Articles Posted in Step Up in Basis

FLORIDA CHARITABLE TRUSTS: ALTERNATIVE BENEFICIARIES AND CY PRES DOCTRINE

Due to applicable tax exemptions and tax deductions, charitable trusts are a great tool for preserving the value of your property intended for charitable purposes and for reducing taxes payable by your remaining estate (intended for purposes other than charitable ones). Naturally, the main goal when setting up a charitable trust will be the fulfillment of the philanthropic objective of your choice. While the law comes to aid with mechanisms to fill in the blank spaces in the will or trust agreement, well-meant but poorly executed provisions in the documents may defend these mechanisms and obstruct the desired purpose.

Charitable purposes may include relief of poverty; advancement of arts, sciences, education, or religion; promotion of health, governmental, or municipal purposes. Fla. Stat. 736.0405(1).  This list is, of course, non-exhaustive. A specific charitable purpose and beneficiary organization will usually be designated in the document. Even if it is not, the court will select one or more charitable purposes or beneficiaries that will be consistent with the settlor’s original intent, at least to the extent it can be ascertained. Fla. Stat. 736.0405(2). But what if the agreement names a purpose and a beneficiary, but the beneficiary does not exist? Or exists at the time the agreement is made, but ceases to exist before it is supposed to take the bequest? Or what if the stated purpose is impossible to fulfill? In those situations the cy pres doctrine applies to help execute the bequest in accordance with the general spirit of the will or trust agreement.

ESTATE PLANNING: CRYPTO CURRENCIES AND DIGITAL ASSETS

Although we all unquestionably live in a digital age at least for the past two decades and the legislatures are adopting new laws every day to reflect this reality, digital estate planning remains one of the areas where relying on state-made laws might not be enough. Laws in this area are scarce and only of a general nature. What happens with our digital assets after we die is usually controlled by private companies that store the data. For that reason, and because of the specific nature of digital assets, it is advisable to take these matters in your own hands.

What is a digital estate planning? It is a estate planning that covers any of your digital assets, including cryptocurrencies, websites, email accounts, social network accounts, cloud accounts, and all content stored or communicated trough these tools. What sets these assets apart from the more traditional ones is the fact that there might not be any person other than you who is aware of those assets or who could access them. In other words, no official register, no tax records, no bills, no paper contracts. Yet these assets may have a great value, both personal and monetary.

The New Tax Bill

At the end of last year, Congress passed the most significant tax reform since 1986 and unsurprisingly, it aroused many controversies. Its supporters are convinced that the bill is a big success for workers, pointing out positive changes already in effect, such as Wal-Mart raising its employee’s hourly rate. On the other side of the barricade, the opponents fear that the bill will have quite the opposite effect —that it will better benefit the company shareholders rather than its employees (numerous buybacks were announced in December). In the following months, we may witness attempts on the state level to mitigate some of the effects of the new federal law. While it is too soon to evaluate whether the bill will bring about the desired economic growth long-term, it is the right time to get acquainted with the most significant changes. Importantly, none of these changes will affect the 2017 taxes.

Individuals:

The provisions applicable to individuals are temporary and will expire at the end of 2025, at which time the brackets will return to the old rates, unless Congress extends this period. The rates will still be distributed into seven brackets based on income. Rates for six of the brackets have been lowered and accordingly, most of us will benefit from this. However, some who were in the 33% bracket may now find themselves in the 35% bracket.

Old rates: 10% 15% 25% 28% 33% 35% 39.6%

 

New rates: 10% 12% 22% 24% 32% 35% 37%
Income from (Individuals): $0 $9,526 $38,701 $82,501 $157,501 $200,001 $500,001
Income from (Couples): $0 $19,051 $77,401 $165,001 $315,001 $400,001 $600,001

 

Another benefit is that the personal deductions were nearly doubled to: $12,000 for single filers, $18,000 for head of households, and $24,000 for married couples filing jointly. On the other hand, the $4,450 deduction you could claim for yourself, your spouse, and each of your dependents, was eliminated. In sum, this may completely negate the new benefits for some families. Deductions for the elderly and for those who are blind stay in place and the tax credit for children under 17 was doubled to $2,000. The new law also allows parents to take a $500 credit for each non-child dependent they’re supporting.

The deductions for state and local income and property taxes will be newly capped to $10,000 and foreign real property taxes will no longer be deductible at all. Also, the deductions for itemized interest expense from mortgage debt (to acquire a first or second residence) were lowered from $1 million to $750,000. This change will not affect old mortgages that will be refinanced under the new law, as long as the old loan balance is not exceeded at the time of refinancing. The current up to $100,000 deduction for the interest on home equity loans will no longer be allowed.

Corporations and Businesses

As opposed to the changes affecting individuals, most of the corporate provisions are permanent. The corporate tax rate has been slashed from 35% to 21%. This deduction will not apply to some specific service industries, such as health, law, and professional services. However, single filers with income below $157,500 and joint filers with income below $315,000 can claim this deduction fully on income from service business. This provision is, like in the case of individual tax rates, only temporary.

American corporations will no longer be required to pay corporate taxes on money earned abroad if the corporation stays abroad. Once the income is brought back to the United States, it will be taxed at a new, considerably lower, rate of 15.5% on cash assets and 8% on non-cash assets.

Pass-through businesses such as S corporations and limited liability companies will benefit from the tax deduction as well. This might motivate people to either incorporate their businesses or to disguise their personal income as business income. However, the incorporation may not be the right choice for everyone and people should be cautious, as the bill incorporates some provisions to prevent income mischaracterization. If the owner or partner in a business will draw salary from it, it would be subject to ordinary income tax. Moreover, the bill also limits the income, which qualifies for the deduction. Nevertheless, it seems that the system will not be bullet-proof and will benefit the passive owners over the active ones.

If you are interested in learning how the new tax bill may affect you or your estate please do not hesitate to contact the attorneys at Chepenik Trushin LLP, who are ready, willing, and able to assist you with your estate planning needs. Bart Chepenik, 305-613-3548. Brad Trushin, 305-321-4946. Offices (305) 981-8889.

Other Sources

Introduction:

https://www.cnbc.com/2018/01/17/how-democrats-can-neutralize-gop-tax-law-commentary.html

https://www.politico.com/agenda/story/2018/01/15/tax-law-bonuses-wages-trump-000617

Individuals:

https://www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/#fd26309292a3

http://money.cnn.com/2017/12/15/news/economy/gop-tax-plan-details/index.html?iid=EL

http://money.cnn.com/2017/12/20/news/economy/republican-tax-reform-everything-you-need-to-know/index.html

https://www.marketwatch.com/story/10-things-you-need-to-know-about-the-new-tax-law-2017-12-20

Corporations:

https://www.forbes.com/sites/kellyphillipserb/2017/12/22/what-tax-reform-means-for-small-businesses-pass-through-entities/#68335fd66de3

https://www.fool.com/taxes/2018/01/03/heres-who-got-the-biggest-tax-rate-break-from-corp.aspx

https://www.marketplace.org/2018/01/16/business/ive-always-wondered-tax-bill-2017/corporations-pay-effective-rate-corporate-tax

https://www.vox.com/2017/12/20/16790040/gop-tax-bill-winners

https://www.inc.com/zoe-henry/final-tax-bill-impacts-businesses-2017.html

https://hbr.org/ideacast/2017/12/breaking-down-the-new-u-s-corporate-tax-law