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.
Gifting Strategies After ATRA. After the so-called American Taxpayer Relief Act of 2012 (“ATRA”), charitable gifts may be more attractive to higher income taxpayers. With the current 39.6 percent top tax rate and the 3.8 percent tax on net investment income, as well as the 20 percent capital gain tax rate, a charitable gift of appreciated property will not only save taxes based on the higher income tax rate, but may avoid the combined 23.8 percent tax on capital gains and net investment income. If a gift of appreciated property is made to a charitable remainder trust (“CRT”), the CRT can receive and then liquidate the appreciated assets and avoid the capital gain tax and the new surtax on net investment income. Individuals contributing the appreciated property to the CRT may also receive a charitable deduction based on the remainder value of the interest passing to charity.
VA Pension Benefits Revisited. Several previous issues of this newsletter have addressed various aspects of the VA Aid and Attendance and Home Bound pension benefits. Readers have been cautioned in the past to be very wary of some of the investment firms which market VA pension qualification plans, particularly in the context of veterans or qualified spouses who reside in an assisted living facility. As has been previously noted, many of the strategies which are utilized by these less than reputable financial advisory firms will place the recipient of the VA pension in a position which will result in Medicaid disqualification at a later time if the VA pension recipient is admitted to a long term care facility. Most of the so-called planning strategies are structured to qualify for the pension and neglect to protect the future long term security of the pension recipient. The plans are also structured to generate fees from the sale of unneeded and unwarranted investment products.
A Senate bill has now been reintroduced to impose a look-back period of 36 months for any uncompensated transfers made by a veteran or the veteran’s spouse or child who would otherwise be eligible for a pension. The look-back period would commence on the date of the pension application (or the date of the transfer, if later), and would impose a penalty calculated by dividing the value of the transferred resources by the amount of the monthly pension to which the claimant would otherwise be entitled. The penalty, however, would not exceed 36 months. It should be noted that pension benefit applications have become more onerous and now take much longer to process, and the resource level allowed to be retained by the applicant and still qualify for the benefit is becoming harder to project. Readers are again cautioned to be extremely wary in their dealings with assisted living facilities and the financial firms to whom and to which the facilities frequently refer their residents and to obtain legal advice from a qualified elder law attorney who has been accredited by the Veterans Administration.
Fine Print and Red Tape in LTC Insurance Policies. The New York Times recently reported that many people are having significant problems establishing eligibility for benefits under long term care (“LTC”) insurance policies and complying with the claim process. Families are confronting piles of paperwork, numerous phone calls, interpretation of fine print, and complex requirements in order to collect benefits for which insureds are entitled and for which they have paid premiums for many years. One person was quoted as saying, “There is no possible way an elderly person who is ill and needs help can possibly do this work.” Instances were reported when six to eight weeks are required to get the insurance in place which necessitated working on the process every single day. Families have been forced to engage legal counsel in an effort to overturn denials. Some problems stem from the fact that older Americans who are now collecting benefits, or attempting to collect them, bought their policies many years ago when the policies were more restrictive than they are now. Many insurers have since gone out of business after mispricing the policies and failing to judge the economics of the industry. According to Jesse Slome, Director of the American Association for Long Term Care Insurance, when insurers stop selling or exit the business, many of them hire third-party administrators to adjudicate claims and their interpretations do not appear to be as liberal. While I advise many of my clients to evaluate the availability of long term care insurance, I caution them to deal with reputable vendors who are representing reputable and viable companies, and to obtain multiple quotes from multiple vendors which are similar enough to allow an “apples to apples” comparison. I also recommend that they not make a final decision without actually receiving a specimen contract for review, and that they consult with me before making the purchase decision. LTC insurance is a product that can be tailored in a number of different ways, and many people are likely not to purchase LTC insurance because they think that it is unaffordable. In fact, with proper tailoring of the product, the premiums can be brought down to a level so that at least some degree of benefit can be purchased rather than for a person to decide to go completely naked without any coverage whatsoever.
Consider Use of a Trust Protector. As readers of this newsletter are well aware by now, there are many different types of trusts, and trusts are used for a multiplicity of purposes. In the context of protecting assets, the trust will virtually always be irrevocable and the beneficiary will neither be a trustee or have control over the trust assets, trust investments, or trust distributions. As a consequence, some people tend to be a little reluctant about the use of certain types of trusts because of the lack of control. A trust protector is one way of addressing such concerns. A trust protector is a quasi-fiduciary whose purpose or roll can be defined in numerous ways in order to achieve particular objectives. A trust protector is used quite often as a way to oversee what the trustee is doing, and will have the power to deal with distributions or to change investment strategies, and even to remove and replace a trustee. A trust protector can be used in many family planning situations, such as a trust created for the benefit of a younger or a disabled beneficiary when the trust is anticipated to last for a long time. Since the parent or other family member may no longer be around and able to monitor the care and attention being given to the beneficiary, a trust protector is one way of providing such long term oversight. The trust terms must provide a mechanism for selecting or replacing a trust protector, such as by providing an order of succession.