Thursday, February 1, 2018

Summary of the 2017 Tax Legislation: Effect on Individuals


On December 20, 2017, Congress passed a wide-ranging tax reform bill. It was signed into law by President Trump on December 22, 2017. Unless noted otherwise, the provisions of the new tax bill are generally effective January 1, 2018 through December 31, 2025. After that date, with some exceptions, the rules sunset back to existing law as of 2017. The purpose of this article is to provide a high level overview of the impact of selected provisions of the new legislation on U.S. individuals.
New 2018 Individual Tax Rates  

Marginal Tax
Rate
Single
Married Filing
Jointly
Head of Household
Married Filing Separately
10%
$0-$9,525
$0-$19,050
$0-$13,600
$0-$9,525
12%
$9,525-$38,700
$19,050-$77,400
$13,600-$51,800
$9,525-$38,700
22%
$38,700-$82,500
$77,400-$165,000
$51,800-$82,500
$38,700-$82,500
24%
$82,500-$157,500
$165,000-$315,000
$82,500-$157,500
$82,500-$157,500
32%
$157,500-$200,000
$315,000-$400,000
$157,500-$200,000
$157,500-$200,000
35%
$200,000-$500,000
$400,000-$600,000
$200,000-$500,000
$200,000-$300,000
37%
Over $500,000
Over $600,000
Over $500,000
Over $300,000
        

         Pre-2018                                              Post-2018
Alternative Minimum
Tax (AMT)
Exemption amounts of $86,200 (married) and $55,400 (single).
Phase-out of exemption amounts begins at $164,100 (married) and $123,100 (single).
Exemption amounts increased to $109,400 (married) and $70,2300 (single).
Phase-out of exemption amount begins at $1,000,000 (married) and $500,000 (single).
Individual standard deduction/personal exemptions
Standard deduction is $13,000 (married) and $6,500 (single).
Personal exemption of $4,150 phased out for higher incomes.
Standard deduction nearly doubled to $24,000 (married) and $12,000 (single).
Personal exemptions repealed at all income levels.
Itemized Deductions
Deductions allowed but subject to the “PEASE limitation,” which reduces the availability of itemized deductions at income levels starting at $320,000 (married) and $266,700 (single).
Individual deduction for state and local taxes (SALT) for income, sales and property is limited in the aggregate to $10,000 (married and single filers) and $5,000 (married filing separately).
“PEASE limitation,” including for charitable deductions, is repealed.
Capital Gain Exclusion for  Primary Residence
Allows individuals to exclude gain of up to $500,000 (for joint filers) from the sale of a primary residence.
Taxpayer must own and use the house as primary residence for 2 out of the previous 5 years and exemption can be used only once every 2 years.
Unchanged
Like-kind exchanges
Allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the gain on the sale of the first asset.
Applies to like-kind exchanges of real property as well as certain categories of personal property.
Limits applicability to like-kind exchanges of real property that is not held primarily for sale.
*This provision does not expire in 2025.

Section 529 Plans
Distributions may be used for expenses relating to higher (post-secondary) education.
In addition to high (post-secondary) education, distributions from 529 plans of up to $10,000/year per student can be used for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.
* This provision does not expire in 2025.
Pass-through deduction
Income received from partnerships, S corporations, or sole proprietorships is passed-through to the owner’s individual income tax returns, where it is taxed as ordinary income.
There is a new 20% deduction for qualified business income from a partnership, S corporation, or sole proprietorship.
Charitable deduction changes
Cash gift to public charities is deductible as long as it doesn’t exceed 50% of the taxpayers Adjustable Gross Income (AGI).
80% of value spent on university athletics seating rights can be deducted.
Cash to public charities is deductible as long it doesn’t exceed 60% of the taxpayers’ AGI.
80% deduction for university athletic seating rights is repealed.
Gift/Estate/Generation-Skipping Transfer (GST) tax exemption
Estate, gift and GST tax exemptions are each $5.6 million per US domiciliary.
Estate, gift and GST tax exemptions are doubled to $11.2 million per US domiciliary.
Like most individual provisions, the exemptions sunset after 2025 and revert back to the law in effect for 2017 with inflation adjustments; Regulations will confirm that gifts made during this period (2018-2025) up to the increased exemption amounts will not later be subject to tax if the exemptions are reduced, (i.e., no “clawback”).
The basis step-up rules, adjusting the basis of any asset passing from a decedent to the fair market value of that asset as of the decedent’s date of death, continue to apply.
The annual gift tax exclusion increases to $15,000 (a married couple may make gifts of $30,000 per recipient). This change is due to inflation and not the new legislation.
Child Tax Credit
$1,000/qualified child
Phase-out of credit begins at $75,000 (single) and $110,000 (married).
Increased to $2,000/qualified child, with $1,400 being refundable.
Phase-out of credit begins at $200,000 (single) and $400,000 (married).
Individual Mandate / Health Insurance
Requires most Americans to purchase health insurance coverage; taxpayers must submit proof of healthcare coverage with their tax return or pay a penalty.
Individual mandate is repealed
* This does not expire in 2025.
Alimony
Ex-spouses who pay alimony can deduct the expense from their federal income taxes; ex-spouses receiving alimony payments have to claim the money as taxable income.
Alimony payments will not be deductible and will not be income to the recipient. This is effective for any divorce or separation agreement executed after December 31, 2018.
* This does not expire in 2025.
Future Inflation Adjustments
In general, tax brackets and many other tax code limits are inflation adjusted using Consumer Price Index – Urban (or CPI-U).
Many but not all of the indexed limits would now be indexed using Chained-CPI-U, which generally leads to slightly slower cost of living adjustments each year.
* This does not expire in 2025.

Disclosure – This article has been prepared by Jeffrey Burr LTD. and is provided for informational purposes only. This material does not provide legal, tax, regulatory or accounting advice. Prior to entering into any proposed transaction, you should determine, in consultation with your own advisors, the potential economic, legal and tax risks and consequences.

-Derek N. Hatch, Esq. 



Tuesday, July 25, 2017

AFRs August

The AFRs
are as follows
Annual
Semi-annual
Quarterly
Monthly
Short-term
1.29%
1.29%
1.29%
1.29%
Mid-term
1.95%
1.94%
1.94%
1.93%
Long-term
2.58%
2.56%
2.55%
2.55%

Tuesday, July 18, 2017

VALIDATING AN ESTATE PLAN


Leaving an estate plan can provide peace of mind that a person's wishes will be respected and carried out when they are no longer around to care for and provide for their loved ones.  Indeed, many estate plans are implemented just as flawlessly as the person who created it intended.  There are, however, no shortage of estate plans that become tied up in lengthy and costly litigation as a result of will or trust contest actions alleging that the testator either did not have capacity to execute the estate plan or was unduly influenced by another person in making the estate plan.  In these instances, the challenges have historically been made after the testator has already passed away.  This is due to the fact that the laws of most states employ purely post-death probate procedures, which only allow the testator's mental capacity to be considered after death.  The inherent flaw then becomes that the person best suited to confirm his or her testamentary wishes is no longer alive to consult about it.

North Dakota, Ohio, Arkansas and Alaska have enacted pre-death or “ante-mortem” probate laws that authorize some form of lifetime will validation. These laws permit testators to proactively seek a court declaration as to the validity of their wills during their lifetimes, thereby reducing the likelihood of a will contest after their death.  With the exception of Alaska these laws have been in existence for some time, having had the most frequent use in Ohio while getting little to no use in North Dakota and Arkansas.  Alaska sparked a reemergence of interest in pre-death probate legislation in 2010 when it adopted a broader version of the ante-mortem probate statute.  In addition to wills, the Alaska statute authorizes the court to declare the validity of trusts during the lifetime of the trustor.  The validation proceedings may either be initiated by the testator or any interested person with the testator’s consent.  Incidentally, Alaska will entertain pre-death probate proceedings even when the testator resides in another state or has no connection to Alaska.  In 2011, the Nevada legislature considered similar ante-mortem probate legislature, but it failed to pass.

Whether Nevada and the other currently “post-mortem” probate states will ultimately enact pre-death probate legislation remains to be seen.  In such states, there continue to be a range of methods that may be invoked when setting up the estate plan to lessen the potential for a will or trust contest later.  Included in these methods are: self-proving wills, no-contest or "in terrorem" clauses, and videotaped execution ceremonies, to name a few.   Individuals who are concerned that a will or trust contest might interfere with his or her carefully crafted estate plan should speak candidly to the attorney about the options available to safeguard it from unwanted attacks.



Wednesday, June 28, 2017

Jeffrey Burr Named 2017 Mountain States Super Lawyers

Congratulations to Jeffrey Burr on being named to the 2017 Mountain States Super Lawyers. Jeffrey Burr has been helping families in the Las Vegas Valley for nearly 35 years.

http://profiles.superlawyers.com/nevada/henderson/lawyer/jeffrey-l-burr/855c3d55-5c2f-4ff2-b21c-9ec5b2c68504.html



Monday, June 19, 2017

AFR's for July

The 7520 rate is 2.2%
The AFRs Annual Semi-annual Quarterly Monthly
are as follows
Short-term 1.22% 1.22% 1.22% 1.22%
Mid-term 1.89% 1.88% 1.88% 1.87%
Long-term 2.60% 2.58% 2.57% 2.57%

Friday, June 16, 2017

Nevada Supreme Court Upholds Public Policy of Domestic Asset Trusts

Just a few weeks ago, the Nevada Supreme Court issued their ruling in a case involving a domestic asset protection trust (DAPT) or a self-settled spendthrift trust (SSST), which our office calls the Nevada On-Shore Trust.  The court decision can be accessed here.

This case involved a dissolution of a marriage and whether a SSST can be invaded to satisfy a judgment for child support.  In this case, Klabacka V. Nelson, the Nevada Supreme Court expressly upheld the validity of Nevada’s “self settled spendthrift trust” statute, found in Nevada Revised Statutes, Chapter 166.  In the Court decision, the requirements for establishing a SSST were reinforced:
A spendthrift trust is created ‘if by the terms of the writing (construed in the light of [NRS 166] if necessary) the creator manifests an intention to create such a trust.’  In addition to the spendthrift requirements, to create a valid SSST, NRS 166.015(2)(a) requires the settlor to name as trustee a person who is a Nevada resident.  Further, NRS 166.040(1)(b) provides that the SSST must (1) be in writing, (2) be irrevocable, (3) not require that any part of the trust’s income or principal be distributed to the settlor, and (4) not be ‘intended to hinder, delay or defraud known creditors.’
We also note that the Court’s decision specifically stated that Nevada’s SSST statute is not subject to any type of “exception creditors.”  Many states which have joined Nevada in offering DAPTs, have built into their statutes exceptions for certain types of creditors, such as child support, alimony, tort creditors, or contract creditors.  While these other states may have their own purposes and public policy in mandating certain exceptions to the protection of an SSST, the Nevada Supreme Court has made it very clear that the intent of the law in Nevada is that Nevada-based DAPTs are to be free from exception creditors.  The Klabacka case states:
“We conclude Nevada SSSTs are protected against the court-ordered child support or spousal support obligations of the settlor/beneficiary that are not known at the time the trust is created.”
This court decision adds to the commentary and writings of many practitioners in this area of the law and reinforces the claim that Nevada is the best state for establishing DAPTs/SSSTs, or the Nevada On-Shore Trust.  If you would like more information regarding the Nevada On-Shore Trust, please investigate our website or contact our office to schedule a consultation.




Friday, June 9, 2017

Nevada Passes Assembly Bill 314 Regarding Probate and Trusts

On June 2, 2017, Assembly Bill 314 was approved by the Governor and will become Nevada law on October 1, 2017.  Assembly Bill 314 has been in the works for the past two years by the Probate and Trust Section of the Nevada bar.   The new Nevada law makes positive changes to existing probate and trust law in Nevada. 

Some of the major provisions of the bill include:

  • Increasing the judgment exemption amount for Individual Retirement accounts from $500,000 to $1,000,000;
  • Allowing the court to release Testamentary Trusts from on-going court supervision;
  • Clarifying the existing no-contest laws;
  • Explaining the rights of creditors related to non-probate transfers;
  • Creating law to allow individuals over the age of 18 to authorize another person to order a burial or cremation in the event of his or her death; and
  • Amends and clarifies many important issues relating to probate and trusts.
We are excited for the passage of Assembly Bill 314 and expect the new bill will make positive changes for our clients.


Attorney – Corey J. Schmutz