Educational FYI's
Educational FYI's are written on topics that effect various aspects of estate planning and the laws that govern it. They are published and posted to this site when news worthy events happen that we feel you should be made aware of. The purpose of an Estate Planning Update is to bring important information to the financial advisors in the community. Our hope is that this information better equips you to assist your clients.
REGISTER TO VIEW FYIs ARCHIVEAnderson, Dorn & Rader, Ltd. releases important estate planning and related articles when there are changes in the law that we feel have an especially large impact. Please take a moment to register to receive full access to our Educational FYIs. |
2010 May Be a Good Year to Die
The Economic Growth and Tax Relief Reconciliation Act of 2001 provides that in 2010 the estate tax is repealed and there is no estate tax. Therefore, from a tax perspective, 2010 may be a very good year to die. But, we don't know for sure, as many experts expect Congress to act to prevent the repeal of the estate tax. This article written by Steve Hartnett, Associate Director of the American Academy of Estate Planning Attorneys spells out the process for getting a new estate tax measure passed in Congress and the impact of the delays.
$250 Recovery Payments to go to SS and SSI beneficiaries in May 2009.
The Sunday, September 9, 2007 issue of Parade magazine contains an article by Gail Sheehy on family caregiving. It will recount some of her own experiences as a spousal caregiver to her husband.
Roy R. Trudel, a Technical Director at the Center for Medicare and Medicaid Services ("CMS") recently opined that a state agency has the option of imposing a transfer penalty on an institutionalized spouse if the community spouse transfers protected resources after the institutionalized spouse's eligibility has been determined. Mr. Trudel's opinion, which is a reversal from statements made by previous CMS (HCFA) officials, came about as the result of an email exchange between elder law attorney Robert Mason of North Carolina and himself.
New Study Finds Changes Needed to U.S. Health System to Accommodate Needs of Boomers
The aging baby boom generation is likely to increase the nation's disabled population, and a study says the United States needs a better system to provide care for them. More than 40 million Americans currently have some sort of disability, the Institute of Medicine reported Tuesday.Senate Resolution Freezes Estate Tax for Two Years
Senate Resolution 21, 110th Cong. 1st Session, passed the Senate by a vote of 91 - 1.Why Can't a NY Lawyer Counsel FL Residents on NY Law?
This article from the ABA Journal summarizes the case of a NY licensed attorney wanting to give advise to FL residents about NY matters. It does a good job of summarizing FL's position on unlicensed practice of law in FL.Georgetown University Study on Medicaid Financing of Long Term Care
This article summarizes the role of Medicaid in financing long term care costs. The article also touches on how DRA will affect the ability of portions of the elderly population to get access to long term care.Estate Tax Repeal Vote Fail in Senate
Late Thursday, August 3, 2006, the Senate voted on an estate tax reform proposal that was came to close to full repeal and the republicans did not get the 60 votes they needed to pass it. The vote was 56-42!Article on Boomer Inheritances
This USA article highlights how inheritances by boomers are not meeting earlier projections. The reason behind this is the increased life expectancies of seniors and the higher then projected costs for health care.House Passes Bill to Raise Applicable Exclusion Amount to $5 Million
On Thursday, June 22, 2006, the House of Representatives passed legislation, by a vote of 269 to 156, that would raise the applicable exclusion amount to $5 million for an unmarried person and $10 million for couples. The marginal estate tax rate on estates up to $25 million would be set at the same tax rates that apply to capital gains -- now 15 percent but scheduled to rise to 20 percent in 2011. The marginal estate tax rate for estates worth more than $25 million would be twice the capital gains rate.The Section 7520 rate (used to calculate life and remainder interests) for June 2006 will be 6.0%. This is slightly higher than the May and April rates.
An Essay on Issues Involving the Older Driver
Eighty-six year-old George Weller's killing of 10 when he accelerated instead of braked at a Santa Monica, California market in July 2003 captured the public's attention dramatically. The Weller tragedy again reminded us that we face a growing problem: The aging process will in some way affect the driving habits and skills of most of our clients. Court intervention regarding older drivers is increasing in that probate judges address driving as fiduciary concerns for guardians and conservators. George Weller's court intervention came through the criminal bench as he was indicted on 10 counts of manslaughter in January 2004. Ideally, family members, health care providers, elder-law attorneys/estate planners and fiduciaries should assist aging loved ones/patients/clients in planning before driving skills decline and address what happens after the car is gone.Article of Interest on Intestacy
You may be interested in reviewing the article on the laws of intestacy in the various states.Insurance on Retirement Accounts Increased
The FDIC and Credit Union insurance coverage on retirement assets such as Individual Retirement Accounts and 401(k)s has recently been increased to $250,000 from $100,000.Equitable Estoppel Doctrine Not Available Where Medicaid Eligibility Worker Gave Wrong Advice
A State Medicaid eligibility worker advised the son of a beneficiary that her estate would not be subject to a claim after her death, and that if he wanted to preserve the family home all he needed to do was to state that his mother intended to return home. The worker was wrong.Photocopy of Will is Not "Duplicate Original"
After a decedent's death, his original 1987 will could not be located. However, a photocopy of that will was in his personal papers. There was no indication of any intent to revoke the will other than the fact that the original was missing.Personal Representative's Attorney Fees Chargeable Against Estate
The personal representative, in an estate administration contest, filed a seventh accounting and a request that the estate be closed. Family members objected, accusing the personal representative of conflicts of interest and failure to advise the beneficiaries about actions proposed to be taken by the decedent's partner (who was also a client of the personal representative). The personal representative retained counsel and the parties participated in extensive litigation resulting in the trial court removing the personal representative, denying requests for surcharge against him, and denying his request for payment of $589,441.28 in attorney's fees and costs.Constructive Trust Imposed on Proceeds of Property Sale Transferred to Joint Ownership
The agents under a durable power of attorney arranged for sale of real property (specifically devised in principal's will to her stepson) to agents' relatives for substantially less than the assessed value of the property. The proceeds were placed in bank accounts in joint names with agents. After the principal's death, the agents were appointed as personal representative of the principal's estate and stepson sued.Will Effectively Exercised Power of Appointment Even Though Not Admitted to Probate
Father (who died in 1981) established a living trust that divided into survivor's and family shares, with the former giving his surviving wife a general testamentary power of appointment and the latter giving her a power of appointment exercisable by will, deed, conveyance, bill of sale, gift or any other written instrument. If Mother did not exercise the powers of appointment, the survivor's trust would pour into the family trust, which would in turn be distributed unequally among daughter, granddaughter and grandson. Mother executed a will in 1985 purporting to appoint the entire trust corpus of both trusts; the survivor's trust was appointed outright to daughter and the family trust in equal shares among daughter, granddaughter and grandson; Mother died in 1997. Relying on advice of counsel, the trustee and family members decided not to seek probate of Mother's will.Will's Assertion of Mistreatment by Disinherited Child is Not Grounds for Invalidity
Decedent's will specifically disinherited his only child and some of his grandchildren "by reason of their ... treatment" of him. Son challenged the will, claiming that it was improperly executed, and also that the decedent had operated under "an insane delusion that four of his grandchildren did not care about him."Disclaimer Reformed to Avoid GST Tax
Daughter signed disclaimers of her interests in her mother's property in two different states. After the disclaimers were completed, she learned that her mother's GST exemption was only $650,000 and that the disclaimed property would be subject to the tax. She signed an affidavit indicating that she had disclaimed by mistake, and sought reformation of one or both disclaimers. State high court rules that reformation of the two disclaimers is permitted, and remands to the trial court for entry of an order authorizing the reformation.April 2005 section 7520 rate released
The IRS has released the Applicable Federal Rate for the month of April, 2005. Each month the Service surveys interest rates and publishes the rate that is applicable for gift calculations. The rate for April is 5.0%. The rate for March was 4.6%.An elderly woman was befriended by a law student, who helped her to transfer over $90,000 (in several transactions) to the law student, allegedly because the woman wanted to help her with tuition. The woman's nephew, who had power of attorney, discovered the transactions and moved to secure conservatorship and set aside the transactions.
Undue Influence and Constructive Fraud Claims Should Have Been Submitted to Jury
After her husband became ill, an elderly woman who had never managed finances during their married life summoned her children to meet with her and to help decide how to handle the family ranch and other properties. After the family discovered that her husband had incurred $54,000 in credit card debt the children agreed to take responsibility for that debt in return for their mother transferring shares of stock in the ranch to them; she made transfers of substantially all of the stock based on that understanding.Malpractice Claim May Be Brought By Successor Fiduciary Against Agent of Prior Fiduciary (CA)
During the pendency of a will contest, an attorney was appointed as administrator of a decedent's estate. He hired another law firm to assist with complicated tax issues. At some point, the administrator wrote to the tax lawyers confessing that he had misappropriated substantial funds from the estate; the tax lawyers initially attempted to help him borrow money to repay the estate, but ultimately wrote to him (in February) indicating that they withdrew from further representation and advising him to secure other assistance. In May the administrator died; the tax lawyers turned their file over to another attorney in July. In September the deadline ran out for filing IRS form 843, which would have extended the time for claiming a tax refund by three years. In November, after resolution of the will contest, a new executor was appointed and he brought a malpractice action against the two groups of tax attorneys. Both law firms argued that the plaintiff lacked privity with them, since they had been hired by the original administrator, and the trial court granted judgment for the defendants. The intermediate state appellate court affirmed, and the estate appealed to the state Supreme Court. That court now reverses, finding that the state probate code gives a successor fiduciary all the powers that his or her predecessor would have, impliedly including the power to bring an action such as the one here.Power of Attorney, Lacking Gift-Giving Authority, Does Not Authorize Gifts to Agent
Mother, suffering from mild dementia, executed a general power of attorney in favor of her son--the power of attorney did not include any language specifically authorizing gifts. Shortly thereafter she moved in and lived with him, and after about eight months moved to a nursing home. At the time of her move to the nursing home the son, using his power of attorney, transferred all her real property, stocks and other assets to himself. The mother died a little over a year later, leaving a will that devised all her assets equally to her son and daughter. After securing appointment as executor of the estate, daughter filed suit to recover the remaining assets, arguing that the purpose of the original conveyance was solely to protect the assets from being depleted by nursing home expenses and that with the mother's death they should be re-conveyed to her estate. Trial court ordered reconveyance and on appealed. Intermediate state appellate court affirms, noting that without a specific gift-giving provision in the power of attorney, a gift to the agent "carries with it a presumption of impropriety and self-dealing." In order to overcome that presumption, the recipient of the gift must make "the clearest showing of intent" on the part of the principal; evidence that the mother in this case trusted her son more, wanted him to manage her money, and may even have been fearful of her daughter did not meet that high standard of evidence.The plaintiff, who had been seeking to provide cash for his daughter to pay anticipated estate taxes, established an irrevocable life insurance trust in 1991 and paid $300,000 in premiums for a $4.2 million second-to-die policy. The insurance agent's projections, assuming a 10% return, showed no further premium payments would be required. The ILIT Trustee, a CPA, sought independent advice which indicated that the initial premium payment would need to earn a 24% return for 28 years to cover all premiums, but the settlor instructed him to follow the insurance agent's direction.
Testamentary Effect of Trust Provision Requires Compliance With Will Formalities - Arnold v. Davis
A decedent (the widow of country music recording artist Jim Reeves) had established a trust to hold her considerable assets, though her capacity to sign or approve of a trust was later called into question. When she died while conservatorship proceedings were pending, the court granted an interpleader request and ordered that all her trust assets and all income from sale of her late husband's music and real estate holdings be paid to an administrator while the validity of the trust was resolved.A victim that was vulnerable to exploitation made a videotaped statement to police officers two days before she died and a statement to a social work supervisor shortly before her death.
As the testatrix lay dying in a hospital bed, a lawyer relative contacted a long-time associate and asked him to visit her at the hospital to help her prepare a will. The relative also provided the lawyer with details about the testatrix' estate plan, including her intention to leave him (the lawyer relative) a significant bequest. The drafting lawyer, the lawyer relative and the testatrix all met together at the hospital, and the drafting lawyer prepared a will and supervised its execution. After the testatrix' death a will contest was filed, with the result that $620,000 was made unavailable to the residual beneficiaries (the opinion does not relate the particulars of the will contest or the identity of any contestant, or indicate how much of the $620,000 was attorney's fees incurred in defense of the will and how much a payment to contestants).
Legal Malpractice in Estate Planning Case Runs From Discovery - Watkins v. Hedman, Hielman & LaCosta
An attorney prepared a complicated estate plan for a married couple. The wife advised the attorney that they wanted to make sure their trusts were and remained revocable, that they minimized estate taxes, and that they avoided probate. The attorney never consulted with the husband, but sent documents home with wife and had her staff witness and notarize them upon return, even though they had never spoken with husband."Direct Lineal Descendants" in Old Trust Does Not Include Adopted Children - McGehee v. Edwards
Several trusts were established in 1929, 1930 and 1931. Each trust limited benefits to the "direct lineal descendants" of the settlor or the settlor's parents. Although state law was amended in 1978 to presumptively include adopted children in the terms "issue" or "descendant," the new law by its terms did not extend to prior trusts. The trustees of the trusts, concerned about potential liability for their determination of the approximately 142 trust beneficiaries, filed an action to determine "who are, or may be direct lineal descendants ... and specifically whether children born out of wedlock" would be beneficiaries. Counsel for one beneficiary answered, asking the court to also determine whether adopted children would qualify, whereupon the trial court appointed guardians ad litem for "persons adopted by lineal descendants, persons born out of wedlock to lineal descendants, persons born to lineal descendants through assisted conception, and legitimate minor beneficiaries and parties unknown."The guardian of person and estate filed a petition requesting compensation for services as guardian. The ward died before hearing on the petition, and guardian filed a second petition seeking additional compensation. Almost two years after the ward's death, the trial court summarily denied the compensation requests. The Florida Court of Appeals reverses the denials, noting that no one objected to the compensation requests, the guardian was not given notice of the pending denial of compensation, and the trial court did not conduct a hearing into the reasonableness or propriety of the fees. The summary denial "violated the guardian's right to due process of law."
Before a husband began chemotherapy treatment he arranged for freezing and storage of semen in case he became sterile. The treatment was unsuccessful and husband died within two months. In-vitro fertilization, begun ten months after his death, was successful and twins were born eighteen months after his death. The wife thereupon filed for Social Security Survivor's benefits for the children, and was denied by the Social Security Administration, an Administrative Law Judge, and a Federal District Court Judge.
State Must Permit Payment of Taxes on Special Needs Trust Termination - Stell v. Boulder Co. DSS
A self-settled special needs trust was established for the benefit of an SSI recipient who also received Medicaid benefits. The SNT provided that upon termination (by death of beneficiary, for instance), funeral, burial, and administrative expenses, and taxes would be paid first, and that the state Medicaid agency would then be required to submit a claim for reimbursement before the trust would repay Medicaid expenses. The Department of Social Services disqualified the trust and the beneficiary appealed.Probate Court's Removal of Fiduciary in Six Cases Upheld - Guardianship of Monus
A professional fiduciary, who is the director of a faith-based social service agency, had served as guardian, conservator or trustee for a number of years in six separate cases. The amounts involved in the estates varied from about $13,000 to about $210,000. In each case inventories were filed late or not at all, accountings were sporadic and incomplete, and requests were made for approval of expenditures after the fact. The probate court determined that the fiduciary had violated his obligation to account fully, and removed him from all six cases.Wrongful Death Action Dismissed Against Pharmacy in Death of Nursing Home Resident - Estate of Sharp
The estate of a deceased nursing home resident sued the pharmaceutical provider which had contracted with the nursing home to provide medications. The claims alleged that the pharmacy had failed to monitor administration of controlled substances, to observe that the drugs were either being misused or stolen, or to train the facility's staff in proper drug administration procedures. Relying on cases limiting the liability of pharmacists in wrongful death actions, the trial court dismissed the complaint with prejudice.Prior to establishment of a guardianship, a ward had signed and funded a revocable living trust. Prior to her death, the guardianship court had authorized the trustee to sell her home, and directed that the proceeds be held in the trustee's attorney's trust account. After the ward's death, the trustee sought and gained court approval to pay burial expenses, but when the trustee requested authority to pay the trustee's attorney (which would have exhausted the remaining proceeds), the guardianship court refused and directed instead that the trustee pay fees to the guardian and the guardian's attorney, plus previously unpaid court fees associated with the guardianship. The trustee appealed, and the Florida Court of Appeal reversed and remanded for further proceedings.
After their father became incapacitated, his children from a prior marriage filed an action to prevent his wife from taking charge of or dissipating his assets, which were largely held in a self-settled trust naming some of the children as successor trustees. As settlement of that matter, the parties agreed that the children would take over as trustees, that the wife would continue to make care decisions for the husband, and that the husband's trust would pay $25,000 per month to the wife for his care -- and specifically directing that the wife would not be a trustee. Some time later the children became concerned that the money was not in fact being used for their father's care, and sought an accounting from his wife. She successfully objected, arguing that the settlement agreement specifically precluded a finding of a trust relationship, and that they could have (but did not) required an accounting as part of the settlement.
Ohio Bill Would Cut Interest Rate on Unpaid, Overpaid Estate Taxes
Under Ohio HB 260, which was approved on November 9, 2004 by the Ohio House with a vote of 81 to 14, the interest rate on unpaid and overpaid estate taxes is lowered to the federal short-term rate, and the penalty for late payments would be 10 percent of the unpaid tax regardless of how late the payment is.When a proposed ward objected to a pending guardianship proceeding, state law mandated appointment of both an attorney to represent him and a guardian ad litem to evaluate him. The guardian ad litem questioned the physician (whose opinion was that the proposed ward did not lack capacity) and then arranged for appointment of and evaluation by a second physician. The guardian ad litem testified as an expert witness at trial, and provided opinion testimony based in part on hearsay evidence she had accumulated. After a jury found the proposed ward to be incapacitated and the court appointed a guardian, counsel for the ward appealed, arguing that the GAL's testimony should not have been admitted as expert testimony, that she should not have been permitted to rely upon or recite hearsay evidence, and that she should not have been permitted to characterize herself as "the eyes and ears of the court."
Bequest Does Not Fail for Indefiniteness of Charitable Beneficiary - Hays v. Harmon
A decedent's will left residue of his estate to a trust "to provide for poor relief to worthy and needy individuals who reside in Crawford County, Indiana...." The decedent's only child contested the will, alleging both that his father lacked capacity and that the trust was insufficiently precise to constitute a valid charitable trust.The Section 7520 rate for December 2004 is 4.2%
IRS Statistics for 2003 Estate Tax Returns
The IRS data for the 2003 Estate Tax Returns are now available from the IRA. This data include gross estate by type of property, deductions, taxable estate, estate tax and tax credits, and by size of the gross estate.A decedent established a self-settled trust naming herself as trustee and her son as successor trustee. During the last few years of her life, the decedent was taken advantage of by her son. On her death the trust provided for specific distributions to two children and a granddaughter, with the remainder to be distributed to her son; if son failed to survive, the remainder would pass to the granddaughter. The granddaughter filed an action alleging that the son had committed elder abuse and, pursuant to the terms of a California statute, should be disinherited. The Son moved to dismiss the suit for lack of standing. The trial court found that granddaughter had standing and ultimately found that son had abused his mother and that such abuse effected his disinheritance.
Statements to Beneficiary Do Not Support Establishment of a Trust - Hubbard v. Shankle
Prior to his death, the decedent had changed the beneficiary on his life insurance policy to name his girlfriend of three months. He told her that he was making the change because he wanted her to have the proceeds and he wanted her to take care of college expenses for his two- year-old daughter. When he died the girlfriend received $110,000 from the policy, of which she immediately spent $45,000.The District Mental Retardation and Developmental Disabilities Administration (MRDDA) filed petition for appointment of guardian of the person for a 33-year-old developmentally disabled patient recently placed in a community setting as part of a court-ordered deinstitutionalization process. The trial judge found that the proposed ward qualified pursuant to the guardianship statute for appointment of a guardian, but expressed concern that there was no real emergency medical care problem and that appointment of a guardian in a case such as this one would simply encourage the MRDDA to file petitions in other cases, and that there was "no real crisis going on" to justify the guardianship.
Number of Americans With Long-Term Care Insurance Unchanged from 2002
More than 85% of American older than 45 years old do not have long-term insurance, according to a second annual survey released by the Long-Term Care Financing Strategy Group, Washington D.C., a think tank affiliated with the American Health Care Association. The study, entitled "Index of Long-Term Care Uninsured," shows the number, at 82 million, has not changed since last year¹s study. The study reveals that approximately 16% of those aged 65 and over have private long-term care insurance.Summary of American Jobs Creation Act of 2004
Congress has recently passed the American Jobs Creation Act of 2004 and the president has indicated that he will sign it.IRS Releases Inflation Adjusted Figures for LTCI; MSAs and HSAs
Inflation-adjusted figures for long-term care insurance, Archer MSAs and HSAsTreasury Eyeing Estate Tax Shelters Involving Charities
Treasury officials speaking at the American Institute of Certified Public Accountants conference on November 1-2, 2004, warned accounting and estate planning practitioners to expect a continued crackdown on many of the mechanisms being used to reduce estate tax liability, particularly those involving charities.Proposed Regs Require Registered or Certified Mail to Prove Timely Filing
Taxpayers would need registered or certified mail to prove timely filing under proposed regsPreamble to Prop Reg; Prop Reg 301.7502-1(e)(1); Prop Reg 301.7502-1(g)(4)
A law firm secured a $300,000 judgment against its former bookkeeper for embezzlement. The bookkeeper's mother gave the law firm a brokerage account check for $60,000 (for reasons not clear from the record). The law firm, now aware of the fact that the brokerage account was titled in joint tenancy between mother, bookkeeper and mother's other child, executed against the account. The mother intervened in the garnishment proceeding and argued that she was the sole contributor to the account, that her two children were joint tenants only as a matter of convenience, and that she had not intended to make a gift.
Post-Nuptial Agreement Does Not Violate Public Policy - Bratton v. Bratton case
A year after his marriage, a medical student hand-wrote and signed a letter indicating that he promised never to be the cause of a divorce, and if he ever did he assigned 50% of his assets and 50% of his future earnings to his wife. Two months later the couple signed a more formal post-nuptial agreement, drafted by an attorney (the parties disputed whether the attorney represented the husband or the wife), which made a similar provision if the husband "was guilty of statutory grounds for divorce."Interest Accrues on Pecuniary Devise Despite Pendency of Will Contest - Estate of Holan Case
The decedent's will left the family farm to one son, but subject to that son's payment of a percentage of the appraised value of the farm to each of the decedent's other children over a fifteen year period with interest. Other children sought introduction of a later will, but the probate court ultimately found that will to be the product of undue influence and the South Dakota Supreme Court affirmed.The Section 7520 rate for November 2004 is 4.2%.
A father established a testamentary trust for the benefit of his son, which included a spendthrift provision. The trust gave the trustee discretion to distribute or withhold all income and up to $1,200 per year of principal, and the trust language indicated that the discretion should be exercised "for the comfortable support and maintenance" of his son. The trustee secured a court order authorizing payment of a fixed amount each month to the son, increasing that amount over several years as his condition declined.
After an auto accident injured an already-disabled benefits recipient, his mother successfully sought court approval to establish a special needs trust with the $115,377.56 of net proceeds from a lawsuit. The trust and its establishment apparently satisfied the Social Security Administration, and his SSI benefits continued to be available. The State, however, determined that establishment of the trust was a disqualifying transfer for Connecticut's SSI supplement program and terminated his benefits.
Debt of the Elderly and Near-Elderly 1992-2001
American families with a family heads who are age 55 or older had approximately the same level of debt payments relative to income and of debt levels relative to assets in 2001 as they did in 1992, according to a new report by the Employee Benefit Research Institute. In terms of retirement security, the EBRI report noted that, on the whole, the new data are positive that most older families did not appear to be overburdened by debt in 2001. However, there has been an increase in the percentage of heavily indebted families -- defined as those with debt payments exceeding 40 percent of income -- especially for family heads in the two oldest groups (ranging from 5 to 10 percent of all near elderly and elderly families).Parents executed wills and powers of attorney naming one of four children as personal representative, sole devisee and agent. At the death of second parent to die, virtually all of parents' assets had allegedly been diverted to the favored child. The disinherited children filed an action for intentional interference with an expectancy, and the favored child / personal representative moved to dismiss on grounds that probate proceedings provided an adequate remedy.
A daughter and granddaughter of elderly woman filed competing petitions for appointment as the woman's guardian. The daughter requested appointment of a temporary guardian, alleging an emergency. At the hearing, the granddaughter acknowledged that she had loaned or transferred over $450,000 to herself using a power of attorney, but alleged that the transfers and purchase of an annuity were for Medicaid planning purposes. When specifically challenged about a $100,000 annuity (on which she had collected a commission on purchase, and naming her children as beneficiaries), the granddaughter characterized her failure to list it as an asset of her grandmother's estate as a "scrivener's error."
An elderly woman moved from her home state to an assisted living center near her granddaughter, who lived in another state. Her granddaughter, who is an attorney, was an agent in the elderly woman's power of attorney. Granddaughter was also named as the sole beneficiary of her estate. Shortly after the move she began to "slip," and when she learned that her granddaughter had expressed concern about her drinking she became more antagonistic. An old drinking friend made contact with the grandmother and began living with her, though not paying any rent or contributing to her expenses, and allegedly increased her alcohol use.
Uniform Trust Code Does Not Permit Termination of Spendthrift Trust - Estate of Somers case
A trust provided for payment of $100 / month each to two grandchildren of trustor, with remainder on their death to go to charity. The trust contained a spendthrift provision preventing the alienation of grandchildren's interests. Nearly fifty years after the trustor's death, the trust corpus had grown to $3.5 million. Grandchildren and remainder beneficiary entered into agreement to terminate trust and to distribute $150,000 to each of the grandchildren and the balance to the remainder beneficiary. The corporate trustee declined to act on the agreement, and charity and grandchildren filed a joint petition to terminate the trust.An elderly woman, with the assistance of her long-time attorney, created a will, a charitable trust and a power of attorney naming a personal friend as executor, trustee and agent. Some years later, after significant deepening of dementia and at the instigation of a caretaker who was disgruntled with the agent's refusal to change her to the day shift, the woman visited an attorney selected by her family members and revoked the prior planning documents and executed new documents naming those family members as the agents, trustees and executors.
Attorney Not Liable for Failure to Undo Estate Plan - DiStefano v. Milardo case
Client, a serious alcoholic, utilized the services of an attorney to establish a trust, will and power of attorney. After several institutionalizations, she approached the attorney to undo her plan, and particularly to remove her son as agent, trustee and personal representative. The attorney reminded her that she had established her plan precisely to protect against her own mismanagement, and did not take steps to unravel her planning. A year later (and after another institutionalization for alcoholism and depression), she revoked the trust and power of attorney on her own, and then sued her attorney for malpractice, alleging that his failure to undo her estate plan was the proximate cause of alleged losses from theft by her agent.AFRs for October 2004 Announced
The Section 7520 rate for October 2004 is 4.4%Trust Amendment Effective Even Though Unsigned by Trustee - Godley v. Valley View State Bank case
A trust provided that the trustor retained the power to amend, and that amendments became effective upon delivery to the trustee. The trustor signed a trust amendment which removed her stepchildren as remainder beneficiaries (and named caregivers in their stead), and named a corporate trustee (effectively resigning as trustee). The attorney who prepared the amendment then sent it to the corporate trustee for acceptance and signature. The corporate trustee did not immediately sign the amendment, and two weeks later the trustor died; thereafter, the corporate trustee declined to serve as trustee and returned the original, unsigned amendment to the attorney.Bush Renews Call for Privatization of Social Security
In his acceptance speech at the Republican National Convention, President Bush promised major changes in American society's most basic pillars: its health care system, pension plans, tax code and workplaces. Revising the Social Security system to give younger Americans the option of investing part of their tax contribution would be the most dramatic piece of his second-term domestic agenda. "We must strengthen Social Security by allowing young workers to save some of their taxes in a personal account," Bush said in his prepared speech, "a nest egg you can call your own and government can never take away." The president made a similar proposal four years ago, but political resistance, a budget deficit, and other priorities blocked his efforts.Greenspan Again Calls for Social Security and Medicare Fix
Federal Reserve Chairman Alan Greenspan again took aim at the pending Social Security and Medicare crises, asserting that retirees will face "abrupt and painful" choices if Congress does not act swiftly. Greenspan acknowledged that addressing the problem by raising payroll taxes was problematic as this would make it harder for employers to hire new workers. The 78-year old Fed chairman has said that he favors raising the age at which full Social Security benefits are delivered to retirees.Utah Tops List of Best Places to Die
Geography determines much about an individual's final days: the kind of care received, where he or she will get it, and how much a decedent can pass on to heirs. This Forbes article ranks the states top to bottom. On top: Utah. At the bottom: IllinoisTax Proposals from Republican and Democratic Campaigns
As the Presidential campaign heats up, a few details have emerged on how the incumbent and the challenger would approach federal income taxes. Here's a thumbnail review.IRS Wins Victory in Thompson FLP Case
The Third Circuit Court of Appeals has upheld the IRS Tax Court victory using an IRC 2036 attack. Unfortunately, bad facts (death bed FLP) make for bad case law. We will reconcile this case with the recent taxpayer victory in the appeal of the Kimbell case in an upcoming memo to members. In the meantime, we have attached a copy of the Third Circuit opinion. Finals briefs are due from the Department of Justice today on the appeal of the Strangi case, so we will see whether that court follows the logic of Kimbell or Thompson within a few months.HCFA Transmittal 64 Tables for Medicaid Planning Available on the Web
A useful resource for Medicaid Planning with annuities and life estates is the HCFA Transmittal 64 Tables, but these are often difficult to find. The link below will take you to the Tables on the Centers for Medicare and Medicaid Services website.Tax Fraud Promoters Associated with "We the People" Convicted
Seven individuals associated with a tax fraud group known as "We the People" were convicted May 4, 2004 on various federal charges related to the promotion of bogus tax shelters that falsely promised to limit exposure to federal income taxes.The section 7520 rate for August 2004 is 4.8%.
Law Firm Ordered to Comply with IRS Summonses
Jenkens and Gilchrist Ordered to Comply with IRS SummonsesVarious States Address Estate Taxes
On April 27, 2004 the Virginia Senate approved a tax plan passed by the Senate Finance Committee the night before that would cap at $950 million the amount the state reimburses localities for "car tax" relief and would reinstate the Virginia estate tax.For purposes of determining the present value of an annuity, an interest for life or a term of years, or a remainder or a reversionary interest, Revenue Ruling 2004-66 indicates the charitable federal midterm rate under section 7520 for July 2004 is 5.0%; up 0.4% from the June rate of 4.6% and up 1.2% from the May rate of 3.8%.
IRS Offers Tips for Accurate Schedule K-1 Filing
Correct filings can prevent unnecessary notices when IRS matches K-1 income reports to the recipients' tax returns. For tax year 2002, approximately 25 million Schedule K-1 forms were filed reporting over $1 trillion in income to partners, shareholders and some trust beneficiaries. A matching program to ensure all Schedule K-1 income is being reported is critical to IRS tax administration policies.The Service has released the Applicable Federal Rates for June 2004. The 7520 rate, used to value life estates, remainder interests, etc., is 4.6%. This is a substantial increase from the 3.8% rate in effect in April and May 2004.
IRS Releases Form 8855, Election to Treat Trust as Estate
New Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, has been released. Instead of having to write a statement as outlined in the IRS regulation under IRC Section 645, we should now use this form to make this election.Attorneys' Fees Award Against Losing Party in Trust Contest Upheld
Mother/son team unduly influenced a demented multimillionairess to modify three trusts of which she was settlor, naming son as successor trustee and changing the trusts' ultimate distribution to substantially benefit the mother and son. Several months later the former trustee filed a petition for appointment of a guardian ad litem for the settlor. After setting aside the changes, the trial court ordered the mother and son to repay the trusts all of their legal fees (which had been paid from trust assets) but declined to order payment of the prior trustee's or the trust beneficiary's attorneys' fees and costs.Nebraska Estate Tax Reform Moves Ahead
LB 1034, a bill that would change Nebraska's estate tax rates, has been advanced to final reading in the Nebraska Legislature. The bill would reduce estate taxes on the first $100,000 of an estate but increase them for estates of more than $3.5 million.Parental Support Statute Does Not Authorize Suit Against Child of Patient With Assets
Father was admitted to the hospital for what turned out to be his final illness. Days before his death approximately $1.2 million was deposited into a trust for his benefit in settlement of a personal injury action. At the time of his death the hospital believed that Medicare would cover his care, and so submitted a bill for $42.73, which the father's estate paid and for which it secured a release of further liability from the hospital.Private Annuity Contract With Irrevocable Trust is Subject to Medicaid Transfer Penalty
Husband and wife established an irrevocable trust, and then transferred $150,000 in assets to the trust. The Trust executed a private annuity agreement with wife to pay $1,424.55/month to her. Husband then applied for Medicaid eligibility. Medicaid agency denied first application due to inadequate documentation, excess assets and a transfer penalty occasioned by the transfer to trust. After a second Medicaid denial based on excess income, husband appealed.Agent Personally Liable for Unpaid Nursing Home Bills After Medicaid
Daughter of nursing home resident held a power of attorney for her mother. Daughter/agent signed nursing home contract as "responsible party," promising to use mother's assets for her welfare (specifically including nursing home costs). Thereafter, daughter/agent made gifts to herself of just under $50,000 and paid a companion $31,760 over a period of years. Mother's husband had apparently also transferred $285,000 into a revocable trust prior to nursing home placement.Kansas House Tax Committee OKs Increase in Trust Taxation
The Kansas House Taxation Committee has approved SB 390, which would significantly expand the state's income taxation of resident trusts and effectively earmark the additional $6 million in revenues for expanding the homestead property tax refund program.Connecticut Committee Approves "Millionaire Tax"
On March 27, 2004, the Finance, Revenue, and Bonding Committee of the Connecticut General Assembly voted to impose a "millionaire's tax" effective from January 1 and to increase the inheritance tax for estates that are worth more than $1 million.Michigan Will Be Last State to Implement Medicaid Estate Recovery
Michigan health officials have begun considering regulations to comply with a federal law requiring state Medicaid programs to recoup assets from deceased beneficiaries to offset the cost of nursing home care. Michigan will be the last state to comply with the "fiscally sound, politically yucky" law, which is "so politically sensitive" that Gov. Jennifer Granholm (D) cannot find a lawmaker to sponsor legislation to address it. Earlier this year, Georgia passed legislation authorizing estate recovery.2003 A Profile of Older Americans
The 2003 edition of A Profile of Older Americans is now available on the U. S. Agency on Aging Web site. This Web-based publication includes statistics on older Americans in key subject areas such as population (including the latest population estimates and future growth projections), income and poverty, marital status, living arrangements, health, and much more. It includes both narrative and statistical charts.Does HIPAA Affect Patients' Access to Care?
An article from the March 29, 2004 Detroit News examines concerns from health care providers that the Health Insurance Portability and Accountability Act medical privacy rules have affected patients' access to care. Providers must obtain consent from patients before they can disclose medical records in "non-routine" cases. Providers who violate the rule can face fines between $100 to $250,000 and as many as 10 years in prison. Providers maintain that they are so wrapped up in complying with the privacy standards that they are distracted from doing their jobs, which can cause patients to wait longer for care.Follow-up to February 2004 FaxAlert
The February FaxAlert was about a Ninth Circuit (Arizona) case that shielded assets in a spendthrift trust from the bankruptcy trustee for the beneficiary under the trust. Steve Leimberg has just released an e-newsletter with further information on that case and has graciously agreed to let me pass it on to members. Information on how to subscribe to Steve's e-newsletters appears at the end of the email.The Section 7520 rate for May 2004 is 3.8%.
Senate Finance Committee Chairman Rejects Request for Earlier Repeal of Estate Tax
On March 5, 2004, the Senate Budget Committee issued a proposed federal budget, including a non-binding request that the Senate Finance Committee produce legislation repealing the federal estate tax in 2009, rather than in 2010.CCH issued a report which contained many good tax planning strategies you may want to suggest to your clients.
DON'T BE TAKEN IN BY TAX SCAMS...The IRS reminds taxpayers not to fall victim to a variety of tax scams. These schemes take numerous shapes, ranging from promises of special tax refunds to illegal ways of "untaxing" yourself.
The 7520 Rate for April is 3.8%. This is down from 4.0% in March and 4.2% in February.
Abusive Home Based Business Tax Schemes
The Internal Revenue Service is cautioning the public about promoters who are selling the concept that taxpayers can operate any type of unprofitable "business" out of their home and claim personal expenses as business expenses. Taxpayers should be wary of these programs.Virginia House OKs Estate Tax Repeal; VA Senate Approves Measure
By a 69-29 vote on February 10, 2004 the Virginia House of Delegates approved legislation (HB 4) that would eliminate Virginia's estate tax by October 1, 2005.Proposal to Permanently Repeal the Estate Tax
The federal budget proposal for fiscal year 2005 to make permanent the provisions of the 2001 and 2003 tax acts (which includes repeal of the estate tax) can be found in the General Explanations of the Administration's Fiscal Year 2005 Revenue Proposals at pages 4 -5.On March 10, 2004, the U.S. Senate enacted a new rule, the "Feingold Amendment." Under this rule, any tax cut or spending increase will require 60 votes for passage unless an offsetting revenue provision is included in the legislation. For example, a bill cutting taxes by $100 million would have to include an offsetting tax increase or spending cut of $100 million or it would have to have 60 votes to pass.
Action for Tortious Interference with Inheritance Not Possible During Life
Two siblings brought an action to set aside transfers from their mother to two other siblings, alleging both undue influence and tortious interference with expectancy of inheritance. Guardian of property sought to intervene as a plaintiff. State trial court dismissed sibling's tortious interference claims, but declined to dismiss guardians.Institute of Medicine Proposes Universal Health Insurance by 2010
The Institute of Medicine released a report that recommends that the federal government guarantee that by 2010 everyone in the United States should have health insurance.Nebraska Releases LTC Reform Study
The state of Nebraska recently published a report, "The Heartland Model for Long-Term Care Reform," addressing ways to reduce the cost of long-term care. The report was researched and written by the Center for Long-Term Care Financing.The Attorney General of Maryland has released a report on Alzheimer's disease that practitioners from other states should find useful. The 115- page report examines the regulation of nursing homes, long-term care insurance and Medicaid. Policy goals include protecting patients against abuse, neglect, and financial exploitation and improving state-regulated facilities.
The Nebraska Revenue Committee is examining bills that would decouple Nebraska from the federal estate tax legislation. The decoupling would be in response to the reduction (and elimination next year) of the federal state estate tax credit.
Proper Standard for Appointment of Conservator of Estate is "Management Competency Test"
Sisters disagreed over the management of their mother's finances and the operation of a family business, and one sister sought appointment of herself as conservator of the person and estate. After a three-day court trial, the other sister was appointed conservator of the person and a public conservator as conservator of the estate.Purchase of Life Estate in Daughter's Home Treated as Transfer
The daughter of a Medicaid applicant, utilizing a durable power of attorney, purchased a life estate in her own home for the applicant for $43,953.13. The Medicaid agency treated the purchase as an uncompensated transfer, arguing that the applicant received nothing of value, and denied eligibility.Greenspan Congressional Testimony
Federal Reserve Chairman Alan Greenspan testified before the House Budget Committee today. In his remarks, he stressed the need to fix the Social Security system so that it survives the wave of retirements expected with the Baby Boom generation. Greenspan presented possible solutions including increasing the age at which retirees can draw social security and reducing the cost of living adjustment formula for benefits.Ambiguous Trust Established By Couple is Available Resource for Surviving Spouse
In 1996 a married couple established an irrevocable trust for their own benefit, requiring distribution of income to themselves. The trust document was silent as to the trustee's authority to distribute principal to the beneficiaries, though it does permit payment of "personalty" to the couple or the survivor of them. Husband died four months later; five years after that wife applied for Medicaid eligibility.Arizona Senate Unanimously Repeals Uniform Trust Code
The UTC was not viewed as favorable legislation by many estate planning attorneys in Arizona. Arizona originally passed the UTC in 2003 and it was to go into effect January 1, 2004. Due to the uproar over its terms, the effective date was postponed and now the Arizona Senate has unanimously voted to repeal the legislation.Department of Justice Lawsuits Involving Washington, Oregon and Nevada Taxpayers
The Department of Justice filed two suits in Washington and Oregon to stop tax scams. They also enjoined a tax preparer in Las Vegas from preparing income tax returns.Betting on Death: The Risk of Life Annuities versus Phased Withdrawal Plans
How might retirees consider deploying the retirement assets accumulated in a defined contribution pension plan?Pension Benefit Guaranty Corporation Reports $11.2 Billion Deficit in 2003
The Pension Benefit Guaranty Corporation, the federal insurer of more than 31,000 private pension plans, yesterday reported a year-end deficit of $11.2 billion.IRS Wins Another FLP Tax Court Case
In Estate of Abraham, TC Memo 2004-39, the Tax Court denied any discount for three separate Family Limited Partnerships. It found the FLPS to be testamentary devices.Erosion of Retiree Health Benefits Continues
A new survey by the Kaiser Family Foundation and Hewitt Associates documents the increasing costs of retiree benefits for both large private-sector employers and their retirees.AFR for March 2004 Drops to 4%
The Applicable Federal Rate (AFR), used in calculating life and remainder interests in many planning techniques such as QPRTs, CRTs, GRATs, etc..., is set at 4% for March of 2004, down from 4.2% in January and February.Physical and Mental Decline in Elderly Not Inevitable
Years of laboratory testing indicate that the abilities to think quickly, remember accurately, and reason clearly decline beginning in young adulthood. A growing body of research is challenging the depth of this decline and its impact, suggesting that most healthy seniors can work, drive, and live independently well into their golden years.Property Owner Successfully Sues to Rescind Gift Deed for Undue Influence
The owner of 258-acre ranch signed a series of wills prepared by three different attorneys over a short period of time, culminating in a will leaving the ranch to acquaintances. Shortly after that, the acquaintances took the owner on a picnic to the property (which had been her grandfather's homestead) and described their plans to rebuild her grandfather's cabin. The property owner, overcome with emotion, announced her intention to transfer the property immediately. The acquaintances had one of the lawyers involved in estate planning prepare a warranty deed and the property owner signed it. When it was returned to her after recording, she became agitated and demanded that the property be returned to her name; the acquaintances would agree only to transfer the property into joint tenancy with the original owner.Elderly Driver's Estate Not Liable For Traffic Accident Resulting From Heart Attack
An elderly driver suffered a fatal heart attack, swerved into oncoming traffic and collided with victims' vehicle. The victims sued the driver's estate for negligence, alleging that he knew he had a family history of heart disease, he had suffered a prior heart attack and was under treatment for heart disease, and he knew or should have known that he posed a danger to the motoring public when driving.Attorney Not Permitted to Appear on Behalf of Ward
A proposed ward objected, through court-appointed counsel, to appointment of a guardian. The trial court guardianship order was granted over the ward's objection. Just over one year later, the trial judge vacated the appointment of counsel nunc pro tunc to the date of the final guardianship order. The next day the attorney filed a notice of appearance on behalf of the ward; no motions or petitions were then pending in the guardianship matter. The guardian moved to strike counsel's notice of appearance, and the trial court not only found that the ward lacked capacity to retain counsel but also ordered counsel not to have "any interactions" with the ward regarding legal matters without the guardian's consent.Rehearing on Medicare Lien Case Changes Reasoning, but Not Result
On Motion for Rehearing, the Fifth Circuit Court of Appeals modifies its reasoning but reaches the same conclusion: that the Medicare Secondary Provider statute does not grant an enforceable lien against personal injury settlement proceeds which do not qualify as a "self-insurance plan" of the defendant in the personal injury litigation.Medicaid Eligibility Order Remanded Without Addressing Effect of Single-Premium Annuity
The husband of a nursing home resident purchased a $90,000 five-year, single-premium, assignable annuity naming husband as initial beneficiary and couple's sons as contingent beneficiaries, then made Medicaid application. The Arkansas Medicaid agency determined that the annuity remained an available resource (at a value of $70,000 as of the time of application) and denied eligibility. The Wife appealed her denial, and both applicant and the Medicaid agency agreed that the sole issue on appeal was whether the annuity remained available.Remainder Beneficiaries Entitled to Intervene in Will Contest and Challenge Attorney's Fees
A decedent's 2001 will and trust left his entire estate to the caretaker who had assisted him and his demented wife (who survived him). The decedent's 1985 will left his estate in trust for his wife, and upon her death was to be distributed equally among his son and two grandchildren. The decedent's son challenged the validity of the 2001 will and trust. Shortly after the filing of the challenge, the decedent's surviving spouse also died. Within a few months of her death the two contestants entered into an agreement to divide the entire estate equally. The two grandchildren filed a motion to intervene and to set aside the agreement and resulting judgment forty-one days later.SEC Rules Would Require Mutual Fund Costs Disclosures
The Securities and Exchange Commission has proposed rules that would require securities and investment companies to make disclosures of mutual fund transaction costs and of breakpoint discounts by mutual funds. The proposals are issued amidst concerns that mutual fund companies have been charging excessive fees to investors.IRS Issues Guidance on Health Savings Accounts
The Treasury Department and the IRS issued their first round of guidance for health savings accounts (HSAs). HSAs are new tax-favored vehicles created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that individuals covered by high deductible health plans can use to pay for certain medical expenses.Two Reports on Quality and Disparities in Nation's Health Care Released
"The National Healthcare Quality Report," represents the first national comprehensive effort to measure the quality of health care in America. "The National Healthcare Disparities Report," represents the first national comprehensive effort to measure differences in access and use of health care services by various populations. Both of these reports were developed by the Agency for Healthcare Research and Quality (AHRQ), U.S. Department of Health and Human Services.CMS Creates Web Page on Medicare Reform Implementation
On December 8, 2003, President George W. Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The U. S. Centers for Medicare Medicaid Services has created a Web page on its site that will be frequently updated with information over the next several months as CMS begins implementation of the benefits and reforms of the Act, including the Medicare Prescription Drug Discount Card and Transitional Assistance Program.Social Security Protection Act Passes Senate
On December 9, 2003, the Senate amended and passed H.R. 743 by unanimous consent. The Social Security Protection Act of 2003 makes the following changes to the way the Representative Payees program is managed.CBO's Latest Long-Term Budget Outlook
This Congressional Budget Office report extends previous long-term analyses by CBO, examining pressures on the federal budget over the coming decades and the kinds of policy choices that lawmakers face as they consider ways to alleviate those pressures.SSA Proposes Changing Regs on Counting Resources and Income for SSI
The Social Security Administration proposes to revise its regulations that explain how it determines an individual's income and resources under the supplemental security income (SSI) program in order to achieve three program simplifications.Interesting Ninth Circuit Asset Protection Case
The Ninth Circuit recently affirmed the denial of availability of assets in a third party spendthrift trust to the trustee of a Chapter 7 bankruptcy estate. This is another example of the effectiveness of using trusts as asset protection vehicles for beneficiaries.IRS Tightens Reins on Lawyers, Accountants, Other Tax Advisers
The Treasury Department and the IRS issued four items of administrative guidance as part of their ongoing effort to halt abusive tax avoidance transactions and maximize effective use of IRS audit resources.The Internal Revenue Service and Treasury Department issued a notice to advise taxpayers that the IRS intends to disallow improper deductions for charitable contributions of patents and other intellectual property. Taxpayers claiming improper deductions may be subject to penalties. In addition, the notice advises promoters and appraisers that the IRS intends to review promotions of transactions involving these improper deductions and that promoters and appraisers also may be subject to penalties.
Medicare Bill Affects Cancer Care
The new Medicare legislation includes little known provisions that significantly reduce the reimbursement available to oncologists for Chemotherapy treatment. According to the American Society of Clinical Oncology, a trade organization, these cuts could result in oncologists ceasing to provide chemotherapy through their offices.IRS Reports Increased Use of Online EIN Application
Businesses and tax professionals are turning to an online application form on IRS.gov to get new employer identification numbers ("EIN"). The Internal Revenue Service has issued more than 498,081 of the numbers through its online application since it became available in April 2003.Forbes magazine interviewed several leaders in the insurance industry about Long Term Care Insurance and has issued a report on their findings.
Federal Estate Tax Returns, 1998-2000
An estimated 103,982 Federal estate tax returns were filed for decedents who died in 1998 with gross estates of at least $625,000, the filing threshold in effect for that year. These relatively wealthy 1998 decedents, whose gross estates totaled $195.6 billion, represented 4.4% of the overall U.S. decedent population that year. However, fewer than half of these returns, 50,089, reported a tax liability, which totaled almost $22.8 billion. This 54-page special report from the IRS reviews the history of the federal estate tax and analyzes federal estate tax returns from 1998-2000.Fiduciary Handbook - Prudent Investment Practices
The term "fiduciary" is inclusive of more than five million people who have the legal responsibility for managing someone else's money, including members of investment committees of retirement plans, foundations, and endowments; trustees of private trusts; and investment advisors. The primary purpose of the Fiduciary Handbook - Prudent Investment Practices, prepared by the Foundation for Fiduciary Studies, is to outline uniform fiduciary standards of care and practices that are intended to define a prudent investment process. The handbook covers 27 practices culled from federal and state legislation, regulatory opinion letters, and relevant case law. The handbook states: "Fiduciary liability is not determined by investment performance, but rather on whether prudent investment practices were followed. It's not whether you win or lose, it's how you play the game."Handwritten Trust Distribution Schedule is Not Holographic Will
A decedent had signed a pre-printed living trust form, one portion of which was a "Schedule of Beneficiaries and Distributive Shares." The schedule was handwritten by decedent. Named distributees attempted to introduce the schedule as a "holographic" will under state law permitting wills substantially in the decedent's handwriting and signed by the decedent, though unwitnessed. The trial court denied admission of the alleged will and determined that the decedent had died intestate.Mere Fact of Power of Attorney Does Not Create Presumption of Undue Influence
A decedent's son had held a power of attorney for financial matters, but had exercised it for very limited purposes. The decedent had also executed a will leaving her entire estate to her son, and specifically disinheriting her daughter. The daughter challenged the will arguing that decedent did not have testamentary capacity and that she had been unduly influenced by son.Guardianship Order Does Not Itself Preclude Joint Tenants from Withdrawing Joint Accounts
When the guardian of the estate was appointed for an elderly woman, her primary liquid asset was a bank account naming her two sons as joint tenants. After the guardian was appointed, the sons withdrew the balance of the joint account. The guardian sought an order compelling the return of account balance.Missing Person's Date of Death Not Set by Judicial Determination of Death
A surviving spouse began receiving benefits under late husband's pension plan in 1977, but disappeared in 1982. The pension plan administrators suspended payments, but acknowledged that they would be liable if she reappeared. Fifteen years later missing beneficiary was declared dead and her estate's administrator sought payment of unpaid pension benefits from date of disappearance until presumption of death arose seven years later. The trial court granted summary judgment to missing spouse's estate, ordering payment of seven years' pension benefits.CMS Faces Massive Task of Implementing New Medicare Law
December 2003 President Bush signed the Medicare prescription drug legislation (H.R. 1), putting the task of implementing the massive 700-page bill into the hands of the U. S. Centers for Medicare & Medicaid Services, which will have to interpret more than 300 provisions in what is likely to be the most-scrutinized process ever undertaken by the agency, according to industry sources and others.Baby Boomers' Retirement Prospects: An Overview by CBO
Over the past 15 years, the retirement prospects of the baby-boom generation (people born from 1946 to 1964) have become a source of public concern. Some experts contend that low saving by boomers could limit economic growth in the United States and compound the financial pressures that face government programs such as Social Security and Medicare. A November 2003 Congressional Budget Office (CBO) study -- prepared at the request of the Chairman of the Senate Budget Committee -- updates and expands on a 1993 CBO report on the retirement preparedness of boomers. It places the baby-boom retirement issue in historical and policy context, describes the methodologies used to analyze that issue, reviews numerous studies of retirement preparedness that have been published since 1993, and draws general conclusions from their findings.States Moving to Toughen Medicaid Eligibility Rules
Plagued by revenue shortfalls, some states are asking the federal government for permission to toughen the Medicaid rules that govern eligibility for nursing home and other health care. But changing the rules may have dire consequences. "If these rules are changed," warns Cheryl Matheis, director of AARP's State Affairs Department, "an individual who helped out a child or made a donation to a charity may, years later, be denied critical medical care. And they may be denied such care even though they lack the funds to pay for it."New IRS Page for Self Employed / Small Businesses
Take a look at some of the changes you will find on the Small Business/Self-Employed Community on IRS.gov.DOJ Lawsuit Filed to Stop Tax Scam Targeting African-Americans
DOJ Press Release - Washington, D.C.
The Department of Justice filed a lawsuit against several Texas individuals to stop the promotion of a tax scheme.
Updated IRS Publication 17 on Web
The IRS comprehensive tax guide for individuals has been updated for tax year 2003 and is now available at IRS.gov. IRS Publication 17, "Your Federal Income Tax", has been published annually by the IRS for more than 60 years and has been available on the IRS Web site since 1996.CBO Projects Record Budget Deficit
According to the Congressional Budget office, the federal deficit will hit a record $477 billion this year. In the CBO wintertime economic outlook, issued today, the nonpartisan agency projected the total deficit through 2013 to be $2.4 trillion. The CBO August report projected a deficit of only $1.4 trillion through 2013. The increased deficit was due in part to additional spending initiatives and tax cuts.Treasury and IRS Shut Down Abusive Foreign Currency Transaction
The Treasury Department and the Internal Revenue Service issued guidance to bar transactions in which taxpayers dispose of a pair of offsetting options, claiming a loss on one of the options but contending that they never have to recognize the corresponding gain on the other. These transactions are now listed transactions. Taxpayers who have entered into these transactions must disclose them to the IRS, and advisors promoting their use will be required to maintain lists of participating taxpayers.IRS Releases 2004 Housekeeping Revenue Procedures
The IRS has issued updated procedures for requesting letter rulings, closing agreements, determination letters, and information letters for estate tax matters, as well as many types of employee plan and exempt organization matters in Rev. Procs. 2004-1 through 2004-8.Tax Planning Actions to Be Taken by December 31, 2003
The following checklist represents a list of actions that must be taken by the end of the year if a taxpayer wants to take advantage of the opportunity for the 2003 tax year.IRS Publishes 2004 Long-Term Care Premium Tax deduction Amounts
In Revenue Procedure 2003-85, the IRS sets forth the limitations under IRC 213(d)(10) for deduction of eligible long-term care premiums includible in the term "medical care"There are some instances when you may not be required to file a federal income tax return. But keep this in mind more than 70 percent of those who file are due a refund, so it may be to your advantage to file even if you are not required to.
Should You Itemize on Your Tax Return?
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. According to the IRS, money paid for medical care, mortgage interest, taxes, contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.Property Owners Unsuccessful in Effort to Reform Gift Deed Alleging Mistake
Parents, after consulting a Medicaid-planning attorney, signed a quitclaim deed for their family farm to their three children. Five years later their daughter and son-in-law began divorce proceedings, and the parents brought suit to reform the deed to retain a life estate for themselves. The drafting attorney testified that the parents understood the effect of the deed, and that he had cautioned them that retaining a life estate might cause problems with the Medicaid agency. After refusing to accept parol evidence, the trial court found that there was no evidence of mistake in the execution of the deed; it also refused to impose a constructive trust on the parents' theory that they had understood that they would receive a life income from the property.February AFR Rate Holds Steady at 4.2%
For purposes of determining the present value of an annuity, an interest for life or a term of years, or a remainder or a reversionary interest, Revenue Ruling 2004-9 indicates the charitable federal midterm rate under section 7520 for February 2004 is 4.2%, unchanged from both the January and December rates.Judge Grants Request of IRS Office of Professional Responsibility to Disbar CPA
An administrative law judge has issued a decision and ordered that Joseph R. Banister be disbarred from practice before the Internal Revenue Service. Banister is a Certified Public Accountant from San Jose and former IRS criminal investigation agent.Heritage Foundation Perspective on the Estate Tax
The Heritage Foundation published a 9-page "Backgrounder" by Gary Robbins entitled "Estate Taxes: An Historical Perspective". Whether or not you agree with its conclusions, the paper has a helpful, concise history of estate taxes and some interesting statistical analysis of historical FET exemptions and rates.More Options Hinder Use of 401-K Plans?
Although extensive choice seems appealing, research shows that it may hinder motivation to buy and decrease subsequent satisfaction with purchased goods. A paper by the Pension Research Council at Wharton School of Business examines whether these findings generalize to employees who are making decisions about whether to invest in 401-K retirement saving plans. Using data from nearly 800,000 employees, the authors tested the hypothesis that employee 401-K participation rates fall as the number of fund options increase. Their results confirm that participation in 401-K plans is higher in plans offering a handful of funds, as compared to plans offering ten or more options.Will Inheritance Bail Out Boomer Generation?
Will inheritances received by baby boomers play an important role in their financial security as they approach retirement? In this AARP Public Policy Institute (PPI) Data Digest, the authors use recent data from the Federal Reserve Board to explore whether boomers are going to inherit large amounts of wealth from their parents, the implications for retirement security, and how inheritances might influence decisions to work and retire.A Case for Reverse Discrimination (Gen. Dynamics v. Cline)
The Age Discrimination in Employment Act outlaws discrimination against employees because of their age. But is it illegal when the employee being discriminated against is younger than the worker receiving the favored treatment? On November 12, the U.S. Supreme Court heard arguments in General Dynamics Land Systems v. Cline, a major employment case examining whether the 1967 statute is intended exclusively to protect older workers, or whether it also authorizes so- called reverse-discrimination claims by younger workers. The case holds important implications for many retirement benefit plans and early-retirement packages. To the extent that such plans offer increasingly generous benefit levels triggered solely by age, they could become the litigation targets of younger employees complaining about illegal disparate treatment.Survey Says One Fourth of Americans Say Its OK to Defraud Insurance Companies
Nearly one in four U.S. adults say that overstating the value of claims to insurance companies is acceptable, and more than one in 10 say they approve of submitting insurance claims for items that were not lost or damaged or for treatments that were not provided, according to a survey released today by Accenture.Senator Hutchinson Reintroduces Charitable IRA Rollover Bill
U.S. Senator Kay Bailey Hutchison (R-TX) has re-introduced bipartisan legislation to allow donors to roll over assets from an Individual Retirement Account, or IRA, to a charity without incurring a tax liability. Senator Hutchinson said, "Charitable giving shouldn't be taxable event. Unfortunately, that's exactly what happens under current law if a donation comes from an IRA. This bill will encourage a valuable new source of American philanthropy." Senator Hutchinson went on to say, "one of my priorities has been to promote charitable giving and expand the role charities and faith-based institutions play in addressing social problems in the United States. This bill will make it easier for Americans to help those in need."Bush's Budget Adviser Says Deficit Is Worsening
According to a New York Times article, the President's budget chief is now forecasting budget deficits considerably larger than previously anticipated. This may short circuit attempts for large tax cuts or making permanent the cuts made as part of the 2001 Act.Taxpayer Advocate's Report Proposes Regulation of Preparers
In his report, National Taxpayer Advocate Olson has asked Congress to authorize the IRS to regulate federal tax return preparers. Under the proposal, any paid return preparer who is not an attorney, certified public accountant, or enrolled agent and who prepares more than five returns would have to register with IRS and pass one or more tests of their tax knowledge developed by the service. The proposal is contained in the national taxpayer advocate's fiscal year 2002 annual report to Congress. The report details numerous legislative recommendations to improve taxpayer rights.Estate May Not Pursue Malpractice Action Against Attorney (Rutter v. Jones, et al)
A testator intended to leave "about $5,000" each to two housekeepers, with ten percent of the residue of her estate to be left to various charities. As drafted, the testator's will and trust left the determination of the amount to be left to the housekeepers to the discretion of her trustee. The decedent's charitable gifts did not qualify for the charitable deduction on the estate tax return (since the amount of the charitable bequest could not be determined at the time of her death), and, as a result, her estate paid an additional $663,996 in estate taxes.IRS Underpayment Rates Lowest Ever
The interest rates the Internal Revenue Service uses for underpayments and overpayments over taxes for the calendar quarter beginning January 1, 2003 will drop by one percentage point in each category to:IRS Offers New Toll-Free Numbers to Assist Taxpayers
The Internal Revenue Service has announced two new toll-free telephone numbers to provide individual and small businesses with better service. These numbers became operational on December 2, 2002.An elderly woman signed a codicil to her will leaving a specific annuity to her housekeeper, and also signed a change of beneficiary form for the annuity. The attorney gave the original beneficiary change form to the elderly woman, who did not send it to insurance company.
Paying Reasonable Compensation to S Corp Shareholder-Employee
From the IRS Service Centers:An S Corporation must pay reasonable compensation (subject to employment taxes) to shareholder-employee(s) in return for the services that the employee provides to the corporation, before a non-wage distributions may be made to that shareholder-employee. THIS ISSUE HAS BEEN IDENTIFIED AS AN AREA OF NON-COMPLIANCE AND WILL RECEIVE GREATER SCRUTINY IN THE FORESEEABLE FUTURE.
IRS Indicts Offshore Guru Jerome Schneider
The U.S. Attorney Kevin V. Ryan and IRS Criminal Investigation Director of Field Operations Richard Speier, jointly announced the indictment yesterday of Jerome Schneider, age 51, and Eric J. Witmeyer, age 48, on one count each of conspiracy to defraud the Internal Revenue Service, fourteen counts each of wire fraud and eight counts each of mail fraud. The two were indicted by a federal grand jury in San Francisco in connection with their alleged marketing and sales to U.S. taxpayer investors of offshore international banks or corporations and causing those entities to be "decontrolled" which is a process used by the defendants to attempt to conceal the U.S. taxpayer investor's ownership in the offshore bank or corporation.Attorney Testifies Regarding Will Ambiguity (Est. of Lord)
The residuary provision of decedent's will created a trust for testator's husband, if he survived her. In event husband predeceased her, an alternate residuary clause directed distribution of the remainder to a "trust," even though no trust was created if husband predeceased. When the testator died a few months after her husband, her intestate heirs argued that there was a partial intestacy because there was no provision for distribution of the estate itself. The Probate Court accepted the testimony of the drafting attorney and his secretary to the effect that they had introduced the mistake by use of the "cut and paste" utility of the law office's word processing program and the Probate Court ordered that the will be read as if the provision was for distribution of the "estate" rather than "trust."Unsigned Mediation Agreement Not Enforceable (Laska v. Laska)
In this Wisconsin case, grandchildren brought suit against their grandfather's widow, alleging intentional interference with anticipated inheritance. In mediation proceeding the parties agreed that the widow would pay $135,000 to the grandchildren and would relinquish any interest in other assets.Conseco Files for Bankruptcy Protection
As predicted in an FYI earlier this year, Conseco, the parent company of several insurance companies that were large issuers of annuities and long term care insurance, filed for bankruptcy this past week. An article from the New York Times on this bankruptcy filing follows:Claim of Breach of Fiduciary Duty Does Not Violate No Contest Clause (Est. of Hoffman)
California decedent's will provided that anyone contesting the will would receive $1 and no more -- the residual beneficiary of the will was a living trust benefiting five children. Three years after her death, two of the beneficiaries of the decedent's estate sought court authorization to pursue removal of three co-executors and trustees for alleged breaches of fiduciary duty. The trustees were alleged to have paid themselves virtually all the income of a wholly-owned family business as wages, and the executors were accused of failure to seek removal of the trustees (who were the same three children of decedent). The Probate Court refused authorization to pursue the action against the fiduciaries, finding the proposed action was frivolous and would violate the trust's no contest clause.Governors Claim "Worst Budget Crisis Since World War II"
A report from the National Governors Association concludes that states are "facing their worst budget crisis since World War II." Taken together, states have a cumulative budget shortfall this year of nearly $50 billion. Toping the concern is Medicaid funding. The state lawmakers will press for federal bailouts, but they will find a difficult climate in deficit-ridden Washington. Every state but Vermont has laws requiring it to keep a balanced budget. The report warns that major budget cuts will be made in 2003.Tax Court Penalizes Attorney for Frivolous Position
In Takaba v. Commissioner, 119 T.C. 18 (December 16, 2002), the Tax Court, in an opinion written by Judge Halpern, held an attorney liable for penalties and fees. The client had brought a case with frivolous arguments which the attorney continued to pursue when he began his representation. The taxpayer claimed that he had no income that was taxable because of a section 3401(a) loophole. He further claimed that he was not required to file Form 1040 for 1996 because it lacked the proper OMB number.Victims of Nazis Restitution Not Taxed
President Bush signed H.R. 4823 that makes permanent an exclusion from federal income tax for restitution received by victims of the Nazi regime. The new law repeals the sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 with respect to the exclusion for such payments.The Service just released Revenue Ruling 2003-5 providing the applicable federal rates for January 2003. The section 7520 rate to be used to value remainder and life estates will be 4.2%. This is up slightly from December's 4.0% and November's low of 3.6%.
Undue Influence Invalidates Will (Estate of Masterhan)
A decedent died at age ninety-two, leaving a will directing the distribution of his entire estate to his caretaker. The decedent's sister objected to the will on grounds of lack of testamentary capacity and undue influence. The District Court found that the will was the product of undue influence and sustained the sister's objection.Elective Share Is Part of Spouse's Estate (Gallagher v. Evert)
In the South Carolina Court of Appeals case, Gallagher v. Evert, a husband died testate in January 1998. His Will left his entire estate to his son from a prior marriage. His widow elected against her husband estate for her statutory share in May 1998.Life Insurance Rider Payable to Owner Despite Settlement Agreement
A decree in a dissolution proceeding awarded each spouse his or her own life insurance policies. One policy on the ex-husband's life (and therefore awarded to him) included a rider on his ex-wife's life. After the marital dissolution was final, the husband continued to pay all the premiums on the policy and its rider on his ex-wife. On the ex-wife's later death, the ex-wife's estate made a claim for the insurance proceeds, citing both the decree language and the state law which invalidated beneficiary designations on a spouse's property upon dissolution.Constructive Trust Imposed (McCord v. Spradling)
In the Mississippi Supreme Court case, McCord v. Spradling, a prospective husband and wife executed a pre-nuptial agreement providing that each party retained the power to dispose of all of his or her property and that neither would make any claim against the other's estate (this was to be the second marriage for both parties). Husband's first wife had died prior to this marriage, but his benefits under the Federal Employees Group Life Insurance Act (FEGLIA) still named his first wife as beneficiary. Upon his later death, FEGLIA policy rules dictated that in the absence of a valid beneficiary designation the entire policy would be payable to his surviving spouse (the second wife). The husband's executrix sought imposition of a constructive trust on the FEGLIA policy proceeds, which relief was denied. The Mississippi Court of Appeals affirmed the denial for relief.Attorney Disciplined For Failure to Include Special Needs Provisions in Will
An attorney in Maine prepared a Will for an elderly client naming the client's sister as the primary beneficiary. At time of execution the sister was in a nursing home, with care being provided by Medicaid. The will drafted by the attorney failed to include any supplemental needs trust provisions, and the attorney did not advise his client of the effect of a bequest to her sister while she was receiving Medicaid benefits.Hospice Care is Growing Industry
Since the first U.S. hospice opened in the 1970's, hospice care has grown into a multibillion dollar industry. In 2000, more than 3,100 programs served roughly 700,000 patients, and the Medicare benefit, which pays for the majority of hospice services, is expected to reach an estimated $3.8 billion in 2002.In his speech on November 22, 2002, Dan Crippen, the Director of the Congressional Budget Office, said, "the Congressional budget process is dead." Noting that the modern budget process began after Congress enacted the budget law in response to the Nixon administration's impoundments, Crippen said that the pendulum has swung back to where the President now controls the budget again. How the federal budget is enacted is an important determinant of what legislation gets enacted.
Life tenant can be S Corp shareholder
In Private Letter Ruling 200247030 the Service has ruled that a life tenant holding stock under a life estate qualifies as an eligible shareholder for S corporation purposes.More on Revenue Ruling 2002-62
It seems that Revenue Ruling 2002-62 raises as many questions as it answers with regard to substantially equal periodic payments from a retirement plan or IRA in order to avoid the IRC 72(t) penalties. Below is an article from Robert S. Keebler, CPA, MST of Virchow, Krause & Company, LLP, which might clear up some questions your clients' might raise under certain circumstances.Long-Term Care Insurance Premiums Likely to Increase
The following information is from J.J. MacNab, owner and insurance analyst at Insurance Barometer, LLC, of Bethesda, MD:Estate Tax Calculation for victims of terrorist attacks or combat-zone deaths
The Service just released Rev. Rul. 2002-86 which provides sample estate tax calculations under I.R.C. Section 2201, amended by Victims of Terrorism Tax Relief Act. This ruling is helpful if you have an estate tax return to do for someone that was either 1) a victim of a terrorist attack or 2) was a member of the U.S. military who died in a combat-zone related death.IRS Rejects Valuation Discounts for IRAs
In TAM 200247001, the Service rejected estate tax valuation discounts for income taxes payable on IRAs and for the lack of marketability inherent in the asset.Will Successfully Challenged (Estate of Evans)
In the Mississippi Court of Appeals Case, Estate of Evans (November 12, 2002), a long time companion of the testator located and consulted with an attorney about preparing a will for testator, who was then in the hospital. The attorney indicated that he could not go to the hospital and suggested that the companion have the testator write out his wishes and bring them to attorney. Several days later the companion returned to the attorney's office with the handwritten instructions, which she indicated had been prepared by testator.PI Claimant Can Amend Complaint to Name Estate as Defendant (Pierce v. Johnson)
In the North Carolina Court of Appeals case, Pierce v. Johnson (November 19, 2002) the Decedent had been involved in an automobile accident eighteen months before his death (the death was from causes unrelated to the accident). The Decedent's son was appointed as the executor of his estate and he published notice to creditors. Six months after the creditor's claims period expired, the other driver filed a personal injury action naming the Decedent individually and served his son at the address of the father. Apparently because the father and son shared a middle name, and because the son's attorney never indicated that the defendant had died, the plaintiff did not seek to amend her complaint to name the estate of the Decedent.Beneficiary of Unexecuted Will Has No Cause of Action Against Attorney (Sisson v. Jankowski)
The Federal District Court certified a question of law as to whether an attorney might be liable for his negligent failure to arrange for timely execution of a will. A client had given the attorney instructions to prepare a will leaving his entire estate to one brother and disinheriting his other brother.Discovery Orders Denied to Guardianship Petition (In Re Hyman)
A son filed guardianship against his mother, alleging his sister's influence as a cause of their mother's alleged paranoia and delusions. The son sought an order compelling depositions of his mother and sister so that he could determine her medical condition, the names of treating physicians and nature and extent of any asset transfers made by the mother. The mother objected and the court conducted an evidentiary hearing, during which the mother testified that her son's motivations were based on her having testified against him in a landlord / tenant dispute (the son, an attorney, rented space in a building owned by his mother). The son, in turn, testified that mother was delusional, believing him to be involved in organized crime and wanting to kill her.Separate Maintenance Order Does Not Terminate Wife's Rights (Estate of Carlisle)
The decedent and his wife had secured a decree of legal separation and an order compelling spousal maintenance payments to the wife. All the spouses' assets were divided as part of the decree. The decedent then changed his will to disinherit the wife, and he died a little more than a year later.Effective January 1, 2003, the minimum and maximum Community Spouse Resource Allocation (CSRA) for spouses of institutionalized individuals will increase as follows:
Medicare Proposes Major Change to Appeals Process
Section 521 of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 amends section 1869 of the Social Security Act to substantially revise the Medicare claim appeals process. The statute mandates a series of structural and procedural changes to the existing appeals process, including:Two Views on the Benefits of Long-Term Care Insurance
The benefits of long-term care insurance are many and varied, and reach beyond policyholders themselves to include family caregivers. Public programs benefit as well, enjoying reduced expenditures on long-term care. The Health Insurance Association of America has released a white paper, which summarizes the major advantages of long-term care insurance for policyholders, caregivers, and public programs. These findings are based on analyses of empirical data collected over the last five years.State Not Allowed to Collect Medicaid Claim From Relatives (Missouri DSS v. Brundage)
A decedent left a small estate of approximately $40,000. A relative filed an affidavit indicating the estate was small, and that he would distribute the assets to the heirs. The Missouri Department of Social Services (MDSS)then filed a claim with the probate court seeking payment of approximately $40,000 for health care services provided to the decedent. Negotiations ensued, but no resolution was reached. The relative distributed the assets to the heirs without making payment to MDSS.The Service has released a Notice (2002-124) providing relief to taxpayers in areas affected by the November 10th tornadoes. Taxpayers with filing deadlines between November 10 and January 10 are extended until January 10, 2003.
Social Mobility and the Estate Tax
There is an interesting editorial in the NY Times concerning social mobility and the estate tax. The article follows:Facility Liable for Patient's Fall (Georgian Court Nursing Center v. CMS)
In Georgian Court Nursing Center v. CMS, 2002 WL 1804679, 2002 HHSDAB LEXIS 83, CCH Medicare and Medicaid Guide par. 120, 401 (HHS Dept. Appeals Board 2002), a nursing facility was found out of compliance during a survey and three revisits over a six month period for failure to abide by a physician's order to use a two-person lift in transferring a patient. A facility employee tried to life a woman without help and the woman fell, breaking her arm.Senate Votes for Permanent Exemption for Payments to Victims of Nazis
The Senate, by unanimous consent, approves two bills (S. 2577 and H.R. 4823) that would make permanent an exclusion from federal income tax for restitution received by victims of the Nazi regime. The virtually identical measures would repeal the sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 with respect to the exclusion for such payments. The House approved H.R. 4823 by voice vote in June, so that measure can now move to the president's desk for his expected signature.Transfer from Entireties Tenancy to Sole Name Does Not Defeat Tax Lien
In U.S. v. Patej, the US Dist. Ct. for the Eastern Dist. of Michigan ruled that property purchased by a physician and placed in his and his wife's names as tenants by the entireties remained subject to a federal tax lien for the physician's unpaid taxes. This was the case even after the wife transferred the property to her sole name pursuant to a divorce judgment following the physician's flight from the country.Treasury 2003 Inflation Adjustments. In Rev. Proc. 2002-70 (30 Oct 2002), Treasury has released the inflation adjustments for next year. Under existing law, the estate exemption will remain at $1 million for 2003. In addition, the gift exclusion will also remain at the existing $11,000 per donor-per donee. However, the generation skipping tax exemption will increase to $1,120,000.
Homeland Security Charitable Trust
The Homeland Security Bill includes a new type of charitable trust. The Johnny Michael Spann Patriot Trust will qualify as a new charitable entity. The trust is named after Mike Spann, who died defending freedom in the war in Afghanistan.HHS LAUNCHES NATIONAL NURSING HOME QUALITY INITIATIVE Broad Effort to Improve Quality in Nursing Homes Across the Country HHS Secretary Tommy G. Thompson today launched the national Nursing Home Quality Initiative to further improve the quality of care given to the millions of Americans who live in nursing homes. The initiative combines new information for consumers about the quality of care provided in individual nursing homes with important resources available to nursing homes to improve the quality of care in their facilities.
Charitable Donation of Automobile
The Service has issued a Revenue Ruling indicating that individuals can claim a charitable deduction when automobiles are donated to a charity's agent. Further, it gives updated guidance regarding substantiation and valuation of such a gift. The text of the Revenue Ruling follows:Salvation Navy Not A Qualified Charity
David Valfer incorporated the Salvation Navy, Inc. as a non-profit corporation under Pennsylvania law in 1976. He was its sole founder, director and officer. In 1999, the Salvation Navy filed a Form 1023, seeking recognition as a tax-exempt organization. In its Articles of Incorporation, the Salvation Navy stated one of its purposes was to "find out where one goes when he or she leaves". It also recited that its activities include the charitable work performed on a volunteer basis by David Valfer. Mr. Valfer attached several documents to the Form 1023, including citations and statements of recognition for 20 years of community service in the City of Hartford, CT. Mr. Valfer also indicated that the Salvation Navy's sole source of financial support was Mr. Valfer's SSI, Aid to the Disabled Income, Medicaid payments and food stamps.CMS Proposes Appeals Process for Medicare Coverage Decisions
Apparently as a result of a lawsuit brought in August of this year, the Centers for Medicare & Medicaid Services ("CMS") has now proposed a rule that would establish a process for beneficiaries to appeal local or national Medicare coverage determinations. Under the proposal, an administrative law judge would initially review appeals of local coverage determinations. The HHS Departmental Appeals Board would review appeals from national coverage determinations and from ALJ decisions on local coverage determinations. The board's decisions could then be appealed to federal court.Right of First Refusal Not Triggered by Intrafamilial "Sale"
In the Connecticut Supreme Court case, Webster Trust v. Roly (Conn. August 6, 2002), property owners sold a portion of their property to another party, and later gave the buyer a right of first refusal as to any bona fide offer received on the remaining property.Bank Liable for Executor's Actions (Cochran Investment Co., Inc., v. Bank of America)
In this California case, the executor of an estate pledged his share of the estate to a personal creditor. Sometime later, the executor sold the estate's real property and received proceeds by check made payable to him as executor. The executor deposited the check in the executor's personal bank account.Grandparent Visitation Statute Unconstitutionally Applied (Zasueta v. Zasueta)
The paternal grandfather and step-grandmother sought court-ordered visitation with their granddaughter after their son committed suicide and the son's wife (child's mother) refused them visitation. The trial court, in applying the California grandparent visitation statute, found the mother's refusal of visitation made her "unfit."Good Summary of ERISA Fiduciary Duties in DOL Brief
The U.S. Department of Labor ("DOL") has filed an amicus brief opposing the dismissal of the lawsuit brought by former participants in the Enron Corporation's Savings Plan, the Enron Employee Stock Ownership Plan and the Enron Cash Balance Plan against Enron Corporation and other defendants. The internet site "401khelpcenter.com" states that this brief can be viewed as a primer of the fiduciary duties under ERISA, as the alleged acts and omissions of Enron and the other defendants appear to implicate nearly every ERISA fiduciary duty.Two Recent SNT Cases of Interest
Here are two recent Special Needs Trust cases of interest:Revocation of Will Does Not Effect Validity of Trust (Estate of Furst v. Sunderland)
The Decedent, with the assistance of an attorney, executed an estate plan which included a revocable living trust and pour-over Will. Subsequent to the creation of the estate plan, the Decedent transferred substantially all his assets into his trust's name.UTMA Beneficiaries Barred by Statute of Limitations (Levine v. Levine)
In the California Appellate Court case, Levine v. Levine (October 17, 2002) a grandfather opened UTMA accounts for each of his two grandchildren over which he was custodian. Eight years after opening the UTMA accounts, the grandfather closed the accounts and then deposited the proceeds, totaling approximately $120,000, in accounts in his own name.Eleventh Circuit Finds CRT Defective (Estate of Atkinson)
In this Eleventh Circuit case, the Decedent had established a Charitable Remainder Annuity Trust ("CRAT") with annuity payments to herself for life and then too individual annuity beneficiaries, with the remainder to charities. The CRAT also provided that the individual annuity beneficiaries would take no share if they did not agree to pay the estate tax imposed by virtue of their surviving beneficial interests.Will Contest Tolls Statute of Limitations (Estate of Roberson case)
A California Decedent had allegedly agreed to provide home and lifetime support for his domestic partner, and had executed a Will that was purported to accomplish this result. After his death, the Decedent's mother contested the Will and ultimately prevailed in court. The domestic partner then filed a complaint seeking a constructive trust over the assets of the estate.Medicare Proposes Major Change to Appeals Process
Section 521 of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 amends section 1869 of the Social Security Act to substantially revise the Medicare claim appeals process. The statute mandates a series of structural and procedural changes to the existing appeals process, including:More States Decoupling from Federal Estate Tax System
Thanks to member Coury Macdonald for letting me know of the recent emergency legislation passed to decouple the District of Columbia from the federal estate tax system starting in 2002. This continues the steady stream of estate tax "decoupling" laws to emanate from many state legislatures. Here is an update on the current status of the trend. In it some planning approaches that are designed to preserve flexibility in the face of uncertainty are discussed.Fifth Circuit Slaps IRS (Estate of Dunn v. Comm'r)
At her death Beatrice Dunn owned 62.96% of Dunn Equipment Inc., a 42 year old closely held corporation that owned and leased heavy equipment used in the petroleum refinery and petrochemical industries. The estate reported the value of the partial interest in the corporation at $1.6 million. The IRS asserted that the proper valuation was $2.2 million.H.R. 5008, introduced by House Ways and Means Committee member Earl Pomeroy (D - N.D.), would raise the estate tax exemption amount to $3 million after 2002 and $3.5 million after 2008. EGTRRA would be repealed and they were be no plan to implement carryover basis for inherited assets. There would however, by new valuation rules regarding the transfers of non-business assets.
IRC 7520 Rate Falls to Lowest Level Ever
For purposes of determining the present value of an annuity, an interest for life or a term of years, or a remainder or a reversionary interest, Revenue Ruling 2002-74 indicates the charitable mid-term federal rate under Code Section 7520 for November 2002 is 3.6%. This is the lowest level ever - a 0.6% drop from the October 2002 rate of 4.2% and full 1.0% decrease from the September 2002 rate of 4.6%.Schizophrenic PLRs on Allocating GST Exemption: PLRs 200213013 and 200218001
H creates an ILIT and contributes $49,000 per year to the trust. W, his wife, has a $5,000 Crummey withdrawal power. H's children, C1 and C2, each have a $22,000 Crummey withdrawal power. H and H elect gift-splitting.Internet Sites for Valuation of Stock Options
Need to value your stock options for a 706?Valuable Pension Tools on the Internet
Check out these pension related tools available on the internet:Senators Say CARE Bill is Near
Sens. Rick Santorum, R-Pa., and Joseph I. Lieberman, D-Conn., said they may have developed the right formula for debate on a charitable giving tax bill, H.R. 7, that has long been stalled in the Senate. They said they are asking Democrats to support a unanimous consent agreement that would allow four Democratic amendments and one Republican amendment.
4th Circuit Holds Prenuptial Not a Waiver to Pension Benefits (Hagwood v. Newton)
In Hagwood v. Newton (4th Cir. 2002), the 4th Circuit held that a prenuptial agreement could not serve as a waiver to a surviving spouse's interest in the deceased spouse's pension benefits. A valid spousal waiver under ERISA can only be made by a SPOUSE. As the parties were not married at the time they signed the prenuptial, it was not effective to waive the surviving spouse's ERISA rights under the deceased spouse's pension plan.Estate Given Extension to Elect QFOBI Deduction
The IRS has granted an extension of time under Treas. Regs. 301.9100-1 and 301-9100-3 to make an election under IRC 2057(b)(1)(B) to deduct the adjusted value of the decedent's qualified family owned business interest.House Again Votes to Make Estate Tax Repeal Permanent
The House of Representatives again voted to make the provisions of EGTRRA permanent. The vote, which occurred on September 19, 2002, was 242 to 158, including 42 Democrats. It would eliminate the revival of the repealed taxes (sunset clause) in 2011. The bill, HR 524, has no binding effect on the Senate.Starting with 2002 tax returns, a Sch. B will no longer need to be filed detailed individuals interest and dividend earnings from various accounts and investments, unless the total interest and dividend income exceeds $1,500. This increase in the threshold for filing means that 15 million taxpayers will have one less piece of paper to file at tax time.
Starting on January 1, 2003, the standard mileage rate for purposes of computing deductions for tax purposes is 36 cents per mile. This is down from 36 1/2 cents per mile in 2002. The standard mileage rate for medical and moving purposes is 12 cents per mile, down from 13 cents -- and the charitable rate remains at 14 cents per mile.
State Nursing Home Care Act Claim Survives Death (Myers v. Heritage Enterprises)
A nursing home resident's legs were broken as a result of allegedly negligent transfer from wheelchair to bed. The resident's estate brought suit, including one count alleging a statutory violation of the state Nursing Home Care Act.IRS Wins Another FLP Victory Under IRC 2036
The IRS has scored another victory in pulling undiscounted partnership assets back into a taxpayers estate using IRC 2036 in Estate of Thompson v. Comm'r, T.C. Memo 2002-246 (September 26, 2002).The incidence of Alzheimer's Disease is expected to increase as the population of elderly grows. Early diagnosis and treatment will be the key to lessening the disease's worst effects, but, how to spot the disease before its symptoms become serious (and harm is already done) is a challenge for health professionals. A new study has determined that the best predictor of future Alzheimer's type dementia is a verbal memory test. Researchers' findings support the use of the California Verbal Learning Test (long delay recall and percent recall) as the best predictor of Alzheimer's type dementia, with executive function type measures also being predictive but less so than both the long and short delay memory tests.
Control is the Issue With Those Desiring Assisted-Suicide
Although 78 percent of the 91 Oregonians who have died by assisted suicide were enrolled in hospice programs, there is little information about the experiences of hospice practitioners with these patients. Researchers found that a very important reason for the request was to control the circumstances of death. The least important reasons included depression, lack of social support, and fear of being a financial drain on family members. Although the patients were concerned about burdening others, only 11 percent of hospice nurses rated their family caregivers as more burdened than family caregivers for other hospice patients.Taxpayers Affected by 9/11Attacks Get Extention of Home Sale Exclusion
Taxpayers affected by the September 11, 2001, terrorist attacks who sold a home before meeting the usual two-year requirements for the exclusion of gain may now qualify for the reduced maximum exclusion of gain on the sale or exchange of a principal residence.CBO Predicts Four Years of Budget Deficits
In its Sequestration Update Report for Fiscal Year 2003, the Congressional Budget Office on August 27 sharply increased its deficit forecast, projecting $157 billion in red ink this year and an additional $145 billion in fiscal 2003. Medicaid spending will rise 14 percent in fiscal year 2002 due to increased prescription drug costs and greater enrollment, while Medicare spending will increase 6.3 percent over the previous year. The agency now expects deficits every year until fiscal 2006, when the government could post a $15 billion surplus. In January, CBO projected deficits of $21 billion in fiscal 2002 and $14 billion in fiscal 2003.Today's older workers will live longer and spend more time in retirement than workers in any previous generation. This trend presents a challenge to workers and to public policy that has to date been met with analyses that, by looking primarily at household wealth and savings, address the issue only around the edges. The key question, however, tends to be ignored: will households have enough income to afford a decent standard of living in retirement? Between 1989 and 1998, a period of strong economic growth and a 248 percent rise in stock prices, the annual income that a household headed by a person approaching retirement (i.e., age 47-64) could expect in retirement rose at the average by 7 percent, to $50,000 a year. But gains for the average have not meant gains for all households. Over this same period, the share of these near-retirement households unable to expect adequate income in retirement increased.
Academic Papers on the Social and Economic Impact of Gifts and Bequests
The Center for Retirement Research at Boston College is making available the papers presented at its conference, "The Role and Impact of Gifts and Estates," held October 21-23, 2001. The conference addressed how individuals dispose of their assets in retirement and the social and economic impact of their choices.Free Publication Available on Americans With Disabilities Act
The Equal Employment Opportunity Commission has issued what it calls a "practical, reader-friendly handbook" outlining the employment provisions of the Americans with Disabilities Act. "The Americans with Disabilities Act: A Primer for Small Business" contains examples, tips, and "do's and don'ts." Resource lists are included in the handbook to help small employers recruit individuals with disabilities and obtain assistance in making reasonable accommodations.Indiana Looking to Kill Some Types of Medicaid Planning
Indiana officials are working to close loopholes in Medicaid law to stop the practice of Medicaid estate planning.Former A+ Insurance Company Likely Heading for Bankruptcy
If you have sold any Conseco insurance products or you have any clients who own Conseco insurance policies, you may want to advise them to review their options in the near future.Many of you are aware that Standard and Poors began enforcing its copyright on CUSIP information about two years ago and it has become increasingly difficult to obtain information on CUSIP from free information sites.
Planning Opportunities in Light of State Estate Tax Decoupling From Federal Tax
Many of you have heard me ranting and raving about how state's decoupling from the federal state death tax credit system will cause a need for more and more special planning and language in the documents in the future. Steve and I just recently added some additional provisions to Article Seven of DAP 4.1 to create additional flexibility and planning opportunities.Information of Use to ElderLaw Attorneys
The National Center on Elder Abuse has issued several new publications in the past few months that may be of interest to members involved in ElderLaw.Ambitious Federal Elder Justice Proposal Developed by Senator Breaux
In a landmark development, in late May Senate Special Committee on Aging Chairman John Breaux (D-LA) announced "the first-ever comprehensive federal effort to address elder abuse, crimes against seniors and to guarantee protections for every older American."2002 VA Benefit Guide Now Available
The 2002 edition of "Federal Benefits for Veterans and Dependents" is now available.Nursing Home Litigation Costs Rise Ten-Fold Since 1990
The average per-bed cost of long-term care litigation rose to $2,360 in 2001 from $240 in 1990--a 24% annual rate of increase, according to a new study by AON Risk Consultants.Prospects of a permanent repeal of the estate tax depend on the outcome of the November election. If the Democrats control one or both houses of Congress, permanent repeal is unlikely at best.
Senate majority leader Daschle wants the Senate to consider a charitable tax bill before Congress recesses on August 2.
For purposes of determining the present value of an annuity, an interest for life or a term of years, or a remainder or a reversionary interest, Revenue Ruling 2002-48 indicates the charitable mid-term federal rate under Code Section 7520 for August 2002 is 5.2%.
Outline for Proposed Split-Dollar Regulations
Here is an outline regarding the recently released Proposed Split-Dollar Regulations that you may find of interest. It was prepared by Robert S. Keebler, CPA, MST, who can be reached at the contact information below. I hope the information proves useful to you.AARP Report on Health Security - Part 2
Beyond 50: "A Report to the Nation on Trends in Health Security" is the second annual report in AARP's Beyond 50 series. The report sheds a strong light on the health and health care of America's midlife and older populations. It is a comprehensive depiction of the state of health security of Americans age 50 and older, and a portrait of health and well-being, health coverage, access to care, affordability of care, quality of care, and informed decision-making.Agency under POA Does Not Raise Presumption of Undue Influence (Childress v. Currie Case)
In the Tennessee Supreme Court case, Childress v. Currie (May 3, 2002), the decedent had signed a new Will benefiting one relative and contemporaneously named the same relative as the agent in her new powers of attorney. The disinherited relative contested probate of the new Will, arguing that the agent-beneficiary was thereby placed in a confidential relationship, creating, in turn, a presumption of undue influence.Contestants Entitled to Review Ward's Report (Conservatorship of Schaeffer Case)
In the California Court of Appeals case, Conservatorship of the Person and Estate of Schaeffer (May 6, 2002), the wife of a conservatee filed a petition for removal of an independent conservator and for the appointment of herself as his successor. The court-appointed counsel objected, and filed confidential report with court detailing the conservatee's position and supporting information (including, apparently, hearsay reports of evaluators and others). The wife-contestant requested an opportunity to review the report, but the trial court refused. After hearing the court declined to remove the independent conservator, and the wife appealed.No Living Will Does Not Prevent Withdrawal of Feeding Tube (Juan-Torregoas v. Garcia Case)
The Tennessee Court of Appeals decided Juan-Torregoas v. Garcia on May 7, 2002, The case involved a patient in chronic vegetative state who was on life support and being fed via a percutaneous endoscopic gastrostomy ("PEG") tube. When the patient was moved to a hospice unit and the PEG tube was disconnected, the mother and siblings of the patient filed an action to compel continuation of artificial feedings.Spouse's Fees for Enforcement Action Payable From Estate (Hoyt v. Hoyt)
In the Florida Courts of Appeals case, Hoyt v. Hoyt (May 3, 2002) the surviving spouse requested payment of lump-sum family allowance as provided for in state law. The personal representative (surviving spouse's step-son) refused the request, and the surviving spouse filed a court action to secure payment. The court ordered "immediate" payment.Updates on HHS Nursing Home Initiative
The Administration on Aging and the Centers for Medicare & Medicaid Services ("CMS") will work with state long-term care ombudsmen to help consumers take advantage of new quality measures for nursing homes developed under HHS' Nursing Home Quality Initiative. "This new partnership will help families take advantage of our new quality information about nursing homes as they make critical decisions about choosing a nursing home," Secretary Tommy Thompson said in an HHS press release.
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