Robert Keebler

Thanks to the assistance of Michelle Ward of Keebler & Associates, LLP for bringing to our attention a recent case regarding bankruptcy exemption for inherited IRAs.

The 7th Circuit Court of Appeals has reversed a district court's ruling extending bankruptcy exemption to an inherited IRA (Download Case). In Clark, the Wisconsin district court had previously reversed the bankruptcy court's decision and allowed an inherited IRA to be exempt from the bankruptcy estate. The debtors, Mr. and Mrs. Clark, filed for chapter 7 bankruptcy in 2010. Mrs. Clark had inherited an IRA from her mother in 2001. Neither Mr. nor Mrs. Clark was retired. The debtors claimed the inherited IRA was exempt under Wisconsin law and 11 U.S.C. Sec. 522(b)(3)(C). The Court of Appeals (cases Nos. 12-1241 & 12-1255) stated that by the time the Clarks filed for bankruptcy, the money in the inherited IRA did not represent anyone's retirement funds and that to treat this account as exempt would be to shelter from creditors assets that can be freely used for current consumption. The Court further stated that an inherited IRA does not have the economic attributes of a retirement vehicle, because the money cannot be held in the account until the current owner's retirement.

Given this recent decision and the diversity of decisions on this topic, caution suggests having an IRA payable to a trust rather than to a beneficiary outright to strengthen creditor protection.

Keebler & Associates, LLP assisted the Law Firm of Kavesh, Minor & Otis in obtaining PLR 200537044, approving the IRA Inheritance Trust®, the use of a standalone trust as beneficiary of IRA assets for the purpose of ensuring the stretchout of RMDs and providing added protection of IRA assets.  For more information about the IRA Inheritance Trust®, click here.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Thanks to generosity of Robert Keebler, CPA, MST, AEP (Distinguished) of Keebler & Associates, LLP, AICPA and Leimberg Information Services, we are pleased to provide to you two free podcasts to download on the subject of President Obama's 2014 Proposed Budget.

Obama's proposed budget will have a negative impact on the following planning:

1. The estate tax rate would increase to 45% from today’s 40% rate.
2. The gift tax exemption would be reduced to $1,000,000
3. The estate tax and GST exemptions would be reduced to $3,500,000
4. The GST period would be limited to 90 years from today’s unlimited period
   1. Current dynasty trust transactions would be grandfathered
5. The IDGT trust transactions will be eliminated on a prospective basis
   1. Current dynasty trust transactions would be grandfathered
   2. Additional sales would not be protected
6. The GRAT transaction will be eliminated on a prospective basis
   1. Ten year rule
   2. No zeroing out GRATs
7. A Buffet rule would impact income greater than $1,000,000
8. Itemized deductions would be reduced to a credit for those with income greater than $250,000
9. Carried Interests capital gain treatment would be eliminated
10. A special provision would eliminate the ability to retain more than approximately $3,400,000 in an IRA or pension plan.

The 90-year GST rule may require some thought and attention.  Recall that for pre-1986 GST trusts any contribution after the effective date eliminates grandfather status.  It may be prudent  to sever/decant/reform insurance and other trusts before the end of 2013 if this provision becomes law.

AICPA Podcast
"Robert Keebler on President Obama's 2014 Proposed Budget"
DOWNLOAD

LISI's 60-Second Planner Podcast
"Key Elements of the President's 2014 Budget"
DOWNLOAD

The podcasts above are the copyrighted materials of Robert S. Keebler, CPA, MST, AEP (Distinguished), AICPA and Leimberg Information Services, Inc. These are provided to you as a courtesy from the permission granted to The Ultimate Estate Planner, Inc.  Reproduction in any form or forwarding to any person prohibited without the express permission of AICPA and Leimberg Information Services, Inc.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

The Ultimate Estate Planner, Inc. is pleased to share with you a copy the article, "Tax Planning for the New 3.8-Percent Medicare Tax" by Robert S. Keebler, CPA, MST, AEP (Distinguished) found in the Family Tax Planning Forum that appeared in TAXES - The Tax Magazine®'s October 2012 edition.  The Health Care and Education Reconciliation Act of 2010 created a 3.8% tax, referred to as an Unearned Income Medicare Contribution Tax (UIMCT), on certain passive investment income of individuals, trusts and estates scheduled to begin in 2013. The attached article provides an overview of the new tax, explains how it is calculated and offers some planning strategies to reduce or eliminate exposure to this new tax.  Click here to read the full article.

This article is reprinted and redistributed with the publisher's permission from TAXES - The Tax Magazine®, a journal published by CCH, a Wolters Kluwer business. Copying or distribution of this article without the publisher's permission is prohibited. To subscribe to TAXES - The Tax Magazine® or other CCH Journals please call 800-449-8114 or visit cchgroup.com.

RELATED DOWNLOADS & ON-DEMAND PROGRAMS:

On-Demand 60-Minute Educational Programs The 3.8% Health Care Surtax and Its Impact on Trusts and Estates The 3.8% Health Care Surtax and Its Impact on Individuals
Understanding the 3.8% Health Care Surtax Chart
3.8% Surtax Checklist for Trust & Estates

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

November 6, 2012 may prove to be one of the most important election days in U.S. history, at least from a tax perspective. Regardless of who wins the Presidency and who controls the Senate and House, we are likely to see the first major changes to the U.S. Tax Code in over ten years.

Accordingly, there is no better time than immediately after the election to advise your clients and prospects on what important steps to take before the tax law changes in 2013.

That's why we're bringing together on November 7th - - the day after the election - - two of the sharpest minds in income and estate tax planning - - Robert S. Keebler, CPA, MST, AEP (Distinguished) and Martin M. Shenkman, J.D., CPA, MBA - - to evaluate the likely impact of the election on current and future tax laws and identify exactly what you should immediately advise your clients and prospects to do.

On this timely 90-minute teleconference, Bob and Marty will specifically address with you the following:

• Likely changes to the current Income Tax Laws:
  • Ordinary income tax rates
  • Capital gains tax rates
  • The tax benefit of certain deductions
  • The impact of the Alternative Minimum Tax (AMT)

• Likely changes to the current Estate & Gift Tax Laws:
  • The estate and gift tax exemption
  • The generation-skipping transfer (GST) tax exemption
  • The estate, gift and GST rate
  • Portability of the estate tax exemption
  • Valuation discounts
  • Restrictions to multi-generational dynasty trusts
  • Other restrictions to intra-family transfers

• Income Tax Actions to take before year-end:
  • Analyzing when to take deductions and losses
  • When to take income and harvest capital gains
  • Roth IRA conversions
  • Income shifting to junior generations

• Estate Planning Actions to take before year-end:
  • Annual exclusion gifts
  • Lifetime gift exemption gifts
  • Taxable gifts
  • Grantor Retained Annuity Trusts (GRATs)
  • Dynasty Trusts
  • Installment Sales to Dynasty Trusts
  • Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)
  • Spousal Lifetime Access Trusts (SLATs)
  • Front-end loading Irrevocable Life Insurance Trusts (ILITs)
  • Forgiving intra-family installment notes

• And much, much more!

Whether you're a CPA, financial advisor, life insurance agent or estate planning attorney, you should be among the first estate planning professionals "in the know".

Join us on Wednesday, November 7th at 9am Pacific Time (12pm Eastern Time) for this very special 90-minute teleconference entitled, "November 7, 2012: The Day After - - A Tax Planning Guide to Surviving 2012, 2013 & Beyond".

Your registration includes: Participation on the teleconference (including a live Q&A session) that comes with handout materials, an audio recording of the teleconference and a Certificate of Completion.  You get all this for everyone in your office for one low price of just $149.

For more information and to register...

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  If you are interested in a personal consultation for your office regarding how to make your office more efficient and how to improve the productivity of your attorneys, staff and advisors, contact us today at 1-866-754-6477 to find out how you can receive a free 30 minutes consultation.  Connect with us on Facebook, Twitter or LinkedIn.

At The Ultimate Estate Planner, Inc. it's important to us to keep our customers and the rest of the estate planning community informed about very important and exciting updates as it happens.  A special thank you to Michelle Ward and Robert Keebler for this wonderful article featured on WealthManagement.com.

Roth IRA Conversion Recharacterization Permitted by Michelle L. Ward
Taxpayer relied on financial advisor’s advice

In Private Letter Ruling 201235030 (June 6, 2012), received by Keebler & Associates, the Internal Revenue Service granted the taxpayer an extension to recharacterize his 2009 Roth individual retirement account conversions.

Facts
In 2009, the taxpayer read articles and heard discussions describing the end of the $100,000 income limitation (which actually occurred in 2010) for converting to a Roth IRA and highlighting the benefits of performing such a conversion.  He came under the mistaken impression that the income limitation was eliminated in 2009, rather than in 2010.  Because the articles, generally, indicated that it was a good time to perform a conversion, due to the decline in the stock market, he decided to go forward with performing the Roth IRA conversions.

Also in 2009, before he performed the Roth conversions, the taxpayer consulted with his financial advisor, who was also his uncle, and discussed that he was considering performing a Roth IRA conversion.  The financial advisor submitted an affidavit along with the PLR request, in which he represented that he has been advising the taxpayer and the taxpayer’s wife since 1998, that in 2009 the taxpayer discussed with him the idea of a Roth conversion, that he never informed the taxpayer the $100,000 limitation still applied in 2009, that his failure to inform the taxpayer was an oversight on his part and that the taxpayer relied on the financial advisor to inform them if a Roth conversion was either inadvisable or not allowable.

The taxpayer prepares his and his wife’s tax return annually without the assistance of a paid preparer.  In 2009, he used software to prepare their income tax return, but due to a keystroke or entry error when completing the 2009 Form 1040, the Roth IRA conversion amounts he placed on line 15a didn’t carry over to line 15b.  He didn’t realize this error had occurred when he filed their tax return.  Because of this error, the taxpayer and his wife received an IRS Notice of Deficiency, increasing their income by the amount of the conversion.  Upon receipt of this Notice, the taxpayer contacted an attorney for assistance, and it was during these conversations with that the taxpayer first discovered that he had been ineligible to make the 2009 Roth conversions, because his 2009 income exceeded $100,000.

IRS Ruling
For tax years beginning before 2010, a taxpayer is eligible to rollover funds from a traditional IRA to a Roth IRA provided that his: (1) adjusted gross income (AGI) was no more than $100,000, and (2) filing status wasn’t “married filing separately”.

To the extent that a taxpayer converted his traditional IRA to a Roth IRA and later found out that his AGI exceeded $100,000, the taxpayer could elect to recharacterize (that is, undo) the conversion.  However, the recharacterization must have been completed on or before the due date of the federal income tax return (including extensions) for the year of conversion (that is, no later than October 15th would be constrained to the original conversion amount.

Notwithstanding the Oct. 15th deadline, under Treasury Regulations Section 301.9100-1(c), the IRS may grant a reasonable extension of time fixed by regulation, a revenue ruling, a revenue procedure, a notice or an announcement for making an election, which includes a Roth IRA recharacterization.

Treas. Regs. Section 301.9100-3 provides that applications for relief will be granted when the taxpayer provides sufficient evidence to establish that: (1) the taxpayer acted reasonably and in good faith; and (2) granting relief wouldn’t prejudice the interests of the government.  The regulations provide that a taxpayer will be deemed to have acted reasonably and in good faith if, among other factors, the taxpayer reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make, the election.

In this case, the IRS found that the information presented and documentation submitted by the taxpayer was consistent with his assertion that his failure to elect to recharacterize the Roth IRA on or before the due date was caused by his lack of awareness of the necessity of making an election, as a result of his reliance on his financial advisor.

Lessons Learned
Although one should never depend upon Treas. Regs. Section 301.9100-3 relief, this PLR provides some insight as to when such relief can be granted.  It’s also a good reminder of the power of the recharacterization provisions.  Although, in this instance, the recharacterization provisions applied when the taxpayer's modified AGI exceeded $100,000, there’s nothing to prevent a recharacterization if the Roth IRA falls in value after the conversion or if the taxpayer's financial circumstances change significantly. 

The primary benefit of recharacterizations is that the taxpayer can assess the post-conversion returns and determine if the conversion was worthwhile in the first place.  For example, let’s assume a taxpayer converts $100,000 to a Roth IRA in 2012.  Now let’s assume that the value of the Roth IRA is $80,000 in March 2013.  In this case, the taxpayer would simply recharacterize the conversion by moving the entire $80,000 Roth IRA back to a traditional IRA on or before the time he files his 2012 individual income tax return.  The effect of the recharacterization is that the taxpayer won’t be taxed on any of the $100,000 original conversion, because he recharacterized the entire amount back to a traditional IRA.

The 2012 tax year is the perfect time to take advantage of converting to a Roth IRA before income tax rates go up in 2013.  In many cases, taxpayers can easily achieve a “heads I win, tails I tie” situation, especially those who have sufficient wherewithal outside of their IRAs to pay the income tax liability on a Roth IRA conversion.  In most cases, all post-conversion income and growth can be sheltered from future income tax, while any post-conversion losses can be made less painful by recharacterizing the prior conversion.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  If you are interested in a personal consultation for your office regarding how to make your office more efficient and how to improve the productivity of your attorneys, staff and advisors, contact us today at 1-866-754-6477 to find out how you can receive a free 30 minutes consultation.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: under30ceo.com
Source: WealthManagement.com

Join us next Thursday, September 6th for a special 60-minute teleconference with nationally renowned CPA, Robert S. Keebler, on the topic of Portability and the New Form 706.  For more information and to register, click here.

Last Friday, the Internal Revenue Service released a draft of the new Form 706.  For the first time, the form addresses the issue of portability of a deceased spouse's unused estate and gift tax exclusion amount by providing an option for the executor to opt out of electing portability of the unused portion.

Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, a surviving spouse can increase his or her applicable exclusion amount by the amount of the unused exclusion amount of the deceased spouse, provided that the deceased spouse died after 2010. This provision is currently scheduled to expire after on December 31st of this year.  This election is made by the executor of the deceased spouse’s estate. Form 706 must be filed to make the election, and even estates that would not otherwise be required to file Form 706 must file in order to make the election.
 
Because filing Form 706, by default, causes the election to be made, the draft Form 706 provides a mechanism for estates that are required to file because the value of the gross estate exceeds the applicable exclusion amount or for another reason to opt out of the election.

Again, we will be covering the new Portability Rules and this new Form 706 on our teleconference next Thursday, so be sure to register right away!

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  If you are interested in a personal consultation for your office regarding how to make your office more efficient and how to improve the productivity of your attorneys, staff and advisors, contact us today at 1-866-754-6477 to find out how you can receive a free 30 minutes consultation.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: blog.aicpa.org
Source: Journal of Accountancy

The Supreme Court’s decision upholding the Affordable Care Act confirmed that taxpayers whose income exceeds a threshold amount will be subject to a 3.8% Medicare surtax on net investment income, effectively raising their marginal income tax rate. However, whether the Bush era tax cuts will be extended and, if so, for whom, remains an open question. In light of this uncertainty, CPAs may want to start planning for possible 2013 tax increases now, particularly for clients who will benefit from transferring assets to family members, decisions that can take time to make. Download a free Medicare surtax chart from Robert Keebler, CPA, and listen to his recent podcast on how to plan for the Medicare surtax below.

Robert S. Keebler, CPA, MST, DEP, Partner, Keebler & Associates, LLP. Bob is a 2007 recipient of the prestigious Distinguished Estate Planners award from the National Association of Estate Planning counsels. From 2003 to 2006, Bob was named by CPA Magazine as one of the top 100 most influential practitioners in the United States. He is the past Editor-in-Chief of CCH's magazine, Journal of Retirement Planning and a member of CCH's Financial and Estate Planning Advisory Board. His practice includes family wealth transfer and preservation planning, charitable giving, retirement distribution planning, and estate administration.  

This audio webcast was originally recorded June 29, 2012.

Transcript:

On behalf of the PFP Division of the AICPA, this is Bob Keebler, bringing you planning strategies in the wake of the Supreme Court's decision on health care.

Earlier today the Supreme Court ruled that the health care bill was constitutional.  This holding means that beginning January 1st, 2013, a Medicare payroll tax of 0.9% will be imposed on individuals with income exceeding $200,000 and married couples with income exceeding $250,000.  Also beginning in January is a 3.8% surtax which applies to the lesser of net investment income or the amount by which AGI exceeds $200,000 for individuals and $250,000 for married couples.  To reiterate, the surtax applies to all investment income if the taxpayer's AGI is above the threshold.

The mandate or penalty is scheduled to take effect January 1st, 2014.  It will impose an additional tax on those who cannot secure insurance.  Beginning in 2014, the annual penalty will be $95 or 1% of income, whichever is greater.  This will eventually rise to $695 or 2.5% of income by 2016.  Families will have a maximum flat penalty of $2,085, but will still owe 2.5% of income if that is greater.

In 2012, all W-2s will include the value of health insurance provided to employees.  Effective in 2011, the penalty on non-qualified distributions from HSAs will be doubled to 20%.  For 2013, the itemized deduction floor on medical expenses will increase to 10% of AGI.  Beginning in 2018, the Cadillac tax will be implemented.  This will be a 40% excise tax on the portion of health care plans that exceed $10,200 for individuals or $27,500 for families.

Beginning in 2014, a refundable health tax credit will be available to help individuals with low income to purchase coverage.  Also beginning in 2014, a nondeductible fee of $2,000 per employee will be imposed on business which do not provide adequate coverage.  The first 50 employees are not counted under this threshold.

Also, recognizing there's a lot to learn, Speaker of the House John Boehner has promised to repeal what's left of Obamacare so that all these new rules we're learning will never be implemented.

Perhaps the most important part of the Court's decision is that the 3.8% Medicare surtax will stand.  This means beginning on January 1st, 2013, a new 3.8% Medicare surtax will apply to all taxpayers whose income exceeds a threshold amount.  This new surtax will, in essence, raise the marginal income tax rate for affected taxpayers.  For example, beginning in 2013, a person in the 39.6% bracket -- i.e., the highest marginal tax rate that could be in effect in 2013 -- would increase to 43.4%.  So what we're looking at basically across the board is an increase on investment income of 3.8%.

Now, there's a little bit of a calculation that goes into this.  The new Medicare surtax is equal to 3.8% times the lesser of the following: net investment income or the excess of modified adjusted gross income for such a taxable year over a threshold amount.  Now, let's talk about what those threshold amounts are.  Threshold amount is going to be $250,000 for married couples and $200,000 for individuals.  But for estates and trusts, the threshold amount will be right around $12,000.  So for estates and trusts, immediate steps are needed to plan for this.

So the new Medicare surtax is equal to 3.8% times the lesser of, in the context of an estate or trust, undistributed net investment income for such taxable year or the excess of adjusted gross income for such taxable year over the dollar amount of which the highest bracket begins.  So basically, once you hit $12,000 of income in a trust, give or take a little bit there, you're going to be subject to a 3.8% surtax.  So especially for trusts that are accumulating prince -- principal and income, and they're not making distributions, those trusts are going to be hit with the 3.8% surtax.

One very critical thing for most of us to pay attention to is the year-end we choose for individuals that died in 2011 or 2012.  By selecting the right year end we may be able to stretch out the rule so that the 3.8% surtax doesn't apply until December 1st, 2013.  You would do that by picking a November 30th, 2012, year end, and then the next year starts on January 1st, 2012, and this tax only applies to years that begin on or after January 1st, 2013.  So we can stretch that out a little bit.

Now, there's three critical terms we need to understand when we're working with the 3.8% Medicare surtax: net investment income, the threshold amount and modified adjusted gross income.  So those are the keys.  Now, net investment income is defined as interest, dividends, annuities, rents, royalties, income derived from a passive activity and net capital gains.  It doesn't include wages.  It doesn't include distributions from IRAs and qualified plans.  It doesn't include self-employment income or the gain on an active sale of a trade or business.  There'll be a lot more to learn, but this is a quick overview.

Now, I want to come back to these threshold amounts.  Basically, in 2013, the threshold amount for single taxpayers will be $200,000, married 250, estates and trusts $11,650.  The key is modified adjusted gross income.  Basically, the front page of the return is going to give us our modified adjusted gross income.  Modified adjusted gross income means adjusted gross income, basically line 37 plus that foreign earned income that's been excluded from income, and that's going to be our adjustment.

Okay, now, there's a number of examples.  I've provided to everyone a chart which is called Understanding the Health Care Surtax.  From the front, we go through the law, but on the back we have 23 separate examples to help you get your arms around how this works.  I would encourage all of you to study that chart.  It's a quick read.  Within an hour, I think you'll have a real good feel for how this is going to apply in your practice.  Let me give you a couple of quick examples, just so you can start to think like this.

John, a single taxpayer, has $100,000 of salary and $50,000 of net investment income for the year.  A 3.8% surtax would not apply, because his modified adjusted gross income is less than $200,000.  Now, Linda, a single taxpayer, has $225,000 of net investment income, no other sources of income.  The 3.8% surtax will only apply to $25,000, so $200,000 of threshold, $225,000 of net investment income minus the $200,000 threshold means that $25,000 will be exposed to the 3.8% tax.

Terry and Tina, married filing jointly, have $300,000 of salaries and absolutely no investment income.  The 3.8% surtax will not apply to them because they have no investment income.  Now, same case, except Peter and Paula have $400,000 of salaries and $50,000 of net investment income.  They're going to pay the 3.8% surtax on $50,000.  So basically, because they're over the threshold amount, they have to pay the 3.8% surtax on their investment income.

So this is going to affect a lot of taxpayers.  It's also going to affect many estates and trusts, okay?  So that's something we have to understand.  Now, the strategies planning around the surtax, municipal bonds, tax-deferred annuities for people that are still working, life insurance, rental real estate, where you have depreciation.  Life insurance is going to work because life insurance is tax-free when you die, obviously.  Very effective for bypass trusts.  Life insurance also works because I can borrow my principal and not have to pay tax.  Oil and gas investments will continue to work because of the large IDC deductions you receive up front and because you have depletion allowances along the way.  Basically, it's our tried and true tax shelters that are going to continue to work.

But we also want to focus on the choice of accounting years for estates and trusts, and very much we're going to be focused on the timing of estate and trust distributions and how that will play into the surtax.  So when you work through this, there is a lot to know.  And basically we're all -- every time a client asks you a question on a going-forward basis, you're going to have to measure that question not only from an income tax perspective, but looking at the AMT results, and then finally looking at what's going to happen under this new surtax.  So again, a lot to cover.  And let's jump back in, though, and let's look at some strategies.

Okay, so one of my biggest strategies is going to be life insurance.  Another big strategy will be what we call the leapfrog annuity.  Using annuities to shelter income -- say, for a surgeon that's 55 years old, he's still working, but he has a lot of conservative investments, he might use an annuity to leapfrog until he retires.  Transfer that income out over his wages so that all that ex-passive income subject to a surtax does not hit his tax return until he's fully retired and no longer has those wages.

When we're planning around to reduce modified adjusted gross income, not just investment income.  Our Roth conversions will continue to be very popular.  Charitable remainder trusts will -- there will be a renaissance in charitable remainder trusts as people sell positions and securities because they're not going to want to sell all in one year, or they might drop it into a charitable remainder trust and then take distributions out over a 15- or 20-year period of time.

I think non-grantor charitable remainder trusts will also have some efficacy, and installment sales will come back more than we've seen in the past, because instead of selling a building, an apartment building in one year and having a $2 million gain, I might spread that gain out over ten or 15 years through an installment note.

One of the things on the Roth IRA we have to consider is Roth IRAs will probably be looked at as a way around the surtax, because they will reduce modified adjusted gross income.  So they're going to put a dent in modified adjusted gross income.  I think there's a lot to cover here, but we really want to take a look at how Roth IRAs play into your wealthier clients that are going to have major-league surtax problems.

Okay, now again, charitable remainder trusts, why would we do that?  We would to the charitable remainder trusts because we will avoid recognizing the income of one year, but maybe spread it over a ten- or 15-year term for the whole entire charitable remainder trust.  When you run the math, typically it's hard to make a charitable remainder trust work without a charitable intention.  This may bring that much closer together as a decision.  When you're designing your charitable trusts, remember, you can do these annuity trusts or charitable remainder unit trusts.

So there's truly a lot to cover, okay?  There's truly a lot to cover.  I think we're just starting here, and I'm hoping that my chart will help all of you get your arms around this.  Talk to your clients about this.  You -- We are at a tremendous place in our history, where really in the next six months you can probably make more impact than you ever could in your career.

On behalf of the PFP Division of the AICPA, this has been Bob Keebler, and thank you for joining us.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  If you are interested in a personal consultation for your office regarding how to make your office more efficient and how to improve the productivity of your attorneys, staff and advisors, contact us today at 1-866-754-6477 to find out how you can receive a free 30 minutes consultation.  Connect with us on Facebook, Twitter or LinkedIn.

Source: Keebler & Associates, LLP, Robert S. Keebler, CPA, MST, AEP (Distinguished)

In an effort to help fellow advisors better understand the 3.8% HealthCare Surtax, nationally renowned CPA, Robert S. Keebler, has issued the examples below to help you. 

• John, single, has $100,000 of salary and $50,000 of net investment income.
  • The 3.8% surtax would not apply (MAGI <$200,000).
• Mary, single has $225,000 of net investment income and no other income.
  • The 3.8% surtax would apply to $25,000 of income (excess of $225,000 MAGI over $200,000 “threshold amount”).
• Terry and Tina, married filing jointly, have $300,000 of salaries and no other income.
  • The 3.8% surtax would not apply (no net investment income).
• Peter and Paula, married filing jointly, have $400,000 of salaries and $50,000 of net investment income.
  • The 3.8% surtax would apply to $50,000 of net investment income (lesser of rule).
• Scott and Sarah, married filing jointly, have $200,000 of salaries and $150,000 of net investment income.
  • The 3.8% surtax would apply to $100,000 of income (lesser of rule excess of $350,000 MAGI over $250,000 “threshold amount”).
• Randy, a single taxpayer, age 69, has investment income of $200,000 and is not subject to the surtax. In the following year, Randy has an RMD from his IRA of $125,000.  In this case, $325,000 of MAGI exceeds the $200,000 threshold and $125,000 is subject to the 3.8% surtax.                
• The John Smith Trust has investment income of $51,000 and no distributions.
  • $39,800 of income ($51,000 - $11,200 top bracket amount) will be subject to the 3.8% surtax.
• David and Veronica, age 75, have pension and IRA income of $750,000, $25,000 of tax-exempt income and no taxable investment income.  The 3.8% surtax does not apply regardless of income because they have no net investment income. 
  • A Roth conversion will be surtax neutral. 
• Jill, age 60, has wages and pensions of $200,000 and 2012 interest income from CDs of $300,000. She moves half of her investments into an annuity and purchases a life insurance policy with the remaining CDs.
  • In 2013 all of her interest is sheltered in either the annuity or the life insurance policy and she is not subject to the 3.8% surtax.
• Eliot, a widower, earns wages of $175,000 and owns an interest in a publicly traded real estate partnership which generates taxable income of $50,000.
  • $25,000 (excess of $225,000 MAGI over $200,000 “threshold amount”) will be subject to 3.8% surtax.
• Larry, a widower, earns wages of $175,000 and owns an interest in a closely-held real estate partnership which generates taxable income of $75,000.
  • His MAGI is $250,000 and $50,000 will be subject to the surtax (lesser of rule).
• Bruno, a single person, earns wages of $200,000 and receives royalties of $60,000 from an oil and gas limited partnership. 
  • $60,000 will be subject to the surtax (excess of $260,000 MAGI over $200,000 “threshold amount”).
• Mary and David earn wages of $260,000 and receive a trust distribution of $90,000 (100% dividends).
  • $90,000 (net investment income) will be subject to the 3.8% surtax.
• The estate of Jane Smith earned $111,200 of dividends and made no distributions. 
  • Assuming a threshold exemption of $11,200, $100,000 will be subject to the 3.8% surtax.
• The estate of Jane Smith earned $111,200 of interest and made a distribution of 100% of income.   
  • The income will be reported by the heirs and the estate will not be subject to the 3.8% surtax.
• Bob and Bonnie have interest income of $248,000 and no other income.  They convert Bob’s $300,000 IRA to a Roth IRA which increases AGI to $548,000.
  • Under the lesser of rule, $248,000 will be subject to the 3.8% surtax; this is the lesser of $298,000 of excess MAGI ($548,000 -$250,000) or $248,000 of investment income.
• In 2011, Randy converts a $1,000,000 IRA to a Roth IRA incurring $450,000 of state and federal income tax.   Randy pays the income taxes from his outside/taxable investment funds.  
  • Future investment income from the outside funds will no longer exist and avoid the 3.8% surtax.  
• Daniel and Donna have wages of $250,000 and investment income of $45,000.  Their employer creates a new deferred compensation plan allowing a contribution of up to 20% of income (i.e. $50,000).
• Gary and Barb, age 69, have pension income of $130,000 and investment income of $115,000 for a total MAGI of $245,000, just below the threshold amount.  In 2013, their Roth IRA withdrawal will be $50,000. 
  • No 3.8% surtax will apply because the $50,000 Roth IRA distribution does not count towards MAGI.
• Thor and Kristen, age 69, have pension income of $100,000 and net investment income of $75,000 for a total MAGI of $175,000, well below the $250,000 threshold amount. 
  • In 2013, their RMDs will be $50,000 bringing MAGI to $225,000, which is still below the threshold amount.
• Art and Patricia, age 69, have pension income of $130,000 and net investment income of $115,000 for a total MAGI of $245,000, just below the threshold amount.  In 2013, their RMDs from their IRAs will be $50,000, which brings their MAGI to $295,000. 
  • MAGI is $45,000 above the threshold amount ($295,000 less $250,000). 
  • The surtax will be imposed on the lesser of $45,000 or their net investment income of $115,000. (i.e., $45,000). 
  • A 2011 or 2012 Roth conversion would eliminate the RMDs and the surtax would not apply.  
• Same facts, except they convert in 2013 and the pension is $30,000.  The conversion would be added to MAGI of $195,000 and their entire net investment income of $115,000 will be subject to the surtax.
• Brian and Betty, age 69, have annual pension income of $260,000 and net investment income of $115,000 for a total gross income and MAGI of $375,000.   In 2013, their RMDs from IRAs will be $50,000 bringing MAGI to $425,000. 
  • Because their “fixed” non-investment income of $260,000 (e.g. pensions) is over the $250,000 threshold amount, their surtax reduction planning must focus on reducing net investment income, not on reducing MAGI. 
  • A Roth conversion will be surtax neutral; however, such a conversion may still be beneficial.

In particular, the application of the 3.8% surtax to estate and trusts needs your immediate attention.  The problem with trusts and estates is that the 3.8% surtax will apply to income in excess of approximately $12,000.

The key issues are:

• Timing of distributions to reduce the impact of the surtax
• The choice of year end to avoid the surtax for the first 11 months of 2013.
• Ensuring that trusts are funded in 2012 to avoid gains upon funding
• Making a proper and timely Section 645 election
• Reviewing the proper investments during the estate/trust administration.

You can also download Bob's updated 3.8% HealthCare Surtax Chart on our Free Resources Page.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  If you are interested in a personal consultation for your office regarding how to make your office more efficient and how to improve the productivity of your attorneys, staff and advisors, contact us today at 1-866-754-6477 to find out how you can receive a free 30 minutes consultation.  Connect with us on Facebook, Twitter or LinkedIn.

Source: Keebler & Associates, LLP, Robert S. Keebler, CPA, MST, AEP (Distinguished)

The Ultimate Estate Planner, Inc. is pleased to share with you a copy the article, "The Mathematics of Harvesting Losses and Gains" by Robert S. Keebler, CPA, MST, AEP (Distinguished) found in the Family Tax Planning Forum that appeared in TAXES - The Tax Magazine®'s April 2012 edition.  This article presents a model for deciding when it makes sense to harvest losses and explore its planning implications and quantify the power of gain harvesting in 2012. Click here to read the full article.

This article is reprinted and redistributed with the publisher's permission from TAXES - The Tax Magazine®, a journal published by CCH, a Wolters Kluwer business. Copying or distribution of this article without the publisher's permission is prohibited. To subscribe to TAXES - The Tax Magazine® or other CCH Journals please call 800-449-8114 or visit cchgroup.com.

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Reposted from Financial Advisor Magazine | By Eric L. Reiner | May 2012

The financial crisis has been blamed for a lot of things. Setting in motion the events that launched a topflight planning boutique isn’t usually one of them.

The Ponzi schemes exposed by the crisis affected clients at the firm CPA Robert S. Keebler was with at the time. As he delved into the tax issues surrounding clients’ losses, Keebler, a nationally known speaker and writer based in Green Bay, Wis., came to a realization. Few, if any, noted experts existed in the obscure world of theft-loss deductions. So he set out to become one.

“I just knew someone had to step up and figure it out,” Keebler says. He invested time in learning the ins and outs of this little-used itemized deduction, then produced seminars and articles on the subject for practitioners.

Keebler is perhaps best known for his work in retirement plans and advanced estate planning, as well as for making private letter ruling requests from the Internal Revenue Service. Certainly he handles plenty of other matters as well, but foraying into the deep recesses of theft losses turned out to be a confidence builder and springboard. “Once we did that, we weren’t afraid to do other things,” he says.

Given such conviction, plus a little career coaching and encouragement from industry icons Sid Kess and Steve Leimberg, he made the inevitable move. In late 2010, Keebler left Top 20 accounting firm Baker Tilly Virchow Krause, where he had been a partner for years, to found Keebler & Associates with key members of his long-standing team. Guess what?

“The phone continues to ring,” says Keebler, 51. Frankly, the 18-month-old firm is doing fine, thank you very much.

In addition to serving the firm’s clients’ needs, “we do a lot of work for financial advisors, CPAs and law firms,” says Keebler, who remains down-to-earth and approachable despite his professional stature. “Most of our referral work comes from people who have heard me speak.” But then that’s always been Keebler’s rainmaking methodology.

How To Find Work In Green Bay And Beyond
“When I came up to Green Bay from Milwaukee in 1990, the only way to bring in work was to go out and teach local professionals like the Green Bay Estate Planning Council. You hoped if you spoke to enough people and showed them you had expertise that they would send you work,” he says. And they did.

As a speaker, “Bob is exceptionally good at breaking down high-level planning so that everybody in the room can understand and apply the ideas in their practice,” says Las Vegas attorney Steve Oshins, a prominent asset protection and estate planning expert with whom Keebler recently conducted a full-day seminar for a national accounting firm.

Keebler claims he was “driven to teach” once he discovered he was good at it, and that propelled him to the next level. Workshops for large insurance and financial-services companies, along with seminars for financial advisors, accountants and attorneys, take Keebler coast to coast these days. He also expands his reach with technology—through podcasts, webinars and teleconferences accessible through www.keeblerandassociates.com. The result is a clientele more national than local.

Skill Set
Like his teaching, Keebler’s writing for CCH, Leimberg Information Services and the American Institute of Certified Public Accountants emphasizes clarity and usefulness.

“Bob is able to get ahead of the curve in how to use estate planning tools and techniques and explain what they look like when they are modeled. He is a visionary,” says one of his editors and mentors, estate planning legend Steve Leimberg, namesake and CEO of the tax news and analysis service.

Keebler also holds awards such as the “Distinguished Accredited Estate Planner” designation (there are only 66 such individuals), which bears further testament to his technical prowess. But that alone does not a firm build. The truth is, Keebler is a pretty sharp cookie when it comes to marketing, too.

Staying on the cutting edge is vital to his teaching and writing brand. “So we move very quickly,” Keebler says. For instance, when the IRS recently announced an extension of the deadline for certain estates to elect the spousal portability of the estate-tax exemption, within hours Keebler & Associates blasted an e-mail to practitioners spotlighting the affected clients and steps advisors should take.

“We try to be the first people on the block with the news and how it’s going to apply,” says one of Keebler’s three partners, Stephen J. Bigge.

Inside The Engine Room
Each morning at the firm, another partner, estate-planning attorney Michelle Ward, begins her day with a visit to the Web sites of the IRS and a variety of subscription services. Her purpose is singular: to sift through the myriad news alerts and find the nuggets. “I’ll check to see whether anything relevant to our clients has come out and, if so, I’ll post it to our Twitter account and Facebook, and then pass it on to Bob,” says Ward, who has worked with Keebler since he hired her into the tax profession in 2000.

When Keebler deems a topic worthy of dissemination, he then turns to one of his partners. “We’ll figure out how the pronouncement applies to our client base and do a brief write-up on the rule,” explains Bigge, who Keebler hired right out of school from their shared alma mater, Lakeland College in Sheboygan, Wis., in 2001.

Backed By A Power Trio Of Experts
Keebler is the front man, enabled by his three partners’ strong, complementary backgrounds. Ward, an attorney with a master’s in law (LLM), tends to handle the research for private letter ruling requests while Bigge, a CPA, crunches the numbers for Roth conversions, sales to intentionally defective grantor trusts and other strategies clients are mulling.

The other principal, Peter J. Melcher, holds an LLM in tax plus an MBA from the University of Chicago. “Pete does the heavy tax research for white papers and opinion letters,” Bigge says. An executive assistant, Emily Rosenberg, rounds out the five-person operation.

Many accounting firms thrive on audits and tax-return preparation—dubbed “annuity work” by the CPA profession because of these services’ recurring nature—but that’s not the case at Keebler & Associates. There is no audit practice, and preparing returns accounts for only about 10% of total revenues. “Most of our revenues come from either Bob’s speeches or new tax-planning work from existing clients or referrals,” reports Bigge, who doubles as the firm’s chief financial officer.

An Eye On The Future
Despite the shop’s solid performance since inception, Bigge contemplates the future like a good CFO should. “The challenge is continuing to bring in work,” he says. “A lot of times we get called in as a specialist, and once we have resolved the client’s issue or helped him put a plan in place, he moves on and we have to look for our next planning client.”

A potential damper on the firm’s unique private letter ruling business is a recent hike in the fee the IRS charges for some ruling requests. That will make the requests feasible for fewer taxpayers, according to Ward.

In the firm’s estate planning business, a big question mark is what will happen to the federal estate tax exemption. Under current law, it will revert to $1 million per person at the end of the year. That would expand opportunities for estate planners. But if the exemption were maintained at its current $5 million, it would continue to constrain the market. In that case, says Bigge, “we’ll focus more on tax-sensitive retirement planning. That’s really at the intersection of finance and tax, where no one else wants to play.”

Developing drawdown strategies for retirees is one area Keebler has been putting time into lately. “If the client has Roth money, pretax money in an individual retirement account and after-tax money in a personal account, what does he spend first and how does he take it out in the most tax-efficient way? That’s where the action is,” Keebler says, adding, “Everyone is going to need a financial planner because this is so complex.”

Planners, for their part, will need to know more about taxes. “With the compression in tax season—because 1099s are going out later and later—having a 1040 prepared at a CPA firm is becoming more expensive” as accountants attempt to make a full year’s living in a shorter period, Keebler says. “The result is non-CPAs are preparing more income tax returns, and because of the seasonal nature of their businesses, often they are not equipped to do tax planning. So financial planners will have an opportunity to take a larger role in income-tax planning with more middle- and upper-middle-class families,” Keebler predicts.

Plans to grow Keebler & Associates stop at the point where the partners are managing the firm instead of bringing in lucrative speaking fees or national billing rates. From that perspective, an experienced practitioner, rather than a neophyte needing training, could be a more viable addition to the firm.

But no matter where the boutique winds up, it will have taken Keebler a long way from those local speaking gigs 20-plus years ago, even if ascending to the national stage and circulating with some of the biggest names in planning-dom were not his original goals.

“I was never shooting for the stars,” Keebler says. “It just kind of happened.”

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: fa-mag.com