King & Wood, P.A.

Do Veterans Need to Pay for Help to Apply for Benefits?

“Westmoreland County’s Director of Veterans Affairs is reminding veterans that applying for benefits should never come with a fee.”

The Tribune-Review’s article, “Veterans don’t need to pay for help to apply for benefits in Pa,” explains that the issue of military veterans being charged when applying for benefits is a common problem in Pennsylvania. There are about 800,000 veterans in the Keystone State.

The article warns that there are still some who attempt to profit, by assisting veterans to sign up for their benefits.

Veterans should never have to pay to apply.

In January, an Allegheny County company was fined $10,000 after an employee fraudulently represented that he was an accredited veteran service officer. Some of the claims handled by the Allison Park firm were from Westmoreland County.

Veterans should ask for assistance only from an accredited veteran service officer, an attorney accredited by the VA, or an accredited claims agent. These agents provide veterans and their dependents free assistance to identify, determine eligibility for and apply for a wide range of benefits on the local, state and federal levels. That benefits include the following:

• Burial allowances;
• Grave markers and headstones properly requested and placed;
• The Disabled Veterans Real Estate Tax Exemption Program;
• Veterans Emergency Assistance;
• Pensions for blind and paralyzed veterans;
• The Education Gratuity Program;
• Service connected disability and non-service connected disability pensions;
• Federal health care benefits; and
• Survivor benefits.

You may be eligible for VA benefits, if you’re a uniformed servicemember, veteran, or spouse, child, or parent of a deceased or disabled servicemember or veteran.

A summary of benefits can be found at the Veterans Affairs website: https://benefits.va.gov/BENEFITS/benefits-summary/SummaryofVABenefitsFlyer.pdf.

Reference: (The Tarentum, PA) Tribune-Review (May 17, 2019) “Veterans don’t need to pay for help to apply for benefits in Pa”

Should I Get a Divorce to Protect My Spouse from Medical Debt When I’m Dead?

“If you have a medical issue that will certainly lead to death and significant costs, is it wise to legally divorce ahead of your death, so that the person dying owns very little beyond their health care coverage to protect assets from the likes of the medical insurance community?”

It really depends based upon the facts of the specific situation.

nj.com’s article asks “Will getting a divorce protect my spouse from my medical debt when I’m dead?” According to the article, the factors to consider include details on the couple’s assets, income and debts, the existence of a will and/or other estate planning documents and the amount and nature of the medical expenses.

There are a few medical expenses of a deceased spouse, for which the other spouse may be liable. The nature of the medical debt is relevant, in addition to the amount, in the Garden State.

In addition, whether the would-be deceased spouse has a will and the extent of his or her estate is also an important factor. If the estate assets are insufficient to pay all debts of the estate in full, it is possible that medical debt may not be paid at all. For example, New Jersey’s applicable statute—N.J.S. 3B:22-2—states the debts in order of priority to be repaid when the estate assets are not enough to pay all claims in full:

• Reasonable funeral expenses;
• Costs and expenses of administration;
• Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
• Debts and taxes with preference under federal law or the laws of New Jersey;
• Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
• Judgments entered against the decedent according to the priorities of their entries respectively; and then,
• All other claims.

There are also some concerns as to whether this type of Medicaid planning, or Medicaid divorce, may raise potential implications of fraud. Before acting, speak with a knowledgeable estate planning attorney who practices in this area.

Reference: nj.com (May 16, 2019) “Will getting a divorce protect my spouse from my medical debt when I’m dead?”

How Will Billionaire Robert F. Smith’s Help of Morehouse College Student Loans be Taxed?

“Billionaire Robert F. Smith made the 2019 class of Morehouse College graduates very happy over the weekend, when he pledged to pay off their student debt.”

Billionaire Robert F. Smith told nearly 400 graduates of the historically black, all-male Morehouse College in Atlanta at their May graduation ceremony that he would pay off those loan obligations, so they were free to pursue their next chapters. The gift is believed to be worth $40 million.

Graduates likely won't face any tax liabilities on the money. The IRS will consider the money a “gift.” The IRS policy is “no tax on receipt.” This means typically the person who receives the gift doesn’t have to pay tax on it.

Fox Business’ article “Will the IRS tax Robert F. Smith's gift to Morehouse grads?” explains that the lender didn’t forgive the debt, so there’s no cancellation of indebtedness income. The students also didn’t do anything to “win” the debt repayment, such as winning a lottery or another competition.

However, Smith’s situation might be a little more complicated, depending on how he plans to pay the debts.

A gift is generally not considered deductible, unless it’s given in the form of a charitable contribution. So if Mr. Smith were to pay the checks directly from his personal account, he wouldn’t be able to claim a deduction. However, he could structure the payments in a way such that he’s giving the money to a charitable organization. This could be giving it to the school for the specific purpose of paying the students’ loans. In addition, Smith could create a private foundation and transfer the money that way.

To use a charitable deduction, Smith would have to give the money to an established charitable organization.

Another option is for Smith to claim that he made the decision to advance his business reputation with the thought of raising income for himself or his business. He started the private equity firm Vista Equity Partners and has an estimated net worth of $5 billion, according to Forbes.

The gift tax exclusion amount in 2019 is $15,000 per year. This means that gifts up to that amount are not usually taxable. For gifts above that, the giver may be required to fill out a Form 709, or gift tax form.

Research shows that outstanding student loan debt has doubled over the past decade to more than $1.5 trillion in 2018. This debt is now second only to the amount of mortgage debt held by Americans.

Reference: Fox Business (May 20, 2019) “Will the IRS tax Robert F. Smith's gift to Morehouse grads?”

Will the RMD Age Be Raised by New Legislation?

“Sens. Ben Cardin, D-Md., and Rob Portman, R-Ohio, reintroduced legislation late Monday that would raise the required minimum distribution age from 70 ½ to 75 and also help workers pay off their student loans.”

Senator Ben Cardin and Rob Portman’s Retirement Security and Savings Act of 2019 overlaps with some provisions in the Retirement Enhancement and Savings Act (RESA) of 2019. That bill was introduced on April 1, but RESA only raised the RMD age to 72.

Think Advisor reports in the article “New Retirement Bill Would Boost RMD Age to 75” that the RESA bill, which was introduced by Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., is similar to H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The latter bill is expected to get a vote on the House floor very soon.

The Portman-Cardin bill phases in the RMD age increase over several years. The bill would also update mortality tables to reflect longer life expectancies.

The bill would also broaden the ability of employer-sponsored 403(b) plans to offer collective investment trusts (CITs). A CIT is a mutual fund-like vehicle used in some 401(k)s and pension plans that can help plan sponsors save on expenses.

The Insured Retirement Institute, a lobbying group for the annuity industry, added its support for the bill.

“Section 117 [of the bill] would level the playing field, by providing insurance products with the same exemptions as CITs,” the group said in a letter to senators, sparking “a robust and competitive marketplace which is vital to ensure Americans have access to the appropriate savings option for their financial situation.”

The bill would also let those with Roth accounts in 457(b), 401(k), 401(a), and 403(b) plans roll Roth IRA assets into these plans. It would also allow 457(b), 401(a), 401(k) and 403(b) plan participants to make qualifying charitable distributions. Right now they are only allowed from IRAs.

Reference: Think Advisor (May 14, 2019) “New Retirement Bill Would Boost RMD Age to 75”

What Does Human Behavior Tells Us About Estate Planning?

“Humans are great at avoidance. We don’t want to experience pain, be faced with unpleasant facts or deal with anything we consider to be too far in the future.”

Evolutionary psychologists think there’s an innate reason for people not wanting to discuss death and estate planning. They say our brains haven’t evolved much past a Stone Age mentality, where survival was our main concern. As a result, it makes sense that we would avoid any threatening situations and defend our existence.

Insurance News Net’s recent article, “What Human Behavior Tells Us About Estate Planning,” says that when people think of estate planning, they think about death, which is the ultimate threat. Because we’re programmed to secure our survival, thinking about our demise is counterintuitive. With this in mind, you can begin to see why more than half of Americans don’t have essential estate documents in place.

Some say that we have to be able to see and identify it, be motivated to act by pain or some negative stimulus and believe we can do something about it without feeling dumb in the process. However, estate planning hasn’t met any of these criteria. The need for estate planning feels remote, and, therefore, it isn’t visible or painful. Sometimes estate planning can be complicated and overwhelming, which can leave people feeling incapable and inept. The need to create an estate plan also feels chronic—a nagging problem people don’t want to address and want to avoid.

However, in the digital age, estate planning has become about more than just the systematic disposition of assets upon one's death. With bank and email accounts, social media and other digital assets scattered throughout cyberspace, it has become necessary to find a way to connect our assets to us. There’s an immediate upside to spending time on organizing our financial lives: the peace of mind of knowing everything we have is accounted for. It’s intrinsically satisfying when we can bring our assets together under one virtual roof.

With comprehensive planning, we can benefit from being able to monitor every account with ease, giving us a full financial picture at a glance.

In addition, today we can capture stories and memories to create a living, breathing legacy. Remember, your legacy is about more than the money left behind—it’s also about sharing the values and valuables with the right people at the right time.

When we think about legacy planning as part of our lives, we change the narrative and estate planning becomes visible, solvable and non-chronic. It becomes something people embrace rather than avoid. Therefore, think of estate planning that way and speak with an experienced estate planning attorney to be certain your plan is comprehensive and up to date.

Reference: Insurance News Net (May 9, 2019) “What Human Behavior Tells Us About Estate Planning”

Can I Correct an IRA RMD Mistake?

“If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may how some leniency.”

It’s not uncommon for an individual to inaccurately calculate their required minimum distribution (RMD) for their account. Maybe you forgot that your brokerage firm divided the account in two and they didn’t tell you. This mistake may result in a person failing to withdraw the mandatory amount from an IRA.

What can a person do at this point? If the mistake was caused by an oversight at the brokerage firm, can you avoid the 50% penalty, if they admit the error in a letter to the IRS?

Kiplinger’s recent article, “How to Correct a Mistake on Your RMDs from IRAs” advises that you don’t need to send the IRS a letter from the brokerage firm, but you do need to take some action immediately to ask the IRS if it will waive the penalty.

You need to first figure out the exact amount you should’ve withdrawn as your RMD and withdraw the money right away, if you haven’t already. You should then file a separate Form 5329 immediately for each year’s RMD you missed.

You should fill in lines 52 and 53 with the amount you should have withdrawn, then write “RC.” This means “reasonable cause.” Also write in the amount of the penalty you want waived in parentheses on the dotted line next to line 54. You should include a brief note that says the RMD was omitted by the brokerage company and was withdrawn immediately upon discovery. Keep it brief—don’t go into all the details.

You shouldn’t send any penalty money, unless the IRS denies your request for a penalty waiver.

Denials are pretty rare, especially for someone who withdrew the money as soon as she realized the mistake and filed Form 5329 proactively with reasonable cause.

Retain the letter or any communication in your files from the broker saying that the firm made a mistake, but don’t send it to the IRS.

You can review the Instructions for Form 5329 for more information about the procedure.

Reference: Kiplinger (March 22, 2019) “How to Correct a Mistake on Your RMDs from IRAs”

How Do I Create a Medical Power of Attorney?

“Having a solid end-of-life plan in place, can be a big help to you and your family when the time comes. In addition to getting your financial affairs in order through the estate planning process, it’s also a good idea to set up medical power of attorney.”

A medical power of attorney is a legal document (also called a healthcare power of attorney or durable power of attorney for healthcare) that names an agent to make medical decisions on your behalf, explains Yahoo Finance’s recent article, “How to Set Up Medical Power of Attorney.” A medical power of attorney gives a family member or a trusted friend the legal authority to make health decisions for you.

This isn’t the same as a living will, which is a document that details what you’d like your healthcare team to do, if you become incapacitated. You may have a living will and a medical power of attorney. If decisions must be made about resuscitation and life support, recording those wishes in a living will, removes those difficult decisions from your agent.

When you’re thinking about a person to be your healthcare agent, find someone with whom you’re comfortable discussing health-related issues. Select a person you trust with your life and who will assume this responsibility if and when the time comes. Your agent must be your advocate, execute your wishes and make wise decisions, even when friends and family are telling them otherwise.

Here are some general guidelines for agents that you should avoid. Don’t choose:

• Your healthcare provider or the person who owns a health or residential facility in which you’re residing;
• A person whose job it is to medically evaluate you, such as a physician;
• A person who works for a government agency that is financially responsible for your care unless she’s a blood relative;
• The same person as your court-approved guardian or conservator; or
• A person who’s already a healthcare agent for more than 10 people.

It’s important to also name a backup agent, in the event that your medical power of attorney can’t make decisions on your behalf.

The medical power of attorney is one of several documents that should be part of your estate plan. Meet with an estate planning attorney to make sure that you have the correctly prepared documents you need to protect yourself and your family.

Reference: Yahoo Finance (May 8, 2019) “How to Set Up Medical Power of Attorney”

Why Have Charitable Gifts From IRAs Increased Dramatically?

“Americans distributed an average of $9,200 from their IRAs to charities from 2017 to 2018, according to a new report from FreeWill, a fundraising firm.”

Qualified Charitable Distributions (QCDs) from IRAs, also known as IRA charitable rollover gifts, increased by 73.8% from 2017 to 2018, and 92% of nonprofit organizations surveyed by FreeWill reported increases in QCD giving.

ThinkAdvisor’s recent article, “Charitable Gifts From IRAs Shot Up by 74% in 2018,” says the 7% of nonprofits that reported a decrease were primarily small charities that received few QCD donations in both years.

FreeWill noted that QCDs are open to anyone 70½ and older with a traditional IRA. However, 401(k)s aren’t eligible for QCDs. Distributions from IRAs can satisfy the IRS’s minimum distribution requirement (RMD). These gifts can be made annually, up to a maximum of $100,000 per year. There is also no minimum.

FreeWill’s research looked at about 120 nonprofits with total revenue ranging from $1 million to $1 billion. The research showed that QCD gifts are getting larger: 52% of charities that responded said the average gift had increased since 2017. Only 12% said the average had decreased, and 30% reported no change.

About 50% of respondents said demographics were responsible for the sharp growth in giving via QCDs, while 27% said it was changes in the tax law. The tax law changes mean that for many donors older than 70, QCDs may be their only way to get a meaningful tax benefit from charitable contributions, since they can no longer itemize deductions and don’t have the charitable deduction.

In addition to the tax incentives, demographic shifts are dramatically altering charitable giving in our country. Americans between 70 and 80 are the fastest growing age bracket. Their numbers will continue to grow over the next 10 years.

The nonprofits in the study said there were several obstacles that keep donors from making QCD contributions. About 80% of respondents said their biggest challenge when processing these gifts, was a lack of information shared by IRA custodians.

The survey’s respondents reported a second challenge to QCDs reaching them: many donors are not aware that the option exists or are confused by the process of making contributions. Planned giving officers reported that up to 75% of all questions in estate planning sessions with donors were about QCDs. The third big challenge comes from confusion within nonprofits, about which department is responsible for QCDs from IRA rollovers. Nearly a quarter of respondents said the responsibility devolved on a combination of departments.

Reference: ThinkAdvisor (May 6, 2019) “Charitable Gifts From IRAs Shot Up by 74% in 2018”

What Are Some Common IRA Rollover Mistakes?

“IRA rules can be tricky, and some have even changed over the years. Therefore, you need to be careful or you could pay income tax and penalties.”

If you’re considering rolling your traditional IRAs from one financial institution to another, Investopedia’s article, “Common IRA Rollover Mistakes” provides an overview of IRA rollover rules and how to avoid breaking them.

The 60-Day Rule. After you receive the funds from your IRA, you have 60 days to complete the rollover to another IRA. That’s 60 days, not two months. If you don’t complete the rollover within the time allowed or don’t get a waiver or extension of the 60-day period from the IRS, the amount will be treated as ordinary income. You’ll have to include the amount as income on your tax return, and any taxable amounts will be taxed at your current, ordinary income tax rate. In addition, if you weren’t 59½ years old when the distribution occurred, you'll have a 10% penalty on the withdrawal.

One-Year Waiting Rule. For one year after you distribute assets from your IRA and roll over any part of that amount, you can’t make another tax-free rollover of any IRA. This doesn’t apply to eligible rollover distributions from an employer plan. Therefore, you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a year. This one-year limit also doesn’t apply to rollovers from Traditional IRAs to Roth IRAs (“Roth conversions”).

Let’s look at some common IRA rollover mistakes:

Your RMDs Aren’t Eligible for Rollover. You’re allowed to make tax-free rollovers from your IRAs at any age. However, if you’re 70½, or older, you can’t roll over your annual required minimum distribution (RMD), since it would be considered an excess contribution. If you’re required to take an RMD each year, be certain to remove the current year’s RMD amount from your IRA before starting the rollover.

Same Property Rule. Your rollover from one IRA to another IRA must be with the same property. You can’t take cash distributions from your IRA, purchase other assets with the cash, then roll over those assets into a new (or the same) IRA. If you do, the IRS would consider the cash distribution from the IRA as ordinary income.

You can roll over funds from any of your own traditional IRAs. You can also roll over funds to your traditional IRA from a traditional IRA you inherit from your deceased spouse, a qualified plan, a tax-sheltered annuity plan, or a government deferred-compensation plan (section 457 plan).

If the rollover eligible amounts from qualified plans, 403(b) plans, or governmental 457 plans are paid to you rather than being processed as a direct rollover to an eligible retirement plan, the payor must withhold 20% of the amount distributed to you. You’ll get credit for the taxes that were withheld, but if you decide to roll over the total distribution, you’ll need to make up the 20% out of pocket. If you want to avoid the withholding and the reporting requirements, a direct rollover should be used to effectuate your rollover from your qualified plan, 403(b) plan, or governmental 457 plan account. A direct rollover is reportable, but not taxable. There’s also no 60-day window. Ask your plan administrator and IRA custodian about their documentation and operational requirements for processing a direct rollover on your behalf.

You might also be able to move funds in the other way: you may be able to take a distribution from your IRA and roll it into a qualified plan. Your employer isn’t required to accept these rollovers, so ask your plan's administrator before you distribute the assets from your IRA. Certain amounts, such as nontaxable amounts and RMDs, can’t be rolled from an IRA to a qualified plan.

Reference: Investopedia (March 29, 2018) “Common IRA Rollover Mistakes”

What is Congress Doing for Seniors?

“The Consumers First Act could also come up for a vote soon, Majority Leader Steny Hoyer says.”

House Majority Leader Steny Hoyer, a Democrat from Maryland, informed the House Democratic Caucus in an April 25^th “Dear Colleague” letter that he intends to bring H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, to the House floor in May.

Think Advisor’s recent article, “SECURE Act to Get House Vote in May,” explains that the SECURE Act passed the House Ways and Means Committee on April 2. There’s been action on the companion bill—the Retirement Enhancement and Savings Act (RESA) of 2019. That legislation has yet to be scheduled by the Senate Finance Committee.

In discussing the actions taken during the first 100 days of the 116th Congress, Representative Hoyer said that the House will soon take up H.R. 9, the Climate Action Now Act, “to affirm the principles of the Paris Climate Agreement, in spite of President Trump’s pledge to withdraw the United States.”

Hoyer signaled that a vote on the SECURE Act would follow “over the coming work period,” and noted that with the flood insurance program set to expire at the end of May, “I expect the House to take action to address that as well.”

Hoyer said in the next few weeks, “as committees continue to markup legislation, the House will also take up legislation to strengthen the Affordable Care Act and to address rising prescription drug costs.”

Another possibility for consideration in May by the full House is Financial Services Committee Chairwoman Maxine Waters’ Consumers First Act, H.R. 1500. That bill passed out of that committee on March 28. Waters’ bill is aimed at reversing the damage done to the Consumer Financial Protection Bureau, under former acting director Mick Mulvaney.

The Senior Security Act of 2019 would require the SEC to create a Senior Investor Taskforce. That bill could be up for a House vote very soon. The House docket also has a resolution on Supporting the Protection of Elders Through Financial Literacy.

The bill includes a provision requiring law enforcement and regulatory agencies to work together to understand and detect elder frauds and scams.

Reference: Think Advisor (April 29, 2019) “SECURE Act to Get House Vote in May”