Ownership interest is often held in the owner’s name, such as that of John Smith. As a result, when John Smith passes, the ownership interest is a probate asset, meaning that the ownership interest will pass according to the terms of the Will but not until an estate is opened and an executor is appointed. In addition, the value of the ownership interest will need to be reported to the Probate Court as part of the probate process, meaning that the value of your business will be a public record.

Owners have two main options to avoid the probate process at the time of death. First, the owner may title the ownership interest with a Transfer on Death (“TOD”) designee. When held with a TOD, the ownership passes automatically to the designee at the time of death without appointing an executor. While steps should be taken to memorialize the transfer of ownership, the TOD designee is the lawful owner and can exercise ownership rights immediately. Further, the value of the business does not become a public record.

The second option is to hold the ownership interest in a trust. During their life, the owner serves as the trustee of the trust and exercises full control over the ownership interest. Following the owner’s incapacity or death, the successor trustee can immediately exercise the ownership rights. Further, the successor trustee can transfer the ownership to the beneficiaries identified in the trust, which protects the value of the business from becoming a public record.

Your estate plan and other issues affect what method may be right for how you should hold the ownership interest in your business. For questions or assistance with Succession Planning for your business, contact Katie Wahl or John Clough at (937) 223-1130 or www.pselaw.com.

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To qualify for the new portability election procedure, the estate must meet the following requirements:

(1) have a surviving spouse;

(2) passed away after December 31, 2010;

(3) have been a United States citizen or resident on the date of death;

(4) not have been required to file a Form 706;

(5) not have previously filed a Form 706 for their estate.

All that is required to make the election under this new procedure is to:

(1) file a Form 706;

(2) make the portability election on Form 706;

(3) state on Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(C)(5)(a).”

With the estate tax exemption set to reduce by half on January 1, 2026, it might be a good time to take another look at the estate planning of anyone who had a spouse die within the last five years.

For more information about this change and other estate planning matters, contact John Clough at jclough@pselaw.com or 937.223.1130.

Regardless of the size or complexity of your estate, our experienced team will work with you throughout every stage of life to assist you and your family to create a customized plan that meets your needs.

¹Revenue Procedure 2022-32; Section 2010(c)(5)(A)

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• Estate tax exemptions of $3.5 million;
• Gift tax exemptions of $1 million;
• $20,000.00 annual gift tax exclusion;
• 50-year limit on GST trusts;
• Grantor trust inclusion in the taxable estate;
• No discounts for FLPs funded with non-business assets; and
• GRATs would be a minimum of 10 years and have remainder requirements.
• Deemed realization of capital gain at death, subject to some exceptions.

This may all seem very esoteric, but these provisions would have been the most significant change to how the U.S. has taxed the transfer of wealth in over 40 years. With the legislation still in negotiations, it is possible that some of these proposals could come back. However, it has been encouraging to hear that the momentum has been heading in a more taxpayer-friendly direction.  Stay Tuned!
If you have estate planning, Trust, and Probate Law questions, the attorneys at Pickrel, Schaeffer & Ebeling can help. Don’t hesitate to get in touch with us at 937.223.1130 or email jclough@pselaw.com.

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Effective January 1, 2020 is a new spending bill called the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019). 

Prior to 2020, most participants were required to take RMDs (required minimum distributions) from employer plans or IRAs by age 70-1/2; however, for those who have not reached 70-1/2 by the end of 2019, the RMD date is April 1 of the year following the calendar year in which you reach age 72.  Every year after your start date you are required to take a RMD by December 31.  The change allows more time for your qualified accounts to grow before they are reduced by distributions or taxes.  If both spouses still work, the later age will allow the couple to contribute $14,000 more to an IRA if they contribute the maximum of $7,000 each to their IRA.

Another advantage to the later date is more time to do a Roth IRA conversion from a traditional IRA, if certain requirements are met.  Withdrawals from a Roth IRA are tax-exempt (again, if certain requirements are met) and with a Roth IRA, there are no RMDs during a person’s lifetime.  

The Act also eliminates the prohibition from contributing to a traditional IRA after age 70-1/2, similar to a Roth IRA which does not have the restriction.

The SECURE Act also encourages employers with retirement savings plans to permit employees to convert their savings into annuities, structuring a lifetime income.  Employers will be protected from lawsuits if the insurance company selling the annuities does not pay out a lifetime benefit.

Many agree that the most important provision of the SECURE Act includes the elimination of the stretch for IRAs or 401(k)s in favor of the 10-year (after death of owner) distribution rule.  This change will decrease wealth transfer and may involve a need for changes to clients’ estate plans.  However, while the Act requires that all assets be distributed by the end of the 10^th calendar after date of death, there are no RMDs required.  If a beneficiary is an “eligible designated beneficiary”, they may keep the stretch over their lifetime.

An “eligible designated beneficiary” includes the following: a surviving spouse, a minor child, a disabled individual (as defined by the Internal Revenue Code), a chronically ill individual (as defined by the Internal Revenue Code), and an individual not more than 10 years younger than the decedent.

Those that have named a trust as beneficiary of an IRA or 401(k) should review the trust’s language to make sure the trust follows the new beneficiary rules.  We will be hearing a lot more about the SECURE Act in the upcoming months. 

If you have any questions, please contact Joe Mattera at jmattera@pselaw.com or call 937-223-1130 to discuss the issues with him or any of our other Probate and Estate Planning attorneys.

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