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I am a newlywed with few assets. How can estate planning help me?

A marriage is a bond between two people who have pledged to face life together. If you have recently committed to spending the rest of your life with your spouse, there is no better time than now to establish an estate plan.

While preparing for the future can be intimidating, estate planning can ease much of this uncertainty. Newlyweds share a joint effort toward growth and stability, and estate planning is an extension of this aim. Regardless of income, asset value, or homeowner status, newlyweds are in a highly favorable position when it comes to building an estate plan. Where do you begin?

It is helpful to think of estate planning as a way to protect your assets, possessions, and medical preferences. As such, spouses can share this responsibility even if they have few assets or do not own property. A common misconception is that estate planning only encompasses real estate. However, this is not the case. Your estate includes (but is not limited to): motor vehicles, prized personal possessions, heirlooms, and investment accounts.

Newlyweds can begin (or update) their estate plan by having an attorney prepare the following:

 

Will

A well-crafted will can be a source of relief for surviving spouse, family, and loved ones. It includes the decedent’s wishes for the management and administration of their estate. Married couples often combine assets, which can change the nature of an individual’s pre-existing will.

If you have children or plan to have children, a will is a vital avenue for protecting your legacy. Inheritance and guardianship preferences can also be outlined in your will.

Those who have a will and are not yet married, but are planning to be married soon, are highly encouraged to revise their will after marriage. A change in marital status is just one of the significant life events that justify a will revision. Other significant life events include changes in residency, career, and homeowner status.

Power of Attorney

Having a Power of Attorney document in place allows you to appoint an agent to make legal, financial and personal decisions on your behalf in the event that you cannot make these decisions for yourself. Choosing an agent may take some deliberation and discussion with your spouse and the person you decide to appoint. For this reason, it is crucial to start the estate planning process sooner rather than later.

Advance Directive

Advance directives are also important regardless of the size of your estate. In this document, you may choose a healthcare agent to make medical decisions for you. The decision-making power of your healthcare agent can be limited or general. Specific medical preferences, such as “Do Not Resuscitate” orders, are also included in an advance directive.

 

As much as we try to plan ahead for emergencies, unforeseen situations are inevitable. In starting a new life together, you and your spouse should prioritize your approach to financial and medical well-being; these major decisions cannot be left to fate. Those with small estates have the ability to grow and maintain assets in the years to come and take comfort in knowing they are in control.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.

Having an estate planning professional not only offers clear communication and direction but allows for peace of mind. An estate plan is a crucial tool to help you achieve your goals, both individual and shared. If you would like assistance with estate planning in Maryland or have questions regarding your situation, we invite you to contact us at the Law Offices of Elsa W. Smith, LLC. 410-995-7719

What the New 20% Pass-Through Deduction Means for Business Owners

What the New 20% Pass-Through Deduction Means for Business Owners

It is essential for business owners to be familiar with their landscape, reap all available tax benefits, and stay up-to-date with developments in the business world. The 20% deduction for pass-through businesses, outlined in IRC Section 199A, was introduced in the 2017 Tax Cuts and Jobs Act. It is the subject of wide discussion (and some confusion) by business owners and informed citizens. An overview of the deduction and its terms sheds light on the deduction and what it means for U.S. business owners.

Pass-Through Entities

The 20% Pass-Through Tax Deduction applies to pass-through (or flow-through) entities. This include sole proprietors, partnerships, S corporations, and LLCs.

Pass-through entities are not subject to corporate income tax. As opposed to C corporations, which are taxed doubly, pass-through entities are only taxed once on their profits.

Profits made by pass-through entities are taxed on an individual basis (the income of owners is taxed). The deduction applies to the owner’s tax return.

Eligibility Exclusions

The 20% Pass-Through Tax Deduction applies to Qualified Business Income (QBI). There are several restrictions to Qualified Business Income.

Capital gains and capital losses, dividends, and interest income are not included in the definition of Qualified Business Income, and are excluded from the 20% pass-through deduction. Services performed by employees of a trade or business are also inapplicable.

Income generated by a specified service trade or business (SSTB) is excluded from the deduction, but only if the business income exceeds a certain amount. Specified service trades or businesses include any business or trade where the service provided is dependent on the skill or expertise of one or more of its employees. As such, trades and businesses in the industries of law, performing arts, investing, and medical services, among others, do not qualify for the deduction with respect to high-earning businesses. IRS.gov states that “This exception only applies if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers.”

Who is eligible for the 20% pass-through deduction?

  • For trades or businesses that fall under the taxable income limitation listed above ($315,000 for jointly filed returns and $157,000 for all others), the following options are calculated and the lesser of the options will be deducted:
  1. The taxpayer receives a 20% deduction of Qualified Business Income. In addition, the taxpayer also receives a 20% deduction on qualified real estate investment trust dividends and money earned publicly traded partnerships.
  2.  The taxpayer receives a 20% deduction on taxable income after subtracting net capital gains.
  • For trades or business with taxable income that is higher than $157,000 for single filings or $315,000 for married joint filings but lower than $207,500 (single) or $415,000 (married), the deduction depends on whether the business is a specified service trade or business (SSTB) or not, and is calculated as follows:
    • SSTB: The deduction is phased out as income increases. This means that they do not receive the full 20% deduction, but still receive a partial deduction for their specified service trade or business. As the SSTB income reaches the cap of $207,500 for singles and $415,000 for married couples, the deduction becomes 0%.
    • Non-SSTB: The business may still qualify for the 20% deduction, with limitations. See the deduction calculation for the next-highest income bracket.

 

  • For pass-through trades or businesses that exceed $207,500, or $415,000 for married joint filings, the 20% deduction does not automatically apply. In addition, the specified service restriction applies to this income bracket. All specific service trades or business are excluded from the deduction in this bracket. For non-SSTB pass-throughs, the deduction is calculated by comparing the following options and determining the smallest amount. The option resulting in the smallest amount is the applicable deduction for this bracket:
  1. 20% deduction on Qualified Business Income; or
  2. The greater of the following:

a)  50% deduction of total employee wages

b) 25% deduction of total employee wages in addition to 2.5% deduction of the cost basis of the business’ qualified property.

Looking Forward

Business owners can agree that it is crucial to understand and make the most of tax breaks, laws, and regulations. Navigating business and tax matters can be a complicated process, but it doesn’t have to be. Having the assistance of a business professional can calm uncertainty, build confidence, and fortify your business endeavor. Contact us at the Law Offices of Elsa W. Smith, LLC to schedule your business consultation today.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.

 

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5 Estate Planning Myths Held by People in Their 20’s

Estate planning can be an intimidating process, but it doesn’t have to be. Having your wishes clearly defined can alleviate your family and loved ones from a great deal of stress. Planning ahead will only benefit you in the long run. As a young adult, estate planning allows you to take stock of your assets as they grow. Here are five myths that often stop people in their twenties from starting the estate planning process:

  1. Myth: People in Their Twenties are Too Young to Begin Planning Their Estate

It is common for young adults to assume estate planning is for retirees or those facing end of life. However, estate planning is equally important for young adults.

Adults in their 20’s are in a unique and beneficial position when it comes to estate planning. Many are in the process of defining long-term goals, establishing their life plan, and working toward acquiring assets while being far from retirement. It is an ideal stage in which to consider options for wealth-building and maximizing retirement benefits, and planning. In addition, it is important to consider unforeseen circumstances.

One estate planning age restriction: You must be at least 18 years old to create a will in Maryland.

  1. Myth: Estate planning only applies to real estate owners.

The belief that estate planning is only for homeowners is a widely-held misconception among people in their 20’s. Contrary to this belief, is not necessary to own a home or have sizeable assets to plan your estate.

Estate planning encompasses all of your assets, not only real estate. This includes, but is not limited to: vehicles, electronic equipment, investment accounts, family heirlooms, and valuable personal possessions.

  1. Myth: Estate planning is not necessary for those with no children or beneficiaries.

Even with no children or heirs, it is important to consider the people you leave behind and preemptively mitigate disputes or confusion that may arise in your absence.

Petcare is an often-overlooked aspect of estate planning. While a pet cannot be a beneficiary, there are ways to ensure your pet’s needs are met in the event of your death or incapacitation. One option is a pet care trust, which allows for funds to be allotted to the care of a pet after the death of its owner.

Charitable estate donation is an appealing choice for those with no heirs, and can be laid out in one’s will. It is an alternative to dying intestate, which leaves asset distribution in the hands of the state.

  1. Myth: A will is enough.

There is more to estate planning than making a will. While a will protects your assets and possessions, a will alone does not cover everything.

In the event that you can no longer make or communicate your healthcare decisions, it is essential to delineate your legal, financial, personal, and medical wishes. You may also wish to appoint an agent you trust to make these decisions on your behalf. A Power of Attorney (POA) form authorizes an agent to make legal, financial, and personal decisions on your behalf.  For example, the POA is helpful for college students who may be studying abroad and need a parent to assist with taxes or other financial matters while they are gone.

Advance directives are medical powers of attorney. An advance directive protects your right to request specific treatment for medical care or refuse medical treatment that you do not want in the event that you become incapacitated, and appoints a healthcare agent to make specific or general healthcare decisions on your behalf.

 

  1. Myth: Estate planning is a one-time task.

Estate planning is a continuous process. Get into the practice of revising your estate plan periodically, especially following significant life events. This includes:

  • Changes in marital status
  • The birth or death of family members
  • Change in homeowner status
  • Change in residency (state or country)
  • Change in career/income

Estate planning in your 20’s may not be on the top of your must-do’s, but it should be. Making important and sometimes tough decisions now will lay groundwork for the more complex planning that will come later. You will also spare your loved ones the hassle and heartache of distributing your assets if and when the unexpected happens. If you live in Maryland, contact us at the Law Offices of Elsa W. Smith, LLC to schedule your estate planning consultation today.

Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.