ESTATE PLANNING TAKEAWAYS FROM THE CARES ACT

As a result of the global COVID-19 virus, the federal government and the State of Connecticut have recently adopted legislation which may affect your retirement plans, income tax planning, and gift tax filing requirements for the year 2020.

The CARES Act

The coronavirus-relief bill, called the Coronavirus Aid, Relief and Economic Security Act (or the CARES Act), contained significant provisions to assist small business owners, employees and individuals. Below are key takeaways from an individual and estate planning perspective.

Charitable Donations

• The CARES Act permits a $300 “above the line” charitable income tax deduction of cash gifts to public charities for taxpayers who elect to not itemize deductions.

• More importantly, donors may elect to apply a 100% of adjusted gross income (AGI) limit to cash gifts to public charities (gifts to donor advised funds, supporting organizations, and private foundations do not qualify). Prior to the CARES Act, an individual’s deduction for cash contributions to public charities was generally limited to 60% of an individual’s AGI. This provision is favorable to donors wishing to make large cash contributions this year, the deductibility of which might been curbed due to percentage limitations. The result is that a taxpayer may actually eliminate any taxable income for this year with large cash contributions to public charities. Any charitable contribution exceeding the limits may be carried forward for subsequent years subject to certain limits.

Retirement Plans

• A “qualified individual” can in 2020 take up to $100,000 in “coronavirus-related” distributions from an IRA or qualified retirement plan and: (1) not have to pay the 10% early distribution penalty even if you are under age 59 ½; (2) not have to withhold 20% in federal income taxes; and (3) not have to pay tax on it if repaid within three years, or in the alternative, elect to spread the inclusion of income over three years. A “qualified individual” is someone (including spouse or dependent) who is diagnosed with COVID-19, or has experienced financial hardship as a result of being quarantined, furloughed, laid off, had work hours reduced or been unable to work due to lack of child care.

• The CARES Act increased the loan maximum from $50,000 or 50% of your vested balance to $100,000 or 100% of your vested balance from qualified retirement plans (whichever is less). This is for any money borrowed between March 27, 2020 and December 31, 2020. For individuals with existing loans, the due date for the loan repayment is suspended one year. NOTE: These related changes to the loan rules do not expand the availability of loans from IRAs. Whether loans are permitted from employee retirement plans remains subject to the terms of the plan.

• The CARES Act suspended required minimum distributions (RMDs) for the year 2020. This includes distributions from most qualified retirement plans and IRAs, including inherited IRAs. If you already took your RMD for 2020, you may not return it to your account.

Gift Tax Return Filing Requirements

On March 27, 2020, the IRS pushed back the April 15 gift tax return filing and payment date until July 15, 2020 for any gifts made in the year 2019. On April 2, 2020, the State of Connecticut similarly extended both the filing and payment date for Connecticut gift tax returns until July 15, 2020. These extensions are now in line with the income tax filing and payment extension dates of July 15, 2020, which we previously reported in our March 27, 2020 Client Update. Our attorneys remain available to answer any specific questions you may have in regard to these planning changes.

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