Home » Insights » Wills, Trusts & Estates » Page 8

Wills Insights

Proposed Regulation Subjects Financial Advisers to Fiduciary Duties Under ERISA and Tax Code

Published on: April 22, 2015 | by Sergio D. Simões

On April 14, 2015, the Department of Labor, Employee Benefits Security Administration (“EBSA”) released a proposed regulation defining who is a “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”) as a result of giving investment advice to a plan or its participants or beneficiaries. If adopted, the new regulation would treat individuals who provide investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owners as fiduciaries under ERISA and the Internal Revenue Code (the “Tax Code”). The proposed rule seeks to increase consumer protection for plan sponsors, participants, beneficiaries and IRA owners by naming financial advisers and their firms as fiduciaries, thus compelling such advisers to abide by certain duties of good faith and loyalty to their clients, subject to specific carve-outs and exceptions.

Under the current statutory and regulatory scheme, fiduciary status is central to protecting the integrity of retirement and other important tax-favored benefits. Generally, a person is a fiduciary to a plan or IRA to the extent that the person engages in specified plan activities, including rendering investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of a plan. ERISA imposes standards of care and undivided loyalty on plan fiduciaries and holds such fiduciaries liable when these duties are violated. IRA and plan fiduciaries are not permitted to engage in “prohibited transactions” which stem from conflicts of interest and endanger the security of retirement, health and other benefit plans.

EBSA’s new proposal expressly expands these duties to financial advisers and their firms, by broadening the definition of fiduciary “investment advice,” subject to specific exceptions or carve-outs for particular kinds of communications that are non-fiduciary in nature. Under the new definition, a person renders investment advice by:

An Overview of The American Taxpayer Relief Act of 2012

Published on: January 30, 2013 | by John R. Blasi

President Obama, using the autopen, signed the American Taxpayer Relief Act of 2012 (the “Act”) into law on January 2, 2013. The following is a summary list of the Act’s major changes to and extensions of prior law. We will keep you informed of possible important updates resulting from a comprehensive tax reform.

Individual Income Tax Rates. The Act keeps in place the Bush-era income tax rates for most individuals (staying at 10%, 15%, 25%, 28%, 33%, and 35%) except that the highest marginal income tax bracket rises to 39.6% for individual filers whose taxable income is more than $400,000 ($450,000 for joint filers and for qualifying surviving spouses; $425,000 for qualifying heads of households; and $225,000 for married taxpayers filing separately).

Medicare Taxes. The Act does not affect the Medicare taxes effective in 2013. There will thus be an additional 0.9% Medicare tax on wages over $200,000 for single individual filers ($250,000 for joint filers and qualifying surviving spouses; $200,000 for qualifying heads of households; and $125,000 for married taxpayers filing separately). The 3.8% Medicare tax on certain net investment income also starts to apply to single individual filers with modified adjusted gross income over $200,000 ($250,000 for joint filers and for qualifying surviving spouses; $200,000 for qualifying heads of households; and $125,000 for married taxpayers filing separately).

Historically Low Interest Rates Create Attractive Estate Planning Opportunities

Published on: September 7, 2012 | by John R. Blasi

Today’s low interest rate environment, coupled with generous gift and estate tax exemptions, has made this an ideal time to effectively transfer wealth to heirs. Under the Internal Revenue Code (the “Code”), Section 7520, the Internal Revenue Service (the “IRS”) uses a rate based on 120 percent of the Midterm Applicable Federal Rate to discount the value of an annuity, an income interest for life or a term of years, or a remainder or reversionary interest in a trust to present value (hereinafter referred to as the “7520 Rate”). The IRS published the 7520 Rate (which varies from month to month) for September 2012 in Revenue Ruling 2012-24: the 7520 Rate is at the historically low rate of 1.0%. This presents attractive estate planning opportunities for those interested in the following techniques: (1) Grantor Retained Annuity Trusts (“GRATs”); (2) Charitable Lead Annuity Trusts (“CLATs”); and (3) Intra-Family Loans.

GRATs allow a person to transfer property with high appreciation potential to an irrevocable trust while also retaining the right to receive a fixed annuity payable at least annually for a chosen number of years. At the end of the annuity term, the remaining trust property passes to the grantor’s beneficiaries. The transfer of the property to the GRAT is a gift for gift tax purposes to the extent that the initial value of the trust property exceeds the present value of the grantor’s retained annuity interest for the month the GRAT is created. The present value of the grantor’s retained annuity interest is determined using the 7520 Rate for the month the GRAT is created. If the trust property appreciates at a rate exceeding the 7520 Rate, the grantor will be successful in passing wealth to the beneficiaries free of estate and gift taxes. The catch is that the grantor must survive the annuity term; otherwise, the trust property is included in the grantor’s estate for estate tax purposes at its date-of-death value. The minimum annuity term of a GRAT is currently two years.

Those with charitable impulses may want to consider using CLATs. Under the terms of a CLAT, a charity receives annuity payments for the term of the trust; at the end of the term, the balance of the property remaining in the CLAT passes to one or more non-charitable beneficiaries (e.g., the children of the donor). The annuity amount is valued by assuming that the charity’s lead interest will earn a rate equal to the 7520 Rate for the month the donor funds the CLAT. Accordingly, donors also benefit from a CLAT in a low interest rate environment because the investment performance must exceed only the 7520 Rate to result in the passing of wealth without estate and gift taxes; while outside the scope of this alert, there are Generation-Skipping Transfer Tax implications if the non-charitable beneficiaries include certain related individuals (e.g., grandchildren of the donor).

Protecting Social Security Retirement Benefits from Creditors In One Easy Step

Published on: February 8, 2012 | by Eric B. Levine

By: Eric Levine

In this turbulent economy, many people are finding it difficult to make ends meet. With income being stretched to the limit, some people are sometimes unable to pay bills on time or in full. When this happens, creditors are frequently pursuing payment by hiring debt collectors to recover the money that is owed them. In some cases, creditors will go so far as to obtain legal judgments against the non-paying individuals. Afterwards, they try to recover the amount recognized in the judgment by attempting to acquire the personal assets of the persons against whom the judgment was entered.

As creditors try to acquire a person’s assets, they can take steps leading to the freezing of bank accounts and turnover of funds in those accounts. They may place liens on both personal and real property that can result in judicial sales of such property. They may even garnish wages, which is the deduction of money directly from one’s salary. If done correctly, a judgment by a creditor can place a stranglehold on someone’s assets until payment in full is made.