Estate Planning Bits

Threshold numbers for 2014

2014 Medicare Rate Increase 

Medicare Part A 

Hospital deductible Day 1-60 = $1,216.00 

Co-Insurance per day – Day 61 – 93 = $304.00

                                     Day 91 – 150 = $608.00

Medicare Part B 

Monthly premium = $104.90 - $335.70 based on one’s modified adjusted gross income 

Deductible per year = $147.00 
 

Supplemental Security Income 2014 Rate

Single, aged, or disabled = $877.40 

Couple, aged and disabled = $1,524.00

Gift Tax Exemption 

$14,000.00 per person per year 

Lifetime exclusion = $5.34 Million 

Estate exemption - $5.34 Million 

(Note that gift and estate exemption is a unified amount, not to be duplicated, but merely a total lifetime/death exemption). 

 

2014 Medicaid Figures 

Community Spouse Resource Allowance (CSRA) = $117,240.00 (in many states) 

Minimum Monthly Maintenance Needs Allowance (MMMNA) $2,931.00. 

Average Private Pay Rate (varies from state to state. In Massachusetts $9,000.00 per month, in California $7,628.00 per month).
 

All of these figures and calculations are meant to be used as the current rates in most states, although these figures vary from state to state, and in some cases, from county to county within a state. Of course, there are always exceptions to the rules, such as whether a gift is really a taxable gift or a completed gift, or whether a gift is a disqualifying transfer for Medicaid purposes or not. Your elder law attorney is available to help you through the process of understanding what these numbers mean and how they work within your plan. You may also obtain information on how to select a qualified attorney on the National Academy of Elder Law Attorney’s website.

  

Hyman G. Darling, Esq.

New smartphone app enables you to carry your health care wishes with you

A relatively new smartphone application produced by the American Bar Association Commission on Law and Aging gives individuals and families the ability to store their own health care advance directives, often called a health proxy for health decisions, living wills, etc. in addition, key health care information and contacts may be stored on either the Android or Apple Smartphones. This new app is called My Health Care Wishes and is available for download here: www.myhealthcarewishes.org. 

Very often, an individual becomes ill and no one in the family knows where the documents were stored or what their loved one’s wishes were intended to be. This application provides family members, as well as medical personnel, the ability to have information available when necessary, in the unfortunate event of a loved one’s serious illness. 

In the past, many states or private enterprises have attempted to store this information, but they have not been very successful, due to the fact that many individuals did not want to provide this information “publicly,” in addition to the inefficiency of anyone else trying to maintain this information in a meaningful format. 

In this manner, you may create their own personal registry and update it whenever necessary, as well as be able to forward the information to others. You may allow a child, family member, or other trusted individual to have these documents loaded on their own smartphone, and therefore, have them available in the unfortunate event of your illness. 

There are different versions of the app available, and while one is free and stores the information, the other version is currently offered for $3.99 and allows unlimited storage of all related information, the ability to email the stored documents to a health care provider and other family members, and it provides additional resources.

One significant caution though is that this application may provide the ability to create documents without the advice of a lawyer, and these new documents could revoke your custom prepared estate planning documents that were drafted by your attorney. 

This app does not solve all problems, but it certainly makes available a relatively easy solution for families who wish to have information and access available. It may also be helpful to be sure that your attorney receives a copy of these new documents and to be sure that all intentions of your plan are properly coordinated.

 

Hyman G. Darling, Esq.

Are assets that may not be assets still taxable when you die?

In an interesting case, a person who had invested approximately $4.8 million in an investment account with Bernie Madoff died in 2006. At that time, the exemption for estate taxes was considerably less than the current exemption ($5.34 million). As required, the estate filed a timely tax return and also paid the estate tax on the assets held with Mr. Madoff’s company. When the Madoff Ponzi scheme was brought to life, the estate then filed a supplemental/amended federal estate tax return, then claiming a refund on the assets that possibly were not going to be returned as the estate claimed that they had a “zero” value. 

As anticipated, the IRS filed a motion for summary judgment claiming that under the fair market value standard, at the time of death, the assets had a value based on the fair market value as of that date. They claimed that the standard to determine how assets are valued are what a “willing buyer pays a willing seller” and at that time, no one would have known that the assets were part of a Ponzi scheme that may not have had a lesser value than reported. 

The IRS’s motion was denied, and at this time, this matter may go to trial. At the trial, it probably will be the requirement of the taxpayer to prove that the assets should not be valued as of the date of death value based on the investment account having too much money, but that the valuation would have had some value.

In this particular case, the estate had made some withdrawals, and therefore the decedent probably did have some value in the account. The bankruptcy court has allowed certain people to be declared as net winners and some as net losers based on whether they deposited more money than they got back or got less money back than deposited. There are also claims against many of the net winners by the trustee in bankruptcy, including this particular estate. 

There is no question that in every case where there are assets that are not quite ascertainable as of date of death, at least the estate tax return should be filed timely, and then an amended return should also be filed timely, within the statute of limitations, in order to attempt to reduce the value, or in some cases, report an increase in the value if it is appropriate to do so. 

These matters get quite complex, and is not as easy to merely speculate on what the value is, but when there is a matter that is not ascertainable, it is always best to err on the side of being careful and file the timely return, which is normally due nine (9) months from date of death, as well as having all taxes paid at that time.

Hyman G. Darling, Esq.

Image credit: 401(K) 2013, under Creative Commons license

Gift tax explained: strategies for wealthier families

With tax rates somewhat higher than in prior years based on increases in income taxes, capital gains taxes, and the new so-called Medicare tax, which is basically an investment income tax for those who earned more than $200,000 if single and $250,000 if married, the net rate of return for people may be somewhat lower. Therefore, it is often beneficial to transfer more assets to children and grandchildren, who are probably going to be in lower tax brackets.

It is relatively easy to give money away, as a person has a right to give $14,000 away to as many different people in a year as they so desire without having to file a gift tax return. Keep in mind that a husband and wife may also give a combined $28,000 per year per person. These gifts do not need to be gifted only to children, but may include grandchildren, nieces, nephews, or other relatives, or friends. Gifts to charities are not limited to this dollar amount, but the amount for income tax deductibility will depend on one’s income and itemized deductions.

In addition to the annual exclusion gifts of $14,000, there is also the lifetime exemption of $5,340,000 (in 2014) that a person may give away without paying any tax. This means that a married couple may give $10,680,000 over their lifetime, in addition to the $14,000 annual gifts, before any gift tax will be paid. Also, it should be noted that in most states, there is no gift tax limitation so that should not be an issue.

However, before making gifts, attention should be paid to the tax basis, or what is known as the cost basis of the asset. Once the asset is gifted, the donee (recipient) receives the asset at the donor’s tax basis. For instance, if a person bought IBM stock at $10 a share and it is now at $70 a share, if the stock is gifted, the donee receives the basis of $10 a share, which means that when they sell it, they will pay the capital gains tax on $60.00. However, if the donor died with the stock and left it by will or trust to the donee, then the donee receives it at the date of death value so that when it is sold, there is nominal tax basis if any at all. However, the stock is also included in the estate of the donor, so that if this person had total assets greater than $5,340,000, there would be an estate tax also.

Therefore, as you may see, it is relatively easy to make gifts, but you should pay attention to whether it is beneficial from the estate, gift, and income tax standpoint for all parties before making a gift.

Keep in mind, the issue of gifts discussed in this article is for tax-related issues only, and they are not to be applied for divestment purposes for obtaining Medicaid eligibility, as this area requires a completely separate set of rules and regulations.

Hyman G. Darling, Esq.

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Family fight over fetus ashes

In a recent New York case, a judge was faced with a difficult decision. A fetus had died, was cremated, and the parents ended up bringing actions against each other as to the division of the ashes.

The couple had been married for a brief time, and they then separated after the wife suffered a miscarriage. The child was stillborn at twenty-six weeks, and after the divorce, they raised issues of the distribution of the ashes.

The judge had to determine whether the ashes were “marital property” as the New York law defines property that is acquired during the course of the marriage. The judge felt that the ashes were clearly property, but not the separate property of only one spouse, since both husband and wife had contributed to the production of the fetus, which was produced during their marriage.

Normally, when a child is born, the issue of property ownership disappears, as the child is considered a person and not property. On the other hand, once the baby’s status was other than live, and the remains were converted to ashes, the characterization of the remains were determined to be property.

The judge determined that the remains were to be construed as belonging solely to the mother under the statutory and common law of reproductive rights, and that the father was not entitled to have the ashes as marital property. The judge said “that while it would be good to” confer a property interest in property remains to a husband, unless it was clearly to be the case, the ashes of the wife’s stillborn birth shall be presumed to be her separate property”.

It is unfortunate that this type of case had to find its way to the court and the family could not agree, and it also remains to be seen as to whether there will be a follow-up appeal or further cases to be determined on this subject. It is doubtful that this type of situation could be anticipated and that the family would ever decide in advance as to how remains should be distributed, but certainly, this type of situation is unfortunately being determined by a court and not the family itself.

Hyman G. Darling, Esq.

Image credit: kevin dooley under Cteative Commons license

Update on home and community based care programs

In January of 2014, the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers a significant portion of the funds and rules regarding institutionalized and home care, issued a new publication relative to home and community based services.

The rule that was announced is basically a decision after years of review and effort from all areas of those involved, including nursing homes, health care administrators, attorneys, home care organizations, etc. Similar to the Medicaid rules, the federal government will establish the rules but allow states to administer the programs and services available within their specific jurisdictions. Naturally, there will be a transition process while each state administers its own program after it initiates its own internal rules, regulations, and administrative procedures.

As each state begins its own implementation, there will be further information provided by CMS, which will then be interpreted by each state to allow it to comply with the federal rule. Nonetheless, this is a significantly beneficial program to allow individual states to permit additional home and community based programs, as opposed to requiring people to be institutionalized. In the past, Medicaid and Medicare would pay for many programs once it was both financially and medically necessary for a person to be institutionalized. It is now going to be easier to obtain home services with various plans to be administered by the state and permit individuals to remain in their homes.

There was a Supreme Court case called Olmstead which basically provided that a person did not have to be in the most restrictive setting, but rather, could remain in a least restrictive setting and obtain care, and this decision also supported the Americans with Disabilities Act. Community services under the new program will continue to allow many individuals to remain home, which will be beneficial for the individual, the families, and also hopefully the government, as this will also provide for less expense to care for elders in the community, as opposed to requiring institutionalized care.

This rule will take some time to be fully effective, but there will be further information provided in all states shortly, so anyone concerned with this new program should pay particular attention to the federal and state regulations as they are promulgated.

Hyman G. Darling, Esq.

Photo credit: liber under Creative Commons license

Important numbers for 2014

Every year, certain important information on changes of tax and other important numbers are revised. The following is a listing of some of the most important numbers for 2014. Some have changed, and some have remained the same.

• Social Security Tax Wage Base- $117,000
• Individual Retirement Account- Traditional Contribution- $5,500
• ROTH, IRA- Individual Contribution- $5,500
• 401k, and other types of Retirement Plans limit - $17,500
• Additional catch-up contribution if 50 or older-$5,500
• Business mileage- .56 cents/mile
• Charitable Mileage- .14 cents/mile
• Standard deduction on income taxes for married filing jointly-$12,400
• Standard deduction for single person (or married filing separately)- $6,200
• Personal exemption- $3,950
• Phase out of personal exemption (married filing jointly)- begins at $305,050
• Phase out of personal exemption (unmarried individuals)-$254,200
• Estate tax limit (federal)-$5.34 million
• Gift exclusion(annual) - $14,000
• Gift exclusion (lifetime) - $5.34 million
• Rate of tax above exclusion for estate and gift purposes- 40%
• Maximum amount for community spouse if other spouse is institutionalized- $117,240
• Maximum amount the institutionalized spouse is permitted to have (could change by state) - $2,000
• Home equity limit for long-term care purposes: Minimum - $543,000, Maximum - $814,000

Hyman G. Darling, Esq.

Estate planning checklist: health insurance related and Affordable Care Act (Part 7)

This check-list would be incomplete if you are not reminded about open-enrollment for many health insurance plans, in general, and the Affordable Care Act (open enrollment has been extended through March 2014). Even if you currently have health insurance, there may be financial advantages to reviewing the costs associated with the ACA. This is particularly true for blended families, those where an ex-spouse continues to be covered or where you are straddling being on Medicare, but have children to cover.

This checklist provides a starting point. For more information, contact an estate planning professional for a comprehensive review of your plans. 

 

Lisa L. Halbert, Esq.

Image credit: Leader Nancy Pelosi under Creative Commons license

Estate planning checklist: passwords and important papers (Part 6)

Passwords:

While not directly related to estate planning, a more controversial issue arises about passwords. While any IT person will advise against making a comprehensive list of your accounts and associated passwords, those same individuals might not regularly work with a segment of the population that may become ill or lose their memory. There is no perfect solution in this electronic world. Perhaps you prefer to prepare the list of passwords and save it on paper, publish it to your attorney-in-fact under a durable power of attorney, or provide a copy to your legal counsel. Others recommend putting the passwords into a paper file and filing it at the back of your filing cabinet, backwards. The list should be comprehensive and cover whatever assets you access (such as a bank card (such as an ATM), or electronic account whether for bank, brokerage, credit card, loan, and even health related information. It also helps to print out the most recent security questions and the answers too.)

Important papers:

Organize a filing system for important papers. If an alphabetical system is not your style, consider putting all important papers in one place. Documents to be retained include: social security card, copy of birth certificate, legal documents (will, trust, health care proxy, durable power of attorney, marriage license or divorce decree, and funeral-related paperwork. Include on this list your children or next of kin and their addresses. If you should die, and a non-family member is involved, it makes locating family much easier.

Lisa L. Halbert, Esq.

Image credit: liako under Creative Commons license

Update on FDIC insurance

Most people are confused about the insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC). Initially, when you go to your local bank, you should check to see if the emblem stating that they have FDIC coverage is posted either on the door or near the tellers. If not, then you should ask to determine whether the coverage is in existence. If so, there is no need to apply for it or to request it, as it is automatic. 

The amount of coverage you can have is based on the depositor named on the account, and whether it is a checking, savings, certificate of deposit, or money market account. Please note that all other types of products that banks may be selling are probably not covered by FDIC Insurance. This coverage excludes annuities, insurance policies, stocks, mutual funds, etc. 

The standard amount for insurance is $250,000.00 per depositor. However there are separate categories of deposits that are covered, and you may have more coverage by having funds in different types of accounts. 

The following chart will attempt to clarify your coverage. This information is taken from the FDIC website, which you may access at www.fdic.gov/deposit/deposits. 

There are other types of specific accounts for which coverage is provided that are not necessary to discuss at this time. Please note that the above chart is the standard insurance amount for most categories. If more coverage is necessary, there are other ways accounts may be titled to access it. Also, you may open accounts at additional banks if necessary.

 

Hyman G. Darling, Esq.