The following is a reprint of an article that we’d like to share with you from msnbc.com on March 30th of this year. Several years ago, when the Terri Schiavo case was forefront in the news, we here at Davidow, Davidow, Siegel & Stern, spent a good amount of time explaining the specifics surrounding the case and why it should prompt everyone to plan ahead. If you or a loved one has not considered making such crucial plans, do it for yourself now so that someone else doesn’t have to do it for you later.
Five years after the court fight over allowing Terri Schiavo to die, most Americans still don’t draft the legal documents that spell out how far caregivers should go to keep them alive artificially.
Schiavo’s life and death captivated the country and fueled conversations about the necessity of the documents, known as advance directives or living wills. Even though millions witnessed a worse-case scenario, there’s no indication it had a lasting impact on getting more people to make their wishes known.
“The gap is so big,” said Paul Malley, president of Aging with Dignity, which advocates advance directives and which saw an increase in interest during the Schiavo case. “Even a significant impact from the Schiavo case doesn’t put a dent in the need that’s out there.”
The protracted family fight over keeping Schiavo alive, and her ultimate death March 31, 2005, plastered her story in headlines and prompted an immediate spike in Americans filling out advance directives. But while Schiavo’s struggle remains in the minds of many, the momentum it created for writing the instructions appears to have ebbed.
End-of-life experts estimate 20 to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005.
“Awareness is up,” said Kathy Brandt, a vice president of the National Hospice and Palliative Care Organization. “But I don’t know that people understand any better and I don’t know that we’re ever going to get better than a third of Americans.”
Much of the problem with advance directives is people aren’t entirely sure what they do, or fear they mean they’d be forced to forgo lifesaving treatment. In fact, they can be changed by the patient and would only be used in limited grave circumstances, typically in which they can no longer communicate their wishes.
Living wills spell out desires regarding the use of respirators, feeding tubes and other life-support efforts, and to what lengths a person wants to be kept alive in the face of brain damage, comas and other conditions.
Schiavo, who collapsed at her St. Petersburg, Florida, home in 1990, had no such instructions in writing. Her heart stopped and she suffered what doctors said was irreversible brain damage that left her in a permanent vegetative state.
Her husband said his wife would not have wanted to live in a vegetative state; her parents wanted to keep her alive. The result was an epic legal battle that involved dozens of judges in numerous jurisdictions, including the U.S. Supreme Court.
In the end, her feeding tube was ordered removed two weeks before she finally succumbed.
Still, while the paperwork on end-of-life wishes is vital – particularly in cases such as Schiavo’s, when family members disagree – family discussions that precede such documentation can be even more important.
“It’s an ongoing conversation,” said Sally Hurme, who works on consumer health education for AARP, an advocacy group for older people. “Your views may change, your health circumstances may change and you need to keep your family up to date.”
Malley says advance directives should be part of a broader conversation about what an individual wants out of their final years, how they want to be cared for, where they want to live and so on. Even when someone does have a living will, they often haven’t had such a conversation with their loved ones.
“When people are asked what’s important for them at the end of life, they talk about being at home, with family, not in pain,” he said. “A lot of times we only ask the question about life support treatment and tubes and ventilators.”
Even for those who deal with death daily, though, thinking about one’s own can be difficult.
Dr. Gail Cooney, a 57-year-old neurologist who is medical director at the Hospice of Palm Beach County, had spent more than 20 years preaching to patients and family alike the necessity of having advance directives. She knew full well the importance and had seen what could happen without something in writing.
But, still, it took a diagnosis of ovarian cancer and subsequent major surgery before she took her own advice.
“I knew what I wanted but I had never written it down until I was sitting there waiting for surgery in that stupid little hospital gown,” she said.
Friday, May 14, 2010
Thursday, April 22, 2010
HEALTH CARE REFORM AND THE CAREGIVER
As health care reform becomes the law of the land, a huge segment of Americans with a unique interest in the way it unravels, are watching on the sidelines. We’re talking about the 49 million people who care for older family members. They are hidden in plain sight, as usual, quietly shouldering a burden that so often takes a heavy toll on their finances and their physical and emotional well-being. Hardly any of them are aware that this new reform includes one of the most important steps ever taken to improve the caregivers’ lot, especially those of the middle-class persuasion.
The Community Living Assistance Services and Supports Act, otherwise known as CLASS, provides for a national insurance program to help cover the cost of long-term care – something 70 percent of people over 65 will need at some point along the way. The premiums will be much lower than those for private plans, and you won’t get screened out because you’ve already had some health problems. Once vested after five years, enrollees unable to care for themselves will be able to claim cash benefits for as long as needed.
The new health care reform law could “transform long-term care” and make it possible for more patients to stay at home, said the chief of the National Council on Aging. If you’re rich, you don’t require much financial help with long-term care. If you’re poor and can no longer fend for yourself, Medicaid pays the bills, often at a nursing home. For the rest of us, long-term care – at home or in an institution – now requires that we, or our caregivers, choose from among some unpleasant options.
We can spend down our retirement savings until we’re eligible for Medicaid funds. We can protect our savings by taking out expensive long-term care insurance – it can cost a couple more than $5,000 a year. Or, depending on how dependent we are, we can throw ourselves, or be thrown, on the mercy of our families.
CLASS, one of the legacies of the late Ted Kennedy, offers caregivers and care recipients another option. “If it’s successful, if a large enough number of people sign up, it will transform long-term care, “ says James Firman, president and CEO of the National Council on Aging. “It will create a market-based economy for keeping aging people at home.”
That’s an important “if,” since the program, by law, must be self-sustaining. Premiums will generally be collected as part of the workers’ payroll deductions unless they opt out. The younger the worker, the smaller the premium.
There is a vicious circle built into the current arrangements. Many caregivers must hold down a job and maintain their own separate family household while also watching over an aging parent. That kind of pressure can have consequences.
In recent studies, workers 18 to 39 years of age who were caring for an older relative had significantly higher rates of hypertension, depression and heart disease than non-caregivers of the same age. Overall, caregivers cost their companies an extra 8 percent a year in health care charges and many more unplanned days off. In other words, the strains of family caregiving can hasten the caregiver’s need to be the recipient of care.
CLASS bids to crack if not break that vicious circle. Its benefits would make it much simpler and less expensive for families to make sure Mom gets the support she needs to be able to spend life’s endgame where she wants – in her own home. Good news for Mom, and good news for the future health of her caregivers.
Source: www.aol.com, 3/26/10
The Community Living Assistance Services and Supports Act, otherwise known as CLASS, provides for a national insurance program to help cover the cost of long-term care – something 70 percent of people over 65 will need at some point along the way. The premiums will be much lower than those for private plans, and you won’t get screened out because you’ve already had some health problems. Once vested after five years, enrollees unable to care for themselves will be able to claim cash benefits for as long as needed.
The new health care reform law could “transform long-term care” and make it possible for more patients to stay at home, said the chief of the National Council on Aging. If you’re rich, you don’t require much financial help with long-term care. If you’re poor and can no longer fend for yourself, Medicaid pays the bills, often at a nursing home. For the rest of us, long-term care – at home or in an institution – now requires that we, or our caregivers, choose from among some unpleasant options.
We can spend down our retirement savings until we’re eligible for Medicaid funds. We can protect our savings by taking out expensive long-term care insurance – it can cost a couple more than $5,000 a year. Or, depending on how dependent we are, we can throw ourselves, or be thrown, on the mercy of our families.
CLASS, one of the legacies of the late Ted Kennedy, offers caregivers and care recipients another option. “If it’s successful, if a large enough number of people sign up, it will transform long-term care, “ says James Firman, president and CEO of the National Council on Aging. “It will create a market-based economy for keeping aging people at home.”
That’s an important “if,” since the program, by law, must be self-sustaining. Premiums will generally be collected as part of the workers’ payroll deductions unless they opt out. The younger the worker, the smaller the premium.
There is a vicious circle built into the current arrangements. Many caregivers must hold down a job and maintain their own separate family household while also watching over an aging parent. That kind of pressure can have consequences.
In recent studies, workers 18 to 39 years of age who were caring for an older relative had significantly higher rates of hypertension, depression and heart disease than non-caregivers of the same age. Overall, caregivers cost their companies an extra 8 percent a year in health care charges and many more unplanned days off. In other words, the strains of family caregiving can hasten the caregiver’s need to be the recipient of care.
CLASS bids to crack if not break that vicious circle. Its benefits would make it much simpler and less expensive for families to make sure Mom gets the support she needs to be able to spend life’s endgame where she wants – in her own home. Good news for Mom, and good news for the future health of her caregivers.
Source: www.aol.com, 3/26/10
Thursday, April 1, 2010
IMPORTANT UPDATE ON ESTATE TAX LEGISLATION
Very recently, Sandy Levin (D-Mich.) the Acting Ways and Means Chairman, has announced the Committee is considering a bill which would allow the estates of individuals who pass away in 2010 to have the option of abiding by the law as it is in effect today or to resort to the 2009 estate tax rules.
The repeal of the estate tax on January 1, 2010 replaced a capital gains tax that requires heirs to pay rates of between 15 percent and 28 percent on any inherited assets they sell (subject to several exemptions).
Several groups previously opposed to the estate tax have reversed their position and appear to now back this option. If there is no action taken by Congress, the estate tax law will revert to the 2001 levels, which is considered the worst of all possible options.
We will continue to keep you informed on the progress of this bill.
The repeal of the estate tax on January 1, 2010 replaced a capital gains tax that requires heirs to pay rates of between 15 percent and 28 percent on any inherited assets they sell (subject to several exemptions).
Several groups previously opposed to the estate tax have reversed their position and appear to now back this option. If there is no action taken by Congress, the estate tax law will revert to the 2001 levels, which is considered the worst of all possible options.
We will continue to keep you informed on the progress of this bill.
Friday, March 19, 2010
GOVERNOR PATERSON SIGNS FAMILY HEALTH CARE DECISIONS ACT INTO LAW!
As of Tuesday, March 16, 2010, New York has joined 48 other states in allowing a spouse, domestic partner, or other family member to make health care decisions when a loved one is unable to do so for themselves and does not have a health care proxy on record. Previously, approximately 75,000 people a year have died in New York hospitals in this exact situation.
With the support of over 100 organizations such as AARP, Alzheimer’s Association, American Cancer Society, NYS Bar Association, Excellus Blue Cross/Blue Shield, just to name a few and the sponsorship of Assembly Member Richard N. Gottfried and Senator Thomas K. Duane, the bill passed both the Assembly and the Senate with enthusiastic approval.
The gist of the matter boils down to the fact that even though patients did not go through the formal process of creating a health care proxy or provide their family with “clear and convincing” evidence of their health care wishes, they shouldn’t be subjected to either burdensome or unwanted treatments or denied appropriate treatment altogether. This has unfortunately been the case for too long. This new law puts an end to it altogether.
Specifically, The Family Health Care Decision Act (FHCDA), signed into law on March 16th, 2010, now gives family members and others who are close to the patient, the legal authority to act on behalf of the patient when it comes to making decisions concerning the patient’s medical treatment. The law includes numerous safeguards to ensure that sound medical treatment and any other decisions are consistent with the patient’s wishes and in the patient’s best interest.
However, it is still important and recommended to have advance care directives on file with our doctors, your elder law attorney and your family members. This new law certainly DOES NOT eliminate the need for such crucial paperwork. As a matter of fact, it is extremely important, as it always has been, to be sure you engage in conversation with those you trust in an effort to clearly spell out your wishes and desires for medical care options.
Legal documents such as a health care proxy, a New York State Living Will and a Medical Order for Life Sustaining Treatment (MOLST) are necessary tools that should be put into place to avoid any future confusion in a very stressful situation. The good news is that is you don’t have these documents, the people that you’d want to make these decisions for you, can now do so.
With the support of over 100 organizations such as AARP, Alzheimer’s Association, American Cancer Society, NYS Bar Association, Excellus Blue Cross/Blue Shield, just to name a few and the sponsorship of Assembly Member Richard N. Gottfried and Senator Thomas K. Duane, the bill passed both the Assembly and the Senate with enthusiastic approval.
The gist of the matter boils down to the fact that even though patients did not go through the formal process of creating a health care proxy or provide their family with “clear and convincing” evidence of their health care wishes, they shouldn’t be subjected to either burdensome or unwanted treatments or denied appropriate treatment altogether. This has unfortunately been the case for too long. This new law puts an end to it altogether.
Specifically, The Family Health Care Decision Act (FHCDA), signed into law on March 16th, 2010, now gives family members and others who are close to the patient, the legal authority to act on behalf of the patient when it comes to making decisions concerning the patient’s medical treatment. The law includes numerous safeguards to ensure that sound medical treatment and any other decisions are consistent with the patient’s wishes and in the patient’s best interest.
However, it is still important and recommended to have advance care directives on file with our doctors, your elder law attorney and your family members. This new law certainly DOES NOT eliminate the need for such crucial paperwork. As a matter of fact, it is extremely important, as it always has been, to be sure you engage in conversation with those you trust in an effort to clearly spell out your wishes and desires for medical care options.
Legal documents such as a health care proxy, a New York State Living Will and a Medical Order for Life Sustaining Treatment (MOLST) are necessary tools that should be put into place to avoid any future confusion in a very stressful situation. The good news is that is you don’t have these documents, the people that you’d want to make these decisions for you, can now do so.
Friday, March 5, 2010
DO YOU HAVE THE RIGHT FIDUCIARY?
When creating an estate plan, an important decision is who to name as your fiduciary. A fiduciary is a fancy legal term for the person who will take care of your property for you if you are unable to do it yourself, such as the executor of an estate, the trustee of a trust, or an attorney-in-fact under a power of attorney. Your first instinct might be to name one of your children as a fiduciary, but if you want to avoid conflict among your children, this might not be the best option.
When naming a fiduciary, it is important to be able to trust the individual, which is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Tim O'Sullivan, an attorney from Wichita, Kansas, who spoke on the issue of family harmony at a recent conference for elder law attorneys, a child is often not the best fiduciary for several reasons:
•It is hard for a child to be completely objective.
•Children often disagree over many things, including how long the estate should take to complete, the selling of assets, and the division of personal property.
•Children often don't communicate with each other well.
O'Sullivan says that, in his experience, when one child is named as fiduciary problems arise between family members about one-quarter to one-third of the time.
An alternative is to hire a professional fiduciary. A professional fiduciary can be a bank with trust powers, a certified public accountant, or a trust company. The attorney who is drafting your estate planning documents can recommend a good one in your area. A professional fiduciary will charge a fee, but the fee should be explained ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person's or institution's guidance.
To ensure that your family has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.
An attorney at Davidow, Davidow, Siegel & Stern can help you make sure you have the right fiduciary for your family.
Source: www.elderlawanswers.com
When naming a fiduciary, it is important to be able to trust the individual, which is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Tim O'Sullivan, an attorney from Wichita, Kansas, who spoke on the issue of family harmony at a recent conference for elder law attorneys, a child is often not the best fiduciary for several reasons:
•It is hard for a child to be completely objective.
•Children often disagree over many things, including how long the estate should take to complete, the selling of assets, and the division of personal property.
•Children often don't communicate with each other well.
O'Sullivan says that, in his experience, when one child is named as fiduciary problems arise between family members about one-quarter to one-third of the time.
An alternative is to hire a professional fiduciary. A professional fiduciary can be a bank with trust powers, a certified public accountant, or a trust company. The attorney who is drafting your estate planning documents can recommend a good one in your area. A professional fiduciary will charge a fee, but the fee should be explained ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person's or institution's guidance.
To ensure that your family has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.
An attorney at Davidow, Davidow, Siegel & Stern can help you make sure you have the right fiduciary for your family.
Source: www.elderlawanswers.com
Friday, February 12, 2010
FAMILY HEALTH CARE DECISION ACT PASSES ASSEMBLY
"Each year, about 75,000 people die in New York without a health care proxy and lacking the capacity to make their own health care decisions. The Family Health Care Decision Act would enable a patient's family member - including his or her domestic partner - to make health care decisions when the patient is not able to do so. This legislation passed the Assembly today, by a vote of 132 to 4. The Family Health Care Decision Act is sponsored by Assembly Health Committee Chair Richard N. Gottfried and Senate Health Committee Chair Thomas K. Duane. The Senate bill, 3164-B, passed the Senate Health Committee earlier in the day unanimously. In July, the bill passed the Senate 57 to 0, but must come before the Senate again this session.
"The Family Health Care Decisions Act is about people who are sick and dying, unable to make their own health care decisions," said Assembly Member Richard N. Gottfried, chair of the Assembly Health Committee and author of the bill, A.7729-D. "Under New York law, a spouse, domestic partner, or other family member has no legal authority to make those decisions. And because they have no decision-making role, Federal law makes it difficult for doctors to even share medical information with them to get their advice."
"Some incapacitated patients are denied appropriate treatment, while others are subjected to burdensome treatments that violate their wishes, values, or religious beliefs," Gottfried added.
A decision to place a patient in hospice care - which means switching from acute care to palliative care - is one of those decisions. If the patient is one of the 75,000 with no signed health care proxy, and did not previously provide 'clear and convincing evidence' of his or her wishes, in New York there is no legal way to get that patient into hospice care.
The bill is supported by: the Hospice and Palliative Care Association of NY State, the American Cancer Society, the NY State Breast Cancer Network,the Cerebral Palsy Association of NY State, the NY Academy of Medicine, the NY Association of Homes and Services for the Aging, the NY Civil Liberties Union, the New York State Right to Life Committee, the Alternatives to Marriage Project, Empire State Pride Agenda, 1199/SEIU, AARP, Consumers Union, the NY State Family Decisions Coalition, the Greater New York Hospital Association, the NY State Academy of Family Physicians, the Mental Health Association in New York State, FRIA of New York, Statewide Senior Action Council, the Medical Society of the State of NY, the NY State Nurses Association, the Visiting Nurse Service of New York, the Interagency Council of Mental Retardation and Development Disabilities Agencies, the American College of Physician Services of New York, the Healthcare Association of NY State, the NY State Health Facilities Association, the Alzheimer's Association, Family Planning Advocates of New York, the Westchester End-of-Life Coalition, the Continuing Care Leadership Coalition, the NY City Bar Association, Women's Bar Association of NY, and the NY State Bar Association. The bill was originally drafted by the Governor's Task Force on Life and the Law.
Be sure that you have proper planning put in place. Come to one of our upcoming seminars and discover the benefits of planning in advance: 2/25 at The Milleridge Inn in Jericho at 10am OR 2/25 at The Islandia Marriott at 10am or 7pm.
"The Family Health Care Decisions Act is about people who are sick and dying, unable to make their own health care decisions," said Assembly Member Richard N. Gottfried, chair of the Assembly Health Committee and author of the bill, A.7729-D. "Under New York law, a spouse, domestic partner, or other family member has no legal authority to make those decisions. And because they have no decision-making role, Federal law makes it difficult for doctors to even share medical information with them to get their advice."
"Some incapacitated patients are denied appropriate treatment, while others are subjected to burdensome treatments that violate their wishes, values, or religious beliefs," Gottfried added.
A decision to place a patient in hospice care - which means switching from acute care to palliative care - is one of those decisions. If the patient is one of the 75,000 with no signed health care proxy, and did not previously provide 'clear and convincing evidence' of his or her wishes, in New York there is no legal way to get that patient into hospice care.
The bill is supported by: the Hospice and Palliative Care Association of NY State, the American Cancer Society, the NY State Breast Cancer Network,the Cerebral Palsy Association of NY State, the NY Academy of Medicine, the NY Association of Homes and Services for the Aging, the NY Civil Liberties Union, the New York State Right to Life Committee, the Alternatives to Marriage Project, Empire State Pride Agenda, 1199/SEIU, AARP, Consumers Union, the NY State Family Decisions Coalition, the Greater New York Hospital Association, the NY State Academy of Family Physicians, the Mental Health Association in New York State, FRIA of New York, Statewide Senior Action Council, the Medical Society of the State of NY, the NY State Nurses Association, the Visiting Nurse Service of New York, the Interagency Council of Mental Retardation and Development Disabilities Agencies, the American College of Physician Services of New York, the Healthcare Association of NY State, the NY State Health Facilities Association, the Alzheimer's Association, Family Planning Advocates of New York, the Westchester End-of-Life Coalition, the Continuing Care Leadership Coalition, the NY City Bar Association, Women's Bar Association of NY, and the NY State Bar Association. The bill was originally drafted by the Governor's Task Force on Life and the Law.
Be sure that you have proper planning put in place. Come to one of our upcoming seminars and discover the benefits of planning in advance: 2/25 at The Milleridge Inn in Jericho at 10am OR 2/25 at The Islandia Marriott at 10am or 7pm.
Thursday, January 28, 2010
NEW TAX LAW FOR 2010
Dear Clients and Friends,
A NEW LAW has taken effect on January 1, 2010 that affects the vast majority of our clients. Changes to the federal estate tax will affect our estate planning clients, while changes to the way capital gains will be calculated will affect all of our clients, including our elder law clients.
FEDERAL ESTATE TAX
As of January 1st, 2010, the federal estate tax in this country has been repealed for one year. As of January 1st, 2011, the federal estate tax is scheduled to return with a vengeance. While this possibility has been on the books since 2001, the overwhelming conventional wisdom was that it would never happen. It simply did not make sense to eliminate the federal estate tax for just one year!
So what is going on? Over the last decade, the federal estate tax has been phasing out, first by increasing the exclusion, then by full repeal this year. The exclusion meant that a decedent’s estate would pay no federal estate tax unless the total estate exceeded the exclusion in the year of death. The tax would only be assessed on the excess. The exclusion got as high as $3.5 million in 2009. In 2011, the federal estate tax is scheduled to return with about a $1 million exclusion. This will have a devastating effect on the middle class. Nevertheless, it is currently the law.
The overwhelming prevailing thought in our profession was that our Congress would never let this happen and would either fix the exclusion at a certain level or repeal the tax. This still may happen at some point this year, perhaps retroactively.
Many estate plans were written in such a manner as to shelter the exclusion at the first death, usually by placing such excluded amount into a trust (called a “by-pass” or “credit shelter” trust) and having the balance either pass outright or in trust (called a “Q-Tip” trust) to the surviving spouse (or to the children of a first marriage).
The language of the new law as applied to these plans may cause assets to pass in ways that were wholly unintended. For example, the “by-pass” trust may either be under or over funded, or perhaps not funded at all because no exclusion amount applies in 2010. Several problems could arise if the “by-pass” trust is not funded.
1. With the return of the estate tax in 2011, failure to shelter assets at the first death will cause more assets to be taxed at the second death, for both federal and state purposes. (New York currently has a $1 million exclusion).
2. Some estate plans (especially with second marriages) were written so that the exclusion amount would go to one set of beneficiaries (usually the spouse) and the balance to another set of beneficiaries (usually the children). If zero is allocated to the first set of beneficiaries, then all will go to the second set of beneficiaries, which certainly was never intended, and can be quite disruptive to an otherwise properly planned estate.
A “disclaimer plan” may be an appropriate response to this new law and its inherent problems. A disclaimer plan is one where the beneficiary is the surviving spouse, but the surviving spouse can disclaim (divert) the estate (or part) to a “by pass” trust. This allows for last minute fine tuning. While not right for everyone, a disclaimer plan may be something to consider at this uncertain time.
CAPITAL GAINS TAX
The trade off for the elimination of the federal estate tax, was the elimination of the “step-up” in tax basis. In simple terms, your basis is the amount of money you paid for an asset over time. For example the purchase price of real property or stock is the basis. Any amount you sell your real property or stock above the basis is subject to capital gains tax (about 15% federal and 7% New York State). The step-up in tax basis meant that at death, the basis of all assets automatically rose to the value upon the date of death, essentially wiping out all capital gains. However, in 2010 upon death, the basis will remain the same or go down (if the fair market value of the asset on death is less than the basis before death). For most clients this means that your basis will remain the same, before and after death, guaranteeing capital gains tax when the property is sold.
There is some relief. A decedent's estate is permitted to increase the basis of assets transferred by up to a total of $ 1.3 million plus an additional $3 million for assets passing to a spouse. Actually, the decedent’s Executor has the power to allocate the increase in basis to any particular eligible asset or the decedent’s will can so provide.
Lastly, if you protected your assets with the use of a life estate or an irrevocable Medicaid family trust, this new law may have a negative impact. Previously, homes transferred with a retained life estate or any assets held in our irrevocable Medicaid family trust would enjoy a complete step-up in tax basis at death thereby eliminating all capital gains at death. Today, if you were to die in 2010, this may no longer be the case.
THE BOTTOM LINE
The bottom line is that your situation should be immediately reviewed, especially if you are concerned about your short term health. Please call our office immediately for a consultation to address your current options and/or attend our SPECIAL CLIENT SEMINAR on Tuesday, March 2nd at The Islandia Marriott, 3635 Express Drive North, at either 10am or 7pm. Please call JoAnn at 631-234-3030 or email her at JGrisolia@Davidowlaw.com to reserve a seat for yourself and a friend. The seminar is FREE but reservations are required.
We shall continue to post updates regarding this matter and other pertinent issues
throughout the year on our website at www.Davidowlaw.com.
I am,
Very truly yours,
Davidow, Davidow, Siegel & Stern LLP
Lawrence Eric Davidow
Managing Partner
A NEW LAW has taken effect on January 1, 2010 that affects the vast majority of our clients. Changes to the federal estate tax will affect our estate planning clients, while changes to the way capital gains will be calculated will affect all of our clients, including our elder law clients.
FEDERAL ESTATE TAX
As of January 1st, 2010, the federal estate tax in this country has been repealed for one year. As of January 1st, 2011, the federal estate tax is scheduled to return with a vengeance. While this possibility has been on the books since 2001, the overwhelming conventional wisdom was that it would never happen. It simply did not make sense to eliminate the federal estate tax for just one year!
So what is going on? Over the last decade, the federal estate tax has been phasing out, first by increasing the exclusion, then by full repeal this year. The exclusion meant that a decedent’s estate would pay no federal estate tax unless the total estate exceeded the exclusion in the year of death. The tax would only be assessed on the excess. The exclusion got as high as $3.5 million in 2009. In 2011, the federal estate tax is scheduled to return with about a $1 million exclusion. This will have a devastating effect on the middle class. Nevertheless, it is currently the law.
The overwhelming prevailing thought in our profession was that our Congress would never let this happen and would either fix the exclusion at a certain level or repeal the tax. This still may happen at some point this year, perhaps retroactively.
Many estate plans were written in such a manner as to shelter the exclusion at the first death, usually by placing such excluded amount into a trust (called a “by-pass” or “credit shelter” trust) and having the balance either pass outright or in trust (called a “Q-Tip” trust) to the surviving spouse (or to the children of a first marriage).
The language of the new law as applied to these plans may cause assets to pass in ways that were wholly unintended. For example, the “by-pass” trust may either be under or over funded, or perhaps not funded at all because no exclusion amount applies in 2010. Several problems could arise if the “by-pass” trust is not funded.
1. With the return of the estate tax in 2011, failure to shelter assets at the first death will cause more assets to be taxed at the second death, for both federal and state purposes. (New York currently has a $1 million exclusion).
2. Some estate plans (especially with second marriages) were written so that the exclusion amount would go to one set of beneficiaries (usually the spouse) and the balance to another set of beneficiaries (usually the children). If zero is allocated to the first set of beneficiaries, then all will go to the second set of beneficiaries, which certainly was never intended, and can be quite disruptive to an otherwise properly planned estate.
A “disclaimer plan” may be an appropriate response to this new law and its inherent problems. A disclaimer plan is one where the beneficiary is the surviving spouse, but the surviving spouse can disclaim (divert) the estate (or part) to a “by pass” trust. This allows for last minute fine tuning. While not right for everyone, a disclaimer plan may be something to consider at this uncertain time.
CAPITAL GAINS TAX
The trade off for the elimination of the federal estate tax, was the elimination of the “step-up” in tax basis. In simple terms, your basis is the amount of money you paid for an asset over time. For example the purchase price of real property or stock is the basis. Any amount you sell your real property or stock above the basis is subject to capital gains tax (about 15% federal and 7% New York State). The step-up in tax basis meant that at death, the basis of all assets automatically rose to the value upon the date of death, essentially wiping out all capital gains. However, in 2010 upon death, the basis will remain the same or go down (if the fair market value of the asset on death is less than the basis before death). For most clients this means that your basis will remain the same, before and after death, guaranteeing capital gains tax when the property is sold.
There is some relief. A decedent's estate is permitted to increase the basis of assets transferred by up to a total of $ 1.3 million plus an additional $3 million for assets passing to a spouse. Actually, the decedent’s Executor has the power to allocate the increase in basis to any particular eligible asset or the decedent’s will can so provide.
Lastly, if you protected your assets with the use of a life estate or an irrevocable Medicaid family trust, this new law may have a negative impact. Previously, homes transferred with a retained life estate or any assets held in our irrevocable Medicaid family trust would enjoy a complete step-up in tax basis at death thereby eliminating all capital gains at death. Today, if you were to die in 2010, this may no longer be the case.
THE BOTTOM LINE
The bottom line is that your situation should be immediately reviewed, especially if you are concerned about your short term health. Please call our office immediately for a consultation to address your current options and/or attend our SPECIAL CLIENT SEMINAR on Tuesday, March 2nd at The Islandia Marriott, 3635 Express Drive North, at either 10am or 7pm. Please call JoAnn at 631-234-3030 or email her at JGrisolia@Davidowlaw.com to reserve a seat for yourself and a friend. The seminar is FREE but reservations are required.
We shall continue to post updates regarding this matter and other pertinent issues
throughout the year on our website at www.Davidowlaw.com.
I am,
Very truly yours,
Davidow, Davidow, Siegel & Stern LLP
Lawrence Eric Davidow
Managing Partner
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