Estate Planning Bits

2009 tax strategy - now is the time to plan

In keeping with prior tradition, it is important to consider year-end tax planning prior to December 31st. So, here are this year’s tax savings opportunities. Maybe you can find something that can help you:

1. Purchase a car. State and local excise taxes that are paid for the purchase of a vehicle are potentially tax deductible. If you itemize your tax return, you may have the ability to include these taxes as additional deductions. In addition, there are significant tax credits available for energy efficient vehicles purchased before year end.


2. Energy credit for energy conservation. Purchasing insulation for your home that may not only save you money on your heating and air conditioning bills, but will also provide you with an energy-related tax credit. Keep in mind these are credits, not deductions. This means that the credit is a direct amount of money that will be returned to you in the form of an increased refund or lower tax bill.


3. Check gains and losses. You may wish to offset your gains with losses to the extent that you have any gains in 2009. If not, you may wish to sell assets before year end and take the tax loss, which may be utilized up to any gains, and if there are no gains, then up to $3,000.00 from other income for the year, with a carry-forward of the balance. Keep in mind that assets included in retirement plans are normally not tax deductible, so gains or losses are going to be taken on non-retirement plan assets.


4. Charitable deductions. Consider donating property, goods, and other assets, such as cash donations, stocks, bonds, etc. before year end. You may also consider making a 2010 donation in 2009, thus taking advantage of the deduction a year early. Payment of pledges for future obligations may also be made before year end, and these may also be charged to your credit card. By charging them in 2009, they become charitable deductions in this year even though you may not pay the charge card in the same year.


5. IRA Withdrawals. In 2009, it is not necessary to take a minimum required distribution from a retirement plan, thus allowing you to delay taxable withdrawals until the following year. The intent of this law was to allow your fund to accumulate more money for retirement, based on the downswing in the market. However, if you need the money, and if you have other obligations you wish to make, such as gifts or bills paying, consider reviewing the amount of taxable income anticipated for the year and take out only as much as necessary to maintain a low bracket for tax payments. Always be sure to consider the possibility that social security benefits will be taxable if the threshold for income is received based on your marital status.


6. Consider the child care credit or one for dependent care. In many cases, children may be supporting their parents, and they may need to sign a multiple support agreement, whereby the credit for the parent is rotated on an annual basis between multiple children. The credit is eligible for child care expenses as well as the expenses of caring for a disabled spouse or disabled adult who is dependent while you work or look for work.

While there are many other opportunities, these are a few that you can consider before the holidays occur, so there is ample time to attend to any payments, expenditures, or tax issues before December 31.

by: Hyman G. Darling, Esq.

529 Plans: computers and Internet in 2009-2010

Named for Section 529 of the Internal Revenue Code, 529 Plans allow taxpayers to both reduce their taxable estates and to earmark funds for the higher education of a family member. Earnings from 529 Plans are tax-free.

Funds contributed to 529 Plans are invested to pay for an individual’s college tuition, room and board, or other related expenses. Additionally, the American Recovery and Reinvestment Act (AARA,) (also known as the Stimulus Bill,) now permits computer technology and equipment, or Internet access and related services to be purchased for eligible students under a 529 Plan for 2009 and 2010. However, software designed for sports, games or hobbies does not qualify unless it is principally educational in nature.

In 2009, individuals can contribute up to $13,000 per year ($26,000 for a married couple) to 529 accounts without the requirement of submitting a gift tax return. Alternatively, up to $65,000 ($130,000 for a married couple) can be contributed in the first year of a five-year period, as long as there are no additional gifts to that same beneficiary over the same five-year period.

529 accounts can be a great way to move a sizable amount of money out of a taxable estate.

By: Todd C. Ratner, Esq.

Equal is not always fair when it comes to your kids & your estate plan

During my initial consultation with clients, we talk about providing for their children upon death. Many clients want to divide their assets equally among their children. In theory, this tends to make a lot of sense. However, in reality, treating your children equally is not always fair.

Oftentimes, issues such as how much the parents contributed to the education of one child, or whether or not a child took on the role of caregiver, thereby sacrificing time and salary, tend to be overlooked. Parents tend to wear rose-colored glasses when it comes to envisioning that their children will be able to work out any issues that may develop. In the event that these sensitive issues rise to legal battles, they can be divisive and devastating and to your family. Because of this, ongoing communication and careful planning can alleviate many of problems before they arise.

One planning solution that can add liquidity and flexibility to an estate is life insurance. This added liquidity can provide parents with the ability to distribute assets both creatively and practically. A “second-to-die” policy that pays off after both you and your spouse die may be a fairly inexpensive and optimal solution. Even better, a properly designed Irrevocable Life Insurance Trust would eliminate the life insurance from being estate taxable.

By: Todd C. Ratner, Esq.

Second parent adoptions in Massachusetts - allowing gay and lesbian couples to adopt the non-biological children of their relationship.

Second parent adoptions or “co-parent” adoptions have been allowed in the Commonwealth of Massachusetts since 1993. A second parent adoption, or often referred to as a “co-parent” adoption, allows the non-biological parent of a couple’s children to now enjoy the same legal rights and responsibilities of the biological parent. The second parent adoption gives the ability of unmarried couples to jointly petition for the adoption of children of the relationship, and is most common among gay and lesbian couples, this allows the biological and non-biological parent to be granted equal legal status, as it relates to the child or children.

In a traditional adoption, the biological parents must agree to terminate their parental rights in order for the adoption to go forward. That is not the case in a second parent adoption where the parties petition jointly for the adoption of the children.
In 1993, the Supreme Judicial Court of Massachusetts ruled that there is nothing in the Massachusetts Adoption Law that would prevent a non-biological parent from co-adopting his or her partner’s child. That the ruling was made by the highest court in the Commonwealth, and the decision is binding in all counties. Although you may notice some difference in the process from county-to-county or Judge-to-Judge, in general, couples can expect to follow the same substantive procedure.

The adoption process begins with the filing of an adoption petition and supporting paperwork. It is strongly advised that the couple use an attorney to assist them with this adoption process in these cases, as once the adoption petition and the supporting paperwork are filed, a criminal background check on all the adults in the household is required and completed. Additionally, the Court may require an in-home study, wherein the home is evaluated by a social worker to determine the suitability of your family for “the proper rearing of children.” This is conducted by the Department of Children and Families (DCF) formally known as the Department of Social Services (DSS.)

This may seem intrusive, but it is usually required to complete the process. ,Although, there are private agencies that are authorized by the Department of Children and Families to conduct the home studies and may be able to be retained by private payment to complete the home study, it still requires opening your home to inspection. It should be noted that as you may guess, there is often a substantial waiting time before DCF can get into the home.

The parties may seek a waiver of the home study, however, a waiver of the home study is not taken lightly by the Court. You and your partner can obtain information, letters of support, and affidavits attesting to the fact that you and your partner function as a family and will make good parents, but this alone may not be enough to waive the home study. It may seem counterintuitive that a biological parent who joins in the adoption process with the non-biological parent would have to go through a home study. However, the Courts normally follow the adoption process in a traditional fashion.

Your attorney can advise you as to whether or not the procedures or requirements instituted by the Court in the county where you and your family reside could be or should be waived. However, the Courts will grant the waivers within their own discretion and some may not follow the same rationale as others.

Once the petition is filed, the home study is satisfactorily completed, the CORI is returned and all background checks are also satisfactorily completed, the adoption unit in the Court will likely schedule a private hearing before the Court either in the Judge’s chambers or in a closed Court room in order to finalize the adoption.

The finalization of the adoption is generally a happy event where family and friends are invited to take pictures and celebrate the adoption of the child.

A second parent adoption is important because it grants the non-biological parent full legal rights regarding his or her child or children in a same sex relationship. It puts them at the same legal status as the biological parent. The adoption in and of itself does not change the legal relationship between the two parents, but it does give recognition and protection to both parents in the relationship to the children, especially in the event of a dissolution of the relationship, as the child would now be considered the legal child of both the biological and non-biological parent. Additionally, the child is now entitled to the benefits of the non-biological parent, such as health insurance, life insurance, and other lifetime benefits. The child, by law, may inherit upon the death of the non-biological parent as a result of the adoption, and in the absence of proper estate planning on the part of the parent, would inherit under the laws of intestate succession.

In regard to the parental rights of the parties, in the event of dissolution of the relationship, both parties would be entitled to custody and/or visitation with a minor child on its face. Each would be able to seek legal and physical custody as well as an appropriate parenting plan to allow time with the child or children.

If the child that is adopted is not biologically related to either party to the relationship, once the child is adopted by one of you, you still may petition for a second parent adoption. The process is essentially the same. Be wary, however, that many international adoptions do not allow married same-sex couples to adopt a child or for unmarried couples to jointly adopt a child abroad. If the goal is for the parties to complete an international adoption, it may be that one of you would have to adopt the child in the foreign county and then jointly adopt through a second parent adoption here in the United States.

by: Julie A. Dialessi-Lafley, Esq

Why do I need to file a gift tax return?

A federal gift tax return (Form 709) needs to be filed when you make a taxable gift. A taxable gift is one in which excess of the annual exclusion which in 2009 is $13,000 per donee per year is made. Therefore, until you gift $13,000 in total cash or other assets in any calendar year, a gift tax return is not required to be filed in most situations.

Keep in mind that if a gift of $13,000 is made to one person from another, there is no requirement to file the return. However, if in addition to this $13,000 gift, there is also a birthday present, anniversary present, or other gift, such as paying off a child’s credit card, then this is construed to be a gift, and therefore a gift tax return is required. However, until you give more than $1,000,000 in total gifts, above and beyond the annual exclusion gifts of $13,000, there is no gift tax due, although the return is required to be filed.

The IRS maintains the information in their files, and this is collated with your estate tax return when you die to determine the amount of gifts given during your lifetime, which may utilize some of your total estate tax credit, which is currently $3,500,000. A husband and wife may gift $26,000 to their child on an annual basis, and they are required to file a gift tax return, but they may split the gift as opposed to filing separate gift tax returns, thus requiring only one such form to be filed.

Again, the purpose of the requirement to file the return is to allow the IRS to have the information as to the amounts gifted during one’s lifetime, as these are offset at death. In the event that the total gift during your lifetime is a maximum of $1,000,000, and you die in 2009 with no more than $2,500,000, there will not be any federal estate tax due, as the total exemption of $3,500,000 captures your total assets.

It is also helpful to file a gift tax return in some cases, even when the threshold of $13,000 is not met. This is so that in the event that you need to file for Medicaid assistance, there is a paper trail of the amount of gifts made and the dates those gifts were made within the five year look-back period for Medicaid eligibility. Often times, the state department maintaining control over the Medicaid application process will consider a transfer from a parent to a child as a gift, but in other cases, the authorities may consider the transfer to be a trust or other similar type of technique. Therefore, if the transfer is not considered a gift, then the asset transferred will be construed to be property of the incapacitated parent, and thus, the asset will not be protected for Medicaid eligibility, regardless of the time-frame. When a gift tax return is filed, it is prima facie evidence that the transfer was made as a completed irrevocable gift, and therefore, the Medicaid authority may not reclassify the transfer as a non-gift.