Tax Planning

How Can a Roth IRA Reduce the Tax Burden Facing Your Heirs?

Published on: October 30, 2017 | By McCulloch & Miller, PLLC

There’s more than retirement savings power in a Roth IRA. Used properly, it can help cut your beneficiary’s tax liability, regardless of if and when tax reform becomes reality.

If you’re interested in reducing the taxes your heirs will have to pay, you’re probably concerned about the discussion about tax reform going on in Washington these days. Unfortunately, there’s no way to be certain what, if any, changes will actually occur. In the meantime, your estate planning attorney can help you structure your estate, so that less of it ends up being consumed by taxes. That includes moving funds into non-taxable accounts, including Roth IRAs.

Motley Fool’s recent article, “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. As the Roth has been open for at least five years prior to your death, the money in that account won’t be subject to federal income taxes.

Handling Harvey: IRS Tax Relief

Published on: August 31, 2017 | By McCulloch & Miller, PLLC

Taxpayers who have a valid extension until October 15, 2017 to file income tax returns and who live in the covered Texas disaster area may be helped by the IRS extending the filing periods.

IRS announced certain relief from deadlines relating to filing and certain tax deposits for Hurricane Harvey victims. The IRS action covers filings that were due or matters that occurred on or after August 23, 2017(1). Returns for tax payers who have valid filing extensions in the affected Texas Counties have filing deadlines extended again until January 31, 2018. The extensions for eligible taxpayers also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017. In addition, penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, will be abated as long as the deposits were made by Sept. 7, 2017.

Generally, the persons eligible for this relief include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. The returns eligible include individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after Aug. 23, 2017, and before Jan. 31, 2018. Affected taxpayers that have an estimated income tax payment originally due on or after Aug. 23, 2017, and before Jan. 31, 2018, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Jan. 31, 2018.

How Does a Living Trust Work?

Published on: August 11, 2017 | By McCulloch & Miller, PLLC

Living trusts can achieve different goals, depending upon how they are drafted. Knowing the fundamentals will help you decide how to go forward.

It’s important to know that not all living trusts are the same. However, common reasons for using a living trust are for privacy and avoiding probate. Placing assets in a living trust also provides protection to beneficiaries from divorce, nursing home costs, legal actions and creditors. Should a living trust be part of your estate plan?

The Green Bay Press-Gazette’s recent article, “Common questions about a living trust,” notes that this can be especially important for a beneficiary who may have special needs. A Special Needs Trust can be created so their government program benefits, like Medicaid, won’t be impacted by their inheritance. Let’s look at some specific situations:

How are 401(k)s and IRAs Different?

Published on: August 4, 2017 | By McCulloch & Miller, PLLC

New regulations from the Department of Labor may come into play for Americans deciding which type of account is best for their retirement savings.

There are significant differences between 401(k)s and IRAs, and as reported in a recent post on wjbf.com, “Advantages and disadvantages to a 401k and an IRA,” a number of new regulations from the Department of Labor makes this a good time to review the pros and cons of these popular retirement savings plans.

401(k): A 401(k) can potentially be less expensive than other investment vehicles, due to the number of participants. Many also have a loan provision for access to your principal, if you need it in an emergency. If you retire early, qualified plans may have an age 55 withdrawal privilege that gets you around the 10% withdrawal excise tax provision. However, if you’re still working, you may be able to push back your required minimum distribution (RMD), if you’re over age 70 and still participating in the plan. You’ll also have creditor protection in the typical qualified plans. Those are some of the general positives.

Strong Trust Planning is Important When One Spouse is Not a U.S. Citizen

Published on: May 17, 2017 | By McCulloch & Miller, PLLC

With many tech companies, universities and businesses, North Carolina has become home to many resident aliens who contribute greatly to the state’s growth. Estate planning requires special knowledge of non-citizen tax rules.

More than $1 billion in annual foreign direct investment gives North Carolina’s private sector employment a huge boost, as reported in Trust Advisor’s recent article, “Foreign Spouses Need Strong Trust Planning.” That includes hundreds of thousands of workers, individuals who are not U.S. citizens but who establish residence here.

They’re known as “resident aliens” under U.S. tax law. There are also nonresident, non-U.S. citizens (“nonresident aliens”) who will invest in real and personal property situated in the state. This can include a wide variety of real and personal property, from vacation homes to ownership interests in a holding or operating company.

RMDs for Retirement Accounts: What You Need to Know

Published on: December 16, 2016 | By McCulloch & Miller, PLLC

New Year’s Eve is the deadline for taking RMDs if you are older than 70 ½. Haven’t started yet? Get on this right away to get it done in time. Otherwise, be prepared to pay a penalty.

You still have a little time to beat the last minute rush on taking your Required Minimum Distributions (RMDs) from traditional IRAs and 401(k)s, according to Kiplinger’s “FAQs About Required Minimum Distributions for Retirement Accounts.” However, you had better hurry if you are older than 70 ½. You only have until December 31^st and any delays could be expensive. Remember that you aren’t the only one making this transaction at this time of year, and you’re hardly alone in waiting until the last minute.

Here is some additional information to help you meet your deadline for IRA withdrawals and some special rules for 401(k)s.

From Inside the Firm: Tom’s “Do’s and Don’ts” for Succession Planning

Published on: December 2, 2016 | By McCulloch & Miller, PLLC

TOM’S 8 TIPS FOR SUCCESSION PLANNING^{(1) ©}

Realize that your Exit Strategy is not business as usual. Get knowledgeable guidance e.g. from financial/legal advisors (team approach). Start now.

Be realistic about objectives: Is it first and goal to go or is it a goal line defense?

For Entrepreneurs, Make a Succession Plan Part of Your Estate Plan

Published on: November 28, 2016 | By McCulloch & Miller, PLLC

Estate planning for entrepreneurs is not complete until it includes a succession plan. Individuals who create successful businesses often find it hard to consider handing over the reins.

Entrepreneurs would not succeed without their ability to focus all of their energies on their business. It is not easy for this type of person to imagine that one day they may want to retire or that the possibility exists that they might become ill, injured or even die. Without an effective estate plan that includes a succession plan, their work, staff and families may be placed in jeopardy.

A recent business.com post, “5 Estate Planning Tips for Entrepreneurs,” lists these important estate planning essentials:

From Inside the Firm: Tom’s Tax Tips for Succession Planning

Published on: November 18, 2016 | By McCulloch & Miller, PLLC

1. Estate tax, the cruelest tax. You are taxed once on the income you earn. You save some of what you earn and are successful. If you die with “too much”, you are taxed again on your hard earned savings.

2. Only Federal; Texas does not have an estate or an inheritance tax.

Will You Need a Will in Texas if the Estate Tax is Eliminated?

Published on: October 28, 2016 | By McCulloch & Miller, PLLC

Regardless of which candidate becomes president and what changes are made in coming years, there will still be a need for estate planning in Texas, and that includes regular folks as well as the ultra-wealthy.

If the U.S. federal estate tax were to be eliminated, there will still be plenty for single family offices and estate planning attorneys to do, according to a Forbes article, “If the U.S. Federal Estate Tax Goes Away, What Will Single-Family Offices Likely Do?” Wills are still going to be needed to provide direction as to how assets are to be distributed, and all estate plans will likely need to be reviewed and revised in light of changes to the law. For the single family office, there will still be much to do.

Life insurance purchased to pay estate taxes will also need to be reviewed. One way to do this is to convert permanent policies with meaningful cash values into private placement life insurance policies (PPLI).