CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Year-End Tax Issues. There is still time to take advantage of a few tax breaks that may help your tax picture when you file your 2015 returns. If capital losses will help you, you may be able to sell some of your stock positions and then repurchase the same securities after at least 31 days. You may be able to postpone income until 2016 and accelerate certain deductions into 2015, or you might be able to defer a bonus until after the first of next year. If you are required to take your first Required Minimum Distribution (RMD) this year because you turned age 70½, you could delay the first required distribution until next year. However, be careful if you do delay the distribution since you may have to take a double distribution in 2016. If you are eligible for a health savings account, be sure to make your deductible HSA contribution in full before the end of the year. If you are a business owner, you may be able to buy depreciable property before the end of the year and take half a year of depreciation. Also consider the possibility of accelerating or deferring income and/or deductions depending on what best suits your current year and next year tax projection. Be sure to talk to your tax advisor regarding these and other planning opportunities.
Benefit Corporations In Indiana. Indiana now allows “benefit corporations” to be created by virtue of House Enrolled Act (HEA) 1015 which was passed into law during 2015. A “benefit corporation” is a form of corporation that mandates that the corporation seeks a “material positive impact on society and the environment” in addition to seeking a profit. The company may, but need not, designate a “specific public benefit” in its articles of incorporation which might be similar to the language found in Internal Revenue Code § 501(c)(3) for nonprofit corporations. Becoming a “benefit corporation” will allow a company to stand for the concept of benefitting society. A “benefit corporation” must name an independent member of the board of directors as a “benefit director.” An annual benefit report must include ways in which the benefit corporation has pursued a general public benefit during the year and must assess the company’s performance against credible third party standards chosen by the benefit director. The benefit report must be made available to the public and filed with the Indiana Secretary of State. Shareholders may pursue a “benefit enforcement proceeding” against the directors or officers of the company for failure to pursue a general or specific public benefit. The goal is to make Indiana more attractive to social entrepreneurs and expand social impact investment. Many provisions of the Indiana Code relating to corporations were amended by HEA 1015.
LTC Insurance “Combo” Products. The traditional long term care insurance market has not fared well. While sales of traditional LTC policies have fallen over the last ten years, sales of combo (or “hybrid”) products have risen. Some combo products are annuity-based, but more commonly they are life insurance-based products. LTC riders might be added to a policy of permanent insurance which will allow the insured to receive an advance on the life insurance to pay for long term care once the insured meets the definition of disability. It is typical for the LTC benefit to equal a percentage of between two percent and four percent of the face amount of the policy. For example, a two percent LTC rider in the case of a $100,000 life insurance policy would allow up to $2,000 per month to be applied toward long term care until the policy has been exhausted. There are many other types of products, some of which might provide benefits for “chronic illness” but which are not defined in terms of “long term care,” in which case the sellers are not subject to the same regulatory requirements as a vendor selling long term care insurance. These hybrid products are typically sold based on the possibility that the insured’s beneficiaries will receive the death benefit that is not consumed or is not used up by paying for long term care. Since the policy will accrue cash value, it would be possible later to surrender the policy and recover at least a portion of the premiums paid. It might also be easier for a person to buy a hybrid product than a true long term care insurance policy because the underwriting requirements might be less stringent. It might even work for an older person who is willing to fund the cost of a hybrid policy up-front, as part of a wealth transfer and asset protection plan, when that person might not be willing to pay the cost of long term care insurance at that age. Personally, my preference is that if a person is concerned about long term care as the “risk” that they wish to address, then they should focus on LTC insurance which actually covers that risk. Hybrid products confuse the analysis. Nevertheless, a hybrid product may be appropriate for many people in a number of situations. As always, I encourage my clients to talk to multiple vendors and to obtain at least two or three proposals from each, and I prefer that the various proposals be at least similar so that it is possible to undertake an “apples-to-apples” comparison. I also recommend that they obtain a specimen policy if they have homed in on a particular product, so that they can actually read the policy and not just read literature about what the policy says, and I recommend that they let me review the preferred proposal as well as the policy and that we discuss the implications of the product as well as the other alternatives which might be available to them.
Benefiting Children. People often engage in planning with a view to preserving their assets for their children. While such a goal is a typical one, not all people should be motivated to create an estate for their children. The bumper sticker that states “I’m spending my children’s inheritance” is an apt approach to estate and asset protection planning. It should be remembered also that if you have a child who is disabled, there are many planning arrangements that can be set up even while you are living to benefit that child which may not have an adverse impact on either the child or you should you or the child later require nursing home care or be or become eligible for public benefits. Assets can be transferred to a child, or to a trust for the benefit of the child, who is blind or permanently disabled, depending on the specific arrangement that is set up. The home may be transferred to certain beneficiaries. There are many kinds of “special needs” arrangements that can be set up to achieve a variety of objectives. Once your goals have been defined and the alternative planning arrangements explained to you, you may be able to implement an appropriate estate and asset protection plan that will accomplish those objectives while having a minimal immediate negative impact on your current circumstances.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.