Coming soon to your mailbox will be a notice of assessment for all real estate you own in Michigan. These are important notices, that can have serious consequences if ignored. You need to read this letter carefully because it shows the taxable value for the upcoming year.

If anything is wrong, you can appeal with the local Board of Review in March. In some cases, if you miss the March appeal, you lose the chance to ever appeal a decision by the assessor and in other cases, you might have to wait until next year.

Property Classification

There’s a lot of information on this form and it can be very confusing. The first part of the form shows the classification of your property. Some classifications are residential, agricultural, commercial, and timber. This matters when you’re transferring property. Depending on the property’s classification or your use, there are different types of property tax exemptions available.

The second part of the form is the most important, and often the most confusing for people: this covers Taxable Value, Assessed Value, and State Equalized Value (SEV).

Taxable Value

This is the value that is used for calculating your tax. Millage multiplied by taxable value is what you pay in property taxes. This number should only go up slightly from one year to the next. If this number has gone up significantly, or if it equals your assessed value, then your property taxes were probably “uncapped”.

Uncapping is when the taxable value is set to the assessed value after a transfer of ownership of the property. You should contact your assessor immediately if your taxable value was uncapped to find out why. In most cases, if you do not appeal this to the Board of Review in March, you may be stuck with the uncapping.

Assessed Value and State Equalized Value (SEV)

These two numbers are typically the same. The Assessed Value is supposed to be 50 percent of the market value of the property – the local city or township determines the assessed value.

State Equalized Value is the assessed value with an “equalization factor” applied. The equalization factor is determined by the county and state to correct for differing assessments across the townships and cities in a county. Two times SEV is often used as a rough estimate of the value of property.

If the Assessed Value doesn’t match half the actual value of the property, you can appeal to the Board of Review in March to have this corrected. In most cases, people only appeal when the assessment is too high. 

Tax Exemptions

The next part of the assessment shows the tax exemptions that apply to the property. The most common exemption people see is the Principal Residence Exemption (PRE) for their primary home. This reduces your property tax by the amount of the local school millage, up to 18 mills.

If you should have been receiving this exemption but weren’t, you can always reapply for the exemption next year. You can only claim the PRE on one property at a time. It’s up to you to make sure that you aren’t accidentally receiving this on multiple properties. The state will usually catch up to you with an audit, even if it takes years, and you could have a significant tax bill.

It’s important to be sure to rescind the PRE if the property is no longer your primary residence. This often gets missed by children after a parent dies, and the children keep the home. This mistake is often unnoticed until they receive an audit from the state asking for years of owed taxes.

It can be possible to claim the PRE on your home even if you’re in a nursing home or assisted living if you meet certain requirements. There are other exemptions for industrial facilities, renaissance zones, farmland, disabled veterans, forest land, and for reasons of poverty, among others.

Ask Questions

Any time you have questions about your assessment, the first place to start is to ask your local assessor. They will have the ability to provide information and advice about your individual situation. You can also go to an attorney who will advise you on your rights in appealing property tax problems with the local assessor, or with the State of Michigan.

Remember, there are important deadlines that apply to property tax. Your assessment is something that you should review every year because in some cases you only have one chance to appeal a mistake.

The post Time to Double Check your Tax Assessor appeared first on Carrier Law.

While your stockings were hung by the chimney with care, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was quietly signed into law by President Trump on December 20, 2019. Congress tacked language on to the end of the annual spending bill in 2019 that forced Representatives and Senators to either vote for the law or vote for a government shutdown. In short, a distinct threat to American savers was promptly swept under the proverbial rug.

The SECURE Act is the most extensive retirement act since the Pension Protection Act of 2006.

The Act itself is the latest attempt to both plug the hole in the pension deficit and grab more taxpayer money. The Act is a jumble of exceptions and rules, so it presents a puzzling bind for the investor and estate planner.

A little history may be helpful.

Over the past 100 years, politicians have replaced personal savings, family obligations, and private charities with federally-managed transfer systems to support the elderly. Social Security and Medicare are primarily funded by taxes of young workers. Today’s Social Security system gives workers no choice or control over their financial future. Most middle-class workers have no ownership of their benefits, and Social Security benefits are not inheritable. Add to this a woeful lack of financial education and you can see why the SECURE act was easy to pass.

Anyone paying attention knows that Social Security is not sustainable and that the solvency of these programs has been a concern for awhile now. The government’s creation of the Pension Protection Act of 2006 monitoring IRA and 401k plan savings was the first attempt to control those monies via taxation to cover the growing deficit.

In 2018, the system’s trustees pegged the official Social Security “insolvency” date at 2033. Unfortunately, for those under age 51, we are now a year closer to that date than we were a year ago. Unless something changes dramatically between now and then, current law will require benefits to be slashed by 21% at that point.[i]

Consider the latest figures:

1. 1. 1. Gex X and late Boomers will swell the retirement rolls 116% by 2040, while the number of workers supporting them will grow just 22%. Lack of savings and ill-preparedness for retirement make these groups more susceptible.
      2. Without reform, the combined cost of Social Security and Medicare is expected to rise from 13.8% of taxable wages today to 24.2% by 2040. Add the projected spending on Part B of Medicare and the total projected costs of the two programs grows to 30% of wages by 2040.[ii]
      3. There is a four trillion dollar federal pension deficit to contend with [iii], and the government will not be able to pay these future benefits with current levels of taxation. Fourteen years after the Pension Protection Act, the federal government could, in principle, confiscate up to of ⅓ your IRA portfolio at the time of your death via the SECURE Act.

What changes with the SECURE Act?

1. 1. 1. Eliminates the age limit for making traditional IRA contributions.
      2. Increases the RMD age from age 70 ½ to age 72 for all retirement accounts subject to Required Minimum Distributions (RMDs).
      3. Allows penalty-free withdrawals for birth or adoption, but the distribution is still taxable.
      4. Eliminates the “Stretch IRA” by mandating inherited retirement accounts be withdrawn and taxes paid within ten years. (“Inherited retirement accounts” refers to those where the beneficiary is not a spouse, sibling, or special needs child of the original owner of the retirement account.)
      5. Encourages employer-based plans to offer annuities in their program by providing liability protection for providing annuities. The provision provides a safe harbor for employer liability protection. The employer is still required to do due diligence as a fiduciary when selecting an insurance company and the annuity option. The employer is not required to choose the lowest cost contract.
      6. Allows Taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA or Roth IRA contribution.

How to Protect Your Assets Now

The change that will affect your estate plan and your kids the most is the end of the “lifetime stretch” for inherited retirement accounts (item #4 above). Per the SECURE Act, money left in an inherited retirement account must all be drawn out within ten years. This is a major tax grab by the government, but doesn’t mean that well-made plans will no longer work.

Tools like trusts that protect retirement assets for your kids still work, but only if they are made with options and discretion that allow your kids to deal with the unknowns of the future. A trust that allows varying distributions for beneficiaries gives trustees discretion to give or take in ways that will give the most benefit, and allows for oversight by a director or protector who can make changes to the framework of the trust itself, is the safest for your children and their future.

SECURE Act in Action

Let’s consider a 70-year-old widow, who has $700,000 in IRAs that she and her deceased husband built up over a lifetime of working. It’s not a fortune, but she’s lucky because she has a decent pension combined with Social Security that cover her needs. She will have to start withdrawing from the IRAs at age 72 now, but she will only take the minimum because she doesn’t need more, and she wants to save it for her four daughters.

Because she’s planning for the long term, she’s investing it and getting an average of 8% return. If she lives to her statistically-expected age of 85, she will leave behind just under $1.2 million in tax-deferred retirement accounts to be divided between the four daughters. There are a few possible outcomes for the daughters with the $300,000 they each inherit:

Scenario 1 – a daughter may have large unpayable debts (medical bills, credit debt, etc). If there is no trust to protect her, this inheritance will be choked by debts and garnished by creditors, leaving the daughter not only with no inheritance but a crippling tax debt ($105,000 each if they are taxed at 35%).

Scenario 2 – the daughters take all their money right away, pay the tax, leaving them with just $195,000 each out of the original $300,000. They pay off some bills, buy some “must-have” items, go on a fun vacation, and after ten years the money is all gone. You might say that they never expected the inheritance anyway, so what does it matter that it’s all gone.

Scenario 3 – the daughters wants to do the smart thing. They leave the money in the IRA and don’t spend it all on things right away. They are fortunate not to have others coming after them for the money. However, they are not tax experts. After mom is gone, and without any advisers or trustees for a trust, they makes some bad decisions about when to take out money, or don’t plan for the taxes well. After ten years they still ends up with some money, but much less than they could have had.

Scenario 4 – the daughters have a trust in place that protects them from the risks of the world. They have an adviser in place assigned by mom in the trust to ensure that they get the most benefit out of their inheritance. They may receive equal payments over ten years so that over those ten years each has received almost $470,000 from the original $300,000. They may leave it all in the trust for the maximum ten years, each withdrawing almost $650,000 in the tenth year, or they may receive more some years, and less or none other years, depending on their income and tax situation. Thanks to mom’s plan that includes an adviser, their inheritance has grown significantly.

The government will still come along by the tenth year to take their cut of whatever the daughters inherit. But with the right plan and legal tools in place, they can make the most of their inheritance before that happens.

Life is about making the best of the situations we’re given, and having no plan is like burying your money in the ground. You can be sure it is there, but you can also be sure it has never achieved what it could. The SECURE Act is not a reason to give up but a reason to explore the options available. The Carrier Law team can help set your family up for success, contact us today to get started.

[i] https://www.cato.org/publications/commentary/americas-entitlement-crisis-just-keeps-growing

[ii] https://www.cato.org/research/social-securitys-financial-crisis

[iii] https://knowledge.wharton.upenn.edu/article/the-time-bomb-inside-public-pension-plans

   by Bill Bereza, Associate Attorney

The post The SECURE Act Has Left Your Savings Insecure appeared first on Carrier Law.

The House of Representatives has passed a bill that could mean changes for all Americans with the most common type of retirement plan, such as a 401(k) or Individual Retirement Account (IRA). Proposed changes to retirement reflect the realities facing many workers today.

The SECURE Act is being proposed as an improvement to the retirement system, and stands for “Setting Every Community Up for Retirement Enhancement Act of 2019”. Interestingly, most of the changes either highlight the difficulty of saving for retirement, or the challenges faced by many workers today who are facing a future with a shaky Social Security System, and insufficient retirement funds. While there are some positives, some of the changes proposed would simply make it easier for people to retire with less money and less security than before.

Access to Retirement Plans for Part-time employees

With the rise of the “gig” economy, more people are working part-time jobs. This bill would allow long-term part-time employees the opportunity to participate in retirement plans, if their employer offers one.

Disclosure of Estimated Retirement Income

Employers would be required to disclose an estimate of future retirement income on 401(k) statements. This would hopefully show employees how much more they need to save, if the assumptions used for those estimates are realistic. The assumption for the estimates will be set out by the Treasury Secretary.

Use of Retirement Savings for Student Loan Debt

With the rising costs of higher education, this bill would provide some relief for those who find themselves with crippling student loans that can’t be discharged in bankruptcy. They could now also reduce their retirement savings to pay off those loans.

Access to Retirement Plans for Small Employers

Another change would make it possible for small employers to group together in offering a retirement plan. This would be helpful, since 42% of private-sector workers don’t have access to a workplace retirement plan.

Reduced Regulations on Annuities

More 401k plans will be able to offer plans to convert retirement savings into annuities. This should greatly benefit insurance and annuity companies by increasing their market and reducing the regulations for offering annuities as part of retirement plans.

Extended Retirement Contribution Age

As more people need to keep working well past normal retirement age, this bill would allow people to continue adding to their retirement plans after age 70-1/2 and would allow people to hold off on withdrawing from their plans until age 72. This also reflects the fact that many people probably haven’t saved enough for retirement by the time they hit 70-1/2.

Use of Retirement Savings for New Children

Many new parents find that their health insurance plan still leaves them with thousands of dollars of out-of-pocket expenses for the birth of a child. Rather than making any changes to the health insurance system, or increasing entitlement programs for families, this bill would allow these parents the opportunity to reduce their future retirement savings by spending some now on these expenses for new children. This will probably not help increase the falling birth rate in the country.

Restrictions on Stretch Distributions

With the US budget deficit in the trillions, this bill would bring in additional revenue in the form of increased and accelerated income taxes paid by beneficiaries of retirement plans. Rather than being able to stretch out inherited retirement money over their lifetime, beneficiaries (your children) will have to take out money over 10 years, likely bumping them up to a higher tax bracket, and increasing the percentage of the inheritance that goes to taxes. What does this mean? Let’s look at an example.

A single 45-year-old making $100,000 inherits a $1,000,000 Traditional IRA from her parents. She can either cash it out immediately (which is what the vast majority of children do) or she can stretch out the distributions.

Cash out: Based on her income and 2018 tax rates, she would be taxed at an effective rate of 33.48%, leaving her with $665,200 of inherited cash.

Current Stretch Rules: She can opt to take the required minimum distributions over her life expectancy. After 10 years, she has paid a total of $243,000 in taxes, received approximately $368,000 in required minimum distributions, and has $1.64 million left in the IRA.

Proposed Stretch Rules: She can opt to take the required minimum distributions for a maximum of 10 years. After 10 years, she has paid $615k in taxes and inherited a total of $865,000.

Below is a graph that visually represents the difference in these rules, assuming the child invests the required distributions after paying taxes and has normal living expenses and Social Security Income:

Image credit: “The Hidden Money Grab in The SECURE Act” James Lange, Forbes Contributor

As usual, all parties involved will continue to look for ways to maximize their benefits under any changed law. We will continue to look for ways to protect and preserve your assets for you and your family. There are options involving trusts that could still preserve a lifetime income stream for children who inherit your retirement savings.

The post The SECURE Act – what does it really secure? appeared first on Carrier Law.

For More Information or to Speak with a Probate Lawyer, call

1-800-317-2812!

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If you become sick or disabled, either temporarily or permanently, who will make decisions for you?

A Power of Attorney allows you to appoint someone you trust to handle your affairs if you cannot do so.  If you cannot pay bills, get records or make other decisions, your family will be prevented from helping you get treatment, pay doctors or pay for Medicaid.

Without a Power of Attorney, your family may have to file two (that’s right, 2!) actions in the Probate Court:

Guardianship

Guardianship action gives the winner the right to make medical care and life decisions for you.

Conservatorship

This one is about your money and your stuff. Who gets to control it? If you don’t decide, the Probate Court will be happy to do it for you!

These actions involve the Court, several lawyers and can cost between $4,000 up to as much as $50,000. Guardianship and Conservatorship also involves a lifetime of public reporting about you, your health status, and your money to the Probate Court. All of our families, as part of our LifePlanning™ process, receive both Financial (Durable) and Medical Powers of Attorney. It is important that you give your family the tools to help you, if you cannot help yourself.

Estate Planning Attorneys in Michigan

Don’t put your future at risk. Contact us today to get started on creating your estate plan.

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