New York Estate Planning & Elder Law Blog

CHARITABLE ROLLOVER OF RETIREMENT ACCOUNT DISTRIBUTION NON-TAXABLE DISTRIBUTION FROM IRA

Published on: January 5, 2016 | by Ettinger Law Firm

On December 18, 2015 President Obama signed the Protecting Americans from Tax Hike (PATH) Act, which made permanent, among other things, three rather popular charitable tax incentives were set to expire January 1, 2016. The most important provision of the PATH Act for estate planning purposes is the continued allowance of rollover of individual retirement account distribution. This particular measure came into law in 2006 as part of the Pension Protection Act as a temporary measure. It expired and brought back to life several times over in the last nine years. The measure has shown itself to be a wildly popular measure, with approximately $140 million in charitable donations in the first two years and hundreds of millions going to colleges and universities in the last nine years. It seems likely that with the permanence of the new law, charitable givings will likely increase.

REQUIREMENTS OF CHARITABLE ROLLOVER

There are some important rules that are necessary to satisfy in order to qualify for the tax deduction benefits. They are:

HOW LONG CAN IRS COME AFTER ME? THE SUMNER REDSTONE CASE

Published on: January 2, 2016 | by Ettinger Law Firm

Sumner Redstone is an entertainment business mogul with a majority share ownership of CBS entertainment and Viacom, and through Viacom, BET and Paramount Pictures, all through his majority ownership of his family business, National Amusement, which originally started out in the drive in movie theater business during The Great Depression. In just the last few weeks a case against Mr. Redstone by the IRS presents an oddity in the law, which may make many people shutter. More particularly, the IRS issued a Notice of Deficiency for a taxable event from 1972 – over 40 years later.

The nature of the case revolved around a transfer of shares in National Amusement Corporation in 1972 to separate trusts set up for the grandchildren of the founder, Sumner Redstone’s father Michael Redstone. Sumner set up one trust for his kids while his siblings set up separate trusts for their kids. At the time the transfer of interfamily stock was of a insignificant amount that passing them from personal ownership to a trust did not even require a tax return. One can and should ask about the concept of a statute of limitation.

Apparently, as the case against Mr. Redstone shows, the IRS does not have a statute of limitation for unfiled tax returns. 26 U.S.C. § 6501(c)(1) establishes that when a taxpayer files a fraudulent tax return, (c)(2) otherwise attempts to avoid tax liability, or (c)(3) fails to file a tax return, there is no statute of limitation. Mr. Redstone has an impressive educational pedigree, where he graduated from first in his class from the Boston Latin School and then graduated Harvard in only three years in 1944, which was actually common at the time. After graduation he served as an officer in the United States Army, helping to decode Japanese messages. He attended Georgetown Law School after the war and then received his LL.B. in 1947 from Harvard Law. After working for various governmental departments followed by private practice, Mr. Redstone went to work for the family business, which was booming by then.

PROBATE OF VACATION HOMES AND PROPERTY OUTSIDE STATE

Published on: December 31, 2015 | by Ettinger Law Firm

ANCILLARY PROBATE

It is not an uncommon scenario for a middle class family of even modest means to own a vacation home in another state. For those of us who love to ski, hike and explore, mother nature’s wonders on horseback, Vermont and Wyoming may be your choice. For those of us who can never tire of beaches, the ocean and sun, California, Florida or maybe even the Carolinas are for you. Even more of us own timeshares and similar properties throughout the country.

Most of us never stop to think about what it takes to insure that these properties pass via a will without complication. Whenever a person lives, or, to couch it in lawyer lingo “domicile” in a state (and own the vast majority of their property in that state) their estate should go through probate in that location. The vacation property in the other state, however, will likely not pass as desired and outlined in the decedent’s will without opening an independent probate proceeding in that state. This secondary proceeding to insure the proper passing of the property in that state is commonly called “ancillary probate“.

LONGEVITY INSURANCE – DEFERRED INCOME ANNUITY

Published on: December 29, 2015 | by Ettinger Law Firm

Deferred income annuities are a financial product that, by definition, are paid in one premium and payout after at least one year after purchase. While they have been around for quite some time, although they are only beginning to come into their own as a part of a sound retirement strategy. Deferred income annuities are more colloquially known as longevity insurance, especially when purchased by retirees for when they reach 80 to 85 years of age. Much of the increase in sales for longevity insurance can be tied to an IRS bulletin formally published in The Federal Register on July 21, 2014 that allows for the recipient of the deferred income annuity to defer taxation until the age of 85. As with any formal federal rulemaking determination, there is a long period of time for study and public comment. As such, on February 2, 2010 the Departments of Labor and Treasury publicly requested comment on the issue of allowing for use of these annuities, with a second round with a specific regulation tied to it, that commenced on February 3, 2012.

HYRBRID ANNUITY

Traditionally there were generally two types of annuities. The first is the variable annuity with guaranteed benefits and the second type is the immediate annuity. The variable annuity with guaranteed benefits is wildly popular, with $39.8 billion in sales in just the first quarter of 2011 alone. Often these annuities do not encourage or sometimes even permit the beneficiary to tap into the annuity until years after the initial purchase.

HOW REVOCABLE IS MY IRREVOCABLE TRUST

Published on: December 27, 2015 | by Ettinger Law Firm

IRREVOCABLE TRUSTS COSTS AND BENEFITS

Trusts are valuable estate planning devices that allow for the transmission of wealth with lower tax liability. When proper estate management is picked, they also allow for the creation of future income, potentially allowing for the life of the trust in perpetuity. Trusts also allow for the beneficiaries to benefit from the income of the corpus of the trust, yet insure that their creditors cannot obtain the income producing assets itself. The same also applies for a financially irresponsible beneficiary, in that it provides income but prevents the financially irresponsible beneficiary from squandering the income producing asset. One of the most popular types of trusts is the irrevocable trust. As with anything in life, there are upsides and downsides; one of the downsides to an irrevocable trust is that in most circumstances, and, more particularly, most states, an irrevocable trust is usually irrevocable. Unwinding an irrevocable trust when it no longer functions as it should, due to, for example, a major change in the estate and gift tax law is possible but must be done correctly, whereby the assets from the trust may be transferred or gifted to the beneficiaries or the settlor if still alive.

WHY TO MODIFY OR REVOKE?

PROTECTING YOUR FUTURE VIA POOLED TRUST ASSET ALLOCATION

Published on: December 26, 2015 | by Ettinger Law Firm

COMMON LEGAL WAY TO PROTECT EXCESS INCOME

Unfortunately many means based programs, such as Medicaid, are strict in their qualifying criteria. Depending on the specific facts you may not qualify for Medicaid and even as little as twenty dollars a month can make a difference. There is no sliding scale of benefits based on your income. Each state has its own financial thresholds for income qualification, given the drastic difference in cost of living throughout the country. New York only allows for up to $845 in income, anything above that will disqualify the potential recipient. So what of the millions of men and women throughout New York that live on modest means and yet still receive more than $845 in monthly income? For example, a person in Manhattan or even Long Island who earns approximately $2,000 per month does not live luxuriantly, yet he/she may need certain services and does not want or even need to go into a nursing home facility for those services.

Pooled trusts allow for seniors to setup their own trusts so that they can still live a respectable and modest life and not be required to turn over all of their income to the state for Medicaid eligibility. In the case of the senior above, he/she would $1,155 ($2,000 – $845) to a pooled trust that they joined so that he/she could still qualify for Medicaid and have money left to pay bills and perhaps enjoy their normal lifestyle with family and friends without much financial impact.

ESTATE PROPERTY INCLUDES TAX RETURNS DUE

Published on: December 26, 2015 | by Ettinger Law Firm

The United States Tax Court recently decided a case where the issue was the role that a tax return due to the decedent played in overall estate tax liability. The Estate of Russell Badgett, Jr. et al v. Commissioner, T.C. Memo 2015-226 (Nov. 24, 2015) dealt with a very large overpayment of taxes by the decedent during his last full calendar year of his life. The estate failed to include the value for the tax returns that Mr. Badgett, Jr. (or his estate as it were) received, which ultimately undervalued the estate a rather significant amount.

The Internal Revenue Service indeed caught this accounting error and sent out a notice of deficiency approximately a year and a half after the filing of the last tax return. The Tax Court ruled in favor of the Internal Revenue Service because estate tax returns must list all the property that an estate owns. The Tax Court cited an United States Supreme Court case that held that state law defines what property rights, while federal law defines what property is taxed. Morgan v. Commissioner, 309 U.S. 78, 80 (1940).

THE CASE OF MR. BADGETT, JR.

MORE ON SHORT TERM ANNUITIES AND MEDICAID PLANNING

Published on: December 23, 2015 | by Ettinger Law Firm

SOME ANNUITIES DO NOT RENDER APPLICANT INELIGIBLE FOR MEDICAID

As this blog wrote about several months ago, certain financial products purchased by a Medicaid applicant do not render them ineligible for Medicaid benefits. While the previous post discussed why a short term annuity did not render a Medicaid applicant ineligible, this blog will discuss why such a choice may be a good fit. For sure, the short term Medicaid annuity must satisfy certain criteria to qualify for the federal “safe harbor” provisions that would otherwise render the purchaser of the short term annuity ineligible for Medicaid.

RECENT CASE

INVALIDATING A WILL

Published on: December 21, 2015 | by Ettinger Law Firm

WHAT HAPPENS IF A WILL IS INVALIDATED?

Wills are perhaps the most basic and simple form of passing on property and the transmission of wealth from one generation to the next. It allows the testator to give away the property and money that they own and have on hand as they see fit. A person can write a person out of a will, with certain limitations, include another non-child in the distribution and treat them as if they were a child or even leave it all to a charity. While the vast majority of wills are honored and respected without question, there is always the possibility that a potential heir may contest a will. In the event a will is invalidated a Surrogate’s Court must still resolve the issue of how and to whom shall the property be distributed. One possible way of dealing with issue of distributing the property if a will is invalidated is to utilize the state’s default, intestate distribution scheme. Another means is to revive a previous, otherwise valid will. This latter method is called the doctrine of dependent relative revocation.

DOCTRINE OF RELATIVE REVOCATION

BACK TO THE BASICS – SPECIAL NEEDS TRUSTS

Published on: December 16, 2015 | by Ettinger Law Firm

STRICT ADHERENCE TO FORM

On March 3, 2015 the Eighth Circuit Court of Appeals, sitting in Denver, Colorado, rendered an opinion in the case of Draper v. Colvin, where it explicitly admitted that it drew “a hard line” when it upheld the decision of the Social Security Administration that denied Stephany Draper eligibility for supplemental security income. Draper v. Colvin, 229 F.3d 556 (8TH Cir. 2015). Ms. Draper was an 18 year old woman who suffered traumatic brain injuries in an automobile accident and applied for supplemental security income benefits. In addition, she filed a personal injury case where she netted approximately $429,000 from the settlement. This amount of money would render Ms. Draper ineligible for both supplemental security income as well as Medicaid, both of which are means based programs.

SPECIAL NEEDS TRUSTS NOT COUNTED AS ASSET IN MEANS TEST