Estate Planning Bits

Fallen estate property value? Consider alternate valuation.

As an executor, are you settling a large estate comprised of property that has depreciated in value? If so, you could produce a savings for the estate by using the alternate valuation date for purposes of filing a federal estate tax-return. Generally, the value of the decedent’s estate is the value of the property at the time of death; however, the alternate valuation date rule is designed to be a relief provision in cases where the value of a decedent's estate declines in the six-month period following his or her death.

An executor of an estate can make an election regarding the time at which the estate’s property will be valued: (1) the date of death (the usual valuation date) or (2) six months after the date of death (the alternate valuation date.) Such election should be influenced by whether the value of the estate property has subsequently declined after the testator’s death. If the estate’s property is worth much less six months after the decedent’s death than it was on the date of death, it may be worthwhile to use the later date.

Once made, the selection of the valuation date generally applies to all property in the estate for purposes of determining estate tax liability; however, the alternate valuation date does not apply to estate property that is sold or otherwise disposed of within the six-month period between the date of the testator’s death and the alternate valuation date. Property sold or disposed of during the six-month period is valued as of the date on which it was sold or disposed.

Before choosing to use the alternate valuation date for estate assets, the executor should consider whether the heirs intend to later sell the property they have received. The lower alternate valuation amount also becomes the basis of the estate assets. If the heirs inherit an asset at a lower basis, they may face higher capital gains tax when they later sell the asset.

By: Gina M. Barry, Esq.

Medicare and Medicaid – what’s the difference?

I often hear someone using the wrong terminology for explaining a Medicare or Medicaid benefit, so I would like to offer an explanation. While I will not attempt to provide all of the specific benefits of either program, suffice it to say they are two separate and distinct programs offered by the government.

Medicare is a purely federal program that is administered by the government for individuals who are 65 and older or disabled.

• Medicare Part D is the most familiar to most individuals, since it has been in the limelight in the past couple of years. It provides specifically for prescription drug and related expenses.
• Part A of Medicare covers hospitalization expenses, which are basically in-patient care costs.
• Part B pays for physician services as well as other related medical supplies and expenses.
• Part C of Medicare is what is known as Medicare Advantage, which works similar to a Health Maintenance Organization (HMO,) where you choose to obtain benefits such as Medicare Parts A and B from a specific organization that provides these services.

Medicaid is the federal program that is administered separately by each state. The U.S. government and the state each share the cost for the program, which is basically for individuals in need of medical care, hospitalization, and all types of medical services, but who are usually low income with nominal financial assets.

A person who qualifies for one program may not qualify for the other. In addition, Medicare is a program within which everyone has a right to obtain benefits once they meet the age requirements, but in order to obtain Medicaid benefits, you must meet financial requirements.

An easy way to remember the difference between Medicaid and Medicaid is that MediCARE attends to your care for medical expenses, and with MedicAID, you qualify only when all investments are depleted and you can no longer afford to pay for your own care.


by: Hyman G. Darling, Esq.

Viatical settlements – what they are and what they can do for you

Often after the fact, an attorney or accountant learns that their client has surrendered or cashed in a life insurance policy. The client may not be in the best of health, may be somewhat older, and determined that they needed the cash that was in the policy. In the alternative, a person may have a term insurance policy, which basically has no cash value, and the client merely stops making the payments. 

In these cases, prior to the cash being withdrawn or the lapsing of a policy, it would have been better for you to have consulted an advisor, who could have secured a viatical settlement for you. In fact, it is specifically these situations where you could have received funds for the policy in an amount greater than the cash value.

With a viatical settlement, you contact your advisor or consultant, who researches several different companies to determine which will offer the most money for your life insurance policy. You must submit to a physical to determine your health status, and the less healthy you are, the more money will be available from the proposed purchaser, since your life expectancy is not nearly as great as it was when the policy was issued. 

However, some purchasers of these policies are not as honorable as others, so it is wise to obtain several quotes to determine the largest amount offered. Naturally, a small policy, such as $100,000 or less, may not be economic, and so in many cases, the viatical settlement company will only buy policies of larger sums.

It is important to contact an accountant and lawyer to review the tax and other legal issues prior to contracting with a viatical settlement company. In addition, there may be rules and regulations in your state that may require the agent to have a special license to conduct the settlement. You should also be careful about maintaining your privacy, what documents are being signed, and who will be reviewing them.

Finally, with a viatical settlement you should insist on receiving a lump sum as opposed to payments over time. Even if the offer is such that a larger amount may be payable over time, when you die or if the company defaults, you no longer own the policy and you have no further rights to it, for example, to change the beneficiary or to any aspects of the policy.

 

 

by: Hyman G. Darling, Esq.

Trust Basics – a primer

People have benefited from the use of trust documents for many generations. However, trusts have increasingly become common estate planning tools among the middle class. Trusts are very adaptable tools that can provide solutions to common estate planning, asset protection, and elder law concerns. A trust is a separate entity that holds assets for the benefit of named persons.

The person who creates the trust is the “Grantor” (also referred to as Trustor, Creator or Settlor.) The person(s) who benefits from the trust are the “Beneficiaries.” The trust itself is a document that often looks and feels like a will. However, the distinction is that a trust owns assets, which are managed by the “Trustee There are many different types of trusts.

A very common trust is called the Revocable Living (Intervivos) Trust, which oftentimes works as follows: Mom and Dad, referred to as the Grantors, create the trust, making themselves the primary beneficiaries. Mom and Dad title their assets in the trust so that the trust is the “owner” of their assets. Mom and Dad are their own Trustee, maintaining control during their lifetime. Upon their death, the Successor Trustees (oftentimes their child(ren)) distribute the assets to the beneficiaries (usually the same children.)

Among the many benefits of the Revocable Trust is the orderly distribution of the assets on death, and the Trust provides a vehicle for managing assets during the incapacity of the Grantor. It is oftentimes thought of as a will substitute, which avoids probate at death. In addition to the Revocable Living Trust, other trust documents include the Credit Shelter Trust, Supplemental Needs Trust, Irrevocable Life Insurance Trust, Special Needs Trust, and the Medicaid Trust, among others. Examples of the benefits of a trust include:

• Asset protection from future nursing home costs
• Reduction of the likelihood of will contests
• Coordination of the distribution of assets through one vehicle
• Avoiding Probate Protecting assets for Medicaid eligibility
• Providing for pets

Providing for the education of children, grandchildren, or others Saving on estate taxes Providing for assets to be held for beneficiaries with special needs Providing maximum privacy Preventing court control of inheritance of minors Providing for assets to be held for beneficiaries who have creditors or who cannot Due to the many trust options available, it is best to speak with an experienced estate planning attorney to both select the trust that is appropriate for you and to have the trust prepared to best suit your individual needs

By: Todd C. Ratner, Esq.