Ita M. Rahilly, Author at RBT CPAs, LLP

Don’t Leave Your Legacy to Chance: Develop and Update Your Estate Plan Today

Jack and Jill decided it was time to get an estate plan in place. They met with their advisor and started a gifting plan to their children, grandchildren, and great-grandchildren. Unfortunately, both Jack and Jill passed away before the plan was complete. Had they started the gifting plan just a few years earlier they could have saved estate taxes and an additional $1 million could have gone to their beneficiaries rather than to taxes. Now it’s too late.

Alexis and Skylar had been together for 30 years, built a successful manufacturing business, and had plans to travel the world when they retired. That changed when Alexis suddenly passed away at age 54. Without an estate plan and a marriage license, Alexis’ parents were named executors of her estate – not Skylar.

Trevor spent his life building a successful business with 60 employees and total annual revenue of $40 million. He never married or had children. While a niece joined his business after college, she didn’t seem to have the skillset to keep it going long-term. So, he just kept working thinking he had time to figure it all out. At 68, he passed away. A short time later, his business shut down. Now, years later, his estate is still tied up in court, lawyers’ fees are immense, and his siblings, nieces, and nephews are fighting about who gets what.

It’s never too early to put an estate plan in place, but there is a time when it’s too late. Failing to create, review, and update a plan at least once a year can have a significant impact on the people you want to take care of, the value of your estate, your tax obligations, and the legacy you leave behind. With major changes to Federal laws scheduled to take effect in just over 22 months plus the impact of New York laws, it’s even more important that you make time to create and update your estate plan now.

Estate planning is a comprehensive process to manage and protect assets during your lifetime, define how your personal affairs should be managed while you are alive, and confirm what will happen upon your death. It can include setting up trusts, arranging for powers of attorney, establishing healthcare directives, planning for potential long-term care needs, tax planning, and more.

When it comes to your business, an estate plan can foster a smooth transition of leadership and operations by including a succession plan. Estate planning allows business owners to decide who inherits their business, whether it’s family, partners, employees, or a trust. This can help prevent disputes among heirs and ensure that the business endures.

Plus, estate planning helps maximize the value of your assets that go to your beneficiaries, while minimizing tax obligations. By setting up trusts, gifting shares, or establishing buy-sell agreements, you can significantly reduce the tax burden on your heirs. This can be crucial in ensuring that your business remains viable and doesn’t need to be sold to cover taxes. What’s more, estate planning can protect a business from creditors. By strategically structuring business assets and personal assets, an estate plan can shield the business from being used to settle personal debts.

In essence, estate planning is not an option, but a necessity for every business owner. Business owners should consider estate planning as an integral part of their business strategy and seek expert advice to ensure their plans are comprehensive and legally sound.

RBT CPAs professionals in our Estate, Trust and Gift Practice can help you create and update an estate plan that gives you peace of mind in knowing you, your loved ones, and your business will be taken care of according to your wishes during your lifetime and after.

While RBT is not a law firm, we can help you create a succession plan, refer you to an attorney who can create related legal documents (or work with your attorney if you already have one), review legal documents to ensure they accurately reflect your wishes, and review and update your plan annually so they continue to reflect your wishes and are adapted due to any tax law changes.

If you’re interested in learning more, getting started, or reviewing plans you may already have in place, please don’t hesitate to give us a call and find out how we can be Remarkably Better Together.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.

$11 Million Estate Tax Exemption Going Away? Act Now

It might not be tomorrow, but the sunset on the historically high estate tax exemptions is coming – maybe sooner than you expect, so get prepared.

Owning a construction company comes with daily challenges and in the current economy – mounting financial pressures. When you’re preoccupied with the next big project on your growing to-do list, it’s easy to forget about long-term financial planning. It’s especially easy to delay making decisions about estate tax, as it’s likely not on the top of your radar. But the reality is that while the Tax Cuts and Jobs Act raised the gift and estate tax exemption to an unprecedented $11.18 million per person in 2018, (more than doubling the limit under the old tax law) the current administration aims to significantly reduce the exemption ahead of its scheduled expiration in 2025. Exactly when the reduction will go into effect is up for debate, but most financial experts agree the change will be here sooner rather than later.

The current Federal rule states that any one person can transfer up to $11.7 million, either in the form of gifts or through inheritance — without having that amount be subject to the current 40 percent Federal gift and estate tax. On September 13, 2021, the House Ways and Means Committee released a proposal for tax changes that would drop the federal estate tax exemption amount to $5 million as of January 1, 2022 – but change could come even sooner. The exemption amount would be approximately $6,020,000 starting in 2022. Read the full legislative proposal, here. New York State also has an estate tax with a current exemption of $5,930,000, however NYS does not have a gift tax. For NYS estate tax purposes gifts made within three years of death are included in an individual’s estate, while gifts made more than three years before death are not.

I have built my career assisting many clients with the transition of family wealth from one generation to the next in an orderly way with the least tax impact. I also advise my clients concerning the liquidity for estate tax payments. My goal? To minimize the administrative burdens for all the survivors and to help in transferring family businesses in an orderly way during an often stressful time. Some have cited concerns about the amount they are able to transfer and wonder if it’s worth it to act now. Gifts of any amount up to $11,700,000 made outright or through trusts before the date of the proposed bill’s enactment can still reap great rewards. For example:

While outright gifts to individuals remove assets from your estate, you are also relieved from the income tax responsibility associated with the gifted assets. Gifts to certain trusts allow you to leverage your gift by remaining liable for the income taxes on the assets gifted to a grantor trust – so you continue to whittle down your taxable estate by paying the income taxes on the trust’s earnings even though you don’t receive the trust earnings.
Grantor retained annuity trusts (GRATs) may still be used to sell assets tax-free to a trust but under proposed tax changes, the window may be closing on this technique. With a GRAT, at the end of the trust term, the remaining appreciation is passed out to a beneficiary without using any portion of your lifetime exemption.
Between the potential decrease in the gift and estate tax exemption and proposed legislation targeted toward eliminating grantor trusts, now is a critical time to consider life insurance and irrevocable life insurance trusts (ILITS) as part of your estate plan. While gifts that are made to an ILIT to fund the payment of life insurance premiums may be applied toward your gift and estate tax exemption, when the policy is paid out at death the life insurance proceeds may be fully excluded from your estate.

So, what kind of savings are we talking about?

Below we will use an example derived from digital legal analysis site Lexology to illustrate how much money you and your family can save if you plan accordingly and act now.

Let’s assume that in the year of your death, the estate tax rate is 50%. If you were successful this month in shielding an extra $5,700,000 (even if those assets never appreciate over the rest of your life), you and your family avoid almost $3,000,000 in estate taxes (and likely much more considering the appreciating values of such assets and accumulated related income). The takeaway? If you can afford to make gifts to a trust that benefits you and your family, this may be the best time to commit.

While the bill is not yet law, and still needs to be approved by Congress and the President, it’s best to act now so you will be prepared for any future changes. Questions or concerns about the future of your financial planning? Don’t hesitate to reach out to our dedicated RBT team that specializes in working with construction clients, or you can reach out directly to me at irahilly@rbtcpas.com or by phone, 845.205.7986 Ext. 263.

Sources: Ways and Means, Forbes, NBC, Lexology

$11 Million Estate Tax Exemption Going Away? Act Now

It might not be tomorrow, but the sunset on the historically high estate tax exemptions is coming – maybe sooner than you expect, so get prepared.

Owning a manufacturing company comes with daily challenges and in the current economy – mounting financial pressures. As many cheaper and lower-paying manufacturing jobs continue to relocate overseas, New York has seen a corresponding rise in technical manufacturing, including computer products, mobile devices, video games, 3-D printing, and general software engineering tools. Despite the rising global competition, it’s impressive to consider that manufacturing ranks as the fifth leading industry in the state, contributing $61 billion to New York’s GDP in 2020. When you’re preoccupied with the next big project on your growing to-do list (while juggling material shortages amidst the ongoing pandemic), it’s easy to forget about long-term financial planning. It’s especially easy to delay making decisions about estate tax, as it’s likely not on the top of your radar. But the reality is that while the Tax Cuts and Jobs Act raised the gift and estate tax exemption to an unprecedented $11.18 million per person in 2018, (more than doubling the limit under the old tax law) the current administration aims to significantly reduce the exemption ahead of its scheduled expiration in 2025. Exactly when the reduction will go into effect is up for debate, but most financial experts agree the change will be here sooner rather than later.

The current Federal rule states that any one person can transfer up to $11.7 million, either in the form of gifts or through inheritance — without having that amount be subject to the current 40 percent Federal gift and estate tax. On September 13, 2021, the House Ways and Means Committee released a proposal for tax changes that would drop the federal estate tax exemption amount to $5 million as of January 1, 2022 – but change could come even sooner. The exemption amount would be approximately $6,020,000 starting in 2022. Read the full legislative proposal, here. New York State also has an estate tax with a current exemption of $5,930,000, however NYS does not have a gift tax. For NYS estate tax purposes gifts made within three years of death are included in an individual’s estate, while gifts made more than three years before death are not.

I have built my career assisting many clients with the transition of family wealth from one generation to the next in an orderly way with the least tax impact. I also advise my clients concerning the liquidity for estate tax payments. My goal? To minimize the administrative burdens for all the survivors and to help in transferring family businesses in an orderly way during an often stressful time. Some have cited concerns about the amount they are able to transfer and wonder if it’s worth it to act now. Gifts of any amount up to $11,700,000 made outright or through trusts before the date of the proposed bill’s enactment can still reap great rewards. For example:

While outright gifts to individuals remove assets from your estate, you are also relieved from the income tax responsibility associated with the gifted assets. Gifts to certain trusts allow you to leverage your gift by remaining liable for the income taxes on the assets gifted to a grantor trust – so you continue to whittle down your taxable estate by paying the income taxes on the trust’s earnings even though you don’t receive the trust earnings.
Grantor retained annuity trusts (GRATs) may still be used to sell assets tax-free to a trust but under proposed tax changes, the window may be closing on this technique. With a GRAT, at the end of the trust term, the remaining appreciation is passed out to a beneficiary without using any portion of your lifetime exemption.
Between the potential decrease in the gift and estate tax exemption and proposed legislation targeted toward eliminating grantor trusts, now is a critical time to consider life insurance and irrevocable life insurance trusts (ILITS) as part of your estate plan. While gifts that are made to an ILIT to fund the payment of life insurance premiums may be applied toward your gift and estate tax exemption, when the policy is paid out at death the life insurance proceeds may be fully excluded from your estate.

So, what kind of savings are we talking about?

Below we will use an example derived from digital legal analysis site Lexology to illustrate how much money you and your family can save if you plan accordingly and act now.

Let’s assume that in the year of your death, the estate tax rate is 50%. If you were successful this month in shielding an extra $5,700,000 (even if those assets never appreciate over the rest of your life), you and your family avoid almost $3,000,000 in estate taxes (and likely much more considering the appreciating values of such assets and accumulated related income). The takeaway? If you can afford to make gifts to a trust that benefits you and your family, this may be the best time to commit.

While the bill is not yet law, and still needs to be approved by Congress and the President, it’s best to act now so you will be prepared for any future changes. Questions or concerns about the future of your financial planning? Don’t hesitate to reach out to our dedicated RBT team that specializes in working with manufacturing clients, or you can reach out directly to me at irahilly@rbtcpas.com or by phone, 845.205.7986 ext. 263.

Sources: Ways and Means, Forbes, NBC, Lexology, Investopedia

The Latest PPP Update Breakdown

As a small business owner, you likely view The Paycheck Protection Program as a crucial lifeline that’s helped you weather the ongoing Covid-19 pandemic.

As you know, PPP loans were designed to be forgiven, provided the loan proceeds were used for “eligible expenses” like payroll costs, rent, utilities and mortgage interest. While the forgiveness of the PPP loan is tax-free, new guidance issued by the IRS requires that business owners not deduct the eligible expenses in 2020. So, while a business owner may not have applied for PPP loan forgiveness just yet, if a business “reasonably believes” the loan will be forgiven in the future, costs funded with the loan are not deductible for 2020, according the IRS. In the November 18th release, Treasury Secretary Steven T. Mnuchin explained this clarification, citing that since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. “This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket,” said Mnuchin. According to this current update, you and your business can only take advantage of the expense deduction if your loan isn’t forgiven (and isn’t going to be forgiven). So, is all hope lost for this new guidance to be reversed? Not quite. One thing that lawmakers on both sides of the aisle seem to agree on, is that they disagree with this guidance. Currently, The Small Business Expense Protection Act of 2020 has bipartisan support. If passed – it will mean a significant difference to your 2020 taxes.

So what can you do?

At RBT, our firm is hard at work writing letters and sending them out to our representatives in Washington. We are requesting that they approve the proposed legislation (Senate (S.3612 sponsored by Senator Cornyn (R-TX) and House (H.R. 6821 sponsored by Representative Holding (R-NC) or H.R. 6754 sponsored by Representative Fletcher (D-TX)) to make eligible expenses that were forgiven deductible. We recommend you do the same. Click here for a list of NY senators and representatives you can email. To save time, please feel free to copy and paste the template below:

All Americans have been impacted by the COVID-19 pandemic, and your actions in Congress have provided much-needed relief to millions of struggling businesses. I am writing to you to ask you to continue the important work that will allow small business owners in my community to succeed.

I strongly encourage you to include in any year-end, must-pass legislation language that will allow millions of small business owners a tax deduction for expenses paid with Paycheck Protection Program (PPP) forgiven loans. Bills introduced in the Senate and in the House would ensure that PPP loan recipients are provided the full benefits intended in the CARES Act.

It is important for you to ensure the same businesses that have been struggling to survive while adhering to constantly fluctuating shutdowns are not also subject to additional and unexpected taxes as they continue to face an extraordinarily challenging financial year.

Passing this legislation as swiftly as possible will provide small business owners more confidence as they focus on business planning strategies to weather the pandemic.

As always, RBT is here to support the small businesses that make our community so vibrant and welcoming.

If you have specific questions pertaining to this latest IRS clarification, please do not hesitate to reach out for further discussion with one of our dedicated team members today.