Obama Budget Endangers Some Estate Planning Techniques

Loophole closure would severely reduce wealth planners’ arsenal

The American Taxpayer Relief Act of 2012 left wealth planners’ estate planning tool chest largely intact, but the White House budget for 2013 and comments by congressional leaders strongly suggest their permanence is anything but assured.

In the aftermath of the Jan. 1 passage of ATRA, both Senate and House leaders said that the act was only a first step in righting the country’s fiscal house, intimating that rules made permanent by the act may indeed be temporary.

ATRA left untouched grantor retained annuity trusts, which allow for the transfer of wealth while minimizing the gift tax cost of transfer. The administration’s proposal would impose severe restrictions.Meanwhile, President Barack Obama’s 2013 budget proposal would restrict certain estate planning techniques as a way to close “tax loopholes”; some of these proposals were under discussion long before enactment of ATRA.

In setting up a GRAT, a grantor funds an irrevocable trust with assets likely to appreciate in value, and retains an annuity interest for a number of years—sometimes as few as two years.

After that, if the grantor is still alive, the assets left in the trust are transferred to beneficiaries. The more the value of the assets held by the trust appreciates, the greater the transfer tax benefit the estate can claim.

The White House proposal would impose the requirement that a GRAT have a 10-year minimum term and a maximum term of life expectancy of the annuitant plus 10 years. “The administration’s proposal would require, in effect, some downside risk in the use of this technique,” said Jeff Marshall, a Pennsylvania tax lawyer.

In other words, the likelihood that the grantor could die during the term of the GRAT would increase, thereby undermining the estate and gift tax savings she sought.

The proposal would also eliminate zeroed-out GRATs. Instead, the grantor would have to make a taxable gift when setting up the instrument.

ATRA made no changes in the step-up basis on inherited property. The recipient’s tax basis for inherited property is its fair market value at the date of the decedent’s death rather than the latter’s cost basis.

Under the president’s proposal, the value for estate and income tax purposes would have to be consistent. The property’s basis in the hands of the recipient would be no greater than its value as determined for estate or gift tax purposes.

The proposal would impose a reporting requirement on the estate’s executor and the lifetime gift’s donor to provide both the IRS and the recipient necessary valuation and basis information.

Grantor trusts allow grantors to make gifts to beneficiaries free of gift tax by paying the trust’s income tax liability. Assets placed in the trust are removed from the grantor’s estate. Future appreciation of the assets is not subject to estate or gift tax.

Under the president’s proposal, the benefit of the up-front income tax payment would be eliminated.

Dynasty trusts could also be reined in by the president’s proposal. Some states allow wealth to be transferred through multiple generations for many years or in perpetuity, with no estate, gift or generation-skipping transfer tax effects. These trusts can continue in perpetuity is a small handful of states, making them attractive venues for residents of other states to locate a multigenerational trust.

The president has proposed that the generation-skipping transfer tax exemption terminate at 90 years.

Source: ThinkAdvisor

Nice Girls Talk About Estate Planning

Depending on whom you are talking with, there are various ways to start the conversation.

Going to a woman’s undergraduate college taught me that it’s okay for women to be smart. When I went to Columbia Law School, I found myself explaining that to a very brainy, beautiful classmate who told me she got more dates if she acted dumb. That was in 1978.

Women have come an enormous distance since then. Currently they serve as CEOs of 14 Fortune 500 companies, according to Catalyst. Among them: Indra K. Nooyi atPepsiCo;  Irene B. Rosenfeld fromKraft Foods; Patricia A. Woertz ofArcher Daniels Midland, andUrsula M. Burns of Xerox.

Still, for all we have achieved — with our careers, managing our finances, sharing child rearing and other household responsibilities — we’re not as savvy about estate planning as we ought to be. In fact, a recent survey byEZLaw suggests that women care more about losing weight than about protecting their financial assets.

Does this mean women have more will power when it comes to their waistlines, than when it comes to estate planning?

In a field still dominated by men, there’s a lingering tradition of paternalistic tools and techniques – such as locking inheritances up in trusts for widows who presumably can’t even balance a checkbook. Women who don’t speak up about estate planning might wind up capitulating to strategies that put them at financial disadvantage.If so, it’s a shame, because estate planning affects women profoundly. Among Americans 65 and older, 42% of women, but just 14% of men are widowed. Women’s longer life expectancy, combined with their tendency to marry older mates and their lower lifetime earnings means they are far more likely to see their living standards compromised in retirement if proper estate planning isn’t done. And since it is women who most are often widowed, they usually have the last word about which of a couple’s assets ultimately go to family, charity or the taxman.

Perhaps worst of all is how a lack of planning can affect families of young children. Without a will, if your children are minors and you were a single or surviving parent, a court will appoint a guardian for them.

As I noted in a recent article for Forbes.com, “Estate Planning For Women (And the Men Who Love Them),” now, more than ever, women need to take charge of this process, or at least be equal participants.

But how can you start a conversation about this stressful topic? That’s the question I’ve been asked most frequently since my book Estate Planning Smarts was published. In fact, it has come up so often, that I added a special section on the subject to the second edition of the book, published in April.

Sometimes it is best to have a series of talks, rather than covering everything at once. Depending on whom you are talking with, here are some conversation starters.

With your spouse or partner. Couples have their own special ways of communicating, and you know better than anyone which approach will play best with your mate. You can emphasize your own mortality (“I’d like to talk about ways to provide for you and the family in case something happens to me”) make it a subject of mutual concern (“We’re not getting any younger – I think it’s time we did our wills”) or focus on the children (“Now that we are parents, we really shouldn’t procrastinate any longer about doing our wills.”) More about this from my colleague Hani Sarji in his post, “Estate Planning Smarts For New Moms.”

Sometimes it’s easier to start with current events or an anecdote about other people. Perhaps it’s a movie you saw, a book you read, a news report about someone your age who recently died or a sudden death in your community. If a friend or family member has talked to you about their own plan (say you’re the godmother of a friend’s new baby) it can help take the sting off confronting the awful thought that one of you is likely to go first.

Those who encounter pushback from a spouse or partner have a card to play that’s probably not appropriate for other people who are broaching the topic: “We owe this much to each other” or “Please do this for my sake.”

With adult children. While parents have no obligation to change an estate plan after hearing a child’s preferences, disclosing what they plan can help refine their approach. For example, maybe you are thinking of leaving one child a larger inheritance than the others because he has more children. By sharing these details with this child, you might learn that he would rather receive the same amount as his siblings, rather than face their wrath.

Above all, explaining the principles that have influenced your decision could make them easier for children to accept. For instance, don’t assume it’s obvious that you left the summer home to one child because he used it most; a parent’s death or even illness can rekindle sibling rivalries from decades earlier.

Of course, parents who share their thinking risk hostility from adult children who do not like what they hear. To reduce the possibility of a hostile audience, parents may talk to each child separately, rather than addressing them as a group. Afterward, ask each child, “What do you think?” You may be surprised to find that adult children have great ideas and interesting opinions.

With your parents. A trickier situation involves adult children who notice signs of a parent’s mental decline. Once parents become incompetent, they lack the legal capacity to make binding commitments, so it is important to sign estate-planning documents before that happens. But bringing up the matter may threaten a parent’s independence and desire for control.

One possibility is for the child to say: “I just did my own estate plan. Don’t you think you should update yours?” Another is to convey a story about a friend’s parent who did not take the necessary measures (for example, by not signing a durable power of attorney) and how much hardship was caused for those children.

Sometimes there is a fine line between being well meaning and protecting your own inheritance. For that reason, lawyers typically insist that they have an opportunity to meet with the parent separately, even if a child provides transportation to the office.

Their goal is to guard against the two most common grounds for contesting a will or trust. One is undue influence, which refers to efforts to coerce someone to sign estate-planning documents that favor one heir over others. Another is the argument that the client lacked capacity when signing the document.

Sure, it is easy to get frustrated with parents who do not put their affairs in order. But keep in mind that having the conversation requires them to confront their mortality. For both parents and children, that can be a gigantic step.

Not for women only: Have you had this conversation with anyone in your family? If so, please post a comment below telling us how you did it and what happened.

Source: Forbes.com

Staten Island woman scammed Medicaid out of $47,000 while living in $2 million mansion and driving around in a Rolls Royce: officials

Joe Marino/New York Daily News

Hasime Lika, 34, was charged with welfare fraud in Brooklyn Supreme Court on Thursday.

A Staten Island woman is accused of collecting Medicaid benefits while living large in a new, multi-million dollar, swimming pool-equipped home and cruising around in a luxury Rolls Royce.

Hasime Lika, 34, allegedly claimed no income or assets when she signed up to the health assistance program in 2006, getting payments totaling $47,000 through 2011.

During that time, she lived with Bill Lika, her common-law husband and father of her two children, said assistant district attorney Joel Greenwald.

Joe Marino/New York Daily News

Lika lives with her common-law husband Bill Lika in a $2.4 million home on Staten Island.

Bill Lika is a landlord who owns at least 14 apartment buildings, had assets exceeding $5 million, and in 2007 purchased a $2.4 million house in State Island's tony Todt Hill neighborhood, prosecutors charged.

RELATED: S.I. WOMAN SWINDLED CITY OUT OF $62,000 IN WELFARE BENEFITS: AUTHORITIES

The home had a swimming pool and a three-car garage where "a Rolls Royce and a Mercedes-Benz were observed regularly parked," Greenwald said in Brooklyn Supreme Court.

AFP PHOTO/PHILIPPE DESMAZES

The pricey Staten Island home the Likas shared had a three-car garage where 'a Rolls Royce and a Mercedes-Benz were observed regularly parked,' prosecutors said. 

"This case is an egregious example of an individual who lied to the system by hiding income and a plethora of luxurious resources," said Robert Doar, Commissioner of the Human Resources Administration.

Hasime Lika, who sources said is pregant, was charged with welfare fraud and grand larceny that can result in up to seven years in prison. She pleaded not guilty and released without bail.

Her husband was not charged.

Lika and her lawyer Scott Klein declined to comment.

Source: Daily News

Medicaid Fraud investigations in New York – is there a way out?

Health care coverage in New York these days costs an arm and a leg. Think you can have a break but applying for Medicaid? That may be so if you financially qualify. On the other hand, if you don't, think twice before applying because you may be investigated for fraud sooner than you think.

If you have applied for Medicaid in the State of New York, particularly in New York City, and misrepresented facts regarding your income and assets on your application, you may become another target of relentless and massive hunt for fraudsters. The new initiative that started a few years ago across the state has netted thousands of Medicaid recipients who had received Medicaid fraudulently. Numerous people were recently contacted by New York City Bureau of Fraud Investigation and other agencies that routinely investigate New York Medicaid fraud.

As a benefit recipient, you are obligated not only to provide truthful disclosure of your financial status when you apply for Medicaid, but also inform the program of any changes in your income. Many Medicaid fraud cases that have come to my office involved individual recipients who for this or another reason concealed their income and assets. Many had disclosed a significantly lower income then it really was and many used a fictitious address or concealed assets. Obviously, most were ineligible to receive Medicaid. Less known is that the duty to update financial eligibility information applies immediately upon the change occurs. If you are eligible to receive Medicaid but become ineligible before your next recertification, you must notify the agency or you will be committing fraud.

In many cases, the investigation is conducted and completed without your knowledge. At some point you will receive a letter from the Bureau of Fraud Investigations asking you to come to their office for an "interview" along with certain documentation. By that time the investigation is practically completed. If you receive such letter, you should seek legal advice immediately before discussing anything with investigators. If you go to the interview and voluntarily submit requested information, you may be confessing to having committed a crime and it will be used against you in case the matter is referred to the local District Attorney's Office for criminal prosecution.

At the investigative stage of the case, the most optimal resolution of is avoiding prosecution and your chances of a favorable outcome increase dramatically if you deal with the investigative agency early and in the right way, though your attorney.

While the subject may be difficult to think about, it remains a fact that most people will spend some portion of their lifetimes in an assisted care facility. The possibility also exists that individuals may run up large medical bills both before and during placement in such a facility. It is therefore important to be prepared for these events by consulting with experienced estate planning and elder law attorney about proper Medicaid planning.

Since Medicaid is a joint State and Federal program, eligibility rules determining who qualifies for Medicaid vary from state to state. To qualify for Medicaid in New York, individuals must be eligible for Supplementary Security Income (SSI) and meet income and age restrictions. New York also has a Medicaid Surplus Income Program. Under this program individuals who have incomes that are too high can qualify for Medicaid if they spend down their excess income on medical bills.

In 2005, Congress passed the Deficit Reduction Act. This Act made several changes to Medicaid law, the most notable of which were the changes to the Medicaid Transfer of Asset rules. The new law, which took effect on February 8, 2006, created a five year look-back period and established a waiting,  or penalty, period for individuals in institutional care who would otherwise be able to receive Medicaid.

Transferring money and property to trusts or other family members in order reduce individual assets and qualify for Medicaid has long been an estate planning practice. Under the new rules this type of Medicaid planning is still possible, but due to the longer look-back period and increased penalty, it must be done farther in advance of the time one wishes to be able to qualify for Medicaid.

The difference between the look-back period and the penalty period is one of cause and effect. The look-back period is the amount of time after an individual receives or applies for Medicaid covered services during which Medicaid reviews finances. The penalty period is the amount of time you must wait to receive Medicaid after which you would otherwise have been qualified. For example, if you gave a child $50,000 two years ago, that amount would be used to calculate your penalty period.

Penalty periods are determined on a community by community rather than a state by state basis. The penalty period is calculated by dividing the value of the transferred asset by the average cost of nursing facility services. In New York City the average cost of nursing facility services for 2009 is estimated to be $9,838 per month. To return to our $50,000 transfer example, the penalty period in New York would be 50,000 divided by 9,838, or approximately 5.1 months.  On Long Island, the average cost of care is set at $10,852. In Westchester, Orange, Putnam and Rockland, it is $9,439.

Medicaid planning is an effective way to keep your assets in the possession of your family and prevent them from being spent on costly medical care. Good Medicaid planning also ensures your medical expenses will be covered when the time comes.   An estate planning lawyer can advise you on the best way to handle your Medicaid planning.

Call (718) 333-2394 the Law Office of Inna Fershteyn and Associates today to find out how you can be eligible for Medicaid in New York. 

How Many College Admissions Officers Check Applicants’ Facebook Profiles?

The percentage of college admissions officers who have visited applicants’ profiles on Facebook and other social networks reached an all-time high of 31 percent, according to a recent study byKaplan Test Prep, but applicants are wising up, as 30 percent of admissions officers reported findings that negatively impacted their chances, down from 35 percent in 2012.

Kaplan Test Prep said just 10 percent of admissions officers reported checking applicants’ Facebook pages when it began polling on the topic in 2008, and that number reached 24 percent in 2011 and 27 percent last year.

In a separate survey of college-bound students, Kaplan found that 50 percent said they would be “not at all concerned” if admissions officers searched for them online, while 27 percent replied, “not too concerned,” and only 14 percent answered with “very concerned” (the remaining 9 percent said, “somewhat concerned”).

Students have also been taking precautions, as Kaplan’s study found that 22 percent had changed their searchable social media user names, 26 percent had untagged themselves from photos, and 12 percent had deleted their social media profiles altogether.

Kaplan Test Prep Vice President Seppy Basili said in a release announcing the findings:

As social media has skyrocketed from being the domain of a younger generation to societal ubiquity, the perceived taboo of admissions officers checking applicants online has diminished. Granted, most admissions officers are not tapping into Google or Facebook, and certainly not as a matter of course. But there’s definitely greater acknowledgment and acceptance of this practice now than there was five years ago.

Our advice to college applicants is to run themselves through online search engines on a regular basis to be aware of what information is available about them online, and know that what’s online is open to discovery and can impact them. Sometimes that impact is beneficial, if online searches turn up postings of sports scores, awards, public performances, or news of something interesting they’ve undertaken. But digital footprints aren’t always clean, so students should maintain a healthy dose of caution, and definitely think before posting.

Executive Director of College Admissions programs Christine Brown added:

Many students are becoming more cautious about what they post, and also savvier about strengthening privacy settings and circumventing search.

Readers: Are students applying to colleges finally starting to get the clue that their content on Facebook and other social networks can hurt their chances?

Source: AllFacebook.com