Tax and planning - 2024

The IRS has issued Bulletin 2023-48, announcing its annual inflation adjustments for tax year 2024. We have posted an updated Tax calculator 2024 with these adjustments at the 906 LawTech site. Key points of interest for personal planning include: 

Per-person per year gift reporting exemption - $18,000 

Estate and gift tax exemption equivalent - $13,610,000 

Cap on earnings subject to FICA - $168,600 

Obituary hijackers

Wired describes the rise of obituary pirates hijacking online death notices and obituaries on YouTube. 

My parent has died. What now?

At the directly-named URL https://www.deadparentswhatnow.com, a site that addresses some of the practical issues, with a lightly humorous touch, such as: 

My parents have literally just died. Please help.

- One of the (hopefully) few times you need to determine how to get rid of a body. 

I'm back at home now, but my parents are still dead.

- How to deal with people who want to bring you lasagna in the immediate aftermath. 

My parents are dead, but I can't prove it.

- You may be without death certificates, but you’re never without errands.

My parents are dead, and I have proof!

- Death certificates in hand, you’re now ready to battle bureaucracy at every turn — assuming you don’t misread the fine print.

Are your parents not quite dead?

- You don’t just need a to-do list. You need a to-die list. 

From the introduction: "Unfortunately, our legal and financial systems don’t care about your feelings. Starting now, your parents get to rest—but you don’t."

IRA distributions under SECURE

The 2019 SECURE Act made a major modification to post-mortem distributions of funds from IRAs and qualified retirement accounts to non-spouse designated beneficiaries. In most cases, if a designated beneficiary [DB] has been properly named, the funds have to be distributed, and taxed at ordinary income rates, within ten years of the death of the owner of the account. Previously, the funds could be distributed over the life expectancy of the DB. This is a dramatic shortening of the time for distributions, and for larger accounts this will be a significant change. The distribution schedule should be planned carefully. 

Most lawyers and financial advisors appear to assume that the distribution timeline after the death of the account owner should be the maximum ten years. Many, further, simply assume that 10% of the original amount should be distributed each year. That assumption overlooks the fact that the money invested in the account will continue to generate income and to grow in value over time. If the DB were to withdraw 10% of the funds each year for nine years, the IRA would still have, in the tenth year, 57.6% of the original amount that she started with in year 1. 

Our calculations show that the projection over time often justifies a shorter period of approximately six years. There is relatively little difference between the outcome at the end of a six-year period vs. at the end of a ten-year period. 

The calculations shown here assume an IRA worth $100,000 at the time of the owner's death. They also assume an average growth rate of 3% per year. 

The primary benefit of using the alternative six-year period is that the funds that remain after taxes are paid are in the hands of the beneficiary several years sooner. Over the six years, the distributions are made, beginning at 10% and then increasing by 10 percentage points each year thereafter, until year six, when the amount remaining is distributed. Tax is paid on the distributions, at the Federal marginal rate of 22% in most cases, but then the remaining assets are held outside of the IRA container, and they can continue to appreciate, no longer subject to income tax. The cost basis for purposes of calculating long-term capital gains would be the fair market value on the date of distribution.

Michigan Treasury Reports

 The reported increases in statutory figures for 2023 are: 

Spouse's intestate share	2102, MCL 700.2102	273,000
Spouse's intestate share	2102, MCL 700.2102	182,000
Homestead allowance	2402, MCL 700.2402	27,000
Exempt property	2404, MCL 700.2404	18,000
Family allowance	2403, MCL 700.2403	33,000
Small estates	3982, MCL 700.3982	27,000
Sworn statement	3983, MCL 700.3983	27,000
Terminating small trusts	7414, MCL 700.7414	91,000

As a reminder, the smaller amount under section 2102 applies if none of the decedent's children are also children of the surviving spouse. 

The new year

Happy New Year to all! 

Federal figures that will apply for the living and those who die in 2023: 

• The per-person amount that is exempt from gift reporting requirements: $17,000. 
• The estate/gift tax exemption equivalent is now $12.92 million per person. 

The State of Michigan will announce updated probate figures later this month at this site.