North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

403(b) plans are employee-funded retirement savings plans offered by educational institutions and 501(c)(3) charitable organization.  While the plans of private schools are automatically covered by the Employer Retirement Income Security Act 0f 1974 (ERISA), public schools and universities are exempt.  While this exemption means less regulation to worry about, there is disadvantage to employees.

ERISA, which is a federal law, protects covered retirement plans from creditors of account owners.  Thus, this protection does not rely on state law.  For non-ERISA 403(b) plans, however, there is no federal protection.  We thus have to look to state law to see if the plans are protected from creditors.

North Carolina law protects traditional and Roth IRAs from the claims of creditors.  N.C.G.S. Section 1C-1601(9).  403(b) plans are not included in this protection.

Therefore, if you work for a public educational institution and have a 403(b) account, you should be aware that it may not be protected should you ever be sued.

Retirement Assets with no automatic creditor protection:

• SIMPLE IRAs
• SEP IRAs
• Inherited IRAs
• 403(b) Plans (public school employees)

If you have any of these accounts with substantial funds, see an asset protection attorney about how you might be able to protect the account.

 

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In Revenue Procedure 2010-40, the IRS provides 2011 figures for many items in the tax code.  Of particular note to my readers:

• The Annual Exclusion from the Gift Tax remains at $13,000.  IRC Section 2503
• The Annual Exclusion for gifts to a non-citizen spouse is $136,000.

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Congress left Washington with a big pile of unfinished tax issues still on the table. Under tax laws enacted in the past decade, many popular tax provisions expired at the end of last year, or they expire at the end of 2010.

What could happen to all these tax breaks?

• In some cases, Democrats and Republicans have stated they intend to extend them -- but they just haven't gotten around to it or they can't agree on the exact amounts. But there is a good chance that preferential tax treatment will be retained or extended.
• In other cases, there is not bipartisan agreement, so the tax breaks may not be extended.
• With still other tax breaks, it's anybody's guess what is going to happen.

Politicians are not expected back in D.C. until after the November 2 mid-term election. In the meantime, here's a chart with some of the important unresolved tax issues. Consult with your tax adviser for information about how to go forward in your situation.

This entry is from today's TrustCounsel eNewsletter by BizActions.

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The American Institute of Certified Public Accountants has recommended to Congress that the due dates for tax returns filed by Partnerships, S Corporations, C Corporations, Trusts and Estates, and Pension Plans be changed.

For the initial due date, the returns that would be affected are:

Form 1120S (S Corp) -  March 15 to March 31. 

Form 1120 (C Corp) - March 15 to April 15

Form 1065 (Partnership and most LLCs) April 15 to March 15

This would allow the more efficient flow of information from certain returns, such as Form 1065, to other returns that are due on a later date.

The due dates for extended returns would also change.  See the AICPA letter linked to above for details.

 

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Brian Dooley, CPA in his International Tax Counselor's Blog, recently authored a helpful post on the use of IRS Form 56, Notice Concerning Fiduciary Relationship, for helping aging parents and others manage any issues that arise with the IRS.  Form 56 is traditionally used for fiduciaries such as executors and trustees, but it can also be used to name children who will be helping their parents in the future.

Since children are not automatically fiduciaries for their parents, the person named as the fiduciary in Form 56 must be named as an agent in a durable power of attorney, and that document must be sent in along with Form 56.

The IRS Power of Attorney, Form 2848, may also be used, and does allow an immediate family member to serve as the agent with no formal fiduciary relationship.  It may not be as useful for future tax years, however.

Of course, both forms must be signed while the tax payer is still competent.

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So maybe the prospect of protecting your family, preserving your assets, and saving taxes doesn't motivate you to get your estate planning done.  If so, here are some less-mentioned benefits of completing a plan with an estate planning attorney:

• You'll outdo the Joneses - most likely, you are better prepared than your colleagues, neighbors and friends. 
• You will have good reason to have a home safe or safe deposit box - for storage of your will.  It's also good for the cash you are keeping under the mattress.
• You will have a handsome estate planning binder that makes a great coffee table book.
• You will feel important as so many trees died for you.
• You get to say, "well, my lawyer....."

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The federal estate tax is a big issue in many congressional races, with proponents of repeal arguing that it severely impacts family businesses and farms.  See this article in the online version of the Wall Street Journal.

What is rarely discussed is that with proper planning, including the use of life insurance, the heavy financial burden of the estate tax can be avoided or drastically reduced.  Attorneys fees and life insurance premiums are a lot cheaper than a 55% estate tax.  Many family business owners and farmers simply refuse to plan ahead.

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Here's the latest from theHill.com.  Bottom line - nobody knows what's going to happen when Congress is back in session.

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The Center for Medicare Advocacy, Inc. reminds us that it’s that time of year again to make choices and change your current prescription drug plan. Plans change every year; premiums and deductibles may change; drug coverage may change; and plan providers may leave your service area. Therefore, it is absolutely necessary that beneficiaries and/or their helpers and caregivers compare different plans BEFORE the Part D Annual Election Period that starts November 15^th and ends December 31^st.

If you or a loved one is currently enrolled in a Private Fee for Service (PFFS) plan, it is especially important to get started reviewing options because changes from the 2008 Medicare Improvement for Patients and Providers Act (MIPPA) go into effect in 2011, and some PFFS plans have decided to leave the marketplace rather than meet the additional requirements enacted by MIPPA.

Another change to Medicare in 2011, a result of the new health care reform law, will help close the coverage gap known as the “Donut Hole.” Eligible plan members who purchase formulary drugs after reaching the Donut Hole will get a 50% discount on brand name drugs and a 7% discount on generic drugs.

Don’t be intimidated. This year, plan sponsors were required to consolidate plan offerings, so there are fewer plans and the differences between plans are more meaningful and easier to compare, and beginning October 15^th, plan premiums, deductibles, co-pay amounts, formularies and formulary drug restrictions can be viewed and compared online at www.medicare.gov.

If you’d like additional assistance, North Carolina offers a Seniors’ Health Insurance Information Program (SHIIP). To find your local SHIIP office, call 1-800-443-9354, or check out their website: www.ncshiip.com.

To view the full bulletin from the Center for Medicare Advocacy Inc.: http://www.medicareadvocacy.org/InfoByTopic/PartDandPrescDrugs/10_10.07.ChoicesTimeAgain.htm

 

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Time is running out - we are in the last quarter of 2010, with a host of dramatic changes in the tax laws approaching:

• For the remainder of 2010 there is no federal or North Carolina estate tax.
• For 2010, the estate tax has been replaced with a complex modified carryover basis regime which requires careful planning for estates over $1.3 million.
• The federal estate tax returns in 2011 with a $1 million exemption and a 55% rate. North Carolina will also have an estate tax, with a maximum rate of 16%.
• Federal income tax rates will increase next year, with the top rate rising from 35% to 39.6%. In addition, the maximum capital gains rate will increase from 15% to 20%, and qualified dividends will be taxed at regular income tax rates rather than 15%.
• In 2013, a 3.8% Medicare surtax will be imposed on unearned income for taxpayers with income over $200,000 (singles) and $250,000 (married filing jointly). Earned income above those levels will face an additional .9% Medicare tax.

There have also been alarming developments in the law regarding the ability of creditors to reach IRAs:

• SEP and SIMPLE IRAs are not specifically protected under either federal or North Carolina law.
• A majority of courts have held that Inherited IRAs are not protected from creditors.
• An IRA payable to a revocable trust may not be protected from your creditors after your death.

Finally, existing wealth transfer techniques for reducing gift and estate taxes such as discounted gifts from Family Limited Partnerships and Limited Liability Companies and Grantor Retained Annuity Trusts may be severely curtailed if the Obama administration gets its way.

Heavy stuff on a Friday afternoon, but don't delay - contact your estate planning attorney right away to formulate a plan to protect your assets and save taxes for you and your family.

 

 

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If you're asked to serve as the executor of an estate, think carefully about the decision before accepting the position. Acting as an executor or administrator of an estate can involve a great deal of work, depending on assets and the complexity of the estate.

Q. Who Can Be     An Executor?     A. It depends on state law, but you generally must be over the age of 18 or 21.  In most states, to be an executor a person cannot have been convicted of a felony or be considered "unsuitable" by the court.

For example, an estate with a large investment portfolio, property in more than one state, and a major stake in a business means far more responsibility than a modest estate.

Many people agree to be named as an executor for a relative or friend - and then find they're left with a task that's more difficult and overwhelming than they expected. What's more, executors are bound by law to observe a strict standard of care in fulfilling their duties. You can be held legally liable for negligent handling of the estate.

Use the list of typical executors' responsibilities below to make an informed decision about whether to agree to be named executor. Here are some possible duties that an executor must fulfill:

Inform various people of the death. This includes family members, employers, business partners, the attorney and accountant. 

Cancel accounts. This includes the deceased person's credit cards, utilities, banks and other creditors. 

Have the will probated. Usually, this means having a lawyer petition the court to probate (or approve) the will. Once the will has been probated, the executor has the power to administer the estate - in other words, to perform the rest of the duties on this list. 

"Marshal" the assets. This means finding all of the deceased person's assets, which may not be easy. (Imagine trying to quickly locate every asset you own right now, such as car registrations, stock certificates, account statements, deeds, pension benefits, mortgage

Advice: To ensure that your own assets will be more easily located after death, it's a good idea to prepare a post-mortem letter. This is a document you can prepare yourself to tell executors and heirs where everything is located to carry out your instructions.

papers, and IRA papers. Now imagine trying to do this for someone else.) 

Be sure each asset is valued. Assets need to be valued both for estate tax purposes and to provide heirs with a tax basis. (Under the tax law, the tax basis of an asset in an heir's hands is generally the "date of death value.") Some assets, such as business interests, require an appraisal. 

File any tax returns. Depending on the size of the estate, tax returns that need to be filed might include federal and state estate tax returns, the decedent's final income tax return, a final gift tax return, and an income tax return for the estate. 

Make an accounting of the assets. You'll need a professional for this. In some cases, you may need to sell some of the assets.

Handle the debts. After determining what the estate owes, an executor pays the debts out of an estate bank account.  

Distribute the estate's assets in accordance with the deceased person's wishes. If substantial time elapses before the assets are distributed, you have to manage the assets.

These are just some of the duties an executor may have to perform. Although it is an honor to be asked by a friend or relative to serve as an estate executor, don't hesitate to decline if you aren't sure you can handle the task. Perhaps as an alternative, you could serve as a co-executor with a financial professional or institution that has the expertise needed to handle some of the responsibilities.

This post is from an article in my October 5, 2010 eNewsletter.

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