Berdon Blogs

T&E TALK: Should You Keep Your Trust A a Secret?

Posted by Scott T. Ditman, CPA/PFS on Nov 28, 2016 12:46:59 PM

When planning their estates, many people agonize over the negative impact their wealth might have on their children. To address these concerns, some people establish quiet trusts, also known as silent trusts. With this technique, the individual leaves significant sums in trust for their children without telling them about it. An interesting approach, but is it effective?

A questionable strategy

Many states permit quiet trusts, but the risks associated with them may outweigh the potential benefits. For one thing, it’s difficult — if not impossible — to keep your wealth a secret. Even if your children are unaware of the details of your estate plan, their expectations of a future inheritance based upon the lifestyle they have come to know can encourage the same irresponsible behavior the quiet trust was intended to avoid.

A quiet trust may also increase the risk of litigation. The trustee has a fiduciary duty to act in the beneficiaries’ best interests. When your children become aware of the trust years or decades later, they’ll likely seek an accounting from the trustee and, with the help of counsel, may challenge any past decisions the trustee has made.

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Topics: T&E TALK

SALT TALK:  Year End Planning Tips – Taxing Reasons Not To Visit Your Relatives for the Holidays

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Nov 28, 2016 12:43:21 PM

The drive is too far and the traffic is horrendous.  Did you see those outrageous airfares?  I have a major deadline at work.  Didn’t we come to you last year; this year I have to go to the in-laws?  While all members of the Berdon SALT team are anxiously looking forward to traveling both to spend the upcoming holidays with our respective families, we know that some of our clients may not be as enthusiastic.  Our holiday gift to our readers is two-fold: firstly an excuse (at least a new one) not to attend that family function, and secondly, potential tax savings for using our excuse.

The excuse:  I can’t spend another day in (fill in the appropriate tax jurisdiction) because I will be taxed as a resident and owe an additional (please fill in the appropriate dollar amount) in personal income tax.

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Topics: SALT TALK

TAX TALK: Basic Rules of Deferred Compensation under Nonqualified Plans

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 28, 2016 7:00:00 AM

Nonqualified deferred compensation (NQDC) plans are unsecured promises by the employer to pay executives at a specific time or upon a specific event in the future for services currently performed. Unlike qualified plans, such as 401(k) s, NQDC plans:

  • Can discriminate in favor of highly compensated employees;
  • Have no limit on the amount of compensation that the executive can defer;
  • Defer the employer’s compensation deduction to the year the employee is taxed on the income; and
  • Allow the employer’s general creditors to reach any amounts set-aside to fund the future payments.

Failure to understand the complex rules applicable to NQDC plans can cause substantial tax consequences.

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Topics: TAX TALK

TAX TALK: Highlights of Trump’s Tax Proposals for Individuals

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 21, 2016 12:50:00 PM

With the election of Donald Trump as President of the United States and the Republicans retaining control of both chambers of Congress, an overhaul of the U.S. tax code next year is likely. President-elect Trump’s comprehensive tax reform plan, released earlier this year, would greatly affect many individuals. The plan proposes to:

  • Reduce the number of income tax brackets from seven to three, with rates on ordinary income of 12%, 25%, and 33%. (These new brackets reduce rates for many taxpayers but result in a tax hike for certain single filers.)
  • Align the 0%, 15%, and 20% long-term capital gains and qualified dividends rates with the new brackets.
  • Eliminate the head of household filing status (which could cause rates to go up for some of these filers, who would have to file as singles).
  • Repeal the net investment income tax.
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Topics: TAX TALK

SALT TALK:  NJ Attempt to Sack the Carried Interest Leaves Downfield Options Wide Open

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Nov 21, 2016 11:00:00 AM

They've got the Giants and the Jets and now they want credit for sacking the carried interest?  Both the President-elect and his opponent set their sights on its elimination, yet some states, most recently New Jersey, still see the need to pursue the quarterback and miss the long ball?

Just a few months ago, New Jersey Assemblyman Troy Singleton sponsored Assembly Bill No. 3868, which would penalize carried interests with an additional 19 percent surtax. But wait, it's not just New Jersey lawmakers that forgot they’re playing on the Fed’s field. Back in March of 2016, New York had a similarly reckless play in motion.

Regardless of your view on taxing carried interests, you've got to remember the state's play no role here and income earned from carried interests receive no preferential treatment at the state level.  Fortunately, the New York proposal tripped over its own feet and the New Jersey one is likely to do the same.  The most amusing part of these proposals was the fact that they don't become effective until all three of the tri-states pass a similar law. 

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Topics: SALT TALK

T&E TALK: Family Mission Statements Promote a Harmonious Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Nov 21, 2016 7:00:00 AM

Typically, much of the estate planning process focuses on money, but the most successful estate plans are founded on relationships. Building and preserving family wealth isn’t an end in itself. Rather, it’s a tool for promoting the principles that are important to you and other family members. Drafting a family mission statement can be an effective way to define and communicate these values.

Communicate clearly
Because each family is different, there’s no cookie-cutter formula for drafting a family mission statement. The most important thing is for the statement to clearly articulate your family’s shared values, whatever they may be.

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Topics: T&E TALK

SALT TALK:  Fed Cuts May Lead to State Hikes

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Nov 14, 2016 12:50:00 PM

Anybody stay up late Tuesday night?  I know I did, but not for the reason that comes immediately to mind.  While most of my fellow citizens were eagerly anticipating election results, the tax professionals at Berdon were busy thinking through the impact that the election could have on our clients’ taxes. 

While any proposed framework set forth by President-Elect Trump still has a long way to go before materializing into law, a wide swath of federal tax cuts seems to be heading our way.  Proposals include a drop of the top individual tax rate from 39.6% to 33%. As part of the proposed repeal of the Affordable Care Act, the 3.8% tax on investment income would be eliminated.  Surprisingly, the proposals to eliminate the AMT as well as preferential capital gain rate treatment for carried interests still remain in place. Corporate tax rates would decrease from 35% to 15% and the corporate AMT would also be eliminated. Repatriation of offshore corporate profits would be “encouraged” with a one-time tax rate of 10%. Estate tax repeal is still on the table as well.

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Topics: SALT TALK

T&E TALK: The Wrong Life Insurance Beneficiary Damaging to Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Nov 14, 2016 11:00:00 AM

Life insurance can be a powerful financial and estate planning tool, but its benefits may be reduced or even eliminated if you designate the wrong beneficiary or fail to change beneficiaries when your circumstances change.

Here are common pitfalls to avoid:

Naming your estate as beneficiary. Doing so subjects life insurance proceeds to unnecessary estate taxes, exposes the proceeds to your estate’s creditors, and ensures that the proceeds will go through probate, which may delay payment to your loved ones.

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Topics: T&E TALK

TAX TALK: Beware of Income-Based Limits on Itemized Deductions and Personal Exemptions

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 14, 2016 7:00:00 AM

Many tax breaks are reduced or eliminated for higher-income taxpayers. Two of particular note are the itemized deduction reduction and the personal exemption phaseout.

Income thresholds
If your adjusted gross income (AGI) exceeds the applicable threshold, most of your itemized deductions will be reduced by 3% of the AGI amount that exceeds the threshold (not to exceed 80% of otherwise allowable deductions). For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (married filing jointly) and $155,650 (married filing separately). The limitation doesn’t apply to deductions for medical expenses, investment interest, or casualty, theft or wagering losses.

Exceeding the applicable AGI threshold also could cause your personal exemptions to be reduced or even eliminated. The personal exemption phaseout reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s AGI exceeds the applicable threshold (2% for each $1,250 for married taxpayers filing separately).

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Topics: TAX TALK

T&E TALK: Address Elderly Parents in Your Estate Planning

Posted by Scott T. Ditman, CPA/PFS on Nov 7, 2016 12:50:00 PM

Individuals examining their own estate plans should be sure to incorporate the financial affairs of their elderly parents, tweaking, when necessary, the arrangements they’ve already made.

Here are four critical steps:

  1. Identify key contacts. Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.
  2. List and value their assets. If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. It would be wise to keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits. You can use this information to formulate the appropriate planning techniques.
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Topics: T&E TALK

About Berdon Blogs

Our experts examine the latest trends, economics, business conditions and industry issues to provide timely information you need to maximize your tax advantages and meet your financial goals.

SALT TALK: Hear an insider’s perspective on the business issues, legislative updates in state and local tax, and tax aspects behind today’s headlines.

T&E TALK: Gain insights into how changes in tax laws, shifts in the financial markets, and regulatory concerns will impact assets and affect preserving and transferring wealth.

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