Estate Planning Bits

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.

Medication and the elderly - preventing dangerous mistakes

Medication errors are widespread among the elderly community. Many elders take on average of six (6) to eight (8) different prescriptions as well as over the counter medication. Oftentimes the elderly will not return to their primary doctor to have their dosage evaluated and modified when things change, opting instead to take the advice of loved ones. This is very dangerous.

The following procedures may facilitate the elderly in monitoring their medication:

• Make a list of all prescription medication and all supplements being taken.
• Provide this list to the doctor and pharmacist and have one on hand for emergencies. 
• Utilize the same Pharmacy to fill all prescriptions. Pharmacies keep a record of your prescribed drugs, and they will verify your doctor's instructions. Pharmacies will also inform you if certain foods or over the counter supplements will negatively interact with a prescription. 
• Dispense pills in a daily pill organizer box. 
• Have a family member or other adult be responsible to call or physically monitor the taking of medication

By: Todd C. Ratner, Esq.

Steve “Air” McNair truly erred – how proper estate planning would have saved his family both money and grief now

As a quarterback in the National Football League, Steve McNair reportedly earned in excess of $75 million dollars over his career. Notwithstanding McNair’s vast wealth and blended family, (as it has been reported that he had two children born out of wedlock,) McNair did not even have a basic will. Without a will in place, McNair died “intestate,” an therefore, state laws will determine who inherits his estate upon his death. As such, the following preventable issues will now have to be addressed:

Laws of Intestacy: According to Tennessee intestacy laws, McNair’s wife is only entitled to only one-third of the estate, and his children will be entitled to the remaining two-thirds. McNair may have intended that a greater percentage be provided to his spouse. As an aside, under the Commonwealth of Massachusetts intestacy laws, both McNair’s spouse and the children would be entitled to fifty percent of the estate.

Estate Taxes: McNair did not plan to shelter any portion of his estate from federal or state estate taxes. Consequently, the assets of his estate will ultimately be subject to both state and federal estate taxes, which will reduce the eventual distribution to his family. McNair failed to use the unlimited marital exemption and to yield the benefits of a Credit Shelter Trust.

Conservatorship: Since all of McNair’s children are under the age of 18, each mother will have to petition the court to be appointed legal conservator of their child’s inheritance.

No staggered distribution: When each child reaches the age of 18, their entire inheritance will be provided to them outright. It is often preferable to stagger the children’s distribution ages to a later point in time to ensure that they have the requisite financial wherewithal to handle such a large sum of money.

Probate: It appears that McNair owned property in Mississippi. If so, McNair’s family may have to probate his estate in both Tennessee and Mississippi, resulting in additional legal fees, costs and publicity.

In the event that Steve McNair had created an estate plan, he may have left more to his spouse, protected his children’s inheritance well beyond the age of 18, avoided the public scrutiny of his affairs, and saved his loved ones momentous money in legal fees, estate taxes and other costs.

By: Todd C. Ratner, Esq.

Driving and the elderly - how to take away the keys without damaging your relationship

Operating a motor vehicle requires quick reaction time and good judgment. Many elderly individuals will eventually become unable to drive as they lose the requisite ability to operate an automobile safely. With the support of family and professional caregivers, many people voluntarily stop driving. Others continue to drive, fearing that giving up their car means losing the independence that having a car provides.

If an elderly person who exhibits poor driving skills insists on driving, caregivers, friends and family members may need to take additional steps, including:

• Controling access to automobile keys
• Keeping the automobile out of sight
• Requesting a “do not drive” prescription from a doctor
• Disabling the car by removing the distributor cap or the battery
• Getting a driving evaluation from a certified professional. There are hospitals and driving schools in the Commonwealth of Massachusetts that perform driving evaluations. Locally, the Weldon Center for Rehabilitation, Driving Advisement Program, located at 233 Carew Street, Springfield, Massachusetts 01104, 413.748.6800 can be of assistance.

Driving an automobile can be a significant part of our self-image, and losing our freedom to drive can be one of the most difficult decisions to accept. Caregivers, friends and family members should avoid arguments about driving and not allow themselves to become the focus of the elderly person’s anger and frustration. It may be beneficial to blame the doctor or the police.

If the above strategies do not produce the intended results, and the elderly person continues to drive in an unsafe manner, anyone caring for or interacting with him/her, including the police, can notify the state department of motor vehicles (DMV) and the DMV can require a competency examination and corresponding road test.


by: Todd C. Ratner, Esq.

10 common estate planning pitfalls

1. Not having a Will: Personal wishes, whether written or oral, will most likely not be followed in the absence of a will. Without a plan, your assets will pass to your heirs according to your state’s laws of intestacy.


2. Not funding your revocable living trust: A property drafted trust will prevent putting your loved ones through the expensive, lengthy and emotionally draining court probate process. 


3. Failing to understand the impact of life insurance proceeds: Many people do not realize that life insurance proceeds are normally included in the estate of the deceased, which can result in approximately 50% of the proceeds going to the IRS instead of your intended beneficiaries. Depending upon the situation, an Irrevocable Life Insurance Trust may be appropriate.


4. Failing to adequately plan for children with special needs: A child with special needs risks being disqualified from receiving SSI benefits and may have to use their inheritance to pay for their care. Depending upon the situation, a Special Needs Trust may be appropriate.


5. Not properly planning for incapacity: People are living longer, and therefore the risk of lacking capacity during your lifetime is increasing. Only with proper estate planning can you be sure that your health and financial affairs will be taken care of in the event of your inability to take care of them yourself.


6. Business planning: With a properly executed plan, you can choose who will own and control your business upon your death, which increases the likelihood of the business continuing as a viable operation.


7. Not preparing for minor children: If you have minor children, you should have a will nominating personal guardians for the children, in the event that both you and your spouse should die prior the children reaching the age of 18. Without a plan, the court will decide without your input where the kids will live and who will make important decisions about their money, education and life.


8. Improper beneficiary designations: Not updating the beneficiary designations on bank accounts, life insurance, IRAs and other assets can lead to unintended beneficiaries.


9. Not periodically updating an estate plan: Generally, people do not like to discuss dying, and therefore people often want to simply execute their estate plan documents and be done with it. However, economic, family, and health changes require revisions to your estate plan.


10. Doing it yourself: Even if a self-prepared will or trust is legally enforceable, estate planning is a complex legal process requiring knowledge in several areas of the law, including estate law, tax law and property law as starters.

by: Todd C. Ratner, Esq.