Elder Law & Estate Planning Legal Resource

Moving Day

2007-04-17T09:58:00.000-05:00

I have moved. The blog is now updated at http://blog.shealawonline.com and my site is located at www.shealawonline.com

I hope to see you there.

On The Move - Stay Tuned

2007-04-04T18:14:00.000-05:00

Stay tuned for directions to my new site with enhanced content features. Hopefully everything will be ready before the end of next week.

The Next Probate Scandal?

2007-03-24T10:37:00.000-05:00

Connecticut Probate has a reputation, and it is not very good. From the scandal involving Judge James Kinsella in the 1980s to systemic flaws that have been slowly revealed as the legislature began to unravel the Probate onion in recent years. Here are a few stories discussing some of the common issues with our Probate system.

Channel 8 News Report
Another Channel 8 News Report
Yale Law School Commentary

We've been fortunate and have not had any large scale probate scandal in recent years that I'm aware of. Although as you can see from the articles, the vulnerabilities remain and the next scandal could come any day.

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14 Mistakes to Avoid in Your Will

2007-03-24T06:46:00.000-05:00

Liz Pulliam Weston has a nice summary of some common mistakes that I've seen in other people's wills and estate plans. The full story is here. Obviously #1 is not having a will or any plan and I see that a lot. Most of the other problems can be traced to approaching estate planning as stand alone documents. In some sense that is what they are, but there is also a significant difference between a well thought out and designed plan versus buying a will or a trust and not understanding how it operates with your assets such as retirement accounts and life insurance. Your document may say what you want, but if your assets are not positioned correctly it may not do what you want.

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Medicaid Case Study - Protection for Couples

2007-03-20T08:06:00.000-05:00

Tom and Helen have lived in Middletown their entire adult lives. Two weeks ago, Tom and Helen celebrated their 50th wedding anniversary. Yesterday, Tom, who has Alzheimer’s, wandered away from home while Helen was grocery shopping. The police found Tom wandering the neighborhood hours later and took him to a hospital. Tom’s doctor has just told Helen that she needs to place Tom in a nursing home where he can receive the level of care that he needs. Concerned about nursing home expenses, Helen together a list of their assets:

$ 5,000.00 - Checking Account
$ 60,000.00 - Savings Account
$ 50,000.00 - Money Market Account
$100,000.00 - CD’s/IRAs
$150,000.00 - Residence

In addition to their assets, Tom receives a Social Security check for $800 each month and Helen receives Social Security of $400 each month. Helen begins to research nursing homes using the Connecticut Nursing Home Guide to find the best one for Tom and soon discovers that the average cost of a nursing home is over $7,000 every month! Helen’s afraid that everything they have worked for their entire lives will be consumed by nursing home expenses and, even worse, she will be left penniless to pay for her own monthly bills in less than three years.

There is good news for Helen. Connecticut offers the Medicaid program to help pay for nursing home care expenses. It is possible that Tom and Helen will not have to lose everything they have worked for to pay for nursing home expenses. The process may take some time, but the results are usually worth it.

To apply for Medicaid, Helen will have to go through the Department of Social Services (DSS). If she does things strictly according to the way DSS tells her, she will only be able to keep approximately one-half of their assets. However, Helen would only be allowed to keep $101,640.00 in assets due to certain restrictions imposed by DSS. Exempt assets, such as their home, are excluded from the $101,640.00. The rest of their assets (approximately $113,360) would have to be “spent down” before Tom would qualify for Medicaid benefits.

In most cases there is an alternative to the traditional “spend down.” That is because federal law protects Helen so that she does not have to impoverish herself before Tom can receive Medicaid benefits. The challenge is that Helen cannot take advantage of this protection at the case worker level.

In order to ensure that she keeps as many assets as she is entitled to, Helen must go through the fair hearing process. She must proceed properly and she should have an attorney advising her of her rights throughout the process because the fair hearing carries significant legal ramifications with respect to Tom’s eligibility for Medicaid benefits and the amount of assets Helen can keep. But with proper advice, Helen can avoid such a large spend down.

This is an example where knowledge of the rules and how to apply them can make a substantial difference in the outcome. Consult an attorney regarding your rights if your spouse has applied or is expected to apply for Medicaid benefits.

Please note that proper Medicaid planning differs according to the relevant facts and the circumstances of each situation. If you need Medicaid benefits and want to protect your rights and your property, call (860) 593-0404 to schedule a free consultation.

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How Not to Plan for Your Special Needs Child

2007-03-19T16:37:00.000-05:00

The U.S. Autism & Asperger Association put together a nice list of the 9 Costly Mistakes to Avoid in Planning for Your Special Needs Child. I recommend it for everyone that has a family member with special needs.

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Special Needs Trusts - How to Secure the Future for Your Disabled Child

2007-03-15T07:01:00.000-05:00

The Special Needs Trust

Until 1993, as a parent with a disabled child, you faced a difficult decision: if you left a legacy for your disabled child, you might make your child ineligible for government assistance.

When the federal government enacted the Omnibus Reconciliation Act of 1993, however, it made it possible for you to 1) provide funds to support your special-needs child and 2) retain your child’s eligibility for federal, state and private charitable benefit programs.

The Omnibus Reconciliation Act of 1993 excluded from benefit program eligibility requirements the legacy left to special-needs children in a Special Needs Trust.

How to Secure the Future with a Special Needs Trust

The Special Needs Trust is simple to establish, and it not only provides immeasurable peace of mind, it also gives you complete control over your child’s care.

You work with your estate planning attorney to appoint Trustees for your child’s Special Needs Trust. The Trustees oversee your child’s well-being and manage the estate your or anyone else leave for his or her benefit. So there is no need for a probate court to determine your child’s fate.

Unlike the guardian or conservator a probate court might appoint, these Trustees are people you know and trust. Relatives or close family friends can be appointed to supervise your child’s personal care.

To work with financial institutions and manage the estate, you may want to appoint a professional financial advisor, as a Co-Trustee.

As part of setting up your child’s Special Needs Trust, you provide detailed written instructions in the trust to direct the Trustee’s activities. By law, Trustees must follow these instructions to the letter. So you have a tremendous degree of control over your child’s education, housing, and other needs.

Best of all, the Special Needs Trust preserves your child’s eligibility for federal, state and charitable benefit programs. The only requirement is that the funds withdrawn from the Special Needs Trust must be for purposes other than those covered under the governmental and private benefit programs. The concept is fairly simple, but the execution is technical and complex. Special Needs Trusts are carefully scrutinized by government benefits agencies and one error in the language of the trust can undo everything it is designed to accomplish.

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Order Your Free Copy of How to Secure the Future for Your Disabled Child

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The FTC on Living Trust Seminars & Scams - How Not to Be a Victim

2007-03-12T18:35:00.000-05:00

Have you been to a Living Trust seminar in Connecticut? They can be hard to miss at times. Living Trust seminars have become such big business throughout the United States that the Federal Trade Commission (FTC) has taken the time to issue some alerts to keep you from becoming the next victim of a scam. Feel free to do some research and read the following:

Make Sure Living Trust Offers are Trustworthy;

Living Trust Offers: How to Make Sure They're Trustworthy;

Testimony on Living Trust Scams

Are Living Trusts bad? It might seem that way sometimes but they are actually very useful when used as a tool to accomplish your estate planning goals. As the client, if a Living Trust is recommended to you, make sure you understand how it is going to work and what it is going to accomplish. If you're confused or not sure about something, do some research or get a second opinion. Anyone can promise the moon, but ask yourself: what is really being delivered?

Related Post: Myths & Realities of Living Trusts

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HIPAA Rules Leave Mother in the Dark

2007-03-10T06:59:00.000-05:00

I came across this story originally published in the Worcester Telegram & Gazette by Dianne Williamson. Unfortunately it is another grim reminder of what can happen when we neglect our estate plan. If Christopher Earnest had executed HIPAA compliant authorizations, Shirley could have been spared this ordeal.

Shirley Passarelli raced to the hospital Feb. 8 when she learned that her son had been found unconscious the night before and admitted to the intensive care unit.

Thus began a three-week odyssey of frustration and heartache for the 53-year-old Southbridge woman, whose efforts to learn what happened to her son were thwarted by privacy laws and his status as an inmate at the Worcester County House of Correction.

Christopher Earnest, 34, who is wrapping up a two-and-a-half-year sentence for passing bad checks, was taken by ambulance Feb.7 to St. Vincent Hospital after suffering what jail officials would describe only as a "medical emergency." He's on a ventilator and unable to communicate, so he can't convey his wishes about who may have access to his medical information.

"Emotionally, this has wiped me out," said Ms. Passarelli, who initially was restricted in visits to her son but now sees him every day. "Standing there and looking at your son in this condition - not knowing how it happened, what's wrong or what's being done for him - has been hell. I don't know if he's going to live, or if he's been brain damaged. I try to understand the position of the hospital and the jail, but it's very, very hard."

A federal law known as HIPAA sets strict standards for protecting confidential patient information. The Health Insurance Portability and Accountability Act restricts health care providers and others from offering information about patients without authorization, and sometimes even loved ones are denied access.

In the case of Mr. Earnest, the situation was further complicated because he's an inmate at the House of Correction, according to Deputy Superintendent Jeffrey R. Turco.

"We had to tell this woman that our hands are tied," Deputy Turco said. "From a personal standpoint, you want to give information to the parent. But we have a legal obligation to obey the law. This person, in essence, is a ward of us. Our understanding is that restrictions under HIPAA don't allow us to discuss someone's medical condition without prior authorization."

The deputy added, "It breaks your heart. Of course this mother wants to know what's going on. In the zeal of Congress to protect people's medical information, certain scenarios like this might have been overlooked."

Ms. Passarelli said she was informed by the jail Feb. 8 that her son had been found unconscious the night before and taken to St. Vincent. That day, she said she was initially told by a guard that her son might have overdosed, but that a hospital neurologist told her he did not. After that, she said, no one would tell her anything.

Not only was she denied information, but her visits were restricted to once every three days and she had to first go to the House of Correction and fill out forms every time she went to the hospital. That restriction has since been lifted and her son is no longer under armed guard, jail officials said.

This past weekend, she said, she was able to learn that her son has bilateral pneumonia and a staph infection. She said she was told that the incident is under investigation. Deputy Turco said the matter was initially under routine investigation, but isn't being probed any longer. He said no evidence exists that the inmate tried to harm himself or was a victim of foul play.

Mr. Earnest is a roofer who became addicted to painkillers after he fell from a roof four years ago and was taken by Life Flight to the UMass Memorial Medical Center, his mother said. She said he wrote bad checks from her account to finance his addiction.

"He's made mistakes, but he's my son and I love him," she said.

She said she also wants to alert people to HIPAA laws and urge them to fill out HIPAA authorization forms and health care proxies.

Alison Duffy, a spokeswoman at UMass, said it's also helpful if hospitals have "In Case of Emergency" numbers on patients' cell phones, in case they are unconscious or unable to speak.

She said it's unusual for hospitals to withhold medical information from families because of the incapacity of a patient, but that HIPAA requires hospitals to "err on the side of caution if we're not sure" of family dynamics.

Ms. Passarelli, meanwhile, continues to visit her son every day. She is unsure of his prognosis and said she feels helpless, but doesn't want anyone else to endure the anguish she's experienced.

"I can't sleep, and I can't stop crying," she said. "But just talking about it makes me feel like I've taken at least one step to fight a battle I feel lost in."

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Connecticut Medicaid (Title 19): CSPA

2007-03-08T20:27:00.000-05:00

This is the first in a series discussing the key terms and principles you'll encounter when applying for Connecticut Medicaid benefits. We'll begin with the CSPA, or Community Spouse Protected Amount.

The Community Spouse Protected Amount refers to the value of assets the "community spouse" is allowed to keep while the institutionalized spouse remains eligible for Connecticut Medicaid. The "community spouse" refers to the spouse remaining in the home that is not receiving Medicaid benefits. The starting point to determine the value of the CSPA is one-half of the married couple's non-exempt assets valued as of the first day of continuous institutionalization. That figure is then either increased to $20,328 or decreased to $101,640 (as of 1/1/07).

It doesn't end there however. While it may appear that the at-home spouse can only keep a maximum of $101,640 in non-exempt assets while the institutionalized spouse qualifies for Connecticut Medicaid, there is another opportunity to increase the CSPA. That opportunity comes in the form of a Fair Hearing. The Fair Hearing is your chance to protect more of your assets if certain conditions are met. It is important to note that the social worker assigned to your case does not have the authority to increase the CSPA, only the Fair Hearing Officer has the authority if you satisfy your burden of proof.

The CSPA is one of the items you'll be focusing on if your spouse needs to qualify for Connecticut Medicaid and alternative asset protection strategies are not available. Make sure your team is prepared to protect your rights if you find yourself in a Medicaid situation.

Related Posts: Get Your Free Copy of The Connecticut Nursing Home Guide

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Tax News for Small Business/Self-Employed

2007-03-07T10:00:00.000-05:00

Whether you own a small business yourself or you work in an industry that serves small business owners, it is critical to stay on top of the latest tax news. As one of my professors in law school was fond of saying, taxes have some impact on almost everything we do (even if we're not aware of it). The IRS has a mailing list anyone can sign up for to help stay informed of developments. You can find additional information here.

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Planning for Disability & Incompetence

2007-03-06T07:27:00.000-05:00

You may be one of many worried about the financial issues of mental incompetence, obligations of caring for a disabled relative, or providing a residence and care for the physically incapacitated. If you are a principal income producer and you become incompetent or incapacitated for any reason, a drastic and involuntary financial adjustment in your family structure will occur. If long term public or private institutionalization is required, your property may be depleted (or you may have to expend all or almost all of your own assets) before you will be eligible for governmental or public aid.

None of these are pleasant thoughts. But you must face these and other issues before it is too late and many important planning options are lost. To preserve and protect both your property and your dignity, you must act now! If you are interested in these problems and their solutions keep reading.

THE LIVING WILL: If you were unconscious or incompetent or for any other reason were unable to make your own decisions regarding health care, who, if anyone, would you want to make such decisions? A so called Living Will may be part of the solution.

A Living Will (often called an Advance Directive for Medical Care) is a document that expresses the desire that when death is imminent, loss of mental capacity is substantial, incurable, irreversible, inevitable, and with no hope of recovery extraordinary, artificial, life sustaining techniques should not be used to prolong life. A Living Will coupled with other documents your attorney can draft for you is certainly part of the way to express your desires.

THE HEALTH CARE POWER OF ATTORNEY: A durable power of attorney for health care has been authorized in Connecticut by specific law. A health care power of attorney is broader and more flexible than a living will since it provides for many types of health care decisions other than those regarding life sustaining treatment. It allows you to appoint an agent, someone to make any and all health care decisions on your behalf in the event you are unable to make your own except to the extent you provide otherwise. You, of course, continue to make decisions as long as you are able to do so. You can refuse any health care treatment merely by objecting and can revoke the authority you give to your agent orally or in writing. A health care power of attorney is sometimes used in addition to a Living Will or may be broad enough to take the place of a living will.

THE DURABLE POWER OF ATTORNEY: A power of attorney is a relative simple and inexpensive legal document by which you give a spouse, child, or other relative or someone else (the attorney in fact ) the right to act in your place on your behalf with respect to financial matters. You can make this power as broad or as narrow as you wish. A well drawn durable power of attorney is for many people as important as a will. It may negate the need to petition a court to have a guardian or conservator appointed to handle your assets if you can’t. A durable power of attorney is a “must” if you are currently suffering from a physical disability or illness that could lead to permanent or long term incapacity but should be considered even by healthy individuals who would like to provide for continuity of management of assets if for any reason they can’t manage those assets or handle their own affairs for a period of time.

THE REVOCABLE LIVING TRUST: In order to avoid the costs, publicity, and complications of probate administration upon death or disability, many people use a revocable living trust to enable them and their family to keep control as long as possible. The trustee you select assumes the responsibility of investing, managing, and conserving the property on your behalf and for your other beneficiaries if you should become incompetent. A revocable trust allows you to change your mind and regain property that you have put into the trust or change the terms of the trust.

THE CHOICE IS YOURS! You can choose to take action now and keep control or you can choose to hesitate and let federal and state laws and fate control you and your loved ones.

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Public Act 06-195 - Living Will Changes

2007-03-05T07:01:00.000-05:00

The 2006 legislative session saw some important revisions to the Living Will & Health Care Representative statutes in Public Act 06-195 (Effective October 1, 2006). Here is a summary of some of the more significant issues. If you are signing a Living Will at any point in the future, definitely review the changes and make sure what you've prepared for your client is effective.

The Office of Legislative Research identified the significant changes as:

1. combined the authority of the health care agent and attorney-in-fact for health care decisions into a unified proxy known as the “health care representative”;

2. expanded the scope of a living will from covering only decisions concerning life support to include any aspect of health care;

3. conferred on the health care representative the authority to make any and all health care decisions for a person incapable of expressing those wishes himself;

4. clarified that (a) a conservator must comply with the previously executed advance directives of a ward and (b) a decision of a health care representative takes precedence over that of a conservator;

5. provided for recognition of advance directives validly executed elsewhere that are not contrary to Connecticut policy.

This is an important step in the unification of general health care decisions and life support being resolved in one document. More important than mere consolidation of forms, the new statute reflects the legislature's desire to broaden the Health Care Representative's authority in life and death decisions. Previously, the Living Will was primarily a documentation of a person's wishes that only existed to be executed by their appointee if the principal was unable to do so. Simply put, if you did not describe your wishes for a specific situation in your Living Will, your Health Care Representative did not have the technical authority to make a decision in that given situation.

Now, the legislature has broadened the Health Care Representative's ability to act with respect to decisions to provide, withhold, or withdraw life support systems. Specifically, the new statute allows the Representative to make the life or death decision if it is made in the principal's best interests. The exact phrasing used in the statute is: In the event my wishes are not clear or a situation arises that I did not anticipate, my health care representative may make a decision in my best interests, based upon what is known of my wishes.

For practitioners as well as clients, another critical change is the requirements for revocation of an existing Living Will. The previous statute had a very liberal revocation standard. In Public Act 06-195, the revocation procedure is as follows: an appointment of health care representative may only be revoked by the declarant, in writing, and the writing shall be signed by the declarant and two witnesses. What does this mean? If you're client already has a Living Will or other appointment of Health Care Representative and they are changing the fiduciary for that position, be sure to incorporate revocation language in the new Appointment that you are having them sign.

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All Powers of Attorney Are Not Created Equal

2007-03-03T17:14:00.001-05:00

When someone mentions that they have “power of attorney” for someone, most people assume they know what that means. In reality, there are three different kinds of “power of attorney” documents: simple, durable and springing.

The first common type of power of attorney is the broad power to act in every way for the “principal” or person who granted the power of attorney. This type is often effective immediately when the document is delivered to the “agent” or person given power of attorney. The important questions raised by this type are: what happens if the principal becomes disabled and second, is there a way to avoid giving someone so much power until it is necessary?

If the person granting a “simple” power of attorney becomes disabled, then the agent loses their authority to take action for the principal. This is often the opposite of what the principal intends in granting the power of attorney.

In order to avoid this situation, the “durable” power of attorney should be considered. The durable power of attorney specifically provides that the agent’s authority is not affected by the disability of the principal. This provision allows the agent to continue acting for the ill family member or friend during the illness.

Finally, the springing power of attorney should be considered when the person does not want to give someone the authority to act for them until a specific condition has been met: often the inability of the principal to act for himself. In that sense, the springing power of attorney is the opposite of the simple power of attorney.

It is important to remember that there is not a universal power of attorney document. As with all estate planning documents, many of the provisions should be customized to match your situation and your goals. For example, a power of attorney designed for an elder law situation is very different from a power of attorney designed for tax planning purposes. You may desire your agent to have certain powers and may also desire that he does not have certain other powers. The right or wrong power of attorney can make a huge difference in your life. As a result, professional advice should be considered before making this important decision.

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Don't Buy or Sell Real Estate Without Checking Here First

2007-03-03T17:05:00.000-05:00

Yes we're a bit off-topic with this one, but real estate issues do affect the majority of my clients so it's worth it. Buying or selling a property is always ... interesting. There is so much to learn and find out before signing on the dotted line that it can be overwhelming. If you're buying or selling and want to find more information on the neighborhood or just make sure your contractor is licensed, check out Real Real Estate in Connecticut.

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Important Reminders from Anna Nicole Smith

2007-03-01T17:16:00.000-05:00

The Anna Nicole Smith show completed its run in a Florida Probate Court last week to mixed reviews. The general opinion among legal practitioners, myself included, is it was an exercise in theatrics with maybe five minutes of meaningful legal proceedings. Among the public, some people enjoyed the "People's Court" type of atmosphere while others were disillusioned with what they saw from the judge and the attorneys involved in a sensitive family issue. Right or wrong, it was certainly an event we can learn from.

Let's review some of the things we learned through testimony at the hearings. We learned about Anna's drug use. We learned about Anna's sex life. We learned a lot of personal things about Anna and the other parties involved in the matter. After the media circus began, who remembered what the purpose of the hearing was? The sole purpose of the hearing was to determine who would receive custody of Anna's body and as a result determine where she would be buried. Did any of the scandalous testimony the court entertained and displayed in public proceedings have anything to do with who had the legal right to custody of Anna's body? No, it did not.

What if it was your family that became embroiled in a dispute that was to be settled in Probate Court? Remember, you're not around to settle the dispute because you are deceased or disabled. Any entertainment taken from the Anna Nicole Smith hearings quickly disappears when we stop to think if it was our family having every can of irrelevant worms opened up in public Probate Court hearings. Our hearings may not be on television, but the pain and distress is still real during an already difficult and private time.

So what did we learn? Take charge of our estate plans and provide some stability for our families in the event of our death or disability. A clear estate plan can document your wishes and in many cases significantly limit the Court's involvement in your family's affairs. If you leave unanswered questions with your plan or if you have no plan, you are inviting the Court's involvement to answer those questions.

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Revenue Ruling 2007-13 (Life Insurance Transfer for Value)

2007-03-01T17:15:00.000-05:00

The Revenue Ruling consider two situations. In Situation 1, Trust 1 and Trust 2 are both grantor trusts, which are treated as wholly owned by the Grantor for Federal income tax purposes. Trust 2 owns a life insurance contract upon the life of Grantor which it transfers to Trust 1 in exchange for cash. In Situation 2, the facts are the same as in Situation 1, except that Trust 2 is not a grantor trust. At issue is whether the purchase of the policy by Trust will constitute a “transfer for a valuable consideration” within the meaning of section 101(a)(2) of the Internal Revenue Code.

Section 101(a)(2) is an exception to the general rule of Section 101(a)(1) that gross income does not include amounts received under a life insurance contract if such amounts are paid by reason of the death of the insured. Under Section 101(a)(2), if a life insurance contract, or any interest therein, is transferred for a valuable consideration, the exclusion from gross income provided by section 101(a)(1) is limited to an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee.

Although, under applicable Treasury regulations, a transfer-for-value generally includes “any absolute transfer for value of a right to receive all or part of the proceeds of a life insurance policy,” an exception applies when a life insurance contract is transferred to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.

Citing Rev. Rul. 85-13, 1985-1 C.B. 184, which provides that a transaction between a grantor of a trust that is treated as owned by the grantor for Federal income tax purposes is disregarded, the Revenue Service ruled that, in Situation 1, the transfer of the policy from Trust 1 to Trust 2 while both are grantor trusts is not a transfer for a valuable consideration within the meaning of Section 101(a)(2) of the Revenue Code. (For rulings on similar transactions, see PLRs 200636086, 200120007 and 200228019.) In effect, for federal income tax purposes, Grantor is treated as the owner of all the assets of both trusts, including both the life insurance contract and the cash received for it, both before and after the exchange. Accordingly, in Situation 1 there has been no transfer of the contract within the meaning of Section 101(a)(2), i.e., the entire transaction is disregarded.

In Situation 2, Trust 1 (the purchaser) is a grantor trust, but Trust 2 (the seller) is not a grantor trust. Therefore, Grantor is treated as the owner of the cash (but not the life insurance contract) before the exchange, and as the owner of the life insurance contract (but not the cash) after the exchange. However, although there has been a transfer for a valuable consideration in Situation 2, the transfer for value limitations of the general rule of Section 101(a)(2) do not apply because the transfer to Trust 1 is treated as a transfer to Grantor, who is the insured.

Note that, under Rev. Proc. 2007-3, 2007-1 I.R.B. 108, §§ 3.01(7) and 3.01(47), the IRS stated that it will not issue an advance ruling on the following questions:

1. Whether there has been a transfer for value for purposes of § 101(a) in situations involving a grantor and a trust when (i) substantially all of the trust corpus consists or will consist of insurance policies on the life of the grantor or the grantor's spouse, (ii) the trustee or any other person has a power to apply the trust's income or corpus to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse, (iii) the trustee or any other person has a power to use the trust's assets to make loans to the grantor's estate or to purchase assets from the grantor's estate, and (iv) there is a right or power in any person that would cause the grantor to be treated as the owner of all or a portion of the trust under §§ 673 to 677 (See, e.g., PLR 9413045, in which the IRS implied -- but would not rule -- that the sale of two second-to-die polices, one of which was held by a trust of which the wife was the grantor, and the other of which was held by a trust of which the husband was the grantor, to a new trust that was intentionally designed to qualify as a “grantor trust” with respect to the husband and wife would not be a transfer-for-value with respect to either of them); and

2. Whether the grantor will be considered the owner of any portion of a trust when (i) substantially all of the trust corpus consists or will consist of insurance policies on the life of the grantor or the grantor's spouse, (ii) the trustee or any other person has a power to apply the trust's income or corpus to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse, (iii) the trustee or any other person has a power to use the trust's assets to make loans to the grantor's estate or to purchase assets from the grantor's estate, and (iv) there is a right or power in any person that would cause the grantor to be treated as the owner of all or a portion of the trust under §§ 673 to 677.

Rev. Rul. 2007-13 would appear to offer a favorable response to the first of these questions (although it is not clear if the assets of Trust 1 and Trust 2 consisted solely or substantially of life insurance) -- the transfer for value question -- because the "grantor" status of the trust has been stipulated by the taxpayer who then has the responsibility on audit of establishing the accuracy of that stipulation and thus confirming the favorable nature of the response. In contrast, the revenue ruling does not favorably answer the second of the revenue procedure questions -- the grantor trust question -- since Rev. Rul. 2007-13 does not discuss the reason why Trust 1 or Trust 2 were in fact treated as owned or not owned by the Grantor for Federal income tax purposes.

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Myths & Realities of Living Trusts

2007-02-28T08:27:00.000-05:00

There are over 100 seminars each year in Connecticut on the topic of revocable or “living” trusts. This has resulted in a lot of confusion over exactly what a revocable trust can do and what a revocable trust can not do. It is important that any person considering creating a revocable trust know the truth and misconceptions about them.

Myth: A revocable trust can shelter my assets if I need Medicaid benefits.

Many people think that if they place their assets in a trust, they can protect those assets and create eligibility for Medicaid benefits because the assets are owned by the trust and not the individual. This is not true in the case of revocable trusts because the person creating the trust has the ability to revoke or dissolve the trust and have the property returned to them at any time. Assets owned by a trust that you can revoke or dissolve, or have other certain powers over, will not be protected from long term care expenses.

Truth: A revocable trust can cost less to administer than most other alternatives.

A revocable trust is commonly used to take certain administrative procedures that ordinarily are carried out in the court system and transfer responsibility for those procedures to a Trustee who is either a family member or a professional. Some of these procedures are distribution of property upon death, management of property upon disability, and management of property for beneficiaries under age 18. When these steps are supervised by the courts, there are accompanying costs. When these steps can be handled by a Trustee, there can be significant savings in many cases.

Myth: Only wealthy families can benefit by using a revocable trust.

An estate of $1 million or more is not required to benefit from the streamlined administration of a revocable trust. It is not uncommon for attorney fees alone to be in range of 3% of the estate in probate administration cases. With this in mind, people with an estate of $200,000 or more should compare the potential administration costs of using a revocable trust and not using a revocable trust before making a decision.

Truth: If I have real estate in two different states, I should consider a revocable trust.

Real estate in two different states opens a person up to administration in two different states which increases the administration costs. In order to avoid two administrations while at the same time retaining control over your real estate, a revocable trust is a common recommendation.

Myth: A revocable trust can avoid all administration procedures and costs.

A revocable trust moves the administration process out from the supervision of the probate court, it does not eliminate the administration process. The Trustee has the obligation to inventory or gather the assets, file and pay any required inheritance or estate taxes, account for financial transactions during the administration period, and then distribute the assets according to the terms of the trust instrument.

Truth: I can change the terms of the trust if I choose to.

A revocable trust is not etched in stone. It is a flexible document that the creator can change at any time with one exception, the creator cannot increase the duties of the acting Trustee without the Trustee’s consent. In the majority of cases, the creator of the trust is also the Trustee so this is not a significant concern.

Myth: Everyone should have a revocable trust.

A revocable trust is not a universal estate planning solution. It does provide certain advantages, but it can have disadvantages if used in the wrong situation. You should be confident you understand the advantages and disadvantages of using a revocable trust in your personal situation before making a decision.

Truth: A revocable trust offers more privacy than a Will.

Probate administration is a very open process because it is a judicial process. If you are uncomfortable with the public nature of probate administration, then you can secure more privacy by using a revocable trust rather than a Will.

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Estate Planning - Beyond the Documents

2007-02-26T17:08:00.000-05:00

When most people think of estate planning, they think of paper. All too often we get caught up in the "product" and lose sight of some other important issues. One of the most common oversights is a careful review and coordination of the estate planning documents with the actual financial accounts and assets.

An attorney can prepare the greatest estate plan in the world, but if the client's assets are not properly positioned to work with the estate plan - disaster can strike. Let's look at one example, annuities. Annuities have three components that we're concerned with: 1) an owner, 2) a beneficiary, and 3) an annuitant.

In some cases, a client comes to me where for any number of reasons they may not be the owner of an annuity of which they are the annuitant. Some people do it for asset protection, some people do it for tax purposes - it happens. Now let's imagine we put in place an estate plan that uses a trust to funnel and distribute all of the client's assets among various beneficiaries. If I blindly instructed the client to make the trust the beneficiary of his annuity we have a big problem, a situation commonly referred to as - TRIANGULATION.

Triangulation occurs in an annuity when the owner, beneficiary, and annuitant are three different parties. So what does it mean? The typical effect of a triangulation has a huge impact on who receives the annuity upon the client's death. Normally, an annuity is paid to the designated beneficiary as everyone expects. With triangulation, the annuity is usually not paid out to the designated beneficiary. A clause in the annuity contract will dictate who receives the annuity, in most cases, it ends up reverting back to the owner. Obviously, when the client came to me this was not his goal.

This is just one example of the importance of approaching your estate plan beyond the documents.

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Think Twice Before Giving Away Your House

2007-02-23T17:14:00.000-05:00

Transferring ownership of the family house to children is a popular strategy throughout Connecticut for some families looking to qualify for Medicaid nursing home benefits. In some cases, when part of a well thought-out plan designed specifically for the family involved, this strategy has worked. In other cases, when this decision is hastily made without proper advice, the strategy can be disastrous.

Liability. Let's assume you've made your children owner of your home. Part of what you have done is put your residence within the reach of your children's creditors. If they are ever in an accident, get into financial trouble, or get divorced, your house is now in jeopardy.

Taxes. Under the current estate and income tax rules, when your children inherit your residence they will receive a step-up in basis that serves to eliminate the capital gain built into your house. If you gift your house to your children, they will not get the full benefit of this step-up in basis and will almost certainly be subject to capital gains tax on a portion of the sale when they sell the property.

Should you give your house to your children? I don't know enough about you. Should you carefully consider the ramifications of such a significant step? Absolutely.

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Related Posts: Get Your Free Copy of The Connecticut Nursing Home Guide

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How to Choose a Trustee

2007-02-20T17:15:00.000-05:00

Say you've decided that you'd like to use one or more trusts to provide management, investment expertise, and perhaps tax savings.

The perfect trustee (if there were such a creature) - would have all of the following characteristics: competence, the ability to act without conflict of interest and in the best interests of the beneficiaries, an understanding of your objectives and knowledge of your beneficiary's needs, knowledge of the subject matter of the trust, experience, availability and willingness to serve, and proximity to your beneficiary. Obviously no trustee will meet all these criteria. A good trustee will satisfy many or most of them.

COMPETENCE. A competent trustee should be able to understand the nature of his or her specific duties, select a course of action to take, recognize the limits of his or her knowledge and capabilities, and have the maturity to secure professional assistance where and when needed.

ABILITY TO ACT IN THE BEST INTERESTS OF THE BENEFICIARIES. To fulfill his or her fiduciary responsibilities, a trustee should make all decisions in the best interests of the beneficiaries. In addition to following the terms of the trust while maintaining impartial and absolute loyalty to the trust beneficiaries, the trustee must have the objectivity and fortitude to make difficult and, perhaps at times, unpopular decisions. For instance, a trustee must assess the beneficiary’s maturity and capability of running a family business, whether it is the type of business in which the beneficiary should invest, and what the effects of saying “no” will have on this beneficiary, and “yes” to the others.

UNDERSTADING OF YOUR GRANTOR'S OBJECTIVES AND KNOWLEDGE OF YOUR BENEFICIARIES' NEEDS AND CIRCUMSTANCES. Before making any important decisions, the trustee must understand your priorities (as to which preference or whose interest should take precedence) and goals as well as the financial needs of the beneficiaries. The trustee must also be aware of any special needs of a beneficiary. For example, a child might be physically or mentally challenged and require special care and treatment. These considerations must be incorporated into the overall financial and trust planning.

KNOWLEDGE OF THE SUBJECT MATTER OF THE TRUST. An individual trustee may be able to manage the few periodic and routine administrative duties if most of the trust assets consist of mutual funds. If the bulk of the trust assets consist of listed securities, the trustee should work with, or have access to a good investment advisor. Alternatively, a bank or trust company with a competent investment department that can handle the trust assets more effectively should be considered as a trustee (or co-trustee). However, if the trust assets mainly consist of a family-owned business or a unique piece of real estate, it would be helpful if the trustee has experience working or dealing with the business or assets (or similar ones of its kind) in question.

EXPERIENCE. The job of a trustee is often difficult, time-consuming and multifaceted. It is wise to select someone who, because of background and experience, is familiar with the duties and responsibilities that he or she will be asked to undertake. Consider choosing professional trustees to act as sole trustees or, often better yet, as co‑trustees. These persons or entities could share the trusteeship with family members or long-time friends who might have a close and caring relationship to the beneficiaries, but who lack the background and experience (and perhaps time and inclination) to perform the important functions required of trustees without assistance.

AVAILABILITY AND WILLINGNESS TO SERVE. Not only are a trustee’s duties difficult and time-consuming, but they can often extend over long periods of time. Obviously, you are imposing a tremendous obligation when you appoint someone as a trustee to handle, supervise, and manage the trust assets for young beneficiary(ies).

PROXIMITY TO BENEFICIARY. Your sister in California might otherwise have been an excellent choice as trustee – except that your grandson (the trust beneficiary) lives in Florida and has ongoing needs that must be attended to on a regular basis. In this case, it might be more practical and beneficial to appoint someone locally, perhaps to serve with your sister as a co‑trustee, so that there is a co-trustee nearby to make sure that the beneficiary’s needs are met on a timely and regular basis.

CONCLUSION

It is exceptionally important to be aware of the characteristics of a good trustee and employ them as criteria in the trustee selection process. A wise choice will significantly enhance the probability that your objectives will be accomplished with the least costs and conflicts.

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9 Questions to Ask BEFORE a Loved One Enters a Nursing Home

2007-02-16T17:15:00.000-05:00

1. Is a nursing home necessary or are there alternatives?

I have never once had a client say they were looking forward to going into a nursing home. Yet, often there are alternatives that people simply do not know about. Talk to your physician, social workers, and other professionals to see if there are assisted living, home health care, or other alternatives for you.

2. How do I find the right nursing home?

The best way is to take a systematic approach. If this is not possible, at the very least, shop around (use a Nursing Home Evaluation Form from this office). Personally visit each nursing home you are considering (make unannounced visits) and ask for recommendations.

3. Once I find the right nursing home, how can I get in?

Surviving the admissions process is not always easy. Be up front with the nursing home’s admissions director, be prepared to tell them all about your situation, including your finances.

4. Who will pay for my care…me, Medicare, Medicaid?

Again, it depends upon your personal situation and a knowledge of this difficult area of the law. You also have to be sure to take advantage of the special protections available for your spouse, if he or she will not also be in the nursing home. A good Elder Law attorney can help you through this entire process.

5. Can they make my kids pay for my care?

Not if you handle the admissions process properly. Just be careful not to sign everything that is put in front of you without a thorough understanding of all the documents.

6. Once I get in, how can I get the best care there?

The key here is to have a proper care plan in place. That is a plan developed by the nursing home staff professionals (and you) to determine exactly what kind of care you will get. Putting a proper care plan in place is perhaps the most important step you can take…the care plan is part of your contract. If you feel that you can not be the best advocate for yourself, then it is important to get help from an Elder Law attorney or a geriatric care manager or another health professional.

7. Can I be moved around the facility, from room to room, once I am admitted?

There are several protections for you under Federal and State law. Often, people are moved without proper notice, and even without proper authority. Spend some time learning about your rights as a resident, or work with someone who will be an advocate for you.

8. What are the nursing home’s duties to me?

Ask them for a copy of their duties under the Nursing Home Reform Act. Because of a previous history of inadequate care, in the late 1980s Congress passed laws which outline the minimum standards for health, safety, and resident rights in nursing homes. Chances are you will be surprised and pleased to learn of all your rights…but it is necessary that you take the time to learn your rights. If you would like, contact us and we can send you further information on your rights as a nursing home resident.

9. Is there someone who can help me with all of this?

You can get help from many professionals…from an Elder Law attorney to a geriatric care manager, to social workers. Be sure to deal with a professional who understands the broad range of issues that arise when you or a loved one goes into a nursing home. Find an attorney dedicated to helping you find the right nursing home, get the best care there, and showing you how to pay for it without going broke.

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Related Posts: Get Your Free Copy of The Connecticut Nursing Home Guide

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Guide to Connecticut Nursing Homes

2007-02-13T17:13:00.000-05:00

Division of Assets and Medicaid Planning
How to Pay for the Nursing Home without Going Broke

One of the things that concerns people most about nursing home care is how to pay for that care.

There are basically three ways that you can pay the cost of a nursing home:

1. Long Term Care Insurance – If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of a nursing home. Unfortunately, long term care insurance has only started to become popular in recent years and most people facing a nursing home stay do not have this coverage.

2. Pay with Your Own Funds – This is the method many people choose at first. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging around $9,000.00 per month in Connecticut, few people can afford a long term stay in a nursing home.

3. Medicaid – This is a primarily federally-funded and state-administered program which pays for the cost of the nursing home if certain asset and income tests are met.

Since the first two methods, (long term care insurance and paying with your own funds) are self-explanatory; we will concentrate on Medicaid and Medicare.

What About Medicare?

There is a great deal of confusion about Medicare and Medicaid.

Medicare is the federally-funded health insurance program primarily designed for older individuals (i.e. those over age 65). There is a limited long term care component to Medicare. In general, if you have had a hospital stay of at least three days, and then you need to go into a skilled nursing facility (often for rehabilitation), then Medicare may pay for a while.

Typically, in that circumstance, Medicare will pay the full cost of the nursing home stay for the first 20 days and will continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible that is $124 per day in 2007. Often times your Medicare supplement will pay the cost of that deductible. So in the best case scenario, Medicare may pay up to 100 days. In order to qualify for these 100 days of coverage, however, the nursing home resident generally must continue to “improve.”

While it is never possible to predict at the outset how long Medicare will cover the rehabilitation, it may fall far short of the 100 day standard. But even if Medicare does cover the 100 day period, what then? What happens after the 100 days of coverage has been used?

At that point, you are back to one of the other alternatives…long term care insurance, paying the bills with your own assets, or Medicaid.

This is an excerpt from our Guide to Connecticut Nursing Homes. The full Guide includes valuable information to help you select and pay for nursing home care without going broke. If you want to receive your FREE copy of the complete Guide, fill out this form or contact our office.

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Related Posts: Medicaid Principles - The CSPA
9 Questions to Ask BEFORE a Loved One Enters a Nursing Home

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Publication Order Form

2007-01-01T08:29:00.000-05:00

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