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Are You Making the Most of the SECURE and CARES Acts?

The SECURE Act made a number of changes to IRAs, effective January 1, 2020. It was followed by the CARES Act, effective March 27, 2020, which brought even more changes. A recent article from the Milwaukee Business Journal, titled “IRA planning tips for changes associated with the SECURE and CARES acts,” explains what account owners need to know.

Setting Every Community Up for Retirement (SECURE) Act

The age when you have to take your RMD increased from 70½ to 72, if you turned 70½ on or before December 31, 2019. Younger than 70½ before 2020? You still must take your RMDs. But, if you can, consider deferring any distributions from your RMD, until you must. This gives your IRA a chance to rebound, rather than locking in any losses from the current market.

Beneficiary rules changed. The “stretch” feature of the IRA was eliminated. Any non-spousal beneficiary of an IRA owner who dies after Dec. 31, 2019, must take the entire amount of the IRA within 10 years after the date of death. The exceptions are those who fall into the “Eligible Designated Beneficiary” category. That includes the surviving spouse, a child under age 18, a disabled or chronically ill beneficiary, or a beneficiary who is not more than ten years younger than the IRA owner. The Eligible Designated Beneficiary can take distributions over their life expectancy, starting in the year after the death of the IRA holder. If your estate plan intended any IRA to be paid to a trust, the trust may include a “conduit IRA” provision. This may not work under the new rules. Talk with your estate planning attorney.

IRA contributions can be made at any age, as long as there is earned income. If you have earned income and are 70 or 71, consider continuing to contribute to a Roth IRA. These assets grow tax free and qualified withdrawals are also tax free. If you plan on making Qualified Charitable Distributions (QCD), you’ll be able to use that contribution (up to $100,000 per year) from the IRA to offset any RMDs for the year and not be treated as a taxable distribution.

Coronavirus Aid, Relief and Economic Security (CARES) Act

The deadline for contributions for traditional or Roth IRAs this year is July 15, 2020. The 2019 limit is $6,000 if you are younger than 50 and $7,000 if you are 50 and older.

RMDs have been waived for 2020. This applies to life expectancy payments. It may be possible to “undo” an RMD, if it meets these qualifications:

• The RMD must have been taken between February 1—May 15 and must be recontributed or rolled over prior to July 15.
• RMDs taken in January or after May 15 are not eligible.
• Only one rollover per person is permitted within the last 12 months.
• Life expectancy payments may not be rolled over.

Individuals impacted by coronavirus may be permitted to take out $100,000 from an IRA with no penalties. They are eligible if they have:

• Been diagnosed with SARS-Cov-2 or COVID-19
• A spouse or dependent has been diagnosed
• Have experienced adverse consequences as a result of being quarantined, furloughed or laid off or having work hours reduced due to the virus, are unable to work because of a lack of child care, closed or reduced hours of a business owned or operated by the individual or due to other factors, as determined by the Secretary of the Treasury.
• Note that these distributions are still taxable, but the income taxes can be spread ratably over a three-year period and are not subject to the 10% early distribution penalty.

Keep careful records, as it is not yet known how any of these distributions/redistributions will be accounted for through tax reporting.

Reference: Milwaukee Business Journal (June 1, 2020) “IRA planning tips for changes associated with the SECURE and CARES acts”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How the CARES Act has Changed RMDs for 2020

Before the CARES Act, most retirees had to take withdrawals from their IRAs and other retirement accounts every year after age 72. However, the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, has made some big changes that help retirees. Whether you have a 401(k), IRA, 403(b), 457(b) or inherited IRA, the rules have changed for 2020. A recent article in U.S. News & World Report, “How to Skip Your Required Minimum Distribution in 2020,” explains how it works.

For starters, remember that taking money out of any kind of account that has been hit hard by a market downturn, locks in investment losses. This is especially a hard hit for people who are not working and won’t be able to put the money back. Therefore, if you don’t have to take the money, it’s best to leave it in the retirement account until markets recover.

RMDs are based on the year-end value of the previous year, so the RMD for 2020 is based on the value of the account as of December 31, 2019, when values were higher.

Remember that distributions from traditional 401(k)s and IRAs are taxed as ordinary income. A retiree in the 24% bracket who takes $5,000 from their IRA is going to need to pay $1,200 in federal income tax on the distribution. By postponing the withdrawal, you can continue to defer taxes on retirement savings.

Beneficiaries who have inherited IRAs are usually required to take distributions every year, but they too are eligible to defer taking distributions in 2020. Experts recommend that if at all possible, these distributions should be delayed until 2021.

Automatic withdrawals are how many retirees receive their RMDs. That makes it easier for retirees to avoid having to pay a huge 50% penalty on the amount that should have been withdrawn, in addition to the income tax that is due on the distribution. However, if you are planning to skip that withdrawal, make sure to turn off the automated withdrawal for 2020.

If you already took the distribution before the law was passed (in March 2020), you might be able to roll the money over to an IRA or workplace retirement account, but only within 60 days of the distribution. You can also only do that once within a 12-month period. If the deadline for a rollover contribution falls between April 1 and July 14, you have up to July 15 to put the funds into a retirement account.

For those who have contracted COVID-19 or suffered financial hardship as a result of the pandemic, the distribution might qualify as a coronavirus hardship distribution. Talk with your accountant about classifying the distribution as a COVID-19 related distribution. This will give you an option of spreading the taxes over a three-year period or putting the money back over a three-year period.

Reference: U.S. News & World Report (May 4, 2020) “How to Skip Your Required Minimum Distribution in 2020”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Loss of Stretch IRA is Not Such a Big Deal

Yes, the SECURE Act has eliminated the use of the stretch IRA, which is the ability to pass an IRA down to a child or grandchild and have them take out withdrawals over their lifetime. No big deal, says the article “No stretch IRA? No problem” from Investment News. Here’s why.

Only the biggest IRAs are affected. How many IRAs actually make it to the beneficiary that are large enough to justify stretched payouts? According to the Treasury Department, only about 20% of all individuals who were required to take the Required Minimum Distribution (RMD) actually stick to the schedule and take that amount out. Four out of five people who own IRAs take much more money than the minimum. This reduces the amount in the account that is left for their beneficiaries and reducing and even eliminating the possibility of heirs using the stretch option.

There’s no change to spousal beneficiaries. Most married people leave their IRAs to their spouses, and surviving spouses are exempt from the new stretch restrictions. Spouses who inherit IRAs and other assets still have the same options they had before the SECURE Act was passed. Financially savvy spouses (or those with good advisors) will do a spousal rollover and further delay the “no stretch problem” for another generation. By doing this, they postpone the start of the ten-year payout rule. If they use more of the IRA during their own lifetime, again, there’s not that much to worry about.

Most beneficiaries don’t stretch. Not at all. Windfalls usually don’t last very long. How many beneficiaries wait patiently for 30, 40 or 50 years to deplete an inherited IRA? Not many. For many beneficiaries, the new ten-year rule might actually be more realistic. For the smaller IRAs, it may be more logical to empty the account with a lump-sum distribution, especially if it is distributed among several beneficiaries in low tax brackets. However, if the IRA is a Roth, hang on to it and let it grow, tax-free, for as long as possible.

Most beneficiaries are in lower tax brackets. People like to leave their IRAs to their grandchildren, but most grandchildren, under the SECURE Act, will not be able to stretch IRA payouts over their lifetime. If the grandchild is a minor, then the kiddie tax emerges, and the child might have to pay taxes on any withdrawals at their parent’s tax rates. Do your homework with your estate planning attorney.

While the inherited payout is ten years, the tax hit to younger, usually lower income earners, won’t be as bad. However, the kiddie tax could lead to a huge tax hit for your adult children and grandchildren. Another option is naming multiple grandchildren. More beneficiaries will at least stretch out the tax hit over multiple tax returns.

Speak with your estate planning attorney about what needs to change on your estate plan, in light of the new restrictions created by the SECURE Act. There are strategies that they can discuss with you to minimize the tax liability.

Reference: Investment News (March 2, 2020) “No stretch IRA? No problem”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How Does the SECURE Act Change Your Estate Plan?

The SECURE Act has made big changes to how IRA distributions occur after death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need be taken.

Some of the changes include revising wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive.

Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

Rethinking and possibly completely restructuring the planning for the IRA account may need to occur. This may mean making a charity the beneficiary of the account, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One result of the change of this law will be to generate tax revenues. In the past, the ability to stretch an IRA out over many years, even decades, allowed families to pass wealth across generations with minimal taxes, while the IRAs continued to grow tax tree.

Another interesting change: No withdrawals need be made during that ten-year period, if that is the beneficiary’s wish. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid.

Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs and disabled heirs. Minor children are also considered eligible beneficiaries, but when they become legal adults, the ten year distribution rule applies to them. Therefore, by age 28 (ten years after attaining legal majority), they must take all assets from the IRA and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

SECURE Act or RESA Act Will End the Stretch IRA

Congress is considering two different acts, SECURE and RESA, both of which eliminate the ability for heirs, who are not spouses, to keep funds in an IRA account and take minimal distributions over the course of their lifetime. Losing this tax-deferred growth option will upset many wealth distribution plans.

If a parent doesn’t need her Required Minimum Distributions, does it make sense to do a gradual Roth IRA conversion and use the RMDs to pay taxes on the conversion? Or should the parent invest the RMDs in a brokerage account?

There are several options in this situation, according to nj.com’s ecent article, “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

Congress is considering legislation with the SECURE and RESA Acts, that would eliminate the ability of children to create a stretch IRA, one that would let them to stretch distributions from the inherited IRA over their lifetimes.

Under the proposed SECURE and RESA Acts under consideration, the maximum deferral period will be 10 years. If the beneficiary is a minor, the period would be 10 years or age 21.

The best planning strategy for a parent would depend on her overall finances and what she wants for her children’s inheritance.

The conversion to a Roth may be a good planning move, depending on her tax bracket. Putting the money in a brokerage account is also an option.

A parent may also want to think about using the RMD proceeds to purchase a life insurance policy held by an irrevocable trust for the benefit of her children.

Because every family’s situation is different, it is recommended that a concerned parent contact an experienced estate planning attorney, who will be able to create a plan for the taxes and for the transfer of assets to the next generation.

Reference: nj.com (October 15, 2019) “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Is Florida Ready to Make Changes to a Disastrous Guardianship Program?

A recent article from the Orlando Sentinel, “DeSantis, Florida lawmakers consider changes in troubled guardianship program,” says that changes, especially improving monitoring and increasing penalties for guardians with valid complaints, may be coming. It started with a meeting between judges, guardianship trade groups, state attorneys, members of the Elder Law section of the Florida Bar and officials from the governor’s office.

“More must be done to enhance the structure of accountability for guardians to monitor compliance with established standards of practice and ensure that guardians are acting in the best interests of their wards,” Department of Elder Affairs Secretary Richard Prudom said. “The matter is complex, and the solution extends beyond the Department of Elder Affairs; families, local communities, and public officials must also work together to prevent all forms of exploitation to provide safety and security for all.”

The recent news concerning guardian Rebecca Fierle, who investigators say was responsible for more than 400 wards and regularly signed “Do Not Resuscitate” orders for clients against their wishes, has rekindled interest among lawmakers for more control over Florida’s 550 registered guardians.

Senator Kathleen Passidomo and Representative Colleen Burton participated in the meeting and said some of the ideas being discussed include limiting the number of cases each guardian has and requiring a judge to approve a DNR order. Other Ideas include increased standards for guardians and more thorough monitoring.

The lawmakers say there’s no need to increase the requirements to become a guardian. All that is required now is a 40-hour course and passing an exam. Passidomo said the issue isn’t a lack of competence, but the risk for abuse.

As a result, standards and monitoring of guardians must be increased. However, these ideas are merely being discussed, as lawmakers have yet to present a concrete plan.

The Office of Public and Professional Guardians currently has only four employees. The executive director of the agency who was in charge at the time of the Fierle case, was asked to resign and Prudom has now taken control of the department. Governor DeSantis plans to put in a budget request for the Department of Elder Affairs that would include more funds for investigators, so that complaints may be reviewed.

Reference: Orlando Sentinel (September 16, 2019) “DeSantis, Florida lawmakers consider changes in troubled guardianship program”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Arizona Financial Professionals Can Now Press Pause on Questionable Transactions

Senate Bill 1483 became law in late August, reports The Queen Creek Independent in the article “New Arizona law helps protect vulnerable adults, seniors from financial exploitation.”

The new law lets securities dealers and investment advisory firms report suspected or attempted financial exploitation of a vulnerable adult and delay a questionable disbursement or transaction.

The new law lets these financial firms impose an initial delay of disbursements from an eligible adult’s account for up to fifteen business days, if financial exploitation is suspected.

The firms must report the delay within two business days to the Commission or the Department of Economic Security—Adult Protective Services. The government can then extend the delay for an additional ten days or longer.

If additional delay is required, a judge can extend the time even further.

It’s important to note that the law provides immunity from administrative or civil liability to qualified individuals for taking preventative actions that are permitted under the law.

The 2010 Investor Protection Trust Elder Fraud Survey reports that one out of every five citizens over the age of 65 has been a victim of financial fraud.

Arizona’s new law aims to help protect individuals who are over 65 years old or who are unable to protect themselves from abuse, neglect, or exploitation by others, due to a physical or mental impairment.

“Protecting senior investors has long been a top priority for the Corporation Commission,” Arizona Corporation Commission Chairman Bob Burns said in a news release.

“Early detection and reporting of financial exploitation are critical to help prevent elder financial abuse and the devastating financial and emotional impacts that ensue.”

There is a page on the commission’s website to give information about the new law and to receive complaints.

Reference: Queen Creek Independent (September 16, 2019) “New Arizona law helps protect vulnerable adults, seniors from financial exploitation”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Help with Housing and Legal Services For New Jersey Veterans

The first of two new laws benefitting veterans in New Jersey is the Securing Electronic Records for Veterans Ease (SERVE) Act. As reported by TAPinto.net in a recent article, “New Law Will Assist NJ Veterans with Housing, Legal Services,” landlords will now be required to include federal military or veteran housing allowances as income, when evaluating potential tenants, if they are either military service members or veterans.

“The benefit of this law is that it will help veterans secure rental housing,” said John Armato (D-Atlantic). “It is also beneficial to those military service members or veterans that are full-time students who often have limited or no income.”

“Our veterans have made so many sacrifices for our country,” said Assemblyman Vincent Mazzeo (D-Atlantic). “We should always look for ways to make their lives easier. They have earned and deserve such consideration.”

The second law modifies the current law for the New Jersey Homeless Veterans Grant Program. It directs the Adjutant General of the Department of Military and Veterans’ Affairs (funds permitting) to enter into contracts with public or private entities to fund some of the legal services that these entities provide to homeless veterans and veterans at risk of homelessness.

“New Jersey has between 1,500 and 2,000 homeless veterans,” said Armato, a U.S. Air Force veteran, who served in the Philippines Islands and Korea. “These statistics are unacceptable, and this law looks to correct such disturbing figures by helping these veterans get the services that they need and deserve.”

The Adjutant General would make certain that, to the extent practicable, contracts signed under this section are made with entities located in the northern, central, and southern regions of the state. The legal services would include legal services for the following:

1. Housing issues, including eviction defense, representation in landlord-tenant cases and representation in foreclosure cases;
2. Family law, including assistance in legal proceedings for child support, divorce, estate planning and family reconciliation;
3. Income support including assistance in obtaining public benefits; and
4. Criminal defense, including for matters symptomatic of homelessness, like outstanding warrants, fines and driver’s license revocation.

The bill also calls for helping vets with any other legal services, as the Adjutant General deems appropriate.

“Sadly, our veterans comprise some of the highest rates of unemployment, homelessness and suicide in our communities,” said Assemblyman Joe Danielsen (D-Middlesex, Somerset) who served in the U.S. Army Reserves’ 78th Division here in New Jersey and comes from a long line of veterans in his family.

Both of these laws take effect immediately. The legislation is considered a step in the right direction, but there needs to be more work done to help veterans and service members.

Reference: TAPinto.net (August 5, 2019) “New Law Will Assist NJ Veterans with Housing, Legal Services”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

A New Law in Illinois Gets to Another Part of Financial Elder Abuse

Kudos to Illinois State Senator Rachelle Crowe (D-Glen Carbon), who introduced a piece of legislation that denies an inheritance to anyone convicted of physically assaulting an elderly family member.

Wealth Advisor’s recent article, “New Illinois law denies inheritance to those who abuse elderly family members,” says with the current Elder Abuse and Neglect Act, an individual who is convicted of financial exploitation, abuse, or neglect of an elderly person is prohibited from benefitting from the victim’s estate.

Senator Crowe’s proposed legislation broadens the law to include assault, aggravated assault, battery and aggravated battery against anyone over the age of 60.

“It’s disheartening that we need legislation such as this to prevent family members from taking advantage of their elders,” Crowe said.

“Seniors are targeted every day for their estate, and I’m proud to put this legislation forward to prevent abusers from benefitting after committing this serious crime.”

“Every day, we see the devastating effects of abuse of senior citizens, often by family members,” said Tom Gibbons, Madison County State’s Attorney. “I’m thankful to Senator Crowe and our legislators passing this important measure to prevent abusers from profiting from their abuse.”

Crowe has worked on other protective legislation for the elderly. She has created Illinois’ Elder Abuse Task Force. The state senator plans to be a member of the task force and to study senior mistreatment and protective services and laws. The task force will then report the findings back to officials.

“We hope not to merely punish cruelty, but to deter it with this law,” said Crowe. “The message for abusers should be clear: You get nothing.”

More states are recognizing the growing problem of elder financial abuse, as the baby boom generation ages and wealth is transferred across generations. Laws like this are a clear indication that legislators are aware of the increasing cases of abuse and the need to create stronger laws to protect seniors.

Reference: Wealth Advisor (August 6, 2019) “New Illinois law denies inheritance to those who abuse elderly family members”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Connecticut Adds New Dementia Education for Physicians and Nurses

McKnight’s Senior Living reports in a recent article, “New state laws emphasize dementia training, background check database access” that Connecticut Senate Bill 827 adds dementia training to the continuing education requirement for physicians and nurses in the state. This legislation is designed to provide physicians and nurses with the resources to recognize the signs and symptoms of Alzheimer’s disease and other dementias in Connecticut residents, who are in their care.

Effective January 1, nurses renewing their licenses are required to take two contact hours of training or education about diagnosing and treating cognitive or mental health conditions such as Alzheimer’s disease, dementia, delirium, related cognitive impairments and geriatric depression. And physicians who are applying to renew their licenses may count toward their training requirements two hours of continuing medical education in these areas.

“With no cure for Alzheimer’s, it is imperative that we detect the signs of this disease earlier, enabling us to improve the quality of life of those with this disease,” said state Sen. James Maroney (D), who co-chairs the state Aging Committee. “This legislation makes great progress towards ensuring just that,” he added, noting that the state has the seventh oldest population in the U.S.

The new law also authorizes an update of the Connecticut Alzheimer’s Plan to build dementia-capable programs for the 78,000 people living with the disease in the state. Under the law, the executive director of the state Commission on Women, Children, and Seniors is to create a working group to find any issues in the implementation of a task force’s recommendations and to make recommendations on best practices for Alzheimer’s Disease and dementia care.

Connecticut’s governor also signed into law Senate Bill 832. This legislation mandates that the state Commission on Women, Children, and Seniors provide a portal on its website with links to publicly available databases and the professional licensure verification database maintained by the state Department of Public Health (which is used for background checks of those who work with the elderly).

“Elder abuse and criminal action against those with disabilities are unacceptable, and the public should be aware of who those perpetrators are in order to protect their family and friends from future acts of crime against our most vulnerable populations,” commented state Senator Tony Hwang.

The new law also broadens the Department of Public Health’s long-term care background check program. It will now include those who’ve been convicted of certain crimes against older adults.  The law also adds certain crimes to the list of those that would make an individual ineligible for work at a long-term care facility.

Reference: McKnight’s Senior Living (July 22, 2019) “New state laws emphasize dementia training, background check database access”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899