Two Lesser-Known Estate Planning and Financial Benefits of the CARES Act

CARES Act Estate PlanningAs the pandemic continues to rage and many provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act approach their expiration at the end of July, Congress is gearing up to consider a new round of relief legislation. While much of the focus and debate will be on the extension of unemployment benefits, other parts of the CARES Act are less controversial and are likely to remain unchanged in the months ahead. This includes some lesser-known financial benefits designed to help individuals and charitable organizations weather the crisis.

Just as the upheaval and uncertainty caused by the COVID-19 pandemic may have led you to adjust your estate planning and wealth preservation strategies, these two CARES Act provisions may also offer options and benefits that were previously unavailable in the “before times.”

No Penalties for Certain COVID-Related Retirement Distributions

Qualified individuals can take up to $100,000 in early coronavirus-related distributions from qualified retirement plans and IRAs without the usual 10 percent early withdrawal. The CARES Act also waives the 20 percent withholding for such distributions. In reporting the retirement income, a taxpayer may spread the income from the early retirement distribution over three years.

Per IRS guidance, a “coronavirus-related distribution” that can be made without penalty is any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020, to a “qualified individual.” That latter term relates to the reasons the individual is taking the distribution, which must involve an adverse economic impact due to COVID-19. Specifically, you can take a distribution without penalty if:

  • You have been diagnosed with the COVID-19.
  • Your spouse or dependent has been diagnosed with COVID-19.
  • You experience adverse financial consequences because of you, your spouse, or a member of your household:
    • Being quarantined, furloughed, or laid off, or having to work reduced hours due to COVID-19.
    • Being unable to work due to a lack of childcare related to COVID-19.
    • Closing or reducing hours of a business you own or operate due to COVID-19.
  • Your pay (or self-employment income) or that of your spouse or member of your household was reduced due to COVID-19, or you had a job offer rescinded or start date for a job delayed due to COVID-19.

As with any decisions of significance involving your retirement accounts, you should speak with your legal and financial advisors before making any withdrawals.

Deductions for Charitable Contributions Expanded

To support charitable giving during the crisis, the CARES Act expanded the scope of some deductions for such contributions. Specifically:

  • The act provides a universal deduction of up to $300 for cash gifts made by individuals to charitable organizations during 2020. The deduction applies whether or not you itemize your deductions or claim the standard deduction.
  • If you itemize your deductions in 2020, the act suspends the standard 60 percent Adjusted Gross Income (AGI) limitation for cash gifts made to public charities and allows you to deduct cash donations in an amount up to 100 percent of your AGI for 2020. If you make charitable contributions above AGI limits during 2020, you can carry over the excess for five years and deduct it in the future.

Call Kreis Enderle for Clarity and Guidance During Uncertain Times

Planning for your future is never more critical than when the future is uncertain. As developments continue to unfold both in Washington and your community, you can count on the estate planning attorneys at Kreis Enderle to provide you with sound guidance and a steady hand during these turbulent times. If you have questions about the foregoing aspects of the CARES Act or any other estate planning issues, please contact us today.

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