Estate Planning Bits

2011 by the Numbers

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 has extended and changed a number of tax provisions for 2011. Here’s a handy cheat sheet to help you keep track of it all:

Top Income Tax Rate:	35%
Top Long Term Capital Gains Tax Rate:	15%
Top Gift Tax Rate:	35%
Top Estate Tax Rate:	35%
Top Trust Tax Rate:	35%
Payroll (FICA) Tax Rate:	4.2%
Gift Tax Annual Exclusion:	$13,000
Maximum tax-free 529 Plan Contribution:	$13,000
Federal Estate Tax Exemption:	$5,000,000
Federal Gift Tax Exemption:	$5,000,000
Massachusetts Estate Tax Exemption:	$1,000,000

For Medicaid purposes, low inflation has kept the numbers the same for 2011:

Maximum Spousal Resource Standard:	$109,560
Minimum Spousal Resource Standard:	$21,912
Maximum MMMNA:	$2,739
Minimum MMMNA:	$1,821.25

Low inflation also means that for those receiving Social Security benefits, there will be no cost of living increase for 2011.

Julie R. Lackner, Esq.

Pet trusts arrive in Massachusetts

On January 7, 2011, Governor Deval Patrick signed into law “An Act Relative to Trusts for the Care of Animals,” which will take effect on April 7, 2011. The Act states simply that “[a] trust for the care of one or more animals . . . is valid.” The statute provides that the trust will not terminate until the benefited animal, or the last of several animals, has passed away. Conversely, if the trust receives an excessive amount of assets, the statute also allows for a reduction of the funds, so long as there will be no substantial impact on the animal.

The legislation also provides safeguards by restricting distributions to the trustee, with the exception of trustee fees, costs of administration and any other distribution authorized by the trust. Further, the statute allows for court enforcement of the trust if the trust funds are being misused. 

When the last of the animals passes away, or if there is a reduction as indicated above, the funds would first be distributed as directed in the trust. If there is an absence of direction, the funds would be returned to the person who created the trust, if they are still alive. If they are not alive, then the funds would pass pursuant to the residuary clause of their Will. In the absence of a Will, the funds would pass in accordance with the laws of intestacy, which distribute your assets if you pass away without a Will. The best trust would provide for distribution of the balance within its terms. 

To ensure that the plan is carried out as intended, you should also address the following concerns. Remember that your pet will pass through your estate as personal property; therefore, you must leave your pet to the trust in your Will or by assignment prior to your passing. In addition, your plan should clearly describe the animal to avoid “replacement” of the animal by an unscrupulous caregiver who desires to continue receiving payments from the trust. If your animal has specific care requirements, you should be sure to clearly describe those requirements and to specifically authorize any expenditures that might be considered unusual or excessive. Finally, you should be sure to include strict guidelines for euthanasia and to address the final disposition of your animal.

 

Gina M. Barry, Esq,

 

Pooled Trusts – a way for one to continue receiving public benefits in addition to additional assets

A pooled trust is one that is established and administered by a non-profit organization. Similar to a fund that may hold retirement benefits, which is a large fund with segregated accounts for each individual, this similar entity is one within which all funds of all donors are contributed to this account. Each contributor or beneficiary has their own segregated account within the fund, but the entire fund is managed by the non-profit entity. 

There are several types of pooled trust funds, but the most common is referred to as a d(4)C trust. In this case, often an elder law attorney will assist a person with a disability who wants to receive public benefits. In this case, the person was already on public assistance and receiving either Supplemental Security Income (SSI) or Medicaid. Once this individual receives any additional funds from a source such as an inheritance, settlement from a personal injury, or retroactive benefits from the Social Security Administration, the assets would deem the person to be ineligible for the continuation of public benefits. 

However, by contributing these excess assets to a pooled trust, the individual will continue receiving public benefits. The funds in the pooled trust are then available for expenditures for the beneficiary at the discretion of a trustee. Upon the termination of the trust, which normally occurs when the beneficiary dies, the balance of the funds remaining in the beneficiary’s account are divided with a repayment of a portion to the State, and the balance of the funds remain in the trust for the benefit of other disabled individuals. The beneficiary may not designate any specific charity to receive those assets, but may provide guidance to the trustee as to the type of charity or class of disabled individuals the funds should be allocated to. It should be noted that the total amount that Medicaid could in fact claim from the pooled trust is limited to the amount that was provided to the beneficiary during their lifetime. 

Of course, an alternative to a pooled trust is a transfer to any family or non-family member that one desires. However, making such a transfer, which is considered a gift, causes a period of public benefits ineligibility for the individual, based on the amount of money that was transferred and also on what types of programs the individual was receiving. 

Another alternative is to establish a so-called self-settled or first party special needs trust. In this manner, a trust may be created with the individual’s money, and upon death, there will also be a payback provision. In addition, there is the cost of setting up this trust as well as a need to establish a trustee and file individual income tax returns for the trust on an annual basis. In the event that the amount of money going into this trust initially is relatively nominal, it usually does not become cost effective to establish a self-settled trust, and therefore, the pooled trust is a better alternative. 

In most states, there is at least one non-profit organization that has established a pooled trust that is available for individuals to participate in, and there are also national pooled trusts that have agreements with states. Before establishing the pooled trust, one should check the distribution policy, fees, termination issues, and possibly the reclamation policy between the trust and the State.

 

Hyman G. Darling, Esq.