End of an Era for Estate Tax Exemption?

02.05.2024 Written by: Henningson & Snoxell, Ltd.

The end is in sight for the federal estate tax exemption to sunset. Unless Congress makes the current law permanent, it will revert to the pre-2018 amount of $5 million, adjusted annually for inflation, on January 1, 2026. Although no one knows what Congress will or will not do, inaction makes for poor planning—especially when it comes to estate and tax considerations.

Federal estate and gift tax laws provide for a certain amount of wealth to pass free from estate or gift tax either as gifts made during life or upon a decedent’s death. This amount is called an “exemption” or “exclusion.” The current federal estate tax exemption is $13.61 million per person. The tax rate on assets that exceed the exemption amount is 40 percent. Estate and gift tax laws are tied together—if a person makes a gift to another individual during life in excess of the annual exclusion amount (currently $18,000/person/year), and assuming such gift is not a gift payable to an educational institution or medical provider for such person’s benefit, such gift “eats into” that person’s ability to pass wealth free from tax at death.

In other words, hefty estate tax must be paid on a decedent’s assets that exceed the amount that can pass free from estate tax in the year of death, and the amount of wealth that can pass free from this tax is set to decrease. The estimated exemption amount for 2026 is $7 million for individuals and $14 million for married couples.

This upcoming change in the law presents an opportunity. If a person gifts away significant wealth between January 1, 2018, through midnight on December 31, 2025, and then later dies with a taxable estate, such gifts made in 2018-2025 over the exemption amount do not adversely affect the decedent. This means that if a person makes large gifts now, when the estate tax exemption is high, and dies post-2025, the person can pass more wealth tax-free. There may be other tax avoidance or tax minimization strategies to consider as well.

Although December 31, 2025, seems far in the future, it is important to understand how this change could affect your current estate plan and how long it may take to update or change your planning. Our team at Henningson & Snoxell is happy to review your estate plan and discuss options for additional planning! Contact us today.

Corporate Transparency Act: New Reporting Requirement for Beneficial Ownership Information

12.22.2023 Written by: Henningson & Snoxell, Ltd.

Starting January 1, 2024, numerous businesses in the United States will be required to disclose details under the Corporate Transparency Act (CTA) regarding their beneficial owners—those who ultimately have ownership or exert control over the company. This information must be submitted to the Financial Crimes Enforcement Network (FinCEN), which operates as a bureau within the U.S. Department of the Treasury.

Does my company have to report?

The CTA mandates that corporations, limited liability companies, and similar entities must report if they are either: (i) established by filing with a Secretary of State or an equivalent office under State or Indian Tribe laws, or (ii) foreign entities registered to operate in the United States, except for certain exempt entities. Furthermore, most partnerships, including Limited Partnerships (LPs), Limited Liability Partnerships (LLPs), and Limited Liability Limited Partnerships (LLLPs), fall under the CTA’s reporting requirements, as they are typically formed through a state-level filing.

There are many exempt entities, including, but not limited to, public companies, banks, credit unions, tax-exempt entities, and large private companies.

What does my company need to report?

Beneficial owners of reporting companies will first need to be established based on the criteria set forth by FinCEN. Reporting companies will then need to disclose information about these individuals, such as name, date of birth, address, unique ID number, and image, as well as the entity’s name, address, formation jurisdiction and tax identifier.

For entities created or registered after January 1, 2024, there is an additional report needed for the “company applicant.” The company applicant is the individual who first files or registers the entity. Reporting companies established or registered before January 1, 2024, are not required to report information about their company applicants or update this information, as long as it was accurate when initially reported.

When should we report?

Starting January 1, 2024, FinCEN will begin accepting Beneficial Ownership Information (BOI) reports. The deadlines vary based on the company’s formation or registration date:

Companies created or registered before January 1, 2024, must submit their BOI by January 1, 2025.
Companies formed or registered between January 1, 2024, and December 31, 2024, need to report BOI within 90 days after the effective notice of their formation or registration.
For companies established or registered on or after January 1, 2025, BOI must be filed within 30 days following the effective notice of their creation or registration.
Any updates or corrections to previously filed beneficial ownership information should be reported to FinCEN within 30 days of the change.

What are penalties for non-compliance?

Willful failure to report or update ownership information, or providing false information, can lead to severe civil or criminal penalties, including daily fines or imprisonment. Senior officers may be held accountable for their company’s non-compliance. Penalties also apply for intentionally causing a company to fail in its reporting obligations or for providing false information. However, there is a safe harbor from penalties for voluntarily correcting inaccurate reports within 90 days of the original deadline.

******

Please note, all information presented in this post is for general informational purposes only, and the content provided is a summary. Please contact our business attorneys to update your governing documents and contracts and for more information and guidance regarding the effect of the CTA on your operations.

Keeping the Peace during the Holidays

12.20.2023 Written by: Henningson & Snoxell, Ltd.

Holidays can be a difficult time for families. Gathering around the dinner table often brings stress, especially if there are concerns regarding money and aging parents. Well-meaning children may bring up ideas on how Mom and Dad can avoid “giving everything to the nursing home” by giving assets to the children. I urge families to proceed with caution. Planning for incapacity and long-term care should be a longer discussion with legal and financial professionals involved to ensure that aging loved ones are protected from unintended consequences.

Long-term care planning is a complex process dealing not only with tax consequences but also possible eligibility issues regarding financial assistance for long-term care. Generally speaking, Medical Assistance prohibits giving gifts of any amount within five years of application for assistance.

Let’s look at an example. Grandma gives each of her five grandchildren $10,000 for Christmas each year for four years. On the fifth year, she finds herself in need of long-term care but without sufficient assets, so she applies for Medical Assistance. Unless the $200,000 in gifts given to the grandkids over the past five years is returned to Grandma, she will be ineligible for Medical Assistance for nearly two years. This is called a penalty period. It is calculated by taking the amount of the gift and dividing it by the Statewide Average Payment for Skilled Nursing Facility (a/k/a SAPSNF). This number is updated every July based on the monthly average cost for care in a nursing home in Minnesota.

There are some options to protect or gift assets, but such strategies should be coordinated by an elder law attorney, the person’s financial advisor, and tax advisors. An elder law attorney who is well-versed in the rules regarding Medical Assistance can work with families to plan a legacy while ensuring that the long-term care needs of the elderly loved one are kept at the forefront.

Planning for Incapacity is also best accomplished with the aid of professionals. Handwritten powers of attorney and health care directives may be valid on their faces, but they can create significant headaches if there are questions regarding the individual’s capacity to execute such documents. This is especially true when concerns of financial exploitation arise. When a healthcare directive or power of attorney is called into question because of a person’s incapacity to execute new documents, the parties must go to court in a guardianship and/or conservatorship proceeding. These are expensive and oftentimes contentious proceedings costing tens of thousands of dollars and splitting families apart in the process.

If you think a family member might need to enter an assisted living or long-term care facility, pick the right time and place to discuss it. Many aging loved ones are fiercely protective of their independence and autonomy. Conversations regarding safety risks of remaining in the home need to be approached respectfully and carefully. This promotes a more productive conversation and a higher likelihood of finding solutions that balance safety concerns with our loved ones’ wishes. Proactive discussions and support can go a long way toward preventing a need for emergency interventions. Elder law attorneys can assist families with navigating tough conversations. They provide an objective outside perspective and practical knowledge of what the next phases of life might look like. At a time when a family may be overwhelmed and not quite sure what the future looks like, an elder law attorney can help you plot a course for the future while keeping the peace in the family.

Ban on Asking Applicants and Employees about Pay History

12.18.2023 Written by: Henningson & Snoxell, Ltd.

Effective January 1, 2024, all employers in Minnesota will be prohibited from asking job applicants, including contractors and current employees seeking internal promotions or transfers, about their pay history. Employers will need to base a salary offer on market conditions and the applicant’s skills, education, and other qualifications. However, job applicants may voluntarily disclose their pay history with a prospective employer. Employers should review applicant materials and communicate to applicants what information will be used in determining the salary offer.

MINNESOTA’S NEW EARNED SICK AND SAFE TIME LAW

12.13.2023 Written by: Henningson & Snoxell, Ltd.

Effective January 1, 2024, Minnesota’s Earned Sick and Safe Time (ESST) law will require employers with one or more employees to provide paid leave to all employees who work at least eighty (80) hours a year in the state of Minnesota to be used for one of the many permitted purposes specified in the statute.

What responsibilities do employers have?

Employers have the option to either allow employees to accrue ESST at a rate of one hour of paid leave for every 30 hours worked, up to at least 48 hours in a year (the “accrual method”) or use the “frontloading method” whereby the employer ensures that each employee has the requisite amount of ESST frontloaded by January 1, 2024.
Include the total number of ESST hours accrued and available for use; and the total number of ESST hours used on the employee’s earning statements at the end of each pay period.
Provide notice informing the employees about ESST.
Include an ESST notice in any employee handbook.

Under the Accrual Method, employers must allow employees to carry over accrued but unused ESST but may cap the total amount of accrued ESST at 80 hours.

Under the Frontload Method, an employer must frontload 48 or 80 hours depending upon whether they pay out unused ESST at the end of the year.

Policies that already provide paid time off will comply with the ESST law as long as they meet or exceed all necessary criteria and do not include conflicting provisions. It is not mandatory for the paid time off policy or plan to be explicitly labeled as ESST to fulfill the law’s requirements. However, employers may find it beneficial to incorporate references to ESST usage within their policy.

Please note, businesses in Bloomington, Duluth, Minneapolis, and St. Paul are already subject to sick and safe time ordinances. On January 1, 2024, employers will have to follow that which is most generous as it applies to their employees.

Contact us regarding implementation of the ESST law as well as necessary reviews and updates to employee handbooks. We are here to help protect you and your business.

SCARY TALES OF ESTATE PLANNING GONE WRONG

10.31.2023 Written by: Henningson & Snoxell, Ltd.

It’s that time of the year again, Halloween. With that brings trick-or-treating, costume parties, visits to the pumpkin farm, haunted houses, and scary movies. These things don’t necessarily trigger thoughts about estate planning, but it is a great time of year to remind people of horror stories that can transpire from not having a proper estate plan in place.

Most people I meet with regarding estate planning tell me they have a “simple estate,” “everyone gets along,” “there won’t be any issues,” or “we don’t need those documents because we have all talked about what will happen.” My usual response is, “I would love to show you all the files of people who said the same things and then because they didn’t have adequate estate plans, left scary situations for their families to navigate.”

Some nightmares I have seen develop from improper estate plans include:

Using a health care directive in lieu of a Will, which lead to a family dispute over who should receive assets;
Telling a child he would get the family cabin (because “we talked to our kids about it”) but not putting it into writing, leading to years of litigation;
Writing changes/edits on a Will (rather than executing a Codicil), thereby invalidating the document because it could not be determined who actually wrote on it; and
Creating a Revocable Trust but not actually funding the Trust with assets, thereby forcing the family to do a costly probate.

We often hear about celebrities and the battles that ensue after their deaths. The horror stories that develop from these situations should give everyone cause to update their estate plan.

Here in Minnesota, we are all aware of Prince’s situation. Prince died intestate in 2016, meaning without a will or trust. Many people came forward to claim the estate as Prince’s heir or as a creditor. As of the writing of this blog, the probate case in Carver County is still open. This has cost the Estate thousands, if not millions, of dollars. A will or trust identifying who his heirs were would have saved lots of attorney time and dollars.
Larry King died in 2021. Two years prior to his death, he wrote a note that he wanted his estate divided between his children. A battle ensued between his wife (from whom he was divorcing) and his children. This horror story situation can often develop between a surviving spouse and stepchildren if estate planning is not done properly. Years and years of costs and litigation can result.
Marilyn Monroe is a horror story of not taking tax planning into account when she prepared her estate plan. Her probate took 39 years, and half of her estate was paid to the IRS in estate taxes, not to mention the person administering the estate made over $30 million.

This is, of course, just a brief look at scary situations that can develop from improper or no estate planning. Knowing these horror stories should give everyone a reason to start their estate planning or check if their current plans need a refresh.

If these estate horror stories have spooked you into working on your estate plan, please contact our office to schedule an appointment.

Navigating Divorce – A Panel Discussion

10.06.2023 Written by: Henningson & Snoxell, Ltd.

Is it time for a change in your life? Divorce can be a challenging journey, but you don’t have to go through it alone. If you’re considering divorce, join us for a free live panel discussion and get your questions answered by a team of experienced professionals.

Date: Thursday, October 26th
Time: 6:00 PM – 7:00 PM
Location: Plymouth Community Center – Birch Room
Address: 14800 34th Ave N, Plymouth, MN 55447
Refreshments Provided

Join Henningson & Snoxell, LTD family law attorney Jennifer M. Nixon and a panel that includes a financial professional, family therapist, divorce coach, and divorce mortgage expert.

Space is limited; reserve your spot today at Eventbrite or Meetup. It’s time to take the first step towards a brighter future.

Don’t let the uncertainties of divorce keep you spinning. Empower yourself with knowledge and support from compassionate professionals. We’ll see you there!

Coming Soon: Minnesota Retirement Program

10.05.2023 Written by: Henningson & Snoxell, Ltd.

The Minnesota Secure Choice Retirement Program Act (the “Program”) establishes a retirement savings program available to state residents employed by covered employers (those with five or more employees who do not already have a retirement program in place). Under the Program, individual retirement accounts (IRAs) will be established for eligible employees to fund with a portion of their paycheck.

Program Features:

Participation in the Program is mandatory for employers that do not currently sponsor their own workforce retirement savings plan, such as a 401(k) plan, or those who have not sponsored one in the 12 months prior to the “Mandatory Implementation” date.
Employers are not required to contribute to their employees’ retirement plan.
“Covered Employees” include any employee of a covered employer who is at least 18 years old and satisfies any other criteria that may be established by the Program’s Board of Directors.
Employees can:
- elect whether their contributions will be pre-tax or post-tax (Roth)
- change their contribution rate
- opt out of participation entirely
Employers must provide Program Information to all covered employees (the Program Information required has not yet been made available by the State).
Annual limits on contributions to an account under this Program will mirror the Federal IRA limits which are subject to annual adjustments. For 2023, these limits are $6,500 for individuals under the age of 50 and $7,500 for individuals over the age of 50.
The Program is set to begin on or after January 1, 2025. The Board of Directors will meet on March 1, 2024, to establish administrative procedures for the Program.

Program Governance: Board of Directors

The Program will be administered by a Board of Directors comprised of seven (7) members: the executive director of the Minnesota State Retirement System; the executive director of the State Board of Investment; three (3) members chosen by the Legislative Commission on Pensions and Retirement with retirement plan expertise; one (1) private-sector member (appointed by the Governor) with plan administration experience; and one (1) small business owner (appointed by the Governor).

Note to Employers:

This means additional requirements for you including, but not limited to, withholding contributions from payroll, remitting the withheld contributions to the program, ensuring all necessary information is provided to employees, etc. So, be sure to pay close attention when this Program becomes effective as civil penalties will be imposed for compliance failures.

We do our best to keep employers updated so that you can make informed decisions as you operate your business. For now, there is no requirement that you implement anything. But if you have any questions or concerns about this Program and what it may mean for your business, please feel free to reach out. A member of our team would be happy to guide you through this change.

BEWARE: Scams after Forming Your Business

09.28.2023 Written by: Henningson & Snoxell, Ltd.

There has been a recent increase in scammers coming from nearly every direction. Most commonly, new business owners, especially owners of LLCs, are receiving official-looking notices or invoices after forming their new entity.

Here are the most common scams and what you need to know!

Appearing Official – Although the letters may look and seem official or quasi-governmental, they are not. Scammers try their best to make the letter as convincing as possible, but do not be fooled.
Labor Posters – The letters claim to provide labor law posters for an unnecessary fee, but the Department of Labor and Industry website provides free labor law/workplace posters. You can print them yourself or have them shipped to your business.
Certificate of Good Standing – Some letters claim to provide a copy of your business’s Certificate of Status for a fee. But the Secretary of State’s website offers a much lower cost of $5 for mail and in-person orders and $15 for online orders.
Annual Renewal – Letters claiming to submit your business’s Annual Renewal with the state for a fee should be disregarded because you can do so for free on the Secretary of State’s website.
Confidential Information – Requests for confidential information to update your business’s information or apply for a “state benefit” should be reported! Any confidential information related to your business, including officer names and addresses, bank account information, etc., should not be disclosed to anyone over the phone or in a letter.

When in doubt, do not respond. Contact us to verify that the fee or information request is valid.

Ban on Captive Audiences

09.15.2023 Written by: Henningson & Snoxell, Ltd.

New legislation went into effect on August 1, 2023 that prohibits employers from discharging, disciplining, or otherwise penalizing employees who decline to attend or participate in employer-sponsored meetings, the primary purpose of which is to communicate the employer’s opinion concerning religious or political matters (“Captive Audience Meetings”). The law also protects employees who decline to receive or listen to employer-sponsored communications. Under the statute, retaliation, or the threat thereof, is prohibited as a means of inducing an employee to attend such meetings or receive such communications. And, under no circumstances may an employer take adverse action against an employee making a good-faith report of a violation or suspected violation of this statute.

The statute does not:

Prohibit communication of information that the employer is required by law to communicate.
Limit employers’ right to conduct meetings involving religious or political matters if attendance or listening is wholly voluntary.
Limit employers’ right to communicate with employees or require the attendance of employees at meetings and other events that are necessary for employees to perform their lawfully required job duties.

Employers must post and keep posted a notice of employee rights, where employee notices are customarily posted if they have not already. Please contact us regarding our best practice recommendations for your workplace or with any questions regarding this new ban on captive audiences.

Blog

Subscribe to Our Blog

Search Blog Posts

Categories

Archives

Visit our website