Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Updating Estate Plans for the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted on December 20, 2019. The Act made a number of changes to how retirement plans function, such as increasing the age at which retirement plan participants need to take required minimum distributions (RMDs) to 72, making it easier for small business owners to set up and maintain retirement plans, and allowing many part-time workers to participate in a retirement plan. However, the SECURE Act made an important change that impacts the see-through trust rules, which will require many individuals to update their revocable living trust agreements and estate plans.

Prior to the SECURE Act, non-spouse beneficiaries who inherited a retirement plan or IRA (i.e., descendants of the IRA owner) could qualify to "stretch" their inherited IRA and take RMDs calculated based on the descendant's life expectancy. This was generally a good thing because it resulted in the maximum deferral of income taxes, and trusts were drafted to help ensure that this stretch opportunity was realized where a trust was named as the beneficiary of an IRA. I discussed how trusts can qualify as beneficiaries of an IRA in a prior post.

The SECURE Act largely eliminated the law that allowed non-spouse IRA beneficiaries to stretch IRA distributions over their life expectancy. Now, most non-spouse beneficiaries must receive (and take into income) the entire IRA account balance within ten years of the death of the account owner, regardless of whether the beneficiary or a trust for the beneficiary's benefit was the named IRA beneficiary. There are good reasons why an account owner would want to name a trust as the beneficiary of their IRA, such as protecting an imprudent beneficiary from squandering an inheritance, including inherited IRA funds. This need still exists, but because of the SECURE Act, many trust provisions describing the trustee's obligations with respect to IRAs need to be changed.

Specifically, many trust agreements drafted before the SECURE Act provided that trust beneficiaries would receive their inheritances in a continuing trust known as as a "conduit trust" for IRA purposes. A conduit trust requires the immediate distribution of all funds withdrawn from the IRA to the individual trust beneficiary. The ten-year rule under the SECURE Act would, therefore, result in trust beneficiaries receiving all of the inherited IRA funds ten years after the account owner's death. A large, mandatory trust distribution at a fixed time during a trust beneficiary's life is inconsistent with what most trustmakers intend in naming trusts as IRA beneficiaries in the first place. Even worse, however, is that trusts that are not amended to function appropriately under the SECURE Act and which are designated as IRA beneficiaries could even result in the ten-year stretch being reduced to five years.

Most post-SECURE Act trust agreements will have beneficiary's continuing trusts qualify as "accumulation trusts," as opposed to conduit trusts, for IRAs paid to such trust, which would not require the immediate distribution of IRA funds. Post-SECURE Act trust agreements will also be drafted consistent with the SECURE ACT's exception to the ten-year IRA payout rule for individual beneficiaries less than ten years younger than the account owner and disabled and chronically ill individuals, who can continue to take distributions over their their life expectancy. Disabled beneficiaries in particular may benefit from inheriting an IRA through a continuing trust, but it is critical that such a trust be calibrated to the SECURE Act to ensure the lifetime stretch opportunity is preserved. In sum, now is the time to update your estate plan so that it functions properly under the SECURE Act.

SBA Loans for Small Businesses Impacted by COVID-19

According to the Small Business Administration, small business owners "in all U.S. states and territories" are currently eligible to apply for a low-interest rate loan if the business has suffered substantial economic injury due to coronavirus.

These loans are available through the SBA’s Economic Injury Disaster Loan Program. The loan amount can be for up to $2 million at a 3.75% interest rate for businesses and 2.75% for nonprofits with a term of up to 30 years, depending on the borrower’s ability to repay. These loans can be used to pay for debts, payroll, accounts payable, and other bills that can’t be paid because of coronavirus. Detailed information and online application forms are available on the SBA's website.

UPDATE: Since I published this post, information about the CARES Act has become available. Among other things, this act creates a new "Paycheck Protection Program," which authorizes forgivable SBA loans to eligible businesses. More information is located at this link.

Tax Credits for Paid Leave under FFCRA

The Families First Coronavirus Response Act (FFCRA) generally requires employers to provide up to two weeks of paid leave at regular pay rates for employees who can't work due to being sick with coronavirus, up to two weeks of paid leave at two-thirds of regular pay rates for employees who can't work due to a family member being sick with coronavirus, and up to ten weeks of paid leave at two-thirds of regular pay rates for employees who can't work because a child's school or child care provider is unavailable. Fortunately, all of an employer's costs for this qualified sick leave is designed to be offset by payroll tax credits.

By way of background, employers are required to withhold estimated employees' income taxes and payroll taxes (Social Security and Medicaid) from employees' paychecks and then match the payroll tax withholding and remit all of such funds to the IRS on (usually) a quarterly basis. The credit for paid leave under the FFCRA offsets the employer's portion of payroll taxes. However, the credits are refundable, meaning that if the qualified sick leave paid in respect of employees impacted by coronavirus exceeds the employer's portion of payroll tax for all employees, the employer will receive a refund from the IRS.

Regulations and forms for these new tax credits will be forthcoming. The most interesting aspect of these tax credits is that employers will apparently be able to retain income taxes withheld and both the employer's and the employees' share of payroll taxes up to the amount of qualified sick leave, rather than deposit such withholdings with the IRS and seek a refund. As I discussed in a prior post, these withholdings are considered to be held in trust for the IRS, and individuals who do not remit such taxes to the IRS will be personally liable for the entirety of such taxes. As such, employers should not utilize this method of reimbursement for qualified sick leave they pay without maintaining very careful records and waiting until final guidance is issued by the IRS. Trust fund taxes must never be used to cover any other expense.

Free, Simple Last Will and Testament Form

Below is a very simple form for a last will and testament that you are welcome to use for free, subject to this disclaimer and to the following: Executing a will does not guarantee that all, or even most, of your property will be subject to the will. A last will and testament will have no impact on property held in joint tenancy with a surviving tenant; retirement plans, brokerage accounts, and life insurance policies that have a valid beneficiary designation; pay-on-death bank accounts; and property titled in trust. A will alone will not allow your estate to avoid probate, and a will is only one component of a complete estate plan.

This will form is not appropriate for every circumstance, and only a competent estate planning attorney can provide advice regarding your particular situation. Under Utah law, this will form will be unenforceable unless it is (1) completed and signed by you and signed by two adults who witnessed you sign the will or (2) entirely handwritten and signed by the you. While witnessed wills are preferred, I have kept this will form short enough that it can be handwritten, in which case no witnesses are required. Once complete, you will need to deposit your will in a secure location or with someone you trust to carry out your will.

Last Will of
[your name]

1. This is my Will. I revoke all prior Wills and codicils.

2. I nominate [name of person you want to be in charge of your estate] as my personal representative. If they do not serve, I nominate [name of alternate] to serve in their place.

3. I might prepare a separate written list of items of tangible personal property and designate who I want to receive such items. If I complete such a list, I give such items to the persons designated therein as the recipient of each such item.
This tangible property list is an optional document that is separate from your will; if signed, the list becomes incorporated into your will upon your death. It is a flexible option because if you change your mind about who you would like to receive a tangible item, you need not execute a whole new will, just update your list.

4. I give the balance of my assets as follows: Only chose one option
Option One: All to my surviving spouse; otherwise, to my descendants, by right of representation.
Option Two: All to my descendants, by right of representation.
Option Three: Equally to the following persons who survive me: [insert names of the beneficiaries of your estate]

Paragraphs 5 and 6 are only necessary if you have minor children
5. I nominate [name of person you want to be guardian of your minor children] as guardian of any minor children of mine. If they do not serve, I nominate [name of alternate] to serve in their place.

6. I nominate [name of person you want to be in charge your minor children's assets] as conservator of the estate of any minor children of mine. If they do not serve, I nominate [name of alternate] to serve in their place.

I execute this document as my Will on the _____ day of _______________, 20____, at _______________, Utah.

____________________
[Your Signature]

Unless your will is entirely handwritten, two adults who witnessed you sign your will must also sign.

Witnesses:

____________________
[Witness Signature]
[Witness Printed Name]

____________________
[Witness Signature]
[Witness Printed Name]

Higher FDIC Protection for Trust Accounts

As most people know, the Federal Deposit Insurance Corporation (FDIC) is a federal government agency that insures customers of insured banks so that even if the bank fails, the depositors do not lose their money. The basic FDIC insurance amount is $250,000 per depositor per insured bank per account category.

The account categories include single-owner accounts, joint accounts, revocable trust accounts, and entity accounts. In other words, a single depositor can multiply their FDIC coverage by spreading their deposits across a single-owner account, joint account, etc. Of course, coverage can be multiplied by spreading deposits across multiple banks as well.

One benefit of establishing a revocable trust and opening a bank account in the name of the trust is that the maximum FDIC coverage for a revocable trust account at a single bank is $250,000 multiplied by the number of unique beneficiaries of the trust. To qualify for this increased coverage, the account name must indicate trust ownership, the trust beneficiaries must be identified in the trust agreement, and the beneficiaries must be living persons or qualified charitable organizations.

Of course, such a trust account will also have the benefit of never needing probate to administer, and the successor trustee will easily be able to manage the account upon the death or incapacity of the grantor of the trust. Increased FDIC insurance coverage is one more benefit of establishing a revocable trust.

Real Property Transfer on Death

In a prior post, I referenced the trend in probate law of testamentary contractual arrangements becoming more common. One such arrangement that can be used to transfer real property is a transfer-on-death deed, which is available in any state that has adopted the Uniform Real Property Transfer on Death Act or a similar statute.

The URPTODA allows real property to be transferred almost like a brokerage account would be transferred pursuant to a beneficiary designation.  The law permits a property owner to execute a transfer-on-death deed naming another individual or entity that will take title to the property upon the owner's death. Such a deed is revocable during the owner's life, meaning that the designated beneficiary has no rights with respect to the property until the owner's death. To be enforceable at such time, the deed must otherwise qualify as a recordable, inter vivos deed, must state that the transfer occur upon death, and must in fact be recorded with the county recorder's office.

Under the URPTODA, a designated beneficiary may disclaim the real property that would otherwise pass to them under a transfer-on-death deed but need not take any affirmative action in order to succeed to ownership of the property. However, individual state laws vary on this point; in at least one state (Oklahoma), the designated beneficiary must affirmatively record an affidavit accepting such interest or the property will revert back to the decedent's estate.

The URPTODA offers a solution that is preferable to other informal mechanisms for avoiding probate, such as executing but not recording a deed (a "sleeping deed") or naming a non-spouse beneficiary as a joint owner of a real property. However, utilizing a transfer-on-death deed is inferior in almost every way to executing and recording a traditional deed to a revocable living trust. For a good summary of these relative drawbacks, see page 34 of a recent issue of the Utah Bar Journal, located here.  In short, the URPTODA provides a new alternative for transferring real property to an heir outside of probate, but it will rarely be the best alternative.

Introduction to Trust Administration

When the settlor or settlors of a revocable trust die, the trust becomes irrevocable and the successor trustee is tasked with carrying out the settlor's final wishes as expressed in the trust agreement. One of the first tasks required of the trustee of such a trust by the Utah Code is to notify the trust beneficiaries that the trust exists, of the identity of the settlor(s), and that the beneficiaries have the right to request a copy of the trust agreement and the right to a trustee's report. This notice can be in the form of a letter that includes a copy of the trust agreement, the trustee's name and address, and a further notice that the beneficiaries have 90 days to commence a judicial proceeding to contest the validity of the trust until losing that right.

The trustee will need to marshal all trust assets, which will often require filing an affidavit of trusteeship with the county in which any trust real property is located, obtaining an EIN for the trust, making a claim for life insurance owed to the trust, and opening or taking control of any trust bank accounts or brokerage accounts. The trustee should also prepare an inventory of trust assets and maintain an accounting of all trust transactions. There are a number of potentially critical tax-related matters that may need to be attended to, particularly for large trusts, which are beyond the scope of this post. Another consideration is publishing notice to creditors of the trust (which can also be valid notice as to creditors of the decedent).

After all trust assets have been marshaled and debts and expenses paid, the trustee should send a letter to the trust beneficiaries with a "proposal for distribution" of the majority of the trust assets. This proposal should notify the beneficiaries of their right to object to the proposed distribution within 30 days; after this period, the right to object would terminate. This letter or a subsequent letter should enclose a "receipt and release" for each beneficiary and should explain that the trustee must receive all of the beneficiaries' receipts and releases before any distributions can be made. The trustee should withhold a small portion of trust funds for final expenses, such as a final tax return. Once all of the beneficiaries have signed and returned their receipt and release, the trustee can make the proposed distributions. Except for paying final expenses, closing accounts, and distributing any remaining amounts, the trustee's job in most cases will then be complete.