Sorting the confusion between SSNs,TINs, ITINs, and EINs

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If you are confused regarding taxpayer identification numbers, don't feel bad.  Although they are rather straight-forward and it is "technically" clear which you need in a particular situation, they are nonetheless confusing to lay persons, and even professionals that do not routinely apply for assignment of these numbers.  

Just the term Employer Identification Number (EIN) creates confusion, since it is not limited to just employers.  In fact, for this very reason, some financial companies. brokers, and insurance companies will not, on their forms, refer to an EIN, using instead the term Taxpayer Identification Number (TIN), when they clearly are requesting the former and not the latter.  Why?  The only explanation is that they know that your trust, for example, isn't an employer, and you will become confused that the request doesn't pertain to your trust.

There is another example of this type of practice regarding warning on tanks and tank trailers. "Flammable," right?  Well, except for the fact that there is, or at least was, technically no word, "flammable!" The correct word is "inflammable."  To avoid confusion, manufacturers use the "wrong" word rather than the "right," and for good reason- we wouldn't someone pounding, heating, or setting ablaze a tank that was labeled "inflammable," thinking incorrectly that it wouldn't burn or explode, right? In that same way, financial services companies use a more common reference Tax Identification Number rather than Employer Identification Number to "avoid" confusion. 

So let's see if we can clear any confusion.

What are Tax Identification Numbers? 

For the IRS to conduct its business, it must have an easy way to identify each individual, trust, and business or non-business entity. To do this, the IRS requires each individual and entity to have a Tax Identification Number. While most individuals use their Social Security Number (SSN) for filing taxes, most businesses and non-business entities, like trusts, must have a special tax identification number instead.

Please note that  we are referring generally to tax identification numbers.  There is a specific Taxpayer Identification Number (TIN) which the Service usually designates as (ITIN) for "Individual" Taxpayer Identification Number.   

SSN, ITIN or EIN: What’s the Difference?

There are three main categories of tax ID numbers: Social Security Numbers (SSN), Employer Identification Numbers (EIN) and Individual Taxpayer Identification Numbers (ITIN).  SSNs and ITINs are used for individuals. Generally, the ITIN is for those not eligible for an SSN, such as non-resident aliens or resident aliens not yet eligible for a social security number. 

For businesses and non-business entities, like trusts, the EIN is the most important tax identification number. Despite the name including "employer," it suits all businesses, or non-business entities such as a trust, even those with no employees. 

So one of the biggest clues what you need is "to what are you referring as the owner or beneficiary of the asset, account, or benefit?"  If you are referring to a trust, use the EIN for the trust.  

The trust usually uses your social security number if you are the Settlor/Grantor of a revocable trust.  When the trust qualifies as a "Grantor Trust,"  it is a disregarded entity which uses the Grantor's social security number.   

If the Trust is irrevocable, the trust may have a separate EIN, so you will need to either: 1) refer to the Certificate of Trust which will identify the EIN; or, 2) ask your attorney or accountant that obtained the EIN. Most attorneys make clear on the Certificate Trust is the irrevocable trust is treated by the IRS as a separate entity requiring an EIN, and typically will obtain one for the trust. 

Tax ID Numbers for Businesses

Most businesses require a special tax identification number for their filings with the IRS. Many other legal documents for businesses, including loan applications, bank account applications and permit applications, also require a tax identification number. Therefore, one of the first actions to take after setting up your business is to apply for an EIN.

Are There Exceptions?

There are cases in which business owners can use their own social security number rather than an EIN for filing taxes for their business. The two exceptions are sole proprietorships and certain LLCs, as long as the LLC does not have any employees. In these cases, the business owner can use his or her SSN in place of the EIN. However, even sole proprietors might need a EIN under certain circumstances, such as for excise tax returns or pension filings.

You have your choice of business structure, which might impact what type of Tax Identification Number you need. Start your tax ID application to receive your EIN number by filling out the form here. Alternatively, complete a sole proprietorship application and use your social security number instead. Our support team is available 24/7 to assist you with any questions you might have about filing these applications.

Do I Need an ITIN or Social Security Number to Get an EIN?

There are ways to get an EIN for your company without having either a Social Security number or an ITIN, but in most cases, you do use those other tax identifiers in your application. That’s because the IRS does require the person who takes responsibility for the registration to have one of these. If you do not have either identifier, you have two options.

• File for either a SSN or ITIN before applying for an EIN so that you can be listed as the point of contact for the company.
• Engage an accountant or lawyer willing to act as that contact for the company and submit their information so they can receive paper records regarding your EIN.

What Are the Differences Between a SSN and an ITIN?

The main difference is that the Social Security number is for those who are eligible for Social Security benefits, either at retirement or in the event of a disability. For residents of the U.S. and non-residents who own businesses in the country, the ITIN provides and individual tax identification option outside of Social Security. This is an important avenue for those who do not qualify for a Social Security number.

Can I Use a Tax ID Number for More Than One Business?

Generally, no. If your business needs its own EIN for any reason, you need to use a unique one that is just for that entity. Entrepreneurs with multiple companies they own as the sole owner, either through sole proprietorship or a single-member LLC, might have the option of lumping all their business taxes under one tax return by using their Social Security numbers and filing with Schedule C. Even then, if any of those businesses hire employees or seek bank loans, they will need their own EIN, and they will not be able to share.

Still Confused?

Your attorney or accountant will usually help you quickly identify and locate the correct number.  Rather than create additional work later, we suggest that clients fax or email the forms they are completing with an indication what they are trying to accomplish.   We usually will simply insert the correct "number" and send it back for completion.  Regardless, if you are confused, ask for help!

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Ohio Repeals Estate Tax

It is now official: Ohio officially abolished its estate tax when Republican Governor John Kasich signed the state budget today (June 30, 2011).  The estate tax provision of the new law does goes into effect on  January 1, 2013.

This cliffhanger is reminiscent of the federal estate tax law change that eliminated the federal estate tax for just one year in 2010. The federal estate tax came back Jan. 1, 2011, albeit with a generous individual exemption of $5 million. The Ohio estate tax repeal is intended to be permanent, once it becomes effective.  In other words, it does not "expire" or "sunset," and will remain the law unless changed by a future Ohio legislature and Governor.

“By repealing this suffocating tax, Gov. Kasich and the Ohio legislature have made their state stronger – and made it a model for the remaining 21 other states who continue to impose state estate or inheritance taxes, including three of Ohio’s neighbors: Indiana, Kentucky, and Pennsylvania,” says Dick Patten, president of the American Family Business Institute, a no-death-tax lobbying group.

For a map showing state estate taxes and rates for 2011, click here.

For the years 2011 and 2012, Ohio remains as one of 22 states that along with the District of Columbia currently have estate and/or inheritance taxes.  Among estate tax states, Ohio currently has the lowest exemption amount per estate, just $338,333, but the lowest top rate at 7%. 

Once the Ohio repeal becomes law, New Jersey will have the distinction of being the state with the lowest estate exemption at $675,000.

For more information on the efforts of other state legislatures to minimize estate taxes, click here.

Private Nurses for Home Care

Patricia B. Gray, contributing writer for Money Magazine has written an excellent article regarding private nursing for home care.  She introduces this increasingly common alternative to institutional care for seniors:

You may think of private nurses as a luxury for the ultra-rich, like a butler or personal chauffeur. But hiring in-house medical care has become an increasingly viable option for regular folks too.

You can use a nurse to ease the transition from hospital to home after surgery or a major illness, or even to administer chemotherapy if you want to stay out of a clinic or hospital. Visits from a private nurse can help your elderly parent remain in his or her own house safely.

Care at home can be a less expensive option than an extended stay in a nursing facility, says Kathleen Kelly, executive director of the Family Caregiver Alliance, a San Francisco nonprofit. Still, the cost can add up quickly, and you may have to cover most of it yourself. So it pays to know whether you need a nurse and how to pick one.

Insurance Department Helps Locate Missing Life Insurance Policies

If you suspect a deceased loved one has a life insurance policy that you cannot locate, there is a service through the Ohio Department of Insurance that can assist in identifying and locating the policy.  The Ohio Department of Insurance’s missing life policy search service is a comprehensive search service that assists Ohio residents, and the families of deceased Ohio residents, in locating lost insurance policies purchased in the state. The search identifies the existence of any life insurance policies or annuity contracts purchased in Ohio and issued on the life of, or owned by, a deceased person.

Since its implementation in September of 2009, the missing life policy search service has had 682 valid search requests, and have matched 442 polices with their rightful owners.  “This is a great program that works for the consumers of Ohio to help them locate life insurance dollars to which they are entitled,” Ohio Lieutenant Governor and Department of Insurance Director Mary Taylor said in a release. “It’s great that Ohio’s life insurance companies are able to work together, along with the Ohio Department of Insurance, to perform this service. These numbers are amazing and we encourage Ohioans to continue to submit their search requests to the Department.”  

Executors, legal representatives, or members of the deceased person’s immediate family may file a search request with the Department.  To submit a request, visit www.insurance.ohio.gov   to print out the request form.  Have the form notarized, attach a copy of the certified death certificate, and mail it to the Department.

The Department forwards the search requests and supporting documentation to all Ohio-licensed life insurance companies within 25 business days of submission. If an insurance company has information about an in-force individual insurance policy on the life of the deceased person or an individual annuity contract where the deceased person is an annuitant, the insurer is required to take action to administer the policy and/or contract according to its terms.  If any money is to be paid to a beneficiary, the insurance company will contact the beneficiary directly. In this case, the company has 21 days to notify the consumer after contacting the Department.

Ohioans with questions about life insurance can call the Department's toll-free consumer hotline at 1-800-686-1526. A life insurance informational toolkit is also available on the Department's website at www.insurance.ohio.gov. The toolkit provides tip sheets, publications, and links to other helpful web sites.

ABC News Rountable Discusses Family Eldercare

This week, "ABC World News with Diane Sawyer" launches a special series, focusing on the sensitive issues surrounding eldercare. As part of the series, Sawyer hosted a roundtable on the subject with Virginia Morris, author of "How to Care for Aging Parents"; businesswoman Martha Stewart, who partnered with Mount Sinai to open an eldercare center in 2007; and noted geriatricians Neil Resnick and Marie A. Bernard.

The group discussed everything from driving to medication to the stress that's placed on caregivers.

You can watch each of the episodes, as well as read the accompanying articles here.

Share Your Pain Experience with the Institute of Medicine

The Committee on Advancing Pain Research, Care, and Education is calling on individuals that suffer from pain, and those professionals and individuals that provide services to or care for those who suffer from pain, to help committee members better understand what it is like to live with pain. This is a critical time to share your story, whether you are an individual with pain, family member, caregiver or health care provider. With the passage of the Pain Care Policy Act in 2010, Congress has commissioned the Institute of Medicine (IOM) to convene a committee to review pain research, care and education and explore ways to improve pain treatment in the United States.

Now is the time to tell your story and make your voice heard! Share your individual experiences with pain and how it affects your life, including:

• Barriers that have prevented you from receiving effective pain care,
• Stigmas you have endured as someone struggling with pain, and
• Experiences (positive and negative) you have had when seeking treatment.

Providers are also asked to submit information on:

• Groups that may be inadequately treated for pain, and
• Clinical experiences in providing pain care, particularly in the primary care setting.

Please submit your comments by February 8, 2011 to the committee here.

Next, share this article with your family members, friends, colleagues and health care providers and ask them to respond. Don’t forget to post this on your Facebook wall or send a tweet to your followers on Twitter.

The American Pain Foundation finally, invites those submitting comments to send copies of their letters to APF at media@painfoundation.org.

Low Cost Medicare Supplement Available in Ohio

A new low-cost Medicare Supplement insurance policy is now approved for sale to seniors in Ohio. The Ohio Department of Insurance has approved a very low-cost Medicare Supplement insurance plan for seniors and Ohio is among the first states in the nation to allow this supplemental insurance plan to be offered to its citizens. The State of Arizona, too, recently approved a policy for sale there.  The availability of this low-cost supplemental plan for Ohio seniors was announced by State Mutual Insurance Company of Rome, GA, and reported by Business Wire Inc.

State Mutual President and CEO, Dee Yancey III, characterize the policy as one of the lowest cost Medicare supplement insurance plans available anywhere in the nation.  State Mutual Insurance Company allows Medicare-age consumers to apply for the supplemental Medicare insurance policy online without having to talk with an insurance agent.

According to Business Wire, Inc., a quick random comparison of Medicare supplement policies available in a number of states shows that the State Mutual policy is generally the lowest-cost in most categories, and in some cases, costing less than half the price of the most expensive policies for the same coverage. 

The online program allows an interested customer to review and select a policy, see a price quote, submit an application, receive confirmation of coverage and receive his or her policy in a few minutes of online time. 

According to the company's website, the the low cost of the State Mutual Insurance Company policy is achieved by empowering the customer to go online for most, if not all, of the information and application phase of obtaining Medicare supplement insurance:

Our products are low-priced because we have eliminated much of the marketing costs by not having an agent come to your home.  We have reduced our operating expenses by making policy issuance and administration more efficient.  

The website promises the consumer:

• Low Premiums on All Plans.

• Anonymous Rate Quotes.

• No Waiting Periods.

• No Agent Calls.

• Online Approval and Immediate Policy Access.

It is welcome news that Ohio seniors are getting a lower cost alternative.  Of course, reliance on an online solution may not be in your best interest.  Medicare Supplement policies, are, however, fairly standardized, and comparison of policies is, as a result, easier than comparison of other types of insurance policies.    Nonetheless, if you have a trusted adviser, it merits discussion before blindly accepting online comparisons and representations.  

Beware Lapse of Insurance for Vacated Rental Property- A Cautionary Tale about the Demise of the Trusted Professional Adviser

Elder Abuse and Exploitation Rampant

New research from Cornell University's medical college suggests that the incidence of elder abuse and exploitation is far greater than experts had expected.

The study, which is not available online, compared the number of cases reported to law enforcement  agencies that serve the aging and other authorities with those mentioned in 4,000 random phone surveys of people 60 and older.  One would expect that some cases would go unreported, and thus it is generally understood that such offenses are unreported.

The extent of  unreported offenses was, however, shocking.  According to the study, for every elder abuse case reported to a mandated enforcement agency, the survey found, 23.5 unreported cases actually occurred. What's more, for each case of financial abuse of elders reported to authorities, 43.9 actually occurred.  Finally for each reported case of neglect of an elderly person, 57.2 cases of neglect actually occurred. One can only be shocked that such a vast array of offenses against the elderly go completely unreported.

The extent of unreported cases helps to explain why abuse, financial fraud, and neglect are so prevalent among the elderly. Aside from what may be a natural vulnerability among some segments of the elderly population, it is obvious that perpetrators can repeat offend with relative impunity.  Imagine for a second how prevalent convenience store robberies would be if only one out of every 57 store owners  victimized even reported the crime! 

Read more: http://www.sacbee.com/2010/12/31/3291158/fraction-of-elder-abuse-cases.html#ixzz1AHH0aMqp

Thirty Thousand Seniors To Get Default Notices from Reverse Mortgage Lenders

About 30,000 seniors will receive tough "dun" letters from their reverse mortgage lenders. This largest batch of mortgage delinquency notices in U.S. history will demand payments in 30 days and threaten foreclosures of the homes.

These 30,000 homeowners over age 62 are behind on property taxes or have not paid homeowners' insurance. Both overdue items violate terms of the reverse mortgages and trigger foreclosure.

Lenders are required to mail the letters to the seniors between now and April 29, 2011. The massive collection effort was ordered by the Federal Housing Administration (FHA) which insures most reverse mortgages under its "HECM" program - Home Equity Conversion Mortgage.

Estate Tax Uncertaintly Continues

The most common question I have been asked as we start the year 2011, is whether the new tax law ends the uncertainty regarding estate taxes.  Unfortunately, despite the new law reducing the federal estate tax, uncertainty continues as a planning variable. 

For most of the year 2010, we expected 2011 to usher in a fifty-five percent (55%)  federal estate tax on all assets over one million dollars. Toward the end of 2010, President Obama signed legislation reducing this exorbitantly high death tax to thirty-five percent (35%) on assets exceeding five million dollars in value.  However, the reduction only applies for the years 2011 and 2012.

If you plan on dying in the next two years, you are probably relieved. If you plan on living well past 2012, uncertainty regarding the marginal rate and exemption amount remains.   Unless changes are made to the law,  the estate tax rate for 2013 will revert to fifty five percent (55%), with only a one million exemption amount.

When planning, although we hope for the best, we must plan for the worst.  The worst case planning scenario, then, would assume that you survive until January 1, 2013, at which time you pass and realize a fifty-five percent (55%) tax on all assets (including the value of life insurance payable as a consequence of your death), in excess of one million dollars in value. 

So, here are my rules of thumb (my thumb, my rules :-)).   I generally recommend that my clients consider setting up an Irrevocable Life Insurance Trust (ILIT) for all life insurance policies over two hundred and fifty thousand dollars ($250,000.00) and consider setting up a Bypass or Credit Shelter Trust for all marital estates that exceed one million dollars. A fifty-five percent (55%) tax means a substantial loss of wealth, and a substantially reduced inheritance.  Most people will want to plan to reduce that tax burden as much as possible. 

As the estate laws change, I will continue to update you so that you may better serve your clients and protect yourself and your family.

GAO reports on Guardianship Abuse

When an individual, often a senior, becomes unable to manage his or her finances and personal decisions, and has not created a legal structure for trusted surrogates to take over decision-making (through a power of attorney, health care directive and a trust) a state court may appoint a guardian or conservator (depending on the state law and the powers to be granted) to step in and take care of the incapacitated person.  In most cases, this responsibility falls on a family member who has the relative’s best interest at heart.   These court-appointed guardians are bound by law to act in the best interest of their ward, so even if the responsibility falls upon a person that is not a family member who has the best interest of the ward at heart, the guardian is supposed to behave as if he or she does does.

But, a recently-issued report by the Government Accountability Office (GAO) suggest that this is not always the case.  The report, surveying selected guardianship cases over a twenty year period, disclosed finding instances where family and non-family members alike have been appointed by courts, and subsequently abused or neglected the persons they were appointed to protect.  The GAO identified hundreds of allegations of physical abuse, neglect and financial exploitation by guardians in 45 states and the District of Columbia between 1990 and 2010.

PainSAFE™ to aid in Pain Management and Care

Medical professionals and caregivers working with chronic pain patients, and chronic pain sufferers have a new tool. The American Pain Foundation (APF) today announced the launch of PainSAFE™ (Pain Safety and Access for Everyone), a new educational initiative designed for people with pain and health care professionals. The mission of PainSAFE is to provide education surrounding the appropriate and safe use of pain management therapies for people affected by pain and health care professionals, thereby, helping to reduce risk and improve access to quality pain care.

PainSAFE is a web-based program that provides up-to-date information, programming and practical resources and tools to help educate consumers about pain treatment options and their use.  PainSAFE also provides health care providers with a central hub of evidence-based information and practice-based tools to focus on safety and reduce the risks associated with various pain treatments.

For the Family Caregiver, the Perfect Holiday is a State of Mind

The holidays are always a wonderful time of year for family gatherings, reflection on what we have and the spirit of giving. The television is packed with specials showing relationships and families coming together for the holidays.

But the holidays can also be a time of stress and sadness for those who are caring for family members that are struggling with health problems, frailty, dementia, disability, or recent loss. Those who care for these individuals may feel overwhelmed, frustrated, depressed or resentful as they watch “perfect” families enjoying the holidays. There are many surveys and studies suggesting that caregivers are highly susceptible to such feelings. If you are a caregiver, there are measures you can take to avoid succumbing to these feelings and emotions.

PBS's "Frontline" Confronts End-of-Life Planning

A recent edition of PBS's FRONTLINE online, and an accompanying web page, discuss the hard choices we face regarding health care near the end of life.  The synopsis of the program is chilling and profound:  "How far would you go to sustain the life of someone you love, or your own? When the moment comes, and you're confronted with the prospect of "pulling the plug," do you know how you'll respond?"

In "Facing Death," FRONTLINE gains extraordinary access to The Mount Sinai Medical Center, one of New York's biggest hospitals, to take a closer measure of today's complicated end-of-life decisions. In this intimate, groundbreaking film, doctors, patients and families speak with remarkable candor about the increasingly difficult choices people are making at the end of life: when to remove a breathing tube in the ICU; when to continue treatment for patients with aggressive blood cancers; when to perform a surgery; and when to call for hospice."

"What modern medicine is capable of doing is what 20 years ago was considered science fiction," Dr. David Muller, dean of medical education at Mount Sinai, tells FRONTLINE. "You can keep their lungs breathing and keep their heart beating and keep their blood pressure up and keep their blood flowing. ... That suspended animation [can go] on forever. [So] the decisions at the end of life have become much more complicated for everyone involved."

"There are clinical situations where the odds are so overwhelming that someone can['t] survive the hospitalization in a condition that they would find acceptable, then using this technology doesn't make sense," says Dr. Judith Nelson, an ICU doctor at Mount Sinai. "And yet, in my clinical experience, for almost everybody involved, it feels much more difficult to stop something that's already been started." Dr. Nelson continues: "Nobody wants to die. And at the same time, nobody wants to die badly. And that is my job. My job is to try to prevent people from dying if there's a possible way to do it that will preserve a quality of life that's acceptable to them, but if they can't go on, to try to make the death a good death."

At every turn in the program, the importance of advance planning is obvious and palpable.  The educational materials accompanying the program explain:

Business Succession Planning Neglected

Transitioning a business to the next generation or to new ownership is a reality that affects most business owners.  Ideally, business owners should begin developing a succession plan five to ten  years before exiting the business.  Of course, one cannot know for sure when succession will take place.  Those that plan for business succession, often plan only for retirement.

Health concerns, however, can compel succession earlier than expected.  A business owner's incapacity, incompetency, or disability may render the owner incapable of transitioning a business to a successor.  But, death is unquestionably the most severe of the reasons compelling succession of a business. Given the risk that a poorly planned succession might rob the business owner's heirs of a substantial inheritance, and risk otherwise guaranteed inheritance by burdening an estate and heirs with debts and obligations, one would assume that most business owners consider carefully succession of their business. 

Many, however, aren't thinking about it at all.

Young Adults to Have Expanded Health Insurance Access

An Ohio law that allows unmarried children or stepchildren up to age twenty-eight (28) to remain or be added to their parent’s insurance coverage becomes effective July 1, 2010.   As a result of the new law, parents should evaluate the opportunity and the cost of this new coverage.  The Director of the Ohio Department of Insurance, Mary Jo Hudson, wrote in a release that [a]n estimated 20,000 additional young adults, who are more likely than any other age group to be uninsured, will now be eligible for coverage."  The statement continued: “These changes, combined with our work to implement the recently passed federal reforms, are granting more Ohioans access to coverage and decreasing the number of uninsured Ohioans." The state reform will work in tandem with the federal law dependent age change that becomes effective September 23, 2010. Previously, only dependents up to age 19, or up to 23 years old if they were still in school, were eligible to receive coverage under their parents’ policies.

Ohio Pet Trusts

In Ohio, Pet Trusts (sometimes called Pet Care Trusts) are a relatively new legal tool used to provide for the care and maintenance of a companion animal should its owner die or become disabled. The primary purpose of a Pet Care Trust is to ensure that your beloved pet is cared for and protected as you would wish.

Millions of Americans consider their dogs, cats, exotic birds, and other pets more than just animals, and certainly much more than just personal property. Pets are often trusted friends and companions.  Pets provide emotional support, comfort, security, happiness, joy, satisfaction, and purpose. The close connections between pet owners and their pets often causes owners to desire protection, care, and consideration of the needs of their animal companions in the event they are unable to provide that care.

The law generally views pets as personal property, despite the fact that many individuals with companion animals view them quite differently than other possessions.   In fact, many people consider their pets as family members or children.     A 2005 study found that seventy-three percent of dog owners and sixty-five percent of cat owners “consider their companion animals to be akin to a child or other close family member.”  

Although many pet owners assume that a member of their family will take care of their pets after they die, the family members often do not want responsibility for the pet.  The harsh reality is that a significant number of the four to six million animals euthanized in the United States every year are pets left without care when their owners die.   Others end up in shelters and rescue charities. Some universities with veterinary schools have responded to this issue by “offering perpetual pet care programs that promise student care, including all necessary medical needs, for pets when the owner becomes disabled or dies.”  However, to avail oneself of the program an owner must make some type of donation to an “appropriate school-associated foundation.”  

Pet Trusts have, as a result, become quite popular.  One author wrote, "[t]he pet trust has earned wide acceptance despite its unique non-human and noncharitable nature and has been adopted relatively quickly compared to other novel types of trusts." 

A Pet Trust can be crafted as a stand-alone trust or as part of a another trust that you create. Pet Trusts require someone to fund them called a Grantor or Settlor. A Pet Trust will typically set aside enough money or property to care for a pet(s) during the lifetime of the pet. The Grantor selects a trustee to manage the money for the benefit of the pet, and a caretaker to manage the pet's care. The trustee should be someone trusted, who is financially responsible and cares about the pet. The caretaker should be someone who knows and loves the pet, who can provide a comfortable home and who is willing to accept the responsibility for the pet's welfare. While the same individual can act as both trustee and caretaker, it  sometimes advisable to use separate individuals to ensure proper care for a pet.

A Pet Trust will  often specify instructions regarding care of the pet. The most commonly included details are:

• identification of the pet;
• food and diet instructions;
• grooming instructions;
• Veterinary care instructions;
• compensation for the caregiver and trustee;
• how the caregiver must document expenses;
• how the trustee is to monitor the caregiver’s services;
• whether and how the trust will cover liabilities should the pet bite or injure someone or damage property;
• final burial or cremation instructions.

Many Pet Trusts address the issue of euthanasia of a pet, particularly for convenience, or reasons other than profound health concern, disability, or impairment.

Because a Pet Trust can be incorporated into the design and drafting of a revocable or irrevocable trust, the cost for many clients is minimal.  A Pet Trust can be incorporated into a Last Will and Testament, but typically has a cost separate and apart from, particularly, a simple Last Will and Testament.     

Noteworthy Changes to Coverdell Accounts Demand Consideration

Families interested in opening a Coverdell Education Savings Account this year for college savings should consider doing so before April 15. That would allow them to invest as much as $4,000 in one of these tax-advantaged accounts this year—twice the maximum for annual contributions—since money deposited before April 15 can be counted against the previous year's limit.

But families planning to use a Coverdell account to pay for pre-college education expenses should think twice about opening or contributing to an account this year. Starting next year, withdrawals from Coverdells to pay expenses from kindergarten through 12th grade will no longer be tax-free, unless Congress acts to extend that benefit, which is far from certain.

Another prospective rule change would lower the limit on annual contributions to $500 starting next year, making Coverdells less useful for college savings. Already, the $2,000 limit has made Coverdells much less popular than 529 college-savings plans, which offer similar tax benefits for college costs and a roughly $300,000 limit on contributions overall. But even some people who are putting away more than $2,000 a year for college have included Coverdells in their savings plans, because Coverdells offer a greater range of investment options than 529 plans, and more freedom to switch investments.

Another benefit that could expire at year's end is the ability of an investor to claim a Hope or Lifetime Learning tax credit for education in the same year they use Coverdell funds, as long as the tax credit and Coverdell money aren't used for the same expense. For example, an investor can take a tax credit for tuition in the same year s/he is using Coverdell money for books.  This benefit is scheduled to sunset at the end of this year,  resulting in the two tax benefits becoming mutually exclusive. 

Avoiding Sham Trusts and Trust Scams: Part I - Sham Trusts

Legitimate trusts are tools used by qualified estate planners and their clients to achieve certain objectives, including, but certainly not limited to, controlling the disposition of assets, avoiding probate, reducing administration costs, saving estate taxes, and preserving family wealth for future generations. Unfortunately, trusts are often used for improper purposes. Lurking in the shadows are con artists who promote sham trusts and trust scams for their own gain. These con artists rely on the ignorance of the public, and only education and information can prepare you for their pitch.

Sham trusts and trust scams are usually sold at high pressure seminars, by door-to-door salesmen, and on the internet. In some cases, they are recommended by well meaning but poorly informed CPA's, financial advisors, friends, or business acquaintances. The marketing techniques can be persuasive, and are aimed at all classes of people.

What is a Sham Trust?

A sham trust is any trust created for an improper or illegal purpose. For example, "trusts" or "contracts" which purport to avoid, or significantly reduce, all taxes, including all income taxes, for individuals and, in some cases, businesses, are almost always sham trusts. These often use a complex structure that involves the "irrevocable" transfer of your assets to one or more business or trust entities which you control. The promoters claim that the arrangement will significantly reduce or eliminate state and federal income taxes.

Although there are legitimate estate tax objectives that may be accomplished with trust planning, income tax planning is quite a different matter. Generally speaking, someone is going to have to report taxable income, as well as pay income taxes thereon. While there are legitimate credits, deductions, and exemptions available under state and federal law, there is no trust or business entity into which you can convey all of your property and thereby avoid all income taxes. These trusts sometimes come with seductive names. Moreover, when the justification for the trust somehow involves the unconstitutionality of the IRS or of income taxes, you are best advised to seek additional or alternate legal counsel.

Avoiding Sham Trusts and Trust Scams - Part II - Trust Scams

Although trusts are excellent tools used by legitimate professionals to accomplish a variety of worthwhile objectives, there are a wide variety of con artists who prey upon the public using the lure of trust planning. These con artists rely on the ignorance of the public. They generally provide poorly conceived and implemented estate plans, poor service, and often do more harm than good to their customers. These schemes are usually encountered at high pressure seminars.

What is a Trust Scheme?

Several years ago, the Supreme Court for the State of Ohio fined a company and a group of individuals including several attorneys one million dollars for selling unnecessary and potentially damaging legal services to seniors. Several years later, the State of Ohio fined a pre-paid insurance company and a group of attorneys for similarly cheating seniors. The State of Texas is currently investigating a Ponzi scheme in which seniors are alleged to have lost tens of millions of dollars. What these schemes have in common is that each involved the marketing and sale of living trusts.

Living trusts are so advantageous and so readily accepted by the general public that scam artist will often sell a living trust as a front for selling some other illegitimate scheme or investment. Once confidence of the public is attained, the sham artist will sell the client stock in companies that do no exist, unregistered and risky securities, poorly capitalized limited partnership interests, and just about any fraudulent investment or business scheme imaginable. Promising returns that are usually too good to be true, the scam artist assures their clients that the investment is safe. The scam artist is almost never an attorney, and the trust is almost always incidental to their "product." Moreover, the investments that they offer are almost always unwise.

Most Do Not Have Advanced Directives

"Five years after the court fight over allowing Terri Schiavo to die, most Americans still don't draft the legal documents that spell out how far caregivers should go to keep them alive artificially."  This according to an Associated Press article published in the Washington Post.  According to the article:

"Schiavo's life and death captivated the country and fueled conversations about the necessity of the documents, known as advance directives or living wills. Even though millions witnessed a worse-case scenario, there's no indication it had a lasting impact on getting more people to make their wishes known."

"The gap is so big," Paul Malley, president of Aging With Dignity, is quoted as saying.  Aging With Dignity  advocates advance directives and saw an increase in interest during the Schiavo case. "Even a significant impact from the Schiavo case doesn't put a dent in the need that's out there."

Underwriting Ceases on National Flood Insurance

FOR IMMEDIATE RELEASE
FROM THE OHIO DEPARTMENT OF INSURANCE

Monday, March 29, 2010

CONSUMER ADVISORY:

National Flood Insurance Program Not Issuing New Policies

COLUMBUS — Ohio Department of Insurance Director Mary Jo Hudson is advising consumers that the National Flood Insurance Program (NFIP) ceased issuing new policies or renewing policies to cover flood damage, following the expiration of the program’s federal authorization at midnight March 28, 2010. Congress will not act again on reauthorization legislation until after it returns to session on April 12.

The NFIP sunset could cause short-term problems for consumers waiting to close on the sale of a property within a Special Flood Hazard Area. However, consumers with current policies are still covered by the federal program. Only those seeking to purchase a policy during this time will be affected. Until Congress approves this reauthorization, the NFIP cannot issue new policies, increase coverage or approve renewal policies.

National Healthcare Decisions Day is April 16

National Healthcare Decisions Day is April 16th! On this day, all across the country, health care facilities, health care professionals, chaplains, the legal community, and others will be participating in a collective effort to highlight the importance of making advance health care decisions and to provide tools for decision-making..

Notwithstanding a much higher awareness on the part of individuals and institutions regarding the need for health care decisions planning, implementation by individuals and institutions of plans meeting the need are still rare.   Less than fifty percent of the severely or terminally ill patients  had an advance directive in their medical record, according to a study by the  U.S. Agency for Healthcare Research and Quality (http://www.ahrq.gov/).   In a 2003 article, “Advance Care Planning: Preferences for Care at the End of Life,” USAHRQ reported that only twelve percent of patients with an advance directive had received input from their physician in its development.  Moreover, between sixty-five and seventy-six percent of physicians whose patients had an advance directive were not aware that it existed. 

Even when the advanced directive exists, and the physician is aware of its existence, most physicians do not consult with their patients regarding end-of-life issues until treatments have been exhausted, at least according to researchers publishing a report in the journal Cancer, reported last month in this blog (click here).  According to the researchers, most doctors don't talk about end-of-life issues with their cancer patients when those patients are feeling well. Nor do they talk about them until treatments have been exhausted. Those delays might mean patients are unable able to make truly informed choices early in their treatment.

Annuity Tax Remains in Health Care Reform

By Steven A. Morelli, Senior Editor, InsuranceNewsNet

Despite protests from insurance groups, the health care reconciliation act will add a new tax on annuity income to pay for Medicare once the bill becomes law.

Several insurance groups issueda last-minute appeal in a letter to legislators on Wednesday to exempt annuities from the new tax, citing the important growing role annuities are playing in securing retirement. But annuitiesremained in the reconciliation bill the Senate and House passed on Thursday and sent to President Barack Obama to sign.

The 3.8 percent tax applies to investment income from married individuals filing a joint return and surviving spouses with taxable income of at least $250,000; married taxpayers filing separately with an income of $125,000; and other individuals, with an income of $200,000.

The bill lists annuities as investment income. The tax would apply to annuity income that is already taxable (the amount above the annuity owner’s cost basis), starting in 2013. Annuities sold in employer-sponsored retirement plans would be exempt.

Ohio Increases Annuity Guaranty Coverage

Ohio Department of Insurance Director Mary Jo Hudson has announced that a recent amendment to Ohio insurance law by the Ohio General Assembly has increased The Ohio Life and Health Insurance Guaranty Association’s coverage protection for annuities from $100,000 to $250,000. The change goes into effect on May 26th, 2010.

The new changes to the law (Section 3956.04 of the Ohio Revised Code) will guarantee that consumers who purchase an annuity product may be able to recover up to $250,000 of their policy in the unlikely event that the company they purchased the product from becomes insolvent.

The Ohio Life & Health Insurance Guaranty Association (OLHIGA) is a non-profit association of insurance companies that sell life insurance, health insurance, and annuities in Ohio. It was created by Ohio law to provide some level of protection for certain Ohio policyholders against the insolvency of an insurance company licensed to sell those types of policies in Ohio in the event that the company is placed into liquidation.

Planners' Corner- Health Care Reform and LTCI

The health bill package includes provisions that could impact long term care insurance sales.  President Obama signed into law the giant Patient Protection and Affordable Care Act that the Senate passed early on Christmas Eve, 2009.  The new law includes the Community Living Assistance Services and Supports Act (CLASS).  The CLASS Act is intended to provide a lifetime cash benefit that offers people with disabilities some protection against the costs of paying for long term services and supports, and helps them remain in their homes and communities.  It is a self-funded, insurance program with enrollment for people who are currently employed. Premiums will be paid through payroll deductions if an individual’s employer decides to participate in the program. Participation by workers is entirely voluntary. Self-employed people or those whose employers do not offer the benefit will also be able to join the CLASS program through a government payment mechanism. 

Under CLASS, individuals qualify to receive benefits when they need help with certain activities of daily living, have paid premiums for five years, and have worked at least three of those five years.  Qualified individuals will a receive a lifetime cash benefit based on the degree of impairment, which is expected to average between $50 and $75 a day or more than $27,000 per year.  This benefit can be used to maintain independence at home or in the community, and should be sufficient to cover typical costs of home care services or adult day care. The qualified individual's benefits can also be used to offset the costs of assisted living and nursing home care.

Many experts, including actuaries at the government's own Centers for Medicare and Medicaid Services, have argued that a combination of relatively rich benefits and the opt-out provision make the program actuarially unsound, by encouraging workers with health problems to flock to the program and healthy young workers to opt out.  Of course, it is possible that the provisions of CLASS will be amended by the reconciliation bill currently under consideration by the Senate.  

Beware Fake Health Care Plans In Wake of Reform

In the wake of sweeping health care reform, consumers will need to be wary of con artists promoting fraudulent plans and benefits.  State regulators are already struggling to stop fraudulent health insurance plans, a growing problem that has cheated tens of thousands of consumers at a cost of tens of millions of dollars, according to Sean P. Carr, Washington Correspondent in an article published March 23, 2010, by InsuranceNewsNet.com.

According to the article:

Fraudulent plans continue to grow in size and scope. "There's no end in sight," said James Quiggle, communications director for the Coalition Against Insurance Fraud.  A common scam involves plans that promise full health care coverage but deliver worthless policies or lesser products designed to look like comprehensive coverage, said Quiggle, who has studied the issue for years. Consumers may purchase "limited benefit" plans or medical discount cards that often present themselves as providing full insurance coverage -- until the bills come, he said. Such fraudulent plans surged in the early 2000s, Quiggle said. When confronted, companies sometimes claimed they were not subject to state insurance regulation...Regulators knocked many of them out of business in the mid-2000s, he said, but the combined effects of recession, sustained joblessness and increasing numbers of uninsured provided a target-rich environment for their return. The number of people victimized are in the tens of thousands, he said. 

States Attack Community Spouse Income Planning

One of the benefits of an annuity in estate and government benefits planning is the ability to convert assets countable for the purpose of determining Medicaid eligibility, and therefore subject to long term care spend down, to income for a community spouse, that is not countable, and therefore, not subject to spend down. This strategy is particularly comforting to a community spouse, who often is confronted with the task of making limited assets and income last over a lifetime. Given that the community spouse is often a younger female with a much longer life expectancy than the institutional spouse, providing a guaranteed income that the spouse cannot outlive from assets that otherwise would be extinguished by long term care is an important goal for seniors and their families, and the planners representing them.

This technique is not common, and is not without its risks. The community spouse must make an irrevocable decision preferring income over assets the spouse could otherwise spend without limitation. As income, the spouse has comfort in meeting routine obligations, but does not have a large pool of convertible assets as a safety net. The spouse gives up flexibility and liberty to convert a lump sum of assets to whatever purpose the spouse might have. Moreover, the technique means making a decision to prefer taking care of the surviving spouse at the expense of an inheritance for the children. Under the Deficit Reduction Act of 2005 (DRA), the state must be the beneficiary of any residue upon the death of the community spouse.

Nonetheless, states have waged an aggressive battle in the courts to prevent families from converting assets to income, but have, to date, been largely unsuccessful. The Third Circuit Court of Appeals, for example, recently held that since the annuity payment is payable to the community spouse, it is income and should not be included in the eligibility calculations, regardless of whether it can be sold on the secondary market. Weatherbee v. Richman, 2009 U.S. App. LEXIS 24939 (2009). See also, Vieth v. Ohio Dep't of Job and Family Servs., 2009 Ohio 3748 (Ohio Ct. App., Franklin County, July 30, 2009) (where community spouse purchased $140,000 annuity, court granted Medicaid benefits to the institutional spouse). But see, N.M. v. DMAHS, 405 N.J. Super. 353 (2009) (annuity is countable for Medicaid purposes if it can be sold in the secondary market).

Now, apparently conceding defeat in the courts, the National Association of State Medicaid Directors (NASMD) has sent a letter to the Center for Medicaid and State Operations (CMS) requesting that the Agency revisit its treatment of community spouse annuities. NASMD seeks to foreclose a family from preferring income for the benefit of a community spouse over assets, the latter of which may be lost in a long term care spend down.The effort, if successful, would reverse years of accepted law and practice. In the 1993 Omnibus Budget Reconciliation Act (OBRA), Congress delegated the Medicaid treatment of annuities to the Secretary of Health and Human Services (HHS). 42 U.S.C. § 1396p(d)(6). CMS then exercised that authority in Transmittal 64 to the State Medicaid Manual which contained the Secretary's determination. The treatment was modified somewhat by the DRA, but recent cases have upheld the purchase of DRA compliant annuities by community spouses to protect resources in excess of the default Community Spousal Resource Allowance (CSRA). NASMD now wants CMS to change its rules so that annuities will be treated like trusts which would make them countable and available resources.  More importantly, the change removes from community spouses the opportunity to make assets

End-of-Life Care Not to Blame for Increased Costs

In this information age, there certainly seems to be a large amount of misinformation.  One of the more persistent myths, is that the high cost of end-of-life care for the elderly represents a financial threat to the health care system.  According to a recently released study by the International Longevity Center-USA, "Myths of the High Medical Cost of Old Age and Dying," it is simply not true that the aging of Americans and over aggressive care at the end of life are major causes of increasing health care costs in the United States.

According to the report, studies that have looked at the causes of increased health care spending conclude that as little a 5 percent of the increase may be attributed to the aging of the population, the other 90 to 95 percent resulting from other causes.

Many have predicted that the already high cost of caring for seniors will skyrocket in the next tewenty years as the oldest baby boomers start reaching age 85. The new report suggests that this is not necessarily true, particularly if better health care can reduce the prevalence of chronic disability as it has in the past. For example, the incidence of chronic disability among seniors decreased  by 6.5 points over the period between 1982 and 1999.  The mere fact that full recovery from stroke and heart failure is now so prevalent, suggests that mere extrapolation from the past regarding disability or related health care cost is likely to lead to wrong conclusions.

"Today Show" Tells Story of Divorce Resulting from Long Term Care

An emotional segment on a recent Today Show episode featured a wife who divorced her husband after 44 years of marriage in order to protect assets from a a long term illness. Suggesting the divorce, and also appearing on the show, was Massachusetts attorney Hyman Darling, a member of the National Association of Elder Law Attorneys (NAELA).

The husband of "Roberta" (not her real name) was diagnosed with dementia after the couple had been married more than 40 years. When she became unable to care for him at home, Roberta moved her husband to a nursing home and began paying bills of between $7,500 and $8,000 a month. After she had gone through $75,000, her husband's neurologist suggested that she find "a really good lawyer."

Roberta found Darling, an elder law attorney with the firm of Bacon & Wilson, P.C., based in Springfield, Massachusetts. Darling suggested to her that, as a last resort, she could terminate her marriage. This would preserve her remaining assets and allow her husband to quickly qualify for Medicaid coverage of his nursing home care.

Value of Annuities Behind Fed Efforts to Boost Retirement Savings

In January, the Obama administration announced an initiative to promote the availability of annuities in qualified retirement, 401(k), and similar plans. Only 22% of such plans now offer annuities among the options available to plan participants.   While the initiative is not long on details, it is gaining support among senior advisors and advocates.  Making annuities an option in qualified retirement planning would permit more workers to turn some of their nest egg into guaranteed income for life.  The opportunity to insure a lifetime of income is an attribute unique to annuities, and is an attribute uniquely suited for retirement planning.

Simultaneously, a Senate bill that would require your 401(k) to inform you of the projected monthly income you could expect at retirement based on current savings.  Causing investors to focus on the income they can expect from their retirement planning, rather than upon their account balances, is a welcome turn of events.  Investors often pay too much attention to the balances in their retirement plan portfolio, without careful attention to whether that portfolio will sustain them after retirement.  Simply, income is a more relevant basis upon which to plan for retirement.  That is the approach Social Security takes with its annual statements.

The confluence of these events suggests that the government is finally acknowledging the value of income retirement planning, and the value of annuities in securing that income.  As Americans grapple with the challenge of potentially outliving their retirement savings, lifetime income annuities are among the most cost-effective and least risky asset class for generating guaranteed retirement income for life according to numerous studies, perhaps the most prestigious being one co-sponsored by the Wharton Financial Institutions Center at the University of Pennsylvania and New York Life Insurance Company.

Planner's Corner- Beware of Ghostwritten Articles

You've probably received the solicitation, and been tempted to purchase the beautiful book or glossy magazine, with your picture and name on the cover.  The solicitation promises instant credibility, because no client would know that you had nothing to do with writing the book, or that the magazine article is purchased.  These "ghostwritten" marketing efforts promise much, are extremely high quality, and as a result, are tempting.

Beware!  The Financial Industry Regulatory Authority (FINRA) warns that sales representatives for member firms should take care when using ghostwritten books and articles in marketing their services.   A rule established by the National Association of Securities Dealers (NASD)  "prohibits false, misleading or exaggerated communications with the public and the omission of material facts or qualifications that would cause a communication to be misleading," FINRA officials write in Regulatory Notice 08-27.   Many of the ghostwritten books, pamphlets and newspaper advice articles may violate that rule and other rules established by the NASD and FINRA's other predecessor organization, the regulatory arm of the New York Stock Exchange, the notice states.

Avoiding Census Fraud

With the U.S. Census process beginning, the Better Business Bureau (BBB) advises that people be cooperative, but cautious, so as not to become victims of fraud or identity theft. The first phase of the 2010 U.S. Census is under way as workers have begun verifying the addresses of households across the country. Eventually, more than 140,000 U.S. Census workers will count every person in the United States and will gather information about every person living at each address including name, age, gender, race, and other relevant data.

The big question is - how do you tell the difference between a U.S. Census worker and a con artist? The BBB offers the following advice:

• If a U.S. Census worker knocks on your door, they will have a badge, a handheld device, a Census Bureau canvas bag, and a confidentiality notice. Ask to see their identification and their badge before answering their questions. However, you should never invite anyone you don't know into your home.