Saturday, November 2, 2024

No Lift Policies? Will Your Institutional Care Provider Pick You Up When You Fall?

 


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to watch the video in a separate larger and more easily seen frame (much encouraged). 

In this video, Attorney Donohew discusses a Washington Post investigative report about "fall assist" 911 calls from assisted living and other institutional care providers, and the prevalence of "No-lift" policies. 

'

According to  the Washington Post

"[l]ift-assist 911 calls from assisted living and other senior homes have spiked by 30 percent nationwide in recent years to nearly 42,000 calls a year...That’s nearly three times faster than the increase in overall 911 call volume during the same 2019-2022 period, the data shows." 
The article notes this practice is particularly prevalent in Illinois, and why the increasing number of calls is causing controversy. 


Thursday, October 31, 2024

Pennsylvania's Controversial and Pernicious Filial Responsibility Law- Repeal, Rescue, or Worse?

 


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This video is based in large part on a recent article authored by Professor Katherine C. Pearson, Filial Friday: Modification of Pennsylvania's Filial Support Law Passes House Unanimously (last accessed 10/31.2024).  Professor Pearson is also the author of of the seminal law review article on the subject of filial responsibility, Filial Support Laws in the Modern Era: Domestic and International Comparison of Enforcement Practices for Laws Requiring Adult Children to Support Indigent Parents (last accessed 10/31/2024).  Therein, Professor Pearson wrote:

Indeed, as set forth in Section V of this article, case reports and news reports from Pennsylvania demonstrate a potentially significant trend, where third-party creditors are using filial support laws to compel payment or cooperation by adult children to cover their parents’ costs in nursing homes or similar care settings. While the Pennsylvania trend is echoed in at least one other state, South Dakota, Section VI of this article demonstrates that a lack of national consensus in application of filial support laws can create inconsistent results among U.S. states, which may increase the potential for results that seem surprising or unfair. 

The following are links to articles on this blog regarding filial responsibility laws: 

The following are links to articles describing legal mechanisms by which nursing homes attempt to create filial responsibility even in the absence of filial responsibility statutes: 
Additional Resources: 

Finally, in the video I refer to a CMS policy paper that advocates enforcement or adoption of filial responsibility. I cannot find the link to that paper, but am searching for same.  The paper was, in my opinion, the culmination of an effort that included a 1983 administrative interpretation of Medicaid regulations which permitted state Medicaid administrators to "require adult family members to support adult relatives without violating the Medicaid statute." See,  Medicaid Manual Transmittal No. 2, HCFA Pub. 45-3, no. 3812 [New Developments 1983 Transfer Binder], 3 Medicare & Medicaid Guide (CCH) 5f 32,457 (Feb. 1983).  I will supplement when I locate the paper. 

Friday, October 25, 2024

Estate Tax Planning for 2026 Tax Changes: Modest Estates At Risk?




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The estate tax is a tax on the value of a person’s assets and property at the time of their death. Upon your death, if the total value of your estate is above a certain threshold amount, known as the federal estate tax exemption, the IRS requires your estate to pay the tax before any assets can be passed to your beneficiaries. Under current law, every year this exemption rises with inflation, but in any given year, politicians can change the amount of your coupon.  Worse, the exemption amounts currently in place sunset or expire beginning in 2026.  

In 2024, the federal estate tax exemption is $13.61 million for individuals ($27.22 million for married couples). Simply put, if you die in 2024, and your assets are worth $13.61 million or less, your estate won't owe any federal estate tax. If, however, your estate is worth more than $13.61 million, every dollar more than that will be taxed at a whopping 40% tax rate.

The current $13.61 million estate tax exemption is set to expire on Jan. 1, 2026, and return to its previous level of $5 million, which when adjusted for inflation is expected to be around $7 million.  Of course, we can't know whether Congress will step-in before to change the law, and we can't know if that change will be helpful or harmful to your current estate plan.  

Additionally, there are some inherent variables in your estate plan, in addition to the tax variables.  We don't know (1) when you will die, (2)  how much money you’ll have when you die, (3)  what the estate tax exemption will be when you die, and as importantly (4) how long,  legally or medically, you will be able to plan for yourself or change your estate plan. That’s why it’s so important to work with an attorney who will develop a long-lasting relationship with you and have processes in place to ensure that you are updated when the law changes and put strategies in place to protect your family, regardless of the amount of the estate tax exemption or the value of your assets.

In addition, the state you live in can also have an estate tax, separate and apart from the federal government’s estate tax. Fortunately, both states in which most of my clients reside, Ohio and Missouri, have neither an estate nor inheritance tax. Illinois, a state in which I am admitted to practice, but in which I no longer practice, is one of seventeen states that have an estate or inheritance tax. In Illinois, any amount of your estate over $4 million will be taxed at a graduated rate that goes as high as 16% based upon the 2024 tax rates. Eleven states, and the District of Columbia, have an estate tax, while five states have an inheritance tax, where they tax people who live in their state when they receive an inheritance. Currently, Maryland is the only state in the nation that has both an estate tax and an inheritance tax.

By using various estate planning strategies, you can reduce — or even eliminate all together — your estate tax liability. Some of the strategies are simple, but the more money you have, the more complex they’ll need to become, for example by using irrevocable trusts. Regardless of the method you employ, without question, these strategies can save your family from a massive tax bill, and are therefore well worth it the time and expense necessary to design, draft, and implement them.  I discussed many of these strategies in my previous article, Looking Ahead to 2026- Estate Tax Exemption Sunset and Current Planning Opportunities.

If you’d like to learn more, or need to get a plan in place to save your family from a major tax burden, give us a call. 

Wednesday, October 23, 2024

Funding Your Trust


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Funding a trust is the most important first task in implementing the trust. It begins immediately upon executing or signing the trust, and consists of transferring all of your assets and property to the trust. A trust only governs the property or assets it owns or controls. In the video, Attorney Donohew introduces and explains how to use a Trust Funding Checklist to ensure that a trust is fully and properly funded.

Once your Trust is funded, you will need to keep and maintain the trust by, among other things, keeping the trust funded with newly acquired assets. If you purchase a new house or additional real estate, for example, the new property will need to be put in your trust. If you take title directly in the name of the trust, you won't have the administrative burden of preparing a new deed. Similarly, If you open a new bank or investment account, opening it directly in the name of the Trust will make it easier. In other words, keep your trust in mind as you make other legal and financial decisions.
You should also review your estate plan, and the documents that comprise the plan periodically. You should also review your plan after any major change in your life, or in the lives of your beneficiaries and fiduciaries, and any time your circumstances, goals or needs change dramatically. Regardless, the law and practice change periodically, so even if everything in your life seems to be stable and consistent, periodic review ensures that your plan is taking advantage of developments, and is not harmed or thwarted by changes in the law or practice.

The following are important articles regarding trust funding and links to funding forms:

ARTICLES


FUNDING FORMS*

Single Person
COUPLES
  • Bank, Credit Union, Accounts and Safe Deposit Boxes
  • Investment Accounts (Stocks, Bonds, Mutual Funds)
  • Stock Certificates
  • Savings Bonds (call counsel)
  • Life Insurance Beneficiary Designation
  • Life Insurance Change of Ownership
  • Non-Qualified Annuity Beneficiary Designation
  • Non-Qualified Annuity  Change of Ownership
  • Retirement Plan, IRA, SEP, Keough, TSA. Qualified Annuity Beneficiary Designation
  • Homeowner's, Property & Casualty Insurance Policy ANI
  • Motor Vehicle Insurance Policy ANI
  • Motor Vehicle Title (Ohio)
  • Motor Vehicle Transfer on Death (Missouri)

The forms provided on this page are general and simple forms.  These use of any or all of these forms may not be applicable to your situation and circumstance.  Accordingly, these forms should be used only after consultation with counsel. 

Nothing contained herein should be construed as constituting legal advice which can only be given by a licensed attorney familiar with you goals, needs, and circumstances.   


Tuesday, October 15, 2024

Open Enrollment! NCOA Considerations


The National Council on Aging (NCOA), the national voice for every person's right to age well, is encouraging all individuals with Medicare to evaluate their coverage during this year's Open Enrollment, which runs from October 15 through December 7, 2024, for coverage effective in 2025.

The Annual Enrollment Period is too often a lost opportunity for people with Medicare. Research shows that only about 10% of individuals use this chance to switch plans. The result is they can end up overspending for coverage they don't need or use.

"This year, the stakes are higher than ever," said Josh Hodges, NCOA's Chief Customer Officer. "With inflation at a 40-year high and a recent U.S. Census report showing that poverty increased among Americans age 65 and older, it's critical that people with Medicare use this time to make sure their plan meets their budget and their health care needs."

"When assessing options, we recommend individuals look at cost, coverage, and convenience," Hodges said. "Every year, Medicare plans change, and so do people's personal health situations. Medicare can be confusing, but NCOA offers trusted resources to help."

BenefitsCheckUp® is an NCOA tool that helps people with Medicare determine if they may be eligible for the Medicare Savings Programs and Medicare Extra Help—two programs that help cover health care costs for people with low and moderate incomes.

Another trusted resource is the State Health Insurance Assistance Program (SHIP) network. There are SHIPs in every state, and they provide local, in-depth, and objective insurance counseling and assistance to Medicare-eligible individuals, their families, and caregivers.

Of course, you can also speak with a private independent Medicare Specialist.

For more information, please visit www.ncoa.org/Medicare.

PRIMARY SOURCE: Save Money by Evaluating your Medicare Plan, Today's Caregiver (last accessed October 15, 2024)(slight alterations added).

About NCOA  

The National Council on Aging (NCOA) is the national voice for every person's right to age well. We believe that how we age should not be determined by gender, color, sexuality, income, or zip code. Working with thousands of national and local partners, we provide resources, tools, best practices, and advocacy to ensure every person can age with health and financial security. Founded in 1950, we are the oldest national organization focused on older adults. Learn more at www.ncoa.org and @NCOAging. 

Sunday, October 13, 2024

Violence as a Consequence of an Estate Plan- Can Planning/Drafting Help? A Simple Provision in a Deceased Mother's Will Sparks a Son's Shotgun Rampage Causing the Death of Four

You can press play on the video, but if you would rather watch the video in a separate tab/window (recommended) click the link below:

In this video I discuss violence, threats of violence, and retaliation as a consequence of estate planning choices, and whether planning and drafting can avoid or protect a family from such a tragic consequence.

Trigger warning: the subject matter considers heartbreaking examples of violence including death. This video reports a recent tragedy in which a simple provision in a deceased mother's will sparked a son's shotgun rampage, causing the death of four, and discusses estate planning and administration considerations to prevent similar violence and harm.

The case example discussed is from a report in the Daily Mail, "Simple request in Long Island woman's will sparked her son's devastating shotgun rampage on siblings." (last retrieved 10/10/2024). The Daily Mail article was brought to my attention by Professor Gerry W. Beyer's article, similarly titled.

The video discusses, among others, the following considerations and strategies in an effort to reduce or eliminate the threat of tragic outcomes:
  • Drafting Considerations;
  • Considerations Regarding Communications with Family;
  • Securing Documents;
  • Physical Security;
  • Identifying/Reporting Threats/Troubling Behaviors, Mental Illness & Grief;
  • Logistics of the After-death Family Meeting including Timing and Location.
The video highlights the importance of worst-case scenario planning, and keeping a continuing relationship with a trusted advisor with whom such topics can be discussed and considered openly and thoroughly.

Additional Resources:


Thursday, September 5, 2024

American Seniors See Need for Aging In Place Resources

 ID 106271439 © Dreamstime.com

Seniors believe there exists an "urgent need" for affordable social supports to enable successful aging in place, according to a  survey conducted by Gallup and West Health, a nonprofit healthcare policy institute.  The survey results, various statements, reactions, and analysis were reported in an article entitled "Gallup: US seniors perceive major need for aging-in-place resources," published in McKnights Home Care

The surveyors polled nearly 2,200 adults in the US to determine their perception of seniors’ need for aging support. A total of 60% of respondents indicated that older adults need more affordable resources to allow them to live independently as long as possible. Women were slightly more likely than men to identify such need, and only 10% of respondents disagreed and saw no need for more affordable aging-in-place resources.

Timothy Lash, president of West Health, issued a statement stating:

“America is facing a profound demographic shift that requires new thinking and smart planning that cuts across multiple sectors from housing and healthcare to transportation and social services.  This survey shows Americans sense the need, and now policymakers need to sense the urgency and develop plans that better reflect an older America.

More than one in five adults said that they believe there is a major need for better mental health services. Less than one third said that it is easy to access physical health resources in their community. 

Adam Healy, writing for McKnights wrote: 

The need for enhanced community-based health supports is especially pertinent given the growing population of seniors in the US, Gallup and West Health said. More than one in five US adults will be age 65 or older by 2030, outnumbering people under 18 years old for the first time in history. The surveyors noted that most Americans believe the country is not prepared to adequately serve this rapidly aging population, and called for lawmakers to address seniors’ growing need for health resources.

Dan Witters, a senior researcher at Gallup, said in a statement:

"These findings demonstrate the American public is well aware of the need to be better prepared as the population ages.  Now it’s a question of what policymakers and other stakeholders will do to address the need and the urgency.”
The most important takeaway from the survey is that seniors understand at some level the obstacles to aging in place.  Seniors understand that aging in place requires planning and resources, desire to age in place, and perceive a lack of assistance and resources in the legal,  health care, and financial systems to meet their needs.  Seniors and their families would be well advised to plan early for aging in place. If you want to attend an aging in place planning workshop, email Christine, chris@donohew.com.

Wednesday, June 12, 2024

Identity Theft: Credit Monitoring and Freezes (With Links to Credit Agencies)


While you can never definitively protect yourself from identity theft, there are steps you can take that make it harder for criminals to access and use your sensitive information. One such step is placing credit freeze requests with all three credit bureaus.

Credit Freeze vs. Monitoring

Credit monitoring involves scrutinizing your credit report for changes. These changes could include legitimate and/or fraudulent credit inquiries, new credit accounts, a new reported address or an account that has been turned over to collections.

There are credit monitoring services that will automatically notify you of changes to your report for a fee, or you can monitor your credit for free by requesting and reviewing your reports regularly. However, the disadvantage is that both these approaches are purely reactive. Monitoring only notifies you that you have already fallen victim to identity theft.

Preventive measures, such as a credit freeze, provide much better protection. Also known as a security freeze, this measure blocks access to your credit report and other information, thereby preventing new account fraud, which occurs when someone applies for new credit using your identity.

When someone submits a tenant application or credit application (for a loan or credit card), the creditor will request a copy of the applicant's credit report. If the credit report is blocked, then the creditor is unable to review it and will typically deny the application. Therefore, a credit freeze is a method of stopping fraudulent activity before it occurs.

Who Should Freeze Their Credit?

Data breaches are increasingly common and the likelihood that a person’s credit report and other sensitive information have already been exposed is high. Regardless, it is best be proactive about preventing identity theft, especially if you rarely need to grant a new creditor access to your credit activity and history. I strongly recommend that all consumers consider placing security freezes on their credit since recovering from identity theft can be a long and difficult process, and though there may be little expense resulting from a breach, whatever expense there is is almost certainly greater than the time expense necessary to implement a freeze.

When it comes to seniors and their family caregivers, extra protection is crucial. Seniors may suffer periodic long or short term incapacity or illness, during which they are unable to monitor their own credit report.  Seniors may be more distracted by grief and loss and are more susceptible to periodic or sustained cognitive impairment. Caregivers, too, deserve attention.  A busy family caregiver may not have the time or energy to monitor their own credit report, let alone their loved one’s credit activity. A credit freeze provides invaluable peace of mind.

A certain group of vulnerable consumers, regardless of age,  which includes incapacitated individuals and those who have been appointed a guardian, should absolutely be protected by a credit freeze. Since these consumers are unable to monitor their own credit or protect themselves from fraud, caregivers with durable financial power of attorney (POA) or court-appointed guardianship can request security freezes for their on their behalf.

How to Freeze Your Credit

The three nationwide credit reporting companies are Experian, Equifax and TransUnion. You must contact each of these bureaus to request separate freezes. Freezing security freeze with one of them is not sufficient, since creditors do not report to all three.

Each credit bureau permits consumers to request a security freeze online, by phone or by mail. You may also temporarily lift a freeze (aka “thaw” your credit) and permanently remove a freeze via these methods using the account and/or personal identification number (PIN) you have established with each bureau. To help you get started, the webpages and contact information for the three bureaus are listed below.

__________________________________________________________________

Experian Credit Freeze

1-888-EXPERIAN (1-888-397-3742)

Experian Security Freeze

 P.O. Box 9554 Allen, TX 75013

 Experian Credit Freeze Application


You can find a complete list of information/documentation that must be submitted with your written request at Experian.com.

__________________________________________________________________

Equifax Credit Freeze

1-888-EQUIFAX (1-888-378-4329)

1-800-349-9960 (automated line)

Equifax Information Services LLC

P.O. Box 105788

Atlanta, GA 30348-5788

Equifax Credit Freeze Application


When submitting a request by mail, you’ll need to fill out an Equifax Security Freeze Request Form and include copies of proof of identity and proof of address documentation.

__________________________________________________________________

TransUnion Credit Freeze

1-888-909-8872

TransUnion

P.O. Box 160

Woodlyn, PA 19094

Transunion Credit Freeze Application

Written requests should include your name, address and Social Security number as well as a six-digit PIN to associate with your TransUnion freeze.





Wednesday, January 17, 2024

Nursing Homes Found Guilty in Criminal Understaffing Case= Individual Defendants Acquitted

In a rare case in which a nursing home business faced criminal charges over staffing misconduct, two Pennsylvania facilities owned by Comprehensive Healthcare Management Services were recently found guilty of healthcare fraud and other crimes.

Prosecutors alleged two different schemes to enrich the nursing homes’ operations. In the first, leaders were accused of falsifying payroll documents to make it appear the nursing homes were meeting required staffing levels, including having non-working direct care staff clock in for shifts they never intended to work. In the second, administrators were accused of changing assessments to make it appear patients were clinically depressed or needed more therapy as a means of delaying discharge and driving Medicare or Medicaid reimbursements.  

Both schemes appear to be occasional, if not common, practice of some nursing homes.  The Trump Administration, for example, began demanding payroll records of nursing homes, because CMS found that some nursing homes misrepresented staffing levels on routine reports. Moreover, the financial incentive of these institutions to misrepresent a patient's condition or need for treatment, underlies many of the ongoing battles to ensure better quality of care for patients.  


After five weeks of testimony in the complicated case involving Brighton Rehabilitation and Wellness Center and Mt. Lebanon Rehabilitation and Wellness Center, the jury returned verdicts against the institutions charged. The US Attorney’s Office for the Western District of Pennsylvania also prosecuted five company and facility leaders for their roles in a scheme that led to overbilling; the jury found all five not guilty.

Brighton Rehab itself was found guilty of healthcare fraud and five counts of falsification of records in a federal investigation, while Mt. Lebanon was found guilty of one count of falsification of records related to healthcare matters and three counts of falsification of records in a federal investigation. The nursing home defendants are scheduled to be sentenced in May before US District Judge Robert J. Colville.

According to Kimberly Marselas, reporting for McKnights' Long Term Care News, neither prosecutors nor defense attorneys offered a solid explanation why the jury reserved its convictions for the corporate defendants. US Attorney Eric Olshan, nonetheless, assured told McKnight’s Long-Term Care News that his office would pursue similar cases in the future, if warranted:
“Our legal system entrusts the jury with making determinations of guilt, and as in all cases, we respect the jury’s verdict. Today, the jury held the two corporate defendants criminally liable for a total of 10 counts of making false statements and obstructing CMS’s critically important work of ensuring that nursing facilities comply with the law.  This office and our law enforcement partners will continue to seek accountability for any individual or business that pursues profit through deceit and does so at the expense of vulnerable members of our community.”
Several counts in the indictment carried up to $250,000 in fines, or jail times in the case of individuals. In a press release issued by the US Attorney’s Office , prosecutors said the companies faced a maximum of five years probation, $500,000 in fines, or both, on the counts for which they were convicted.

"Brighton, with 589 beds, is one of the state’s largest nursing homes and was plagued by problems during the pandemic. The facility was hit with at least  $62,000 in fines for infection control deficiencies, and the state later selected a temporary manager to come in and clean up operations. 

The 121-bed Mt. Lebanon facility also has had its share of problems, including a 2-star overall rating and an abuse citation noted on the Care Compare site.

Both facilities are managed by Comprehensive Healthcare Management Services, an entity affiliated with Ephram “Mordy” Lahasky. He has a 10% direct ownership stake in Brighton, while Halper has a 12% ownership stake.

Attorneys for the individual defendants framed the case as one of sloppy record keeping and government malfeasance, rather than intentional fraud, TribLive reported.  The Pittsburgh Tribune-Review reported that attorneys also attacked the credibility of 20 former nursing home employees as each having an axe to grind: some were fired, others quit, and some were offered immunity in exchange for their testimony.

Attorney Kirk Ogrosky represented Sam Halper, Brighton’s CEO and 12% owner and an officer at Mt. Lebanon. Orgosky argued there was no evidence Halper was involved in ordering or completing incorrect staffing records but instead told the jury that a handful of staff members came up with a scheme to cheat the buildings’ corporate owners.

“Throughout this case, all defendants cooperated with the US Department of Justice in every way possible. Yet, DOJ pursued individuals without regard for the truth,” Halper said in a statement shared with TribLive. “Thankfully, the jurors were able to hear the evidence and find that the facts did not support DOJ’s claims.”

Regardless, the case is representative of just how complicated is the challenge to ensure care quality,  and just how difficult it can be for the government, even when properly motivated, to protect the vulnerable by holding third parties responsible.  Individuals and institutions pursuing their own self interest at the expense of senior residents and patients is a common theme in cases like the one reported.  

Of course, the case does not ask or resolve the question of whether a health care system devised and regulated by a government bureaucracy overly concerned with reducing costs at the expense of quality can ever attain a high quality of care for patients.  Aging in Place is a discreet goal of a well-crafted estate plan because a person with family and loved ones can often better control the circumstances of their care at home or at less institutional alternatives.



Wednesday, December 20, 2023

Unpacking Trustees- Primary, Successor, and Special Trustees, Trust Protectors and More

A typical Trust document will refer to a Trustee (sometimes referred to as an Original or Primary Trustee) and a Successor Trustee.  These terms are straight-forward and easily understood by even those who are new to a trust or new to trust planning.  The Trustee is the person with general management responsibility for the trust and for the assets, and a Successor Trustee is the person who is designated to take over according to the terms of the trust, typically when the Original or Primary Trustee is unable or unwilling to serve.  By the way, a "person" as used in most trust documents can be a human person, or an institution such as a bank, trust company, broker-dealer, or the like.  Most trusts have provisions regarding institutional trustees, even if none is currently serving or appointed to serve, because future use of an institutional trustee may be necessary or advisable.  

Succession of Trustees  

The trust terms dictate the succession of trustees, and this succession may go beyond simple ability or willingness to serve.  It is not uncommon, for example, that a trust document appoint a successor trustee upon the happening of an event or condition precedent, such as when a person comes of age, or when a person is separated from a family by termination of marriage.  The Trustee serving may be willing and able to serve, but may be replaced by a Successor Trustee when the Successor Trustee attains a certain age, or if the Trustee's marriage is terminated.

Co-Trustees

Many trusts refer to Co-Trustees.  A Co-Trustee is simply two or more persons serving as together as trustee at the same time.  Co-trustees may be empowered to act independently or may be required to act concurrently or in concert.  Simply, a Co-Trustee that is empowered to act independently may act alone, and only one Trustee's signature may be required to take action, while Co-Trustees that act concurrently or in concert must agree, and the signatures of both Co-Trustees will normally be required to act.      

Additional Trustees

Many trust documents refer to additional, separate Trustees.  Reference to these additional trustees may cause confusion for laypersons, as they are typically defined in the trust document only by context.  In other words, the trust document identifies who may serve as a separate or additional trustee, and may describe the authority of these Trustees, but rarely do these documents explain the purpose or objective they serve in the overall plan. This confusion sometimes causes dispute when a separate or additional trustee misinterprets their role and begins making demands of the trustee or attempts to exercise general power or authority over a trust or its assets.  

Special Trustees    

A Special Trustee is someone who is entrusted with exclusive or non-exclusive authority over a particular Trust asset or area of decision-making. The most common reason for a Special Trustee is to protect an asset or asset class, usually because that asset or asset class requires special expertise.  There are two common situations where Special Trustees are employed by a trust.  The first is where a family member serving as a Trustee is dealing with a family member, or himself, or herself in administering the trust assets; when a trustee is selling the family home to a sibling beneficiary.  Although lawful, the conflict of interest may best be resolved, or may require appointment of a Special Trustee to prosecute the sale.  

Another common situation is where the assets include a specialized or professional business, for example a medical, legal or financial practice. A professional medical corporation may be owned by a trust, but the law may restrict the ownership of the corporation to a licensed physician.  Thus a surviving non-licensed spouse may serve as Trustee of the Trust, but another person who has the required license may be needed to serve as Special Trustee who winds-up the affairs of the practice, sells the practice assets and transfers the net cash proceeds into the name of the Trustee. 

Even non-professional businesses may involve a Special Trustee.  Farmers, for example, may desire that one child oversee the administration of all of the assets, but may desire that a person with farming experience and expertise oversee administration of the farm and farm assets.  Our office has worked with clients that wanted Special Trustees to oversee the administration of business assets, to oversee the treatment and disposition of exotic animals such as exotic birds, ostriches, and cutting horses, and to oversee administration of unique assets such as artwork, copy-righted publications, antiques, and in case, a train.  

Trust Protectors    

 A Trust Protector is someone who is entrusted with exclusive or non-exclusive authority to protect a particular beneficiary or class of beneficiaries, usually because of vulnerability and/or inability of the beneficiary or beneficiaries to protect themselves.  Beneficiaries that are minors, or suffer from disability or impairment may require special protection since they are unable to protect themselves. A  Trust Protector is not, usually, involved in the day to day management of the Trust or its assets, but is typically empowered to oversee the Trustee.  A Trust Protector may be empowered to terminate a Trustee, replace a Trustee, or nominate and appoint additional Successor Trustees.  A Trust may confer to Trust Protectors additional authority to ensure that the Trust continues to work in the best interest of the beneficiaries, by, for example, authorizing a Trust Protector to petition the court to amend or reform the Trust document.  

Trust protectors are commonly used in Supplemental Needs Trusts and in wholly discretionary Trusts where the Trustee has complete discretion whether or not to distribute assets to the beneficiary. A Trust Protector is an alternative to requiring an advocate on behalf of a vulnerable beneficiary to seek and obtain legal authority to represent the beneficiary, and then protect the beneficiary formally, legally through court processes.  Like probate administration of assets, these legal processes bear cost and expense, including the uncertainty of outcome, time, and legal expense.   

Planning Regarding Trustees 

A common question is, "who do I appoint as successor trustee of my trust?"  Keep in mind two things.  First, that person will settle your estate.  Second, and more importantly, that person will mange your assets and affairs for you,  during your life, if you are unable to do so!    

Simply, a person serving as trustee should have the trust and confidence of the person creating the trust and making the appointment.  That trust and confidence is best if based upon actual repeated interaction and experience with the trustee over a long period of time.  If based upon a brochure, flyer, referral of a family member, recommendation of counsel, that trust and confidence may, of course, turn out to be well-founded, but, at least initially, you have no personal basis for trust and confidence.

A person should not be appointed as a trustee simple because they have a relationship with the the person who creates the trust, or with the beneficiaries of the trust.  While relationship is an important consideration, trust and confidence do not always follow familial relationship. 

Also, plan for the worst case scenario, and not the statistically probable or best case scenario.  Often, a person will ignore excellent choices do to their age or due to health considerations that may impact the life expectancy of potential trustees. Select the best person for the job now.  Select successors to handle the passage of time and circumstance.  

While it is perhaps correct that a parent or older sibling, or younger sibling may not be able to serve if you reach an advanced age, if they are a better choice for the near term than younger less responsible choices, do not overlook them.  The worst case may be statistically improbable, but planning should be based on that which is foreseeable and possible, however unlikely.  Worst case scenarios, when they do play out, are often made worse by poor planning. 

Thursday, November 16, 2023

Looking Ahead to 2026- Estate Tax Exemption Sunset and Current Planning Opportunities

The estate and gift tax exemption amounts will decrease at the end of 2025. Decreasing the exemption amounts is tantamount to an increase in the tax because more people are impacted by the existing tax. Currently, an individual can make transfers by gift during life, and bequests at death, up to an aggregate of $12.92 million, with that amount increasing to $13.44 million in 2024, without incurring gift or federal estate tax. Similarly, the federal Generation Skipping Tax (GST) exemption is currently $12.92 million, increasing to $13.44 million in 2024. 

On January 1, 2026, these amounts are scheduled to “sunset” and revert back to the 2017 amount of $5 million, adjusted for inflation. Although the time frame for sunsetting may be extended depending on political and economic factors, it would be prudent for people with larger estates to take advantage of the opportunities available now by utilizing the exemption amounts in excess of the projected 2026 exemption amounts, in case the exemptions are reduced as scheduled in 2026 (or possibly changed before then).

In light of the looming reduction of estate and gift tax exemption amounts, consider some of the following opportunities:

  • Complete gifts now to use available exemptions, particularly GST tax exemption for gifts into a long-term dynasty trust. In light of the pending decrease of the estate, gift and GST tax exemption amounts and taking into consideration the proposed effective dates, it may make sense for those individuals who have exemptions available to make gifts prior to year-end 2023, and before the uncertainties inherent in election year 2024.
  • In connection with making gifts in 2023, giving a fractional interest in the property (such as an interest in an LLC or real estate) may prove beneficial as the value for gift tax purposes may be reduced by certain discounts, such as a discount for lack of control and/or lack of marketability.
  • Consider a spousal lifetime access trust (SLAT) to take advantage of the current high gift and GST exemptions, while retaining some access to the trust assets at the spousal level.
  • Consider giving to an irrevocable “grantor trust” that includes a power to reimburse the grantor for income taxes paid. A “grantor trust” means the grantor, not the trust, is treated as the owner for income tax purposes. The grantor pays all income taxes attributable to the trust income, which allows the trust assets to grow without reduction for income taxes. Grantor trusts can be drafted to permit a trustee to reimburse the grantor for income taxes paid; however, until recently it was an open question whether such a power in a California grantor trust would cause negative estate tax consequences to the grantor. This is because prior announcements from the IRS stated that a power to reimburse a grantor for income taxes paid does not cause inclusion of the trust in the grantor’s estate if certain requirements are met, including that applicable state law must not subject the trust assets to the claims of a settlor’s creditors. Effective January 1, 2023, the California Probate Code clarifies that a trustee’s power to reimburse the grantor for income taxes paid does not create a beneficial interest that would allow the settlor’s creditors to reach trust assets.
  • For those who are charitably inclined, consider charitable planning such as charitable remainder unitrusts (CRUTs) and charitable lead annuity trusts (CLATs).
  • For individuals and families who do not have a significant amount of estate and gift tax exemption available but wish to reduce their overall estate, consider a sale to a trust in exchange for a promissory note. If structured properly, since the transaction is a sale, it will not be treated as a taxable gift, and the assets sold to the trust will be excluded from the estate of the grantor/contributor. The note becomes the replacement asset of grantor/contributor, effectively transferring the appreciation on the asset to the trust.
  • If you own Qualified Small Business Stock (QSBS), consider gifts to one or more irrevocable trusts to take advantage of substantial exclusions from federal income tax on capital gains. Gifts of QSBS continue to be eligible for the exclusion on gain, and the transferor’s five-year holding period “tacks” to the transferee. The gifted shares to irrevocable trusts that are appropriately structured will be eligible for a separate exclusion (up to the limitation amount) in addition to the exclusion that continues to be available for eligible shares retained by the transferor.
  • For individuals who have used their lifetime gift exemption but still have unused GST exemption, consider a late allocation of your remaining GST exemption amount to an existing GST non-exempt trust you have previously created. Alternatively, consider setting up a new two-year grantor retained annuity trust (GRAT) before the end of 2023 so you can apply your unused GST exemption to the GRAT remainder interest prior to January 1, 2026.

The foregoing is solely for illustration purposes. You should reach out to your legal advisor before undertaking any tax or estate planning to determine if it is appropriate for your situation.

New Tax Credit Planning Opportunities for Individuals and Families

Beyond the general planning opportunities previously discussed, individuals and families should be aware of certain new tax planning opportunities. In June, the Department of the Treasury and IRS released guidance on Internal Revenue Code (IRC) Section 6418, which provides taxpayers a new way to monetize certain energy tax credits. The guidance included proposed regulations relating to the transferability of tax credits under IRC Section 6418. Specifically, Section 6418 allows for the sale of tax credits solely for cash to unrelated taxpayers, and such payment does not constitute taxable income to the transferor (and is not deductible by the transferee). Prior to the enactment of Section 6418, investors typically accessed renewable energy tax credits by investing in so-called “tax equity” partnerships—which were only workable for more sophisticated investors due to the costs and qualifications under such partnership arrangements. Now, with the new rules, monetization of renewable energy tax credits has been made more accessible to a broader range of investors, including partners of a partnership and individuals. Unfortunately, limitations exist. For one, the “passive activity” limitations, applying to individuals, trusts and estates (but not corporations), make such transferees subject to IRC Section 469, only allowing them to utilize purchased tax credits against tax liabilities associated with passive income generated from other sources.  Additional information can be found here.

IRS Targets on Wealthy Taxpayers

In September, the IRS announced it is focusing on high-income earners to “identify sophisticated schemes to avoid taxes.” Bolstered by its funding from the Inflation Reduction Act (IRA) of 2022 (P.L. 117-169) and equipped with artificial intelligence and machine-learning technologies, the IRS employed three key initiatives. The first “High Wealth, High Balance Due Taxpayer Field Initiative,” committed dozens of revenue officers to focus on taxpayers with total positive income above $1 million and more than $250,000 in recognized tax debt. The second bolstered IRS compliance efforts related to ongoing discrepancies on the balance sheets of partnerships with over $10 million in assets. The third program focuses on monitoring returns for partnerships with greater than $10 billion in assets.

Summary

The IRS is committed to increasing collection of tax revenue, and federal and state governments are more likely to to increase rather than decrease taxes. Advanced planning to avoid taxation makes sense.  It is best to plan now than discover that you have lost planning opportunities, and incurred unnecessary and avoidable tax liability.  


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