Truths about the Estate Tax - Debunking the Popular Myths

Category: Estate and Inheritance Tax

In yesterday's post, Who Wants Estate Tax Repeal - The Uber-Rich Lobby (98%+ chance you aren't one of them) I highlighted a new report from Public Citizen and United for a Fair Economy that demonstrated how "18 families worth a total of $185.5 billion have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of $71.6 billion."

In the report entitled "Spending Millions to Save Billions - The Campaign of the Super Wealthy to Kill the Estate Tax" Public Citizen's Congress Watch and United for a Fair Economy explore and refute some common myths about the estate tax. These myths are just plain wrong "facts" that many believe to be gospel truth about the estate tax, but are, in real fact, just plain wrong. I thought the report did such an excellent job of educating readers about the true role of the estate tax, that wanted to highlight some of the information here. This is a long post, but it gets to the heart of the matter of the estate tax. The education it provides is worth scrolling down for.

From entitled "Spending Millions to Save Billions - The Campaign of the Super Wealthy to Kill the Estate Tax" (footnotes removed):

Myth: The Estate Tax Forces Families to Sell their Farms
Several years of investigative journalism articles and congressional reports have made it clear that the notion of any farm being destroyed by the estate tax is a myth. In 2001, the pro-repeal American Farm Bureau could not provide the New York Times with a single example of a farm having been sold to pay the estate taxes. A 2005 report by the Congressional Budget Office found that at the current exemption level of $2 million, very few family farms would owe an estate tax. If the $2 million threshold existed in 2000, as many reform proposals would have allowed, only 123 farms in the entire country would have owed estate taxes that year. The CBO study also found that among the very few that would owe taxes, the vast majority would have sufficient liquid assets (savings, investments and insurance) to pay the taxes without having to sell off any farm assets. For example, at the $2 million threshold, only 15 of the farms would have had insufficient liquid assets to pay.

Myth: The Estate Tax Destroys Family Businesses
Like the allegations about family farms, the notion that the estate tax forces family-owned enterprises out of business is equally fallacious.

Of the 2.5 million people who died in 2004, only 440 left a taxable estate with farm or business assets equal to at least half the total estate, according to the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, and 210 of these owed less than $100,000.

Myth: Estate Tax is Double Taxation
Advocates of estate tax repeal claim that the estate tax is unfair because it taxes the same money twice: once when it is earned as income and again as part of an estate. But this reflects a misunderstanding of the tax structure and of what is actually taxed in most estates.

Money in our society is frequently taxed upon transfer, so the same dollar is often taxed more than once.

The reality is that the bulk of wealth in large taxable estates has never been taxed at all. This is wealth in the form of appreciated property, stocks, and bonds that have increased in value since they were acquired or inherited - and have never been taxed. Without an estate tax, billions of dollars of untaxed capital gains would pass within wealthy families without any tax.

In estates with assets over $10 million, over 56 percent of the wealth takes the form of appreciated property, stocks and bonds. As estate tax wealth exemptions rise, the tax will increasingly be levied on estates with higher percentages of appreciated property that has not been taxed.

Myth: It Costs More to Comply with the Estate Tax than the Revenue It Raises
Compliance costs include both the cost to the IRS of administering the tax and the personal costs of preparing tax returns, planning for the tax, and administering an estate.221 A 1999 study by two professors at Rutgers University concluded that the cost of estate tax compliance ranges from 6 to 9 percent of estate tax revenues. This is consistent with other forms of taxation, including the federal income tax. "The costs of administering the estate tax have been grossly overstated. We do not know why,"they wrote. "Instead of high cost, we find the estate tax to be an efficient tax."

About half the costs associated with estate taxation would remain even if the tax were repealed. Researchers Joel Friedman and Ruth Carlitz observe "activities such as selecting executors and trustees, drafting provisions and documents for the disposition of property, and allocating bequests among family members would still have to be undertaken in the absence of an estate tax."

Repeal advocates continue to propagate myths about costs of administering the estate tax. The Policy and Taxation Group's Center on Taxation and Policy publishes a list of "Reasons the Death Tax Does Not Work," which asserts that "it collects just 1 percent of the nation's revenues, and dollar for dollar, it costs as much to collect death taxes as it raises." Seattle Times publisher Frank Blethen, patriarch of the family that owns a majority interest in the Seattle Times Co., used his deathtax.com Web site to claim, falsely, that "it costs the government 65 cents of every dollar raised for enforcement and compliance."

Myth: The Super Wealthy Avoid the Estate Tax
There is a myth that the estate tax is "voluntary" for the super wealthy and that the people who pay the estate tax have small estates and less resources to hire planners. It is true that doing estate tax planning - such as planned giving to heirs - can reduce one's tax bill. This favors estates with greater liquidity of wealth.

But the super wealthy do pay significant estate taxes, under current law. In 2004, the 520 largest estates - those valued at over $20 million - paid a net average tax of $10.8 million each.

There are only three ways that super wealthy individuals can entirely avoid paying estate taxes at death;
* Pass all wealth above the given year's exemption level to one's spouse, taking advantage of the unlimited marital deduction;
* Give all wealth above the given year's exemption level to charity, thereby reducing one's estate; or
* Die in 2010, the only year that the estate tax is currently scheduled to be repealed.

Some people purchase life insurance in an amount sufficient to pay their estate taxes when they
die. This doesn't enable them to avoid the tax but, in essence, to pre-pay it through insurance premiums. This effectively shields heirs from having their inheritances reduced by the amount of estate taxes, while still providing for the tax itself to be paid in full.

Myth: The Estate Tax is Confiscatory Because it Takes over Half of Someone’s Estate
The top marginal estate tax rate in 2006 is 46 percent. In 2009 it will be 45 percent. But this rate applies only to amounts that do not go to a spouse or charity and that exceed the exemption. In 2006, only amounts higher than $2 million for an individual or $4 million for a couple will be taxed at that rate, and that's if no other spousal or charitable provision has been made. Therefore, a substantial portion of most estates is passed on untaxed.

According to IRS data, the "effective" rate - the percentage of estates that is actually paid in taxes - averaged about 19 percent in 2003, a year in which the top rate was 49 percent.

Who Wants Estate Tax Repeal - The Uber-Rich Lobby (98%+ chance you aren't one of them)

Category: Estate and Inheritance Tax

Less then 2% of all American's pay any estate tax (see prior post Effects of the Federal Estate Tax on Farms and Small Businesses - Congressional Budget Office Paper). So why all the hullabaloo? Well, according to recent publications, its due in large part to lobbying by the wealthiest families in the county (think here the owners of Wal-Mart).

From Public Citizen and United for a Fair Economy

WASHINGTON, D.C. The multimillion-dollar lobbying effort to repeal the federal estate tax has been aggressively led by 18 super-wealthy families, according to a report released today by Public Citizen and United for a Fair Economy at a press conference in Washington, D.C. The report details for the first time the vast money, influence and deceptive marketing techniques behind the rhetoric in the campaign to repeal the tax.

It reveals how 18 families worth a total of $185.5 billion have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of $71.6 billion.

The report profiles the families and their businesses, which include the families behind Wal-Mart, Gallo wine, Campbell's soup, and Mars Inc., maker of M&Ms. Collectively, the list includes the first- and third-largest privately held companies in the United States, the richest family in Alabama and the world's largest retailer.

These families have sought to keep their activities anonymous by using associations to represent them and by forming a massive coalition of business and trade associations dedicated to pushing for estate tax repeal. The report details the groups they have hidden behind the trade associations they have used, the lobbyists they have hired, and the anti-estate tax political action committees, 527s and organizations to which they have donated heavily.

In a massive public relations campaign, the families have also misled the country by giving the mistaken impression that the estate tax affects most Americans. In particular, they have used small businesses and family farms as poster children for repeal, saying that the estate tax destroys both of these groups. But just more than one-fourth of one percent of all estates will owe any estate taxes in 2006. And the American Farm Bureau, a member of the anti-estate tax coalition, was unable when asked by The New York Times to cite a single example of a family being forced to sell its farm because of estate tax liability. [again, see prior post Effects of the Federal Estate Tax on Farms and Small Businesses - Congressional Budget Office Paper in which the CBO confirms this].

"This report exposes one of the biggest con jobs in recent history," said Joan Claybrook, president of Public Citizen. "This long-running, secretive campaign funded by some of the country's wealthiest families has relied on deception to bamboozle the public not only about who must pay the estate tax, but about how repealing it will affect the country."

Click here for the entire article, including a statement by Paul Newman that "For those of us lucky enough to be born in this country and to have flourished here, the estate tax is a reasonable and appropriate way to return something to the common good. I'm proud to be among those supporting preservation of this tax, which is one of the fairest taxes we have."

What is the Surviving Spouses Taxable Gain on Sale of Home?

Category: Tax Law and Planning

A very common question is: If my spouse dies and I sell the house, what is my cost basis? Cost basis is important because Purchase Price - Basis = Gain (which is the Amount subject to Capital Gains Tax). The except below from This old house: cost-basis riddle -- Newsday.com is an excellent example of answers to that question.

However, cost basis is not the only issue. Once the Amount subject to Capital Gains Tax is determined, the next question is "What exclusions to Capital Gains Tax are there?" Under Internal Revenue Code Section 121, a single person can exempt the first $250,000 of Gain from the sale of his or her residence from tax (assuming the person has resided in the house for at least 2 years). This doubles to $500,000 for married couples.

So, if a surviving spouse is ever looking to sell the residence (no matter when the deceased spouse died) the questions are:

1 - What is the surviving spouse's Cost Basis in the house (see the examples below to calculate); and
2 - Is this Gain less then the Section 121 exemption available (if so, no tax).

"Imagine Fred and Ethel buy a house in 1982 for $135,000. In 2005, Fred dies and Ethel inherits the house, now worth $550,000. To calculate her profit when she sells it, she subtracts what the house cost - her 'cost basis' - from the $550,000 sale price. Current law says Fred and Ethel each had a 50 percent ownership stake in the house. Her cost basis on her own half is $67,500 - half of the original $135,000 purchase price. But her cost basis on Fred's half is its market value at the time of his death - $275,000 (half of $550,000). Her total cost basis: $342,500.

But before 1977, the law presumed that the spouse who died first owned 100 percent of the house, says Alan E. Weiner, senior tax partner at Holtz Rubenstein Reminick in Melville. Unless the surviving spouse could refute the presumption, the house was included in the deceased spouse's estate and the survivor inherited it at its market value. (The husband, usually the first to die, was also usually the only working spouse. 'It's unclear how the law would work if the first to die was a wife who hadn't contributed to the purchase of the house,' Weiner notes.)

Let's say Fred and Ethel bought their house in 1960 for $17,000. When Fred died in 2005, it was worth $450,000. Under the pre-1977 law, the entire $450,000 is included in his estate. No additional estate tax is due, however, because spouses inherit from each other tax-free. Ethel has inherited 100 percent of the house; her cost basis is $450,000.

The IRS says the old law still applies in cases involving marital joint property acquired before Jan. 1, 1977. It has said it will no longer litigate such cases. (For more details, go to www.irs.gov/pub/ir"

Cultural Differences - In China, Ignore your Parents at Your Peril

Category: Elder Law

Most people are uncomfortable with the plight of seniors separated from their families and alone in their final years - but is there another way? In China, society and government are taking action to mandated filial loyalty and support. At the present time, there is no legal duty in the US for children to support their parents. I found this very interesting article, Charlotte Observer - Ignore parents? At your own peril that shows another road to caring for our older family members. Notably, "Only 1 percent of Chinese older than 80 are in elder care facilities, compared with 20 percent in the U.S., according to the Washington-based Center for Strategic and International Studies."

"In Shanghai, the Nanjing East Road Neighborhood Committee recently took to
public shaming to ensure that people attend to their aging parents. Anyone who
doesn't visit at least once every three months faces having his or her name posted on a community signboard.

Members of a nearby senior community announced a different approach: They
would fine offspring $5 if they didn't invite their parents home for Chinese New
Year.

And then there's the Chinese government itself: Shirkers face five years in prison for failing to support or take care of their parents.

In the battle to safeguard the tradition of filial piety, China's social watchdogs are employing many weapons: shame, fines, bribery, guilt and flattery."

The article goes on to consider how the changes of the 21st century have been acting to undermine strong traditional Chinese family values. It leads to thoughts about how we can perhaps internalize some of the elder care debate in this country - if of course there was a way to pay for it since most long term care funding options favor institutionalized care - but that is a post for another time.

The Cost of Gifting Your Home

Category: Elder Law, Estate Planning, Tax Law and Planning

This brief article from mortgage101.com outlines why there may be a large cost of making a gift of your home to your children now, instead of continuing to live in it an bequeathing it to your children at your death.

"First and foremost, your child or friend's basis in the house will be what you paid for the property, plus major improvements. Because this cost you paid years ago is probably much lower than today's soaring home value, there's a chance tax will be owed on a subsequent sale.

For example, if you purchased your home in 1970 for $60,000 and it is now worth $450,000, your child's basis would be $60,000 if you chose to transfer the home to the child as a gift. If the married child sells the home 10 years down the road for $760,000, their tax liability would be on $200,000 ($760,000 minus the $60,000 basis, minus the $500,000 exclusion for married couples). Taxpayers in the 15 percent tax bracket would thus owe the Internal Revenue Service approximately $30,000 in capital gains tax."

BUT BE AWARE:

If the child did not live in the house, there would not be a "$500,000 exclusion for married couples" as outlined above. That only applies if the child and his or her spouse lived in the house for 2 years or more before sale. If you gifted the house to a child and you continued to live there, upon sale the child's basis would only be $60,000, leaving $700,000 subject to capital gain.

Also, while the federal capital gain tax rate is generally 15%, the state may have an additional capital gain rate. For example, in New Jersey, the capital gain rate is 7 1/2%, bringing the total combined capital gains tax rate to 22 1/2%, which on a $700,000 sale would be $157,500 - not chump change.

TWO ITEMS OF NOTE:

First, for Medicaid planning it may be worth the potential capital gains tax cost to remove the asset from your "available assets" so that the house does not have to be sold to provide for your long term care.

Second, it is possible to gift part of the house now, and keep enough of it to get a "step-up in basis" at your death. For example, if you give away the house, but retain the right to live there during your lifetime (a "life estate"), then the house will be part of your taxable estate. This means that your children's basis in the house upon your death would be the date of death value, $760,000 in the above example. Thus, if the children sold the house for $760,000, there would be no capital gain. But beware of the trap that keeping the asset in your taxable estate may cause an estate tax issue (New Jersey's estate tax exemption is only $675,000) just to avoid a capital gains tax issue. (A last point that here the NJ estate tax rates, which range up to 16% on amounts over $675,000 would be far less then the combined federal and state capital gains rates of 22.5% on $700,000 of gain.)

Best Blawg List - A Taxonomy of Legal Blogs

Category: Miscellaneous Musings

For those of you who follows blawgs, or law blogs, like this one, I was introduced to the amazing site of A Taxonomy of Legal Blogs by MauledAgain, the tax law blog of Professor James Maule.

In A Taxonomy of Legal Blogs an amazingly enterprising 3L (third year law student) has organized hundreds (maybe more) of legal oriented blogs into one, very accessible, hierarchy.

This is a fabulous gateway to the thoughts of lawyers around the country, and should be bookmarked by all and explored at your leisure.

Medicare Drug Prescription Scam in Northern NJ?

Category: Elder Law

This disturbing story was sent to me through my membership in the Essex County Coalition for the Protection of Vulnerable Adults:

"Hi Louise,

I just had an unfortunate event that I would like to share with you, and perhaps you could alert the Coalition members.

My grandparents are lifelong residents of Essex County, and I recently enrolled them in a Medicare Prescription Drug Plan at the www.medicare.gov website. A week later, an agent who works for Diversified Senior Financial Solutions in Bloomfield showed up on their doorstep in their early evening. They, of course, cannot hear well; were confused and did not expect an evening visitor. They asked the agent if I sent him and he said yes. So they let him in, trusting that I arranged this. He misled them; took their Medicare #’s; had them sign documents; and left. Ultimately, he enrolled them in a Medicare Advantage Plan that includes health coverage, dental, hearing and supplemental Rx as well. All to be deducted from their monthly social security which is not enough to live on as it is. Luckily, I was able to rectify the situation after threatening to call the police and Better Business Bureau, but I am fearful for other unsuspecting elderly residents of Essex County.

I have reported them to Medicare Rx fraud line 877-772-3379. Their website states that there is a scam in New Jersey.

I do have more detailed information if you should need it. Have a lovely holiday and I will see you at the next meeting.

Thank you,

Tara"

Hurry up! Cross the Road! Don't be Old and Slow!

Category: Miscellaneous Musings

I know that everyone in LA loves their cars, but it seems that being old and slow while walking is now a tickable offense for "obstructing traffic".

As you read this headline story from Yahoo News today, think that someday you too may need a little extra time getting from Point A to Point B, and wouldn't it be nice if you didn't get fined just for slowing down.

Woman, 82, Gets Ticket for Slow Crossing - Yahoo! News: "An 82-year-old woman received a $114 ticket for taking too long to cross a street. Mayvis Coyle said she began shuffling with her cane across Foothill Boulevard in the San Fernando Valley when the light was green, but was unable to make it to the other side before it turned red.

She said the motorcycle officer who ticketed her on Feb. 15 told her she was obstructing traffic.

"I think it's completely outrageous," said Coyle, who described herself as a Cherokee medicine woman. "He treated me like a 6-year-old, like I don't know what I'm doing."

"I'd rather not have angry pedestrians," [Los Angeles police Sgt. Mike]Zaboski said. "But I'd rather have them be alive."

Others, however, supported Coyle's contention that the light in question doesn't give people enough time to cross the busy, five-lane boulevard.

"I can go halfway, then the light changes," said Edith Krause, 78, who uses an electric cart because she has difficulty walking.

On Friday, the light changed too quickly even for high school students to make it across without running. It went from green to red in 20 seconds.

Councilwoman Wendy Greuel said she has asked transportation officials to figure out how to accommodate elderly people.

"We should look at those areas with predominantly seniors and accommodate their needs in intersections" she said."

Applying for Medicaid in NJ? Is NJ Giving the Right Info Re: Transfer Penalties?

Category: Elder Law

Is New Jersey mis-stating the new Medicaid Law for new applicants? Rumors are that Medicaid applicants are being unfairly denied access to Medicaid by the local offices applying the new Medicaid transfer laws to transfers that took place BEFORE the new Medicaid law was passed.

The Deficit Reduction Act of 2005 was signed into law by President Bush on February 8, 2006. I have previously summarized and debated and debated the provisions of the DRA. One item that should NOT be at issue is the effective date of February 8, 2006. The law specifically says that its is effective for all transfers AFTER that date. However, it seems that the State of New Jersey seems to be ignoring that little fact.

The law governing transfers made BEFORE February 8, 2006 was that (1) any transfer created a penalty, (2) any transfer within 36 months from the date of the Medicaid application needed to be disclosed, and (3) the penalty was reduced by (approximately) $6050 for each month that passed from the month of transfer. Thus, a $20,000 gift made in January, 2006 should create a penalty period of 3 months, which would expire at the end of March, 2006, so that you would be eligible for Medicaid starting April, 2006 (assuming you otherwise qualified).

The law governing transfers made AFTER February 8, 2006 is that (1) any transfer created a penalty, (2) any transfer within 60 months from the date of the Medicaid application needed to be disclosed, and (3) the penalty is reduced by (approximately) $6525 for each month that passes starting from the date that (a) you are institutionalized, and (b) you have no other funds to pay. Thus, a $20,000 gift made in March, 2006 should create a penalty period of 3 months and 2 days. This penalty would start when (a) you are in a nursing home, and (b) your total countable assets are $2000 or less (how your care is paid for during the penalty period is a separate question).

It appears that some New Jersey counties are telling people making applications currently that there is a 60 month lookback. This 60 months transfer penalty should only apply to transfers made after 2.8.06.

Can't Pay your Income Taxes? Ignoring it is NOT the Answer

Category: Tax Law and Planning

We talked about what happens if you aren't ready to file by April 15th (17th this year), but what if you can't pay your taxes?

Don't ignore your tax obligation - it won't go away. In fact, it will just get larger, with the addition of interest and penalties.

The penalties for failure to file are seperate from the penalties for failure to pay. So even if you can't pay, you should file your return (or an extension as discussed earlier this week in _---) and address the payment issues seperately.

From Rubin on Tax: WHAT IF YOU CAN'T PAY YOUR INCOME TAXES BY APRIL 17?: "Here are some ideas to avoid the penalties (and interest, if the tax can be paid):

a. Borrow the tax payment from friends or family.

b. Bank loans (including home equity loans).

c. Credit card payment (where allowable by the credit card issuer). However, these providers charge a 2.49% fee, plus their usual interest.

d. Request an installment payment agreement from the IRS (using Form 9465). There is a $43 fee for these agreements. Interest is still charged on the unpaid tax, but the late payment penalty is reduced by 50% if the return is filed by the due date (including extensions).

e. Possible qualification for a 120 day extension to pay, or a payroll deduction installment agreement with the IRS. "

Special Needs Children - 10 Questions to Ask About Their Financial Future

Category: Estate Planning, Financial Planning

Press Release courtesy of Yahoo Finance:

MassMutual, Easter Seals help families create a more secure future for their child with special needs

If you're a parent raising a child with a disability, your child's health and comfort typically come first and foremost. But it's just as important to prepare for your child's financial future to help ensure a safe, secure and independent life ahead.

With more than 3.6 million U.S. children between the ages of 5 to 15 with a disability(1), financial experts say it is crucial for many parents to recognize they can take a few simple steps now to help ensure security for their child in later years. Massachusetts Mutual Life Insurance Company (MassMutual) and Easter Seals today issued a set of guidelines -- 10 questions and answers people should consider to help lay the groundwork for a secure financial future for their child with special needs.

MassMutual and Easter Seals urge parents of children with special needs to ask themselves the following questions:

1. Am I getting the right advice? Since laws affecting people with disabilities change frequently and require specific expertise, it's helpful to seek the expertise of a financial representative and an attorney who specialize in estate planning for families with special needs children. Consider asking other parents for references or check with local advocacy groups, such as the local chapter of Easter Seals, before embarking on your selection.

2. How should I develop an estate plan? Developing a detailed estateplan that best its your family's situation is essential to ensureyour child's long-term needs are met after you have passed away. Your estate plan -- which can include wills, trusts, durable powers of attorney, health care proxies, and other documents -- will outline how you would like your financial affairs handled and identify a guardian or guardians who will care for your child after you die. Consult an attorney and financial services professional who have a thorough understanding of your state's disability laws to develop a comprehensive plan for the future.

3. What kind of government benefits is my family eligible for? Be sure you're aware of any federal programs that may assist your family. Your child may be eligible for benefits under Medicaid, Medicare, the State Children's Health Insurance Program
(SCHIP), or the Children with Special Health Care Needs (CSHCN) provision of the Social Security Act. Visit the Web sites for these entities to check eligibility requirements.

4. Am I making the right choices with my health plan? Raising a child with a disability means you may incur high health care costs, so it's important to understand and maximize benefits under your health insurance coverage. Know which services and procedures are covered, which are not covered and how to appeal if a claim is denied. If you and your spouse both work, compare health plans and select the one that's best for your child.

5. Have I communicated my life care plan to close family members and friends? While the generosity of friends and family members is welcomed, a well-meaning friend or relative may inadvertently disqualify your child for benefits if he or she gives a gift or bequest that exceeds state limits. Once your estate plan is complete,
notify close friends and relatives of your life care plan. If your friends or relatives want to include your child in their wills, your attorney can assist.

6. What are the financial needs of my child's guardians? When you name a guardian for your child, ask yourself: Would the guardian need additional income to care for your child if you died? Would special funding be required for home renovations, specially equipped vehicles or in-home health aides? Should you plan for childcare services if, for example, your guardian worked full-time? If the answer to any of these questions is "yes," discuss these needs with your financial representative or attorney.

7. If I die unexpectedly, how will my child's guardian know what to do? A letter of intent, written by you, would provide detailed information about your child and instructions to assist those who will care for your child upon your death. Information typically includes emergency contacts, medical history, preferred living
arrangements, education or work arrangements, recreational preferences and behavioral challenges.

8. When should I apply for guardianship as my child becomes older? Many parents assume they will retain guardianship of their child, regardless of age. However, once your child reaches age of majority (typically at age 18 or 21, depending in which state you live), you must file for legal guardianship. In many cases, the guardianship process is merely a formality. But it's important to remember that guardianship is a court appointed procedure.

9. Where do I want my child to live in the future? When your child reaches adulthood, he or she will have the option of living in an apartment, house, condo, or an assisted-living environment. Whatever option is chosen, it's important to begin thinking about this when your child is still young, as early as 10 or 11. Waiting times for placements in assisted living facilities can be as long as 10 years for the best facilities. If your child wants to live independently, he or she will need the financial resources and money management skills to do so.

10. What other long-term issues do I need to consider? While housing is a primary long-term issue, there are a number of other matters that must be addressed, including: education, work opportunities, recreational programs, lifestyle, daily transportation, medical costs and custodial care. Projections for each of these factors should be accounted for when determining your child's financial needs in your child's life care plan.

For more information, visit http://www.massmutual.com/specialcare
to order three free financial guides:

* Making Plans, a financial guide for people with Down syndrome and their families.
* 2006 Resource
Guide, the source of information published by MassMutual for people with disabilities and other special needs.
* With Open Arms, a financial guide for families with disabilities.

(1) U.S. Census Bureau, 2003 American Community Survey Summary Tables.

Extension of Time to File Your Tax Return (You Still Have to Pay

Category: Tax Law and Planning

The clock is ticking towards April 15th (actually, April 17th this year). If you haven't filed your tax return by now, you may want to consider the reality that you won't be able to file it on-time at all. To avoid the stress and headaches of last minute filing (and the long lines at the post-office) you may want to consider filing an Extension of Time to File. You can get an automatic 6-month Extension of Time to File by completing a Form 4868.

This is NOT a reprieve from paying your taxes - those must still be paid on or before April 17 to avoid interest and penalties.

For more information look at Extension of Time to File Your Tax Return from www.irs.gov:

Extension of Time to File Your Tax Return

Need more time to prepare your federal tax return? This page provides information on how to apply for an extension of time to file.

Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability.

Extensions for Individuals
If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return (51K) Adobe PDF, by the due date for filing your calendar year return (usually April 15) or fiscal year return. This form is also available en español.

Special rules may apply if you are:
living outside the United States
out of the country when your 6-month extension expires, or
serving in a combat zone or a qualified hazardous duty area.

You can also go to Filing Information in Publication 17, Your Federal Income Tax (HTML page), for more information regarding the rules for automatic extensions and filing federal individual income tax returns."

Annuity Ownership OK for Medicaid Qualification - PA Court Ruling

Category: Elder Law,

My blogging has been sporadic of late, but I am now back in the blog business.

A great ruling for seniors holding annuities. Usually, an annuity is a contract to pay a certain amount a month for a period of time (ie: $100 a month for life"). Many Medicaid agencies, including those in New Jersey, took the approach that the income right (the "$100 a month") could be sold (similar to the way a personal injury settlement could be sold), so therefore the annuity was treated as an accessible resource, even though (1) under the contract, the person only had the right to a monthly income, not to liquidate the asset and take it back, and (2) the annuity had not in fact been sold on the theorectical open market. The result, a person who in fact had no access to additional assets (just the income from those assets) was denied access to Medicaid because of the theoretical value of those assets. The result is even more troubling because seniors are the target market for annuities, which means that these same seniors end up being punished for making this type of investment, and would have not way of righting the situation.

The Federal Court in Pennsylvania noticed in the inequity in this law, and ruled that such an annuity could not be counted as an asset. The summary below is from elderlawanswers.com.

"A U.S. District Court finds that an actuarially sound annuity is not an
available resource under federal Medicaid law even if it is marketable, and that
Pennsylvania's provisions to the contrary contradict federal law. James v.
Richman (U.S. Dist. Ct., M.D. of Penn., No. 3:05-2647, March 20, 2006).
Robert James entered a nursing home and applied for Medicaid benefits. Mr.
James's wife, Josephine, purchased an actuarially sound annuity in order to
reduce the couple's assets to the required level. The state denied Mr. James's
application, claiming that the annuity was an available resource. Under state
law, immediate annuities were presumed to be marketable and therefore available
resources.

Mr. James asked the court for a restraining order preventing the
state from denying him Medicaid benefits. In support of its position that the
annuity was marketable, the state submitted an affidavit from a potential
purchaser of the annuity.

The U.S. District Court for the Middle District of
Pennsylvania grants the restraining order, holding that the state law
contradicts federal law, which excludes irrevocable, actuarially sound annuities
from resource determinations. Because the annuity is permitted under federal
law, it is not an available resource and Mr. James cannot be denied benefits.

Mr. James was represented by ElderLawAnswers member attorney Matthew J.
Parker of the Elder Law Firm of Marshall and Associates. "