Monthly Archives: June 2023

Motivate Employees with Education Benefits

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An education assistance program is a popular fringe benefit that allows employees to continue learning and perhaps earn a degree with financial assistance from their employers. Companies can attract, retain, and motivate employees with education benefits to help team members improve their skills and gain additional knowledge. Keep reading to learn more about some requirements and how an educational assistance program works.

Defining Education

Under a “qualified educational assistance program,” an employee can receive, on a tax-free basis, up to $5,250 each year from his or her employer.

For this purpose, “education” means any form of instruction or training that improves or develops an individual’s capabilities. It doesn’t matter if it’s job-related or part of a degree program. This includes employer-provided education assistance for graduate-level courses, such as those normally taken by individuals pursuing programs leading to a business, medical, law, or other advanced academic or professional degrees.

More Requirements

The educational assistance must be provided under a separate written plan that’s publicized to your employees and must meet a number of conditions, including nondiscrimination requirements. In other words, it can’t discriminate in favor of highly compensated employees. In addition, not more than five percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for individuals (including their spouses or dependents) who own five percent or more of the business.

No deduction or credit can be taken by the employee for any amount excluded from the employee’s income as an education assistance benefit.

Job-Related Education

If you pay more than $5,250 for educational benefits for an employee during the year, he or she must generally pay tax on the amount over $5,250. Your business should include the amount as income in the employee’s wages. However, in addition to, or instead of applying the $5,250 exclusion, an employer can satisfy an employee’s educational expenses on a nontaxable basis, if the educational assistance is job-related. To qualify as job-related, the educational assistance must:

  • Maintain or improve skills required for the employee’s then-current job, or
  • Comply with certain express employer-imposed conditions for continued employment.

“Job-related” employer educational assistance isn’t subject to a dollar limit. To be job-related, the education can’t qualify the employee to meet the minimum educational requirements for qualification in his or her employment or other trade or business.

Educational assistance meeting the above “job-related” rules is excludable from an employee’s income as a working condition fringe benefit.

Recruit with Student Loan Repayment Assistance

In addition to education assistance, some employers offer student loan repayment assistance as a recruitment and retention tool. Starting next year, employers can help more.

Under the SECURE 2.0 law, an employer will be able to make matching contributions to 401(k) and certain other retirement plans with respect to “qualified student loan payments.” The result of this provision is that employees who can’t afford to save money for retirement because they’re repaying student loan debt can still receive matching contributions from their employers. This will take effect in 2024.

Contact Us with Questions

If you want to learn more about how you can motivate employees with education benefits, the knowledgeable professionals at Ramsay & Associates are here for support. We can answer your questions and help set up an education assistance or student loan repayment plan at your business. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Provide Greater Flexibility by Decanting a Trust

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In general, we often advise building leeway into your estate plan using various strategies. The reason is that life circumstances change over time, specifically with regard to evolving tax laws and family situations. One technique is to provide greater flexibility by decanting a trust. Keep reading to learn more about the process and potential tax implications.

Decanting in Estate Planning

One definition of decanting is to pour wine or another liquid from one vessel into another. In the estate planning world, it means “pouring” assets from one trust into another with modified terms. The rationale underlying decanting is that, if a trustee has discretionary power to distribute trust assets among the beneficiaries, it follows that he or she has the power to distribute those assets to another trust.

Depending on the trust’s language and the provisions of applicable state law, decanting may allow the trustee to:

  • Correct errors or clarify trust language,
  • Move the trust to a state with more favorable tax or asset protection laws,
  • Take advantage of new tax laws,
  • Remove beneficiaries,
  • Change the number of trustees or alter their powers,
  • Add or enhance spendthrift language to protect the trust assets from creditors’ claims, or
  • Move funds to a special needs trust for a disabled beneficiary.

Unlike assets transferred at death, assets that are transferred to a trust don’t receive a stepped-up basis, so they can subject the beneficiaries to capital gains tax on any appreciation in value. One potential solution is to use decanting.

Decanting can authorize the trustee to confer a general power of appointment over the assets to the trust’s grantor. This would cause the assets to be included in the grantor’s estate and, therefore, to be eligible for a stepped-up basis.

Follow State Decanting Statutes

Many states have decanting statutes, and in some states, decanting is authorized by common law. Either way, it’s critical to understand your state’s requirements. For example, in some states, the trustee must notify the beneficiaries or even obtain their consent to decanting.

Even if decanting is permitted, there may be limitations on its uses. Some states, for example, prohibit the use of decanting to eliminate beneficiaries or add a power of appointment, and most states won’t allow the addition of a new beneficiary. If your state doesn’t authorize decanting, or if its decanting laws don’t allow you to accomplish your objectives, it may be possible to move the trust to a state whose laws meet your needs.

Beware of Tax Implications

One of the risks associated with decanting is uncertainty over its tax implications. Let’s say a beneficiary’s interest is reduced. Has he or she made a taxable gift? Does it depend on whether the beneficiary has consented to the decanting? If the trust language authorizes decanting, must the trust be treated as a grantor trust? Does such language jeopardize the trust’s eligibility for the marital deduction? Does distribution of assets from one trust to another trigger capital gains or other income tax consequences to the trust or its beneficiaries?

Our Team Can Help

With so many variables in estate planning, being adaptable is beneficial. Now that you know about the potential to provide greater flexibility by decanting a trust, you may want to apply this strategy. If that’s the case, we can help. The estate planning professionals at Ramsay & Associates can answer your questions and help you better understand the pros and cons. Contact us today to learn more.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.