Estates

March 5, 2024 Deadline to Reduce 2023 Estate & Trust Income Taxes

February 5, 2024 by Pamela Avraham

If you are the executor of an estate or the trustee of a trust, you should know that egregiously high income tax rates apply to estates and trusts at very low levels of income. In 2023, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $14,451 of income. That’s not very high. For example, let’s say an estate has income of $214,451. The tax on the $200,000 (income in excess of the $14,451 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope! Estates and trusts only pays tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%. Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return. This year’s deadline is March 5, 2024.

Estates don’t need to have a calendar year end. For example, if a decedent died in June, the year end for the Estate can be May 31, in which case the 65-day rule would allow distributions until August 4^th. Executors should keep this in mind when planning distributions.

Are there Other Factors to Consider?

Yes. In addition to financial considerations, there are other factors to keep in mind. If a beneficiary is not financially knowledgeable and cannot manage money, or has a drug habit or is mentally unstable, you may not want to distribute the funds. These factors may outweigh the potential tax savings of larger distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

March 5, 2023 Deadline to Reduce 2022 Estate & Trust Income Taxes

January 16, 2023 by Pamela Avraham

If you are the executor of an estate or the trustee of a trust, you should know that egregious high income tax rates apply to estates and trusts at very low levels of income. In 2022, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $13,451 of income. That’s not very high. For example, let’s say an estate has income of $213,451. The tax on the $200,000 (income in excess of the $13,451 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope! Estates and trusts only pay tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%. Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

Are there Other Factors to Consider?

Yes. Frequently, the main purpose for a trust is not to save taxes, but rather control. If a beneficiary can’t manage money, is a spendthrift, gambler, drug addict or is mentally unstable, you may not want to distribute the funds. These factors may outweigh the tax savings of distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

Fiduciary Accountings 101

November 21, 2022 by Pamela Avraham

Does your parent need a Guardian?

If Dad becomes mentally incapacitated to the point where he should not be handling his own financial affairs, he may need a Guardian. We work with many attorneys who specialize in Guardianships. They can apply to the Court to have a Financial Guardian appointed and a Personal Guardian also if necessary.

Guardian vs. Power of Attorney- What’s the Difference?
A Financial Guardian has a myriad of responsibilities to handle. In contrast to a Power of Attorney who has the right to handle many of these functions, the Guardian is Court-appointed and has the obligation to perform all these jobs.
Accounting Obligations of Guardian:

Locating assets of ward
Handling all tax matters
Preparing court accountings
Establishing budget for the ward’s personal and health needs
Investing liquid assets
Review and update of all insurance policies
Review of terms of any traditional or reverse mortgages
Maintaining real estate of ward

NJ Guardian Accounting Requirements
In all States, the Guardian must file an annual report of the financial affairs of the incapacitated person. In NJ, many counties now require that the Guardian of the Estate report using Judiciary forms as to the financial affairs. There are two different periodic reporting forms: the Periodic EZ Accounting form and the Periodic Comprehensive Accounting form. The Comprehensive Form requires numerous attachments to substantiate the figures reported. The Judgement of Incapacity should specify which form you are required to file, as well as the deadline for filing.
Instead of filing a Judiciary form, it is possible that a Judgement may direct periodic filing of a formal court accounting. All of these types of accountings are complex. Urbach & Avraham can relieve you of this burden and prepare the accountings for you.

Do Executors and Trustees also need Accountings?

Estates and trusts need court accountings in two instances. If a beneficiary requests an accounting, usually in a litigated matter, the Court will demand a formal accounting. If any of the beneficiaries is a charitable organization, than a formal accounting must be submitted to the state Attorney General.

An accounting? No problem! After all, you kept all the bank statements and receipts for every expense. However, unfortunately, a formal accounting must be in a specific format strictly mandated by NJ Statutes in the Uniform Principal and Income Act. The following do not constitute a formal accounting:

• A stack of all the bank and brokerage statements
• Boxes, envelopes and binders of all receipts for all expenses paid
• The check register for the estate checking account
• The fiduciary income tax returns for the trust or estate (Form 1041) or the individual income tax returns (Form 1040)
• An Excel summary of all expenses paid
• A profit and loss summary from Quickbooks
• Mom’s medical records

Preparing a formal account can be an overwhelming process for a fiduciary. The starting point is a list of all assets for the first day of the account period. All receipts, disbursements, gains and losses from disposition of assets, transfers and distributions are detailed.
We can relieve your burden, take your crates of documents and convert them into a formal accounting. If there is a dispute about a specific asset or disbursement, we will add additional documentation to clarify, strengthen and justify our client’s position.

Working with Urbach & Avraham, CPAs is unique because we truly know what you’re going through. Several members of our firm have taken care of their elderly parents. We have experienced the many trials and tribulations of providing for their medical needs and handling their financial affairs. Please contact us to see how our CPA firm can assist you.

Preserve Family Wealth with Portability

November 21, 2022 by Pamela Avraham

Extension of Time to Elect Portability of the DSUE

and Preserve Family Wealth

In 2011, the IRS introduced the concept of portability of the estate tax exemption from a deceased spouse to a surviving spouse. Currently, with the federal estate tax exemption at $12 million, a married couple can transfer up to $24 million to heirs without a federal estate tax. One of the tools enabling this large tax-free transfer is electing the DSUE, the “Deceased Spouse Unused Exclusion.”

What is Portability and How to Obtain it?

Portability occurs when a surviving spouse files a US Form 706, Gross Estate Tax Return, for the sole purpose of calculating and capturing any unused estate tax exemption from the estate of the first spouse. Completing a Form 706 to make the DSUE election is no easy task.

Why should one elect Portability/DSUE?

If the surviving spouse has an estate worth much lower than the current $12 million estate exemption, why file for the DSUE?

Congress may reduce the estate tax exemption to 5 or 3.5 million
The estate of the surviving spouse may appreciate substantially if there are businesses and/or real estate
A young healthy spouse has many years to accumulate more wealth and have a potential taxable estate
The surviving spouse may inherit from other relatives

When must one file to elect Portability/DSUE?

Good news! This year the IRS extended the time to file for the DSUE election to on or before the fifth anniversary of the decedent’s death.

Conclusion

With the current federal tax exemption so high, spouses should take advantage and claim any unused estate tax exemption after the death of the first spouse. Given the factors mentioned above, even smaller estates should consider filing for portability.

Executors, Guardians – File for NJ ANCHOR Property Tax Rebate

November 6, 2022 by Pamela Avraham

Be Thankful for the NJ ANCHOR Property Tax Rebate

New Jersey recently launched the ANCHOR program to help homeowners and renters save on property taxes. It is an expansion of the Homestead Benefit Program. ANCHOR stands for Affordable NJ Communities for Homeowners and Renters. The current year ANCHOR program covers 2019.

Who is eligible for the 2019 Anchor program?

Homeowners with income of $150,000 or less will receive $1,500
Homeowners with income over $150,000 and up to $250,000 will receive $1,000
Renters with income of $150,000 or less will receive $450

You are considered a homeowner if you owned a house or condominium on Oct. 1, 2019 and paid property taxes. You are a renter if on Oct. 1, 2019 you rented an apartment, condominium or house.
How do I apply?
Homeowners need an ANCHOR ID and PIN to apply online on the NJ Division of Taxation website or by phone at 877-658-2972. Informational mailers with the ID and PIN numbers were sent the first week of Oct. 2022. If you didn’t receive the form, call the ANCHOR hotline at 888-238-1233. If you applied for the Homestead Rebate last year, you can get your ID and PIN online at ANCHOR ID and PIN .
Tenants can and should apply online at Tenant Online Filing. Tenants do not have an ID and PIN.
Owned a home in 2019 but recently moved? Guardian appointed after Oct. 2019? Executor for homeowner who passed away after Oct. 2019?

If you did not receive a mailer, access the online ID and PIN Inquiry System to retrieve your ID and PIN. Or call the ANCHOR hotline.

Paper applications
Some homeowners must file paper ANCHOR applications. They include:

You shared ownership of your home with someone who was not your spouse
You are a widow(er) and the deed lists both your name and the name of the deceased spouse
You are the executor filing on behalf of a deceased homeowner
You are filing for property held in trust
You are divorced- you should report your percentage of ownership

When will I receive the ANCHOR payment?
Payments will be sent out in late Spring 2023. ANCHOR payments will be paid in the form of a direct deposit or check, not as a credit to your property tax bill.
When is the ANCHOR application deadline?
The initial deadline was December 30, 2022. The new deadline has been extended to Jan. 31, 2023!
Eligible homeowners and tenants should file as soon as possible to anchor in their 2019 rebate. You’ll be happy when the rebate floats into your bank account in the Spring of 2023.

Fiduciaries Filing Taxes in Multiple States

June 22, 2022 by Pamela Avraham

Filing Taxes for Individuals Living, Working or Investing in Multiple States

Guardians and Powers of Attorney for individuals living or investing in multiple states, must make sure to file the individual’s income tax returns in the non-resident states. Executors must file the decedent’s final Form 1040 as well as tax returns for all prior years that were not yet filed. Make sure to file in any state in which the decedent lived, worked or invested. Fiduciaries should review the tax saving opportunities and/or issues in the non-resident states. Here are some classic examples.

NY Filers Taxpayers who live, work or have real-estate in NY must file a NY resident or non-resident return. They may benefit from itemizing deductions for NY even if they can’t itemize for the IRS. The NY threshold to itemize is substantially lower than the federal threshold, making it easier to itemize for NY. The US standard deduction in 2021 for married filing joint was $25,100 and $27,800 for married seniors. In contrast, the 2021 NY standard deduction for married couples and married seniors was only $16,050.

Additionally, several deductions are allowed on the NY return which are disallowed or limited on the federal return. Your steep NJ real estate taxes are limited to a $10,000 deduction on the US return but are not limited on the NY return! A deduction up to $10,000 is allowed for college tuition for each eligible student.

These deductions are allowed for NY subject to 2% of your federal adjusted gross income:

Unreimbursed employee expenses
Tax preparation fees
Investment/brokerage fees

Real estate in other states? Have a loss from real estate in other states? There are several reasons why one should file a non-resident return even when there is a loss in that state.

The non-resident state may require that a return be filed based on gross receipts of the real estate investments, even when there is a net loss.
The non-resident state may allow loss carryforwards. These losses will offset future rental income from the property. Upon the sale of the property, the losses will reduce the capital gain.

Credit on the resident return for taxes paid to other states Frequently overlooked!

Make sure that sources of income/loss are correctly grouped on the resident return which may differ greatly from the IRS. This determines the credit for taxes paid to other states.
The credit on the resident return for other jurisdictions should also include taxes paid to other cities, such as Philadelphia.

When filing in non-resident states, review the tax saving options which could be substantial. Your Google search isn’t a substitute for our years of experience with multi-state tax returns. Contact one of our tax professionals for guidance at (732) 777-1158 or info@ua-cpas.com.