Wednesday, November 30, 2005

10 Guidelines for Selecting an Elder-Care Attorney

Category: Elder Law

Out of Montgomery, Alabama, but applicable anywhere - some sound advise and 10 guidelines for selecting an elder-care attorney.

"Establishing a relationship with an elder care attorney before you are forced to confront the health issues of aging is proactive and can help you identify a compassionate and experienced professional whom you can trust to guide you legally; this will help ensure that you are not taken advantage of in an effort to meet your needs."

Many times seeking out the right Elder Law attorney is a family affair - the attorney needs to be close to where seniors are, but also able to communicate with the children if their clients so desire. When seeking an Elder Law attorney, it is also important to bear in mind that most times the parents will be the attorney's client - not the children or the family overall. The attorney should be seeking to meet the parents or senior generations goals.

The steps for finding an Elder Law attorney summarized (see the article for more details):

1. Identify prospective attorneys
2. Schedule screening interviews
3. Determine if the attorney is qualified in elder-care issues
4. Understand the network of professionals.
5. Discuss elder-care attorney fees
6. Contact the references
7. Prepare for the second interview
8. Drill down on specifics
9. Select your elder-care attorney
10. Put it in writing

"None of us knows what our future holds, but we can be prepared. By working with an elder-care attorney, you are expanding the team of advisers you work with to help secure a lifestyle you desire when seeking to meet your future needs and protect your legacy."

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Monday, November 28, 2005

A Role for Lawyers after all? DIY Will almost Creates Unnecessary Estate Tax

Category: Estate Planning

Ah, DIY - the independent Do-It-Yourselfer who has kept Home Depot and similar stock on the rise. Why pay someone else to do it when you can do it yourself? Can't you be your own expert? While there are many, many things you can DIY in your home, and in terms of how the law effects you, there is still a role for those trained in the task at hand and who focus on it daily. Much as building a desk is worlds apart from adding a new level to a home, a computer generated residential lease is worlds apart from a Will. In each case, the key differences lie in the scope of the project, as well as the unseen critical details that someone untrained may easily miss. You no more want your estate plan to be ineffective then to have your new addition collapse.

One such situation is a client of mine who created a Will on a computer, signed it, did not have it witnessed, and was fortunate enough to die after February 27 of this year (prior to that date, unwitnessed computer generated wills were not valid in New Jersey). Now the only issue is whether the unwitnessed Will is valid - a key issue in that the Will states that the decedent had an estranged daughter to whom he wanted nothing to pass. The purported Will leaves everything to the brother, but if it is not valid, then under the intestacy statues, everything passes to the daughter, in direct contradiction to the decedent's stated intent. Estate planning is fraught with formalities, which are intended not to impeded you, the DIYer, but to protect you. Bear in mind that an estate plan is an expression of your wishes to be carried out after you are dead - the formalities ensure that those wishes can be carried out by other people.

Another such situation is the recent case of Marie L. Sowder v. United States; No. CV-02-0136-WFN. The case and problem are described in more detail at Steve Leimberg's Estate Planning Newsletter #893 (November 21, 2005) at (fee service). Here, the decedent generated his own will. In leaving the balance of his estate to his wife, he wrote the following:

"All the rest, residue and remainder of my estate, both real and personal, of every nature and wherever situate, of which I may die seized or possessed, I give, devise and bequeath unto my wife, Marie L. Sowder, if she survives me, and if she does not survive me, or dies before my estate is distributed to her, to my issue me surviving, in equal shares per stirpes."

Now, to a layman, this is a straightforward bequest to the surviving spouse. As assets passing to a spouse generally do not generate any tax, Mrs. Sowder filed a federal estate tax return fully expecting no tax to be due on her. Right?.... Wrong. To the IRS and any tax attorney, the language or dies before my estate is distributed to her, creates a "terminable interest". Instead of $0 tax, a tax liability of $828,678 was assessed for estate taxes and more than $133,000 for interest. Quite a large "oops".

A "terminable interest" is more fully described in Leimberg's Estate Planning Newsletter #893 as follows:

"Interests in property which do NOT qualify for a marital deduction include certain so-called "terminable interests." Terminable interests are those interests that, although they MAY go to the surviving spouse, might also "terminate".

Fatal terminable interests are ... those that might operate so that the surviving spouse does not actually become the sole and absolute owner, and if they do, might still pass to some person OTHER than the surviving spouse or his/her estate because of the mere lapse of time, the occurrence of an event or contingency, or the failure of an event or contingency to occur." See IRC Sec. 2056(a).

Here, the estate was saved from having to pay the unnecessary tax because (1) the decedent's state of residency, Washington, had a statutory policy of "fixing" problematic terms in wills after death based on evidence of the decedent's intent, and (2) strong, clear and convincing evidence of the decedent' intent to reduce taxes existed. While the tale turns out well for the Sowders, the moral might be that when doing DIY, not all projects, be they building or legal, are the same, and that the professionals are there for a reason.

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Monday, November 21, 2005

Special Use Valuation for Certain Real Estate in an Estate - IRC Section 2032A

Category: Estate and Inheritance Tax

An oft heard criticism of the estate tax is that it unfairly targets farmers and small business, where significant wealth may be being transferred to an heir, but in a form that is highly illiquid, thus giving rise to cries that "the kids have to sell the farm to pay the taxes."

As a caveat, with a little forethought, plans can be put into place to create liquidity at death. However, even for those who fail to plan, the IRC offers additional tax breaks through IRS Section 2032A, Special Use Valuation of Certain Farms and Real Estate, discussed here, and IRC Section, 6166, Installment Payments, a post for another day.

IRS Section 2032A allows qualified farm property to be valued at less then its fair market value if the following conditions apply:

IRC Section 2032A allows an alternate valuation for certain farm and closely held business real property. Real property may qualify for Section 2032A if:

1. Decedent was a US citizen or resident at the time of death;
2. The real property is located in the US;
3. At decedentÂ’s death, the real property was used by the decedent or a family member for farming or a trader business, or was rented by such use by either the surviving spouse for the lineal descendent of the decedent to a family member on a net cash basis;
4. The real property was acquired from or passed from a decedent to a qualified heir of the decedent;
5. The real property was owned and used in a qualified manner by the decedent or a member of the decedentÂ’s family during five (5) of the last eight (8) years before the decedentÂ’s death;
6. There was a material participation by the decedent or a member of the decedentÂ’s family during five (5) of the last eight (8) years before the decedentÂ’s death; and
7. The qualified property meets the certain percentage requirements:
a. At least fifty percent (50%) of the adjusted value of the gross estate must consist the adjusted value of the real or personal property that was being used as a farm or in a closely held business and that it was acquired, or passed from, the decedent to a qualified heir of the decedent; and
b. At least twenty-five percent (25%) of the adjusted value of the gross estate must consist of an adjusted value of the qualified farm or closely held business real property.

If you don't despair, IRC Section 6166 may take the sting out of the estate tax by allowing payments on the farm property to be deferred for up to 10 years under an installment payment plan.

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Friday, November 18, 2005

Redesigned THOMAS (Library of Congress) Website - A Portal to Capitol Hill

Category: Miscellaneous Musings

From bespacific, "Redesigned THOMAS Launched Today:
Sharing navigation and design similarities with the Library of Congress site as well as the U.S. National Archives and Records Administration site, today's launch of the upgraded THOMAS Congressional information site offers citizens, educators and researchers additional browse and search features (including the ability to Search Multiple Congresses, from the 101 to the 109; links to full text treaties; and a Presidential nominations search feature with links to Senate hearings). This year was the twentieth anniversary of the site, which has undergone a series of changes, updates and redesigns."

THOMAS is THE source for what is going on at Capitol Hill, and now is an improved portal to federal law in effect and in creation.

About THOMAS (Library of Congress): "THOMAS was launched in January of 1995, at the inception of the 104th Congress. The leadership of the 104th Congress directed the Library of Congress to make federal legislative information freely available to the public. Since that time THOMAS has expanded the scope of its offerings to include the features and content listed below.
Bills, Resolutions Activity in Congress Congressional Record Schedules, Calendars Committee Information Presidential Nominations Treaties Government Resources For Teachers Help and Contact "

You can browse bills and their legislative history, and search for them by text, number, and sponsorer.

Information available on THOMAS includes:

  • Bills, Resolutions
  • Activity in Congress / Yesterday in Congress
  • Congressional Record
  • Schedules, Calendars including Days-in-Session Calendars
  • Committee Information
  • Treaties
  • Government Resources - THOMAS contains a list of legislative and other government resources. THOMAS also provides resources for learning about the legislative process and resources for legislative researchers.

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Wednesday, November 16, 2005

A Bonded Fiduciary - The Role of a Surety Bond in an Estate Administration

Category: Probate and Estate Administration

What does it mean for a fiduciary of an estate (Executor, Administrator or Personal Representative) to be "bonded"? A surety bond is a requirement that the Surrogate may set before Letters Testamentary or Letters of Authorization may be issued.

Wikipedia defines a surety bond as: "A surety bond is a contract between at least three parties: (i) the principal, (ii) the obligee, and (iii) the surety. Through this agreement, the surety agrees to make the obligee whole (usually by payment of money) if the principal defaults in its performance of its promise to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal."

In the case of the administration of an estate, (i) the Principal is the fiduciary, (ii) the Obligee(s) are the beneficiary(ies) of the Estate, (iii) and the Surety is the insurance company issuing the bond. The bond acts as a source of funds to compensate the beneficiaries if the fiduciary mis-manages the estate.

A surety bond will be required in those situations where (i) the Will does not have language wherein the testator waives the need for the executor to get a bond, (ii) there is no Will (an estate administration), (iii) where there is a will, but the named executors cannot serve (i.e.: the executor has died, and no successor is named under the will, and (iv) as otherwise required by the Surrogate.

The amount of the surety bond will depend on the total probate assets of the estate (those assets in the decedent's own name at the time of death). The Surrogate sets the bond amount, and evidence of the surety bond must be obtained before the Letters Testamentary or Letters or Authorization are issued, which allow the fiduciary to act on behalf of an estate.

The surety bonds generally are for a one year period, and must be kept in force until the estate is distributed.

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Tuesday, November 15, 2005

Worksheet Helps Beneficiaries Compare Medicare Drug Plans - Elder Law Answers Articles

Category: Elder Law

To help consumers in the selection process, ElderLawAnswers has created a Drug Plan Comparison Worksheet that allows beneficiaries to note important information about each plan, compare the plans side by side, and identify the one that best meets their needs. The Worksheet is available by clicking here. Print it out, fill it in and see how the plans stack up.

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Thursday, November 10, 2005

Life Cycle of a Public Charity

Category: Business Law and Planning, Tax Law and Planning

Often a client approaches us to set up a charity. A public charity must benefit the public, that it, some objectively defined group of persons for a public purpose. Once formed, the charity must then apply for and receive recognition as a public charity - the most common are 501(c) charities, so called to refer to the Code section under which they are organized. For federal tax purposes, a person can only deduct contributions to an entity that has been recognized as a public charity by the IRS. Once formed and approved by the IRS, the public charity must comply with various reporting requirements. Of course, being a charity, the organization is also usually looking to minimize its legal and accounting expenses.

The IRS has taken some of the mystery out of forming and being a public charity through a section of its website called Life Cycle of a Public Charity.

"During its existence, a public charity has numerous interactions with the IRS - from filing an application for recognition of tax-exempt status, to filing the required annual information returns, to making changes in its mission and purpose. The IRS provides information, explanations, guides, forms and publications on all of these subjects - they are available through this IRS Web site. The illustration below provides an easy-to-use way of linking to the documents most charities will need as they proceed though the phases of their "life cycle."

There is also a one page a graphical depiction of the life cycle of the public charity, which includes functioning links back to various forms and publications.

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Thursday, November 03, 2005

Looking at Judge Alito thru Planned Parenthood v. Casey

Category: Miscellaneous Musings

Much of the debate surrounding Judge Samuel Anthony Alito Jr. as a nominee to the Supreme Court will focus on the issues of "strict" versus "broad" interpretation of the United States Constitution. Since endless debate could surround even the definition of "strict" and "broad" before ever getting to the question of what these terms mean in relation to constitutional law, a better idea might be to look at an actual case where learned scholars explored the elusive "right to privacy" that "strict" constructionists say does not exist in the Constitution, and that "broad" constructionists find implied in the Constitution.

The case to be examined is Planned Parenthood v. Casey. The New York Times reports that Supreme Court nominee Judge Samuel Alito told Sen. Richard Durbin (D-Ill.), a member of the Senate Judiciary Committee, that he "spent more time worrying and working" on his opinion in the 1991 Planned Parenthood v. Casey case than any other decision he has made on the 3rd U.S. Circuit Court of Appeals.

Planned Parenthood v. Casey is a landmark decision. The issue before the courts was a challenge to Pennsylvania's 1989 Abortion Control Act, which provided for restrictions on abortions. In Third Circuit Court of Appeals decision, Planned Parenthood v. Casey, 744 F.Supp. 1323 (1991), of which Judge Alito was a member, found that:

"Five abortion clinics and one physician (the "clinics") raise a facial constitutional challenge to certain 1988 and 1989 amendments to the Pennsylvania Abortion Control Act of 1982 (the "Act"). See 18 Pa. Cons.Stat.Ann. §§ 3201-3220 (1983 & Supp.1991). The United States District Court for the Eastern District of Pennsylvania held that §§ 3205 (informed consent), 3206 (parental consent), 3209 (spousal notice), 3214(a) (reporting requirements), and 3207(b) and 3214(f) (public disclosure of clinics' reports) violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution. The Commonwealth defendants (the "Commonwealth") appeal. Because we find unconstitutional only § 3209, which requires notice to a spouse of a planned abortion, we will affirm in part and reverse in part."

Judge Alito's dissent focuses on the spousal notification requirements.

The United States Supreme Court took up the case,reviewed and analyze both the majority and dissenting opinions in Planned Parenthood v. Casey, 505 U.S. 833 (1992)

Any Supreme Court Justice builds on his or her own judicial experience. To form your own decision of Judge Alito and how he might function on the court, read Planned Parenthood v. Casey, 744 F.Supp. 1323 (1991), including Judge Alito's dissent and the response of the current Supreme Court Justices.

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Wednesday, November 02, 2005

Use and Abuse of Annuities for Elderly Clients

Category: Elder Law, Financial Planning

From, a thoughtful article on possible abuses of the sale of annuities to uninformed elderly clients. While and annuity can be an excellent investment option, like all investment options, there are pros and cons to be considered. Some of the inherent limitations in liquidating an annuity make them a bad investment for seniors. Alternatively, these same limitations can make annuities a central part of Medicaid planning, as an annuity may under certain circumstances be deemed an "unavailable asset".

An excerpt:

"The advantages of an annuity are supposed to be that

1. You will get payments for life so you don't outlive your money,
2. Your beneficiaries will get at least the principle invested when you pass on,
3. That they are tax-deferred, meaning taxes are paid only on the money you withdraw.

The problem with annuities and selling them to elderly, are that they are a long-term
investments when it comes to profits, and the charges can be outrageous. If an elderly person decides he or she needs the money they invested in an annuity they can face many complicated charges. Those charges are calculated using different types of rules and include,

1. Surrender charges,
2. 10% federal tax penalty (if the person is not 59 1/2),
3. Underlying mutual fund expenses (of the funds in the annuity),
4. Mortality and expense risk charges, and
5. Fees and charges for other features."

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Tuesday, November 01, 2005

House Panel Approves Changes to Medicaid Transfer Rules

Category: Elder Law


House Panel Approves Changes to Medicaid Transfer Rules - Elder Law Answers Articles: "The House Energy and Commerce Committee approved a fiscal year 2006 budget reconciliation package that includes restrictions on asset transfer rules, setting up a fight with the Senate. The House panel voted along party lines on Thursday to approve a proposal that would cut Medicaid spending by $9.5 billion over five years.

The House bill proposes a severe tightening of penalties for the elderly who transfer assets and then apply for Medicaid coverage of nursing home care. It would extend the 'lookback' period for all transfers from three to five years and change the start of the penalty period for transferred assets from the date of transfer to the date of Medicaid application.

The transfer-of-asset proposals, which many elder law attorneys view as harmful to their clients, were among the recommendations of the Medicaid Commission, established to advise Congress on how to cut $10 billion from Medicaid, as called for in the 2006 budget reconciliation bill approved earlier this year.

Other changes in the House bill include making anyone with $500,000 worth of equity in a home ineligible for Medicaid and allowing states to raise Medicaid co-payments from $3 to $5 over three years.

The House bill differs significantly from a bill approved by the Senate Finance Committee earlier in the week. The Senate bill did not include changes to asset transfer rules or co-payments. The full House and Senate still need to vote on both bills.

For more on asset transfers, click here. "

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