OHIO ELDER LAW BLAWG

Tsunami has Especially Severe Consequences for the Elderly and Ill

 

I spent a little time this morning wondering how the elderly and disabled were doing after the Tsunami.  It appears as though hospitals were in its path, one hospital's first floor was ruined, and unfortunately the first floor kept all of the food and many supplies.

One article I read noted that "Much of the concern is focusing on of the elderly. At Shintona, about 90% of the victims were described as old, suggesting this might become a defining characteristic of the disaster."  The article noted that some elderly in nursing homes were dead or missing.  The care manager, Kiyoko Kawanami, of one of Miyagi Japan's first old people's homes she was able to confirm only 20 of the 90 residents were safe. "We don't know what happened to them. The tsunami hit while we were trying to organize an evacuation," she said.

There are already a number of articles engaging in hand-wringing over what could have been learned and was not in the aftermath of the the 2004 Tsunami, which hit Thailand with incredible devistation.  I guess there is always room for improvement, but it is hard to see how much of this devastation could have been fully avoided after such an incredible natural disaster.

Among a few interesting ways people can donate, Apple is accepting Red Cross donations through iTunes.  

A few links to articles:

http://www.newser.com/article/d9lutaro0/sick-elderly-face-double-misery-after-japanese-tsunami-destroys-hospitals-along-the-coast.html

http://www.guardian.co.uk/world/2011/mar/13/japan-earthquake-tsunami-survivors-grief

 

Options for Estates of 2010 Decedents

    The new law regarding Estate taxes signed by President Obama makes two different options for the beneficiaries of estates of those dying last year (2010). 

   Congress reinstated the estate tax (which had been repealed in 2010) with a $5 million exemption and a 35 percent tax rate for 2010. Executors must decide whether to  elect out of the tax for 2010. 

     If the personal representative elects to opt out, there will be carryover basis rules which apply to the estate beneficiaries for income tax basis purposes. Beneficiaries of large estates (sorry Steinbrenner kids) can be forced to pay capital gains taxes on appreciation of assets from purchase through the time of the decedent's date of death.  In other words, there will be an income tax bill, but no estate taxes. If no election is made the $5 million exemption and 35 percent rates will apply for 2010 decedent's estates. In this case the basis of the  inherited property will be the fair market value of the property at the date of death. 

    For estates worth less than $5 million, electing to pay estate taxes may be advisable, as the tax will be zero and you will get a step up in basis on the stock.  On the other hand, estates with significantly more than 5 million may want to elect out of the estate tax, and either pay or postpone events which would cause capital gains. 

Talk to us or your tax adviser for information about your particular situation.

Elder Law Office of Todd W. Bartimole  

Estate and Gift taxes: A New World

The new tax cut extension package signed into law on December 17, 2010 by President Obama, establishes a new estate and gift tax regime for 2011 and 2012. After that, we are back in the land of uncertainty with regard to Estate Taxes.  Despite this, it is hard to withdraw rights once established, so it seems to me that it is unlikely that we will see an estate tax wtih lower exemption amounts, or higher rates. Additionally, the new law gives those who survive people who died in 2010 some options in election of how they would like to pay tax on their inheritance.

Below is an overview of the provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed by President Obama.

Exemption and Tax Rate

For this and next year the federal estate tax exemption is $5 million with a tax rate of 35 percent. There is a possibility that there may be an inflation adjustment for 2012, based on the rate of inflation.

A-B Trust Planning may not be necessary any longer for the Fed. Estate Taxes

Any unused federal estate tax exemptions for those who die in 2011 or 2012 are transferable to a surviving spouse.This means that the exemption would effectively be 10 million for a couple without a trust agreement. 

Where a first spouse to die leaves  everything to the surviving spouse, the surviving spouse will have two $5 million exemptions to work with, for a total of $10 million.

The surviving spouse can then leave up to $10 million to beneficiaries without any federal estate tax bill.

Inherited Capital-Gains

For beneficiaries of persons dying in 2011, assets will have a step up in tax basis to the date of death.  For decedents who died in 2010, the law was replaced by a modified carryover basis rule which limited the maximum step up in basis to $1.3 million plus $3 million for assets inherited by a surviving spouse.

Because of the unlimited basis step-up rule in effect this and next year, heirs will not have to pay federal capital gains taxes on the appreciation of property occuring through the date of death (if after 2010).

Estate and Gift Tax Rules Are Now the Same

This was a confusing area of the law, which has been made somewhat easier under the new provisions. The new law puts the lifetime federal gift tax exemption at $5 million, up from 1 million. It is easier because the gift tax exemption is equal to the estate tax exemption. The tax rates are now both 35%.  Now a person can give away up to $5 million in 2011 and 2012 while still alive without owing any gift tax ($10 million for a couple) during life.  To the extent you make gifts that utilize part of your $5 million federal gift tax exemption, your $5 million federal estate tax exemption is reduced dollar-for-dollar.  You are still permitted to give $13,000 per year per person away with no effect on your lifetime 5 million dollar exemption.

Estate Taxes in Ohio

Ohio is one of a few states wtih an estate tax that is not linked to the federal estate tax.  However, Ohio's new Governor is prepared to repeal the Ohio estate tax.  This tax mostly benefits local communities, and will be a burden on those communities as local governments struggle to find funds to operate. 

We will be following developments on the Ohio estate tax as they occur.

 

Facebook: A new tool for "grandparent scam"

Watch those privacy settings...

The Better Business Bureau of Northeast California is warning older adults about a telephone scam that preys on grandparents by duping them into thinking they assisting grandchildren in an emergency. 

 

In the scam, the grandparent gets a call from a young person claiming to be the grandson or daughter who is in legal trouble out of the country and needs needs emergency cash.  To stress the urgency, calls are usually made in the middle of the night, and the scammer insists that funds be sent by wire or overnight delivery.  While in previous scams grandparents could test the scammer by asking personal questions only certain people could answer, such as the name of a childhood pet, their nickname, or the college they attended, the new scammers use information garnered from social networking sites.

 

The bureau said a Sacramento grandmother was contacted this week by young woman who claimed to be her granddaughter. The girl said she was in trouble in Canada and needed the victim to wire her $4,500 to get out of jail.  Even after asking several questions, the grandmother said she was absolutely convinced the girl was her granddaughter.  The BBB said the scammer was looking at a Facebook page the real granddaughter had posted, and simply reading off dozens of facts about the family, addresses, and where she went to college.  The information was easily accessible because the granddaughter's Facebook privacy settings weren't high enough, allowing her account to be viewed by just about anyone.

Full Story

IRA withdrawal: Can penalties be avoided?

IRA owners who withdraw funds before their 59 1/2th birthday can be hit hard with penalty fees if they withdraw money, not to mention the income tax applied for IRA and certain other retirement fund withdrawals.  Like many rules, there are exceptions, and this article gives a brief overview of those exceptions. 

Here are some reasons you may withdraw funds without getting penalized:

1. Permanent disability of the IRA owner

Money can be withdrawn from an IRA without penalty if the IRA holder is permanently disabled.

 

2. Withdrawals used to pay medical expenses

In the event medical treatment, early withdrawal fees can be waived for large, unreimbursed medical expenses.  Be aware that to qualify, the expenses must be in excess of 7.5% of your adjusted gross income.

 

3. Withdrawals used to help pay for first-time home purchase

An IRA owner can buy a house (no refinancing here) with IRA monies, up to 10,000.  If you own a house or have owned a house in the last 2 years, this will not apply to you (or your spouse).

4. Higher education costs

Some higher education costs for your family, including grandchildren, can be withdrawn without penalty.

5. Money is used to pay back taxes to the IRS after a levy has been placed against the IRA

Using your savings to pay back taxes may help you avoid future interest and penalty costs.  

6. Withdrawals used to pay for health insurance premiums

If you have been unemployed for 12 weeks, you can pay for medical insurance from IRA savings without penalty.

There are other qualification requirements which may apply, but are not fully enumerated here. Please call us or your tax advisor before withdrawing funds.  Of couse if possible, leaving retirement monies alone is the best option, but sometimes early withdrawal becomes necessary.  At least if the necessity is based on these reasons, you will save a 10% penalty.

 

-Todd

Global Aging is Changing Rules of Retirement

The entire world, not just the US, is seeing a revolution in the way we are spending retirment years, including not retiring at all.  The reasons can be because of personal choice, as well as necessity.  The Christian Science Monitor surveys this issue in an article published today.

Article

The Estate Tax and Earning Money the Old Fashioned Way

Recently, John Raese, a billionaire using his own riches to try to win a US Senate seat in West Virginia, declared “I made my money the old-fashioned way — I inherited it.”

Lucky him.  This year, 2010, is the best year to inherit money, because there are no US taxes on inheritance.  Unless Congress acts, next year will be an entirely different story. 

Next year if you die with over one million dollars, and that includes life insurance, your estate will be taxed.  Without any estate planning, the amount over one million dollars will be taxed at 41-55%.  Being dead, this may not be a concern of yours, but your children will be somewhat less able to make the same claim as John Raese did.

Even with the recent fall of real estate values, it is very common for people to have over one million dollars at death, especially when considering life insurance. Take a look at what you have:  house, cars, IRA/401k’s, savings, and insurance.  As people come into my office and I discuss this, it surprises many of them to discover that they will be millionaires at death, and subject to the Estate Tax in 2011.

 There has been discussion of ending the estate tax, but I do not expect that to happen.  My belief is that in our current situation, we need an estate tax in this country.  The accumulation of incredible wealth by a very few, as well as the mounting federal deficit, warrant a federal estate tax. Our income tax policy since the 2001 tax cuts has been too generous to the super wealthy.  In 2007, the top 1 percent of American earners received 23.5% of the nation’s pretax income.  This is about two and a half times the 9 percent that brought in that much in 1976.  Clearly wealth is accumulating at the top.  Unfortunately, during the Bush years 2002-2007 the median income for non-elderly American households went down and the poverty rate rose. 

Having an estate tax acts as a buffer on the over-concentration of wealth.  The question is, at what level?  One million dollars ain’t what it used to be, and the million dollar exemption in 2011 is too low, and will affect too many families. In 2009 the first 3.5 million was exempt, which meant that with proper estate tax planning, a couple could shelter 7 million dollars, which is a nice inheritance to receive tax free.  Probably this is a good place to start.

The way things stand, there are many families who should be looking at their estates, and thinking about having a review to determine whether they will be affected by the Estate tax.  Ohio has an estate tax, but because its tax rate maxes out at 7%, it is not as much of a concern.  However, good trust planning can still save children over $20,000 in taxes if trust planning is done between spouses.

This year is coming to an end, and its a good time to take a look at your current assets, and to decide whether its time to have an attorney review your estate plan.  Please call us if you would like to sit down with us for a review.

Retirement plans: What are the hidden fees? Thanks to new legislation, you will know soon.

Starting in 2012, participants in 401(k)  and 403(b) retirement plans will finally see how much they are paying in fees.  Hopefully this should help us make better investment choices and put some pressure on employers to improve high-cost plans.  Final rules issued Thursday by the Labor Department require employers to disclose fees and investment performance in a standard, consumer-friendly format.  The new rules will take effect more than 30 years after 401(k) plans were introduced in 1981. 

"These are absolutely necessary and useful, and a long time in coming," says Rick Meigs, president of 401khelp center.com.  Proponents of fee disclosure had to overcome intense lobbying "on the part of vested interests: brokers, insurance companies, people who take compensation" from 401(k) plans.  On of the factors helpint to turn the tide was a series of class-action lawsuits filed against large companies alleging that they violated their fiduciary duty under federal law by allowing employees to be charged excessive, undisclosed fees in their retirement plans.

Assisted Living: Taking on More and More

Researchers from The Ohio State University College of Social Work collected and analyzed data from a Web-based or duplicate printed survey (depending on respondent) of 557 Adult Day Services centers (ADS), which represented a 40% return from a randomly selected group of 1,518 Adult Day Services centers.  Surveys were predominantly completed by center administrators.

The study shows that:

•   Almost 80% of centers have professional nursing staff and about 50% have a social worker and physical, occupational, or speech therapy
•    Direct care worker-to-participant ratio is 1:6
•    Over 80% of participants attend full days and 46% attend five days per week
•    Centers are serving populations with higher levels of physical disability and chronic disease
•    ADS centers are leaders in providing care to individuals with Alzheimer’s disease and other dementias
•    Approximately 90% provide cognitive stimulation programs
•    Most centers provide caregiver support including educational programs (70%) and caregiver support groups (58%)

It would appear that as Assisted Livings evolve, they are more and more equipped to handle persons who have more cognitve impairment and medical needs. For instance, the ratio of caregivers to residents has dropped on average from 1:8 to 1:6 since 2002.

Source:  Met Life Mature Market Institute (October 2010)
Full report:  http://www.metlife.com/mmi/research/adult-day-services.html#f

 

No Annual Increase In Social Security: Should we Pay $250 to make it up?

The House of Representatives is scheduling a vote on a bill which would pay $250 to all Social Security recipients.  It will happen after the election in November.  The reason is that this year, the cost of living did not go up enough to trigger an increase in Social Security payments. This is the second year in a row that benefits will remain the same.  The cost of the payments will be approximately $14.5 billion.  (58 million retirees each getting $250).

The COLA (cost of living adjustment) was put into law in the early 1970's as a way to make sure Social Security payments did not fall behind the cost of living.  Because inflation has been so low the last few years, the cost of living adjustment mechanism was not triggered.

Personally, while I believe the elderly need to be a priority in our budgeting process, I think our government is getting too comfortable scheduling votes to send out checks every time either the economy takes a dip or an election is forthcoming.  This started with the Bush administration, and now that it has been done once, it seems all current and future politicians will try to make use of it. 

We have the COLA system in place to make sure that when we have inflationary pressures, our retirees do not fall behind.  Rightly so.  If the COLA system is broken, however, we should fix it, not take votes to send out piecemeal checks from the treasury.

What do you think about this?