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 

Resources newly available online

 In July 2020, after nearly 40 years of active, full-time practice, I scaled back to part-time practice. I continue to work about half-time. 

I have spent some time updating and, in some cases, annotating some of the tools that I had been using in my practice, and they have now been posted online at tech.906law.net. With one exception, all are free for anyone to use. They include: 

2021 Tax Calculator (Excel) - There are times that you want to have a projection of what the overall tax burden will be, assuming a certain level of earned income. This calculator will give you that projection. 

IRA Calculator (Excel) - Assuming a specified value for an IRA, 401(k) plan, or other similar retirement plan, this will give you a projection of what the required distributions (RMDs) will be when they begin at age 72, and how the increases in value and drawdowns over the next three decades will affect its overall value. There are two versions included, one that begins at age 72 and another that begins as early as age 60 and tracks increases with or without distributions until the age 72. (Free for personal use, but subject to a $50 licensing fee when used by a planner to advise a client.) 

SECURE distribution calculator (Excel) - For IRAs (etc.) inherited by a designated beneficiary who is not subject to one of four specified exceptions, the amount in the account can no longer be distributed over the beneficiary’s life expectancy, but rather must be distributed over the ten years following the death of the IRA owner (or her surviving spouse in many cases). This calculator again plots out increases in value and drawdowns with yearly or occasional distributions. 

Digital and Online Inventory (Word) - A place to record email accounts, online accounts, web pages, domains, electronic access to bank accounts, investment accounts, credit cards, software registration, etc. with contact information and passwords.  

US LawNet - A directory of the sites and resources most useful to practicing lawyers in the states that it covers. This site had its origin in a personal web page that I developed for my own use in the mid-1990s, and later posted online as a “publicly-accessible private site” as www.michlaw.net. It has now been expanded to include ten states - five Great Lakes states and the five most populous states - and is publicly available for free use.  

Quick IRS reference

On this single page, the IRS provides the tax inflation adjustments for a large number of items, including tax brackets, tax rates, standard deduction, as well as several items of interest for estate planning purposes: annual gift exemption ($15,000), lifetime basic exclusion amount ($11.7 million per person), etc. 

Help for impending or recent death

 A Beginners Guide to the End is a book published in 2019 by Shoshana Berger and Dr. B.J. Miller which, the authors say, offers "Practical advice for facing death and living life." It has separate US and UK editions. The authors have a web site where you can read a preview excerpt from the book. The site's Resources page, by itself, is well worth perusing, and it includes links to sites that we have mentioned before.  

From the description: 

A Beginner's Guide to the End covers everything from will-making to making peace with your dysfunctional family. You’ll be walked through how to break the news to your employer, whether or not to share old secrets, how to hack the hospital for a better stay, what questions to ask your doctor (even uncomfortable ones, like whether or not sex is still ok), what to put in your "When I Die" file, and how to leave a letter that leaves a mark. There are also lessons for survivors, like how shut down a loved one’s social media accounts, clean out the house, and write a great eulogy. 

Dr. Miller is described as a palliative care and hospice physician, and in 2015 gave a TED talk called What Really Matters at the End of Life. 

This is useful for those facing an impending death and for survivors alike. 

Holiday cheer? Not quite.

Ed Slott, a nationally-known IRA consultant, has released Holiday Conversations to Have Before Grandma Gets Run Over by a Reindeer.

This guide is intended to facilitate discussions among parents, grandparents, and children about important financial and medical decisions. It also includes forms similar to those that we have recommended in earlier postings, to be used as a "road map" for your loved ones to follow in the event that you are no longer able to guide them

Nothing wrong with thinking ahead

 Kiplinger: Federal Estate Tax Exemption Is Set to Expire – Are You Prepared?

The current exemption equivalent of $11.58 million per person will last only until 2025, and then will revert to the pre-2018 level of $5.6 million - unless the law is changed between now and then. (The article touches upon but does not really explore the fact that this part of the Internal Revenue Code is virtually certain to be changed some time in the next four years.) 

One item of interest: "The Internal Revenue Service has decided there will be no clawback on lifetime gifts. This means that any gifts made under the current exemption will not be subject to estate taxes in the future, even if the exemption is reduced." The source for this statement is not identified, but it does present some planning options for a very small segment of our population. 

Your Digital Legacy e-book

The redoubtable Take Control series of e-books includes Take Control of Your Digital Legacy, released in January 2017. Many of the recommendations echo those that we have made here for years.

A will takes care of your physical possessions, but what about your digital life—photos, email, files, and the like? If you want to pass your electronic ephemera on as part of your digital legacy, turn to tech expert Joe Kissell for advice on dealing with large quantities of data, file formats, media types, the need for a “digital executor,” and more.

Available at this link for $15.

NPR's "Swan Song"

You can create a playlist for the music to be played at your funeral.

Declutteration

The Swedish term Döstädning, used by Margareta Magnusson in this book, literally means "death cleaning," a method to "declutter your home and minimize your worldly possessions so your loved ones don’t have to do it for you" after you are gone.

It is said by one reviewer to refer to "to putting your life in order—years or even decades before it becomes urgent," although the approach can also be useful for those of us who are young and healthy, just as an approach to simplifying our lives.

The Gentle Art of Swedish Death Cleaning: How to Free Yourself and Your Family from a Lifetime of Clutter
to be released in January 2018

CFPB resources for clients

The Consumer Financial Protection Bureau is a Federal agency that was established under the Dodd-Frank Act in 2010. Its Ask CFPB page provides information on a number of financial topics and answers to questions that people have asked the agency over the years. If you have a question or issue, this page is often a good source of information that can prepare you before you consult with us about the issue.

Similarly, CFPB's Resources for Older Adults and their Families page provides useful information, including “Protecting against fraud and financial exploitation” and “Tools for financial security as you age.”

Planning for digital assets

Joe Kissell, who has written numerous books in this series, has written Take Control of Your Digital Legacy, a guide to planning for digital and online assets. From the introduction:

"This book walks you through the process of digital estate planning. It helps you identify the important information you may want to pass on to future generations, document your wishes in detail, and make practical decisions about preserving your data."

The book is available as an electronic books, in PDF, EPUB, or Mobi format, for $15 from Take Control Books. 

Good point

Seen on a lawyer's e-mail tagline:

"Just because you can't take it with you is no excuse to leave it in such a mess."

In case of emergency

A family dealing with a sudden illness or injury sustained by a loved one will not be thinking of all of his or her details, but they should keep track of bills as they are received and come due. They should make sure that utility bills are paid, propane tanks remain full, etc.

In particular, they should make sure that premiums on health insurance, life insurance, disability insurance, auto insurance, and homeowner's insurance are paid and kept current. For some of these coverages, keeping them in force will be of crucial importance to the affected person and his or her family.We have seen numerous cases where life insurance benefits that the family expected, and depended on, are not paid because the insured, due to lengthy illness before he died, allowed the policy to lapse for non-payment of the premium.

2016 inflation adjustments announced

The IRS has issued its year-end update on adjustments to certain dollar limits for 2016.

• The annual exclusion remains at $14,000. This is the maximum amount that one person can give to another person in one year without having to file a gift tax return. For gifts above that amount, a return must be filed but no gift tax is owed so long as the total reportable gifts by one person over his or her lifetime is less than the gift tax exemption amount.
• The estate tax, gift tax, and generation-skipping exemption amounts are increased to $5.45 million for persons dying in 2016.

Social Security and "fairness"

In Playing God with Social Security Fairness, economist and Social Security guru Lawrence Kotlikoff responds to an article by economist Alice Munnell, criticizing Kotlikoff and others for promoting strategies for maximizing their Social Security benefits.

Munnell quotes the Obama Administration as saying that these strategies "allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits." Not mentioned, of course, is that the vast majority of people receiving Social Security benefits depend on them as their sole or major source of income, and are far from "upper-income." Any of them, not just those with high incomes, can follow the recommendations made by Kotlikoff and others to maximize what they will receive.

Kotlikoff notes that using the methods that are built into the system by Congress and the Social Security Administration is simply not "gaming the system." He states further,

"It's not our jobs as individual citizens to make the system more equitable by paying more taxes or taking fewer benefits unless we can persuade everyone else in our shoes to do the same thing, which we most certainly cannot."

Many decades ago, in Commissioner v. Newman, 159 F.2d 848 (1947), Judge Learned Hand said,

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

But that quote was about taxes, you may say. These authors are advising people about governmental benefits.

As Kotlikoff notes, there are 25 or more different systems within which citizens interact financially with their governments, and many have elements of both positive tax (money paid to the government) and negative tax (money received). And of course the Social Security system is comprised of a combination of taxes paid by those who work, and benefits received by those who become eligible.

The "fairness" issue is very similar to that involved in Medicaid planning by elder law attorneys. These lawyers advise clients about, and use, the techniques permitted under the Medicaid statute and rules to allow clients to become eligible for Medicaid coverage for nursing home care when that need arises. Some years ago, Congress responded to that issue by enacting an amazingly hamhanded and clearly unconstitutional statute that simply made it a crime for lawyers to advise their clients on how to make themselves eligible for Medicaid coverage.

The government can, and occasionally does, take action to modify the rules if it appears that there are unforeseen complications or problems. If the rules lead to an undesired result, Congress or the SSA is free to change the rules. But to criticize lawyers and other advisors for telling citizens what the rules are and how they can maximize the benefits that they receive is contrary to our sense of fairness.

Gradual loss of control in the elderly

A pair of articles were published recently about a subtle threat to the financial well-being of older clients.

At a website called Seeking Alpha - The Biggest Threat to Your Retirement Portfolio: Mild Dementia
In the New York Times - As Cognition Slips, Financial Skills Are Often the First to Go

The articles recommend that adult children, agents, or other protectors of elderly parents help with monitoring their accounts and transactions to look for early signs of mismanagement of funds, sending money to inappropriate recipients, and the like.

"People are able to make these disastrous investing decisions in the earliest stages of dementia because their loved ones, who assume dementia announces itself with forgetfulness, don't realize there are quite a few syndromes that develop into dementia whose first symptoms are not forgetfulness, but are instead loss of judgment, impulse control, and emotional balance."

Recommendations include:

• Sign authorization forms, well in advance, to allow your doctors to discuss your medical issues with your children or other selected agents.
• Include language in powers of attorney, trust agreements, and other substitution documents to permit a doctor to use "signs of poor judgment" or loss of emotional control to justify a declaration that you should not be handling your own finances.
• Share information about your portfolio and investment patterns with your agent, and give him or her access to be able to monitor activity within those accounts. 
• Place a credit freeze on the parent's accounts.
• Set up automated bill payments. 
• Ask that insurance companies and other regular payees send duplicate notices to your agent so that he or she can be notified of a missed premium payment or other similar lapse.
• Give early authorization to your attorneys and financial advisers to contact your agent if they see anything that gives cause for concern.

Each of these, of course, requires a careful balance between maintaining control and privacy and enabling a substitute decision-maker to effectively protect your interests.

Social Security calculations

If you have done some reading on the subject, you no doubt know that you will need to decide at what age you wish to start drawing social security benefits, and that decision will make a significant difference on the level of your monthly benefit. Much of the available online information makes it appear that you have only three choices: begin to draw benefits at age 62, the full retirement age, or age 70. In truth, you can begin at any time between age 62 and age 70. The longer you wait, the larger your monthly benefit will be. A person whose full retirement age is 66 will find that the monthly benefit increases for each year he waits after age 62:

Age	Monthly
62	750
63	800
64	866
65	933
66	1,000
67	1,080
68	1,166
69	1,240
70	1,320

Thus, a single 62-year-old can increase his benefits by 33% by waiting until age 66, and by 76% by waiting until age 70. That decision is permanent. If he chooses to draw $800 per month at age 63, that will be his monthly benefit for the rest of his life.

Should he start at age 62 or should he wait? For some people, there is no choice. If they are not working, have health issues, or otherwise need the money now and cannot wait, they will start as soon as they can.

For those who can choose, life expectancy is a major consideration. The retiree who waits until age 66 or age 70 will catch up at a certain point, assuming he lives that long, and after that he will be ahead of the game when the total cumulative benefits are considered. The longer he lives, the further ahead he will be.

After doing some calculations, we estimate that the breakeven point, after which the retiree who waits will begin to pull ahead of the one who takes benefits early, will be:

Contrast	Breakeven
Age 66 vs. age 62	Age 76
Age 70 vs. age 66	Age 81

For the married worker whose spouse will be drawing spousal benefits, the same breakeven point applies, but the dollar difference is more pronounced because the spousal benefit is calculated as a percentage of the worker's benefit.

This SSA publication (PDF) is very informative on the subject.

See our previous entries on social security planning.

Keep things organized

We have previously noted* on these pages that an important part of succession planning is gathering your key information such as account numbers, contact information, passwords, etc. so that members of your family can find what they need when the time comes. We recommend Erik Dewey's Big Book of Everything, available without cost in either PDF or Excel format, to help with this endeavor. If you use it and you like it, as he says, buy one of his books.

* See our October 11, 2011 post entitled A Real Bucket List

Prepare now for future emergencies

LifeHacker posted How to Create an In-Case-of-Emergency Everything Document to Keep Your Loved Ones Informed if Worst Comes to Worst. It offers several key steps and then links to additional resources.

Step 1: Gather Your Vital Records to Keep in the Master Information Kit
Step 2: Export Your Accounts Information
Step 3: Share Your Master Information Kit and Vital Documents
Step 4. Regularly Update Your Everything Document

The Simple Life Insurance Trust

For clients who have relatively limited assets, but who have a life insurance policy and wish to ensure that the proceeds will be held and managed by a trusted person (often a relative) while their children are young, we can prepare a simple trust document that will govern the use of the proceeds. Using this document, the trustee can be named as beneficiary of the policy, and can invest the proceeds for the benefit of the client’s children. The trust directs that income is paid to a child over a certain age (such as 18), and that the principal is paid to him or her at a specified age (30 or 35).