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1111 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
216.696.4200
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Best wishes for 2009!
Sincerely,
Your Friends at
Schneider, Smeltz, Ranney & LaFond |
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 Real Estate Taxes Too High?
 The Plain Dealer and others have written widely on how the credit crisis and other factors have hurt the local real estate market. Given this difficult situation, if you thnk the assessed value for your real property tax purposes is too high, we want you to be aware that Ohio law provides a process for you to challenge that value. The Cuyahoga County Board of Revision is charged with the responsibility of dealing with complaints seeking tax relief. Please note, the time period for filing a complaint with the Board of Revision is December 1, 2008 through March 31, 2009. You can find more information from the Cuyahoga County Auditor's website at www.auditor.cuyahogacounty.us. |
| Tax Changes for 2009
With the new year still fairly young, keep in mind some of the tax changes effective for 2009:
No Required Minimum Distributions for Retirees in 2009
Because of a law enacted in late December, retired individuals won't be forced to take "minimum" distributions from their IRA, 401(k), 403(b), or 457 accounts for the year 2009. The new law is designed to help retirees preserve investable retirement assets in the face of the economic downturn, giving retirees an opportunity to recover from the poor investment market.
The new law suspends the general rule that minimum distributions are required starting when an account owner turns about age 70 ½. The IRS imposes a 50% tax for not taking at least the minimum amount. Minimum distributions are calculated based on life expectancy tables determined by the IRS. Though there was discussion about the issue late in 2008, no changes were made to the minimum distribution requirements for 2008. The one year suspension of minimum distributions is only good for 2009, so retirees should expect to resume the normal minimum distribution pattern in 2010.
Nothing in the new law prevents retirees from taking desired or needed distributions. The new law does not apply to defined-benefit pension plans, certain other employer-sponsored plans, or Roth IRAs.
Charitable IRA Rollovers Are Extended Through 2009
Legislation signed in October 2008 extended so-called charitable IRA rollovers through 2009. The law allows an individual age 70 ½ or older to donate up to $100,000 per year, income tax-free, directly from an IRA account to a qualifying charity. However, the individual cannot claim an income tax deduction for the donation. This law was originally enacted in 2006 but expired at the end of 2007 until Congress acted to extend the law.
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Asset Protection Planning
Asset Protection involves a variety of legal techniques that can be used to protect assets of individuals and businesses. Asset protection planning is receiving increasing attention due to the great number of lawsuits filed each year in the United States; current economic conditions; recent high profile business failures; the recent wave of foreclosures; and the rising number bankruptcy filings. Most of us spend a lot of time trying to accumulate assets but very little time protecting the assets we have. Here are a few standard asset protection strategies (most of which also make sense for general economic and tax reasons):
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Welcomes Robert A. Poklar and Tina Rhodes
 Schneider, Smeltz, Ranney & LaFond is pleased to announce that Robert A. Poklar has joined the firm as Of Counsel. Robert Poklar is a graduate of the University of Notre Dame and The Cleveland-Marshall College of Law. He is an AV-rated attorney who has been representing automobile, RV, boat, and motorcycle dealers and other businesses for over 28 years in connection with franchisor-franchisee disputes, dealer relocations, warranty audits, financing, and working capital issues. He also has extensive experience in corporate acquisitions and divestitures. Since 1982, Bob has published the monthly newsletter entitled "You Auto Know" which discusses current legal topics. He has developed and presented numerous seminars on business-related issues such as regulatory compliance, Truth-in-Lending and the Magnuson-Moss Warranty Act. He is also certified as a Mediator through the Institute for Conflict Management and is a member of the panel of Arbitrators and Mediators in the Federal District Court for the Northern District of Ohio, the Cuyahoga County Court of Common Pleas, the American Arbitration Association, and the Institute for Conflict Management.
 Schneider, Smeltz also welcomes Tina Rhodes to the Firm as an Associate. Tina Rhodes is an honor graduate of the North Carolina Central University School of Law. She worked as a Staff Attorney in the Litigation Group at Jones Day Reavis & Pogue and as a Judicial Clerk in the Eighth District Court of Appeals. Most recently, she was an Associate at Robert A. Poklar & Associates where she worked extensively on various civil matters, appeals, and administrative protests. |
| Change is Coming
With the election of Barack Obama and a more solid democratic majority in Congress, the likelihood that the estate tax is repealed in 2010 is virtually zero. We believe, based in part on President-elect Obama's campaign positions, that:
1. The federal estate, gift and generation-skipping taxes will continue in some form;
2. The 2009 estate and generation-skipping exemption amount of $3,500,000, perhaps indexed for inflation, is likely to apply in 2010 and subsequent years;
3. The $1,000,000 gift tax exemption may be increased to the same amount as the estate and generation-skipping tax exemptions in 2010, thus reunifying all transfer tax rates;
4. The top estate, gift and generation-skipping tax rates will probably remain at 45%; and
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Changes to the Americans with Disabilities Act
Employers should be aware of new employee-friendly rules in disability discrimination law, and renew their efforts to prevent workplace discrimination against employees with disabilities. But just who are those "employees with disabilities"? The central provision of the new law, known as the Americans with Disabilities Act Amendments Act of 2008 (ADAAA), expands the application of the law by establishing a broad definition of "disability" under the Americans with Disabilities Act of 1990 (ADA).
The ADAAA became effective on January 1, 2009. The purpose of the ADAAA is to restore the intent of the ADA, and to make explicit the intent of Congress to provide broad protection to individuals with disabilities against employment discrimination. The ADA had been interpreted through two Supreme Court decisions - Sutton v. United Air Lines, Inc. (1999) and Toyota Motor Manufacturing, Kentucky, Inc. v. Williams (2002) - which restricted application of the ADA by narrowing the interpretation of "disability." The new law is drafted specifically to counter the rulings ofthese cases, and defines an individual with a disability as one who (i) has a physical or mental impairment that substantially limits one or more major life activities, (ii) has a record of such an impairment, or (iii) is regarded as having such an impairment. Listed in the category of "major life activities" are motor functions such as breathing and walking, along with more advanced activities such as learning, concentrating, and thinking, as well as lower biological functions such as digestion and reproduction. Whether an impairment "substantially limits" a major life activity will be interpreted through regulations to be issued by the EEOC. Further, in determining whether an impairment rises to the level of a disability, the ADAAA requires the impairment to be analyzed without regard to mitigating measures such as medication or prostheses: for instance, a worker who controls his high blood pressure with medication may not have been considered disabled by high blood pressure before, but may fall under the definition now.
Many commentators expect a large increase in the number of lawsuits under the ADA because of the increase in the number of individuals who are technically disabled, and anticipate a shift in the key issue of ADA litigation from "Does the employee's impairment meet the definition of a disability?" to "Did the employer actually discriminate against the employee?" Employers should know their obligations under the ADA, and should also prepare for the effects of the new law by reviewing their employment policies and procedures with an eye toward minimizing discrimination claims. |
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Tax Changes for 2009 (continued)
The extended law is particularly beneficial to individuals who: (1) do not itemize income tax deductions, so would not benefit otherwise from the charitable income tax deduction; (2) have income high enough to cause a "phase-out" of deductions or an increase in taxes on Social Security benefits; (3) would exceed the charitable deduction limit for the year (e.g., have large charitable gifts relative to income); or (4) live in a state (such as Ohio) that does not allow an income tax deduction for charitable gifts.
There are limitations on the usefulness and application of this newly extended law, so individuals planning to use it should plan carefully. In addition, individuals should recognize one other issue. With enactment of the new law eliminating required IRA distributions in 2009, this law is less advantageous to the majority of taxpayers because there are no required distributions.
Annual Gift Exclusion Rises to $13,000
In 2008, an individual could generally give away up to $12,000 per person per year to any number of people, without adverse gift tax implications. For example, an individual could make gifts of $12,000 to each of her 16 children, children-in law, and grandchildren (total gifts of $192,000), without adverse gift tax implications. This per-person annual gift limit has increased, starting in 2009, to $13,000.
Social Security and Medicare
The maximum Social Security benefit has increased to $2,399 per month in 2009, and the Cost of Living Adjustment (COLA) from 2008 to 2009 was 5.8%. The Medicare tax will remain at 1.45% and the Social Security tax remains at 6.2%. The wage limit for Social Security tax has been raised to $106,800 - an increase of $4,800 over last year's maximum.
Contribution to Retirement Accounts
Contribution limits for 401(k) and 403(b) plans increase in 2009 from $15,500 to $16,500. "Catch up" contributions (for workers over age 50) increased by $500 to $5,500 in 2009.
Contribution limits to SIMPLE retirement plans increased by $1,000 to $11,500, while the "catch up" contributions remained unchanged at $2,500.
Income limits for those willing to contribute to traditional IRAs as well as Roth IRAs increase for 2009. The income phase-out for Roth IRAs now begins at $166,000 for those filing joint income tax returns, and $105,000 for taxpayers with a filing status of single or head of household.
Other Income Tax Changes/Issues for 2009
Various other tax changes may affect you in 2009, including changes to: (1) personal exemptions; (2) phaseouts of personal exemptions; (3) standard deductions; and (4) filing requirement thresholds.
Please also remember that the filing deadline for individual income taxes for tax year 2008 is Wednesday, April 15, 2009.
As I'm sure you are aware, the new President and Congress may enact other tax changes for 2009. We'll try to keep you informed of any major tax bills.
Conclusion
Feel free to contact us with any questions. Remember, the information in this article is general, and you should contact a tax professional for information specific to your individual circumstances.
"The only difference between death and taxes is that death doesn't get worse every time Congress meets." - Will Rogers
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Asset Protection Planning (continued)
Maximize Contributions to IRAs and Qualified Plans
Assets in IRAs and qualified employee benefit plans are generally afforded special protection from creditors. Qualified plan assets are also protected in bankruptcy because they are not part of the bankruptcy estate. The Bankruptcy Act of 2005 protects IRA assets up to $1 million, adjusted for inflation.
Divide Assets Between Spouses
Simply dividing assets between spouses may offer some protection from creditors, and can also be important in some situations for estate planning reasons.
Life Insurance
Life insurance is frequently part of an asset protection plan. In many states life insurance death benefits and/or cash values are exempt in whole or in part from claims of creditors of the insured. In Ohio, for example, insurance death proceeds are exempt by statute if paid to the spouse, children, or certain other designated beneficiaries.
Trusts
Not all trusts provide asset protection; but some do. At least ten states have enacted asset protection trust legislation. These state statutes generally require that a trustee in that state have discretion in making payments to the person who established the trust. Most of this legislation has not yet been tested in the courts. We continue to monitor developments with respect to these so-called asset protection trusts.
Irrevocable life insurance trusts (ILITs) can be a great estate planning tool under the right circumstances, and they provide significant asset protection. Life insurance owned by an ILIT is not generally part of the insured's estate (for both federal and Ohio estate tax purposes). If the ILIT is formed properly creditors of both the person who establishes the trust and the beneficiaries should have no rights in either the cash value or the death benefits of the insurance. Assets of an ILIT should also generally be immune from claims in a divorce.
So-called "dynasty" trusts are designed to maintain assets in trust through a number of generations. One of the advantages is that the assets in the trust are generally beyond the reach of creditors of the beneficiaries in the event of divorce, court judgments and other financial difficulties.
Many other types of trusts include so called "spendthrift" clauses which limit the rights of creditors to reach the assets of trust beneficiaries.
While there are more exotic asset protection alternatives (including offshore trusts), many basic strategies are relatively inexpensive and easy to implement. Your current will, trust and related estate planning documents should be reviewed periodically with a specific view toward asset protection considerations. While certain asset protection strategies can properly be utilized after a problem arises, it is far better to act before any claim is made.
For those interested in a more detailed discussion of asset protection strategies, please refer to the article on our website at www.ssrl.com. Click on "Library" and go to "2008 Business Presentation - Asset Protection". |
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Change is Coming (continued)
5. Valuation discounts, like minority, fractional interest, and lack of marketability discounts, will be under heavy attack and may be disallowed or limited by legislation. Such discounts are useful and respected under current law and permit the base upon which the gift, estate, or generation-skipping tax applies may be reduced.
For clients in a position to do so, we often recommend they consider giving away assets that have a strong potential for appreciation. This advice is still sound but other unique factors may be converging now to make this a particularly advantageous time to consider significant lifetime gifts. First, valuations (whether equity or real estate) may be at historical lows. Second, there are certain strategies that require the use of IRS imposed interest rates. These interest rates are also historic lows. Third, the new Congress may pass legislation to eliminate or restrict gift discounts.
Here are some ideas to consider:
1. Consider a large lifetime gift (up to $2 million for a married couple; up to $1 million for a single person) that would use some or all of your lifetime gift tax exemptions.
2. Consider using a Grantor Retained Annuity Trust (GRAT). We would recommend a short term GRAT (2 or 3 years). If assets appreciate in excess of the IRS imposed factor (3.43% for December 2008), the appreciation passes tax-free to children. If assets do not appreciate in excess of the IRS factor during the 2 or 3 year term, there is no economic or tax downside. The assets are simply returned to you.
3. Consider using an installment sale to a grantor trust. This technique allows for you to lock in these lower interest rates for up to nine years, or longer. For example, if the asset sold to the grantor trust appreciates faster than the IRS imposed factor (2.85% in December 2008), the appreciation inures to the trust. |
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Please feel free to contact one of our attorneys if you would like more information on any of the above issues or if you are in need of quality, legal services.
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