Wisconsin Estate Planning

Joint Tenancy Transfers Matter For Medicaid Eligibility

A New York appeals court rules that a woman who, two years before applying for Medicaid, transferred money to a friend through joint tenancies in a claimed effort to avoid probate did not rebut the presumption that the transfers were made in order to qualify for Medicaid. 

American law contains a principle that runs like a thread through the very fabric of our jurisprudence – one is “innocent until proven guilty.” In other words, the law begins with the premise that one accused of wrongful conduct or motives, whether in a civil or a criminal context is first given the benefit of the doubt until established otherwise by competent evidence to the contrary.

Nonetheless, sometimes the tax courts, in their zeal to root out cheats, end up reversing that principle and end up turning on those vulnerable people who act only in the best of intentions: sometimes the elderly are “guilty until proven innocent” when it comes to the courts and Medicaid disqualification.

Consider the case of Mallery v. Shah (N.Y. Sup. Ct., App. Div., 3^rd Dept., No. 513277, Mar. 1, 2012), as written about here in a recent post over at ElderLawAnswers.

Paula Mallery wanted to be sure she had safely left her estate to her friend, Ron Stanton, and a moderate estate at that, without her family interceding and dragging the matter into the probate court following her death. Her reasons are her own (but you can appreciate anyone wanting to avoid a public bloodbath). It was something she thought about, even sought counsel for, and ultimately accomplished by adding Mr. Stanton as joint-tenant on her home and bank accounts. Mr. Stanton withdrew $141,410.12 between 2007 and 2008. Then, in 2009, Ms. Mallery fell, required nursing home care, and ended up applying to Medicaid to pay for it.

Medicaid denied the request. Why? Medicaid maintained that Ms. Mallery had effectively made “uncompensated transfers” and was therefore subject to a 19 month penalty period (and more than a year and a half of such care is expensive!).

To assume the absolute best of Ms. Mallory and her motivations – because it wouldn’t change the decision either way – she simply intended to pass her property quietly to Mr. Stanton, but ended up getting dragged into court. She appealed the decision and was ultimately rejected on the grounds that she never disproved the allegation that her planning moves were motivated with an eye toward Medicaid qualification.

It’s yet another harsh lesson in unintended consequences and the trials of qualifying for Medicaid.

In the end, planning for your assets after death must always also be about planning for those assets, and your medical care, throughout the remainder of your life. 

For more information on Wisconsin estate planning, long term care planning and Medicaid qualification, visit my website, sign up for my free e-newsletter, and contact my office.

Reference: ElderLawAnswers.com (March 5, 2012) “Estate Planning Move to Avoid Probate Earns Medicaid Applicant Penalty Period”

When Modern Art Meets the IRS

Sometimes, I’ve noticed, the IRS itself gets a bit too creative. Exhibit A is its treatment of the estate of legendary modern art dealer Ileana Sonnabend who died in 2007, at the age of 92.

When it comes to the IRS and taxes, the message is more often than not that you really can’t have your cake and eat it too. Unfortunately, this also means that heirs oftentimes end up between a rock and a hard place. For an extreme lesson, consider the case of Ileana Sonnabend.

What do you do when something is both so valuable as to trigger taxation and yet also so valuable – and illegal – that it is without value on the market? Some readers might have run across this story last month, but it gets coverage over in this recent article in Forbes.

Sonnabend was a bit of an art buff, to put it lightly, and her collection of modern art requires a doctorate in modern art history to fully articulate, with such names as Jeff Koons, Roy Lichtenstein, Andy Warhol and Cy Twombly rounding out the gallery walls. At her death, all of these works passed to her heirs and, to pay for the estate taxes thusly triggered, her heirs had to sell those very pieces.

It’s a sad story, if you just stop there. However, then you miss the most unique of artwork (and, at the very mention of “most unique,” it’s worth noting that some of these artists considered toothpaste a means of expression), a piece known as “canyon” by Robert Rauschenberg.

“Canyon” is really a mixed media piece incorporating a stuffed bald eagle, putting the production and sale of same on the darker side of the law as far as the Bald Eagle Act of 1940 is concerned. Accordingly, “Canyon” is not only art, but it’s illegal art. Nevertheless, it squeaks by on a technicality: it predates the Bald Eagle Act.

As such it is beyond value, literally, because it is restricted from the market. But that doesn’t put it beyond the interest and reach of the IRS. Apparently, the IRS incorporated the piece as part of the taxable estate, even though it was beyond selling by U.S. law, it could still be sold internationally (and on black markets.)

That’s a strange place for a strange piece of art, to be sure, but it does highlight the fact that art, as both real property and expensive property, requires more than a little planning. Sonnabend herself didn’t take advantage of any estate planning, forcing her heirs to sell the very art for which the estate tax was assessed.

Again, to learn more about (and understand) the art you’ll need a doctorate degree, but to learn more about Sonnabend and her legacy you should consult the original article. On a more personal note, to make proper estate planning arrangements for your own art and the rest of your estate engage competent counsel to help you take advantage of available techniques that can save your own unique collection and the family you hope to inherit it.

For more information on Wisconsin estate planning, visit my website, sign up for my free e-newsletter, and contact my office for an appointment. 

 

Reference: Forbes (February 23, 2012) “Even Rich Heirs Deserve A Fair Shake From The IRS”

Powers of Attorney – Not A Good Idea for The Do-It-Yourselfer

There are many do-it-yourself power of attorney forms available; however, it is a good idea to have an attorney draft the form for you. There are many issues to consider and one size does not fit all.

The internet has become an unprecedented tool for legal research and empowerment. For example, I write here to advance public awareness of estate planning law through the power of the internet, after all. Nevertheless, too much information also can lead to a dearth of actual information, or at least a lack of good useful information.

Beware of the simple estate planning tools you find online, as confirmed in a recent Elder Law Answers post.

Off-the-shelf and stock power of attorney forms not only can be ineffective, but they also can prove a liability and a detriment to your plans. Such forms may purport to cover every conceivable situation only to find that they do not satisfy the statutory substance or format required by your state.

Moreover, anyone who has had an encounter of the first kind with any aspect of a bureaucratic system (you’ve finished your taxes, right?) knows that one-size-fits-all forms have their limitations.

For more information on Wisconsin Powers of Attorneys visit my website, sign up for my free e-newsletter, and contact my office for an appointment. 

Reference: Elder Law Answers (February 2012) “Why Not Just Use an Off-the-Shelf Power of Attorney Form?”

Many Seniors Unaware Of Available Assistance

Millions of seniors in the United States are missing out on more than $20 billion in aid that could help pay for food, medicine and heating, simply because they don't know it's there.

America’s elderly have had an increasingly difficult time over the past decade or so, if not before, and it’s not necessarily going to get easier.

Still, there are more sources of aid available. If you (or an elderly loved one) need additional assistance, then according to the National Council On Aging (NCOA), “You Gave, Now Save.”

As reported here, in a recent Reuter’s article, millions of seniors are missing out on more than $20 billion through various programs for food, medicine, and heating.

In response, the NCOA and several other organizations have launched campaigns to educate seniors on what’s available. The Reuter’s article provides more information regarding the programs. In addition, you may want to check out a more recent article from the New Old Age Blog of the New York Times, here.

Reference: Reuters (February 14, 2012) “U.S. seniors missing out on $20 bln of benefits”and The New York Times – The New Old Age Blog (February 16, 2012) “Tracking Down Government Aid”

The Power of A Will – 351 Years Later

The dying wish of William Payne, one of the state's earliest settlers, created the nation's oldest charitable trust and eventually led tenants to build 167 cottages — most of them used by summer vacationers — on the land he left for the seaside city of Ipswich. The rent money has generated some $2.4 million to help fund public schools over the last 25 years.

Wills and trusts are actually some pretty powerful devices, not just arcane legal concepts. As you consider formulating your will or using a trust, or as you actually put one to paper and sign it into being, it’s important to remember the unforeseen consequences. Consider the case of William Payne.

For a recent lesson on the power of, and the potentially powerful problems caused by, far-sighted estate planning, consider this story regarding the dying wish of William Payne. It was 351 years ago, and with only eight days left to live, Bill Payne put to paper his will and the spectacular bequest of some 35 acres of seafront property to the benefit of the schoolchildren of Ipswich, Massachusetts. In his will, Payne specifically ordered that such land ought never be sold or wasted.

The years rolled on and a village of summer cottages sprang up, with the rent money going to the public fund for the schools. Then, the years rolled on some more and the present trustees hope to undo the will and convert the property and those homey cottages into condominiums. As you might expect, this has raised the ire of citizens, lawyers, and historians alike.

It’s a complicated story, more so than I’ve related here, but there are a few important facts. First and foremost, William Payne put something to paper that lasted 351 years and benefitted generations of people – an entire town and maybe an entire state – and he did so with careful consideration, a plan, and a pen. Second, the more ambitious the plans for an estate or assets, the more reason for a carefully considered plan.

The future has a funny way of unmaking the past, it seems. Nevertheless, if something is important enough to plan for, then it’s important enough to consider all the way through. This is true, even when you aren’t looking 351 years in the future.

For more information on Wisconsin estate planning, visit my website, sign up for my free e-newsletter, and contact my office for an appointment.

Reference: Yahoo News (February 24, 2012) “351-year-old will sparks bitter dispute in Mass.”

Inherited Wealth – A Blessing Or A Curse?

Despite the bitter economic downturn, one part of the American dream is alive and well: the possibility of sudden wealth… Yet such life-changing windfalls can just as quickly vanish, say advisers who work with those who suddenly become wealthy.

If you are setting up an inheritance for the next generation, or if you yourself may be an inheritor, here’s an important (if depressing) fact to consider: more often than not, immediate wealth is easily (and quickly) squandered.

A recent Wall Street Journal article points out the trend, and whatever your present relation to the estate planning process, it’s an important fact to consider.

When you think of squandered wealth it’s all too easy to come up with stories of professional athletes and 15-minutes-of-fame pop-stars. Regardless, famous people are no better and no worse than the rest of us. In reality, this problem can affect anyone with some sudden influx of wealth, perhaps especially an inheritor.

In fact, there are some objective numbers to support this assertion. According to the latest available data from the Federal Reserve's Survey of Consumer Finances, more than nine million households in the U.S. reported getting an inheritance of at least $100,000. And, looking to the future, the Center for Retirement Research at Boston College estimates that baby boomers – those 78 million people born from 1946 through 1964 – are expected to inherit some $8.4 trillion during their lifetimes. In turn, these boomers are just as likely to hope to pass it down immediately. These handoffs make for a large margin of error, both as individuals and as a society.

As an inheritor, the challenge is to be the “exception” and that will take work. As an estate planner, giving up wealth here and now, there is still work to be done and it is all the more pressing! Properly planning and transferring wealth to your loved ones is about planning for the entire process – the long-run – and the future well being of your family.

It’s important to know and understand the ways you can plan to protect your inheritors, and there are many tools available once you understand this goal. Often, you’re protecting your inheritors from themselves.

For more information on Wisconsin estate planning, visit my website, sign up for my free e-newsletter, and contact my office for an appointment.

Reference: The Wall Street Journal (February 25, 2012) “Too Rich, Too Soon”

IRS Relaxes “Innocent Spouse” Relief Rules

The IRS has significantly lowered the bar for innocent spouse relief. The rules of the game have changed. A spouse who was denied relief under the old rules should consider applying for innocent spouse relief under Notice 2012-8, provided the ten-year collection statute has not expired on the taxes in question.

Spouses filing taxes jointly make a very special commitment. Aside from being already committed to marriage, joint filing makes them jointly and severally liable for those taxes, or any problems.

This can create a significant problem when one spouse runs afoul of the tax laws. Why? It can drag the other spouse into the matter, unless you can convince the IRS to grant “innocent spouse relief.” Luckily, what was once very tricky might now be much easier to achieve.

An article from Forbes last month is worth a look, as it details how the IRS may have lowered the bar for innocent spouse relief. Essentially, a new memorandum from the IRS has issued a set of eight factors to weigh for the determination of the need for spousal relief. With these new criteria (such as “economic hardship,” “marital status,” and “non-requesting spouse's legal obligation”) the playing field is that much more level for spouses dragged into a sticky situation.

If you (or someone you know) want to know more, check out the original article which provides more details on what relief is available and how to obtain it.

Reference: Forbes (January 29, 2012) “IRS Lowers Bar for Innocent Spouse Relief”

To Roth Or Not To Roth

A tax tsunami is coming at the end of this year. And this is the absolutely last chance for a massive Roth conversion.

As you likely have read, the end of 2012 and the transition to 2013 are likely to be a tumultuous time for taxes of all sorts. Accordingly, this is a year of planning.

One major thing to bear in mind: This may be the last excellent year for the Roth IRA conversion.

Forbes recently ran a few articles on this subject, including this recent test. I thought I’d share it here to help you determine whether a Roth IRA conversion may be right for you. So, somewhat abridged, here it is:

1. Do you expect your tax bill to stay the same well into retirement?
2. Do you have a traditional IRA (especially a large one) that can be converted?
3. Are you ready, willing, and able to pay for the taxes of tomorrow, today?
4. Are you interested in estate-reduction and, at once, leaving a large tax-free gift to your heirs?

If you answered “yes” to the above questions, then you may want to put pencil to paper and assess whether a Roth IRA can make sense and, more to the point, can create a huge savings now and a huge value for your heirs later.

The big payoff: A Roth IRA is not a tax-deferred account as retirement accounts traditionally are. The reason a tax-deferred account is nice is that it’s assumed you’ll have a lower income in retirement and, therefore, have a lower tax percentage. As a result, you allow the account to appreciate now and ultimately pay fewer taxes later.

If your income is not expected to drop, as is often the case, then your tax bracket might not drop and so your tax savings won’t appear. Instead, you’ll have less liquidity during the golden years.

By paying the taxes upfront, by rolling a traditional IRA into a Roth, you’ll pay a tax upfront to secure that account for the future and avoid any RMD’s (the very same that might force you into other tax problems).

Moreover, since taxes are generally expected to go up with the expiration of the Bush-era tax cuts (unless some serious attention is given) paying the tax now might be an actual steal.

There is more information in the original article on this subject.

Reference: Forbes (February 20, 2012) “Roth IRS Conversion 2012: Are You A Good Candidate?”

Son Seeks Eviction of Elderly Mother From Her Home

Peter Kantorowski wanted his 98-year-old mother to move into a nursing home or live with him. She wouldn’t go; she didn’t want to leave her home of nearly 60 years. Finally, Kantorowski went to court — and served his mother with an eviction notice shortly before her 98th birthday in December.

There is a difficult transition in old age. When it becomes necessary to move on from the homestead and to a nursing facility, it can be difficult to think about, let alone follow through. In the end, it’s a difficult transition for both the elderly person and their family.

The family dynamics of transitioning an elder family member to a nursing home can make for some tricky cases, and even trickier court battles, as one recent case shows. Consider it a worst-case-scenario family feud over the situation.

In New Haven, Connecticut, a 71 year old son has been utterly unable to come to an agreement with his mother and get her to move into a nursing home. She just didn’t want to leave home. As a result, this son evicted his 98 year old mother from her “own” home. The catch: Apparently the mother had ceded ownership of the house, but retained the right to live there.

Now the matter landed in court and she has been found competent by a judge and assigned counsel.

There are some wrinkles in this case. For example, it turns out that the son may not have seen his mother recently and is, therefore, not in a position to know her status. In fact, the mother has healthcare workers in and around the house often and can still cook for herself and regularly attends her church often. But to take the son at his word, he doesn’t want to put her on the street and simply wants to be sure that she has the care she needs.

At 98 the son’s concern isn’t much of a stretch, but this is still probably a bad way of going about it.

You can read more at the original article, here. Let the worst-cases underscore the need to do things right and to open proper communication within your own family. Proper planning in the original transfer of her home as well as powers of attorneys could have potentially avoided this unfortunate situation.

For more information on Wisconsin estate planning, life estates, and powers of attorneys, visit my website, sign up for my free e-newsletter, and contact my office for an appointment.

Reference: The Columbus Dispatch (February 18, 2012) “Son gives mom, 98, an eviction notice”

IRS Extends “Portability” Filing Deadline for Surviving Spouses

The Internal Revenue Service has extended the deadline to file estate tax returns and make a portability election to benefit the surviving spouses of married individuals who died during the first six months of 2011.

It would be a gross understatement to say that 2010 and 2011 were tumultuous years in the world of estate law. While we can’t expect anything less from 2012 (that battle simply hasn’t occurred yet and likely will be another end-of-year struggle), the “developments” wrangled in 2010 and 2011 are still making news into 2012.

The recent news: The IRS has extended the deadline for the estate tax “portability” election for some surviving spouses. Apparently, the new laws are still largely unknown to the public.

For the surviving spouses of those who died within the first six months of 2011, so long as the decedent’s estate was valued at less than $5 million, there is now an extension to file for portability. Now, even if the executor of such estate didn’t file the return within the first 9 months, or even file for a 6 month extension within that time, they have all 15 months to file. However, to comply they need to properly file both the extension Form 4768 and the estate tax form itself, Form 706. Effectively, this means that the first 2011 portability elections become due on Monday, April 2, 2012.

“Portability,” as you may be aware, is the new ability for a surviving spouse to pick up and carry along, as it were, the unused estate tax/gift tax exemption of the decedent. For 2011 that meant $5 million, less whatever of that exemption had been used as part of the lifetime gift tax exemption, can be passed along to a spouse who would have a $5 million exemption of their own for a total combined exemption of as much as $10 million.

This is not an automatic ability, however, and so proper and timely filing is essential. It may not seem that important today, especially if $10 million seems like a lot, but it is a simple step to plan for a future you can’t foresee (that’s why you’re planning in the first place, is it not?) and a future where this may make the difference.

Clearly, the IRS wouldn’t be offering such extensions if they felt that portability was properly understood and fully utilized; in fact, it likely means that the new laws are not yet understood and so it’s worth getting the word out.

Reference: Accounting Today (February 17, 2012) “IRS Extends Deadline on Estate Tax Portability Election”