Michigan Estate Planning Lawyer Blog

The New Law. There is currently no federal estate tax or generation-skipping tax for decedents dying in 2010 unless Congress passes new estate tax legislation this year. The federal estate tax will return in 2011 with a $1 million exemption ($2 million for married couples with basic planning) and the generation-skipping tax exemption will return at $1 million, indexed for inflation. This means that a person with assets of $10 million, $20 million or even $100 million who dies in 2010 will not pay a dime of estate tax. However, assets a decedent owns and passes on to a beneficiary at death will receive little, if any, step-up in basis, thus creating a large capital gains tax problem for the beneficiary who acquires the property.

As of January 1, 2010, IRC Section 1022 became effective and substantially changed the rules for obtaining a step-up in basis for real property or appreciated assets passed to a beneficiary at the death of the property owner. Section 1022 replaced the prior rule, IRC Section 1014, which expired on December 31, 2009, along with the estate tax.

What does it mean? Section 1022(d)(1)(A) allows a step-up in basis up to $1.3 million for an individual and $3 million for a surviving spouse (as long as it is received outright or as qualified terminal interest property) in property owned by, and transferred from, the decedent at the time of the decedent's death.

An illustration: Harry, a single person, owns a home worth $2 million at his death. He bought his home 20 years ago for $200,000. Harry's Will leaves everything outright to his daughter, Kathy, at his death. If Harry dies in 2010 while Section 1022 is in effect, Kathy will receive Harry's property with a basis of $1.5 million, not $2 million. Once Kathy sells the property, she will pay capital gains on the difference between the selling price and $1.5 million.

Planning Note: In 2010, property passing at death may receive little or no step-up in basis at death, resulting in larger capital gains when the property is sold.

The Effect on Irrevocable Trust Property - Muddy Waters.
There is no clear answer as to the effect of Section 1022 on property held in an irrevocable grantor trust (often referred to as a Medicaid Asset Protection Trust), which is commonly used as an asset protection tool in Medicaid planning. Some experts believe that property held in an irrevocable grantor trust will not get any step-up in basis at the grantor's death, and others believe the opposite. What is clear is that the lack of step-up for property held in an irrevocable trust is only applicable to property transferred by grantors who die in 2010 or while Section 1022 is in effect. The value of irrevocable grantor trusts in Medicaid planning has not changed - these trusts are still a valuable tool for asset protection.

Planning Note: The usefulness of irrevocable trusts in Medicaid planning has not changed even though property held in an irrevocable trust may not receive a step-up in basis if the grantor dies this year.

The Effect on Life Estate Property - no step-up in basis. There is no support in Section 1022 for a life estate holder to be considered an owner for purposes of a step-up in basis. Therefore, it appears that property held subject to a life estate interest will not receive a step-up in basis at the death of the life estate holder during 2010 or while Section 1022 is in effect.

The Effect on the 121 Exemption - remains intact. IRC Section 121 provides for a $250,000 exemption from capital gains for a single person who sells his/her home, and a $500,000 exemption for a married couple who sell their home. It appears that the Section 121 exemption will still be available for assets held individually, or in an irrevocable Medicaid Asset Protection Trust, assuming the appropriate rights to the home were retained in the trust. There were no changes to the grantor trust rules that would prevent the Section 121 exemption from applying to property held in a Medicaid Asset Protection Trust.

Planning Note: Life estate property will not get a step-up in basis in 2010, but the 121 exemption on homestead property remains.

What Happens Next? Congress could enact federal estate tax legislation this year --retroactive to January 1, 2010, or effective on some later date - and Section 1022 would then likely be repealed. Whether the new legislation would be retroactive is unknown. It is also possible that Section 1022 could be repealed even if new estate tax legislation is not passed this year. Absent further action from Congress Section 1022 will expire on December 31, 2010. Remember -- these rules are only applicable to those persons who die while these provisions are in effect, not to trusts or life estate deeds that are drafted while these laws are in effect.

Staying the Course. Although Section 1022 makes it difficult to obtain a step-up in basis for death occurring in 2010, this provision will not be around past 2010. Absent further changes in the law, the latest date that the step-up in basis provisions will return is January 1, 2011, when the estate tax is reinstated. And, these provisions only affect property with a low cost basis. Cash assets like checking accounts, CDs and savings accounts are unaffected by this legislation.

Planning Note: The 2010 legislation only affects property with low cost basis, not cash assets like CDs, checking accounts and savings accounts.

Conclusion. The changes to the tax code can seem very confusing. Luckily, these changes are only in effect for a short time (up to a year maximum) and only affect those persons who die this year or while these provisions are in effect. And while it is necessary to stay abreast of these new rules, it is also important to remind seniors and their loved ones of the importance of planning early to protect assets from the rising costs of long-term care.

Many elderly persons rely entirely on their children, family members or other trusted individuals to help them. This dependence upon caregivers or family members makes an older person more vulnerable to abuse and financial exploitation. Legal arrangements and protective actions by family may be necessary to shield loved ones from making bad decisions or from being taken advantage of.

Though you wouldn't think a child could take advantage of his or her mother or father, there is no way to know what someone will do who is desperate for money or who feels entitled to an inheritance. For example:

David's parents' health was failing and living alone in their home was becoming a concern. His sister Jill wanted to look into assisted living for them. David immediately became upset at Jill for wanting to spend their money. He packed up his parents and brought them to his home. Being single and working, he was not available to them during the day, but left food and water on the table to sustain them until he returned home in the evening. Jill lived over 300 miles from David and when she could get to his house to visit; she found her parents' care was not acceptable. They could not remember if they took their medications or if they had even eaten a meal that day. David was also draining their savings account and when confronted about it, became angry and complained that he needed their money to pay expenses for their care. Clearly Jill felt her brother's care of their parents was abusive, but David's defense was he provided a home for his parents in which he could care for them. This family needs a professional advisor to help them understand and clarify the issues concerning their parents' care.

Making legal decisions about property, finances, power of attorney, and final wishes are important tasks to complete for the final years of life. Having legal documentation for a will, for medical treatment and for the person designated to be responsible for parents' welfare can avoid family disputes and financial abuse, and help to conserve assets that are needed for care.

Michigan Elder law attorneys specialize in legal issues affecting the elderly. They are knowledgeable about Medicare and Medicaid programs. They work with the elderly in assisting them and their families with all aspects of estate planning and implementing necessary legal documents for the final years of life. In addition, they help individuals to apply for and possibly accelerate coverage from Medicaid. An elder law attorney can also help with disputes with Medicaid. Below is a partial list of what an elder law attorney might do:

* Preservation or transfer of assets seeking to avoid spousal impoverishment when a spouse enters a nursing home
* Medicaid qualification and application and Medicaid planning strategies
* Medicare claims and appeals
* Veterans Benefits claims
* Social security and disability claims and appeals
* Disability planning, including use of durable powers of attorney, living trusts and living wills
* Help with financial management and health care decisions; and other means of delegating management and decision-making to another in case of incompetence or incapacity
Probate
* Administration and management of trusts and estates
* Long term care placements in nursing homes and assisted living
* Nursing home issues with patients' rights and nursing home quality
* Elder abuse and fraud recovery cases

A Certified Elder Law Attorney (CELA) is an elder law attorney who is highly proficient in meeting the legal needs of elders and in understanding and applying the rules of Medicaid. A CELA has successfully handled a requisite number of pertinent cases in order to receive that designation. This experience will make an attorney with this designation more competent with elder planning issues than other attorneys lacking this designation.

Most elder law attorneys do not specialize in all of the areas iterated above. When considering an attorney you will want to find one who has experience in the area you need help.

According to The National Academy of Elder Law Attorneys -- http://www.naela.org/:

"Ask lots of questions before selecting an elder law attorney. You don't want to end up in the office of an attorney who can't help you. Start with the initial phone call. It is not unusual to speak only to a secretary, receptionist or office manager during an initial call or before actually meeting with the attorney. If so, ask this person your questions.

* How long has the attorney been in practice?
* Does his/her practice emphasize a particular area of law?
* How long has he/she been in this field?
* What percentage of his/her practice is devoted to elder law?
* Is there a fee for the first consultation and if so, how much is it?
* Given the nature of your problem, what information should you bring with you to the initial consultation?"

A good way to choose an attorney is by referral from friends, family, clergy or other associations. Before you meet for your initial consultation, prepare the items you want discussed and taken care of. Bring pertinent documents and questions. Be sure you get clear answers and that you understand what your attorney is proposing.

Two-way communication is the best way your attorney can understand your needs and concerns. Does the attorney listen to what you say, appear to really care about your concerns or return your phone calls? If not find another attorney. Most Elder law Attorneys sincerely want to help make you or your parent's elder years a well planned for, peaceful experience for all involved.

There are a number of ways attorneys charge for their services. They may charge a flat hourly rate. Or they may charge hourly for some services and add on additional expense for out-of-pocket costs such as paperwork, stamps, phone calls, etc. Or they may charge a single fee for a mutually agreed-upon course of action or plan. Some attorneys who specialize in appeals for veterans benefits or Social Security may work on a contingency basis. It is important to understand how you will be billed so there will be no surprises in the end.

The National Care Planning Council lists elder law attorneys throughout the United States.
To find someone in your area go to http://www.longtermcarelink.net/

In Michigan, even after the passage of the Deficit Reduction Act and with Estate Recovery looming, we still have many techniques available to help Michigan seniors plan, even in crisis mode, for the large monthly Michigan nursing home costs.  The cost of a nursing home in Michigan can run between $6,000.00 to $7,000.00 per month.  Through proper planning this bill can be picked up by Medicaid if you meet the necessary requirements.

Our Michigan Elder Law Attorney office helps Michigan seniors plan for the cost of long term care, including assisted living and nursing homes, through various legal methods including "half-loaf" strategies, irrevocable trusts, proper gifting strategies, utilizing Michigan Veterans Benefits, and other legal tools.

It is important that you consult a Michigan attorney familiar with planning for long term care because there are many traps for the unwary and unfortunately quite a bit of misinformation out there.  If you were to make a mistake in planning it can lead to a disqualification or unattended penalty for your loved one.

If you would like more information on any of these long term care strategies, please contact our office.

According to a recent study, only half of Dementia cases are properly diagnosed according to a story in Canadian newspaper. You can read the article, which cites the Australian study here: Only half of Dementia cases diagnosed.

The article goes on to state that there is reluctance from doctor's to diagnose dementia because of the perception that there is currently little treatment to offer.

From an Michigan elder law perspective, this can be troubling because many family members rely on doctor's diagnoses for the care and well being of their family members.  If doctors are not correctly diagnosing seniors, then their family members cannot properly create a care plan.

Christopher Berry, Esq., An Michigan Medicaid Planning Lawyer, is a Partner with The Law Offices of Witzke Berry PLLC, which practices in the areas of Estate Planning, Elder Law, and Michigan Probate Litigation.

Financial Durable Power of Attorney. Many people focus their time and need only on the last will and testament (or living trust) or medical directive. How do I know? Because 9 times out of 10 when a potential client contacts us they ask for a will, living trust, or living will. Hardly anyone ever asks initially for a financial durable power of attorney (otherwise known as a DPOA).

A Michigan financial durable power of attorney allows someone else to make decisions regarding financial matters. The durable power of attorney can become effective either upon incapacity or immediately.

The purpose of the Michigan financial durable power of attorney is to allow someone else to be able handle all financial matters. This includes handling business interests, buying and selling real estate, paying bills, and even making gifts and authorizing Medicaid planning.

The Michigan financial power of attorney is a powerful document that should not be used lightly or prepared haphazardly. The drafter of the document must be careful in choosing which powers to include and which powers to exclude. Additionally, specificity is very important in the document. Many of the Legalzoom, Quicken Willmaker, or Suze Orman, do it your self documents are over broad and can be dangerous in the wrong hands to the creator. This is why it is important to see an experienced estate planning lawyer to assist you by drafting a quality financial durable power of attorney.

Christopher J. Berry, Esq., A Bloomfield Hills Living Trusts and Wills Attorney, is a Partner with The Law Offices of Witzke Berry PLLC, which practices in the areas of Estate Planning, Trusts and Estates, and Michigan Probate Litigation.

"My parent is currently on Medicaid and is about to receive a windfall from an inheritance that will disqualify him from Medicaid, what can we do?"

Well, as a Michigan elder law attorney, my first response is that "it depends."  It depends on more facts.  Some possible ideas include, basically, converting the new assets into exempt assets in the month the windfall or inheritance was received.  For example, the Medicaid parent could purchase a prepaid funeral, buy a car if he doesn't own one, by medical equipment, or furniture. 

What Michigan Medicaid planning strategies we can use depends on more facts.  But, basically, one of the easiest and best options is convert the assets into exempt assets.

Christopher J. Berry, Esq., A Oakland County Medicaid Planning Attorney, is a Partner with Witzke Berry PLLC, which practices in the areas of Estate Planning, Michigan Long-term Care Planning, and Michigan Medicaid Planning.

There are many tools in the Michigan Medicaid planner's tool box when assisting elder law clients. One of those tools is the SBO Trust ("Soley for the Benefit of" Trust).

For purposes of Michigan Medicaid planning, the SBO Trust is an irrevocable trust that holds assets entirely for the benefit of another. The assets are held for the benefit of the community, non-Medicaid applicant, spouse. Through this type of planning assets which would have been considered countable by Medicaid, now become unavailable. This allows the Medicaid applicant to qualify sooner for Medicaid and defray the Michigan nursing home costs, which can be well over $6000.00 per year.

There are certain requirements for the SBO Trust. For example it must be irrevocable, in writing and established after the admission to a nursing home by the Medicaid Applicant, and must distribute an annuitized portion of trust corpus to the community spouse on an actuarial sound annual basis.

The Michigan SBO Trust is just one Michigan Medicaid planning technique in an elder law lawyer's tool box.

Christopher J. Berry, Esq., A Bloomfield Hills Elder Law Attorney, is a Partner with Witzke Berry PLLC, which practices in the areas of Estate Planning, Michigan Long-term Care Planning, and Michigan Medicaid Planning.

Many individuals receiving governmental assistance will be receiving a $250 stimulus payment from the Federal Government as part of the American Recovery and Reinvestment Act of 2009 according to an Elder Law Answers blog post, which you can read here.

A questions that many Medicaid participants will have is whether this payment will counted as income and thereby place the Medicaid participant over the Michigan income limit.  The answer to the question is no, additionally the amount will not be gross income for tax purposes.

-Christopher J. Berry, Esq.
Michigan Elder Law Lawyer | Michigan Medicaid Planning

Michigan Medicaid planning is a consistently changing and very technical area of law.  Before you begin gifting things away in preparing for a Medicaid application, it is important to speak with a Michigan Medicaid planning attorney or Michigan elder law lawyer.

Here are some of the common strategies that Michigan elder law and Michigan Medicaid planning lawyers are utilizing.

First, marriage opens up some great avenues for Medicaid planning with the Sole Benefit of Trusts (or SBO Trusts) along with using the community spouses asset allowance.  Second, if there is a disabled member in the family the SBO Trust could be utilized.  Next, we can convert countable assets into excluded assets.  Another technique is the Half a Loaf strategy that uses short term annuities and gifting.  A great option for real estate is using the Ladybird Deed.

If you or a loved ones is contemplating filing for Medicaid, please contact our office.  We can help you navigate the confusing system.

-Christopher J. Berry, Esq.
Witzke Berry PLLC
Michigan Medicaid Planning Lawyers | Michigan Elder Law Lawyers