Blog

Impact of the SECURE Act

If you have kept up with current events, you know that January 1st marked a significant change to retirement accounts. On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).  The SECURE Act, which is effective January 1, 2020.   The Act is the most impactful legislation affecting retirement accounts in decades. The SECURE Act has several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts. However, perhaps the most significant change will affect the beneficiaries of your retirement accounts: The SECURE Act requires most non-spouse beneficiaries to withdraw the entire balance of an inherited retirement account within 10 years of the account owner’s death, rather than over their own life-expectancy.   The major impact, of course is the acceleration of the income tax due on any inherited accounts.   This is a win for Uncle Sam, as the government will receive the income tax on the retirement account faster; however, because of the acceleration, non-spouse beneficiaries will end up with less of the value than anticipated.

Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, or a divorcing spouse.  In order to protect your hard-earned retirement account and the ones you love, it is critical to act now. 
 
Review Intended Beneficiaries
 
With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information.  Whichever estate planning strategy is appropriate for you, it is important that your beneficiary designation is filled out correctly.  If your intention is for the retirement account to go into a trust for a beneficiary, the trust must be properly named as the primary beneficiary.  If you want the primary beneficiary to be an individual, he or she must be named.  Ensure you have listed contingent beneficiaries as well.  If you have recently divorced or married, you will need to ensure the appropriate changes are made because at your death, in many cases, the plan administrator will distribute the account funds to the beneficiary listed, regardless of your relationship with the beneficiary or what your ultimate wishes might have been.
 
Trusts as Beneficiaries of Accounts – Need for Updating
 
Prior to the SECURE act, so-called “conduit trust” provisions were commonly included in Revocable Living Trusts so that the trust would qualify as a ‘designated beneficiary’ so that the beneficiary’s life expectancy could be used for purposes of calculating the required distribution payout period.  If a beneficiary is not considered a designated beneficiary, distributions must be taken by the fifth year following the account owner’s death.  Under a conduit trust, any required minimum distributions (RMDs) would be paid directly to the trust’s beneficiaries over the calculated payout period, preventing premature liquidation of the account and leaving the retirement account itself safe from creditors.  With a 10 year mandatory liquidation of retirement accounts, conduit trusts will no longer provide the extended protection many account owners desire for their beneficiaries.  If you named your Revocable Living Trust as the beneficiary of your retirement accounts, you should revisit your plan and instead consider alternative planning options.  This will ensure that even with a 10-year required payout, the balance will remain protected within this trust for the benefit of your intended beneficiary–safe from creditors.
 
Charitable Giving As A Possible Solution
 

If you are charitably inclined, now may be the perfect time to review your planning and possibly use your retirement account to fulfill these charitable desires.  Because charitable organizations do not feel the impact of the income tax problem, designating a charity as direct beneficiary of your qualified retirement accounts (rather than non-tax dollars) would be a tax efficient means to plan to provide for charities after your death.

Alternatively, a charitable remainder trust may provide a solution. Such a trust would allow you, the grantor, to retain or name beneficiaries to receive an annual income stream from the retirement account. At the end of the term, the remaining funds would go to a charity named in the trust agreement. When the trust is created, the net present value of the remainder interest must be at least 10 percent of the value of the initial contribution. It can be payable for a term of years, a single life, joint lives, or multiple lives. Upon the plan participant’s passing, the estate will receive a charitable deduction for distributing the retirement account to the trust. Depending on the value of the retirement account, the age of the trust beneficiaries, and the current tax rate, the deduction will likely cover a large portion of the retirement account.

There are still a lot of questions surrounding the SECURE Act and the extent of the impact on taxpayers.  Proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances is imperative to ensure your estate planning goals are accomplished.  Schedule an appointment today to meet with us for guidance on how the SECURE Act could impact your estate plan.

Protect your Business with a Buy-Sell Agreement

An unexpected death, disability, or retirement.  An irreconcilable dispute.  Divorce.  These triggering events may put your successful, stable business into a tailspin. Luckily, a buy-sell agreement can help you and your business be better prepared to handle these events.

What is a Buy-Sell Agreement?

A buy-sell agreement is a legally binding agreement between co-owners of a business that controls what happens if a co-owner leaves the business—think of it as a change management tool.

What Should a Buy-Sell Agreement Consider and Include?

We’ve created this checklist as a starting point for discussing business transition. These topics will help you identify the goals, needs, and commitment levels of individual business owners as well as the goals and needs of the business itself. Discussing these matters with your co-owners will help you identify planning opportunities and minimize the risk of future business disruption or, worse, business failure.

The Buy-Sell Checklist

  • Are there any non-owners on the management team?
  • Do all of the owners participate in management?
  • Are there procedures in place to help ensure continuity of management during a transition?
  • Is there a possibility of deadlock (for example, 50/50 ownership)?
  • Is there a workable mechanism to resolve a potential deadlock?
  • Does your buy-sell cover common triggering events?
    • Death
    • Disability
    • Retirement
    • Termination of employment
    • Sale to a non-owner (right of first refusal)
    • Marital dissolution
    • Deadlock
    • Expulsion of an owner
  • If a triggering event occurs, will the buyout be mandatory or optional?
  • If a triggering event occurs, how will the value of an interest be determined? By formula? Appraised value? Predetermined price? Other (documented) method?
  • If a triggering event occurs, how will payment be made for the departing owner’s interest? May a promissory note be used to pay over time? What is the down payment, interest rate, and term of the note? Is the note secured or unsecured?
  • Will the parties use life insurance to fund the buyout obligation? Who will own the insurance policies? Who will be the beneficiaries?
  • Have you discussed the tax consequences with your CPA?
  • Are there any professional licensing considerations to ensure that the equity passes to a qualified owner?
  • Do the owners want to restrict the transfer of ownership interests? Are all transfers prohibited unless approved by the other owners? Or are certain transfers (such as to family or to a revocable trust) permitted without owner approval?
  • If the business is taxed as an S corporation, do the owners understand the importance of including provisions that restrict the transfer of equity to ensure that the business does not become disqualified from Subchapter S status?

Key Considerations

  • What type of business is this?
  • Do you currently have a signed buy-sell agreement?
  • Who manages the business?
  • How do the owners want to address employment issues, such as:
    • Compensation
    • Non-competition agreements
    • Non-disclosure agreements
    • Non-solicitation agreements
    • Protection of intellectual property and intangible assets

Here’s What to Do Next

Spend a few minutes going through the checklist and list of key considerations. If you want to protect your business, but your business doesn’t have a buy-sell agreement or you’re not sure the buy-sell agreement you currently have in place is adequate, give us a call.

We will review this checklist with you to either let you know whether you’re protected with your current buy-sell agreement or help you design and draft a comprehensive agreement that protects you and the business.

The Latest Retirement Savings Statistics

It is all over the media that nearly half of Americans aged 55 and older have no retirement savings in an individual retirement account (IRA) or 401(k) according to the federal Government Accountability Office (GAO). Also, while two out of five households do have a defined benefit plan (traditional pension), a full 29 percent of older Americans have nothing saved for retirement in any of these financial retirement tools. Retirement statistics have wide-ranging implications for the economic well being of aging baby boomers. But are the numbers being interpreted accurately? Contributing Forbes Magazine writer Andrew Biggs, who works on retirement policy, public sector pay and other economic issues facing Americans, says that the claim is factually incorrect. Furthermore, he feels how the media will cover the statistics and interpreted by politicians will continue to distort the facts.

According to FactCheck.org, the statistic the GAO uses is derived from the Federals Reserve’s Survey of Consumer Finances. This survey excludes those Americans who only have a traditional pension. While that may seem a small exclusion, it significantly changes the retirement savings statistic and forward trends for aging Americans’ retirement economic health. When both traditional pensions and retirement accounts are included, a full 72 percent of households aged 55 or more have retirement savings. In 1989 the same analysis criteria indicated only 64 percent of households had retirement income set aside. Therefore there is a net gain over time of 8 percent since 1989 and about 24 percent better than when looking at current statistics that only include an IRA and 401(k) as retirement savings.

If the statistics look much better when traditional pensions are included, why does the Federal Reserve exclude projected pension income in retirement forecast data? Traditional employer-sponsored pensions have fallen off dramatically for several decades. More often, employers are likely to contribute to a personal employee retirement plan like a 401(k). This makes good business sense for private corporations that only have to match or contribute half of an employee’s contribution and avoids the long term financial planning for employee pensions; in particular indexed pensions which progressively increase in value in an attempt to address inflation and the cost of living. The private sector has been bailing out of the responsibility of individual retired workers pensions for some time and for viable economic reasons.

Meanwhile, America’s public sector job pensions are at risk of becoming too expensive for municipalities, states, and even the federal government to guarantee. Cuts in future public sector pension benefits have become common for civil servants, and the reason is the same as for the private sector, cost. Underfunded and unfunded pensions are becoming the norm, which calls into question the reliability of pension plans themselves.

Retirement security is a serious and significant national issue that typically does not get enough thoughtful analysis. Attention-grabbing headlines can distort truths, but even in its best light, many retiring Americans are at significant risk for economic hardship as people are living longer than ever before. It is widely recommended that a retirement plan make provisions for 30 years and with dementia cases on the rise many of those 30 years for a retiree may become very expensive if it includes dementia care. Many retirees plan to rely heavily on their social security benefits check. The notion that social security benefits will be the social safety net promised is also at risk. Much like pensions, the promise of full benefit payment is now at risk to individuals and many retirees are projected to receive only 77 percent of their promised social security benefit payments according to the Social Security Administration’s (SSA) own admission.

The truth about retirement savings is as individual as you are. These overall projections can be both frightening and distorted with regards to your personal retirement experience. If you are 55 or older and still working, you have the control to make different and better decisions. Any proactive planning for your future retirement is better than abdicating responsibility to private firms and public employment sectors who may have mismanaged your retirement savings.

If we can be of assistance, please don’t hesitate to contact us. You can reach The Lynn Law Firm in St. Louis, Missouri by clicking here to send us a message or by calling us directly at (314) 997-0500.

Does Your Estate Plan Protect Your Beneficiaries?

If you think you only need to create discretionary lifetime trusts for young, troubled, or financially inexperienced beneficiaries, then think again. In this day and age of frivolous lawsuits and high divorce rates, discretionary lifetime trusts should be considered for all of your beneficiaries, minors and adults alike.

What Is a Discretionary Lifetime Trust?

A discretionary lifetime trust is a type of irrevocable trust that you can fund while you are alive – in which case you will gift your assets into the trust for the benefit of your beneficiaries – or after your death – in which case your assets will be transferred into the trust for the benefit of your beneficiaries after death.

The trust is discretionary because you dictate the limited circumstances when the trustee can distribute assets for the use and benefit of the beneficiaries. For example, you can permit the trustee to use trust funds to pay for education expenses, health care costs, a wedding, buying a home, or starting a business. If the trust is funded with sufficient assets that are invested prudently, and you choose the right trustee to carry out your wishes, the trust funds could last for the beneficiary’s entire lifetime.

How Does a Discretionary Lifetime Trust Protect an Inheritance?

With a discretionary lifetime trust, each of your beneficiaries will have a fighting chance against lawsuits and divorcing spouses because their inheritance will be segregated inside of their trust, away from their own personal assets, and out of their control. Creating this type of protective “box” around the inherited property shows the world that the inheritance is not the beneficiary’s property to do with as they please. Instead, only the trustee can reach inside the box and, based on your specific instructions, pull funds out for the benefit of the beneficiary. Creditors, predators, and divorcing spouses are generally blocked from reaching inside the box and taking property out.  We custom draft the provisions for each family to match your unique goals.

When the beneficiary dies, what is left inside their box will pass to the heirs you choose. You could decide, for example, to have the assets pass to your grandchildren inside their own separate boxes and on down the line, thereby creating a cascading series of discretionary lifetime trusts that will protect the inherited property and keep it in your family for decades to come.

What Should You Do?

Does all of this sound too good to be true?  It’s not. The Lynn Law Firm, LLC is available to discuss how you can incorporate discretionary lifetime trusts into your estate plan. Your family will certainly be glad you did. Call us to schedule a consultation for more information at 314-997-0500.

Elder Law Attorneys: What Are They, and How Can They Help Me?

An elder law attorney is an attorney who focuses not on a specific area of the law, but on the legal needs of elderly people, veterans, and adults with special needs. Elder law is an area of practice that has only been around for about twenty-five years and was born out of necessity. With life expectancy increasing, people are dealing with rising health care costs and an increase in debilitating diseases like dementia, among many issues that affect the aging members of our society.

An elder law attorney can help the elderly, disabled, and veterans in many ways. They can provide their clients with guidance and advice in many areas. Elder law attorneys also have expertise in preparing legal documents and forms for their clients. A major role that elder law attorneys fill for their clients is that of an educator. They often gather information and resources for their clients to educate them and guide them in their decision-making. This is a very valuable service for clients because the elder law attorney has expertise and resources that may benefit the client, their family, and their future.

Estate planning can be a daunting task for many people. There are so many things to consider, but an elder law attorney is there to guide, educate, and walk their clients through the process. They see the estate plan through both during life and after death. With estate planning, an elder law attorney can walk the client through writing a will. They can also help with paperwork for assigning powers of attorney. Many people often discuss the power of attorney, singular, but there are actually multiple types of powers of attorney. An elder law attorney can help the client decide which powers of attorney are needed in their situation. The elder law attorney works with trust administration for the elderly, veterans, and special needs trusts for special needs adults.

Elder law attorneys are there to help their clients plan for the future. Unfortunately, many illnesses can change physical and mental health during later years. In many cases, people may become unable to make their own decisions about care or in the case of adults with special needs their parents may become unable to continue caring for them. The elder law attorney is there to make sure that if or when this happens, the wishes of the client are carried out. They can help with advance directives for healthcare and durable powers of attorney to make sure a trusted person can manage affairs such as finances. Planning for incapacity or long-term care is very important. 

In addition, elder law attorneys help veterans to obtain the benefits they are entitled to. They can fight for the veteran and help guide them on benefits that are available. All of these groups are targets for scams and elders and adults with special needs at times find themselves in situations where they are abused or exploited. It is important for the clients and their families to know they can turn to an elder law attorney for help in finding justice in these situations. Finally, an elder law attorney can be an excellent mediator in helping to sort out complicated family and financial situations.

Our office would be happy to set up a time to discuss your particular situation and how we can help. If you live in the St. Louis area, please give us a call at (314) 997-0500, or click here to message us through our website.

Protecting Your Voting Rights With a Power of Attorney

Your right to vote is a fundamental lynchpin of what it means to be a citizen – yet you could lose your right if you become a ward in a guardianship. Having a strong power of attorney is essential to avoid that drastic, but a little-known, consequence.

A power of attorney gives a trusted person the authority to act on your behalf. Support like that is especially important if there is any question that you might have become unable to make decisions for yourself. Sometimes, however, that situation is far from clear. Elderly people can be dragged into unnecessary guardianship proceedings, not of their choice.

This can happen, for example, if you are temporarily hospitalized and a not-so-friendly person – maybe related to you by a second marriage – sees an opportunity to seize control of your finances. Any adult person can file a petition seeking a guardianship. If you had designated your trusted agent before hospitalization, your agent could defend against that kind of predatory danger.

The danger is real. You could lose not only your money and your independence but also your right to vote. Many states disqualify from voting persons who have been adjudicated incompetent, incapacitated, or of “unsound mind.”

But the standard to decide whose mind is “unsound” is far from clear. For example, a diagnosis of dementia can encompass a wildly variable population, depending on the point of view of the evaluating professional. And judges usually have no specialized education of their own in psychology.

Whether a person can handle their finances or retains the ability to drive, are far different questions from whether a person retains enough sense to vote. A citizen who votes for any winning candidate joins the majority of the electorate. Determining, in advance, that one vote of all those is irrational discriminates against that particular voter – when many uninformed voters, who might choose candidates based on the brilliance of their smile, say, would not be subjected to that kind of scrutiny.

How much better it would be, then, to avoid that battle in the first place. With the help of an estate planning/elder law attorney, you can create an effective power of attorney that will do just this. Get in touch with us – we would be happy to help!

We serve St. Louis and the surrounding area, so please give us a call at (314) 997-0500, or contact us by clicking here!

5 Reasons Your LLC Needs an Operating Agreement

operating agreementAn Operating Agreement is a contract that controls your LLC’s operations as well as member interaction with each other and with the LLC.  You may think that an operating agreement is not necessary for your single-member LLC – after all – why make an agreement with yourself?  Most states don’t require an LLC to have an Operating Agreement to be filed with the Secretary of State; instead, the operating agreement is typically kept with other business records.  No matter what state you’re in, however, it’s always a good idea to create a formal, written Operating Agreement—even for a single-member LLC.  Here’s why:

REASON 1 – Avoid State-Imposed Default Rules

Without an operating agreement in place, your LLC is bound by the default rules of your state.  Most state laws governing LLCs allow some of the default rules to be overwritten in the LLC’s operating agreement.

REASON 2 – Maintain Control

As the business gains momentum, you may want to hire a manager to take care of the day-to-day business operations so you can shift your attention to business-development opportunities. An operating agreement can define the manager role—designating the authority and compensation and what happens if the manager leaves or competes with the company.

REASON 3 – Keep Business and Personal Identities Separate

An operating agreement helps distinguish the business from the owner for liability purposes. A major benefit of an LLC is that it limits liability going both ways: the LLC protects a member from business liabilities and the business assets from a member’s personal liabilities. Without an operating agreement in place, the business may look like a sole proprietorship. If a court doesn’t see your LLC as an entity separate from you, you could lose the liability protection that an LLC offers.

REASON 4 – Clarify Succession

An operating agreement can specify what happens if you die or become unable to run the business. Without this specific provision, your family may have a hard time continuing the business or winding it down.

REASON 5 – Scalability

Successful businesses grow. And growth requires capital. An operating agreement can specify how future investors will be treated. If you structure these terms in the operating agreement, the LLC will be better positioned in the investment negotiations.

Let’s Continue this Conversation

An operating agreement serves an important role, even for a single-member LLC. The operating agreement puts you in the driver’s seat and enables the LLC to perform its main task—to limit liability.  If you have an Operating Agreement in place, we’d be happy to review the agreement as well as your business needs to ensure the operating agreement and LLC are in sync. Or, if your single-member LLC doesn’t have an operating agreement in place, we’ll work with you to craft an appropriate agreement.

5 Things to Do to Get Ready for Tax Season

tax

With the passage of the Tax Cuts and Jobs Act in December 2017 (effective January 1, 2018), the 2018 tax season is going to look a little different for many filers. In order to ensure you are not caught behind the eight ball, there are a few things you need to think about and do before you sit down to file your taxes.

1.  Gather Your Necessary Documents

In preparation of your return, it is wise to have supporting documentation for all items listed on your income tax return. These include your W-2s, 1099s, and receipts for any deductions. If you are a business owner looking to take advantage of the new Section 199A Deduction, it will be crucial that you have the appropriate documentation from your bookkeeper to accurately calculate your deduction. Section 199A is a fairly complex calculation, so work with a professional if you have questions.

2.  Consider Trust Distributions

If you are a beneficiary of a Trust, request information from the Trustee for information on any items of income that may carry out to you on any Form K-1 and visit with your accountant to ensure that he or she is aware of the forthcoming information.

3.  Rebalance Your Investment Portfolio

In coordination with your financial advisor, you should sit down and analyze your current investments to determine whether any rebalancing needs to be done based on the year’s past performance. Your financial advisor will be able to assist you in making sure that your financial objectives are being met and provide you with the best strategy for meeting your goals while minimizing taxes.

4.  Spend Money on Your Business

For business owners, if you are in need of additional business expense deductions, you may want to consider making some equipment investments or prepaying some expenses so that they will be deductible in 2018 instead of waiting until 2019. However, you should consult with a professional to ensure that all of the IRS requirements are met and that you’re properly reporting the transactions on your tax return. The last thing you want is for your tax planning to turn into an audit where you’re unprepared.

5.  Track and Review Your Charitable Contributions

With the standard deduction increasing as part of the Tax Cuts and Jobs Acts, fewer people are likely to itemize on their income taxes this year. However, if you find that your anticipated deductions, including your charitable gifts, is more than the standard deduction, it may still make sense for you to itemize. You will want to make sure that you are tracking your charitable contributions and have the appropriate documentation to substantiate whatever number you are placing on your return.

Preparing for tax season is never fun but we are here to help. If you have any questions or need any assistance, please feel free to give us a call.

Do your parents have an estate plan?

As the holidays approach and family gatherings abound, you may wish to set aside some time to discuss estate planning with your parents.estate plan  If you find yourself in the “sandwich generation” (someone who is caring for both your children as well as your parents simultaneously), you need to know whether or not your parents have put together an estate plan. While it is still your parent’s choice to make estate planning decisions, having a plan –no matter how late in life it is created –is an absolute must.  The thought of speaking with your parents about their finances and estate planning probably makes you want to run as fast as you can in the opposite direction.  Nonetheless, having this conversation is the key to helping make sure your parents are able to live their golden years without financial worries and that their wishes are carried out after their death.

Discussing Estate Planning With Your Parents

Talking about the future with your parents –including their estate matters, finances, and memorial wishes –is one of the most important conversations you can have with them.  And, the earlier you address this, the better off all of you will be.  Below are some key topics you need to discuss with your parents to make sure their estate planning is in proper order:

  • A team effort:  If your parents have legal and financial professionals that help with their matters, make sure to get a full list of these individuals’ contact information. You should also have the contact information of your parents’ doctors, in the event end-of-life decisions need to be made for them.
  • Last Will and Testament and a Trust:  If your parents do not have a will written up, they likely do not have any other estate planning documents. If they do have wills in place make sure to confirm how long ago they were drafted, who the executor will be, and where the original documents are located. A trust may also be appropriate depending on your parent’s circumstances and wishes. Stress to them that you do not need to read the terms, but that you should know where they are so you can help ensure their wishes are carried out.
  • Advanced Directives:  Make sure your parents have living wills and powers of attorney so that someone will be able to make decisions on their behalf if they are unable to do so. Also ensure you understand their respective feelings about end-of-life decisions, such as life support, and how their financial and medical affairs should be handled should they become incapacitated.
  • Insurance Policies:  Find out what insurance policies your parents have and where the policies are located in the event one or both become incapacitated. This includes knowing about health insurance (private or Medicare), life insurance, homeowners, auto insurance, disability insurance, and long-term care policies.
  • Financial and Investment Accounts:  Your parents should also consider compiling a list of their brokerage, bank, and mutual fund accounts as well as the account numbers. This will make things easier if someone needs to step in and assist with financial matters due to their death or incapacity.

Why Estate Planning Matters

Failing to put together an estate plan often leads to chaos, unnecessary costs and taxes, potential hurt feelings, delays in distribution of assets, and even unexpected outcomes after death. For example, if your parents hold some assets in joint tenancy with a child who lives nearby but does not include other children, the distribution of the asset becomes distorted. When joint tenancy is used instead of an estate planning tool like a trust, adult children left behind will be offended as a result of the parents’ asset distribution. Do not let fear or discomfort keep you from sitting down and having this important estate planning conversation with your parents.

The Lynn Law Firm, LLC can give you and your parents advice on what options are available to them so that their wishes are followed upon their death.  Contact us to schedule a no-obligation consultation.