Insurance On Key Person Partners And Stockholders

May 27, 2025

Medicaid Cuts in Tax Bill

Several changes to the Medicaid program have been proposed in order to help offset the costs of extending the 2017 tax cuts. States would be required to impose strict work requirements for beneficiaries between the ages of 19 and 64 to prove that they are working, doing community service or participating in an educational program for at least 80 hours per month (exclusions would exist for pregnant women, disabled people and caregivers of dependent children). The bill would also allow states to charge up to $35 per health service for adults who are covered under the ACA Medicaid expansion and earn between 110% and 138% of the federal poverty level and increase the frequency of eligibility checks from once per year to once every six months. Financing restrictions would also restrict states from creating new provider taxes to make up for loss of federal funding and prevent Medicaid for paying for any services at providers that focus primarily on family planning or reproductive health if they provide abortions. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about the proposed changes to the Medicaid program in the current version of the GOP tax bill. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Byrnes: These changes to the eligibility rules for Medicaid are necessary and will help us preserve the aspects of the program that are essential to those who really need the benefits. Under the Affordable Care Act, Medicaid spending has spiraled out of control. The proposed changes will help ensure that we're able to pass the tax cuts that hardworking Americans need without adding an unacceptable amount to the national deficit. Bloink: An estimated 7.6 million low-income Americans will lose their health coverage over the next ten years if these changes to Medicaid are implemented. Many of those will be children because, after all, an estimated 40 million children are covered by Medicaid. We can't sugarcoat this. What this is, exactly, is the GOP's attempt to take healthcare away from millions of struggling families in order to pay for tax cuts for the wealthiest Americans. __________________________________________________ Byrnes: Why shouldn't we impose work requirements on able-bodied adults before they're eligible to benefit from this expensive federal program? Sure, Medicaid provides important benefits, but Americans who are fully able to work and access their own private health insurance should not be entitled to freeload off the system. Bloink: Allowing the government to charge $35 for a health service for families of four who make between $35,365 to $44,367 of the poverty line will absolutely make those health services inaccessible for many families, essentially resulting in a system where low-income families don't receive health care until it's an emergency. __________________________________________________ Byrnes: Health coverage is one of the largest areas in federal spending and it must be reined in. We cannot cut Medicare for our older population. Modifying the Medicaid system to impose strict work requirements and requiring families who earn enough to contribute to their own health costs are two changes that are absolutely vital to the strength of our Medicaid program. Bloink: When someone doesn't have access to basic health care, everyone suffers, not just low-income Americans who can't afford to pay. Lack of access to preventative services is a system that increases the cost of health care for all Americans when the individual can't afford to pay for their emergency care and medical providers have no choice but to absorb those costs. This is precisely what these Medicaid cuts will cause — a less healthy population and more expensive health care services. I'd also add that the work requirements would not become effective until 2029—when the current president's time in office is over.

May 15, 2025

Capping Tax-Free NQDC

As the GOP searches for ways to offset the costs of extending the 2017 tax cuts, many different proposals have been floated to limit the value of tax-preferred employee benefits. One such proposal would put a cap on the value of funds that can be accumulated tax-free via an employer-sponsored deferred compensation arrangement. This type of benefit generally allows a taxpayer to defer a portion of their otherwise available compensation and simultaneously defer taxation on those funds until the employee actually receives the income. Often, deferred compensation plans allow the employee to defer taxation on the compensation until they have reached retirement. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about proposals to put a cap on the amount of tax-free nonqualified deferred compensation a taxpayer can accumulate. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Byrnes: Nonqualified deferred compensation is generally designed to provide additional retirement income to the highest income taxpayers, deferring payment of taxes until they reach retirement. By capping the amount that can be accumulated tax-free over the years, we'd be raising important revenue currently that can support the efforts to maintain Trump's tax cuts for all Americans. Bloink: Proposals to cap the amount of nonqualified deferred compensation may be a start, but this plan wouldn't go nearly far enough in working toward ending tax avoidance loopholes for the wealthy. Many taxpayers who benefit from deferred compensation arrangements are relatively high earners, but they're by no means limited to the wealthiest Americans. In fact, most participants in deferred comp plans are simply employees who are looking to catch-up on their retirement savings. __________________________________________ Byrnes: Democrats are always complaining about loopholes that allow the wealthiest taxpayers to avoid paying their fair share--this would close one legal tax-avoidance door and use the current revenue boost to extend tax cuts for the benefit of all Americans. It seems like a no-brainer when we evaluate the benefits of limiting the value of this tax break. Bloink: We have to remember that any amounts deferred under these arrangements are eventually taxed, typically when the employee retires or actually gains access to the funds--much like any ordinary retirement savings vehicle. The long-term revenue producing impact of a cap on tax-free deferred compensation accumulation wouldn't be nearly significant enough to offset the major tax cuts the Trump administration is promising to the ultra-wealthy in this country. __________________________________________ Byrnes: Many participants in deferred compensation plans don't actually receive the compensation until they've reached retirement and dropped into a lower tax bracket. It's obvious that these deferred comp arrangements have a significant negative impact on federal revenue streams for the benefit of the highest-income taxpayers out there. Ensuring that the amounts accumulated in these plans are limited will substantially increase federal revenue streams as we're working toward a new tax reform package later this year. Bloink: What we really need are income restrictions so that the highest income taxpayers aren't able to manipulate this often-valuable deferred compensation system to avoid paying taxes. Capping the tax-free benefit alone would only limit valuable benefits to ordinary, hardworking Americans who are responsibly looking for tax-preferred ways to fund their own retirements—and further limit options for business owners who are searching for options to motivate and retain their valuable employees.

May 08, 2025

Relaxing ACA Reporting Requirements

Employers who are subject to the Affordable Care Act mandate to provide health coverage are also subject to certain reporting obligations under the law—namely, they must report information about health coverage they have provided to the IRS and individuals on Forms 1095-B and 1095-C. While a new law was passed under the Biden administration to streamline the reporting process, the GOP has consistently called for rolling back the ACA reporting obligations and reducing their scope. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about calls to eliminate or reduce the ACA reporting requirements. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Byrnes: Trump's calls to reduce the ACA burdens for employers are completely justified. The detailed reporting requirements imposed by the ACA are a huge burden for small business owners in the U.S. These smaller firms have often been forced to defend themselves against incorrect IRS notices that claim they owe thousands of dollars, if not more, for failing to provide health coverage to employees as required under the ACA—all because of a reporting regime that is fundamentally flawed. Bloink: The strict reporting requirements are in place for a reason. The purpose behind the ACA was to shift some of the burden for providing health coverage to larger employers who are better equipped to negotiate and provide this valuable employment benefit. In this context, the benefits outweigh the burden of a reporting regime that is absolutely necessary to ensuring that the law functions as intended—to ensure that millions of Americans receive the comprehensive health coverage that they need and deserve. _________________________________________ Byrnes: While the largest companies have the resources to hire teams to ensure they're properly complying with the reporting rules, the reporting requirements are unnecessarily onerous for smaller companies who are attempting to comply with a law that's flawed itself. One simple mistake can result in steep penalties that these business owners simply cannot afford. Bloink: The reporting requirements exempt the smallest American business owners entirely from any type of coverage obligations--thus they aren't burdened by any type of reporting requirement. Further, the Biden administration took significant action to simplify and streamline the reporting obligations that do exist for larger employers by eliminating the mandate that the employer automatically must provide Forms 1095-B and C to employees who do not request them and extending the window of time that employers have to respond to IRS penalty assessments (from 30 days to 90 days following receipt of notice). _________________________________________ Byrnes: We have to remember that there have been many scenarios where the IRS has sent preemptive notices and later discovers that the employee really did have coverage--and the employer is still forced to respond or risk significant penalties. The reporting process is fundamentally flawed and we shouldn't be focused on penalizing companies who are attempting in good faith to comply with the flawed ACA employer mandate. Bloink: The reports that are required have been streamlined over the years with the goal of ensuring that the IRS has the information necessary to ensure that employers are complying with the rules. Moreover, remember that significant transition relief was provided after the enactment of the ACA to allow smaller businesses who do cross the 50-FTE threshold time to catch up. By now, they should have implemented processes to ensure compliance.

May 01, 2025

Student Loan Wage Garnishment

The Trump administration has announced that taxpayers with delinquent student loan accounts will once again see their wages garnished to repay the amounts owed. The announcement comes after a five-year pause on collection efforts on delinquent student loan accounts. The Department of Education announced that, starting May 5, student loan borrowers who have not paid their loans for at least 270 days could see blocked federal benefits, including payments from Social Security, and even wage garnishment in order to repay their loans. Student borrowers who are in default will be given 30 days' notice before their wages are garnished, according to Trump administration officials. The government can garnish up to 15% of the delinquent student loan borrower's wages. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about Trump's decision to begin garnishing the wages of student borrowers who have not made their required payments. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Byrnes: For far too long, student loan borrowers in this country have been given a free pass by the Biden administration. Sure, there was a brief period of time during COVID when unemployment was so widespread that pausing student loan obligations made sense. That period is now far in the past and it's high time that student loan borrowers were held responsible for these loans that they freely accepted for the valuable benefit of obtaining higher education. Bloink: Millions of Americans struggle to pay their student loans on top of everyday expenses. This is such a widespread problem that we cannot ignore it. The interest that continues to accrue on student loan balances creates a problem in itself—many student loan borrowers have no real hope of ever repaying their loans. Protections should continue in place for student borrowers with no real ability to repay their loans. _______________________________________________ Byrnes: It's estimated that over five million Americans have essentially been given a free pass over the last five years. Many have elected to make extravagant purchases rather than responsibly pay their student loans—apparently with the expectation that the Biden administration was going to impermissibly forgive their loans anyway. Americans who have been responsible and paid their debts shouldn't now be held responsible for the choices of others who are in default. Bloink: The problem of excessive student loan debt has the potential to impact us all. When we fail to give student borrowers options and simply elect to blindly garnish their wages without due respect to the situation, many will be unable to meet other obligations--mortgage defaults could rise, credit cards could go wholly unpaid and in the most extreme cases, the borrower might end up on the streets. This is a larger problem with the potential to impact the economy as a whole. _______________________________________________ Byrnes: Student loan borrowers freely elected to take on student debt to gain the benefit of higher education. Now, they expect hardworking taxpayers who didn't have that benefit--and those who have responsibility paid their own debts--to step in and bail them out. That's simply unacceptable and it's not how this country works—in fact, wage garnishment is simply a return to the way the system has always worked. Bloink: We don't even go so far as to garnish the wages of individuals who have failed to pay their credit card debt without judicial intervention. Why should student loans be singled out? Programs that existed during the Biden administration were taken down—including income-based repayment applications. Now that some have been restored, there simply isn't enough time for borrowers to get back on track (when options are even available) before these wages garnishments begin—all at a time where we should remember exactly how uncertain the economy has become amid Trump's trade war.

April 24, 2025

GOP Tax Hike

Republican members of the Senate Finance Committee have confirmed discussions over increasing the tax rate on income above $1 million to 39.6%--the highest income tax bracket prior to passage of the 2017 tax reform package. According to some members, the rationale behind increasing the rate from 37% and 39.6% is to provide funding to support increasing the child tax credit. If the 2017 tax reforms are not extended beyond the end of 2025, the top income tax rate would revert to the 39.6% rate for the highest income levels. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about Republican committee members' proposals to raise the income tax rate on earnings over $1 million. Below is a summary of the debate that ensued between the two professors. Their Votes: <img class="alignnone size-medium wp-image-62919" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62921" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Bloink: While I agree that tax rates on the wealthiest Americans should go up, this proposal really is only the tip of the iceberg. Yes, we have to find a way to pay for any extension of the 2017 tax reforms and the wealthiest should pay their own way. Still, we know that the wealthiest Americans can manipulate their income so that really very little of the money they take home counts as "income" for ordinary income tax purposes. Byrnes: This tax hike proposal will absolutely never become part of the final package of tax reforms that we see this year. Republican values firmly dictate against raising taxes on any American, including those who have succeeded and have among the highest earning levels. All sorts of ideas are being discussed, but an outright tax rate increase seems incredibly unlikely to succeed when the support of all Republicans is essentially required to pass the legislation via the reconciliation process. ________________________________________________ Bloink: This tax, accompanied by an increase in the capital gains tax for the wealthiest and closing of tax loopholes, would be a more efficient combination when it comes to ensuring the wealthiest pay their fair share. Focusing on finding ways to force the super wealthy to pay their fair share will be beneficial to everyone—including those wealthy Americans who want to see the 2017 tax cuts extended beyond 2025 in a fiscally responsible way. Byrnes: This proposal does not go so far as reverting to the pre-2018 39.6% tax rate (because the rate would only apply to earnings in excess of $1 million, currently, the highest tax rate only kicks in for earnings above roughly 609,000 for 2025). Still, the problem remains that while some GOP members on the finance committee have proposed this so-called "solution", conservative Republicans simply would not support a tax bill that raises income tax rates for any group of Americans. ________________________________________________ Bloink: I do think the idea of applying a 39.6% rate to income over $1 million will gain traction. Cutting Medicaid to pay for tax cuts is a solidly bad idea and I think finding ways to pay for an enhanced child tax credit has fairly widespread bipartisan support. Republicans on the finance committee have suggested that the revenue from this tax could be used to support the child tax credit for hardworking Americans—an idea that will garner support from Democrats and moderate-leaning Republicans alike. Byrnes: The optics alone behind this proposal are such that it's never going to become the rule of law under a Republican-led government. Yes, Congress is discussing a range of ideas to ensure that we extend the 2017 tax cuts. Tax increases, however are a fundamentally doomed plan.

April 17, 2025

IRS ERC Claims Process

The COVID-era employee retention credit (ERC) officially ended on April 15, 2025. Still, many business owners claim they had legitimate ERC claims that have yet to be processed. By way of background, the IRS temporarily paused processing of ERC claims process due to a significant number of fraudulent claims. While the IRS now continues to review ERC claims and pay out legitimate claims, they have also identified several key warning signs that it will be watching for when reviewing employee retention credit claims. At one point, the IRS stated that somewhere between 10% and 20% of all claims had significant red flags. The slower pace, according to the IRS, is necessary because of the complexity of these claims. Even for low-risk claims, the IRS will conduct an additional review to ensure the taxpayer's calculations were correct. Incorrect calculations will be adjusted before payments are sent out. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about whether the IRS has properly handled the ERC claims process. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62919" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62921" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsDown-300x105.png" alt="" width="300" height="105">Bloink: The IRS has devoted significant resources toward processing ERC claims. The fact is, even with increased funding, resources are always limited. The magnitude of the problem of erroneous ERC claims was such that detailed programs had to be developed and implemented to prevent wasting taxpayer dollars and to avoid allowing non-qualified businesses to profit from improperly awarded ERC funds. That can—and did—take time. Byrnes: Countless law-abiding Americans have yet to receive their ERC refunds even years after filing legitimate claims. The IRS has completely dropped the ball when it comes to processing employee retention credit claims. Employers who suspected they had filed erroneous ERC claims were given strong incentive to repay 80% of the amounts they received—effectively freeing up IRS resources so that they didn't have to investigate such a significant number of claims. ______________________________________________ Bloink: Ensuring that fraudulent claims are not paid must be the IRS' top priority when determining how to best handle the flood of ERC claims that were made in the wake of the pandemic--and the fraudulent claims were so widespread that extra caution had to be taken and is still being taken. The IRS delays are completely justifiable. Byrnes: We've all seen the IRS guidance on warning signs that an ERC claim may be invalid. We're also hearing that taxpayers who submitted legitimate claims that in no way resemble fraudulent claims and exhibit no warning signs have still not yet received the tax refunds that they deserve from the IRS. Taxpayers who legitimately qualify for the ERC are still being penalized because the government seems to be unable to review their claims in a timely manner. It doesn't seem that the IRS actually has a workable solution, and claims are being paid out or denied for various quarters in a haphazard manner. ______________________________________________ Bloink: The fraud that occurred with respect to the ERC was so widespread that the delays in paying out even legitimate claims were inevitable. The IRS process for withdrawing erroneous ERC claims and the voluntary disclosure program were both complicated to create and administer. The bottom line is that the IRS choose to adopt a methodical and effective system for processing ERC claims rather than haphazardly pay improper claims and seek to recoup those improper payments later. Byrnes: With a significant increase in funding under the Inflation Reduction Act, the IRS should have--and should now--make processing legitimate ERC claims a priority so that hardworking American business owners can get the money they need and deserve. That priority should be just as significant as weeding out the fraudulent claims and I don't see how we can blame the years-long delays on a lack of funding when the IRS received a windfall ten-year funding increase just in 2022.

April 10, 2025

Roth Lifetime RMD Elimination

Beginning in 2024, the SECURE Act 2.0 has eliminated the need to take annual required minimum distributions from Roth 401(k)s, 403(b) or governmental 457(b) plans during the participant's lifetime (the requirements for post-death RMDs from Roth accounts have not been changed) so that the Roth 401(k) RMD obligations now mirror those that apply to Roth IRAs. The provision has generated some controversy as it could actually reduce revenue for the federal government. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about the SECURE Act 2.0 provision that eliminates the RMD obligation for Roth 401(k)s. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62919" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62921" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Bloink: Taxpayers who contribute to Roth accounts pay taxes up-front. There's no real reason to require them to take RMDs, which is when taxpayers who fund traditional retirement accounts start paying taxes on their accumulated savings. Byrnes: We should be looking for ways to increase the federal government's revenue stream rather than reduce it. Elimination of any lifetime RMD requirements for Roth 401(k)s will undoubtedly have the opposite effect and further add to the national debt. With the elimination of lifetime RMDs for Roth 401(k)s, more taxpayers are likely to start funding those accounts because of the fact that contributions can continue to grow tax-free even after the account owner has reached their required beginning date. ______________________________________________ Bloink: Eliminating RMDs for Roth 401(k)s also puts Roth 401(k)s on even footing with Roth IRAs, which were not subject to lifetime RMD rules pre-SECURE 2.0. We shouldn't want a complicated system where two fundamentally similar retirement plans are subject to vastly different distribution and tax requirements. Any impact on the federal government's revenue stream will be minimal—because, after all, the account owner has already paid taxes on the amounts they've contributed. Only the earnings are purely tax-free. Byrnes: When we consider the fact that taxpayers have limited funds to allocate toward retirement savings, that's bound to encourage taxpayers to fund the Roth account over the traditional account--ultimately, reducing revenue for the federal government and making it much more difficult to get the 2017 tax cuts extended beyond 2025. ______________________________________________ Bloink: We want to encourage taxpayers to develop a diverse set of accounts from which to draw once they eventually reach retirement and this new rule makes Roth 401(k)s even more valuable for taxpayers. Remember currently, though something like 80% of employers offer Roth 401(k)s, very few employees actually choose to fund them over traditional accounts. Eliminating the lifetime RMD obligation creates an incentive to fund Roth 401(k)s because taxpayers can recognize the value of additional time for tax-free growth even after they've reached their required beginning dates. Byrnes: Congress simply flipped the wrong way on this one. We really shouldn't want a Roth 401(k) to be more attractive than a traditional 401(k). With a traditional 401(k), taxpayers gain the benefit of tax deferral, but both contributions and earnings are eventually taxed when the owner must begin taking RMDs. Now, with Roth accounts, earnings are never subject to taxation and can be permitted to grow tax-free even past the RBD. We have to expect that this added benefit is going to add to the tax costs of retirement plans—thus costing the government money that they could be using to extend the 2017 tax cuts.

April 03, 2025

USSC Review of Fiduciary Standard

Pursuant to the 2024 DOL standard, someone is classified as an investment advice fiduciary if: (1) they make an investment recommendation to a retirement investor, (2) the recommendation is provided for a fee or other compensation (including commissions), whether direct or indirect, and (3) the individual holds itself out as a trusted advisor by either stating that it is acting as a fiduciary under Title I or II of ERISA, or making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted advisor making individualized recommendations based on the investor's best interests. An existing injunction applies to both the investment advice fiduciary standard and amendments to PTE 84-24, and PTE 2020-02. Until further court action occurs, the standard will not be effective, and the 1975 "five-part test" will remain in place. The Fifth Circuit historically sides with plaintiffs who advocate for looser regulatory schemes in the investment advice arena. Many now believe that the issue will ultimately be decided by the United States Supreme Court if the current DOL decides to appeal the matter. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about whether the U.S. Supreme Court is likely to uphold the Biden-era DOL investment advice fiduciary standard. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62919" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62921" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Bloink: We cannot overlook the fact that two well-respected federal judges have now come out in support of the DOL's Biden-era fiduciary standard. Both the Head Judge of the Northern District of Texas, Judge Barbara Lynn, and Head Judge of the Fifth Circuit, Judge Carl E. Stewart have come out in support of the 2024 DOL standard. Yes, a new administration has clearly taken over. That doesn't mean the new head of the DOL should, or would, be able to overlook fiduciary obligations and the importance of this clear and protective standard to help secure investor confidence. Byrnes: The Supreme Court will absolutely vote to strike down the Biden-era fiduciary standard. The new rule simply mimics the Obama-era rule, which has already been struck down. It's extremely unlikely that the conservative-leaning justices are going to permit such a broad and sweeping fiduciary standard to apply on a nationwide basis. It's common sense that one-off investment advice transactions simply don't create a relationship of trust and confidence between advisor and advisee. ________________________________________________ Bloink: We should all agree that strong investor protections are especially important in light of the current turbulence in the equity markets, which has many investors questioning whether they should even remain invested. Investors should be entitled to expect that their advisors will be looking out for their best interests, rather than the advisor's own financial gain. That's true even in situations involving one-time rollover advice, which is often some of the most important advice that clients ever receive. Byrnes: The rule is a massive expansion of the ERISA fiduciary standard that's extremely unlikely to stand in its current form. We simply can't have a rule where one-time advice is going to generate fiduciary liability. The U.S. Supreme Court will recognize that fact and strike down this overly broad regulation. ________________________________________________ Bloink: The federal judges in Texas who have come out in support of the 2024 DOL standard realize that the 5th Circuit is not going to agree with them--and so those judges have addressed the arguments that the 5th Circuit is expected to raise in order to once again denigrate the fiduciary standard. The arguments are well-reasoned, and it will be difficult for the Supreme Court to overlook them even in light of a 5th Circuit ruling against the DOL's latest rule. Byrnes: As it stands, the Biden-era fiduciary standard is not the law of the land. The current DOL is not going to pursue the appeals when it's clear that the U.S. Supreme Court would strike down the rule. In reality, the DOL is going to have to recognize that a standard where one-time investment advice creates fiduciary liability is not going to be upheld.

April 03, 2025

2025 Estate Planning Moves, the 2026 TCJA Sunset?

<a href="http://www.advisorfyi.com/about/">by Prof. Robert Bloink and Prof. William H. Byrnes</a> The divides and sharp disagreements in Congress have become even more apparent since the new administration took office. With the deadline for extending the 2017 tax cuts less than a year away, many clients should be advised on estate tax planning strategies that they can begin to implement today in order to take advantage of the generous estate tax exemption amounts in 2025. For 2025, each taxpayer can exclude up to $13.99 million ($27.98 million per married couple) from the 40% federal estate tax. Absent congressional action, those amounts will fall by roughly $7 million ($14 million per married couple), considering inflation adjustments to the pre-2017 $5 million base amount. While the future remains entirely uncertain, mid to high-net worth clients should strongly consider taking action to capitalize on the historically high 2025 exemption amounts before it's too late. Who Should Be Concerned About the 2025 Estate Exemption's Sunset? Of course, ultra-high-net worth clients with estates in excess of the current exemption levels should be extremely concerned as the December 31 sunset date approaches. For married couples with estates that already exceed the exemption levels, it may be advisable for one spouse to use up their exemption entirely via transfers to trust. The second spouse would then maintain their exemption and, even if the sunset is allowed to occur, would still be able to shelter roughly $7 million from estate tax. Estate planning in today's environment is not just for the ultra-wealthy. Even mid-affluent clients can be impacted by the financial consequences of taking little-to-no action. For example, assume a couple with a current net worth of $10 million. Over the years, their assets will continue to appreciate in value. It's reasonable to assume that their eventual estate will exceed the exemption amounts in the future if Congress permits today's generous exemption levels to sunset. Strategies for Reducing the Taxable Estate The IRS has been clear that no "claw back" provisions will apply in the event that a sunset does occur. That means clients can take steps to fully use up their estate tax exemption at the 2025 levels without worrying about future reductions, thus locking in today's tax advantages permanently. One common strategy is a lifetime gifting strategy. In 2025, each taxpayer can gift $19,000 to a donee ($38,000 per married couple) without incurring gift tax liability. This exclusion is applied on a per-donee basis, meaning the taxpayer can make multiple gifts to different beneficiaries. The gifts are counted against the taxpayer's lifetime exemption amount. A spousal lifetime access trust (SLAT) is one type of irrevocable trust that can potentially allow a client to remove assets from his or her estate while also maintaining access to those assets during life. To fund a SLAT, a married client transfers assets into the irrevocable trust for the benefit of his or her spouse. An independent trustee is appointed to oversee the trust (adult children may serve as trustee so long as a concrete, ascertainable standard exists for trust distributions). Grantor retained annuity trusts (GRATs) are particularly useful when an asset's value is expected to appreciate substantially or when a low-interest rate environment exists. A GRAT essentially combines a trust that is established for a certain predetermined period of time with an annuity that pays the client, as trust creator (the grantor), a set value each year of the trust's existence. This annuity payout is the client's retained interest. The remaining value passes to the client's beneficiaries, and, thus, out of his or her estate (the assets funding the GRAT can also be passed into a trust at the end of the GRAT term to delay the beneficiary's receipt for asset protection purposes). The risk, of course, is that the grantor could die within the GRAT term, the remaining assets could be included in their estate. Intentionally defective grantor trusts (IDGTs) are another tool that is useful for removing appreciating assets (such as real estate or a business) from the grantor's estate. IDGTs are "defective" because the grantor separates responsibility for income taxes from the estate implications. The assets in the trust will grow tax-free because the grantor pays the associated income taxes. Income tax payment also further serves to reduce the grantor's estate. For charitably inclined clients, a charitable remainder trust (CRT) may be desirable. The CRT is an irrevocable trust that will provide income to a beneficiary each year, whether for life or over a predetermined term of years. The amount of income received is based on the value of the assets the client has passed to the CRT (the amount is re-calculated each year). At the end of the term, the remaining account value is paid to a qualified U.S. charity (the CRT must be structured so that the charity receives at least 10% of the donor's contribution). The client then receives an estate tax deduction for the donated amount. Conclusion These are all complex estate planning strategies that take time to implement. While it may seem early in the year, now is the time to begin considering options for mid to high-net-worth clients. Every client has different goals and a different risk tolerance, so it's important to present the options and explain the implications of any given choice as 2026 approaches. Your questions and comments are always welcome. Please post them at our blog, <a href="http://www.advisorfyi.com/">AdvisorFYI</a>, or call the <a href="http://www.advisorfx.com/panelofexperts.aspx">Panel of Experts</a>.

March 27, 2025

Trump ACA Changes

The Trump administration has officially released its first set of proposals to the Affordable Care Act. Consumers will, if the proposals become reality, be required to provide additional information to prove they are eligible for special enrollment periods (i.e., special enrollment periods available after major life events, like marriage or divorce) and premium subsidies. Annual enrollment would also be shortened by a month and would eliminate a special year-round enrollment period for taxpayers at the lowest income levels. Taxpayers with $0 premium plans would be charged small amounts until they update their information under the new requirements. We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about the Trump administration's ACA changes to promote consumer protections. Below is a summary of the debate that ensued between the two professors. Their Votes:<img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105"><img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105">Their Reasons:Byrnes: We must be focused on developing strategies to prevent bad actors from fraudulently enrolling in ACA health coverage via the marketplace without the knowledge of the individuals whose identities are being compromised. The level of waste that has been allowed to persist in the federal government is simply unsustainable. Trump's new regulatory scheme will go a long way toward preventing fraud and theft of ACA subsidies. Bloink: These new burdensome requirements are going to accomplish one thing: they're going to penalize the lowest income taxpayers who need ACA assistance the most. When we impose complicated regulations that require consumers to disclose more and more information, we'll discourage them from actually completing the process and getting the health insurance they so badly need. __________________________________________________ Byrnes: This proposal would eliminate the year-round special enrollment period for Americans with very low incomes--those who are the very most likely to be exploited. While some view these new requirements as overly burdensome, we have to view the new rules through a more practical lens: that of protecting this vulnerable group of Americans from identity theft and exploitation. These changes would warn taxpayers who are receiving $0 health insurance by charging them a small amount per month—letting them know that they've been enrolled in an ACA marketplace plan. Bloink: We can't escape the fact that the health insurance marketplaces exist to ensure that lower-income taxpayers are able to access the health insurance they need and receive the government assistance they need. These burdensome regulations will absolutely get in the way of Americans getting the health coverage they need, meaning that Americans who are insured will be subject to higher rates--because we all know that when lower-income Americans go uninsured, their unpaid medical costs are simply passed on to other consumers in the form of higher healthcare costs and insurance premiums. __________________________________________________ Byrnes: Requiring Americans to provide basic information about their circumstances can't be viewed as overly burdensome--instead, it's merely the smart way to implement this wide-reaching health program. This isn't a burden. It's a protective process that should have existed from the day the health insurance marketplace was formed under the ACA. We need strong policies in place to protect ordinary Americans from rogue insurance agents and other bad actors. This is one situation where we have to weigh the valuable benefits against the perceived burdens. Bloink: The Biden administration accomplished much by increasing premium subsidies for the lowest-income taxpayers, allowing some hardworking Americans who have struggled under the weight of inflation to enroll in $0 health insurance plans. This new proposal would make it much more difficult for this extremely vulnerable group of taxpayers to receive essential health coverage—and that's something that moves us in a backward direction.