Newsletter: September 2010

September 28, 2010

In this issue: The Role Of Gender In Estate Planning; Long-term Care Planning Techniques; Federal Estate Tax Planning In 2010

THE ROLE OF GENDER IN ESTATE PLANNING

Understanding crucial differences between the sexes in order to develop appropriate financial and estate planning solutions for clients.

While the fact that men and women are quite different may not be news to you, have you ever considered how those differences can provide planning opportunities for your female clients?

First, consider that your female clients, on average, will outlive their male counterparts by more than five years. In addition, consider that these same female clients are three times more likely to require nursing home care (female nursing home residents currently outnumber male residents by a 3 to 1 margin).

These core differences suggest that a different approach with regard to advising female clients. For example, do you inform your female clients that because they will have smaller required minimum distributions from their retirement accounts that they will have to stretch those payments over a longer period of time? Because of this fact, you may want to consider planning for possible annual income shortfalls in the form of additional savings vehicles, annuity contracts, or bond funds so that your clients can avoid the possibility of impoverishment in their golden years.

Moreover, and again due, in part, to their longer life expectancies, have you stressed the importance of obtaining long-term care insurance for your female clients while they are healthy and insurable? Having funds to pay for anticipated long-term advanced medical costs can certainly increase the likelihood that your clients will be able to maintain their financial independence, and provide them with financial security, for their entire life expectancies.

Consulting a knowledgeable attorney is critical so that a plan can be developed to provide the unified treatment and best possible outcomes regarding the enjoyment, taxation and eventual disposition of your client’s property.

Need additional ideas? Attend our Seventeenth Annual Select Strategies for Insurance and Estate Planning Seminar, which is being held this year on October 1 and on October 29. You can visit our website at www.smith-condeni.com for more details and online event registration.

LONG-TERM CARE PLANNING TECHNIQUES

Caregiver Agreements with family members can enhance and accelerate long-term care planning strategies and opportunities.

A growing number of families are providing care for their elderly and disabled loved ones at home. What many of these families do not realize is that they can receive reasonable compensation for providing such care through the use of a Caregiver Agreement.

A Caregiver Agreement, also known as a “Personal Service Contract” or “Personal Care Contract”, is a written contract entered into between an elderly individual who requires care (or by the elderly individual’s agent/guardian) and a caregiver (usually an adult child or other family member). Under the terms of the arrangement the caregiver agrees to render services in exchange for some form of payment (i.e., money or some other form of financial consideration).

This type of agreement can be an effective strategy for accelerating Medicaid eligibility for an elderly or disabled person, as it allows the elderly or disabled person to transfer money to their family members as compensation rather than as a gift, which, in turn, avoids the creation of and ineligibility period under applicable Medicaid rules. In addition, a Caregiver Agreement may also accelerate the individual’s VA eligibility by allowing them to offset their income in order to meet to the income requirement set forth under VA guidelines.

Given that a Caregiver Agreement is likely to be examined critically by several entities, including the Department of Veteran Affairs, the Department of Job and Family Services and the IRS, it is imperative that the agreement be drafted properly by an experienced elder law attorney. Specifically, a Caregiver Agreement must address the following: (i) duties of the caregiver; (ii) market cost of the services provided; (iii) dates and times during which the caregiver will provide his/her services; (iv) method of payment; and (iv) when the agreement will terminate.

A properly drafted Caregiver Agreement can be an extremely valuable long-term care planning tool for an elderly or disabled individual in the right circumstances.

FEDERAL ESTATE TAX PLANNING IN 2010

Should your clients consider making taxable gifts prior to the end of the 2010 calendar year?

While the chance for transfer tax reform in 2010 is not yet completely dead, its pulse is certainly growing fainter as each days brings us closer to the end of the calendar year. Given the increasing probability of higher transfer tax rates in 2011, affluent clients should consider the idea of making taxable gifts prior to the end of 2010.

Consider the 2011 Rates! In 2011 the top transfer tax rate on gifts and bequests in excess of $3,000,000 will be 55% (with an additional 5% surtax imposed on transfers in excess of $10,000,000). Compare this to 2010, where the gift tax rate is a flat 35% for gifts in excess of the $1,000,000 lifetime gift tax exclusion and there is currently no federal estate tax.

Higher Transfer Tax Rates to Come? Many commentators believe that even more onerous transfer taxes are possible in the future as a means to increase revenue in the face of the current long-term financial crisis. While the future of tax legislation and reform remains to be seen, commentators predicting increasing transfer tax rates cite the following in support of their contentions:

• The United State is in its 3rd consecutive year of trillion-dollar-plus annual deficits;
• Its debt to GDP ratio is already an alarming 96.5%, which is expected to skyrocket with an aging baby-boomer generation; and
• It’s always easier to take money from dead taxpayers – they complain less than the live ones.

2010 Offers a Unique Opportunity. As we approach the end of 2010 without any definitive action on the part of Congress to modify the transfer tax rules for 2011, we are facing an increase in the top transfer tax rate from 35% for gift taxes in 2010 to 60% in 2011. The prospect of this sharp increase, along with the additional benefits of having no generation skipping transfer taxes in 2010, suggests that clients need to understand the benefit of making gifts and pre-paying their transfer taxes before the end of 2010. It’s time to start considering the options now, even if the plans are implemented later in the year. The delay of planning until the end of 2010 could be a profound and costly mistake.