The Ohio Trust & Estate Blog

Yesterday I wrote about the very small amount of time left that you (as a beneficiary of a 401k) have to take your required minimum distributions…  And then this morning President Bush signed HR 7327 “which delays required minimum distributions from certain retirement accounts for” 2009…  So there you go!  Mystery solved.  I know you were worried sick.

Happy holidays everyone.

According to these various & sundry stories, it looked like Washington was going to act to suspend the minimum distribution requirements for 401ks for 2008 and 2009.  No idea what I’m talking about?  Michael Keenan can help:

RMD’s are a specific amount of money, based on your life expectancy and the balance in the account, that must be taken as taxable income each year starting at the age of 70 1/2.  Technically, the deadline for your first RMD is April 1st of the year following the year in which you turn 70 1/2. 

Anyway, the tax code wields a pretty big stick for those who decide to ignore this requirement.  The penalty, which is 50% of the amount that was supposed to be withdrawn, is usually more than enough motivation for an IRA owner to fully comply.

But in light of the decimation of everyone’s IRA’s the thought was that it seemed cruel to accelerate the decimation by continuing the obligation to take RMD’s.  In fact, Congress apparently reached a bipartisan proposal for suspending RMD’s for 2008 & 2009, and many retirement owners have been delaying the withdrawal of their ‘08 RMD in light of the plans.

However, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. “Individuals who are subject to RMDs for 2008 should take their distribution under existing rules[.]“

What does that mean for you, the taxpayer?  It means hurry up and take those distributions or you could see your friendly neighborhood tax guy come along and take their 50% penalty…  And after the year most of us have had, another 50% really stings.

Thank you Mr. Keenan for your great post.

Is it odd that I live in Ohio and I heard about this story from a guy who lives (and blogs) in Illinois?  Anyways…

This very friendly looking guy

apparently tried to murder his adoptive parents when he was 17.  First, he laced their tea with cyanide and Second (as if you needed a second), he shot at them with his .38 hitting mom three times and missing dad.  Mom and dad both survive, he goes to juvenile jail for for 1 year, then he gets out and joins the Navy.  He then “settles down” (a humerous but ill-advised pun that the author obviously didn’t catch) and his step-parents both die with recipricol “I love you wills” leaving everything to each other with no contingent benficiaries.  Oops.  In an article full of unique quotes, this one caught my eye:

“It’s a mess, a classic example of what happens when you don’t update your will,” said John Polito, chief magistrate and administrator in Probate Court. “The way it was written, it was as if they had no wills.”

There is no mention in the article of Ohio’s Slayer statute (R.C. 2105.19), which is odd, but I think the issue is not so much that you should have your wills regularly updated but that you should have your wills drafted by someone who knows what they’re doing.  To have simple, mirror-image wills that do not contemplate a simultaneous death by listing any contingent beneficiaries is inexcusable malpractice.

Thats all I have to say about that.

Joel Shoenmeyer writes here about the (relatively) new Illinois law (Public Act 95-0784) that allows an individual to name a beneficiary of a car thus allowing it to pass outside of probate…  This would be great.

There is only so much work one can do in Ohio to assitt clients with avoiding probate but there’s always something…  Whether its the $1,500 burial policy the decedent took out in 1964 or a car, it can be dificult to escape the ever-widening grasp of probate courts. 

It is true that in Ohio one can own a car jointly which would vest survivorship rights in the surviving joint-owner after the death of the first, but jointly owning assets has its own headaches (I’m thinking mostly of liability here) that make it ill-advised as a planning device to invoke solely for probate avoidance.  There is also the allowance that a surviving spouse can take any two cars of their deceased spouse so long as their aggregate value is less thatn $40,000 and that can be done with an affidavit only (without having to open a full estate).

Here’s hoping our legislature take a short look west and takes the hint.  This would be nice.

Thanks Joel!

From this story today on Slashdot comes the remarkable cure of a patient with HIV:

“HIV is the virus that causes Acquired Immune Deficiency Syndrome (AIDS). Until now, HIV has no cure and has led to the deaths of over 25 million people. However, a possible cure has appeared. Dr. Gero Hutter, a brilliant physician in Germany, replaced the bone marrow of an HIV patient with the bone marrow of a donor who has natural immunity to HIV. The new bone marrow in the patient then produced immune-system cells that are immune to HIV. Being unable to hijack any immune cell, the HIV has simply disappeared. The patient has been free of HIV for about 2 years. Some physicians at UCLA have developed a similar therapy and plan to commercialize it.”

Amazing.  2008 just keeps getting better and better.

This Tuesday Washington State became the second state (after Oregon) to allow doctors to prescribe lethal doses of medication to terminally ill patients.

From the Elder Law Prof Blog:

Initiative 1000 was leading in most counties across the state Tuesday. “I’m elated,” said former Washington Gov. Booth Gardner, who filed the initiative and was one of its biggest campaign contributors. Gardner is battling Parkinson’s disease, though Parkinson’s is not considered a terminal disease that would qualify under the initiative. Barbara Coombs Lee, president of Compassion & Choices, a national right-to-die organization based in Denver that has provided financial backing for I-1000, said her group hopes to pass similar initiatives in other states in the future, though it hasn’t selected any specific states yet.

My understanding is that these laws were allowed by certain specific language in the Oregon and Washington State Consitutions. Getting similar laws passed in other states then would seem a long and uphill battle.

“I-1000, modeled on a decade-old Oregon law, permits terminally ill, competent adult residents of Washington, who are medically predicted to have six months or less to live, to request and self-administer lethal medication prescribed by a physician.”

Thanks to Kim Dayton for this one.

Just do it.  And when you’re done you can come back and watch this funny little video.  If you have already voted then you can watch it now.  But, seriously, if you haven’t voted, you don’t get to watch it.  Google is watching you right now, so I’ll know if you didn’t vote but you watched anyway.  Oh yeah, I’ll know.

The McCain/Palin ticket is really reaching now.

In Pittsburgh on Friday, Oct. 24, Gov. Sarah Palin noted that parents of children with special needs often set up trusts to help ensure long-term assistance. “Many families with special needs children or dependent adults” are concerned that Sen. Barack Obama “plans to raise taxes on precisely these kinds of financial arrangements,” she said. “They fear that Senator Obama’s tax increase will have serious and harmful consequences, and they’re right.”

This according to this post by Roni Deutch’s excellent “Tax Lady Blog.”

It is true that special needs children and adults often create trusts in order to, as Governor Palin avers, help ensure long-term assistance.  Sometimes the disabled individual creates a trust with their own assets or someone else (like their parents) creates the trust for them using their assets.  These trusts are also often used to maintain eligability for government benefits and other services after the disabled beneficairy receives a windfall of some kind like winning a lawsuit or inheriting assets from a deceased relative.  They are further usefull as tools to improve the quality of life of disabled individuals who are dependent on government benefits as these benfits do not provide all that one needs from day to day.  Simple, everyday things like paper products are often not covered by Medicare and these trusts are used to fill that very wide (and ever-expanding) chasm.

Ms. Deutch writes:

The way most of these trusts are structured, the interest they gain is taxed as part of the parents’ income.

This is true, but there are important differences depending on whom created the trust.  If the disabled person set up the trust with their own assets then that trust will usually pay its own income taxes.  As Ms. Deutch points out, the trust is usually set up such that the taxes are actually due to the person who created the trust (called the “Grantor”) but where a Grantor has no other assets but those contained in the trust, the trust will be actually be the one writing the check.

Palin, in her remarks, suggests that Obama will increase taxes on these trusts in general, thereby reducing the funds in them. The McCain campaign did not respond to requests to explain or comment on the record.

Obama has pledged to increase taxes only on individuals with incomes over $200,000 and families with incomes over $250,000. He is not offering an exception for interest in special needs trusts — that income counts toward the total. So, if someone’s taxes go up under Obama, the interest in a trust fund is part of what will be taxed at a higher rate.

This is also correct but its not the interest in the trust would cause an increase in taxes due but the income.  This is an important disctinction.  The extra taxes though will also usually come from the trust’s own assets so there would likley be no extra burden on the family or the disabled individual.

But Obama does not have a plan to increase taxes on special needs trusts in general. And Jason Furman, economic adviser for the Obama campaign, noted that Obama has vowed to fix his plan if any individual making less than $200,000 or family making less than $250,000 is left paying higher taxes. So, if Obama’s tax plan, unintentionally, forced taxes up on a special needs trust for someone at a lower income, the tax plan would change, and the person’s taxes would not go up, Furman said.
[...]
Before Palin launched this attack Friday, the McCain campaign told the Wall Street Journal that it was coming. The newspaper, in an article published online Friday, quoted Andy Imparato, president of the nonpartisan American Association of People with Disabilities, saying he has not heard any complaints from constituents about Obama’s tax plan. It was not clear what Palin’s evidence was that “many families” were concerned about Obama’s plan. 

It is also worth pointing out that history shows definitivley that medicare and other government benefit programs are better funded by democrats.  Given that the assets of these trusts are used to cover needs that are not otherwise met by these various services, a Republican White House is much more likley to cause a precipitous spend down of the assets held in the country’s special needs trusts than President Obama’s tax plan would.

I can’t wait till this election is over.

The IRS has announced their annual inflation adjustments for 2009 which includes an increase in the annual gift exclusion.  The annual gift tax exclusion for present interest gifts will be $13,000.

Thanks to Greg Herman-Giddens of the North Carolina Estate Planning Blog for the heads up.  Check out his post here for the applicable text from Rev.Proc. 2008-66.

Thanks Greg!

From today’s WSJ and the Tax Prof Blog comes this comparison of the estate tax schemes under the two leading Presidential candidates:

They agree on more than you might think:

Raising the Individual Exemption:

For 2008, the basic federal estate-tax exemption is $2 million per person, and the top estate-tax rate is 45%. Next year, the exemption is scheduled to jump to $3.5 million, the largest one-year increase in history. For heirs of wealthy individuals who die after Dec. 31, the tax savings could be enormous.

In 2010, the estate tax is supposed to disappear completely — but most tax advisers think Congress won’t allow that to happen. Starting in 2011, the tax is set to spring back to life with an exemption of only $1 million and a top tax rate on the largest estates of 55%.

Sen. McCain proposes raising the exemption “as soon as possible” to $5 million and cutting the top tax rate to only 15%, says Douglas Holtz-Eakin, senior policy adviser. Sen. Obama wants to keep the exemption at $3.5 million and the top rate at 45%.

Portability. Both candidates agree the exemption amount should be easily portable. “Families should not be required to undertake complex and unnecessary financial planning or be penalized for failing to take advantage of sophisticated financial strategies,” says Jason Furman, economic policy director for the Obama campaign. The Democrats’ nominee “believes we should eliminate the estate tax for 99.7% of families — and this is part of his plan to accomplish that goal,” says Mr. Furman.

Portability:

Both candidates agree on changing the law to make the federal estate-tax exemption “portable,” senior advisers say. This issue is known as portability because the exemption per person — $2 million this year and $3.5 million next year — would become transferable from one spouse to the other, in effect doubling the surviving spouse’s exemption. In essence, that means that spouses would be able to use each other’s estate-tax exemption without first having to set up complex and costly trusts and take other steps that many people now feel obliged to do.

Valuations:

This is a key issue when calculating capital-gains taxes on the sale of inherited assets. Here’s an example: Suppose your cousin dies and leaves you stock he originally purchased decades ago for $100,000 and the value of that stock has grown to $500,000 as of the date of his death. Your tax basis typically would be $500,000 — or, under certain circumstances, the value six months after the date of death. That means you don’t have to figure out what your cousin originally paid for that stock. This system is scheduled to continue through next year and undergo major changes in 2010. Critics say those changes would create additional complexity and impose unfair recordkeeping burdens on taxpayers. Advisers to both candidates have said the candidates want to retain the current system.

For obvious reasons I’ll be watching where this goes after the election.