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Test Your Knowledge of 2019 Federal Gift and Estate Taxes
(Updated: 02/04/2019)

When you gift assets during your life, a gift tax may apply, unless you use annual gift tax exclusions or your lifetime gift tax exemption. Assets that are transferred at death, on the other hand, may be subject to estate taxes if the assets exceed the estate tax exemption available.

True or false?
For 2019, the federal annual gift tax exclusion remains unchanged from 2018 at $15,000, and the combined federal estate tax and lifetime gift tax exemption increased to $11.4 million.



The 2019 federal annual gift tax exclusion remains unchanged from 2018, allowing you to gift $15,000 to individuals without federal gift tax. If you are married, you can gift $30,000 ($15,000 per spouse) to individuals without federal gift tax. This can be helpful if you are setting aside funds for education planning, funding an irrevocable trust, or gifting to your family.

The combined federal estate tax and lifetime gift tax exemption increased from $11.18 million per spouse in 2018 to $11.4 million per spouse for 2019. This exemption allows assets to be transferred without federal tax at death and allows assets to be gifted during life that exceed the annual gift tax exclusions.

If you live in one of the states that currently has a separate state estate tax, there may be state estate tax due depending on the size of your estate at death. State estate tax rates and exemptions vary by state.

Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Test Your Knowledge of Eligibility Requirements for Veteran Needs-Based Benefits
(Updated: 01/07/2019)

The Veterans Administration Final Rule 8320-01 went into effect on October 18, 2018. This rule established new financial eligibility qualifications for Department of Veterans Affairs needs-based benefits, including Aid and Attendance.

Which of the following eligibility qualifications are included in this rule?

A. To be eligible for benefits in 2019, a veteran’s net worth must be equal to or less than $126,420, which is also the community spouse resource allowance for Medicaid eligibility. Annual increases in the net-worth limit will be linked to the social security cost-of-living increase.
B. One primary residence with up to two acres, vehicles, and personal items can be excluded from the net-worth calculation.
C. There is a 36-month look-back period for the transfer of any asset that occurs after October 18, 2018, for less than fair market value, including transfers to a trust or an annuity. Five years is the maximum penalty period for an asset transfer that occurs during the 36-month look-back period.
D. Unless there is clear and convincing evidence, the Department of Veterans Affairs will presume that assets were transferred for less than fair market value to qualify for a benefit.
E. All of the above.



Aid and Attendance is the veterans’ benefit most often used to pay for long-term care. Although this rule includes a look-back period and net-worth limit similar to those of Medicaid, Medicaid and Aid and Attendance are separate programs administered by different federal agencies.

The new eligibility qualifications help clarify the net-worth limit and what assets are included in that calculation. Transfers to trusts or annuities may also be included in the calculation unless certain conditions are met, such as maintaining the ability to control and liquidate the assets in the trust. Clients need to be aware of the newly created 36-month look-back period and five-year penalty period. The good news is that this rule provides an opportunity to correct a penalized asset transfer if all assets are returned to the veteran within 60 days of the penalty decision notice.

Test Your Knowledge of UTMA Account Tax Rules
(Updated: 11/05/2018)

A Uniform Transfers to Minors Act (UTMA) account is a custodial account that makes it simple for minors to own securities and certain types of property. With an UTMA account, the money in the account belongs to the minor but is controlled by the account’s appointed custodian until the minor reaches the age of trust termination

True or False?
Distributions from an UTMA account are taxable to the minor beneficiary of the account.



Once money is deposited in an UTMA account, any earnings the account generates are taxable to the minor. In some cases, the IRS’s kiddie tax provisions will apply. Under the kiddie tax rules for 2018, children can claim the standard deduction against their first $1,050 of investment income, and they pay taxes at their tax rate on the next $1,050 of investment income. Anything they make from investments in excess of $2,100 is taxed at the estate’s and trust’s tax rates.

Please note: Before the passing of the Tax Cuts and Jobs Act of 2017, unearned income in excess of $2,100 was taxed at the parent’s tax rate.

Test Your Knowledge of Medicare
(Updated: 09/10/2018)

Medicare is a federal health insurance program for those age 65 or older and for younger people with disabilities. The typical enrollment window begins three months before you turn 65 and ends three months after your 65th birthday. Many individuals are eager to enroll in Medicare as soon as they are eligible. But if you are currently covered by group insurance through an employer or a spouse’s employer, you may qualify for a special enrollment period that allows you to delay Medicare enrollment without paying a penalty.

Which is correct?
Which of the following is true about delayed enrollment in Medicare for those who are 65 and covered by group insurance through an employer or a spouse’s employer?

  1. The size of the employer determines whether you can delay enrolling in Part A and Part B without having to pay a penalty
  2. You have an eight-month enrollment period that begins the month after your employment or insurance coverage ends, whichever comes first.
  3. COBRA coverage, which continues your health insurance through the employer’s plan after your employment or coverage ends, is not considered insurance based on employment and does not qualify for penalty-free delayed enrollment.
  4. All of the above.


You can delay enrollment in Medicare if you are covered by your or your spouse’s employer’s group health insurance plan if the employer has 20 or more employees. If the employer has fewer than 20 employees, you should sign up for Part A and Part B when you’re first eligible, as Medicare will pay before your other coverage. When your employment or coverage ends, you have eight months to sign up for Medicare to avoid a late-enrollment penalty. If you have COBRA coverage, you will not be protected from late penalties if you wait to enroll in Medicare past the deadline.

When should you close a credit card?
(Updated: 08/20/2018)

Fact or Fiction?
If I’m not happy with the new terms of a credit card, I should close it as soon as possible.



Your first instinct may be to terminate the agreement but be careful about hastily closing accounts. This can lower your credit score, especially if you close older accounts with lengthy credit histories. Rather than cancel an account, use the card for small purchases and pay off the balance quickly. This will maintain your credit score and keep the card company from closing your account for nonuse. In some instances, you may be able to negotiate better terms. Check with your bank to find out.

Test Your Knowledge of Credit Freezes
(Updated: 07/10/2018)

In this day and age, our personal financial information is constantly at risk of being stolen or otherwise exposed and misused. To help protect against fraudulent activity, credit experts recommend “freezing” your credit. Having a credit freeze in place allows you to restrict access to your credit report and prevents identity thieves (and you) from opening new accounts in your name. You can lift a credit freeze either for a specific period of time or for a specific party in the event that you need to apply for new credit.

True or False?
Starting in September 2018, it will be free to freeze and unfreeze your credit at any or all of the three major credit reporting bureaus.



As a part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the three major credit reporting bureaus—Equifax, Experian, and TransUnion—will allow consumers to freeze and unfreeze their credit files free of charge beginning in September 2018. In order for a credit freeze to be effective, you will still need to request the freeze at all three bureaus separately, but you won’t have to pay a fee each time you do.

Here’s how to initiate a credit freeze:

  1. Contact each of the nationwide credit reporting companies:
  2. Be prepared to supply your name, address, date of birth, social security number, and other personal information.
  3. Once your freeze request is received, each credit reporting company will mail you a confirmation letter containing a unique PIN or password. You’ll want to keep this PIN or password in a safe place so that you can access it when you wish to lift the freeze.

In most states, a freeze remains in place until you ask the credit reporting bureau to lift it, either completely or temporarily. If you are applying for credit or a job and want to temporarily lift a freeze, you can save yourself time and effort by determining which of the three credit reporting bureaus the business will contact for your file and lifting the freeze only at that particular bureau.

When you request to lift a freeze, the credit reporting bureau must do so within three business days.

How much do you know about Charitable Contribution Deductions under the TCJA?
(Updated: 04/09/2018)

Under the Tax Cuts and Jobs Act of 2017 (TCJA), the standard deduction has increased to $12,000 for individuals and $24,000 for married couples. This means that unless you have itemized deductions beyond these thresholds, you will not realize a tax benefit from your charitable gifts. To avoid this scenario, one strategy for the charitably inclined is to “bunch” charitable contributions into certain tax years to maximize tax savings using itemization. Through the use of a donor-advised fund, you can bunch several years of charitable gifts into one tax-deductible contribution and then recommend grants annually to the charities of your choosing. Funds in a donor-advised fund grow tax free and can be managed by the donor’s preferred financial advisor.

True or false?
Starting in 2018, charitable contributions of cash are deductible up to 60 percent of your adjusted gross income (AGI), assuming you itemize your deductions.



The deduction limit for cash contributions was previously set at 50 percent of the donor’s AGI. But the TCJA increased this limit to 60 percent. The deduction limit for securities, mutual funds, real estate, and other assets remains unchanged at 30 percent of AGI if given to a public charity or 20 percent if given to a private foundation. Donations beyond these limits may be carried forward for up to five years.

Test Your Knowledge of “See-Through” Trusts
(Updated: 03/12/2018)

Which is correct?
Treasury regulations permit naming a trust as the beneficiary of a retirement account. To qualify as a “see-through” trust, which permits post-death required minimum distributions (RMDs) to be “stretched” (i.e., calculated on the life expectancy of the oldest of the trust’s underlying beneficiaries), which of the following requirements must be met?

A.  The trust must be valid under state law.
B.  The trust must be irrevocable or become irrevocable upon the death of the participant.
C.  All beneficiaries of the trust must be individuals.
D.  The beneficiaries must be identifiable from the trust instrument.
E.  All of the above.



For a trust to be considered a qualified beneficiary of an IRA or other retirement plan, all of these requirements must be met. In addition, the appropriate documentation—which usually includes a copy of the trust—must be provided to the plan administrator within a specified amount of time. If these requirements are met, the tax-deferred status of an inherited IRA will be extended, and the beneficiaries will be permitted to stretch the RMDs over the life expectancy of the oldest beneficiary.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Test Your Knowledge of New 529 Plan Rules
(Updated: 2/2/2018)

True or False?
529 plans can now be used to pay for tuition at elementary or secondary schools.



The Tax Cuts and Jobs Act of 2017, which went into effect on January 1, 2018, expanded the definition of a “qualified higher education expense” to include tuition for K—12 schools. This means withdrawals to pay for a child’s private school will be federally tax free, up to a maximum of $10,000 per beneficiary, per year.

Before you start taking advantage of this change to the 529 plan structure, however, check with your state and your plan. Savingforcollege.com reports that as many as 30 states have not yet changed their own laws to comply with the federal law, which means you could face an unexpected tax bill if you withdraw 529 plan funds to pay for K—12 tuition.

Do you know the difference between wills and trusts?
(Updated: 1/29/2018)

Fact or Fiction?
Wills and trusts govern all property that you own.



A will governs only probate property; a trust governs only assets owned by the trust. Some assets pass outside of probate by virtue of a beneficiary designation or the manner in which title is held. To ensure that your assets (such as jointly held property and retirement benefits) will be distributed according to your wishes, regularly review their ownership and beneficiary designations.

Test Your Knowledge of Grantor Trusts
(Updated: 1/09/2018)

A grantor trust is a trust in which the grantor (i.e., the person who establishes the trust by gift or grant) or the grantor’s spouse retains certain powers or rights, such as:

  • A reversionary interest that exceeds more than 5 percent of the trust’s value when the reversionary interest is created
  • The power to determine who will receive income or principal
  • The right to buy, borrow, or substitute trust property under terms that favor the grantor
  • The right to revoke
  • The right to use income to pay life insurance premiums on the life of the grantor or the grantor’s spouse

True or false?

A grantor trust can be irrevocable for gift and estate tax purposes and still cause the grantor to recognize taxable income, even if he or she does not receive trust income.



A grantor trust uses the tax identification number of the grantor for income tax reporting purposes. The trustee reports trust income, deductions, and credits to the grantor. In turn, the grantor discloses these items on his or her personal tax return. A revocable trust is a grantor trust while the grantor is alive, but it becomes a separate tax entity after the grantor dies—even if the name of the trust remains the same.

Recognizing taxable income and paying income taxes on income that may not be received by the grantor may seem like negatives; however, they free the beneficiaries from the burden of paying income tax and allow the trust assets to grow for the beneficiaries’ benefit. In this way, the grantor is able to make tax-free gifts to the beneficiaries. If the grantor decides the trust is sufficiently funded, or if it is no longer desirable to pay the trust’s income taxes, the grantor trust powers can be forfeited or waived—converting the trust to a nongrantor trust that becomes its own tax entity. With a nongrantor trust, the distributed income is taxed to the beneficiary who receives it.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

How involved should you be in your elderly parents’ affairs?
(Updated: 12/04/2017)

Fact or Fiction?
If your elderly parents live on their own, you should let them be fully independent and avoid pestering them.



When you worry that your parents may not be able to decide on their own when they need more help, then regular check-in meetings are a good way to gauge how they’re doing. Accompanying your parents to meetings with their doctors, attorneys, and other professional advisors can also provide insights into their ability to continue living on their own.

Test Your Knowledge of Social Security Benefits
(Updated: 11/07/2017)
Social security can provide benefits for you, your spouse, and other eligible members of your family.
True or false?
Social security benefits are always exempt from federal income taxes.


About 40 percent of people who receive social security pay federal income taxes on their benefits. To determine whether you will owe taxes on your benefits, you must first calculate your combined income, which is:

Your adjusted gross income
+ Nontaxable interest
+ ½ of your social security benefits
= Your combined income

Once you have calculated your combined income, the tax you owe depends on your filing status.

  • If you file an individual return and your combined income is:
    • Between $25,000 and $34,000: You may have to pay income tax on up to 50 percent of your benefits.
    • More than $34,000: Up to 85 percent of your benefits may be taxable.
  • If you file a joint return, and you and your spouse’s combined income is:
    • Between $32,000 and $44,000: You may have to pay income tax on up to 50 percent of your benefits.
    • More than $44,000: Up to 85 percent of your benefits may be taxable.
  • If you are married and file a separate tax return, you probably will have to pay taxes on your benefits.

If you anticipate owing taxes on your social security benefits, you can ask the Social Security Administration to withhold federal taxes from the benefits you receive each month. You can withhold 7, 10, 15, or 25 percent of your monthly benefit. Only these percentages can be withheld; flat dollar amounts are not accepted. You can also make quarterly estimated payments.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Test Your Knowledge of Qualified Charitable Distributions
(Updated: 10/09/2017)

A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA to a qualified charity.

True or false?
A QCD can be used to satisfy all or part of your required minimum distribution (RMD), and you won’t have to pay taxes on the amount distributed.



If all of the requirements are met, a QCD is not a taxable event, meaning you won’t pay taxes on the distribution to a qualified charity, and the amount will be excluded from your income, which could help you avoid moving into a higher tax bracket. In addition, a QCD can satisfy all or part of your RMD for the year. The maximum QCD is $100,000 per taxpayer (not per account), per year.

To be eligible to make a QCD:

  • You must be at least 70½ years old on the date of the distribution (not simply turning 70½ during the tax year when the distribution is made).
  • QCDs must be made from an individual IRA; they cannot come from SEP and SIMPLE IRAs or from any other type of employer retirement plan.
  • The distribution must be for the benefit of a 501(c)(3) organization. Private foundations, support organizations, and donor-advised funds do not qualify.

In order for the QCD to satisfy your RMD for the current tax year, you must make the distribution (and ideally have the check cashed by the charity, completing the donation) by your RMD deadline, which is generally December 31.

For more information about QCDs, see IRS Publication 590-B.

Have You Considered a Donor-Advised Fund?
(Updated: 3/14/2016)

For those who are charitably inclined, establishing a donor-advised fund (DAF) allows you to:

  1. Make a charitable contribution to the fund and receive an immediate tax deduction.
  2. Recommend donations to qualified charities at any time while still receiving the up-front tax deduction.
  3. Assign the fund a name of your choosing.
  4. Have your contributions to the fund managed by your financial advisor and grow tax-free.
  5. All of the above.


Upon establishing a DAF, a donor makes an irrevocable charitable contribution to the fund and immediately receives the maximum tax deduction that the IRS allows. The donor can then recommend charitable grants from the fund at any time. The DAF bears whatever name the donor chooses, grows tax-free, and can be managed by the donor’s preferred financial advisor.

Test Your Tax Knowledge
(Updated: 08/10/2015)

What is the alternative minimum tax (AMT)?

A. The AMT prevents individuals from paying too little tax by limiting deductions and exemptions.
B. The AMT is an additional tax for individuals who surpass certain income thresholds.
C. The AMT is a minimum tax that applies to sales of real estate for personal use.
D. The AMT applies only to corporations to ensure that income generated within the United States is taxed at a minimum rate.



The AMT imposes a limit on the amount of tax benefits you can claim to reduce your regular tax burden. In other words, if exemptions and deductions reduce the total tax you owe below the AMT limit, you must pay the higher AMT amount. Exercising incentive stock options and claiming a large number of personal exemptions are two common factors that may trigger the AMT.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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