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Marc Soss

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Effective October 2, 2017, new rules go into effect for federally backed HECM (Home Equity Conversion Mortgage) reverse mortgages. The good news is that the new rules will only impact new borrowers. A reverse mortgage allows an individual over age 62 to borrow against the equity in their home without being required to pay back the loan until they either move, sell the property or die. For many seniors, a reverse mortgage provides them a means to generate funds in retirement. The new rules will increase the upfront cost of the reverse mortgage to 2.0% (it previously was 0.5% for those receiving less than 60% of their home equity and 2.5% for those borrowing more than 60%). The new rule will also decrease the annual premium from 1.25% to 0.5% of the outstanding mortgage balance. The amount that may be borrowed will remain linked to the age of the borrower and prevailing interest rate. At current interest rates, the average borrower is able to borrow approximately 58% of the value of the home, down from 64%. The new rules are necessitated by the continuing deficits in the federal reverse mortgage program.

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For most, the release of the Consumer Price Index by the Department of Labor goes unnoticed. However, this information allows for the prediction of the 2018 estate, gift, and generation-skipping transfer tax amounts.
Transfer Tax-Free Money – Under current federal tax law, a U.S. citizen may pass tax-free (by gift or at their death) the total sum of $5,490,000 to their heirs and beneficiaries (excluding their spouse). This amount is projected to increase to $5,600,000 in 2018. As a result, in 2018 a couple (U.S. citizens) will be able to collectively transfer $11,200,000.00 without incurring a federal estate or gift tax. This amount will also be applicable to gifts made to grandchildren and future generations (the generation-skipping transfer tax (GST)).
Annual Gift Tax Exclusion –A U.S. citizen is entitled to gift a sum certain each year to an unlimited number of individuals (the “annual gift tax exclusion”) without any tax consequences. In 2018, the annual gift tax exclusion amount is projected to increase from $14,000 to $15,000 per individual recipient. The exclusion amount for gifts to a spouse who is not a U.S. citizen (the so-called “super-annual exclusion”) is also projected to increase from $149,000 to $152,000.

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The devastation of Hurricane Harvey will be felt for years to come. While relief efforts are underway to assist victims of the storm the Internal Revenue Service has also established procedures, via announcement or news relief, to assist those adversely impacted.
Retirement Plan Hardship Distributions:
IRS Announcement 2017-11 (the “Announcement”) allows participants and beneficiaries of 401(k) plans or 403(b) plans, subject to restrictions, hardship access to or loans from their retirement funds until January 31, 2018. Eligibility requires you to have lived or worked in a county designated by FEMA to receive funds on account of Hurricane Harvey or have family (including parents, grandparents, children or grandchildren) or dependents with a principal residence in an affected county. The hardship distribution or loan must be made no later than January 31, 2018.
The Announcement permits distributions without application of the safe harbor rules (medical expenses or expenses to repair a principal residence) and does not require plans to suspend employee contributions for six (6) months following the hardship distribution. Plans that do not provide for hardship relief can be amended by the end of the first plan year beginning after December 31, 2017. It is important to note that any hardship distribution will still be includible in gross income and subject to the 10% additional tax on early distributions for those under age 59-1/2.
Extended Tax Return Deadlines:
The IRS has announced in a news release that individuals and businesses impacted by Hurricane Harvey will receive, as needed, extended filing tax deadlines. Individuals, under valid extensions until September 15, will now have until January 31, 2018 to file their returns and pay their taxes. Any business, under a valid extension until October 16, will now have until January 31, 2018 to file their returns and pay their taxes. The tax relief only applies to taxpayers located in areas designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance and those outside the areas but have necessary records needed to meet deadlines located in a designated area. The extensions also apply to the September 15, 2017 and January 16, 2018 deadlines for making quarterly estimated tax payments and the October 31, 2017 deadline for quarterly payroll and excise tax returns.
Employer Provided Tax-Free Disaster Relief:
Internal Revenue Code section 139 permits employers to provide tax-free disaster relief to their employees. To qualify the amount paid must be to (i) reimburse or pay reasonable and necessary personal, family, living or funeral expenses incurred as a result of a qualified disaster; or (ii) reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a rented or owned personal residence (or to repair, rehabilitate or replace its contents) damaged by a qualified disaster. The qualified disaster relief payments may not be income replacement payments, lost business income or unemployment benefits. An employer may only exclude such payments from the employee’s income to the extent that insurance does not otherwise compensate the employee.

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The creation of a Health Care Surrogate is a vital part of every estate plan. However, the individual appointed to serve in this capacity typically has no idea what the job may entail. The following is a brief synopsis of their expected responsibilities on your behalf: approving medical treatments, medications, diagnostic tests; requesting and approving the release of medical records; determining where medical treatment will be provided (hospital, rehab facility, nursing home, Hospice, etc.); obtaining a second medical opinion; handling insurance carriers and claims; and most importantly communicating with family members.

To be an effective Health Care Surrogate the appointee should become familiar with your specific values (religious and spiritual), medical history, end-of-life desires and legal documents. This information will make for an easier transition when you can no longer make decisions for yourself.

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Now that the Federal Estate Tax Exemption (“Exemption”) amount has been increased to $5.49 million a common client question is whether I still need a Revocable Trust. What I advise them is that regardless of whether the Exemption amount is $600,000 or $6,000,000 a Revocable Trust will at a minimum provide the following benefits:
Probate Avoidance. Everyone talks about avoiding probate because it is a costly and time-consuming process and that is exactly what a properly funded Revocable Trust will allow you to accomplish. That is especially important if you have property in multiple states. A Revocable Trust can provide its beneficiaries with quicker access to the funds held in it and keep prying eyes away from your personal affairs (it is not a matter of public record).
Incapacity/Disability Protection. Should you become incapacitated or disabled the Revocable Trust will allow your successor to immediately step in and handle your financial affairs. You will also be able to avoid a conservatorship or guardianship.
Creditor Protection for Beneficiaries. A properly drafted Revocable Trust can include a provision that protects a future beneficiary’s inheritance from their creditors and/or in the case of divorce.
Special Needs Beneficiary. A special needs trust can be created to protect a future beneficiary’s inheritance from being consumed by medical expenses and maintain their eligibility for government assistance.
It is important to plan ahead and no one knows what the future holds.

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Is your child ready for college? While you may have purchased for them new clothing, linens, towels, etc. the question becomes whether they have executed an estate plan? Most families fail to recognize that once their child (young adult) reaches age 18 years they are considered an adult under most state laws and their parents can no longer make all financial and health care decisions for them or have access to their medical records. As a result, estate planning is not only for the old or the wealthy and every individual over age 18 should have, at a minimum, a Power of Attorney and Health Care Directive.

A Durable Power of Attorney designates another individual to act for the young adult in legal and financial matters. It is mainly used in the event of an accident or incapacity rendering the young adult unable to effectively manage legal and financial matters. Having such a document in place would avoid the necessity of having a guardian or conservator appointed should an accident or incapacity happen.

The Health Care Directive empowers another to make health care decisions in the event of incapacity, articulate their wishes and directions in the event health should deteriorate and designates another to act as “personal representative” for purposes of HIPAA to authorize the release of medical records if necessary to obtain medical treatment.

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Regardless of your state of residency it is important to have your estate planning documents in order. The following is a list of essential documents and how they will benefit you.

Last Will & Testament: a legal document in which you express your wishes as to how your estate (assets, accounts, real estate, etc.) is to be distributed at your death, and nominates the individual(s) or entity to manage the estate until its final distribution. Without this document the state statutes will control who administers your estate and to whom does it pass. ​

Power of Attorney: a written document in which you give another individual (they can reside anywhere) the power to act in your place in managing your assets, pay bills, handle insurance claims, sell real estate, file a tax return, to make gifts, create revocable trusts, invest assets and do anything you can do with your assets personally. You may name one or more agents under a power of attorney, and direct that one may act alone without the other, or that they must act jointly. You can also appoint a successor agent to act in the event the first person(s) you’ve named cannot act. A “durable” power of attorney does not become inoperative upon your incapacity. However, upon your death it is no longer effective.

Health Care Surrogate Directive:​ a written instrument in which you appoint someone or multiple individuals you trust to make decisions about your medical treatment in the event you are unable to give instructions at the time the decisions must be made (ex., you are in a coma).

Living Will: a document in which you state your wishes regarding medical treatment if you are unable to give instructions at the time the decisions for medical treatment need to be made. The living will can include instructions about the termination of life support and artificial nutrition and hydration (i.e., food & water intravenously).

Pre-Need Guardian Declaration: a document that specifically nominates the individual(s) to serve on your behalf if it is necessary to appoint a guardian for you. A Florida Court must consider the individual(s) nominated if he/she is capable of serving. ​Without a power of attorney and health care surrogate in place your family will have to commence guardianship proceedings (petition the court to step in on your behalf) to make these decisions on your behalf.

Guardianship proceedings is a very public process and makes the world aware that your family thinks you can’t take care of your own finances or medical decisions.

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