The new Estate Tax law may create complications for middle class married couples: The recently enacted Tax Relief Act of 2010 brings back the federal estate tax with a whimper not a bang. But one provision, intended to help married couples, may result in new tax complexities and expense for those of even very modest wealth.
Under the new rules, individuals who die in 2011 or 2012 will have an exemption amount of $5 million dollars (reduced if they made large gifts during lifetime). If their taxable estate does not consume the entire $5 million exemption, the unused portion can be passed on to their surviving spouse. However, the unused exemption amount is available to the surviving spouse only if an election is made and the amount is calculated on a timely filed estate tax return of the deceased spouse. This estate tax return must be filed to pass on the unused exemption even if no return is otherwise required.
In its December 10th technical explanation of the provisions of the law, the Congressional Joint Committee on Taxation gives the following example of how this "portability" provision will work:
"Example 1: Assume that Husband 1 dies in 2011, having made taxable transfers of $3 million and having no taxable estate. An election is made on Husband 1's estate tax return to permit Wife to use Husband 1's deceased spousal unused exclusion amount. As of Husband 1's death, Wife has made no taxable gifts. Thereafter, Wife's applicable exclusion amount is $7 million (her $5 million basic exclusion amount plus $2 million deceased spousal unused exclusion amount from Husband 1), which she may use for lifetime gifts or for transfers at death."
In the Joint Committee example, it is pretty obvious that the relatively wealthy surviving spouse should hire a lawyer to prepare a federal estate tax return for her deceased husband. At a 35% tax rate, the unused $2 million dollar exemption could someday be worth $700,000 to her heirs.
But doesn't this same logic hold true in the situation of a married couple with a much more modest net worth? Who knows what the future holds for the surviving spouse.
Assume that you are the lawyer meeting with a surviving spouse soon after the death of her husband. The deceased had an "I love you" estate plan which leaves everything to his wife. The value of his estate, for federal estate tax purposes, is $400,000. There is no federal (or state) tax and there is no requirement that a federal estate tax return be filed.
But there is a $5 million dollar unused exemption that can be passed on to the surviving spouse -- IF your client is willing to go to the hassle and expense of having an estate tax return prepared and filed. As the lawyer, how can you not suggest the filing of estate return to calculate the unused exclusion and elect to pass it on? How can you guarantee that the unused exclusion will not someday be incredibly valuable to your client's children or other heirs? At 35% tax rate, an unused $5 million exclusion could someday be worth as much as $1.75 million dollars.
Note that the more modest the estate of the deceased spouse, the more potentially valuable the unused exemption.
Also consider that surviving spouses can acquire unanticipated wealth as a result of fluctuating real estate values as an example.
As a lawyer, I don't want to find myself sitting across the table from my client's children someday trying to explain why a million dollars in avoidable federal estate taxes is due because mom didn't file an estate tax return when dad died. I'm not sure I would feel that much better even if I had some kind of a wavier signed by mom.
So, it seems to me that the portability provision in Title III of the new Tax Relief Act may be the proverbial wolf in sheep's clothing. It may create a lot of additional work for lawyers, and expense for widowed estate administration clients of only modest net worth.
Source: Jeffrey A. Marshall, Certified Elder Law Attorney, 12/19/10.
Thursday, December 23, 2010
Monday, December 20, 2010
House Sends Tax-Cut Compromise to President
A massive bipartisan tax package preventing a big New Year's Day tax hike for millions of Americans is on its way to President Obama for his signature.
The measure would extend tax cuts for families at every income level, renew jobless benefits for the long-term unemployed and enact a new one-year cut in Social Security taxes that would benefit nearly every worker who earns a wage.
In a remarkable show of bipartisanship, the House gave final approval to the measure just before midnight Thursday, overcoming an attempt by rebellious Democrats who wanted to impose a higher estate tax than the one Obama agreed to.
The vote was 277-148, with each party contributing an almost identical number of votes in favor (the Democrats, 139 and the Republicans, 138). Opposed were 112 Democrats and 36 Republicans.
NBC News reported that Obama was set to sign the bill and make a statement on Friday afternoon.
In a rare reach across party lines, Obama negotiated the $858 billion package with Senate Republicans. The White House then spent the past 10 days persuading congressional Democrats to go along, providing a possible blueprint for the next two years, when Republicans will control the House and hold more seats in the Senate.
"There probably is nobody on this floor who likes this bill," said House Majority Leader Steny Hoyer, D-Md. "The judgment is, is it better than doing nothing? Some of the business groups believe it will help. I hope they're right."
'Good for Growth'
Sweeping tax cuts enacted when George W. Bush was president are scheduled to expire Jan. 1 -- a little more than two weeks away. The bill extends them for two years, placing the issue squarely in the middle of the next presidential election, in 2012.
The extended tax cuts include lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011, a series of business tax breaks designed to encourage investment that expired at the end of 2009.
Workers' Social Security taxes would be cut by nearly a third, going from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.
"This legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their work force," said Treasury Secretary Timothy Geithner.
Some Democrats complained that the package is too generous to the wealthy; Republicans complained that it doesn't make all the tax cuts permanent.
Obama talks tax cuts, business investment
Rep. Ginny Brown-Waite, R-Fla., called it "a bipartisan moment of clarity."
The bill's cost, $858 billion, would be added to the deficit, a sore spot among budget hawks in both parties.
"I know that we are going to borrow every nickel in this bill," Hoyer lamented.
At the insistence of Republicans, the plan includes an estate tax that would allow the first $10 million of a couple's estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.
Many House Democrats wanted a higher estate tax, one that would allow couples to pass only $7 million tax-free, taxing anything above that amount at a 45 percent rate. They argued that the higher estate tax would affect only 6,600 of the wealthiest estates in 2011 and would save $23 billion over two years.
House Speaker Nancy Pelosi, D-Calif., called the estate tax the "most egregious provision" in the bill and held a vote that would have imposed the higher estate tax. It failed, 194 - 233.
No Pelosi vote
On the bill's final vote, House Speaker Nancy Pelosi, D-Calif., did not vote; House GOP leader John Boehner, R-Ohio, and Majority Leader Steny Hoyer, D-Md., voted for the bill, and Majority Whip James Clyburn, D-SC, voted against the bill, NBC News reported.
Boehner, after the vote, called the bill's passage "critically important."
"Stopping all the tax hikes is a good first step in our efforts to reduce the uncertainty family-owned small businesses are facing, but much more needs to be done, including cutting spending, permanently eliminating the threat of job-killing tax hikes, and repealing the job-killing health care law," Boehner, House speaker-designate, said in a prepared statement.
House Republicans who will move into powerful posts when the GOP takes control in January urged passage of the bill.
Rep. Eric Cantor of Virginia, in line to become majority leader, said the measure, while not perfect, marked a "first step" toward economic recovery.
Largely marginalized in the negotiations leading to the bill, Democrats emphasized their unhappiness with Obama.
"We stand today with only one choice: Pay the ransom now or pay more ransom later," said Rep. Brad Sherman of California. "This is not a place Democrats want to be. But, ultimately, it is better to pay the ransom today than to watch the president pay even more, and I think he'd be willing to pay a bit more next month."
Source: NBC News and The Associated Press contibuting to msnbc.com, 12/17/10.
The measure would extend tax cuts for families at every income level, renew jobless benefits for the long-term unemployed and enact a new one-year cut in Social Security taxes that would benefit nearly every worker who earns a wage.
In a remarkable show of bipartisanship, the House gave final approval to the measure just before midnight Thursday, overcoming an attempt by rebellious Democrats who wanted to impose a higher estate tax than the one Obama agreed to.
The vote was 277-148, with each party contributing an almost identical number of votes in favor (the Democrats, 139 and the Republicans, 138). Opposed were 112 Democrats and 36 Republicans.
NBC News reported that Obama was set to sign the bill and make a statement on Friday afternoon.
In a rare reach across party lines, Obama negotiated the $858 billion package with Senate Republicans. The White House then spent the past 10 days persuading congressional Democrats to go along, providing a possible blueprint for the next two years, when Republicans will control the House and hold more seats in the Senate.
"There probably is nobody on this floor who likes this bill," said House Majority Leader Steny Hoyer, D-Md. "The judgment is, is it better than doing nothing? Some of the business groups believe it will help. I hope they're right."
'Good for Growth'
Sweeping tax cuts enacted when George W. Bush was president are scheduled to expire Jan. 1 -- a little more than two weeks away. The bill extends them for two years, placing the issue squarely in the middle of the next presidential election, in 2012.
The extended tax cuts include lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011, a series of business tax breaks designed to encourage investment that expired at the end of 2009.
Workers' Social Security taxes would be cut by nearly a third, going from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.
"This legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their work force," said Treasury Secretary Timothy Geithner.
Some Democrats complained that the package is too generous to the wealthy; Republicans complained that it doesn't make all the tax cuts permanent.
Obama talks tax cuts, business investment
Rep. Ginny Brown-Waite, R-Fla., called it "a bipartisan moment of clarity."
The bill's cost, $858 billion, would be added to the deficit, a sore spot among budget hawks in both parties.
"I know that we are going to borrow every nickel in this bill," Hoyer lamented.
At the insistence of Republicans, the plan includes an estate tax that would allow the first $10 million of a couple's estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.
Many House Democrats wanted a higher estate tax, one that would allow couples to pass only $7 million tax-free, taxing anything above that amount at a 45 percent rate. They argued that the higher estate tax would affect only 6,600 of the wealthiest estates in 2011 and would save $23 billion over two years.
House Speaker Nancy Pelosi, D-Calif., called the estate tax the "most egregious provision" in the bill and held a vote that would have imposed the higher estate tax. It failed, 194 - 233.
No Pelosi vote
On the bill's final vote, House Speaker Nancy Pelosi, D-Calif., did not vote; House GOP leader John Boehner, R-Ohio, and Majority Leader Steny Hoyer, D-Md., voted for the bill, and Majority Whip James Clyburn, D-SC, voted against the bill, NBC News reported.
Boehner, after the vote, called the bill's passage "critically important."
"Stopping all the tax hikes is a good first step in our efforts to reduce the uncertainty family-owned small businesses are facing, but much more needs to be done, including cutting spending, permanently eliminating the threat of job-killing tax hikes, and repealing the job-killing health care law," Boehner, House speaker-designate, said in a prepared statement.
House Republicans who will move into powerful posts when the GOP takes control in January urged passage of the bill.
Rep. Eric Cantor of Virginia, in line to become majority leader, said the measure, while not perfect, marked a "first step" toward economic recovery.
Largely marginalized in the negotiations leading to the bill, Democrats emphasized their unhappiness with Obama.
"We stand today with only one choice: Pay the ransom now or pay more ransom later," said Rep. Brad Sherman of California. "This is not a place Democrats want to be. But, ultimately, it is better to pay the ransom today than to watch the president pay even more, and I think he'd be willing to pay a bit more next month."
Source: NBC News and The Associated Press contibuting to msnbc.com, 12/17/10.
Friday, November 12, 2010
Patient Protection & Affordable Care Act
We are committed to keeping you informed about health care reform and the Patient Protection and Affordable Care Act (PPACA). The PPACA has a 10-year implementaion period. Some PPACA reforms become effective as early as September 23, 2010. This newsletter is intended to provide a summary of some of the immediate implications of the reform act. Insurance companies have begun mailing notices to policyholders informing them of the companies' filings for proposed future rate adjustments.
Below is a list of benefit and eligibility enhancements that become effective on September 23rd. It is advised that these changes be communicated to employees. Note that "grandfathered plans" may not need to immediately comply with provisions affecting adult preventive care, discrimination, claims appeals and access to physicians. The September 23rd changes are:
1. Annual and lifetime dollar limits on network coverage are eliminated: Group health plans may no longer set lifetime limits on "essential health benefits."
2. Pre-existing condition limitations are waived for enrollees under age 19.
3. Dependents may remain on their parents' health plan until age 26 (some New York plans extend to age 29). If you have children in their 20's, or your employees do, you may want to consider adding such dependents to your plan.
4. There is no in-network cost-sharing for preventive care services. Plans will provide first dollar coverage for in-network preventive care.
5. Emergency Services must be covered without prior authorization and treated as in-network.
6. Plan members must be allowed to designate a child's pediatrician as the primary care provider. Plans may not require authorization or referrals for a participating OB-GYN.
The PPACA contains information defining discrimination in health plans. Under these new non-discrimination rules, group plans may not discriminate in favor of highly compensated employees (under IRC Section 105h). The term "highly compensated" is defined as one of the five highest paid officers, a shareholder owning 10% of the value of the stock, and/or an employee among the highest paid 25% of the employees. This may mean the end of certain plan designs where executives have a benefit separate from other employees (executive carve-out). Groups with low participation may also be affected.
The PPACA provides a tax credit for employer paid premiums for qualified firms. From 2010 to 2013, small businesses with 25 or fewer employees and an average wage of $50,000 or less are eligible for premium tax credits (for two years) of up to 35% of their contribution. To qualify, the business must contribute at least 50% of premium based on the rate of a single employee. Employers with 10 or fewer employees and average wages of $25,000 or less will be eligible for the 35% credit. In 2014, the credit will increase to 50% of eligible employer contributions. Groups with 11 - 25 employees with average earnings of $25,001 to $50,000 will be subject to a phase-out of the credit.
The PPACA will affect a business's reporting requirements. Companies will be required to report the cost of the employee sponsored health coverage to their employees on IRS Form W2.
On a state level, the New York State Legislature passed S58099 on June 7, 2010. This notice provides group policyholders information, or "Advance Notice," about the insurers filing for changes in premium rates for 2011. These filings are subject to review and approval by the New York State Insurance Department. The actual size of the increase will be released in a renewal letter approximately 60 days before renewal date. The total estimated percent increase includes multiple components: a basic increase or trend increase, an additional increase resulting from the cost of benefit enhancements required by the new PPACA, and the elimination of the New York State subsidy for small group mental health benefits (Timothy's Law).
Below is a list of benefit and eligibility enhancements that become effective on September 23rd. It is advised that these changes be communicated to employees. Note that "grandfathered plans" may not need to immediately comply with provisions affecting adult preventive care, discrimination, claims appeals and access to physicians. The September 23rd changes are:
1. Annual and lifetime dollar limits on network coverage are eliminated: Group health plans may no longer set lifetime limits on "essential health benefits."
2. Pre-existing condition limitations are waived for enrollees under age 19.
3. Dependents may remain on their parents' health plan until age 26 (some New York plans extend to age 29). If you have children in their 20's, or your employees do, you may want to consider adding such dependents to your plan.
4. There is no in-network cost-sharing for preventive care services. Plans will provide first dollar coverage for in-network preventive care.
5. Emergency Services must be covered without prior authorization and treated as in-network.
6. Plan members must be allowed to designate a child's pediatrician as the primary care provider. Plans may not require authorization or referrals for a participating OB-GYN.
The PPACA contains information defining discrimination in health plans. Under these new non-discrimination rules, group plans may not discriminate in favor of highly compensated employees (under IRC Section 105h). The term "highly compensated" is defined as one of the five highest paid officers, a shareholder owning 10% of the value of the stock, and/or an employee among the highest paid 25% of the employees. This may mean the end of certain plan designs where executives have a benefit separate from other employees (executive carve-out). Groups with low participation may also be affected.
The PPACA provides a tax credit for employer paid premiums for qualified firms. From 2010 to 2013, small businesses with 25 or fewer employees and an average wage of $50,000 or less are eligible for premium tax credits (for two years) of up to 35% of their contribution. To qualify, the business must contribute at least 50% of premium based on the rate of a single employee. Employers with 10 or fewer employees and average wages of $25,000 or less will be eligible for the 35% credit. In 2014, the credit will increase to 50% of eligible employer contributions. Groups with 11 - 25 employees with average earnings of $25,001 to $50,000 will be subject to a phase-out of the credit.
The PPACA will affect a business's reporting requirements. Companies will be required to report the cost of the employee sponsored health coverage to their employees on IRS Form W2.
On a state level, the New York State Legislature passed S58099 on June 7, 2010. This notice provides group policyholders information, or "Advance Notice," about the insurers filing for changes in premium rates for 2011. These filings are subject to review and approval by the New York State Insurance Department. The actual size of the increase will be released in a renewal letter approximately 60 days before renewal date. The total estimated percent increase includes multiple components: a basic increase or trend increase, an additional increase resulting from the cost of benefit enhancements required by the new PPACA, and the elimination of the New York State subsidy for small group mental health benefits (Timothy's Law).
Friday, October 29, 2010
IRS Form 56
In the next decade, over one fourth of the population is expected to have dementia and/or Alzheimer's. After age 65, one out of two of us will be afflicted.
Most of us will have to help our parents or our spouse by filing their tax return and maybe even handling an IRS audit. But, the IRS is not allowed to disclose information to anyone other than the taxpayer.
Like us, the IRS staff have parents and concerns regarding them, so they came up with a solution that does not need the approval of the grid-locked Congress.
The IRS had its attorneys issue a legal memo stating that the simple Form 56 solves the problem. If your parents file a Form 56 naming you as their agent, then you can handle their IRS tax matters. Form 56 is short and simple.
One thing to keep in mind is to be sure that your parent signs Form 56 before they lose their mental capacity.
To see Form 56, go to: http://www.irs.gov/pub/irs-pdf/f56.pdf
Most of us will have to help our parents or our spouse by filing their tax return and maybe even handling an IRS audit. But, the IRS is not allowed to disclose information to anyone other than the taxpayer.
Like us, the IRS staff have parents and concerns regarding them, so they came up with a solution that does not need the approval of the grid-locked Congress.
The IRS had its attorneys issue a legal memo stating that the simple Form 56 solves the problem. If your parents file a Form 56 naming you as their agent, then you can handle their IRS tax matters. Form 56 is short and simple.
One thing to keep in mind is to be sure that your parent signs Form 56 before they lose their mental capacity.
To see Form 56, go to: http://www.irs.gov/pub/irs-pdf/f56.pdf
Wednesday, October 13, 2010
Retirement Plans and Government Benefit Eligibility - Part 2
People with disabilities often need help from government benefit programs that provide monthly income, medical care, attendant care, housing and food. Many of these programs, including Medicaid, Supplemental Security Income (SSI) and food stamps, are means-tested. These programs count the amount of an applicant's monthly income and also the applicant's resources (bank accounts, stocks, retirement plans, and other assets) in determining eligibility for benefits.
For those individuals with disabilities who have worked and accumulated money in a retirement plan, how will those plans be treated when it comes time to apply for benefits? If a parent wants to name a child with disabilities as a beneficiary of the parent's retirement plan, how will that affect the child's elgibility for benefits? If a child is offered a retirement plan as part of her employment benefit package in a supported work opportunity, how will that affect her current or future eligibility for benefits?
In almost all cases a retirement plan inherited outright by a person with disabilities will be treated as an available asset or as monthly income that will reduce or eliminate means-tested government benefits, including SSI, Medicaid and food stamps. The fact that the retirement plan is taxable as funds are withdrawn does not mean it will not affect eligibility for needs-based benefits.
For example: If Sam inherits a $100,000 IRA from his mother at her death, that IRA account exceeds the $2,000 Medicaid and SSI asset limit and will disqualify him from those benefits. There are planning opportunities available to Sam's mother to avoid this result but still protect the retirement plan for Sam's benefit.
If the retirement plan is owned by the individual with disabilities, the effect of the plan on government benefits is more complicated. The government benefit program will need to determine if the retirement plan, or any portion of the plan, can be accessed by the individual. In other words, are the plan's assets available to the individual? This issue of availability will vary from plan to plan, and some state Medicaid rules may vary on how availability is determined.
In most cases, if the plan owner is no longer working, the retirement plan will be available and counted as a resource. If the plan owner is still working, the retirement plan may prohibit the owner from withdrawing funds from the plan while employed. In that case the plan should not be counted as an available asset. If the retirement plan allows a hardship waiver of the prohibition on withdrawing from the plan or the option of borrowing against the account, then the plan may be counted as an available asset depending upon how the plan defines "hardship" or under what circumstances employees can borrow again their account.
In some cases, the retirement plan may be treated as monthly income rather than an asset if the plan has been converted from a lump sum to irrevocable periodic payments from the plan over the life expectancy of the plan owner. Income usually reduces or offsets means-tested government benefits, so having a retirement plan treated as income rather than an asset probably will not help. Again, if Sam inherits a $500 per month IRA annuity from his mother at her death, the $500 will offset and reduce his SSI income dollar for dollar (other than $20 that will be disregarded). Instead of receiving his SSI income of $674 plus $500, Sam will receive $500 from the inherited IRA and $194 from the SSI program for total monthly income of $694.
The rules governing the treatment of retirement plans vary depending upon the source of the retirement plan and may vary from state to state. Individuals with retirement plan assets should seek legal advice before applying for means-tested government benefits.
For those individuals with disabilities who have worked and accumulated money in a retirement plan, how will those plans be treated when it comes time to apply for benefits? If a parent wants to name a child with disabilities as a beneficiary of the parent's retirement plan, how will that affect the child's elgibility for benefits? If a child is offered a retirement plan as part of her employment benefit package in a supported work opportunity, how will that affect her current or future eligibility for benefits?
In almost all cases a retirement plan inherited outright by a person with disabilities will be treated as an available asset or as monthly income that will reduce or eliminate means-tested government benefits, including SSI, Medicaid and food stamps. The fact that the retirement plan is taxable as funds are withdrawn does not mean it will not affect eligibility for needs-based benefits.
For example: If Sam inherits a $100,000 IRA from his mother at her death, that IRA account exceeds the $2,000 Medicaid and SSI asset limit and will disqualify him from those benefits. There are planning opportunities available to Sam's mother to avoid this result but still protect the retirement plan for Sam's benefit.
If the retirement plan is owned by the individual with disabilities, the effect of the plan on government benefits is more complicated. The government benefit program will need to determine if the retirement plan, or any portion of the plan, can be accessed by the individual. In other words, are the plan's assets available to the individual? This issue of availability will vary from plan to plan, and some state Medicaid rules may vary on how availability is determined.
In most cases, if the plan owner is no longer working, the retirement plan will be available and counted as a resource. If the plan owner is still working, the retirement plan may prohibit the owner from withdrawing funds from the plan while employed. In that case the plan should not be counted as an available asset. If the retirement plan allows a hardship waiver of the prohibition on withdrawing from the plan or the option of borrowing against the account, then the plan may be counted as an available asset depending upon how the plan defines "hardship" or under what circumstances employees can borrow again their account.
In some cases, the retirement plan may be treated as monthly income rather than an asset if the plan has been converted from a lump sum to irrevocable periodic payments from the plan over the life expectancy of the plan owner. Income usually reduces or offsets means-tested government benefits, so having a retirement plan treated as income rather than an asset probably will not help. Again, if Sam inherits a $500 per month IRA annuity from his mother at her death, the $500 will offset and reduce his SSI income dollar for dollar (other than $20 that will be disregarded). Instead of receiving his SSI income of $674 plus $500, Sam will receive $500 from the inherited IRA and $194 from the SSI program for total monthly income of $694.
The rules governing the treatment of retirement plans vary depending upon the source of the retirement plan and may vary from state to state. Individuals with retirement plan assets should seek legal advice before applying for means-tested government benefits.
Wednesday, September 15, 2010
Retirement Accounts and Government Benefits - Part 1
For many individuals retirement plans are an important part of their financial security. While retirement plans can be great wealth building tools, they can also present some significant challenges if an individual with disabilities needs to qualify for some government benefits.
Retirement plans can be an issue in several different contexts. Parents often want to leave retirement accounts to their children with disabilities as part of their estate plan. People with disabilities may have their own retirement plan that was funded before the onset of their disability. In some cases a person with disabilities may have employment through a PASS Plan or a supported job opportunity that includes either employer funding of a retirement plan or the employee’s option to self-fund a retirement plan through wage deferral or withholding. In each of these cases it is important to know how retirement plans can affect eligibility for government benefits and what options are available to minimize or avoid the loss or reduction in benefits.
We will discuss how retirement plans may affect eligibility for means-tested government benefits in two parts. In a future newsletter, we will address options to shelter retirement plan benefits in order to preserve needed government benefits.
What is a Retirement Plan?
While there are many different types of retirement plans, the following are the most common plans:
• Individual Retirement Accounts (IRAs). IRAs are retirement accounts that are owned and funded by individuals with income they have earned through employment.
• 401(k) Plans. 401(k) plans are employer sponsored retirement plans that are funded by an employee’s salary deferral and in some cases also by employer contributions. 401(k) plans are typically offered by private and corporate employers.
• 403(b) Plans. 403(b) plans function essentially the same way as 401(k) plans. They are retirement plans that are administered the employees of educational institutions, hospitals and municipalities.
Generally speaking, each of these plans defers income taxes. This means that money you put into the plan is not taxable in the year of contribution, and it grows tax free within the plan. But when you withdraw funds from one of these plans, the amount withdrawn is considered taxable income, just like wages. Thus the tax is deferred but not avoided altogether.
There are rules which govern the manner and timing of withdrawals from these plans. These rules are designed to encourage people to save for their retirement, and then use the money once they do retire. The two most important rules for our purposes are as follows:
• Rule 1. Prior to reaching age 59 ½ , a retirement plan owner who withdraws funds from his or her retirement plan will be subject to an excise tax (like a penalty) equivalent to 10% of the total distribution. This is in addition to the ordinary income tax that applies to the distribution. This rule is designed to encourage people to keep money in the plan until they retire. There are some exceptions to this rule, however, the most important of which allows a person with a recognized disability to withdraw funds from a retirement plan before age 59 ½ without incurring the 10% excise tax penalty.
• Rule 2. Once an individual reaches the age of 70 ½, the individual must begin taking required minimum distributions from the retirement plan. The IRS has a special life expectancy table that is used to calculate one’s required minimum distributions. If the individual fails to take a minimum distribution after reaching age 70 ½ , then there will be a 50% excise tax on the total amount of the required distribution. That excise tax is in addition to the ordinary income tax payable on the distribution. This rule is designed to encourage people to use the money when they retire.
Source: www.specialneedsalliance.com; 9/10 - Vol. 4, Issue 14
Retirement plans can be an issue in several different contexts. Parents often want to leave retirement accounts to their children with disabilities as part of their estate plan. People with disabilities may have their own retirement plan that was funded before the onset of their disability. In some cases a person with disabilities may have employment through a PASS Plan or a supported job opportunity that includes either employer funding of a retirement plan or the employee’s option to self-fund a retirement plan through wage deferral or withholding. In each of these cases it is important to know how retirement plans can affect eligibility for government benefits and what options are available to minimize or avoid the loss or reduction in benefits.
We will discuss how retirement plans may affect eligibility for means-tested government benefits in two parts. In a future newsletter, we will address options to shelter retirement plan benefits in order to preserve needed government benefits.
What is a Retirement Plan?
While there are many different types of retirement plans, the following are the most common plans:
• Individual Retirement Accounts (IRAs). IRAs are retirement accounts that are owned and funded by individuals with income they have earned through employment.
• 401(k) Plans. 401(k) plans are employer sponsored retirement plans that are funded by an employee’s salary deferral and in some cases also by employer contributions. 401(k) plans are typically offered by private and corporate employers.
• 403(b) Plans. 403(b) plans function essentially the same way as 401(k) plans. They are retirement plans that are administered the employees of educational institutions, hospitals and municipalities.
Generally speaking, each of these plans defers income taxes. This means that money you put into the plan is not taxable in the year of contribution, and it grows tax free within the plan. But when you withdraw funds from one of these plans, the amount withdrawn is considered taxable income, just like wages. Thus the tax is deferred but not avoided altogether.
There are rules which govern the manner and timing of withdrawals from these plans. These rules are designed to encourage people to save for their retirement, and then use the money once they do retire. The two most important rules for our purposes are as follows:
• Rule 1. Prior to reaching age 59 ½ , a retirement plan owner who withdraws funds from his or her retirement plan will be subject to an excise tax (like a penalty) equivalent to 10% of the total distribution. This is in addition to the ordinary income tax that applies to the distribution. This rule is designed to encourage people to keep money in the plan until they retire. There are some exceptions to this rule, however, the most important of which allows a person with a recognized disability to withdraw funds from a retirement plan before age 59 ½ without incurring the 10% excise tax penalty.
• Rule 2. Once an individual reaches the age of 70 ½, the individual must begin taking required minimum distributions from the retirement plan. The IRS has a special life expectancy table that is used to calculate one’s required minimum distributions. If the individual fails to take a minimum distribution after reaching age 70 ½ , then there will be a 50% excise tax on the total amount of the required distribution. That excise tax is in addition to the ordinary income tax payable on the distribution. This rule is designed to encourage people to use the money when they retire.
Source: www.specialneedsalliance.com; 9/10 - Vol. 4, Issue 14
Thursday, August 26, 2010
Your Retirement Age Can Affect Your Child's Disability Benefits
If you have a child with special needs, you should think carefully about whether it is advisable to retire before what Social Security calls your “normal retirement age” or “NRA.” Social Security has a formula for reducing retirement benefits depending upon how many years before NRA a worker retires (but not younger than age 62). NRA varies between age 65 and 67 depending on the worker’s date of birth. Social Security has a chart showing retirement ages. The NRA has gradually increased over time. For many years NRA was 65 for everyone, but now it is as high as 67 for people born after 1959.
If you retire before your NRA, your Social Security benefit amount will be reduced by a mathematical formula based on how many months before your NRA you retire. So for example, if you retired at age 62 and your NRA was 66, your retirement income will be reduced by 25%. If you retired 2 years before your NRA, the reduction in your Social Security benefits would be about 13%. You can calculate your estimated NRA by going to Social Security’s web site. AnalyzeNow, a private web site with a mission to “disseminate inexpensive retirement planning tools,” also has a useful retirement calculator program.
There are several articles on the pros and cons of applying for Social Security retirement benefits before reaching your NRA. Many of the articles discuss what is referred to as the “break even” point. The idea is to try to calculate whether you will receive more money over your lifetime if you receive a smaller amount starting at age 62 or a larger amount starting at a later age. There are calculator programs to determine how long you would have to live before the amount you would receive at the NRA rate would be greater than the smaller amount you would receive over a longer period of time if you elected early retirement.
These articles and calculators fail to take into account one factor that is of critical importance to parents with a special needs child. Your child may be eligible for a Social Security benefit that is based on your retirement benefit. The less you receive in retirement income, the less your child’s benefit will be for his or her lifetime.
Child Disability Benefits
If a child is disabled before the age of 22, he or she may be eligible for Child Disability Benefits (CDB) when the parent retires, becomes disabled or dies. The child must be at least 18 years old, and the parent must have paid into the Social Security system while working. (A detailed discussion of CDB is beyond the scope of this article.) The child’s benefit amount is 50% of the parent’s Social Security benefit if the parent is living. If the parent dies, the CDB benefit is increased to 75% of the parent’s benefit amount. If both parents are retired, disabled or deceased, the child will receive the CDB amount based on the higher earning parent’s Social Security benefit. Occasionally a child will not get the full CDB benefit amount because other family members are also entitled to Social Security benefits based upon the parent’s account. There is a maximum “family benefit” that can be paid based on any one person’s Social Security contributions.
Many adult disabled children are already receiving SSI benefits when they qualify for CDB after their parent retires, becomes disabled or dies. CDB will replace or offset the SSI benefit dollar for dollar. If the CDB amount is less than the SSI benefit amount, the child can receive both CDB and enough SSI income to bring the child’s total income up to the SSI benefit amount plus an additional $20.
The federal SSI benefit amount for 2010 is $674. Some states pay a supplemental amount to increase the total SSI payment. So, for example, if Tim was previously receiving SSI and his CDB benefit is $600 per month, he will be eligible for an additional SSI benefit of $94 per month ($74 + $20). If Tim’s CDB benefit is $800 per month, he will receive no SSI benefits because the CDB amount exceeds the SSI benefit amount.
How Retirement Age Affects Child Disability Benefits
The CDB amount paid to your child is based upon your actual Social Security benefit amount. Applying for early retirement Social Security benefits will not only reduce your Social Security benefit amount for the rest of your life, but it will also reduce your child’s CDB benefit.
For example, Kate is 61 years old and is trying to decide whether to take early retirement at age 62 or wait until her NRA at 66. Kate has a 30 year old son, Scott, who is currently receiving SSI benefits of $674 per month. Scott has had cerebral palsy since birth.
Using the Social Security benefit calculator, Kate determined that her NRA is 66, because she was born in 1949, and that if she waited until age 66 to retire, her monthly benefit would be $1250 per month. If she retired at age 62, her retirement benefit would be about $900 per month.
Based upon the above estimates, Kate then calculated Scott’s CDB if she died. Scott would be entitled to half of Kate’s benefit amount when she retires, but her primary concern is how to provide for her son at her death. If Kate waited until her NRA of 66, Scott’s CDB would be $937 per month (75% of $1250). If Kate instead retired at 62, she estimated that Scott’s CDB benefit would be $675 per month (75% of $900). In doing these rough calculations, Kate did not take into account annual cost of living adjustments (COLA) and she disregarded the CDB benefits Scott would not receive if she delayed her retirement by four years.
The difference in Scott’s CDB amount depending upon whether Kate retired at age 62 or 66 amounted to $262 per month or $3144 per year. Projecting out this increased benefit amount over 40 years, Scott would receive approximately $125,000 more in CDB income if Kate waited to apply for Social Security at 66 when she reaches her NRA. Keep in mind that the above projections are based upon Kate’s employment history, so the projected CDB benefits for her son will not be the same as another parent with higher or lower earnings.
There are many factors to take into account before deciding when to apply for Social Security retirement benefits, and there is no single right answer to the question, “is early retirement a good idea?”
• For some families there are economic, health or employment issues that make early retirement necessary regardless of the impact on a child’s CDB amount.
• For some families there are significant assets to leave to their children in a special needs trust, making additional monthly income from delayed retirement less significant.
• Some children contribute almost all of their income as a co-payment towards residential care paid by the Medicaid program, so additional monthly income will not impact the quality of their life.
• Some children with disabilities have their own employment history through supported work that gives them a higher disability benefit than what they would receive on a parent’s Social Security account.
• The child is entitled to the higher benefit amount if both parents are deceased, retired or disabled and in insured status with Social Security. For example, if Scott’s father has an account with Social Security that is close to or higher than Kate’s, she may be less concerned about the effect of her retirement age on Scott’s CDB benefit amount.
All of the above factors should be weighed carefully before you decide whether to apply for early retirement with Social Security. Your financial planner can give you guidance on the best age for you to retire based upon your net worth. But if you have a special needs child who was disabled before the age of 22, no decision should be made before considering the impact of your retirement age on your child’s future Social Security benefits.
Source: www.specialneedsalliance.com, July 2010 - Vol. 4, Issue 11
If you retire before your NRA, your Social Security benefit amount will be reduced by a mathematical formula based on how many months before your NRA you retire. So for example, if you retired at age 62 and your NRA was 66, your retirement income will be reduced by 25%. If you retired 2 years before your NRA, the reduction in your Social Security benefits would be about 13%. You can calculate your estimated NRA by going to Social Security’s web site. AnalyzeNow, a private web site with a mission to “disseminate inexpensive retirement planning tools,” also has a useful retirement calculator program.
There are several articles on the pros and cons of applying for Social Security retirement benefits before reaching your NRA. Many of the articles discuss what is referred to as the “break even” point. The idea is to try to calculate whether you will receive more money over your lifetime if you receive a smaller amount starting at age 62 or a larger amount starting at a later age. There are calculator programs to determine how long you would have to live before the amount you would receive at the NRA rate would be greater than the smaller amount you would receive over a longer period of time if you elected early retirement.
These articles and calculators fail to take into account one factor that is of critical importance to parents with a special needs child. Your child may be eligible for a Social Security benefit that is based on your retirement benefit. The less you receive in retirement income, the less your child’s benefit will be for his or her lifetime.
Child Disability Benefits
If a child is disabled before the age of 22, he or she may be eligible for Child Disability Benefits (CDB) when the parent retires, becomes disabled or dies. The child must be at least 18 years old, and the parent must have paid into the Social Security system while working. (A detailed discussion of CDB is beyond the scope of this article.) The child’s benefit amount is 50% of the parent’s Social Security benefit if the parent is living. If the parent dies, the CDB benefit is increased to 75% of the parent’s benefit amount. If both parents are retired, disabled or deceased, the child will receive the CDB amount based on the higher earning parent’s Social Security benefit. Occasionally a child will not get the full CDB benefit amount because other family members are also entitled to Social Security benefits based upon the parent’s account. There is a maximum “family benefit” that can be paid based on any one person’s Social Security contributions.
Many adult disabled children are already receiving SSI benefits when they qualify for CDB after their parent retires, becomes disabled or dies. CDB will replace or offset the SSI benefit dollar for dollar. If the CDB amount is less than the SSI benefit amount, the child can receive both CDB and enough SSI income to bring the child’s total income up to the SSI benefit amount plus an additional $20.
The federal SSI benefit amount for 2010 is $674. Some states pay a supplemental amount to increase the total SSI payment. So, for example, if Tim was previously receiving SSI and his CDB benefit is $600 per month, he will be eligible for an additional SSI benefit of $94 per month ($74 + $20). If Tim’s CDB benefit is $800 per month, he will receive no SSI benefits because the CDB amount exceeds the SSI benefit amount.
How Retirement Age Affects Child Disability Benefits
The CDB amount paid to your child is based upon your actual Social Security benefit amount. Applying for early retirement Social Security benefits will not only reduce your Social Security benefit amount for the rest of your life, but it will also reduce your child’s CDB benefit.
For example, Kate is 61 years old and is trying to decide whether to take early retirement at age 62 or wait until her NRA at 66. Kate has a 30 year old son, Scott, who is currently receiving SSI benefits of $674 per month. Scott has had cerebral palsy since birth.
Using the Social Security benefit calculator, Kate determined that her NRA is 66, because she was born in 1949, and that if she waited until age 66 to retire, her monthly benefit would be $1250 per month. If she retired at age 62, her retirement benefit would be about $900 per month.
Based upon the above estimates, Kate then calculated Scott’s CDB if she died. Scott would be entitled to half of Kate’s benefit amount when she retires, but her primary concern is how to provide for her son at her death. If Kate waited until her NRA of 66, Scott’s CDB would be $937 per month (75% of $1250). If Kate instead retired at 62, she estimated that Scott’s CDB benefit would be $675 per month (75% of $900). In doing these rough calculations, Kate did not take into account annual cost of living adjustments (COLA) and she disregarded the CDB benefits Scott would not receive if she delayed her retirement by four years.
The difference in Scott’s CDB amount depending upon whether Kate retired at age 62 or 66 amounted to $262 per month or $3144 per year. Projecting out this increased benefit amount over 40 years, Scott would receive approximately $125,000 more in CDB income if Kate waited to apply for Social Security at 66 when she reaches her NRA. Keep in mind that the above projections are based upon Kate’s employment history, so the projected CDB benefits for her son will not be the same as another parent with higher or lower earnings.
There are many factors to take into account before deciding when to apply for Social Security retirement benefits, and there is no single right answer to the question, “is early retirement a good idea?”
• For some families there are economic, health or employment issues that make early retirement necessary regardless of the impact on a child’s CDB amount.
• For some families there are significant assets to leave to their children in a special needs trust, making additional monthly income from delayed retirement less significant.
• Some children contribute almost all of their income as a co-payment towards residential care paid by the Medicaid program, so additional monthly income will not impact the quality of their life.
• Some children with disabilities have their own employment history through supported work that gives them a higher disability benefit than what they would receive on a parent’s Social Security account.
• The child is entitled to the higher benefit amount if both parents are deceased, retired or disabled and in insured status with Social Security. For example, if Scott’s father has an account with Social Security that is close to or higher than Kate’s, she may be less concerned about the effect of her retirement age on Scott’s CDB benefit amount.
All of the above factors should be weighed carefully before you decide whether to apply for early retirement with Social Security. Your financial planner can give you guidance on the best age for you to retire based upon your net worth. But if you have a special needs child who was disabled before the age of 22, no decision should be made before considering the impact of your retirement age on your child’s future Social Security benefits.
Source: www.specialneedsalliance.com, July 2010 - Vol. 4, Issue 11
Thursday, August 5, 2010
MEDICARE REFORM MEANS SOME SENIORS FACE BENEFIT CUTS
First, the good news: According to a report released by the White House on Monday, America’s new health reform law will generate $575 billion in Medicare cost savings over the next decade, allowing the program to survive until 2029. The report says this will result in lower Medicare premiums of nearly $200 a year by 2018.
Part of those savings, amounting to $5.3 billion by 2011, will come from reduced “overpayments” to Medicare Advantage, a system that allows Medicare recipients to receive benefits via private health insurance providers. The savings associated with Medicare Advantage efficiencies will rise to $145 billion by 2019.
Now for the bad news: Seniors enrolled in Medicare Advantage may soon find that their benefits have been cut. Under changes contained within America’s new health reform law, reduced payments to private insurers may lead to a reduction in benefits such as dental coverage and free eyeglasses. That could trigger an exodus from Medicare Advantage plans back to traditional fee-for-service Medicare, though at much higher costs.
Shrinking the Subsidies
Since 2003, when the subsidies offered Medicare Advantage were greatly increased, the number of enrollees in such plans – which are offered by a number of private insurance companies – has soared. Roughly one in four Medicare recipients is now on a Medicare Advantage plan because of all the extra benefits that were offered.
The issue has become a central concern to many seniors, because the health reform law passed in March makes deep cuts in the subsidy payments Medicare makes to private Medicare Advantage plans. The Obama administration report says Medicare paid Medicare Advantage plans 14%, or $1,000 per person on average, more for health services than traditional Medicare, with “no measured differences in health outcomes.” It is those extra payments that will now be eliminated.
Yet in one change to the rules which has not been widely reported, people enrolled in a Medicare Advantage plan will no longer be able to switch to another Medicare Advantage program. Instead, they will have no option but to join the traditional Medicare program if they decide to leave their current plans because benefits have been reduced under the new law.
Peter Ashkenaz, deputy director of media affairs at the U.S. Health and Human Services department of Medicare and Medicaid services, confirmed that as of Jan. 1, people enrolled in Medicare Advantage will have 45 days of open enrollment “to return to the fee-for-service program.” But, he added, users will not be able to switch to another Medicare Advantage plan, as they have been able to do for the past decade.
The Challenge of Change
“Obviously if you’re taking away subsidies, then companies that provide Medicare Advantage’ plans will have to review what they are doing,” says David Certner, legislative director for AARP. “We’re likely to see some changes in some of the plans.”
AARP, which supported the health care reform law, also offers Medicare Advantage and Medigap insurance policies to its members. Certner says AARP’s position is that its business side should conform to its policy side, and “that we needed to reduce some of these excess payments, but our plans would continue to operate in whatever the regime was.”
Certner says the savings outlined by the Administration means the “financial solvency of Medicare is going to be improved by 12 years – that’s pretty significant.”
But, he added, there are concerns that projected savings in payments to health care providers like hospitals and nursing homes might limit access to those facilities. “Those are not likely to happen as much in the near term, “ but over longer periods of time they might have an impact, and “that’s certainly something we’ll be keeping our eyes on.”
Mind the Gaps
Joseph Antos, a health care scholar at the American Enterprise Institute, says this change could prove extremely costly to retirees. That’s because most seniors on Medicare Advantage don’t have so-called Medigap policies, which are private insurance plans that pay the “gaps” in traditional Medicare coverage such as hospital deductibles and doctor co-payments.
Antos says that when patients switch from Medicare Advantage to traditional Medicare, “they will pay much higher premiums than they ever imagined possible for Medigap insurance.” The reason is that most people take out Medigap coverage when they turn 65 and are healthy, while those who are older and in poorer health will now have to pay much more.
Antos said that based on the analysis of Richard S. Foster, the chief actuary of the Medicare service, some large hospitals and nursing homes may withdraw from providing Medicare services because the reimbursements are too low to be cost-effective.
Source: www.dailyfinance.com, Charles Wallace, 8/3/10
Part of those savings, amounting to $5.3 billion by 2011, will come from reduced “overpayments” to Medicare Advantage, a system that allows Medicare recipients to receive benefits via private health insurance providers. The savings associated with Medicare Advantage efficiencies will rise to $145 billion by 2019.
Now for the bad news: Seniors enrolled in Medicare Advantage may soon find that their benefits have been cut. Under changes contained within America’s new health reform law, reduced payments to private insurers may lead to a reduction in benefits such as dental coverage and free eyeglasses. That could trigger an exodus from Medicare Advantage plans back to traditional fee-for-service Medicare, though at much higher costs.
Shrinking the Subsidies
Since 2003, when the subsidies offered Medicare Advantage were greatly increased, the number of enrollees in such plans – which are offered by a number of private insurance companies – has soared. Roughly one in four Medicare recipients is now on a Medicare Advantage plan because of all the extra benefits that were offered.
The issue has become a central concern to many seniors, because the health reform law passed in March makes deep cuts in the subsidy payments Medicare makes to private Medicare Advantage plans. The Obama administration report says Medicare paid Medicare Advantage plans 14%, or $1,000 per person on average, more for health services than traditional Medicare, with “no measured differences in health outcomes.” It is those extra payments that will now be eliminated.
Yet in one change to the rules which has not been widely reported, people enrolled in a Medicare Advantage plan will no longer be able to switch to another Medicare Advantage program. Instead, they will have no option but to join the traditional Medicare program if they decide to leave their current plans because benefits have been reduced under the new law.
Peter Ashkenaz, deputy director of media affairs at the U.S. Health and Human Services department of Medicare and Medicaid services, confirmed that as of Jan. 1, people enrolled in Medicare Advantage will have 45 days of open enrollment “to return to the fee-for-service program.” But, he added, users will not be able to switch to another Medicare Advantage plan, as they have been able to do for the past decade.
The Challenge of Change
“Obviously if you’re taking away subsidies, then companies that provide Medicare Advantage’ plans will have to review what they are doing,” says David Certner, legislative director for AARP. “We’re likely to see some changes in some of the plans.”
AARP, which supported the health care reform law, also offers Medicare Advantage and Medigap insurance policies to its members. Certner says AARP’s position is that its business side should conform to its policy side, and “that we needed to reduce some of these excess payments, but our plans would continue to operate in whatever the regime was.”
Certner says the savings outlined by the Administration means the “financial solvency of Medicare is going to be improved by 12 years – that’s pretty significant.”
But, he added, there are concerns that projected savings in payments to health care providers like hospitals and nursing homes might limit access to those facilities. “Those are not likely to happen as much in the near term, “ but over longer periods of time they might have an impact, and “that’s certainly something we’ll be keeping our eyes on.”
Mind the Gaps
Joseph Antos, a health care scholar at the American Enterprise Institute, says this change could prove extremely costly to retirees. That’s because most seniors on Medicare Advantage don’t have so-called Medigap policies, which are private insurance plans that pay the “gaps” in traditional Medicare coverage such as hospital deductibles and doctor co-payments.
Antos says that when patients switch from Medicare Advantage to traditional Medicare, “they will pay much higher premiums than they ever imagined possible for Medigap insurance.” The reason is that most people take out Medigap coverage when they turn 65 and are healthy, while those who are older and in poorer health will now have to pay much more.
Antos said that based on the analysis of Richard S. Foster, the chief actuary of the Medicare service, some large hospitals and nursing homes may withdraw from providing Medicare services because the reimbursements are too low to be cost-effective.
Source: www.dailyfinance.com, Charles Wallace, 8/3/10
Thursday, July 22, 2010
Senators Move to Revive Estate Tax at Reduced Rate
WASHINGTON – The federal estate tax would be revived, but at a reduced rate, under a plan being pushed by two senators, a Democrat and a Republican.
Democrat Blanche Lincoln of Arkansas and Republican Jon Kyl of Arizona hope to attach the new estate tax to a small business lending bill pending in the Senate. Their bill would set the top estate tax rate at 35 percent, with a per-person exemption of $5 million, indexed to inflation.
In 2009, the top estate tax rate was 45 percent with a per-person exemption of $3.5 million. Congress allowed the estate tax to expire this year, but it is scheduled to come back next year with a top rate of 55 percent, unless Congress acts.
"It's time to take decisive action on the estate tax, and provide the permanent solution that Arkansas' hardworking farmers and small businesses are desperately seeking," Lincoln said.
The Senate, as part of a nonbinding budget resolution, voted last year in favor of a proposal similar to the one pushed by Lincoln and Kyl. The House, however, voted to extend the 2009 rates, and the two sides were unable to reach an agreement.
The Senate is expected to take up the small business lending bill next week, though leaders have not indicated whether they will allow a vote on the estate tax as part of the debate.
"If the Small Business Lending bill is intended to help small business create jobs, wouldn't it make sense to provide small business owners with the certainty that their tax rates aren't going to skyrocket at the beginning of next year?" Kyl said.
Democrat Blanche Lincoln of Arkansas and Republican Jon Kyl of Arizona hope to attach the new estate tax to a small business lending bill pending in the Senate. Their bill would set the top estate tax rate at 35 percent, with a per-person exemption of $5 million, indexed to inflation.
In 2009, the top estate tax rate was 45 percent with a per-person exemption of $3.5 million. Congress allowed the estate tax to expire this year, but it is scheduled to come back next year with a top rate of 55 percent, unless Congress acts.
"It's time to take decisive action on the estate tax, and provide the permanent solution that Arkansas' hardworking farmers and small businesses are desperately seeking," Lincoln said.
The Senate, as part of a nonbinding budget resolution, voted last year in favor of a proposal similar to the one pushed by Lincoln and Kyl. The House, however, voted to extend the 2009 rates, and the two sides were unable to reach an agreement.
The Senate is expected to take up the small business lending bill next week, though leaders have not indicated whether they will allow a vote on the estate tax as part of the debate.
"If the Small Business Lending bill is intended to help small business create jobs, wouldn't it make sense to provide small business owners with the certainty that their tax rates aren't going to skyrocket at the beginning of next year?" Kyl said.
Friday, June 25, 2010
"Legacy for One Billionaire: Death but no Taxes"
The following article is reprinted from www.msnbc.msn and originally appeared in the New York Times on Wednesday, June 9, 2010. It is entitled, “Billionaire’s legacy – death, but no taxes”.
Earlier this year, we released information regarding the unique situation that would occur in 2010 regarding the estate tax laws. In addition, we held several client seminars in an effort to explain the consequences of this repeal. This article illustrates how the estate tax changes for 2010 effect an estate and we’d like to share it with you.
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan’s riches – Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world – would have been subject to a federal tax of at least 45 percent. If he had lived past January 1, 2011, the rate would be even higher – 55 percent.
Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.
The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.
The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth – until January 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.
Incendiary issue
Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment – or worse, resist life-prolonging measures to hasten a relatives demise before the end of 2010.
The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is not trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.
Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.
Representatives of Mr. Duncan’s family, his estate and his business interests did not return calls about the matter. Mr. Duncan’s will, which is on file at the Harris County Probate Court in Houston, was written in 2006 and amended in 2008, a time when most estate planners assumed that Congress would not allow the tax to lapse. Federal law has long allowed an unlimited amount of assets to pass untaxed to a surviving spouse, and Mr. Duncan left his home and ranch to his wife of more than 20 years, Jan, along with stock valued at hundreds of millions of dollars.
But the bulk of his estate is left to his children and grandchildren, and would have been taxable in 2009 or 2011.
5,000-acre hunting ranch
In addition to personal effects bequeathed to his descendants – boats, jewelry, automobiles, shotguns and a 5,500-acre Texas hunting ranch stocked with wild game – he passed on his holdings in EPCO and Dan Duncan L.L.P., two entities in the natural gas and pipeline empire he built. The stock involved includes more than 100 million shares in Enterprise GP Holdings, which closed at $43.23 the last trading day before Mr. Duncan died. That asset alone could have resulted in a $2 billion estate tax.
The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.
Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.
Advocates of the tax say it is unconscionable that Congressional leaders have allowed the richest Americans to reap a new tax break at a time when deficits are soaring and the income gap between wealthy and poor citizens remains near historic levels.
“The ultrawealthy in this country will still be able to pass on enormous wealth to the next generation,” said Chuck Collins, who studies income inequality and has worked with billionaires like Warren E. Buffet and Bill Gates to promote an estate tax. Mr. Collins argues that the tax is a “recycling program for economic opportunity.”
But opponents, who label it a death tax, say it is unfair because it taxes the same income twice – once when it is earned and again when it is passed on to heirs.
Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.
Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.
Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.
During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.
Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.
An avid big game hunter – Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants – he made a $1 million donation in his will to the Shikar Safari Club International Foundation.
The will also directs that any money or assets not otherwise specified for a relative or charity be deposited into two family charitable trusts, which can be used to donate to causes deemed worthy by his heirs.
Earlier this year, we released information regarding the unique situation that would occur in 2010 regarding the estate tax laws. In addition, we held several client seminars in an effort to explain the consequences of this repeal. This article illustrates how the estate tax changes for 2010 effect an estate and we’d like to share it with you.
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan’s riches – Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world – would have been subject to a federal tax of at least 45 percent. If he had lived past January 1, 2011, the rate would be even higher – 55 percent.
Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.
The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.
The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth – until January 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.
Incendiary issue
Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment – or worse, resist life-prolonging measures to hasten a relatives demise before the end of 2010.
The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is not trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.
Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.
Representatives of Mr. Duncan’s family, his estate and his business interests did not return calls about the matter. Mr. Duncan’s will, which is on file at the Harris County Probate Court in Houston, was written in 2006 and amended in 2008, a time when most estate planners assumed that Congress would not allow the tax to lapse. Federal law has long allowed an unlimited amount of assets to pass untaxed to a surviving spouse, and Mr. Duncan left his home and ranch to his wife of more than 20 years, Jan, along with stock valued at hundreds of millions of dollars.
But the bulk of his estate is left to his children and grandchildren, and would have been taxable in 2009 or 2011.
5,000-acre hunting ranch
In addition to personal effects bequeathed to his descendants – boats, jewelry, automobiles, shotguns and a 5,500-acre Texas hunting ranch stocked with wild game – he passed on his holdings in EPCO and Dan Duncan L.L.P., two entities in the natural gas and pipeline empire he built. The stock involved includes more than 100 million shares in Enterprise GP Holdings, which closed at $43.23 the last trading day before Mr. Duncan died. That asset alone could have resulted in a $2 billion estate tax.
The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.
Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.
Advocates of the tax say it is unconscionable that Congressional leaders have allowed the richest Americans to reap a new tax break at a time when deficits are soaring and the income gap between wealthy and poor citizens remains near historic levels.
“The ultrawealthy in this country will still be able to pass on enormous wealth to the next generation,” said Chuck Collins, who studies income inequality and has worked with billionaires like Warren E. Buffet and Bill Gates to promote an estate tax. Mr. Collins argues that the tax is a “recycling program for economic opportunity.”
But opponents, who label it a death tax, say it is unfair because it taxes the same income twice – once when it is earned and again when it is passed on to heirs.
Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.
Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.
Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.
During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.
Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.
An avid big game hunter – Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants – he made a $1 million donation in his will to the Shikar Safari Club International Foundation.
The will also directs that any money or assets not otherwise specified for a relative or charity be deposited into two family charitable trusts, which can be used to donate to causes deemed worthy by his heirs.
Tuesday, June 8, 2010
MAKE SURE YOUR LIFE INSURANCE IS NOT TAXED AT YOUR DEATH
Although your life insurance policy may pass to your heirs income tax-free, it can affect your estate tax. If you are the owner of the insurance policy, it will become a part of your taxable estate when you die. While the federal estate tax is currently zero, the exemption will be $1 million and the rate will increase to 55 percent on January 1, 2011, if Congress fails to act in the interim. And state estate taxes are still in effect now. You should make sure your life insurance policy won't have an impact on your estate's tax liability.
1. If your spouse is the beneficiary of your policy, then there is nothing to worry about. Spouses can transfer assets to each other tax-free. But if the beneficiary is anyone else (including your children), the policy will be a part of your estate for tax purposes. For example, suppose you buy a $200,000 life insurance policy and name your son as the beneficiary. When you die, the life insurance policy will be included in your taxable estate. If the total amount of your taxable estate exceeds the estate tax exemption, then your policy will be taxed.
In order to avoid having your life insurance policy taxed, you can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won't be able to change the beneficiary or exert control over it. In addition, the transfer may be subject to gift tax if the cash value of your policy (the amount you would get for your policy if you cashed it in) is more than $13,000. If you decide to transfer a life insurance policy, do it right away. If you die within three years of transferring the policy, the policy will still be included in your estate.
If you transfer a life insurance policy to a person, you need to make sure it is someone you trust not to cash in the policy. For example, if your spouse owns the policy and you get divorced, there will be no way for you to get it back. A better option may be to transfer the life insurance policy to a life insurance trust. With a life insurance trust, the trust owns the policy and is the beneficiary. You can then dictate who the beneficiary of the trust will be. For a life insurance trust to exclude your policy from estate taxes, it must be irrevocable and you cannot act as trustee.
If you want to transfer a current life insurance policy to someone else or set up a trust to purchase a policy, consult with your elder law attorney.
Source: www.elderlawanswers.com; 5/10.
1. If your spouse is the beneficiary of your policy, then there is nothing to worry about. Spouses can transfer assets to each other tax-free. But if the beneficiary is anyone else (including your children), the policy will be a part of your estate for tax purposes. For example, suppose you buy a $200,000 life insurance policy and name your son as the beneficiary. When you die, the life insurance policy will be included in your taxable estate. If the total amount of your taxable estate exceeds the estate tax exemption, then your policy will be taxed.
In order to avoid having your life insurance policy taxed, you can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won't be able to change the beneficiary or exert control over it. In addition, the transfer may be subject to gift tax if the cash value of your policy (the amount you would get for your policy if you cashed it in) is more than $13,000. If you decide to transfer a life insurance policy, do it right away. If you die within three years of transferring the policy, the policy will still be included in your estate.
If you transfer a life insurance policy to a person, you need to make sure it is someone you trust not to cash in the policy. For example, if your spouse owns the policy and you get divorced, there will be no way for you to get it back. A better option may be to transfer the life insurance policy to a life insurance trust. With a life insurance trust, the trust owns the policy and is the beneficiary. You can then dictate who the beneficiary of the trust will be. For a life insurance trust to exclude your policy from estate taxes, it must be irrevocable and you cannot act as trustee.
If you want to transfer a current life insurance policy to someone else or set up a trust to purchase a policy, consult with your elder law attorney.
Source: www.elderlawanswers.com; 5/10.
Wednesday, May 26, 2010
ESTATE TAX REFORM - Spring 2010
The following is an estate tax reform update, various possible outcomes and several interpretations from estate planning and tax attorneys throughout the United States. We thought we’d keep you up to date and share some of the interesting comments:
1. Late last year (2009) the House passed HR 4154 which permanently extended the $3.5 million dollar exemption (this is per person) for estates from estate tax. For a couple this meant they could
shelter $7,000,000. [Note: In 2011 the exemption will return to $1,000,000 per person unless Congress changes the law. This change is what we are talking about.] Furthermore, the House
legislation does away with the carry over basis rules which are being applied for decedents dying in 2010 and which have created such a nightmare in the administration of estates.
2. The Senate is trying to pass legislation itself, but has not been able to do so. This is where the hangup is at this time. If it does pass any reform then any Senate bill will need to be reconciled with the 2009 House bill before a compromise bill can be sent to the President for his signature. Any Senate bill will require 60 votes in the Senate to make the reformation permanent.
As of today, it is being reported Senate Finance Committee member Jon Kyl, R-AZ has reached an agreement with Senate Finance Commitee chairman, Max Baucus, D-MT to have the
finance committee propose legislation (in the form of a Senate bill) to allow an exemption of $5 million and an estate tax rate on amounts in excess of this amount at 35%. Many details would
still need to be worked out including whether it would be retroactive to January 1, 2010, whether it will be indexed to inflation, what any phase in might look like, how it would be reconciled with the House bill, portability or a variety of other issues under consideration.
3. There are only 13 "legislative weeks" remaining this year. At the end of August Congress will head out for recess and campaigning. If something is not done by then it is likely there will be no estate reform until perhaps after the elections have been completed.
4. In 2010 Congress passed the "Pay-as-You-Go Law" which requires Congress to find other sources of revenue for losses in revenue from tax cuts. In other words if a permanent repeal of
estate taxes is passed and if the exemption level which is set results in a tax cut being given then revenue must be found elsewhere in the budget to make up for the lost revenue from the estate
tax cut. Under current Pay-as-You-Go parameters Congress could pass a law allowing for the 2009 exemption amounts through 2011. This is a short term solution and not really preferred by
anyone in Congress, although some would argue is a step in the right direction. [Note: Getting a two year reprieve is not of much help to those with potentially taxable estate. It only continues the uncertainty for any client expecting to live beyond 2011.]
5. Senators Kyl (R-Ariz) and Lincoln (D-Ark) are the Senators who are leading the charge in the Senate Finance Committee to get something done. I am not sure how Senator Lincoln fits into
the agreement reached between Senators Baucus and Kyl as indicated above. They are pushing for a $5 million exemption and a rate on estates above this amount of 35%. To get to these
exemption amounts they must find revenue offsets [more on this below], which they may or may not be able to do.
6. So how does Congress get out of this hole and find a solution? There appears to be several options and each will require serious consideration and negotiations, not only amongst the
Senators, but the House and perhaps the office of the President. From the chatter (and my own thoughts) here are the possible solutions:
a) Option #1 Do nothing and let the estate tax exemption fall back to $1,000,000 starting in 2011. This does not seem like a popular solution in an election year. It would continue to show
Congress cannot work in a bi-partisan fashion to craft a remedy to give certainty to the electorate in planning their estates in an environment where inflation could rise pushing more and more
individuals into the dreaded estate tax zone. Furthermore, it does appear there is a real push to try to get something done as is evidenced by the chatter.
b) Option #2 The Senate could declare the estate tax reform to be an "emergency" and as such it would be exempt from the Pay-as-You-Go rules. Congress has only known about this possibility
if they failed to act for 10 years and now arguing it is an emergency would seem a bit ingenuous and likely to raise further furor at the ballot box.
c) Option #3 Congress could find offsets for the lost revenue. Again, this could be politically unpalatable if the offsets come from programs which do not impact the wealthy. This would be
reverse Robin Hood where taking from the poor and giving to the wealthy may not set well at the ballot box. To find offsets which impact only the wealthy Congress could (1) look to the
elimination or reduction in the use of the Grantor Retained Annuity Trusts; (2) eliminate the use of "discounts"; (3) eliminate the state death tax credit; (4) eliminate the use of Qualified Personal Residence Trusts and (5) allow for the use of something called a Prepayment Trust, which would allow you to prepay your estate tax. On the Prepayment Trust you can draw a parallel to the Roth Conversion idea where you give the IRS your money now to avoid later taxation. Some argue the offsets need to be found only for the amount of any lost revenue above the
amount in the House bill which made the repeal permanent at the $3.5 million dollar level. If this is the case it is possible the offsets needed may not be as great. It also leaves open the option of simply staying with the $3.5 exemption amount.
d) Option #4 Congress could amend the Pay-as-You-Go rules to provide for an exception for estate tax reform. Try to sell that one back home! Furthermore, the Blue Dog Coalition in the
House would likely not support this approach.
e) Option #5 If Congress wanted to they could just pass the new legislation and worry about making up the deficit in revenue by cutting other programs later in the year.
There does not appear to be any discussion about the concept of "portability" in the discussions with the Senate staffers. Portability would have simplified the planning process by allowing a
surviving spouse to have an exemption of twice the exemption amount ($7 million if the exemption were $3.5 million per person). This would make planning for when the first spouse
much easier and would do away with the need to create the "Bypass Trust." So stay tuned. These are exciting times. If the current chatter amongst our colleagues and the
Congressional staffers and quotes by key members of the Senate are any indication, estate reform could be coming in the next months. We will try to keep you up to date. If you have questions in
the meantime then come in and set a time to visit.
Source: Baird D. Brown, Attorney at Law, Grand Junction, CO - 5/18/10.
1. Late last year (2009) the House passed HR 4154 which permanently extended the $3.5 million dollar exemption (this is per person) for estates from estate tax. For a couple this meant they could
shelter $7,000,000. [Note: In 2011 the exemption will return to $1,000,000 per person unless Congress changes the law. This change is what we are talking about.] Furthermore, the House
legislation does away with the carry over basis rules which are being applied for decedents dying in 2010 and which have created such a nightmare in the administration of estates.
2. The Senate is trying to pass legislation itself, but has not been able to do so. This is where the hangup is at this time. If it does pass any reform then any Senate bill will need to be reconciled with the 2009 House bill before a compromise bill can be sent to the President for his signature. Any Senate bill will require 60 votes in the Senate to make the reformation permanent.
As of today, it is being reported Senate Finance Committee member Jon Kyl, R-AZ has reached an agreement with Senate Finance Commitee chairman, Max Baucus, D-MT to have the
finance committee propose legislation (in the form of a Senate bill) to allow an exemption of $5 million and an estate tax rate on amounts in excess of this amount at 35%. Many details would
still need to be worked out including whether it would be retroactive to January 1, 2010, whether it will be indexed to inflation, what any phase in might look like, how it would be reconciled with the House bill, portability or a variety of other issues under consideration.
3. There are only 13 "legislative weeks" remaining this year. At the end of August Congress will head out for recess and campaigning. If something is not done by then it is likely there will be no estate reform until perhaps after the elections have been completed.
4. In 2010 Congress passed the "Pay-as-You-Go Law" which requires Congress to find other sources of revenue for losses in revenue from tax cuts. In other words if a permanent repeal of
estate taxes is passed and if the exemption level which is set results in a tax cut being given then revenue must be found elsewhere in the budget to make up for the lost revenue from the estate
tax cut. Under current Pay-as-You-Go parameters Congress could pass a law allowing for the 2009 exemption amounts through 2011. This is a short term solution and not really preferred by
anyone in Congress, although some would argue is a step in the right direction. [Note: Getting a two year reprieve is not of much help to those with potentially taxable estate. It only continues the uncertainty for any client expecting to live beyond 2011.]
5. Senators Kyl (R-Ariz) and Lincoln (D-Ark) are the Senators who are leading the charge in the Senate Finance Committee to get something done. I am not sure how Senator Lincoln fits into
the agreement reached between Senators Baucus and Kyl as indicated above. They are pushing for a $5 million exemption and a rate on estates above this amount of 35%. To get to these
exemption amounts they must find revenue offsets [more on this below], which they may or may not be able to do.
6. So how does Congress get out of this hole and find a solution? There appears to be several options and each will require serious consideration and negotiations, not only amongst the
Senators, but the House and perhaps the office of the President. From the chatter (and my own thoughts) here are the possible solutions:
a) Option #1 Do nothing and let the estate tax exemption fall back to $1,000,000 starting in 2011. This does not seem like a popular solution in an election year. It would continue to show
Congress cannot work in a bi-partisan fashion to craft a remedy to give certainty to the electorate in planning their estates in an environment where inflation could rise pushing more and more
individuals into the dreaded estate tax zone. Furthermore, it does appear there is a real push to try to get something done as is evidenced by the chatter.
b) Option #2 The Senate could declare the estate tax reform to be an "emergency" and as such it would be exempt from the Pay-as-You-Go rules. Congress has only known about this possibility
if they failed to act for 10 years and now arguing it is an emergency would seem a bit ingenuous and likely to raise further furor at the ballot box.
c) Option #3 Congress could find offsets for the lost revenue. Again, this could be politically unpalatable if the offsets come from programs which do not impact the wealthy. This would be
reverse Robin Hood where taking from the poor and giving to the wealthy may not set well at the ballot box. To find offsets which impact only the wealthy Congress could (1) look to the
elimination or reduction in the use of the Grantor Retained Annuity Trusts; (2) eliminate the use of "discounts"; (3) eliminate the state death tax credit; (4) eliminate the use of Qualified Personal Residence Trusts and (5) allow for the use of something called a Prepayment Trust, which would allow you to prepay your estate tax. On the Prepayment Trust you can draw a parallel to the Roth Conversion idea where you give the IRS your money now to avoid later taxation. Some argue the offsets need to be found only for the amount of any lost revenue above the
amount in the House bill which made the repeal permanent at the $3.5 million dollar level. If this is the case it is possible the offsets needed may not be as great. It also leaves open the option of simply staying with the $3.5 exemption amount.
d) Option #4 Congress could amend the Pay-as-You-Go rules to provide for an exception for estate tax reform. Try to sell that one back home! Furthermore, the Blue Dog Coalition in the
House would likely not support this approach.
e) Option #5 If Congress wanted to they could just pass the new legislation and worry about making up the deficit in revenue by cutting other programs later in the year.
There does not appear to be any discussion about the concept of "portability" in the discussions with the Senate staffers. Portability would have simplified the planning process by allowing a
surviving spouse to have an exemption of twice the exemption amount ($7 million if the exemption were $3.5 million per person). This would make planning for when the first spouse
much easier and would do away with the need to create the "Bypass Trust." So stay tuned. These are exciting times. If the current chatter amongst our colleagues and the
Congressional staffers and quotes by key members of the Senate are any indication, estate reform could be coming in the next months. We will try to keep you up to date. If you have questions in
the meantime then come in and set a time to visit.
Source: Baird D. Brown, Attorney at Law, Grand Junction, CO - 5/18/10.
Friday, May 14, 2010
FIVE YEARS AFTER SCHIAVO, FEW MAKE END-OF-LIFE PLANS
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.
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.
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
Friday, January 22, 2010
2010 Update
With consumer prices down over the past year, Social Security and Supplemental Security Income (SSI) benefits will not increase in 2010. With no increase to the SSI benefit levels, the medically needy income and resource levels will not increase effective January 1, 2010, and will remain the same as in 2009. As a result, the Mass Rebudgeting that is normally performed in November for January 1, 2010 budget changes will not occur. There will also be no increase in the spousal impoverishment standards for 2010.
The Medicaid Eligibility Resource Allowance level remains the same at $13,800 for a single person and $20,100 for a couple. The maximum Federal Community Spouse Resource Allowance remains $109,560 and the minimum State Community Spouse Resource Allowance remains $74,820. Medicare Part A co-insurance is now $137.50 per day for days 21 - 100.
In order to calculate the Medicaid Transfer Penalty for Suffolk County, we take the value of the transfer and divide it by the new figure of $11,227 to calculate the number of months of the penalty.
Help us make a difference!
Make a difference in the lives of critically ill children by joining the Walk/Run for Friends of Karen at the Long Island Marathon taking place with a 5K Run/Walk on Saturday, May 1 and 10K, Half and Full Marathons on Sunday, May 2 at Eisenhower Park, East Meadow. New runners and walkers welcome to join the Friends of Karen team, volunteers are needed at the event. For a brochure and donor and sponsor opportunities, please contact Patricia Conway at Friends of Karen at 631-473-1768, ext. 303 or email her at patriciaconway@friendsofkaren.org
The Medicaid Eligibility Resource Allowance level remains the same at $13,800 for a single person and $20,100 for a couple. The maximum Federal Community Spouse Resource Allowance remains $109,560 and the minimum State Community Spouse Resource Allowance remains $74,820. Medicare Part A co-insurance is now $137.50 per day for days 21 - 100.
In order to calculate the Medicaid Transfer Penalty for Suffolk County, we take the value of the transfer and divide it by the new figure of $11,227 to calculate the number of months of the penalty.
Help us make a difference!
Make a difference in the lives of critically ill children by joining the Walk/Run for Friends of Karen at the Long Island Marathon taking place with a 5K Run/Walk on Saturday, May 1 and 10K, Half and Full Marathons on Sunday, May 2 at Eisenhower Park, East Meadow. New runners and walkers welcome to join the Friends of Karen team, volunteers are needed at the event. For a brochure and donor and sponsor opportunities, please contact Patricia Conway at Friends of Karen at 631-473-1768, ext. 303 or email her at patriciaconway@friendsofkaren.org
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