Posts Tagged ‘elderlaw’
Monday, November 1st, 2010 by Moore McLaughlin
December 31, 2010 is an important deadline for individuals who inherited an IRA from an IRA owner who died in 2009. Where there are multiple beneficiaries for the IRA, splitting up the account into several accounts no later than December 31, 2010, can yield important tax and other benefits for each beneficiary.
Background. Designating several beneficiaries for an IRA may put the younger one (or ones) at a disadvantage if they want to keep required minimum distributions (RMDs) as small as possible and keep IRA deferrals going for as long as possible. Reason: As a general rule, where there is more than one IRA designated beneficiary, the one with the shortest life expectancy (that is, the oldest one) is treated as the designated beneficiary for determining distributions.
Observation: The oldest-beneficiary rule comes into play for determining RMDs after the IRA owner’s death. Regardless of whether the IRA owner died before or after his required beginning date, if the IRA owner was older than any of the beneficiaries, the remaining IRA balance at the owner’s death is paid out over the remaining life expectancy of the oldest designated beneficiary.
Illustration : Anne designated her son, Seth, and her daughter, Carol, as equal beneficiaries of his IRA. Anne died in 2009 at the age of 74. Seth, age 50 this year, wants to invest the inherited IRA in emerging markets mutual funds. Carol, age 44 this year, wants to invest the inherited IRA in a target-retirement-date mutual fund. If the IRA is left as-is, annual RMDs for both Seth and Carol, which must commence in 2010, are based on Seth’s life expectancy, which is shorter than Carol’s. And they may find it hard to reconcile their differing investment philosophies.
Post-mortem planning solution. The beneficiaries can split up the IRA into separate accounts no later than the end of the year following the year in which the decedent died. Where an IRA is divided into separate accounts (i.e., subaccounts), the RMD rules separately apply to each separate account, effective for years after the year in which the separate accounts were created, or the IRA owner’s date of death, if later.
Thus, in the illustration above, if Seth and Carol direct the IRA trustee to split Anne’s IRA into two separate and equal IRAs no later than December 31, 2010, with each the sole beneficiary of one of the equal IRAs, Seth’s RMD will be based on his table life expectancy, and Carol’s will be based on her life expectancy, which is longer than Seth’s. Seth can invest his half of the inherited IRA in emerging markets mutual funds, and Carol can invest her half in the mutual fund of her choice.
For purposes of the RMD rules, separate accounts in an IRA account are separate portions of the IRA owner’s benefit reflecting the separate interests of the IRA’s beneficiaries as of the date of the IRA owner’s death for which separate accounting is maintained.
For the separate or “subaccount” IRA to be treated as a separate account for RMD purposes, it must be established no later than the last day of the year following the year of the IRA owner’s death. Additionally, a separate accounting must allocate all post-death investment gains and losses for the period before the separate accounts were established on a pro rata basis in a reasonable and consistent manner among the separate accounts. However, once the separate accounts are actually established, separate accounting can provide for separate investments for each separate account under which gains and losses from the investment of the account are only allocated to that account. Alternatively, investment gain or losses can continue to be allocated among the separate accounts on a pro rata basis. A separate accounting must allocate any post-death distribution to the separate account of the beneficiary receiving that distribution.
Tags: asset protection, Asset Protection Planning, Capital gains tax, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, income tax, individual retirement account, internal revenue code, Internal Revenue Service, IRA, IRS, IRS and state tax collections, Jill E. Sugarman, Jill Sugarman, Long-term care, long-term care insurance, Massachusetts, mclaughlin & quinn, Medicaid, Medicaid planning, Moore McLaughlin, nursing homes, Providence, required minimum distribution, Rhode Island, rmd, seniors, Tax planning
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning, Self-directed IRAs, Tax Current Events and News, Tax planning
Sunday, October 24th, 2010 by Moore McLaughlin
While you generally do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, it is possible the state can file a claim against your house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery,” and given the rules for Medicaid eligibility, the only property of substantial value that a Medicaid recipient is likely to own at death is his or her home. If possible, you should consult with an attorney before entering a nursing home, or as soon as possible afterwards, in order to discuss ways to protect your home.
In those states that have implemented the Deficit Reduction Act of 2005, the home is not counted as an asset for Medicaid eligibility purposes if the equity is less than $500,000 ($750,000 in some states). In all states, you may keep your house with no equity limit if your spouse or another dependent relative lives there.
Transferring a Home
In most states, transferring your house to your children (or someone else) may lead to a Medicaid penalty period, which would make you ineligible for Medicaid for a period of time. There are circumstances in which it is legal to transfer a house, however, so consult an attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:
- Your spouse
- A child who is under age 21 or who is blind or disabled
- Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
- A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
- A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
While you can sell your house for fair market value, it may make you ineligible for Medicaid and you may have to apply the proceeds of the sale to your nursing home bills.
Lien on Home
Except in certain circumstances, Medicaid may put a lien on your house for the amount of money spent on your care. If the property is sold while you are still living, you would have to satisfy the lien by paying back the state. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there.
Estate Recovery
If your spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house, lives in the house, the state cannot file a claim against the house for reimbursement of Medicaid nursing home expenses. However, once your spouse or dependent relative dies or moves out, the state can try to collect.
But there are some circumstances under which the value of a house can be protected from Medicaid recovery. The state cannot recover if you and your spouse owned the home as tenants by the entireties or if the house is in your spouse’s name and you have relinquished your interest. If the house is in an irrevocable trust, the state cannot recover from it.
In addition, some children or relatives may be able to protect a nursing home resident’s house if they qualify for an undue hardship waiver. For example, if your daughter took care of you before you entered the nursing home and has no other permanent residence, she may be able to avoid a claim against your house after you die. Consult with an attorney to find out if the undue hardship waiver may be applicable.
For more information on Medicaid planning, please contact Elderlaw Attorney Jill E. Sugarman at 401-421-5115 or by e-mail at JSugarman@McLaughlinQuinn.com.
Tags: asset protection, Asset Protection Planning, assisted living facilities, Deficit Reduction Act of 2005, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, Jill E. Sugarman, Jill Sugarman, Long-term care, long-term care insurance, mclaughlin & quinn, Medicaid, Medicaid eligibility, Medicaid penalty period, Medicaid planning, nursing home care, nursing homes, Providence, Rhode Island, seniors, veterans
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning
Sunday, October 24th, 2010 by Moore McLaughlin
Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.
1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person (through a power of attorney).
2. Minor children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.
3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.
4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.
5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.
6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.
7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.
8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs (although the rules regarding the designation of a beneficiary have been eased considerably). With a plan, you can choose the optimal beneficiary.
9. Business ownership. Do you own a business? Without a plan, you don’t name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.
10. Avoiding probate. Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely.
For more information on getting started with your estate plan, contact Estate Planning Attorney Jill E. Sugarman at 401-421-5115 or by e-mail at JSugarman@McLaughlinQuinn.com.
Tags: asset protection, Asset Protection Planning, assisted living facilities, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, Jill E. Sugarman, Jill Sugarman, Long-term care, long-term care insurance, mclaughlin & quinn, Medicaid, Medicaid planning, nurses, nursing homes, Providence, Rhode Island, seniors, veterans
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning, Tax planning
Friday, October 15th, 2010 by Moore McLaughlin
The following is the ninth in a series of blog posts providing a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
Over-the-counter drug costs will no longer be reimbursable.
Effective January 1, 2011, unless prescribed or insulin, the cost of over-the-counter medicines cannot be reimbursed from flexible spending arrangements (FSA), health reimbursement arrangements (HRA), Health Savings Accounts (HSA) and Archer Medical Savings Accounts (Archer MSA). The IRS has issued guidance explaining that an individual may be reimbursed for over-the counter medicines or drugs, so long as the individual obtains a prescription for the medicines or drugs. It also makes clear that expenses incurred for over-the-counter medicines or drugs purchased without a prescription before January 1, 2011 may be reimbursed tax-free at any time by an employer-provided plan, including an FSA or HRA, under the terms of the employer’s plan.
For more information, please contact Partner Moore McLaughlin at 401-421-5115 ext 212 or by e-mail at mmclaughlin@mclaughlinquinn.com.
Tags: Archer Medical Savings Accounts, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, flexible spending arrangements, FSA, health reimbursement arrangements, Health Savings Accounts, HRA, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, Jill E. Sugarman, Jill Sugarman, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, seniors, tax, Tax planning
Posted in Asset Protection Planning, Current Events, Elderlaw/Law For Life, Tax Current Events and News, Tax planning
Wednesday, October 13th, 2010 by Moore McLaughlin
The following is the sixth in a series of blog posts providing a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
Legislation ends foreign loopholes and advance EITC.
The Education Jobs and Medicaid Assistance Act, which was signed into law on August 10, 2010, includes provisions closing a number of foreign-tax-credit related loopholes and repealing the advanced earned income tax credit (EITC). Specifically, this legislation tightens the rules on the use of foreign tax credits that multinationals use to lower their U.S. tax bill. In general, these provisions attempt to (1) make foreign tax credits (FTCs) available only when the income to which the FTCs relate is actually taxed by the U.S., (2) prevent artificial inflation of foreign source income, and (3) modify the resourcing rules to limit FTCs. Also, under the new law, starting in 2011, eligible low- and moderate-income workers who qualify for the EITC will no longer be able to elect to receive the credit in advance.
For more information, please contact Partner Moore McLaughlin at 401-421-5115 ext 212 or by e-mail at mmclaughlin@mclaughlinquinn.com.
Tags: asset protection, Asset Protection Planning, assisted living facilities, business tax, Capital gains tax, corporate tax, earned income tax credit, Education Jobs and Medicaid Assistance Act, EITC, elder law, elderlaw, Estate Planning, foreign tax credit, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, state taxes, tax, tax credit, Tax planning
Posted in Bankruptcy, Current Events, Elderlaw/Law For Life, Financial workout, IRS and state tax collections, Tax Current Events and News, Tax planning
Thursday, July 15th, 2010 by Moore McLaughlin
S. 3533, 111th Cong., 2d Sess. (June 23, 2010), the “Responsible Estate Tax Act of 2010,” introduced by Senators Bernard Sanders (I-Vermont), Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.), would:
- Retroactively reimpose the estate tax and GST tax;
- Adopt an applicable exclusion amount and GST exemption of $3.5 million per person;
- Adopt a progressive rate structure, under which a 45% rate would apply on the taxable estate up to $10 million, 50% on the taxable estate above $10 million and below $50 million, and 55% on taxable estates above $50 million, and a 10% surtax on estates above $500 million;
- Enact two loophole closures included in President Obama’s Fiscal Year 2011 budget, requiring consistent valuation for transfer and income tax purposes, and requiring a 10-year minimum term for GRATs;
- Eliminate the use of valuation discounts for entities that do not operate an active trade or business;
- Allow reduction in the gross estate under Code Sec. 2032A , special use valuation for family farms and certain closely held business real estate, by up to $3 million; and
- Expand the rules for conservation easements through increasing the maximum exclusion amount to $2 million and increasing the base percentage to 60%.
Tags: asset protection, Asset Protection Planning, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, internal revenue code, Jill E. Sugarman, Jill Sugarman, mclaughlin & quinn, Medicaid, Medicaid planning, Moore McLaughlin, Providence, Rhode Island, seniors, Sheldon Whitehouse, Tax planning
Posted in Uncategorized
Monday, June 14th, 2010 by Moore McLaughlin
The estate tax gets all the press, but if you are leaving property to a grandchild, there is an additional tax you should know about. According to Jill E. Sugarman, Esq., elderlaw and estate planning attorney at McLaughlin & Quinn, LLC, the generation-skipping transfer (GST) tax is a tax on property that is passed from a grandparent to a grandchild (or great-grandchild) in a will or trust. The tax is also assessed on property passed to unrelated individuals more than 37.5 years younger. Like the estate tax, it is currently repealed, but is scheduled to return in 2011.
The GST tax was designed to close a loophole in the estate tax. Normally, grandparents would leave their estates to their children, incurring estate taxes. Then the children would pass on the estates to the grandchildren, incurring estate taxes again. Wealthy individuals realized they could leave their estates to their grandchildren directly and avoid one set of estate taxes. Congress established the GST tax to prevent this by taxing transfers to related individuals more than one generation away and to unrelated individuals more than 37.5 years younger.
A GST tax is imposed even when property is left in trust for a grandchild. For example, suppose a grandparent sets up a trust that leaves income to her children for life and then the remainder to her grandchildren. The part of the trust left to the grandchildren will be subject to a GST tax.
The GST tax has tracked the estate tax rate and exemption amounts. In 2009, the federal government exempted $3.5 million from the tax and the tax rate was 45 percent. The GST tax expired in 2010 along with the estate tax, but it is scheduled to return in 2011. Unless Congress acts in the meantime, the 2011 GST tax exemption amount will be $1 million and the tax rate will be 55 percent.
For more information on estate taxes, contact Founding Partner F. Moore McLaughlin, IV, CPA, Esq. at 401-421-5115 ext 212 or by e-mail at MMcLaughlin@McLaughlinQuinn.com or Jill E. Sugarman, Esq. at 401-421-5115 ext 217 or by e-mail at JSugarman@McLaughlinQuinn.com.
Tags: asset protection, Asset Protection Planning, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, generation skipping tax, generation skipping transfer tax, GST, GST tax, internal revenue code, Internal Revenue Service, IRS, Jill E. Sugarman, Jill Sugarman, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, Tax planning
Posted in Elderlaw/Law For Life, Estate Planning, Tax planning
Sunday, June 6th, 2010 by Moore McLaughlin
McLaughlin & Quinn, LLC estate planning and elder law attorney Jill E. Sugarman reminds us that a power of attorney is a very important estate planning tool, but in fact there are several different kinds of powers of attorney that can be used for different purposes. Before executing this crucial document, it is important to understand what your options are.
A power of attorney allows a person you appoint — your “attorney-in-fact” or agent — to act in your place for financial or other purposes when and if you ever become incapacitated or if you can’t act on your own behalf. There are four main types of powers of attorney.
- Limited. A limited power of attorney gives someone else the power to act in your stead for a very limited purpose. For example, a limited power of attorney could give someone the right to sign a deed to property for you on a day when you are out of town. It usually ends at a time specified in the document.
- General. A general power of attorney is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself. For example, a general power of attorney may give your attorney-in-fact the right to sign documents for you, pay your bills, and conduct financial transactions on your behalf. You could use a general power of attorney if you were not incapacitated, but still needed someone to help you with financial matters. A general power of attorney ends on your death or incapacitation unless you rescind it before then.
- Durable. A durable power of attorney can be general or limited in scope, but it remains in effect after you become incapacitated. Without a durable power of attorney, if you become incapacitated, no one can represent you unless a court appoints a conservator or guardian. A durable power of attorney will remain in effect until your death unless you rescind it while you are not incapacitated.
- Springing. Like a durable power of attorney, a springing power of attorney can allow your attorney-in-fact to act for you if you become incapacitated, but it does not become effective until you are incapacitated. If you are using a springing power of attorney, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.
Regardless of what type of power of attorney you use, it is important to think carefully about who will be your attorney-in-fact. Your attorney-in-fact will have a lot of control over your finances, and it is crucial that you trust him or her completely.
While many pre-packaged do-it-yourself power of attorney forms are available, it is a good idea to have an experiences estate planning or elder law attorney draft the form specifically for you. There are many issues to consider and one size does not fit all. For more information, please contact Jill E. Sugarman, Esq. at 401-421-5115 ext 215 or by e-mail at JSugarman@McLaughlinQuinn.com to learn more.
Tags: asset protection, Asset Protection Planning, assisted living facilities, durable power of attorney, elder law, elderlaw, Estate Planning, Jill E. Sugarman, Jill Sugarman, Massachusetts, mclaughlin & quinn, nursing homes, Providence, Rhode Island
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning
Sunday, June 6th, 2010 by Moore McLaughlin
McLaughlin & Quinn, LLC attorney Jill E. Sugarman notes that although your life insurance policy may pass to your heirs income tax-free, it can affect your estate tax. If you are the owner of the insurance policy, it will become a part of your taxable estate when you die. While the federal estate tax is currently zero, the exemption will be $1 million and the rate will increase to 55 percent on January 1, 2011, if Congress fails to act in the interim. And Rhode Island, Massachusetts and other state estate taxes are still in effect now. You should make sure your life insurance policy won’t have an impact on your estate’s tax liability.
If your spouse is the beneficiary of your policy, then there is nothing to worry about. Spouses can transfer assets to each other tax-free. But if the beneficiary is anyone else (including your children), the policy will be a part of your estate for tax purposes. For example, suppose you buy a $200,000 life insurance policy and name your son as the beneficiary. When you die, the life insurance policy will be included in your taxable estate. If the total amount of your taxable estate exceeds the estate tax exemption, then your policy will be taxed.
In order to avoid having your life insurance policy taxed, you can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won’t be able to change the beneficiary or exert control over it. In addition, the transfer may be subject to gift tax if the cash value of your policy (the amount you would get for your policy if you cashed it in) is more than $13,000. If you decide to transfer a life insurance policy, do it right away. If you die within three years of transferring the policy, the policy will still be included in your estate.
If you transfer a life insurance policy to a person, you need to make sure it is someone you trust not to cash in the policy. For example, if your spouse owns the policy and you get divorced, there will be no way for you to get it back. A better option may be to transfer the life insurance policy to a life insurance trust. With a life insurance trust, the trust owns the policy and is the beneficiary. You can then dictate who the beneficiary of the trust will be. For a life insurance trust to exclude your policy from estate taxes, it must be irrevocable and you cannot act as trustee.
If you want to transfer a current life insurance policy to someone else or set up a trust to purchase a policy, please contact Jill E. Sugarman, Esq. at 401-421-5115 ext 215 or by e-mail at JSugarman@McLaughlinQuinn.com.
Tags: asset protection, Asset Protection Planning, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, Estate tax, Jill E. Sugarman, Jill Sugarman, life insurance, life insurance trust, Massachusetts, mclaughlin & quinn, Medicaid, Medicaid planning, Moore McLaughlin, nursing homes, Providence, Rhode Island, seniors
Posted in Asset Protection Planning, Current Events, Elderlaw/Law For Life, Estate Planning
Sunday, January 31st, 2010 by Moore McLaughlin
As McLaughlin & Quinn, LLC has posted previously, the estate tax expired on January 1, 2010. It remains to be seen whether Congress will reinstate it before it returns in 2011, but the fact that there is currently no estate tax can have unintended consequences for spouses. Standard language found in many estate plans could leave spouses with nothing. It is important to check with an elder law or estate planning attorney such as McLaughlin & Quinn’s Jill E. Sugarman, Esq. to make sure your estate plan does what you want it to do.
In previous years, estates could pass a certain amount of assets tax free (up to $3.5 million in 2009). In addition, spouses can receive an unlimited amount tax free. To take advantage of these rules, estate plans often contain a “bypass trust” (or “credit shelter trust”) and a will with language in it that is designed to allow estates to pass without any estate tax. For example, the will may state: “I leave to my trustees the maximum amount that can pass free of estate tax and leave the residual to my spouse.” Because there is currently no estate tax, individuals who die in 2010 with this language in their estate plan would wind up leaving nothing to their spouses.
While most states allow spouses to claim a portion of the estate (usually one-third), even if they don’t receive anything under a will, this can be a time-consuming and expensive process. To ensure your spouse is covered, you should talk to an attorney.
To learn more about this, contact Jill E. Sugarman, Esq. by e-mail at jsugarman@mclaughlinquinn.com or by phone at 401-421-5115.
Tags: 2010, assisted living facilities, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, Jill E. Sugarman, Jill Sugarman, long-term care insurance, mclaughlin & quinn, Medicaid, Medicaid planning, Providence, Rhode Island, spouse, Tax planning, veterans
Posted in Asset Protection Planning, Current Events, Elderlaw/Law For Life, Estate Planning, Tax Current Events and News, Tax planning
