The fallout caused by the Covid-19 pandemic has brought to the forefront some important estate planning and tax considerations. We would like to discuss three that we think could impact our clients. First among those is the importance of advance health care directives. Second are the recent changes to retirement plan required minimum distribution rules for 2020 and last is an often overlooked tax provision governing interstate taxation, which if not properly addressed can be a harbinger for an unwanted showdown with tax authorities in some states and cities.
1. Advance Health Care Directives
Advance health care directives are one of five common estate planning documents (revocable trust, last will and testament, durable power of attorney and living will are the others). Advance health care directives give a person of your choosing the ability make health care decisions on your behalf should you become incapacitated. The novel Coronavirus has impelled the importance of having advance health care directives. Professor Susan Enguidanos from USC’s School of Gerontology aptly points out, “many are dying in hospitals on ventilators, making it impossible for them to engage in conversations about health care preferences and other health care decision-making. This virus underscores for all of us the importance of having advance directives.” Moreover, for most people, intimate discussions on matters of life and health are best handled face-to-face, which may not be possible should a loved one be quarantined. A qualified attorney can help you navigate the labyrinth of considerations in establishing a complete set of estate planning documents, including advance health care directives, because a failure to act can lead to unintended consequences.
2. Minimum Distribution Rules for 2020
In March, the CARES Act waived required minimum distribution requirements for IRAs and many other retirement plans. The question then is what happens if you already took your required minimum distribution before the passage of the CARES Act? The IRS has now answered that question by granting sweeping relief to those who took 2020 required minimum distributions from retirement accounts. In late June the IRS announced it is allowing anyone who took a required minimum distribution from an IRA or most types of retirement plans at any time in 2020 until August 31, 2020 to roll the distribution back into their IRA. Furthermore, this relief not only applies to your own IRA, but also to inherited IRAs. If you roll the distribution back into your IRA by August 31 the IRS will treat it as if no distribution was made and no tax is owed.
3. “Convenience” Rule Governing Interstate Taxation
Telecommuting has become commonplace as companies adjust to a world of lockdowns and social distancing. But an obscure provision known as the “convenience” rule within the tax code of some states lambasts those that live and work in a state that is different than the state where their company is located. In sum, the rule states that if a person has a job based in one state but lives and works in another state out of convenience rather than because the employer requires it, then that person owes income tax to the state where the job is based. This results in double taxation if your home state also taxes your income. New York is one of six states (the other five states are Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania) that have adopted the convenience rule, but in response to the Coronavirus pandemic other states may follow suit. If your company is based in one of these states, being aware of this arcane rule will prevent you from being blindsided by an unexpected tax bill.
While all of us learn to manage our way through the Coronavirus pandemic, we hope that these tidbits will help make your journey a little easier.
Co-authored By Tim Nguyen CFA, CPWA, CMTSenior Vice President & Private Wealth Advisor, Trust
Co-authored By Read Sawczyn , J.D.Senior Vice President & Private Wealth Advisor, Trust
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