CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Is An IRA “Accumulation” Trust Appropriate? We have noted in previous articles in this newsletter that designating a trust as beneficiary of an IRA can be extremely problematic. In most instances it is better to name an individual beneficiary. In some cases, however, it is necessary to designate a trust for certain planning purposes. When necessary, there can be certain advantages associated with an “accumulation” trust. As distinguished from an “accumulation” trust, a “conduit” trust is one which requires that the Required Minimum Distribution (RMD) each year is actually distributed out to the trust beneficiary. The RMDs to a trust will be distributed to the trust based on the beneficiary’s life expectancy. There are creditor protection issues with a “conduit” trust, however, since the RMDs must be paid out of the trust and placed in the hands of the beneficiary. This can be very problematic with a high-risk beneficiary, such as when there are concerns about substance abuse, divorce, etc. An “accumulation” trust would allow the RMDs to be retained in the trust, but establishing an “accumulation” trust may be difficult to accomplish in many situations. In order to use the life expectancy of the beneficiary, there can be no contingent beneficiaries other than the primary beneficiary who are older than the primary beneficiary. Finding an appropriate contingent, that is a beneficiary to whom distributions would be made following the death of the primary beneficiary, may be difficult. If the appropriate contingent beneficiary is older than the primary beneficiary, then the life expectancy of the older beneficiary would have to be used. Using an older beneficiary’s life expectancy might be appropriate, however, if asset protection is an overriding goal. A disadvantage of an “accumulation” trust is that the RMDs will be taxed at the higher trust income tax rates if the RMDs are retained in the trust and not distributed. Of course, a portion of the RMDs might be distributed, which could be done in the form of indirect payments for the benefit of the beneficiary, in order to reduce the retained income in the trust to a point at which the applicable tax rate is not too confiscatory. The biggest issue affecting “accumulation” trusts is the determination of the ultimate beneficiaries of the trust assets. Whether a “conduit” trust requiring distributions or an “accumulation” trust allowing the retention of distributions is used, it is appropriate in some instances to name a trust as a beneficiary for certain asset protection and family planning reasons.
Medicaid Figures Published. This newsletter typically reports changes in certain applicable Medicaid figures that may be of interest to readers. The following are the spousal impoverishment and home equity figures released by The Centers for Medicare and Medicaid Services (CMS) for 2017:
● Minimum community spouse resource allowance – $24,180. In the case of a husband and wife, if one spouse is admitted to a nursing facility, the community spouse can retain resources having a minimum value of $24,180 (including the institutionalized spouse’s $2,000 limitation, the total would be $26,180).
● Maximum community spouse resource allowance – $120,900. In general, in the case of a husband and wife, if one spouse is admitted to a nursing facility, the community spouse can retain one-half of the countable assets. However, that total value cannot exceed $120,900 currently (including the institutionalized spouse’s $2,000 limitation, the total would be $122,900).
● Minimum monthly maintenance needs allowance – $2,030. The community spouse is entitled to a minimum income standard of $2,030. If the community spouse’s income is less than that, then the community spouse can receive an allocation of the institutionalized spouse’s income up to that amount.
● Maximum maintenance needs allowance – $3,023. The community spouse may receive additional income from the institutionalized spouse if the community spouse has excess housing costs. This will most often arise when there is a mortgage or when there are rent payments.
● Home equity limits – minimum $560,000 (applicable to Indiana and most states); maximum $840,000 (applicable to a few states).
The current divestment penalty divisor is $6,078 and will remain so until July of 2017. The new rate has not yet been published. The effect of the divestment penalty divisor (which is the penalty calculation rate) for a $100,000 transfer is 16.45 months ($100,000 ÷ $6,078 = 16.45 months).
Developments Concerning ABLE Accounts. Passage by the U.S. Congress of the “Achieving A Better Life Experience” Act of 2015 (the “ABLE Act”) has been addressed in previous issues of this newsletter. Detailed information is also available on my website in the materials titled 2015 Elder Law Developments and 2016 Elder Law Developments. The ABLE Act allows each state to establish and operate a program which permits contributions to be made to an ABLE account established for the purpose of meeting the “qualified disability expenses” (QDE) of a disabled beneficiary. Indiana enacted an ABLE law last year, but the program is not yet up and running. Currently 16 states have ABLE programs that are open for enrollment. For a chart comparing the various state plans, see http://tinyurl.com/ASNP-ABLEchart. For an update of various available state plans, refer to the website of the ABLE National Resource Center at www.ablenrc.org/. There is no longer a residency requirement, and an ABLE account can be established in any state that allows a non-resident to establish an ABLE account. There are advantages and disadvantages of ABLE accounts as compared to certain so-called “safe harbor” special needs trusts. Additional information concerning ABLE accounts will be discussed in this newsletter from time to time in the future. A detailed outline will be posted when my materials titled 2017 Elder Law Developments are added to my website following my presentation at the 39th Annual Judge Robert H. Staton Indiana Law Update which will take place in Indianapolis in September of this year.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.