Effect of the OBBB

The per-person exemption equivalent for estate and gift taxes has been increased to $15 million, and will continue to be indexed. That is an increase of $100,000 or 7.14% from the previous $13.99 million. 

For a hypothetical married couple with one child, based on $100,000 of income, we calculate that the combined effect of the increase in the standard deduction and the increased child credit will be a savings of $740. 

For a hypothetical married couple over age 65, based on $100,000 of income, but disregarding the untaxed part of social security benefits, we calculate that the combined effect of the increase in the standard deduction and the new "senior deduction" will be a savings of $2,000. That new deduction is phased out over $150,000 of income, but very slowly. It does not disappear until the couple's annual income is over $1.15 million. 

The senior deduction is $6,000 per person. The combined effect of the slightly higher standard deduction of $31,750 and the new $12,000 senior deduction is that the hypothetical couple will pay no tax on the first $43,500 of their income. 

Note that, contrary to many published reports and contrary to the claims of the President, the OBBB made precisely zero changes to the rules governing taxation of social security benefits. Of course, since social security is a big part of the income of any recipient, the new senior deduction will incidentally affect that income, too, but there are no changes to taxation of social security benefits otherwise. 

There is a new tax deduction for interest paid on a loan for a new American car. 

There is a new IRA-like savings option for children, beginning in July 2026, with the unfortunate name "Trump Accounts." For children born in 2025 or later (citizens only), the Federal government will contribute up to $1,000 as a match. 

Other resources: 

Barnes Dennig on the new Car Loan Interest Deduction

Kitces - Breaking Down the OBBBA

Updates on Federal and state limits

 Last last year, the IRS announced the annual updates to certain key figures: 

$13.99 million - the lifetime per-person estate and gift tax exemption equivalent 

$19,000 - annual gift tax exclusion amount, per donor and per donee. If a gift is made that exceeds this limit, a gift tax return needs to be filed, but no gift tax will be payable unless the lifetime limit is exceeded. 

In mid-February, the Michigan Treasurer announced the 2025 figures that apply to several of the provision for estates and trusts under the Estate and Protected Individuals Code. The key items: 

$51,000 - The first annual increase for small estates, collection of funds by affidavit, and money that may be paid to a parent or guardian of a minor without having to name a conservator. 

The full updates, and the amounts that have applied over the past 20+ years, are found here. 

A word from Warren Buffett

On November 25, Buffett announced a contribution of a little over $1.14 billion in Berkshire Hathaway shares to three foundations managed by his children. In the BH news release, he offered the following recommendation to parents of adult children: 

I have one further suggestion for all parents, whether they are of modest or staggering wealth. When your children are mature, have them read your will before you sign it. Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. 

If any have questions or suggestions, listen carefully and adopt those found sensible. You don’t want your children asking “Why?” in respect to testamentary decisions when you are no longer able to respond. Over the years, I have had questions or commentary from all three of my children and have often adopted their suggestions. There is nothing wrong with my having to defend my thoughts. My dad did the same with me.

Final SECURE 2.0 regulations

 The IRS has finally issued its long-awaited Final Rule implementing the “SECURE 2.0” legislation governing distributions to non-spouse designated beneficiaries of IRAs, 401(k) plans, and similar retirement vehicles. Although this release affects a number of finalized regulations, one of the most important for IRA owners and their families involves the long-uncertain question of whether required minimum distributions (RMDs) will be needed during the 10-year period that applies to “non-eligible designated beneficiaries.” The IRS’s final answer is: If the owner of the account had reached his Required Beginning Date (which usually means he has started taking required distributions), then those distributions must continue during the 10-year period. If he had not, then no RMDs are needed. 

These RMDs will be based on the owner’s life expectancy, not that of the beneficary(ies), under the statutory rule that the distributions must continue “as least as rapidly” as they had been before the death of the owner. 

Recall our earlier posting advising that many non-eligible designated beneficiaries can benefit from a shortened period (six years or so) rather than trying to plan distributions over the entire 10-year period. 

Estate planning for digital assets

1Password, a tech company that sells a password storage app, has published a new guide called How to get started with digital estate planning. It covers both the person who wants to make his digital assets available after he dies and the person inheriting those assets. It also has a section covering cryptocurrency.

Over the line

 NPR describes the experiences of those who inadvertently ended up disqualifying themselves from SSI and other programs managed by the Social Security Administration, and ended up owing thousands in overpayments. 

The asset limit of $2,000 has not been updated since 1989, it reveals. 

New amendments to EPIC

Public Act 1 (2024) made a number of changes to the Estates and Protected Individuals Code (EPIC). These changes were given immediate effect as of February 21, 2024. 

Two of the most significant ones for probate practitioners: 

The expedited estate administration provision of section 3982 and the collection by affidavit (bypassing probate) provision of section 3983 have been expanded to cover estates of $50,000 or less, up from the $27,000 figure that applied in 2023. The figures will continue to be subject to annual adjustments based on cost of living. (Under section 1210, the limit for those who died between January 1 and February 23, 2014 will be the $28,000 certified by the State Treasurer in January.)  

There were several amendments to the Trust Code as well. 

One significant amendment of interest to personal injury practitioners: 

The amount that can be paid under a settlement or payment on a judgment to the parent or custodian of a minor child under section 5102 without having to appoint a conservator is increased from $5,000 per year to $50,000 per year, also annually adjusted. 

"Ghost Hacking" - a new BOLO

A relatively new way cyberthieves steal wealth is by taking over the identities of people after they die, an act known as ghosting or ghost hacking - searching for news that someone recently died, such as through online memorials and death notices, then hack into and take over his social media accounts, email accounts, etc. 

Forbes - How to Protect Your Estate and Loved Ones From Ghost Hacking

EPIC cost of living adjustments

 The state Treasurer has issued the updated cost-of-living adjustments to the several dollar amounts specified in EPIC, as follows: 

The spreadsheet that displays the historical figures is found at https://tech.906law.net 

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. 

Who decides?

 TMZ has a story this morning: "Aaron Carter died without a will... so now the State of California will decide who inherits his estate."

This is commonly found on lawyers' web sites and blog posts. "If you don't have a will, the state will decide where your property will go." That statement is untrue. 

Each state has intestacy statutes, which provide a priority of inheritance if a person dies without a valid will. Those intestacy provisions apply only to "probate assets," that is, assets owned by the decedent in his own name. They do not apply to assets held in trust, to jointly-owned property, to property with transfer on death directions, or to retirement accounts (unless the owner did not make a beneficiary designation.) 

What is true is that, if you do not want that order of priority followed, you need a will, a trust, or some other mechanism to make sure that does not happen. 

The intestacy statute is intended and designed to follow what most people would want to happen to their money. The priority is, in general, spouse, children, parents, siblings, their children (nephews and nieces),  grandparents, and their descendants (cousins). 

It is emphatically not the case that a probate judge in California will make a decision about who will receive Carter's assets. The court will simply follow the intestacy laws. 

Medicare Advantage?

 It's Medicare open enrollment season. The Retire Early site offers Top 5 things your Medicare Advantage sales agent won't tell you.

More tax from online sales

From Bloomberg: The IRS is coming for your Venmo income.  The IRS is reported to have imposed a new requirement for Form 1099-K, on which an "online payment settlement entity" will be required to report any payment over $600 (down from the previous $20,000). The story begins with "Lexi," who frequently buys items at garage sales and flea markets and sells them on eBay, making as much as $15,000 per year. Up to now, that income has been tax-free for her - because she has not reported it. 

The IRS is not changing the tax laws. Any time that you buy something for $x and then sell it for $x+y, the $y is regarded as a capital gain, and tax has to be paid on capital gains. It is up to you to keep track of how much you paid for the item and how much profit you made on the sale. 

For a single person, long-term capital gains are taxable only if your income is over $40,000 or so. These rates require that the item be held for a year or more before it is sold. If it is sold earlier than that, the gain is taxable at ordinary income rates. 

More information from the IRS is available at its About Form 1099-K page. 

Update: In early January, the IRS announced a one-year delay in implementing this new policy. 

The tax implications of cryptocurrency

If you have created cryptocurrency through a "mining" process, did you pay income tax on the resulting cryptocurrency? The IRS regards it as an asset and it requires payment of income tax, at ordinary income rates, when it is acquired. It does not matter that it has resided in a "wallet" since then and has not been used or converted. If it could have been used as money or converted to dollars, it is a taxable asset and the creation of that asset is regarded as recognition of income. (See IRS notice 2014-21)

If you acquire a unit of a cryptocurrency by purchase, there is no income recognized and no income tax owed. You have traded dollars for other units at the then-effective price. The purchase price becomes your cost basis for purposes of determining later capital gains or losses. 

Cryptocurrency that has changed in value since it was originally acquired generates capital gains or losses whenever it is spent or converted. It is a long-term capital gain (or loss) if it is held for more than one year, and the act of spending it or converting it results in the recognition of that gain (or loss), with an accompanying tax obligation. Depending on your income level, the tax on a LTCG is 0%, 15%, or 20%. 

IRAs from a different perspective

It is not always necessary to accept the oddball ways that Congress and the IRS do things. At our 906LawTech page, we provide an alternative IRA distribution schedule and projection that gets rid of the "divisors" and simply uses percentages for each year's required minimum distribution.