errors may draw an IRS inquiry, but they don't usually mean an audit. Nonetheless, review these red flags that could increase the chances that the IRS will give the return of a retired taxpayer some very special and unwanted attention.

The overall individual audit rate is only about one in 119, but the odds go up significantly as your income increases—like if you sell a valuable piece of property or get a big payout from a retirement plan.

IRS statistics show that folks with incomes of above $200,000 had an audit rate of 2.71%—about one out of every 37 returns. If you report an income of $1 million or more, there's a one-in-13 chance your return will be audited. The reverse is also true as the audit rate plummets for those reporting less than $200,000, with just 0.78% or one out of 128 of those returns audited—the majority of these exams were conducted by mail.

Make sure you report all required income on your return because the IRS is good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill. If you receive a tax form showing income that isn't yours or listing incorrect income, you need to ask the issuer to file a correct form with the IRS.

Taking Higher-Than-Average Deductions. If the deductions on your return are disproportionately large compared with your income, the IRS may pull your return. For example, a costly medical expense could alert the IRS, but if you have the proper documentation for your deduction, you shouldn't be afraid to claim it.

Claiming Big Charitable Deductions. If your charitable deductions are very large compared to your income, it'll be a red flag. Likewise, if you fail to get an appraisal for donations of valuable property or fail to file Form 8283 for noncash donations over $500, you are a bigger audit target. Retain all of your supporting documents, such as receipts for cash and property contributions made during the year.

Failing to Take Required Minimum Distributions. The IRS will check to see that you're taking and reporting required minimum distributions (RMDs). The penalty for not taking your RMD is equal to 50% of the shortfall. Also, IRS looks at early retirees or others who take payouts before reaching age 59½ and who don't qualify for an exception to the 10% penalty on these early distributions. Those age 70½ and older must take RMDs from their retirement accounts by the end of each year, but there is a grace period for the year in which you turn 70½, allowing you to wait until April 1 of the following year.

You can delay taking RMDs from your current employer's 401(k) until after you retire, but note that this does not apply to IRAs. How much you take every year is based on the balance of your accounts on the very last day of a prior year and the life-expectancy tables from the IRS. An experienced estate planning attorney will be able to help you navigate these financial waters.

Reference: Kiplinger (February 2016) "9 IRS Audit Red Flags for Retirees"

To learn more about planning for your retirement, please visit our website.