Estate Planning Bits

A new era in estate planning - “Children of Biology”

In some states, courts have granted inheritance rights to after-born and after-conceived children if the parent consented to using preserved sperm or eggs postmortem. However, if no consent was given, then these after-born children may have no rights to inherit from their biological parents.

To allow these children to inherit from both their biological and adopted parents would be potentially unfair, as they would have two bites of the inheritance apple. This area of the law is so new that there are few statutes passed by legislatures. There are many conflicts within the lines of voting and there is not sufficient legislation being offered in many jurisdictions.

The laws are being developed by specific cases that are being decided by judges on a case-by-case basis. This area of estate planning is being created from jurisdiction-to-jurisdiction, and local courts are making decisions based on individual cases. Even more significant is the fact that these cases are not being reported, as most local probate courts, surrogate courts, orphans courts, and the like, do not report their cases. So they may not be relied on as precedent for future cases within those states. Many questions are being raised as follows:

• Should a child's surviving spouse be permitted to conceive and produce future beneficiaries?
• Who will receive gifts from a grandparent who leaves a specific bequest to each of their then living grandchildren?
• Do clients' intent differ based on gender of the child who is donating the genetic material or that of the in-law's surviving spouse?
• What if the genetic donor is incapacitated and unable to consent to the harvesting of sperm or eggs?

This new era of biology is requiring many estate planners to think differently about standard language in their documents. There is also a new body of law called the Uniform Probate Code that is being adapted in many jurisdictions to help provide a uniform set of rules within the states and provide a body of law for these situations.

Nevertheless, if a person wishes to leave funds to a child who is yet to be born, it is very important to think through the entire situation before merely leaving a bequest to "my children and those hereinafter born."

by: Hyman G. Darling, Esq.

Charitable Gift Annuities - a new twist to Savings Bonds

Most people who have savings bonds hold them for reasons such as having a rainy day savings or for a specific purpose in the future. Many of these bonds were purchased many years ago and have accrued a significant amount of interest over the years. And all that interest will be taxable by the IRS when they are redeemed.

Very often, bonds are found in a safe deposit box or in a drawer when a person dies. Since E bonds and EE bonds may no longer be converted into H bonds with the interest being deferred, a person normally cashes in these bonds, pays the tax, and either spends or reinvests the net proceeds.

However, you may want to have your cake and eat it too. While you may wish to make a donation of the savings bonds to charity, you cannot do so during your lifetime, as savings bonds may not be transferred to an organization this way. However, they can be used in a gifting arrangement, whereby the bonds are cashed in, and then the net proceeds are given away.

To the extent that you itemize your taxes, you will receive an income tax deduction for the value of the gift to the charity, which will be an offsetting deduction against the interest reported on your income tax return as taxable income. However; if you want to derive some income from the gift, you may convert the assets into a charitable gift annuity. The result will be receipt of income during your lifetime and a charitable deduction for a significant portion of the gift.

By counting the income received from the gift annuity as well as the tax deduction for the gift, you may have more money left over time than if you had merely cashed the bonds in and paid the tax. Most tax exempt organizations will accept gift annuities, but the usual minimum for a gift is $10,000 in cash or other assets.


by: Hyman G. Darling, Esq.

Estate recovery – protecting your assets from the government

Although Medicaid is basically a Federal program, it is administered by each state separately and funded by both the state and Federal Government. Therefore, each state is entitled to enact its own rules and regulations regarding the administration of the Medicaid system, and this also includes recovery.

Medicaid recovery is a program by which, if a person dies and had assets that were otherwise inaccessible or non-countable, upon death, the state Medicaid department may have a right to recover the funds up to the amount the Medicaid program expended. Some states claim assets only against probate assets of the Medicaid recipient upon death, whereas other states have a program called expanded recovery, which means they may reclaim assets which are probateable or not probateable.

A recent case indicates the need to maintain a plan even after a Medicaid applicant has been approved for medical assistance. In this Minnesota case, a husband was institutionalized on a permanent basis and qualified for Medicaid. Many of the assets, including the house, were owned jointly at the time of the application and approval. Subsequent to the approval, the community spouse (wife,) who was living in the home, transferred some of the assets to herself and her children.

The husband subsequently died, and the wife died several months thereafter. The state attempted to collect funds that it paid on behalf of the husband’s Medicaid claims from the wife’s estate. Her Estate contested the matter, and the highest court in the state, the Minnesota Supreme Court, heard the case upon appeal.

The decision handed down from the court was such that the substantial amount of the claim by the state was unable to be claimed from the surviving spouse’s estate. The court found that the surviving spouse had effectively and legally transferred her interest before she died, thus precluding recovery from her estate. Therefore, it determined that there was no basis from the Medicaid department to establish any claim against the estate, since the wife died and had not been on Medicaid.

The effectiveness of the planning was evident in that if the wife had predeceased her husband, her interest in the property would have reverted back to him, which would have either thrown him off Medicaid or allowed him to remain on Medicaid, but upon his death, Medicaid would have been able to recoup all the funds against his properties. In addition, the wife, the community spouse, had taken the necessary steps to protect assets so that if she had been institutionalized, there would not have been the significant amount of assets that she would have had to expend for her long term care expenses, as well as preventing the state from recouping any recovery against her estate.

By: Hyman G. Darling, Esq.

The dangers of estate planning software programs

The recent sophistication of software has contributed to an increase in homegrown estate planning. These mass-marketers of legal services misinform people into thinking that they are saving money and that they are receiving sound legal advice. This is simply not true.

Most people need the perspective that an impartial, experienced estate planning attorney provides. You are playing with fire if you engage the services of these companies for the following reasons:

1. These programs largely disregard specific laws that can dramatically affect your estate;
2. Your unique issues and circumstances can only be flushed out and addressed through consultation with an attorney; and
3. You are not securing the experience and knowledge of an attorney trained to handle the specific circumstances of your estate.

Probate law is strict and unforgiving. Good estate planning attorneys work diligently to keep abreast of changes in the law through memberships in such organizations as the National Academy of Elder Law Attorneys, Inc., the Estate Planning Council of Hampden County, and through extensive, continuous reading and legal research. Creating your own legal documents provides a false sense of security, and the inaccuracies are usually only discovered when it is too late to do anything about them.

These companies hope that you will never read their ‘disclaimer’ or ‘terms of use disclosure.’ One such disclaimer provides that they are not providing any legal advice, that their documents may not work in your situation, that their documents may not be valid in your state, and that you agree to hold them harmless for any consequences resulting from your choice to use their services rather than seeking the advice of an attorney.

In conclusion, the subjects that matter the most to you; your health, your family, and your finances warrant the attention of an experienced, trained professional who will put their bar license and malpractice insurance on the line to provide you with the advise, counsel, opinions, and recommendations that are essential to drafting a proper estate plan.

People generally create estate plans for the peace of mind that they provide. The question is whether or not a software program and/or an unlicensed, uninsured and largely unregulated document preparer can provide you with the peace of mind that your estate plan was done appropriately and addresses your specific needs.

By: Todd C. Ratner, Esquire

Tax deductibility of assisted living facilities

With the number of baby boomers growing, more people are electing to move to assisted living facilities as opposed to waiting until a long term care facility may be necessary. With the sale proceeds of the house being non-taxable in most cases due to the exemptions available, these funds may be placed into other investments, which will now produce income that was not generated by the house.

The payment to the assisted living facility (ALF) is mainly non-deductible, but in many cases, a portion of these expenses may in fact be deductible. This amount, which may be construed to be qualified long-term care costs, is deductible if it is for necessary rehabilitative services, maintenance or personal care services that are:

• Required by the individual who is deemed to be chronically ill and
• Paid pursuant to a plan of care by the licensed health care practitioner

While the rules are fairly specific, the IRS regulations that attempt to clarify the Internal Revenue Code for deductibility of these expenses are not as clear as one may wish. Maintenance or personal care services that provide assistance for an individual who is deemed to be chronically ill or disabled are normally deductible (subject to IRS limitations) if the individual needs require help with two activities of daily living (ADLs.) These ADLs include:

• Feeding
• Toileting
• Transferring
• Dressing
• Bathing
• Continence

Therefore, if a person is able to perform all of these duties and is merely obtaining custodial care at the assisted living facility, the payment or any part of it to the ALF will not be deductible. Similarly, if the facility is operated by a non-profit agency, the amount paid will also not be deductible as a charitable expense, since services are being provided for the payment, which is not considered a contribution.

If deductions are going to be taken, a test must be met, and it is also suggested that a qualified certified licensed care professional or practitioner provide a written plan that can be used as evidence in the event that the IRS questions the deductibility of certain payments. Although there is no definition set forth in the Internal Revenue Code for a plan of care, it is one of the best sources of establishing the credibility of the need for services.

Most ALFs also provide each resident, each year with a calculation of the costs of care that is deductible if all tests are met. Naturally, if there are any reimbursements made to the individual, these amounts must reduce the deductible expenses by the amount of payment received via governmental, private or otherwise. The facility normally provides these calculations on a year-to-year basis, which may change as various administrative and professional services change from year-to-year.

Naturally, if a person is disabled and living in a facility, with or without additional assistance, the full amount of care may be deductible if it is determined that this person must be institutionalized and is not any longer able to remain at home alone. It may also be a prudent decision to review the assets a person is utilizing for long-term care. If that person has a significantly large retirement plan, it may be beneficial to withdraw further funds from the plan, which may deductible as medical expenses, as opposed to merely withdrawing funds from a savings account. In this manner, retirement plan assets, although they will not continue to grow, will not be taxed by the beneficiaries at a significantly higher income tax rate, but rather, will allow other assets to pass income tax free to beneficiaries.

By: Hyman G. Darling, Esq.