North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

Nursing home coverage for veterans is available from two sources within the Department of Veterans Affairs -- the veterans health care system and the state veterans homes system.

Nursing Home Coverage through the VA Health Care System
Nursing home coverage along with other long term care services such as home care and assisted living as well as geriatric care management are available through the Veterans Health Administration for qualifying veterans.

In order to get into the veterans health care program, the veteran must have service-connected disabilities, or be below a qualifying income level or be receiving Veterans Pension income. Once in the system, veterans are not guaranteed long term care services, including nursing home care, unless they meet specific requirements. Here is a list of these requirements for nursing home coverage.

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Probably an increase in 2010 and a substantial drop thereafter.

From Professor Chris Hoyt of the University of Missouri (Kansas City) School of Law:

President Obama has released his controversial budget.  The proposal
that affects charitable organizations the most is that the tax benefit
that upper-income taxpayers would receive from their charitable gifts
would be limited to 28%, beginning in 2011.  The same 28% limit would
also apply to tax savings from the home mortgage interest deduction.
Also the highest marginal tax rate would increase from 35% in 2010 to
the Clinton-era rates of as high as 39.6% in 2011.  

So, if in 2011 a rich person gets an extra $100 of income and donates it
to charity, the extra $100 would be subject to a nearly 40% federal tax
rate but the charitable gift would only produce a $28 tax saving.  The
rich person must spend nearly $12 in taxes to make the gift.

Five observations:

(1) Expect wealthy donors to prepay in 2010 contributions that they
would normally make in 2011 and 2012.  The nation's charities
experienced this when Ronald Reagan lowered the highest tax rates from
50% to 28% as part of the 1986 Tax Reform Act.  Gifts surged in 1986 but
fell in 1987.  So, if the proposal is enacted, expect major gifts to
decrease in 2011 since some donors prepaid their gifts in 2010.

(2) There could be a boon in grantor charitable lead trusts in 2010
since a donor can get a charitable income tax deduction in the year that
the charitable lead trust is funded rather than in the year that the
lead trust makes its charitable gifts.  Visualize it: the donor gets a
2010 charitable tax deduction and saves 35% yet the charity receives
gifts in later years when the donor would have only had a 28% deduction.
The donor and the charitable lead trust will likely increase investment
in tax-exempt municipal bonds in future years to avoid the higher 39.6%
marginal tax rate.

(3) If enacted, then 2010 will be a boon year to establish a private
foundation or a donor advised fund.  A rich person can get tax savings
at a 35% rate in 2010 and then have grants flow out in later years when
the charitable gifts would have only produced a 28% rate tax savings.  

(4) "Charitable IRA Rollover" will become especially attractive in 2011
and later years, if it is in fact extended.  Rich people will really
want to keep taxable IRA distributions out of their income.  They won't
mind the fact that they are losing a charitable income tax deduction in
2011.  It would have only saved 28%.  Charitable IRA rollover could
effectively save them the 12% on each gift.

(5) None of this might happen.  The President proposed a budget, but it
is Congress that actually makes the budget and changes the tax laws.  It
will be interesting to see how proposal works its way through Congress.
The complaints and the lobbying have already started.

 

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From today's IRS Newswire:

WASHINGTON — The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

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Available here on the IRS website.  Hopefully most us will see a little more money in our paychecks soon.

Click here for the text of the full announcement.

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Thanks to a client of mine for providing this cartoon!

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From the North Carolina Bar Association website:

The North Carolina Bar Association and the North Carolina Medical Society are pleased to announce the publication of their revised Medico-Legal Guidelines.

Six substantive revisions have been incorporated into the 2008 Medico-Legal Guidelines, four of which apply to the proper release of mental health, substance abuse or psychotherapy records and notes. A listing of N.C. statutes pertaining to the disclosure of confidential or protected health information has been added, as has a sample court order for trial judges that allows medical providers to release mental health, substance abuse or psychotherapy records pursuant to federal law.

The guidelines are not intended to supplant, nor do they supersede, mandatory rules, laws or regulations, such as the Rules for Professional Conduct, the N.C. Rules of Civil Procedure or the N.C. Rules of Evidence. They are provided to help clearly define the responsibilities of physicians and attorneys, thereby promoting inter-professional cooperation and courtesy.

“These guidelines continue to serve a vital role in our efforts to promote collaboration between the North Carolina Medical Society and the North Carolina Bar Association,” said NCBA President Charles Becton. “We are grateful to the NCBA Medico-Legal Liaison Committee for its efforts in sustaining this important relationship between members of the medical community and the bar.”

“The Medico Legal Guidelines provide physicians much needed information concerning appropriate handling of many issues that arise in litigation involving our patients,” NCMS President Albert J. Osbahr, MD, said. “We appreciate the Bar Association’s ongoing commitment to ensuring these guidelines include updated federal and state laws and other important information.”

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From the IRS:

If you took an early distribution from your retirement plan, here are some things you need to know:

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.

2. Early distributions are usually subject to an additional 10 percent tax.

3. Early distributions must also be reported to the IRS.

4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.

5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.

6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.

7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.

8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual Retirement Arrangements (IRAs).

10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
.

Links:

• Publication 575, Pensions and Annuities (PDF 227K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)  
• Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts   (PDF 72K)
• Form 5329 Instructions (PDF 40K)

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On February 17, 2009, President Obama signed into law the $787 billion American Recovery and Reinvestment Act of 2009 (the 2009 "Stimulus Act").

The Act includes several provisions designed to offer a degree of financial assistance to individuals in the short and intermediate term, including a one-time $250 Economic Recovery Payment to individuals receiving Social Security benefits, Railroad Retirement benefits, Veteran's benefits, or Supplemental Security Income (SSI) benefits. In addition, up to $2,400 of unemployment compensation benefits received in 2009 will be excluded from gross income for federal income tax purposes. And, for individuals who lose their jobs on or after September 1, 2008, and before January 1, 2010, the Act offers assistance in the form of subsidized COBRA premiums--those who qualify will have to pay only 35% of the COBRA premiums needed to continue their health coverage, for up to 9 months.

The Act also features new and modified tax credits and deductions, including:

• A new "Making Work Pay Tax Credit" for 2009 and 2010 equal to 6.2% of earned income, up to $400 ($800 in the case of a married couple filing jointly); withholding schedules will be adjusted to increase current take-home pay to reflect the credit. The credit is phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
• A revised Hope education tax credit for 2009 and 2010, renamed as the American Opportunity Tax Credit. With an increased annual limit per student of $2,500, the credit is now available for the first four years of post-secondary education, and up to 40% of the credit is refundable. The credit is phased out for individuals with modified adjusted gross income exceeding $80,000 ($160,000 for married couples filing jointly).
• A revised first-time homebuyer tax credit, extended to include qualifying home purchases through November of 2009. The maximum credit is increased to $8,000, and the rules requiring that the credit be repaid are waived for qualifying homes purchased after December 31, 2008, and before December 1, 2009, as long as the home continues to serve as the individual's principal residence for 36 months. The credit continues to be phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
• A new standard deduction for state sales and excise tax related to the purchase of a qualified motor vehicle after February 17, 2009 and before January 1, 2010. Individuals who itemize deductions will claim the deduction as part of state and local taxes paid, reported on Schedule A of IRS Form 1040. The deduction is capped at the tax attributable to a maximum purchase price of $49,500, and is phased out for individuals with modified adjusted gross income exceeding $125,000 ($250,000 for married couples filing jointly).

In addition, the Act increases the refundable portion of the child tax credit, and makes changes to the earned income tax credit that benefit families with three or more qualifying children, and married couples filing joint returns. Also, 2008 provisions relating to the alternative minimum tax (AMT), bonus first-year depreciation, and IRC Section 179 expensing were all extended through 2009.

Source:  Townsend Asset Management Corp.

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My standard advice for clients who are transferring real property to their revocable living trusts is to check with their title insurance company to make sure they will still be covered.  For those insured by Chapel Hill's own Investors Title Insurance Company, all that is required is to notify Investors, who will then issue a simple amendment, at no charge, to show the trust as the insured.  Hopefully other insurers will do the same.

Also, don't forget to check with your homeowners insurance policy to ensure continued coverage.

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While only about .05% of estates will be subject to federal estate tax with the current $3.5 million exemption, this article, which originally ran in Trusts and Estates magazine, says to expect an audit in virtually all taxable estates.

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If you divorce, make sure that you change your retirement account beneficiaries!  As obvious as that advice sounds, it is not uncommon, particularly when there is no remarriage, for one to forget to designate a new beneficiary. Even a waiver signed by your former spouse may not be effective to prevent him or her from getting the benefits upon your death.  This report on a recent United States Supreme Court case is courtesy of the NAELA e-newsletter:

The decedent did not change the plan beneficiary after the divorce, but the executrix contended that the spouse waived her rights to plan benefits and thus the benefits reverted to the estate. The plan administrator argued that the waiver was an alienation of the benefits which was prohibited under the Employee Retirement Income Security Act of 1974, 29 U.S.C.S. § 1001 et seq. (ERISA), and that the waiver was not a qualified domestic relations order (QDRO) as required to be exempt from the anti-alienation provision. The Court unanimously held that the spouse's waiver did not violate the anti-alienation provision, but the administrator properly distributed benefits to the spouse. The spouse's waiver was not rendered invalid as an assignment or alienation of the benefits since the spouse did not attempt to direct her interest in the benefits to the decedent's estate or any other potential beneficiary. However, since the waiver was not a QDRO, the plan required the decedent to change the plan beneficiary or the spouse to expressly disclaim the benefits and, in the absence of either event, the administrator was required to distribute the benefits to the spouse as the named beneficiary under Egelhoff v. Egelhoff, 532 U. S. 141, 148 (2001).

Kennedy v. Dupont Savings and Investment Plan, 2009 U.S. LEXIS 869 (January 26, 2009)

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This report on msnbc.msn.com discusses GuideStar's statement that 500,000 non-profit organizations could lose their tax-exempt status in May 2010.  Non-profits with annual receipts of no more than $25,000 need file only a short informational return with the IRS - Form 990.  Failure to do so for three consecutive years will cause revocation of non-profit status.

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I have long known that the North Carolina State Employees Credit Union (SECU) refuses to refinance any residence owned by a revocable  living trust.  Their explanation is that they do not have the legal expertise to determine whether the trust affects the borrower's legal title and powers to the property.  Other lenders solve this by having an attorney (usually the one who drafted the trust) certify that the trust will not adversely affect the loan transaction.

For my clients that chose to work with SECU,  we would simply deed the house out of the trust to the client, and then after the closing, deed it back to the trust.  Some trouble and expense, but nothing major.

Last week, a client of mine had been told by SECU that she could refinance without using an attorney or updating her title insurance.  However, when they found that the home had been transferred in and out of the trust, they required that she use an attorney for the closing and obtain updated title insurance.  This will end up costing her another $800 or so. 

I spoke to Hill Scott, with SECU in Raleigh, on behalf of my client, but my pleas fell on deaf ears. I asked to speak to an attorney with SECU (someone who can understand what a revocable living trust is), but was told by Mr. Scott that SECU has no attorneys on staff!

Bottom line - If you have titled your home in your living trust, and insist on working with SECU when refinancing your mortgage, be aware that the costs of the transaction may increase significantly due to SECU's inane policies.

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Click "Continue Reading" for the Senate Appropriations Conference Summary Report.

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I had no idea North Carolina was so bad off until I saw the statistics put out by the Bureau of Labor Standards.  Our unemployment rate in December 2008 was 8.7%, which puts us on top of all states but Michigan (the highest at 10.6%), Rhode Island, California, Nevada, Oregon, and Washington D.C.  The state with the lowest rate was Wyoming at 3.4%.

While estate planning is extremely important, I can see how it takes a back seat for folks busy looking for work and trying to put food on the table and gas in the car.

I'm quite skeptical of the stimulus package and the benefits it will supposedly bring to our economy.  it does very little to encourage upper middle class professionals and business owners (who are not eligible for most of the tax breaks) to spend money personally and in their businesses.  For example, a substantial tax credit for hiring new employees would encourage me to hire someone, thereby creating a new job.  But what do I know - I'm not a politician or an economist, just a business owner who pays a lot of tax each year.

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Click "Continue Reading" to view a chart that provides a side-by-side comparison of the tax provisions in the House and Senate versions of “The American Recovery and Reinvestment Act of 2009.” The House version is H.R. 1, as passed on January 28, 2009, with a 244 to 188 vote margin. The Senate version, S. 350, is the Senate Finance Committee version, with amendments.

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On Thursday, February 12, 2009, the Lambda Law Students Organization of the UNC Law School will hold an event for same-sex couples to fill out and have notarized general and health care powers of attorney.

As important as powers of attorney are, one should not forget that they do not form a complete estate plan.  Wills, Trusts, HIPAA Authorizations, and Property Agreements should also be utilized by non-married couples when developing a comprehensive estate plan.

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The U.S. Tax Court issued an opinion on January 29, 2009 in the Estate of Marjorie deGreeff Litchfield v. Commissioner (T.C. Memo. 2009-21).  The case involved the determination of appropriate (estate tax) discounts for built-in capital gains tax liabilities, and lack of control and lack of marketability for minority interests in two closely held family corporations, including one that had recently converted to a subchapter S corporation. The court allowed a discount of 91% for the built-in capital gains tax for the C corporation, and 52% for the S corporation.  The minority interest (lack of control) discount was determined to be 14.8% for the C corporation and 11.9% for the S corporation.  The lack of marketability discounts were established at 25% and 20%, respectively, for the two entities.  The FMV Valuation Alert offers a nice summary.

This case involved farmland and marketable securities.  Discounts for transfers of entities owning marketable securities and cash will be history if HR 436, the Certain Estate Tax Relief Act of 2009, passes.

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Facing negative publicity over unpaid taxes, Tom Daschle withdrew his name from consideration as Secretary of Health and Human Services.  Nancy Killefer, Obama's pick for Chief Performance Officer, also withdrew her nomination, citing her unpaid payroll taxes for a household employee.

Too bad Timothy Geithner (Secretary of the Treasury) didn't do the same.  Now we have a tax cheat in charge of the IRS.  As an honest taxpayer and tax lawyer,  I am personally and professionally outraged!

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