Attention all ES IRS payment filers….January 17th is our due date this year for our Q4 2022 Estimated taxes!
With continued slow mail, we still like to direct everyone to the electronic filings of your state and the Federal payments system.
Tax Due Dates
Payment Due Dates
You can pay all of your estimated tax by April 18, 2022, or in four equal amounts by the dates shown below. 1st payment . . . . . . . . . . . . . . . . . April 18, 2022 2nd payment . . . . . . . . . . . . . . . . June 15, 2022 3rd payment . . . . . . . . . . . . . . . . . Sept. 15, 2022 4th payment . . . . . . . . . . . . . . . . . Jan. 17, 2023*
You don’t have to make the payment due January 17, 2023, if you file your 2022 tax return by January 31, 2023, and pay the entire balance due with your return.
Electronic Payment of ES Taxes
Here is the IRS tax website link, which is very easy to make electronic estimated taxes. Be sure to follow the instructions carefully as there are a lot of different options for making payments to taxes, and be sure to carefully enter your personal information so the IRS knows it’s you.
RMD Changed (again) this time to 73
As mentioned earlier, those turning 72 in the year of 2023, your new RMD age starting time is now 73! yay…. boy do they keep moving this target… at least farther out!
Hope you had a Great first week of the year… we were busy as expected, thanks for your patience on any delays!
Welcome to our Video and Audio Podcast Review of our Q1 2023 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page
Entering the 36 year in the Financial and Capital Markets world, a lesson was learned this year (see below) we want to thank everyone for their well wishes, patience and confidence as we went through a unique “Changing of the Tiger Stripes” event this year!
Higher Rates – Longer – CPI Stubbornly High
CPI Causes Tiger Stripes to Change?
Very Lagging Rent and Shelter Numbers keep pushing CPI
Estate Tax Laws Set to Change – Heads Up
At the end of 2025, putting January 1, 2026 into play, without any tax law adjustments the Estate Tax level will adjust back down to somewhere between a $7 to $8 million or $14 to $16 million for couples level.
While Estate Tax is not a huge revenue earner for the IRS, in our opinion Estate tax is in purpose is to affect the very largest of the states think $100 million and up.
Additionally the IRS is having trouble completing regular federal tax returns, by some estimates some 15 to 20 thousand taxpayers are still waiting on their regular federal returns to be blessed by the IRS from 2020 to present. Lowering the Estate Tax level to an extreme low, while may sound good in the headlines, impracticality, it will likely create a huge bottleneck and more trouble than money earned.
As a reminder this is a high level Financial Planning Education like overview, starting with the basics of and we will continue into advanced topics in order of Planning Importance.
So who needs Estate Planning?
In a word, everyone should have an Estate Plan and Estate Documents.
As your family complexity increases, the need for Estate Planning documents rises. Young families just starting out with no dependents that may be moving to another state in the very near future can have a brief hall pass as each state has its own unique rules, but the clock is ticking.
Couples with a dependent, you need an Estate plan!
Even with simple family situations, as we get older, statistically we get closer to utilizing these documents, thereby increasing our need.
Any further complexities, as an example multiple assets, multiple dependents, some type of unique family situation, you absolutely must have a good Estate Plan and Estate Planning documents.
Why do we need estate plan documents?
Without them you are leaving your wishes recklessly in the hands of the public domain via the court system for a prolonged timeframe and an unfamiliar person, (a judge), to try and guesstimate what your wishes would have been, using the general rules of the state you reside! Not good.
OK enough lecturing on who needs them and why, let’s take the complexity out of Estate Planning and make it very easy for you to prepare and complete the documents.
Rather than go into the complexities of all of the documents, keeping with our “Back to Basics” theme, we are going to go into what you need to think about to easily complete all of your Estate Documents. Don’t worry about the fancy legal and financial terms, if you can answer the following few questions, your Estate Documents can be easily completed …
So here we go!
If something happens to one of the couple, the general rule is the other is the primary default, hence the following terminology for decisions.
If something happens to both you and your spouse at the same time, Who will be in charge of administrating your estate and who is the backup person? This is called your executor.
If something happens to both you and your spouse, who will take care of your minor children? This is called guardian.
Assuming you and your spouse once again are gone, who will take care of the financial stuff for your minor children? This is called your Trustee and you’ll need at least one back up.
At what age do you want you’re now grown children, once again assuming you and your spouse are gone, to distribute financial assets? This is the terminal clauses of your trust, a very common age is 1/3 at age 25, 30 and 35 but parameters can vary widely. Trusts cannot be perpetual and therefore must eventually end.
Lastly, a very unlikely scenario, but one that should be answered, if everyone in your immediate family… you, your spouse, and minor children should perish, think of where you would like your assets to be distributed i.e. beneficiaries.
Other Documents
There are a few simple peripheral documents such as Power of Attorney (POA) and healthcare power of attorney that will need decisions, but we find if you have answered the above questions you likely already have a person that fits each of these roles.
One planning tip: Try and match the personality of your person to the role, i.e. the caring family person may be best fit for guardian, a good financial person trustee, a close relative with a very pragmatic attitude and calm and nature, your executor… as this is the most emotional role and comes first.
That’s it, each of those answers fit into a fancy legal term and your legal professional will know exactly how to formulate the appropriate language for your specific state. With the aforementioned answers your Estate Planning documents can be easily created.
Over the years we found many people fearful of the complexity of the documents, when in reality the majority of the problems are simply answering the questions above.
You are now armed with how to easily complete your Estate Documents, why you need them, how to be ready and how to easily complete!
Last Monday we replayed Part 1, here in our post, one week later we wanted to re-roll out Part 2 of this all important Document review, checklist and explanation – Enjoy!
Trusts, in our opinion are most helpful for organization, directives for minors, and very useful in avoiding Estate Taxes, just to name a few.
Estate Tax Review
Estate taxes are the tax that is incurred upon the final death of an estate member. Unlike Federal taxes, Estate taxes are accessed on the TOTAL VALUE of all assets less liabilities. Currently these taxes begin just under $5.5 million for a single person and if done correctly can be double ($11 million total) for married couples. Above these total amounts, the tax rate quickly gets to 40%. For this reason, the popularity and needs of many of the following Trusts have grown and will continue.
Trusts – All Type Review
Over the last several years we have grown warmer to the use of Trusts. Residing in Texas, a low cost probate state, Trusts frequently have lessor place in the Estate plan. However, we are finding more and more uses for them, and as such wanted to have a detailed list of the various Trusts – This is the second, and more deep dive to our original Estate Planning Doc Summary.
Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request. Due to this fact, there is very little tax or liability avoidance. The key positive for this trust is organization, especially over state borders. In high probate cost states may prevent substantial probate costs.
Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death. Testamentary trusts can take many forms, but are a key aspect of Estate planning for minors, estate tax, and generational transfers. It has virtually no existence until the grantor passes away.
Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust. The biggest issue of this type of trust is it what makes it a beast, Irrevocable … once you put assets in it, there is no turning back. Careful use is advised.
QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse. Frequently used in second marriages to protect children from a prior marriage. Created and resides most frequently in a Will.
Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will. Can give directives to eventually end up to a non-spouse beneficiary, but living spouse maintains control during lifetime.
GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren. Income may be distributed to the children, but the ultimate beneficiary will be the grandchildren. Under current law there is Estate tax relief from this trust.
ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate. While life insurance is free from Federal taxes in most cases, proceeds are included in an Estate for Total Estate Tax purposes. Done correctly, the ILIT trust can limit most if not all of the proceeds from an estate and thereby estate taxes.
Pat yourself on the back (especially if you are still awake and made it this far.) With a reasonable understanding of these types of trusts, you now have deep knowledge of the types of Trusts available. Reach out if you have any questions.
So we finally get through Tax Season, sunset the tax discussions until next year, and along comes an announcement that tax reform plans are due out today.
Keep in mind, no one knows for sure what the final outcome will be even after today’s announcements as approval and compromises will ensue.
Here are the high points from our perch.
Standard Deduction Adjustment
An announcement for a large increase in the standard deduction is expected. If passed the net result could be tax savings for many especially those that do not itemize. In our view, this change, if approved would likely have the largest total number of filing changes. Needless to say the tax planning possibilities are huge….
Corporate Tax Changes
There is much anticipation of lowered corporate rates. US corporate tax rates according to many , are too high, a proposal for relief from higher corporate tax rates is expected.
There is also a possibility of smaller, flow through entity corporation, think S corporation income i.e. K-1 tax rate relief.
Tax Repatriation
Our favorite, and hopeful agreed upon, tax change would allow stranded income, already taxed in a foreign country, to move more freely back to the US with less tax burden. International corporations would have greater access to foreign country stranded capital if this were to be approved.
We have heard less of this lately and hope it does not hit the cutting room floor!
Estate Tax Reform
There has been much talk of an Estate Tax reform as well. The gist is a disallowance of a step up in basis but a removal of the $5.49 million Estate tax rate.
If passed as mentioned, and the current tax laws held “as is” on capital gains, this could be a huge nightmare. We think there may be major compromises on this before actually passed. We will keep you posted on this as it develops. This is our least favorite possible reform at this point.
Trusts, in our opinion are most helpful for organization, directives for minors, and very useful in avoiding Estate Taxes, just to name a few.
Estate Tax Review
Estate taxes are the tax that is incurred upon the final death of an estate member. Unlike Federal taxes, Estate taxes are accessed on the TOTAL VALUE of all assets less liabilities. Currently these taxes begin just under $5.5 million for a single person and if done correctly can be double ($11 million total) for married couples. Above these total amounts, the tax rate quickly gets to 40%. For this reason, the popularity and needs of many of the following Trusts have grown and will continue.
Trusts – All Type Review
Over the last several years we have grown warmer to the use of Trusts. Residing in Texas, a low cost probate state, Trusts frequently have lessor place in the Estate plan. However, we are finding more and more uses for them, and as such wanted to have a detailed list of the various Trusts – This is the second, and more deep dive to our original Estate Planning Doc Summary.
Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request. Due to this fact, there is very little tax or liability avoidance. The key positive for this trust is organization, especially over state borders. In high probate cost states may prevent substantial probate costs.
Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death. Testamentary trusts can take many forms, but are a key aspect of Estate planning for minors, estate tax, and generational transfers. It has virtually no existence until the grantor passes away.
Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust. The biggest issue of this type of trust is it what makes it a beast, Irrevocable … once you put assets in it, there is no turning back. Careful use is advised.
QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse. Frequently used in second marriages to protect children from a prior marriage. Created and resides most frequently in a Will.
Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will. Can give directives to eventually end up to a non-spouse beneficiary, but living spouse maintains control during lifetime.
GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren. Income may be distributed to the children, but the ultimate beneficiary will be the grandchildren. Under current law there is Estate tax relief from this trust.
ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate. While life insurance is free from Federal taxes in most cases, proceeds are included in an Estate for Total Estate Tax purposes. Done correctly, the ILIT trust can limit most if not all of the proceeds from an estate and thereby estate taxes.
Pat yourself on the back (especially if you are still awake and made it this far.) With a reasonable understanding of these types of trusts, you now have deep knowledge of the types of Trusts available. Reach out if you have any questions.
Trust – It should have been a four letter word considering all of the confusion it causes. Living in Texas, there are not as many uses for the revocable trust, however, we continue to warm to the Trust and find it very useful in many situations.
To Trust or not to Trust?
To prevent a lengthy discussion, the focus of this post is on the Revocable Trust. This type of trust is the most common, but much different from its relative, the Irrevocable Trust.
Just a few benefits of the REVOCABLE Living Trust:
Easy to set up
Simple to change
Avoids Probate (Especially helpful in expensive probate states such as California and Florida –Not as much in Texas, but again still useful)
Great Organizer of affairs and death directives
Helps with privacy-non probate
Holds almost any type of asset
Relies on corporate law versus probate law
Neither helps or hurts from a Tax standpoint and does not require its own Tax ID
misunderstood aspects of a revocable Trust:
Does very little to prevent creditor exposure. — Since it is revocable, creditors can argue since you can do almost anything you wish with the assets, they are essentially yours and liabilities pass through to the trust.
Upon death of the beneficiary, in most cases a revocable trust becomes very strong and will have greater protections.
Lastly, a revocable trust rarely helps with Federal ESTATE Taxes. These are the taxes levied on estates over $5.4 million by individuals or $10.8 by couples.
Tonight President Obama will give the State of the Union Address to the country. Among various other tax changes one particular item caught my eye.
Trust Fund Loophole
This is a catchy name for the discontinuation of step up in basis. Under current law asset prices are reset to fair market value at the date of death aka “Step up in Basis”
So if your elder heir purchased a stock for $1 and at death is was worth $150, there would be no taxes on the new higher basis.
Sounds like a big tax increase, but multiple planning techniques come to mind that would help thwart these taxes, should it get passed.
If the Estate Tax, currently at over $5 million per person is left alone, we can navigate the loss of a step up in basis.
While we and many others have crowed about the Fiscal Cliff negotiations formally known as H.R.8 American Tax Payer Relief Act of 2012, there are some really bright spots that need to be given their due. Estate tax rates and levels were held at very reasonable levels.
The current estate tax level established by the Fiscal Cliff resolutions is now $5.12 million to index with inflation in the future. The tax rate on amounts over this level is 40%.
But hold on, it gets even better. With a little handy work completed by appropriate Estate Planning and Wills this level can be doubled for couples, thereby increasing the upper level to over $10 million. Unfortunately this is only available for couples through the use of very simple Testamentary Trust planning. This work needs to be completed BEFORE the death of a spouse for the most ease but is a far cry from the $600k level of not so long ago.
There you have it, a nice positive from the Fiscal Cliff negotiations to start your week off!
With the death of Kal Zeff, a multifamily Denver, Colorado, real estate magnet, the story of his heirs beginning to liquidate his properties may seem sad at first, but we think it is worth a closer look, as there are many parts of this situation that we would be fortunate to emulate.
While Mr. Zeff’s estate is grand in size and complex in nature, we have been witness to many, much smaller, simpler issues that have unfortunately not been a smooth transition. Mr. Zeff has left his estate in a situation that has made it fluid for his heirs to do what they want without difficulties. Many dream of the children carrying on the family business, but in reality, this is not always the case.
The goal in any estate plan should be to effectuate an orderly tax efficient distribution to the next generation, while allowing for a continuation of the business, if any, or all, of the children choose to do so. While it is impossible to anticipate every nuance of the distribution, a focus on straight forward, less complex, transfers and distributions may help.
In our experience, here are a few key items to help streamline a smooth transition:
Have your Wills, Trusts, deeds, titles, loan and other related documents in a safe place that someone, preferably your Executor, knows the location.
Make sure you have a good Executor. This person will have a key role in the transition process. Your Executor should be familiar with your team of advisors i.e. Planner, Accountant, Estate Attorney.
Let the heirs have a general idea where and what the assets are, and what direction they may be directed. Size and amounts are not the important part of this discussion, focusing on location and direction is a much greater concern.
Allow the Children an easy way of selling the assets, they most likely will not want everything you have accumulated, and if they do, you will already know it. Pokes from the grave make for a funny story while living, but in reality can cause angst.
Be sure to acknowledge all heirs, even if assets are not intended to be distributed to them, if not, the assumption may be that you have forgotten them.
Fluid, simple, smooth process which is dynamic, and will continue to change from tax laws and important decision makers is key. Well written Estate planning documents will achieve this, do not attempt to over complicate the situation.
Your Financial Planning Advisor should monitor your situation for changes in tax laws, estate planning techniques, and most importantly, your wishes. The Estate Planning Attorney creates the documents, make changes as necessary, and may also communicate with you concerning changes in techniques or laws.
Lastly, while this information may seem easy and logical on first glance, completing a good Estate Plan is much harder than many realize, so do not get frustrated. Take your time, and review our items above.
Be sure to check with the appropriate advisor for directions, as we are not Estate Attorneys, and are not recommending any specific action, only sharing information from the previously well traveled, “path of hard knocks.”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
$treet-¢ents 
Q1 2023 J.K. Financial, Inc. Newsletter … Estate Tax Law change Heads Up …. Higher Rates for Longer from Stubborn Lagging CPI Inputs … Personal Reflection … By John Kvale CFA, CFP …
Welcome to our Video and Audio Podcast Review of our Q1 2023 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page
Let’s get going! We hope you enjoy!
Q1 2023 Newsletter
(YouTube)
Personal Reflections –
Entering the 36 year in the Financial and Capital Markets world, a lesson was learned this year (see below) we want to thank everyone for their well wishes, patience and confidence as we went through a unique “Changing of the Tiger Stripes” event this year!
Higher Rates – Longer – CPI Stubbornly High
CPI Causes Tiger Stripes to Change?
Very Lagging Rent and Shelter Numbers keep pushing CPI
Estate Tax Laws Set to Change – Heads Up
At the end of 2025, putting January 1, 2026 into play, without any tax law adjustments the Estate Tax level will adjust back down to somewhere between a $7 to $8 million or $14 to $16 million for couples level.
While Estate Tax is not a huge revenue earner for the IRS, in our opinion Estate tax is in purpose is to affect the very largest of the states think $100 million and up.
Additionally the IRS is having trouble completing regular federal tax returns, by some estimates some 15 to 20 thousand taxpayers are still waiting on their regular federal returns to be blessed by the IRS from 2020 to present. Lowering the Estate Tax level to an extreme low, while may sound good in the headlines, impracticality, it will likely create a huge bottleneck and more trouble than money earned.
Bottom Line – We are on this in advance!
Happy New Years and a Great Start to 2023!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com
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Tagged CPI, Estate Tax, Interest Rates, Newsletter, Personal Reflections