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Educational FYIs
These recent developments and case studies address any aspect of the law that touches on estate planning. They offer an interesting perspective and/or warning. The frequency of release varies from month to month and week to week. Our purpose for sharing these Educational FYI's to you is to further enlighten you on the many variables involved in the fine balancing act of proper estate planning.

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Utah Tops List of Best Places to Die
Geography determines much about an individual's final days: the kind of care received, where he or she will get it, and how much a decedent can pass on to heirs. This Forbes article ranks the states top to bottom. On top: Utah. At the bottom: Illinois

Tax Proposals from Republican and Democratic Campaigns
As the Presidential campaign heats up, a few details have emerged on how the incumbent and the challenger would approach federal income taxes. Here's a thumbnail review.

IRS Wins Victory in Thompson FLP Case
The Third Circuit Court of Appeals has upheld the IRS Tax Court victory using an IRC 2036 attack. Unfortunately, bad facts (death bed FLP) make for bad case law. We will reconcile this case with the recent taxpayer victory in the appeal of the Kimbell case in an upcoming memo to members. In the meantime, we have attached a copy of the Third Circuit opinion. Finals briefs are due from the Department of Justice today on the appeal of the Strangi case, so we will see whether that court follows the logic of Kimbell or Thompson within a few months.

HCFA Transmittal 64 Tables for Medicaid Planning Available on the Web
A useful resource for Medicaid Planning with annuities and life estates is the HCFA Transmittal 64 Tables, but these are often difficult to find. The link below will take you to the Tables on the Centers for Medicare and Medicaid Services website.

Tax Fraud Promoters Associated with "We the People" Convicted
Seven individuals associated with a tax fraud group known as "We the People" were convicted May 4, 2004 on various federal charges related to the promotion of bogus tax shelters that falsely promised to limit exposure to federal income taxes.

August AFRs
The section 7520 rate for August 2004 is 4.8%.

Law Firm Ordered to Comply with IRS Summonses
Jenkens and Gilchrist Ordered to Comply with IRS Summonses

Various States Address Estate Taxes
On April 27, 2004 the Virginia Senate approved a tax plan passed by the Senate Finance Committee the night before that would cap at $950 million the amount the state reimburses localities for "car tax" relief and would reinstate the Virginia estate tax.

July AFR Climbs to 5%
For purposes of determining the present value of an annuity, an interest for life or a term of years, or a remainder or a reversionary interest, Revenue Ruling 2004-66 indicates the charitable federal midterm rate under section 7520 for July 2004 is 5.0%; up 0.4% from the June rate of 4.6% and up 1.2% from the May rate of 3.8%.

IRS Offers Tips for Accurate Schedule K-1 Filing
Correct filings can prevent unnecessary notices when IRS matches K-1 income reports to the recipients' tax returns.  For tax year 2002, approximately 25 million Schedule K-1 forms were filed reporting over $1 trillion in income to partners, shareholders and some trust beneficiaries.  A matching program to ensure all Schedule K-1 income is being reported is critical to IRS tax administration policies.

7520 Rate for June 2004
The Service has released the Applicable Federal Rates for June 2004.  The 7520 rate, used to value life estates, remainder interests, etc., is 4.6%.  This is a substantial increase from the 3.8% rate in effect in April and May 2004.

IRS Releases Form 8855, Election to Treat Trust as Estate
New Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, has been released.  Instead of having to write a statement as outlined in the IRS regulation under IRC Section 645, we should now use this form to make this election.

Attorneys' Fees Award Against Losing Party in Trust Contest Upheld
Mother/son team unduly influenced a demented multimillionairess to modify three trusts of which she was settlor, naming son as successor trustee and changing the trusts' ultimate distribution to substantially benefit the mother and son.  Several months later the former trustee filed a petition for appointment of a guardian ad litem for the settlor.  After setting aside the changes, the trial court ordered the mother and son to repay the trusts all of their legal fees (which had been paid from trust assets) but declined to order payment of the prior trustee's or the trust beneficiary's attorneys' fees and costs.

Nebraska Estate Tax Reform Moves Ahead
LB 1034, a bill that would change Nebraska's estate tax rates, has been advanced to final reading in the Nebraska Legislature.  The bill would reduce estate taxes on the first $100,000 of an estate but increase them for estates of more than $3.5 million.

Parental Support Statute Does Not Authorize Suit Against Child of Patient With Assets
Father was admitted to the hospital for what turned out to be his final illness.  Days before his death approximately $1.2 million was deposited into a trust for his benefit in settlement of a personal injury action.  At the time of his death the hospital believed that Medicare would cover his care, and so submitted a bill for $42.73, which the father's estate paid and for which it secured a release of further liability from the hospital.

Private Annuity Contract With Irrevocable Trust is Subject to Medicaid Transfer Penalty
Husband and wife established an irrevocable trust, and then transferred $150,000 in assets to the trust.  The Trust executed a private annuity agreement with wife to pay $1,424.55/month to her.  Husband then applied for Medicaid eligibility.  Medicaid agency denied first application due to inadequate documentation, excess assets and a transfer penalty occasioned by the transfer to trust.  After a second Medicaid denial based on excess income, husband appealed.

Agent Personally Liable for Unpaid Nursing Home Bills After Medicaid
Daughter of nursing home resident held a power of attorney for her mother. Daughter/agent signed nursing home contract as "responsible party," promising to use mother's assets for her welfare (specifically including nursing home costs). Thereafter, daughter/agent made gifts to herself of just under $50,000 and paid a companion $31,760 over a period of years. Mother's husband had apparently also transferred $285,000 into a revocable trust prior to nursing home placement.

Kansas House Tax Committee OKs Increase in Trust Taxation
The Kansas House Taxation Committee has approved SB 390, which would significantly expand the state's income taxation of resident trusts and effectively earmark the additional $6 million in revenues for expanding the homestead property tax refund program.

Connecticut Committee Approves "Millionaire Tax"
On March 27, 2004, the Finance, Revenue, and Bonding Committee of the Connecticut General Assembly voted to impose a "millionaire's tax" effective from January 1 and to increase the inheritance tax for estates that are worth more than $1 million.

Michigan Will Be Last State to Implement Medicaid Estate Recovery
Michigan health officials have begun considering regulations to comply with a federal law requiring state Medicaid programs to recoup assets from deceased beneficiaries to offset the cost of nursing home care.  Michigan will be the last state to comply with the "fiscally sound, politically yucky" law, which is "so politically sensitive" that Gov. Jennifer Granholm (D) cannot find a lawmaker to sponsor legislation to address it.  Earlier this year, Georgia passed legislation authorizing estate recovery.

2003 A Profile of Older Americans
The 2003 edition of A Profile of Older Americans is now available on the U. S. Agency on Aging Web site. This Web-based publication includes statistics on older Americans in key subject areas such as population (including the latest population estimates and future growth projections), income and poverty, marital status, living arrangements, health, and much more. It includes both narrative and statistical charts.

Does HIPAA Affect Patients' Access to Care?
An article from the March 29, 2004 Detroit News examines concerns from health care providers that the Health Insurance Portability and Accountability Act medical privacy rules have affected patients' access to care. Providers must obtain consent from patients before they can disclose medical records in "non-routine" cases. Providers who violate the rule can face fines between $100 to $250,000 and as many as 10 years in prison. Providers maintain that they are so wrapped up in complying with the privacy standards that they are distracted from doing their jobs, which can cause patients to wait longer for care.

Follow-up to February 2004 FaxAlert
The February FaxAlert was about a Ninth Circuit (Arizona) case that shielded assets in a spendthrift trust from the bankruptcy trustee for the beneficiary under the trust. Steve Leimberg has just released an e-newsletter with further information on that case and has graciously agreed to let me pass it on to members. Information on how to subscribe to Steve's e-newsletters appears at the end of the email.

May 7520 Rate Announced
The Section 7520 rate for May 2004 is 3.8%.

Senate Finance Committee Chairman Rejects Request for Earlier Repeal of Estate Tax
On March 5, 2004, the Senate Budget Committee issued a proposed federal budget, including a non-binding request that the Senate Finance Committee produce legislation repealing the federal estate tax in 2009, rather than in 2010.

101 Tax Planning Strategies
CCH issued a report which contained many good tax planning strategies you may want to suggest to your clients.

IRS Warns of Tax Scams
DON'T BE TAKEN IN BY TAX SCAMS...The IRS reminds taxpayers not to fall victim to a variety of tax scams. These schemes take numerous shapes, ranging from promises of special tax refunds to illegal ways of "untaxing" yourself.

7520 Rate for April 2004
The 7520 Rate for April is 3.8%.  This is down from 4.0% in March and 4.2% in February.

Abusive Home Based Business Tax Schemes
The Internal Revenue Service is cautioning the public about promoters who are selling the concept that taxpayers can operate any type of unprofitable "business" out of their home and claim personal expenses as business expenses.  Taxpayers should be wary of these programs.

Virginia House OKs Estate Tax Repeal; VA Senate Approves Measure
By a 69-29 vote on February 10, 2004 the Virginia House of Delegates approved legislation (HB 4) that would eliminate Virginia's estate tax by October 1, 2005.

Proposal to Permanently Repeal the Estate Tax
The federal budget proposal for fiscal year 2005 to make permanent the provisions of the 2001 and 2003 tax acts (which includes repeal of the estate tax) can be found in the General Explanations of the Administration's Fiscal Year 2005 Revenue Proposals at pages 4 -5.

Feingold Amendment
On March 10, 2004, the U.S. Senate enacted a new rule, the "Feingold Amendment."  Under this rule, any tax cut or spending increase will require 60 votes for passage unless an offsetting revenue provision is included in the legislation.  For example, a bill cutting taxes by $100 million would have to include an offsetting tax increase or spending cut of $100 million or it would have to have 60 votes to pass.

Action for Tortious Interference with Inheritance Not Possible During Life
Two siblings brought an action to set aside transfers from their mother to two other siblings, alleging both undue influence and tortious interference with expectancy of inheritance.  Guardian of property sought to intervene as a plaintiff.  State trial court dismissed sibling's tortious interference claims, but declined to dismiss guardians.

Institute of Medicine Proposes Universal Health Insurance by 2010
The Institute of Medicine released a report that recommends that the federal government guarantee that by 2010 everyone in the United States should have health insurance.

Nebraska Releases LTC Reform Study
The state of Nebraska recently published a report, "The Heartland Model for Long-Term Care Reform," addressing ways to reduce the cost of long-term care.  The report was researched and written by the Center for Long-Term Care Financing.

Alzheimer's Report
The Attorney General of Maryland has released a report on Alzheimer's disease that practitioners from other states should find useful.  The 115- page report examines the regulation of nursing homes, long-term care insurance and Medicaid. Policy goals include protecting patients against abuse, neglect, and financial exploitation and improving state-regulated facilities.

Nebraska Considers Decoupling
The Nebraska Revenue Committee is examining bills that would decouple Nebraska from the federal estate tax legislation.  The decoupling would be in response to the reduction (and elimination next year) of the federal state estate tax credit.

Proper Standard for Appointment of Conservator of Estate is "Management Competency Test"
Sisters disagreed over the management of their mother's finances and the operation of a family business, and one sister sought appointment of herself as conservator of the person and estate.  After a three-day court trial, the other sister was appointed conservator of the person and a public conservator as conservator of the estate.

Purchase of Life Estate in Daughter's Home Treated as Transfer
The daughter of a Medicaid applicant, utilizing a durable power of attorney, purchased a life estate in her own home for the applicant for $43,953.13.  The Medicaid agency treated the purchase as an uncompensated transfer, arguing that the applicant received nothing of value, and denied eligibility.

Greenspan Congressional Testimony
Federal Reserve Chairman Alan Greenspan testified before the House Budget Committee today.  In his remarks, he stressed the need to fix the Social Security system so that it survives the wave of retirements expected with the Baby Boom generation.  Greenspan presented possible solutions including increasing the age at which retirees can draw social security and reducing the cost of living adjustment formula for benefits.

Ambiguous Trust Established By Couple is Available Resource for Surviving Spouse
In 1996 a married couple established an irrevocable trust for their own benefit, requiring distribution of income to themselves.  The trust document was silent as to the trustee's authority to distribute principal to the beneficiaries, though it does permit payment of "personalty" to the couple or the survivor of them.  Husband died four months later; five years after that wife applied for Medicaid eligibility.

Arizona Senate Unanimously Repeals Uniform Trust Code
The UTC was not viewed as favorable legislation by many estate planning attorneys in Arizona.  Arizona originally passed the UTC in 2003 and it was to go into effect January 1, 2004.  Due to the uproar over its terms, the effective date was postponed and now the Arizona Senate has unanimously voted to repeal the legislation.

Department of Justice Lawsuits Involving Washington, Oregon and Nevada Taxpayers
The Department of Justice filed two suits in Washington and Oregon to stop tax scams.  They also enjoined a tax preparer in Las Vegas from preparing income tax returns.

Betting on Death: The Risk of Life Annuities versus Phased Withdrawal Plans
How might retirees consider deploying the retirement assets accumulated in a defined contribution pension plan?

Pension Benefit Guaranty Corporation Reports $11.2 Billion Deficit in 2003
The Pension Benefit Guaranty Corporation, the federal insurer of more than 31,000 private pension plans, yesterday reported a year-end deficit of $11.2 billion.

IRS Wins Another FLP Tax Court Case
In Estate of Abraham, TC Memo 2004-39, the Tax Court denied any discount for three separate Family Limited Partnerships. It found the FLPS to be testamentary devices.

Erosion of Retiree Health Benefits Continues
A new survey by the Kaiser Family Foundation and Hewitt Associates documents the increasing costs of retiree benefits for both large private-sector employers and their retirees.

AFR for March 2004 Drops to 4%
The Applicable Federal Rate (AFR), used in calculating life and remainder interests in many planning techniques such as QPRTs, CRTs, GRATs, etc..., is set at 4% for March of 2004, down from 4.2% in January and February.

Physical and Mental Decline in Elderly Not Inevitable
Years of laboratory testing indicate that the abilities to think quickly, remember accurately, and reason clearly decline beginning in young adulthood.  A growing body of research is challenging the depth of this decline and its impact, suggesting that most healthy seniors can work, drive, and live independently well into their golden years.

Property Owner Successfully Sues to Rescind Gift Deed for Undue Influence
The owner of 258-acre ranch signed a series of wills prepared by three different attorneys over a short period of time, culminating in a will leaving the ranch to acquaintances.  Shortly after that, the acquaintances took the owner on a picnic to the property (which had been her grandfather's homestead) and described their plans to rebuild her grandfather's cabin.  The property owner, overcome with emotion, announced her intention to transfer the property immediately.  The acquaintances had one of the lawyers involved in estate planning prepare a warranty deed and the property owner signed it.  When it was returned to her after recording, she became agitated and demanded that the property be returned to her name; the acquaintances would agree only to transfer the property into joint tenancy with the original owner.

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