In the past we have touched on the creative planning that can arise using a beneficiary deemed owner trust, or BDOT. This missive will address how such a classification might be used in conjunction with a qualified terminable interest property trust, or QTIP Trust. With a successful BDOT the primary beneficiary of the Trust is the owner of the Trust’s assets for federal income tax purposes.

Many qualified plan sponsors are now adding a Roth 401(k) feature to their basic 401(k) plan. That feature makes it easier for a younger plan participant to convert their basic 401(k) account to a Roth 401(k) account and enjoy tax-free earnings on that account. Despite the benefits of such an in-plan conversion, there are a couple of drawbacks that need to be considered before an in-plan Roth 401(k) conversion takes place.

Individuals who are considering a move to an assisted living environment might also consider making a Roth IRA conversion at the same time to avoid paying any income taxes on the Roth conversion.

The favorable contribution rules to an ABLE account, which allowed a disabled individual to save money in a tax-advantaged account without losing eligibility for federal aid, created by the 2017 Tax Act, are set to expire in 2026.

Buried inside the SECURE Act 2.0 Proposed Regulations is a potential ‘trap’ for some surviving spouses. The Proposed Regulations require a surviving spouse to take a required minimum distribution (RMD) of the deceased spouse’s retirement account before the surviving spouse can engage in a spousal rollover. The Proposed Regulations call this either a catch-up or hypothetical RMD. Apparently, the IRS discovered a ‘loophole’ in the distribution rules that could be exploited by a surviving spouse. (God forbid a widow or widower might find a small tax break in the IRS’s world!).

There are peculiar rules associated with excess retirement plan contributions, and especially that rules that provide when the earnings on those excess contributions must be reported by the account owner. There is also a remote possibility of double taxation of the excess contribution and its earnings.

Making an irrevocable trust a beneficiary owned trust (BDOT) circumvents the high-income tax rate faced by the trust.

The SECURE Act 2.0 provides new statutes of limitations for excess contributions to an IRA or the failure to take a required minimum distribution. However, these new statutes of limitations are not retroactive, which means that prior excess contributions or failures to take RMDs must still be formally fixed, despite the running of the statute of limitations.

: I was asked to share my thoughts on the impact of the election of Mr. Trump as President on the future of estate planning. Frankly, I’m not smart enough to form any opinions, but I confess that I do read lots of articles where others have no problem coming up with their own thoughts and predictions (for which they are never held accountable!) From that reading I have formed a couple of conclusions, none of which will come as a surprise.

There were some conflicting stories coming out of Washington DC last week regarding what to expect when the ‘new’ Congress convenes early next year to work on the tax legislation in its first 100 days.