Comprehensive Planning. Lifelong Solutions.

Year-End Tax Planning Ideas

By Jennifer Rossettini, CFP®

As 2019 draws to a close, the focus for many of us will turn from holiday shopping to getting ready to file our income tax returns for the year.  Try to find some time in between the hustle and bustle of the season to consider the following opportunities to potentially lower your taxable income.

Pay Some 2020 Bills Early: As we learned during tax season last year, the increased standard deduction (from $12,700 in 2017, for married couples filing jointly, to $24,000 in 2018) that came about as a result of the Tax Cuts and Jobs Act of 2017 made it more difficult to itemize deductions.  If you anticipate being close to the threshold for 2019, consider prepaying some deductible expenses that are due in January like mortgage payments or state taxes.

Prepay Tuition or Contribute to a 529:  If you are the parent of a student in their first four years of undergraduate study, you can deduct up to $2,500 for each student, even if you do not itemize.  If your tuition payments have not yet reached this level, consider paying January’s tuition bill in 2019.

If you are a Virginia resident and a parent or a grandparent who is thinking of putting money away for your child’s or grandchild’s education, consider contributing to a 529 college savings plan.  You may not be able to deduct these contributions on your federal tax return, but you can deduct up to $4,000 per account from your Virginia taxable income.  If you are 70 years of age or older, the $4,000 limit does not apply – you can deduct the full amount of your contribution from Virginia taxable income.  

Harvest Investment Losses:  Look for holdings in your taxable investment portfolio that may have lost value this year.  Speak with your financial advisor about whether you should sell those holdings at a loss.  If you have holdings that have gained value this year, you can not only use the losses to offset any gains in your portfolio, you may be able to carry over any excess loss (up to $3,000) to reduce your ordinary taxable income.  

Max Out Your Pre-Tax Retirement Savings: Taxpayers can contribute up to $19,000 per year, pre-tax, to employer-sponsored retirement plans such as 401(k)’s, 403(b)’s, or federal Thrift Savings Plans.  If you are over 50 years of age, you can add an additional $6,000 contribution for a total of $25,000.  Pre-tax savings decrease your taxable income.

If you are self-employed, the tax savings could be even greater.  For a solo 401(k) plan, you can contribute up to 20% of net self-employment income to the plan.  This amount is capped at $56,000 per year or $62,000 if you are 50 or over. 

Bunch Two or More Years’ Worth of Charitable Contributions Into One Year or Open a Donor Advised Fund:  If you normally contribute to charitable organizations, but the tax benefit  of doing so is lost because of the increased standard deduction, consider “bunching” two or more years’ worth of contribution into one year in order to exceed the standard deduction.  If you do not wish to give that much to any given charity at one time or you are undecided as to which charitable organizations to support, you can contribute a lump sum to a donor advised fund, take the deduction in the year of the contribution, and decide later how you want to ultimately have those funds distributed.

Transfer IRA Money to Charity:  If you are over 70 ½ and required to take a distribution from your IRA this year, consider donating that required distribution directly to charity if you do not need the funds to support your lifestyle.  This is a great way for taxpayers who no longer itemize their deductions due to the increased standard deduction to still support their favorite charities AND receive a tax benefit.  As long as the distribution is made directly from the custodian of the IRA to the charity, taxpayers can donate up to $100,000 this year.

Ask Kit Kat: Beagle Brigade

Hook Law Center: Kit Kat, what can you tell us about the beagle brigades which patrol airports and border entry points?

Kit Kat: Well, this is an interesting tale! Beagles, as it turns out, are perfect for sniffing out meats, fresh fruits, vegetables, plants, seeds, and any products made from animals or plants. Some passengers innocently bring these items into the United States, either taking a ham sandwich which was served on the airplane, or bringing favorite fruits/vegetables from their home country. While most passengers don’t understand the degree of danger this poses, the beagle brigade attached to US Customs and Border Protection are there to make sure these items are disposed of properly upon entry to the United States. Pork products pose a special hazard. African swine fever may be responsible for having infected ¼ of the world’s pork since last August. China, Vietnam, Philippines, Eastern European countries like Romania and Bulgaria, and in September, Belgium was added to the places where the swine flu has spread. There is no cure, nor a vaccine to prevent this disease. While humans themselves cannot catch the virus, the United States is trying to keep it from infecting American animals. At Dulles International Airport in Virginia on a daily basis, 100-400 pounds of prohibited items are seized each day. Agents estimate 99% of it is food.

As it turns out, beagles are ideally suited for this work. They have great olfactory sense, and they are friendly, smart, and non-threatening. Their training involves being able to identify 5 things: apples, mango, citrus, beef, and pork. Special attention is given to identifying pork products because of the swine flu problem. US Customs wants to add, in the near future, 60 more teams to bring the number of beagle teams to 179 across the United States. It also turns out to be an economical investment to deploy the beagles, because their sniffing capability is so strong, that they can sense contraband even when it is moving on a luggage carousel. Each correct identification saves taxpayers untold money in disease prevention and actual outbreaks of disease.

They are vital partners of US Customs and Border Patrol. Their handlers love them, too! They do all this hard work for simple rewards like Pup-Peroni, a dog treat and a pat on the head!

(Laura Reiley, “Ham’s best friend: The beagle brigade is the last line of defense against African swine fever in U.S.,” The Washington Post, Nov. 27, 2019)

Posted on Thursday, December 26th, 2019. Filed under Senior Law News.

Important Update: SECURE Act 2019

By Letha Sgritta McDowell, CELA CAP

The SECURE Act was passed yesterday as part of the House Appropriations Bill, making sweeping changes to how qualified plans are paid out after the death of the original owner. Hook Law Center originally reported on this issue on May 28, 2019, analyzing the potential end of the stretch IRA. At that time there were differences between the House and Senate version of the bill which had to be reconciled before the bill, which would change how IRAs and other qualified plans could be paid out after the death of the original owner, became law. After several months and reconciliation, a modified version of the House bill passed.

The SECURE Act now allows continued tax deferrals for spouses, minor children, persons with disabilities, and certain trusts created for the sole benefit of persons with disabilities. Any other beneficiaries must withdraw the funds from the qualified plan within 10 years after the date of the original owner’s death.

Prior to the passing of the SECURE Act, with careful planning, tax deferred funds could be passed to subsequent beneficiaries and paid out over the lifetime of the beneficiary, thus allowing the assets to grow tax free and minimizing the amount the beneficiary was required to take annually, therefore reducing income taxes. Now, absent one of the exceptions, tax deferred funds will be subject to continued tax deferral for a maximum of 10 years, thus greatly accelerating the time frame in which taxes must be paid.

Guidance as to how some of the provisions of the new SECURE Act will need to be provided in the form of regulations and many details remain unclear. However, it is clear that many estate and financial plans involving qualified retirement funds will need to be reviewed and revised to take into account the changes in the law.

Join us for two FREE seminars in January to learn more about how the SECURE Act can affect your Estate Plan.

Wednesday, January 22 – The Hilton Garden Inn Harbour View/Suffolk – 10 AM. Click here to RSVP.

Tuesday, January 28 – TowneBank Great Bridge – 10 AM. Click here to RSVP.

Posted on Monday, December 23rd, 2019. Filed under Senior Law News.

How to Cope With End-Stage Dementia

By Emily Martin, Esq.

No one likes to imagine what will happen if a loved one is diagnosed with dementia. The reality of a dementia diagnosis is difficult and heartbreaking to face, but if you fail to face it before the situation becomes a crisis, you may actually be doing your loved ones more harm than good. This is why it is important to plan for the worst but hope for the best – especially when planning for the possibility that you or your loved one may get dementia.

If it is progressive, dementia is a process that gradually takes over different parts of the brain. As dementia spreads throughout the brain, the bodily functions controlled by that part of the brain will begin to deteriorate. There are three main features of end-stage dementia: extremely decreased cognitive function, the need for assistance with almost all physical activity, and the loss of the ability to control normal bodily functions. By focusing on these features, we can better determine how to plan for the worst, even while we hope for the best.

• Cognitive decline: As dementia progresses, it is important to prepare for a time when your loved one may no longer recognize you or other friends and family members, even if she has known them for years. Eventually, people with end-stage dementia will not even be able to speak. While it is impossible to know how much they understand, it is important to continue communicating with them in as normal a way as possible.

At this point it is good to identify yourself each time you see your loved one. For example, you might say, “Hi Mom, it’s your son, John.” By using a calm, friendly voice, your tone can communicate that they are safe and loved. It may be up to you to carry the conversation, but having someone talk with them can help them to feel valued. Because long-term memory deteriorates much more slowly than short-term memory, you may find that your loved one is more receptive when you talk with her about the “old times.” People with dementia may not remember what day it is or where they are, but they will enjoy speaking about events from their childhood or early adult life.

Another great way to connect with someone who has dementia can be through music. Music is processed in a different area of the brain than speech, so many people who suffer from dementia may be able to sing or recognize music when they are unable to carry on a normal conversation. Singing songs from your loved one’s past can be a great way to connect with them and even get them to smile and sing along.

The need for total assistance: Dealing with the decline of your loved one’s mental abilities can be emotionally draining, but providing complete physical assistance can be hard on your body. No matter how much you may want to, it is impossible for one person to provide 24/7 care to someone who suffers from dementia without causing significant harm to his/her own physical health. Often, this difficulty means that a loved one with dementia will need to live in a long-term care facility such as a nursing home. This can provide relief for the caregiver, while allowing the person with dementia to receive the assistance they need.

If you decide to keep your loved one in the home, your loved one will likely need round-the-clock care, whether it is provided by a combination of family or friends, professional caregivers, or both. It is important to remember that one person cannot do it all, nor should they try to. Your loved one will benefit from a variety of caregivers with differing abilities and skills.

• Loss of bodily functions: People with end-stage dementia will eventually lose the ability to walk, feed oneself, control bowel and bladder, and swallow without aspirating food or liquids into the lungs. Additionally, the fact that your loved one is immobile and confined to her bed can cause skin breakdown from sitting or lying in one position too long. Eventually, this skin breakdown can lead to open areas that are prone to infection, known as bedsores. For this reason, it is important to make sure your loved one has a position change every two hours.

The inability to eat by oneself means someone has to physically feed the individual. This can be accompanied by poor appetite, so the caregiver needs to keep track of what and how much the patient eats and drinks. Otherwise, the person may suffer from dehydration and malnutrition, which can cause additional medical conditions.

Problems with swallowing food and liquids can cause the most problems. Aspirating foods or liquids can cause pneumonia, which can cause death in a frail person. Caregivers need to be alert for coughing when eating or drinking, because this is a sign of aspiration.

Sometimes the only way to decrease the risk of aspiration is a feeding tube, which often becomes necessary as the condition progresses. However, once decline has reached this point, many people would not like to be kept alive artificially, whether that means feeding tubes or artificial respiration. For this reason, it is important to make sure that you and your loved ones state your desires regarding end-of-life care in an advance medical directive before dementia sets in.

Unfortunately, many people do not like to think about the possibility that they may be diagnosed with dementia at some point, and therefore they do not have an estate plan in place. If you become incapacitated and you have not executed a medical or financial power of attorney, your loved ones may have to ask a court to appoint them guardian and conservator over you so they can make those decisions for you. In that case, the decision falls to the court to decide who to appoint to make decisions for someone who is incapacitated. The person who the court appoints is not necessarily who would have been chosen before the incapacity set in. To avoid forcing your loved ones to go through this difficult process while they are already dealing with an incapacitated family member, it is important to execute these documents as soon as you become an adult. Furthermore, it is important to review these documents on a regular basis and update them as changes in your family situation, your financial situation, or changes in the law occur.

Ask Kit Kat: Rising Eagles

Hook Law Center: Kit Kat, what can you tell us about the resurgence of bald eagles in Virginia?

Kit Kat: Well, this is interesting, because, defying the experts who predicted the demise of the bald eagle in urban areas in the state, the opposite has happened. Bald eagles appear to be rebounding, and actually thriving. “From the 50s to the 90s, the belief was that they would not nest in urban areas,” according to Bryan Watts, the director of the Center for Conservation Biology in Williamsburg. He continues, “But that hasn’t turned out to be the case. Eagles nesting in cities are producing at rates similar to and higher than ones nesting in rural areas.” Pairs have been spotted in Richmond, Williamsburg, Virginia Beach, and Northern Virginia. For a while, Norfolk International Airport had a problem with them attacking planes and in flight paths.

This represents a remarkable comeback since eagles were listed on the Endangered Species list several decades ago. Their numbers had been reduced due to the use of DDT which had been used as a pesticide. DDT was effective in killing insects, but it also affected eagles’ eggs. Eagles which had eaten fish contaminated with DDT produced eggs that were not able to develop full-term, because of a thinning of the egg shell. By 1963, eagles’ numbers had been hit hard, with only 487 nesting pairs spotted across the United States. Virginia at this time was down to 30 pairs.

With DDT eventually banned, they were able to make a comeback. Now there are more than 1,500 in Virginia alone. Their preferred habitat is tidal rivers, of which Virginia has several. Their diet normally consists mostly of fish, but urban eagles are adapting and learning to scavenge among landfills and in areas where hunters have left remains after skinning their kill. Feeding off landfills has its own drawbacks—like when they ingest other things like plastic—but overall, they are thriving. They also are becoming comfortable with people. There is a picture in The Virginian-Pilot of one sitting on a deck in the retirement community of Atlantic Shores in Virginia Beach about 10 feet away from a couple relaxing on their deck. Who would have guessed this would be the outcome for our national bird? It’s a great turn of events! (Lee Tolliver, “Swooping in to our cities,” The Virginian-Pilot, Dec.9, 2019, p.1 and 10)

Posted on Thursday, December 12th, 2019. Filed under Senior Law News.

Crowdfunding and Public Benefits: GoFundMe Campaigns May be Detrimental in the Long Term

By Shannon Laymon-Pecoraro, CELA

Today there are countless crowdfunding sites (i.e. GoFundMe) which provide opportunities to raise funds online for specific purposes. Increasingly, I am sought to provide on advice with regard to how these funds affect means-tested public benefits such as SSI and Medicaid. Although I am not aware of any current case law surrounding crowdfunding campaigns, and there are no formal regulations in place from the Social Security Administration or the Department of Medical Assistance Services, there are issues that should be taken into consideration when a campaign is established for someone receiving benefits.

The first thing to asses is who setup the campaign. If the individual established their own crowdfunding campaign, they have unlimited access to the funds, and as a result, the funds received should be treated as income to the individual in the month received by the campaign, and as an asset for every month thereafter. As a result, the funds in the campaign would impact both SSI and Medicaid eligibility in the month funds are received, and every month thereafter until the funds are spent below $2,000.

If the campaign is established by another individual, I find the campaign to be analogous to a trust. Essentially, the establisher of the campaign controls the funds, similar to a Trustee, for the benefit of the individual, the Beneficiary, for the purpose detailed within the campaign. The best advice I can give to a client is that there is an affirmative duty to report a change of circumstances, and as a result, the beneficiary of the campaign must report it to avoid consequences such as long-term benefit overpayments or fraud charges.

When asked how I believe these accounts will be treated, I always indicate that without formal guidance from the agencies I cannot guarantee an answer, but that I believe the agencies will analyze the campaign to determine 1) how distributions will be made from the campaign and 2) the purpose of the campaign. Once again, this is similar to how such agencies would assess a trust established by another for an individual on benefits.

I believe that cash distributions would be treated similarly to cash distributions from the trust –  as unearned income thus affecting SSI and Medicaid. In-kind distributions would result in payments to a vendor for services, and should therefore not be treated as income affecting benefits. In-kind distributions alone, however, may not be enough to satisfy agencies if the purpose of the campaign is for something benefits would otherwise cover, or if designed for “support” of the individual. Understanding that SSI and Medicaid are needs-based programs, the agencies essentially determine that if someone else is “supporting” the individual then there is no need for “support” from governmental sources. As a result, funds raised for “support” of the individual are to be used before those from the government resulting in a loss of benefits. Additionally, if the funds are for food or rental expenses, there is an in-kind support and maintenance rule in Social Security policy that would cause a reduction in the individual’s SSI. There can also be a detrimental impact if the campaign is established for the benefit of the individual’s family, and not just the individual, since many benefits look at household income and assets.

As you can see, the laws and policies surrounding crowdfunding campaigns are uncertain and complex. Before you establish a crowdfunding campaign, you should consult with an elder law attorney who may be able to discuss the impact of your intended campaign and what other options may exist to accomplish your overall objective. In many cases a better option may be to utilize a third-party special needs trust to hold the funds for the intended purposes. This will ensure that funds to be gifted to the individual do not impact an individual’s eligibility for public benefits.

Ask Kit Kat: Retired Police Dogs

Hook Law Center: Kit Kat, what’s new about how retired police dogs are handled in Texas?

Kit Kat: Well, this is a change that was long overdue. On November 5, 2019, voters in Texas voted for a constitutional amendment to allow dogs, horses, or other law enforcement animals to be adopted by their handlers or other caretakers who are considered “qualified.” Now this only makes sense, but before this change in the law, police dogs were considered to be property. Once they were no longer useful, they could be legally euthanized. Not all police units would take this extreme step, but some did.  Collin County (TX) Sheriff Jim Skinner commented, “There’s been a lot of great dogs with great handlers, and right thing should have been done by them. But it’s better late than never.” It was also common practice overseas with the US Military, until 2000 when military law was changed to allow their handlers to have the first crack at adoption and, in 2016, the ability to bring the dogs home courtesy of the government. Before that time, dogs who could no longer perform as required were abandoned or euthanized.

It’s a shame it’s taken this long for dogs to distinguish themselves from being considered as property, but the practice goes back centuries. Police and other security dogs shouldn’t just be released to general animal adoption centers, complicating the adoption process. State Senator Birdwell, one of Texas law sponsors, comments that “Few people are qualified to humanely care for and properly supervise a police dog or horses, and these animals need to be cared for by a capable individual at the end of their service.”

It appears the old saying, “The wheels of justice turn slowly,” was very correct in this situation, but they did turn for the best eventually. Kudos to the Sheriffs’ Association of Texas who supported the amendment wholeheartedly! (Karen Bruillard, “Retired police dogs had to be sold or destroyed under state law. Voters just changed that,” The Washington Post, November 6, 2019)

Posted on Friday, December 6th, 2019. Filed under Senior Law News.
Like us on Facebook
Planning Guides

Sign up for our email newsletter and get access to our free planning reports.

SUBSCRIBE NOW

Ask Kit Kat: Pet advice and wisdom as Kit Kat sees it.

ASK ME