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Financial institutions like banks are now demanding up-to-date documents when dealing with both powers of attorney and revocable living trusts. This impacts Medicaid and long term care. If you have a power of attorney for property, it probably says that your loved one can act on your behalf as your agent.  But because Medicaid has very complicated rules, someone acting on your behalf may need to make changes to the way your assets are held.  Typical power of attorneys or property do not allow your agent to make changes to your estate plan or create other documents that can protect you and your healthy spouse from going broke because of long term care costs. One thing many traditional estate planning attorneys are doing for married couples is creating a joint revocable living trust, which often transforms itself into an irrevocable trust when one spouse becomes disabled.  Once this happens, the healthy spouse would not be allowed to make changes in the way the assets are held; thus forcing the healthy spouse to spend an excessive amount of assets to care for the ill spouse before he or she can qualify for Medicaid.  This is something we elder law attorneys want to prevent from happening. Nobody wants to be out of money.  Our job as elder attorneys is to help you receive quality healthcare and preserve your options.   Thus, your plan should be updated to ensure absolute solvency if possible, legally and ethically.  This includes a power of attorney that allows your agent to be able to take very special actions to protect you and your loved ones financially. Please contact me today if you would like me to review your current documents to make sure you have the protection you deserve. -Anthony B. Ferraro

We are witnessing a sea change in it in tax planning due to two new developments:  1) The new “portability” of the estate tax exemption for our clients The concept of portability allows the surviving spouse (widows and widowers) to carry over the estate tax exemption of the spouse who died and add it to their own exemption amount. However, to take advantage of this action you must “elect portability”. This means your executor, with the assistance of estate tax counsel, must handle the estate of the spouse who has died and file a federal estate tax return, even if there are no estate taxes due. Further, this estate tax return must be filed within nine months of death. However, the Internal Revenue Service has recently issued a Revenue Procedure creating some relief for people who fail to make this filing. Portability has the additional advantage of allowing assets to get a basis adjustment to fair market value after the date of the surviving spouse’s death. By contrast, this step up in basis is not available for assets that went into a bypass or credit shelter trust at the first spouse’s death. Most of the readers of this article have just those kinds of trusts. Specifically, the types of trusts that will not allow step up and tax basis and probably result in more income tax being due than is necessary. Note: This means that it’s probably a good time to review existing wills and trusts. 2) Increased demand by clients for increase in tax basis to avoid increasing capital gains tax from 15 to 20% On January 2, 2013 the capital gains tax increased from 15% to 20%.  Furthermore, Obamacare introduced a 3.8% Medicare tax that applies to capital gains. The combination of these two taxes can result in capital gain taxes of up to 23.8%. This can be a bad result especially when an estate consists of a trust or trusts created to eliminate estate tax but no estate tax, will be due. In 2014, no estate tax will be due unless a husband and wife have a pooled net worth of approx. $10.5 million! Therefore a review of trusts is suggested. It makes no sense to have trusts that avoid estate tax that you will never pay while those same trusts will force you to pay 23.8% in capital gains tax, when that 23.8% tax does not have to be paid at all. In short, the only way that this can be resolved is by creating a potentially taxable estate on the death of the first spouse to die that will fall below the $10.5 million taxation threshold. Simultaneously because the estate of the deceased spouse is left in a way that is potentially taxable to the surviving spouse, the surviving spouse gets to step up in income tax basis at their death. The net result is no estate tax and no income tax due. I would call that a pretty good days work. I have written on this topic before but because it is so immensely important I have chosen to dedicate another article to this concept of estate tax elimination combined with income tax income tax elimination. Still think it’s not time to review that estate plan? Think again.
Anthony B. Ferraro
Attorney – MS Tax – CPA