ESTATE TAX LEGISLATION UPDATE

Earlier this year (March 13, 2008), the Senate voted on four amendments to the estate tax that were filed as a part of the budget resolution debate. As background, the budget resolution gives Congress non-binding fiscal guidelines for the upcoming year. These budgetary guidelines are passed by a simple majority, rather than the 60 votes it takes to survive a filibuster and pass a bill. Given the non-binding nature of the budget resolution and the amendment, they can only serve as an indication of what the Senate might do when voting on actual estate tax reform legislation.

Senator Baucus (D-MT) proposed the first amendment, which prevents the estate tax from rising above the 2009 levels ($3.5 million exemption and a top estate tax rate of 45%). Senator Baucus’ amendment passed the Senate with a vote of 99-1.

Senator Caucus’ amendment was followed by an amendment proposed by Senator Graham (R-SC) that provided for a $5 million exemption and a maximum estate tax rate of 35%. The Senate voted against this amendment 47-52.

Senator Ken Salazar (D-CO) introduced an amendment that was “revenue neutral,” by setting aside reserve funds in order to reach a $5 million exemption with a 35% maximum estate tax rate. The Salazar amendment failed by a vote of 38-62.

The final amendment was proposed by Senator Jon Kyl (R-AZ) and it set the exemption at $5 million with an estate tax rate of no higher than 35%. Senators Lincoln (D-AR) and Landrieu (D-LA) joined the Republicans in the voting with Senator Voinovich (R-OH) voting with the Democrats. This amendment failed with a 50-50 vote because the Vice President was not present to break the tie.

The Senate Finance Committee also held the second of three planned estate tax hearings, this one discussing the inheritance tax regime versus the current estate tax regime. While none of the Senators present seemed receptive to the idea of an inheritance tax, all of the witnesses at the hearing expressed philosophical support for wealth redistribution through an inheritance tax system.

Despite the national attention given to estate tax reform in general, there has been a dramatic reduction in the number of estate tax returns filed. The IRS Statistics of Income Bulletin (IR 2007-153) indicated that in 2005, when the estate tax exemption was $1,500,000, the number of estate tax returns filed fell by 58% to about 45,000 returns, down from about 108,000 returns filed in 2001. The total amount of assets represented by those returns fell by 14% to $185 billion in 2005 and from $216 billion in 2001.

Medicaid Announces Resource Level Revision

Recently, Medicaid announced that they are raising the Resource Level to $13,050 for a single individual and to $19,200 for a couple on Medicaid.

The increase of the Medicaid resource allowance from $4,350 to $13,050 for a single individual (and from $6,400 to $19,200 for a couple) may make it more possible for some individuals and couples to qualify for Medicaid and to access Medicaid nursing home and home care services.

Income Tax Deductions for Families with Special Needs Children

Deduction for Dependents. The most common, and often the most important, income tax benefit is the deduction provided for an individual who is dependent on you for support. Of course minor children, whether suffering from a disability or not, provide dependent deductions. Not all parents realize that adult children with a disability can also qualify as dependents for income tax purposes, as well.

In fact, not only children of the taxpayer qualify as dependents. A stepchild, foster child, grandchild, nephew, niece or sibling can also be a dependent. The taxpayer must provide more than half of the dependent's support, and the dependent's own income can not exceed the exemption amount ($3,400 for tax year 2007, and $3,500 in 2008).

If a married but dependent child files a joint income tax return, he or she can not qualify as a dependent on your return. Similarly, if he or she is not a U.S. citizen or resident, or a citizen of Canada or Mexico, the dependent deduction is not available.

There are a few other categories available, so even if the dependent is not described here it may be worth making further inquiry. The key element: if you provide more than half of the support for another person, you may be able to list them as a dependent on your tax return.

Medical Conferences and Seminars. Did you attend a specialized program to learn more about your child's disability and treatment? If so, you may be able to deduct the registration fees and travel costs as medical expenses. To perfect this deduction, you should have your child's doctor give you a written recommendation for the seminar. Make sure the program is specific to the condition from which your child suffers, as a general program about healthy practices or living will not qualify.

School Expenses. If your child attends a special school designed to prepare him or her to compensate for or overcome a disability, the school costs may be a deduction. The key element here is that the program must be specifically geared toward helping your child prepare for future mainstream education or living arrangements. It is not enough that the school is specialized and offers supportive and focused education. If, however, the school is properly focused tuition may qualify as a medical deduction.

Remember that all medical deductions must exceed 7.5% of your income before the deduction is available at all (for federal tax purposes -- state taxes may have different limits or no limitations). What kinds of specialized schools qualify? The IRS has provided a few specific examples, including Braille or lip reading programs, focused training programs for the developmentally disabled, boarding schools for the psychologically disabled and staffed by psychiatrists, psychologists and social workers.

Work Expenses. Do you suffer from a disability yourself? Does your child earn enough income to be required to file an income tax return? You might need to consider deductions for expenses that enable the person with disabilities to maintain employment.
Deductions in this category might include attendant care or adaptive equipment. The most important element: these expenses are categorized as unreimbursed employee expenses, not medical expenses. That means they are not subject to the 7.5% limitation on the latter category.

Conclusion: These are only a few of the income tax deductions available to individuals with disabilities and the family members who provide their support. If you have questions about the specifics of any of these, you should contact your accountant or an attorney familiar with income tax and disability issues.

Another important resource: the Internal Revenue Service website. Perhaps surprisingly, it is helpful, easy to navigate and well constructed. One good entry point: the IRS "frequently asked questions" (FAQ) page.

Source: www.specialneedsalliance.com

Legislation to Protect the Elderly

Governor David A. Paterson announced the signing of legislation to help
curb predatory attacks on New York's elderly. Governor Paterson was joined for the bill signing at St. Margaret’s House on Fulton Street by Assembly Speaker Sheldon Silver and several members of the State Legislature, which overwhelmingly approved the legislation.

The law, known as “Granny’s Law,” was sparked in part by last year’s brutal beatings of 101-year-old Rose Morat and 85-year-old Solange Elizee of Queens. If an assailant is 10 years younger than a victim, the bill will increase the penalty for assaulting a person 65 years or older from a class A misdemeanor to second-degree assault – a Class D violent felony that is punishable by up to seven years in prison. “It is unconscionable that anyone would assault a senior citizen, but we continue to witness these disturbing acts of violence,” said Governor Paterson. “

I am pleased that my colleagues in the Legislature worked together to pass
this legislation, and that this bill provides a measure of safety for our
elderly.” Under current law, an intentional assault that causes physical injury to the victim constitutes third-degree assault, a Class A misdemeanor punishable by up to one year in jail. The charge is elevated to second-degree assault if there are certain aggravating factors, such as intentionally causing “serious”physical injury, intentionally causing physical injury with a deadly weapon, or causing injury to particular types of victims (i.e. police or peace officers, students, or teachers) who are more likely to be targeted by criminals.

Senate Majority Leader Joseph L. Bruno said: “Last year, 101-year-old Rose Morat and 85-year-old Solange Elizee were brutally attacked within a half-hour of each other, and New Yorkers were outraged by the cowardly, despicable act. As elected officials, our biggest responsibility is protecting our most vulnerable citizens, and I’d like to commend Senators Golden, Maltese, and Padavan for their tireless dedication in getting this legislation passed and signed into law. It’s truly horrendous when criminals seek out and assault the elderly – with this law we are ensuring they will be properly punished.”

Assembly Speaker Sheldon Silver, who sponsored the legislation in the
Assembly, said: “This legislation is a simple matter of dignity, justice and
respect. After lifetimes spent working jobs, raising their families, paying their taxes, serving their communities, and defending this nation, our senior citizens deserve all of the respect, all of the protection, all of the compassion, and all of the assistance this government can provide. The enactment of this law puts New York at the forefront of ensuring that those who prey upon the elderly and the frail are punished swiftly and severely.” Senator Martin Golden, the bill’s lead Senate sponsor, said: “Millions of New Yorkers were outraged by the despicable and cowardly attacks against Rose Morat and Solange Elizee. A person capable attacking the elderly is not simply a mugger – they are a dangerous menace to society who should be kept behind bars for as long as possible. The bottom line is that anyone who physically attacks a senior citizen should be severely punished, and that’s why the additional penalties provided for by this law are very much needed.” Senator Serphin Maltese said: “We cannot allow seniors to be targeted and assaulted simply because they are not physically able to defend themselves. When
anyone gets mugged and assaulted, I consider it to be a serious crime, but assaulting the elderly is an outrageous and potentially life-threatening crime that clearly calls out for more severe penalties. We have an obligation to protect the most vulnerable in our society.”

Senator Frank Padavan said: “Last year the brutal muggings of my constituents Rose Morat and Solange Elizee sparked outrage across the entire country and illustrated the need for stronger state laws to combat crimes against elderly. Now with the enactment of 'Granny’s Law' today, New York will have the criminal penalties needed to put any cowardly delinquent who attacks a senior citizen behind bars.” Assembly Codes Committee Chair Joseph R. Lentol said: “This legislation sends
a message in New York we intend to protect our seniors from those who seek to prey on our most vulnerable citizens.” Assembly Judiciary Chair Helene Weinstein said: “Seniors often appear as soft targets for criminals. Like all citizens, they must be afforded the protection to live and work safely, and to enjoy retirement and family after years of hard work without falling prey to those who may cruelly exploit their age. With the enactment of this legislation, New York helps ensure our seniors that
the law stands with them and that crimes against them are recognized for
their sheer brutality and senselessness.” Assemblywoman Janele Hyer-Spencer said: “Elder abuse should not be tolerated, and these measures take steps to stop this shameful behavior. Our seniors deserve, at the very least, peace of mind. We must do all we can to protect them and to provide them with that peace of mind, and one way to do that is to
deter potential crimes from occurring.”

Bill Would End Nursing Homes' Growing Practice of Asking Nursing Home Patients to Arbitrate

Two U.S. senators have introduced legislation that would end the practice of nursing home residents signing away their right to a trial before any actual dispute with the facility has arisen.
Nursing homes are increasingly asking -- or forcing -- patients and their families to sign arbitration agreements prior to admission. By signing these agreements, patients or family members give up their right to sue if they believe the nursing home was responsible for injuries or the patient's death. The Fairness in Nursing Home Arbitration Act, introduced by Sens. Mel Martinez (R-FL) and Herb Kohl (D-WI), chairman of the Special Committee on Aging, would make arbitration agreements signed before a dispute arises unenforceable, although it would still permit the parties to agree to arbitration after a dispute over care has arisen.
"When a family makes the difficult decision to help a loved one enter a nursing home, among the primary considerations is quality care. Forcing a family to choose between quality care and forgoing their rights within the judicial system is unfair and beyond the scope of the intent of arbitration laws," said Sen. Martinez. "This effort restores the original intent and tells families that they don't have to sign away their rights in order to access quality care."
The increased use of arbitration agreements has been paying off for the nursing home industry, according to a recent article in the Wall Street Journal. A study by Aon Global Risk Consulting projects that nursing homes' average costs per claim will drop from about $226,000 for incidents that took place in 1999 to about $146,000 for incidents that took place in 2006.
Theresa Bourdon, one of the study's authors and an Aon managing director, says that out of more than 200 claims she looked at that were subject to arbitration, none has yielded a multimillion-dollar payout. "We are not seeing big pops," Ms. Bourdon says.
But as industry litigation costs have been dropping, claims of poor treatment are on the rise, the Wall Street Journal reports. Meanwhile, patient advocates say that those seeking admission to a nursing home are in no position to make a determination about giving up their right to sue. Courts have sometimes struck down arbitration agreements as unfair, but others have upheld them. In Ohio last year, a court upheld an agreement signed by a woman who had entered a home from a hospital and was suffering intermittent bouts of confusion.

Source: www.elderlawanswers.com; 4/14/08

New Tax Break Helps Surviving Spouses

Widows and widowers who don't want to sell their house right away will get a tax break under a new law. The law gives surviving spouses two years to sell their house and receive the full $500,000 capital gains exclusion that married couples are entitled to.

Couples who are married and file taxes jointly can sell their main residence and exclude up to $500,000 of the gain from the sale from their gross income. Single individuals can exclude only $250,000. Under the previous law, if a spouse died, the surviving spouse could file jointly -- and therefore get the full $500,000 exclusion -- only for the year in which the spouse died. The new law allows surviving spouses to get the full $500,000 exclusion if they sell their house within two years of the date of the spouse's death and other ownership and use requirements have been met. The result is that widows or widowers who sell within two years may not have to pay any capital gains tax on the sale of the home.

Estate Planning for Families with Special Needs Children

Introduction: Families with special needs children must exercise extra care in making their estate plans. This is true whether their special needs child is still a minor or now an adult, and particularly so when the child is – or in the foreseeable future will be -- receiving needs-based public benefits such as SSI or Medicaid. While planning considerations for such a child will vary depending upon the child’s age, competency, and other family considerations, the goal is always the same: parents want their estates utilized to enhance and enrich the life of their special needs child while maintaining the child’s enrollment in essential public benefits programs. These goals can be met through the use of a properly prepared special needs trust.

The essence of all special needs estate planning is to ensure that the portion of the parents’ estate which passes to their special needs child at the time of their death is not considered an “available asset,” as defined by public benefit agencies. Parents must be mindful of both income and principal, as too much monthly income, as well as too much “cash,” can negatively impact their child’s future eligibility for benefits.

Purpose: Special needs planning works to preserve public benefits for the disabled child while supplementing and enhancing the quality of the child’s life. This type of planning is useful for many different purposes, including

lifetime money management for the benefit of the disabled child;
protecting the child’s eligibility for public benefits; and

ensuring a pool of funds available for future use in the event public funding should cease or be restricted.

Planning Options: The options available to families in making an estate plan for a special needs child who is receiving needs-based public benefits include the following:

Disinherit the child. This is the simplest option, but it does nothing to accomplish the essential purpose of enriching the life of the special needs child.
Give the estate to the brothers and sisters. At the parents’ death the entirety of the estate is distributed to the child’s siblings, with the understanding that they will “take care of” their disabled brother or sister. There are inherent risks with such an approach, including claims by the siblings’ creditors, bankruptcy, divorce, mismanagement of funds, etc. This may be appropriate when the child’s potential inheritance is modest.
Leave an inheritance to the disabled child. The outcome of this planning option will be the almost certain negative impact on the child’s continued eligibility for publicly funded benefits. At the least, benefits may be reduced. In the worst case scenario, the child may be rendered ineligible for SSI and Medicaid, and with this ineligibility for assisted housing, supported employment, vocational rehabilitation, group housing, job coaching, attendant personal care aides, and transportation assistance. The key benefit is Medicaid, as this program represents the child’s ability to access not only essential health care but many other public assistance programs.
Leave any inheritance in a Special Needs Trust. This last option will be preferred by most families in their efforts to provide and ensure a positive outcome for a special needs child. By using a properly drafted – and properly administered – Special Needs Trust, the child will continue to qualify for public assistance programs that would otherwise be unavailable to the child, especially the “means tested” programs that require the child to meet strict financial eligibility criteria. A Special Needs Trust works because the assets held in the trust are not “available” to the child. These types of trusts must be discretionary spendthrift trusts, with strict limits on the trustee’s ability to give money to the child. Under no circumstances can the special needs child force the trustee to make trust money available to the child. An additional benefit of the Special Needs Trust is that because the child is often unable to manage his or her own finances, the parents, in creating the trust, will appoint a trustee to act as the child’s money manager, and in so doing, ensure proper financial management after their death.

During Life or at Death? Families have the option of creating a Special Needs Trust at their death by incorporating a trust within a Last Will and Testament – this is called a “testamentary trust.”

The other option is for the parents to create a Special Needs Trust while alive -- not surprisingly, this is often referred to as a “living trust” (or inter vivos trust). The advantages of the living trust include:

the avoidance of a probate;

the creation of a trust to which other family members can make contributions, most usually the grandparents; and
an opportunity for a co-trustee to gain “hands on” experience in administrating the trust.

Revocable or Irrevocable? Tax considerations come into play in the decision to make the Special Needs Trust either revocable or irrevocable. Generally speaking, the family will make the trust revocable whenever:

the goals include maintaining maximum control over the trust; and
the family is not concerned with income tax considerations.
Correspondingly, the use of an irrevocable trust may be appropriate when the family is concerned with:

income tax considerations; and
if more than a million dollars will be going into the trust, possible federal estate and gift taxes.
Tax planning is beyond the scope of this article, so be sure to consult with your attorney, CPA or financial advisor if there are any special tax considerations in the creation of your Special Needs Trust.

Selecting Your Trustee: The Trustee will be responsible for administering your Special Needs Trust. So selecting your Trustee is one of the most important decisions your family will make in ensuring the long-term success of your Special Needs Trust. Given the natural pressures inherent in all families, someone in your family may consider the funds in the Special Needs Trust as “their” money, rather than the money of your special needs child. This can be a dangerous situation, especially as to your child’s continued eligibility for public benefits. In most families, it is best to consider selecting an independent, non-family member to serve as your Special Needs Trustee. The range of options includes:

a parent, sibling or another “distant” relative;
your attorney;
a Trust company or a financial institution;
a non-profit organization -- especially one with experience in special needs; or
co-Trustees, usually a family member acting with a trust company.

The selection of any of these potential Trustees has both advantages and disadvantages. You should closely counsel with your attorney or financial advisor before making your Trustee selection.

Conclusion: This brief summary is just the start of your enquiry as you begin your special needs estate plan. By working closely with your attorney, your CPA, and your financial planner, you will develop a much greater understanding of the options available to you and your family in making an appropriate estate plan for your special needs child. After making your wishes known and getting the appropriate documents in place, you will have taken crucial steps in assuring that this child will receive proper care when you are no longer able to provide that care yourself.

Source: www.specialneedsalliance.com