Congress Moves Toward Estate Tax Reform  

Written By: Attorney Jeffrey A. Marshall , CELA*

  Last week, the House of Representatives passed estate tax reform legislation that seems to have a reasonable possibility of enactment.  Estate tax reform has been desperately needed since the passage of the first Bush Tax Cut in 2001.  The 2001 law gradually raises the estate tax exemption and lowers the tax rate until the tax is eliminated - but only for one year - in 2010.

Under current law, the exemption amount is $2 million in 2006 with a maximum tax rate of 46%. With planning, married couples can double this exemption to protect $4 million from tax. In 2009, the exempt amount increases to $3.5 million. In 2010, the estate tax is fully repealed. However, the estate tax repeal lasts only one year and in 2011 the tax is scheduled to return to its previous level before Bush was elected. 

The bizarre "off then on" aspect of the current law has made estate tax planning difficult for individuals with estates in excess of $1 million.  In addition, the repeal called for under the 2001 law would actually raise income taxes on many heirs by changing the rules for a step-up in tax basis on inherited assets.    

Each year since 2001, the House has voted for a permanent total repeal of the estate tax. But total repeal has been rejected in the Senate as a result of Democratic opposition to abolishing the tax on the largest estates. Since the House would accept no less than total repeal, nothing has been accomplished for five years. 

This year House Republican lawmakers, fearing losses in the upcoming election, have finally abandoned their "all or nothing" stance and accepted the need for compromise reform.  To that end, HR 5638 was passed by the House on June 22, 2006 .

The bill would exempt small estates of up to $5 million -- or $10 million for couples - from any tax. Estates valued at between $10 and $25 million would pay a tax rate of 15 percent - the same as the current rate on capital gains. Estates larger than $25 million would pay a tax rate that is double the capital gains rate.  The negative change in the step-up in basis rules would not occur.

If the proposed changes are enacted, the estate tax is expected to affect only the wealthiest 0.3% of decedents - fewer than 3,000 families each year. (Under current law, 12,600 estates -- approximately 1 percent of all people who die -- will be subject to the tax this year). Cost of the partial repeal is estimated at more than $60 billion a year by 2011.

The measure now goes to the Senate for its consideration.  It is expected that Majority Leader Frist will bring the measure to the flo or if he believes he has the votes for passage.  In order to woo additional timber state Senators to vote for the bill, tax breaks for the timber industry have been added. The measure could come to a Senate vote in the near future, although a vote is more likely later this summer.  President Bush would likely sign the measure.

Here is a summary of the major features of the legislation passed by the House, HR 5638, which is referred to as the Permanent Estate Tax Relief Act of 2006 (PETRA).

Increased Estate and Gift Tax Exemption

  . PETRA would increase the exemption amount to $5 million per person (indexed for inflation) effective January 1, 2010 .

Lower Estate and Gift Tax Rates

  . PETRA would reduce the rate of tax on estates up to $25 million to the capital gains tax rate (currently 15 percent, set to increase to 20 percent in 2011 unless extended).

  .   The bill would reduce the rate of tax on estates of $25 million or more to twice the capital gains rate (currently 30 percent, set to increase to 40 percent in 2011 unless extended).

Portable Spousal Estate and Gift Tax Exclusion Amount

  . PETRA would allow married couples to take full advantage of the $5 million exemption (indexed for inflation) by carrying over any unused exemption to the surviving spouse.

Guarantees "Stepped-Up" Basis

  . PETRA maintains "stepped-up" basis for property acquired from a decedent by repealing the modified carryover basis rules under the 2001 tax law that would have gone into effect in 2010.

Timber Tax Provision

  .   A timber provision creates a new 60 percent deduction for qualified timber capital gains.

The text of the legislation is available online at http://waysandmeans.house.gov/media/pdf/taxdocs/5638text.pdf

A description of PETRA prepared by the Joint Committee on Taxation is available at http://www.house.gov/jct/x-20-06.pdf  

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552

Medicaid Penalty Divisor Increases on July 1, 2006  

Written By: Attorney Jeffrey A. Marshall, CELA*

  Medicaid ("Medical Assistance") is the primary source of payment of long-term care costs in Pennsylvania .  But, before an individual can receive government Medicaid benefits, he or she must meet the financial need criteria of the program.  For many individuals and couples, this means they first have to "spend down" their personal financial resources so that they can qualify for this form of government assistance.

If an individual or his or her spouse has given away assets in order to get down to the required financial qualification level, the gift may create a waiting period ("penalty period") during which the couple will be ineligible for Medicaid.  The length of the waiting period is determined by dividing the value of the income or assets given away by a "penalty divisor" which is roughly equivalent to the average monthly cost of a private nursing home room.

The average monthly cost to a private patient of nursing facility care is often referred to as the ^"private pay rate" or the "penalty divi­sor." Each year, the Department of Public Welfare (DPW) adjusts the penalty divisor to take into account changes in nursing home costs in the state. As of July 1, 2005 , this penalty divisor was set by DPW at $6,062.35.

DPW has announced that the new penalty divisor, effective July 1, 2006 , will be $6,757.67 (an 11.5% increase). This amounts to a daily private pay rate of $222.17.  (Under Act 42, a partial month's penalty must be imposed for cumulative gift transfers in excess of $500 in any month.) 

Prior to the recently enacted Deficit Reduction Act, the penalty period began to run in the month the gift was made. When the transfer penalty changes mandated by the Deficit Reduction Act are implemented, the penalty period will not start to run until the date the Medicaid applicant would qualify for Medicaid but for the imposition of the transfer penalty.  This change makes planning involving transfers more difficult and complex.

Additional information on the figures used in calculating eligibility for Medicaid long-term care benefits is available on the Marshall, Parker & Associates website at http://www.paelderlaw.com/pdf/2006_factsheet.pdf.  

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552

 

Beneficiary Designations Complete Estate Plan Puzzle

Written By: Patti Jo Turner, Marshall, Parker & Associates' Planning Specialist

  It has been said that a good estate plan is like a puzzle, with all the different pieces fitting together to make the picture you want.  The most easily identified piece of the estate puzzle is your Will.  Tucked neatly next to your Will are your Power of Attorney and Health Care Directive.  And perhaps you have a trust. Most people think these pieces complete their estate planning picture, but an important part is still missing.

Beneficiary designations are an often forgotten part of estate planning.  Beneficiary designations appear on life insurance policies, annuities, and retirement plans.  It is typical for married couples to name each other as their primary beneficiary. That's fine, but it is not enough.  It's also important to look at the contingent or secondary beneficiary.  Who gets the asset if your spouse is deceased? 

If you fail to name a contingent (or "secondary") beneficiary, the benefit may pay to your estate and be distributed according to the provisions in your Will.  This may have many negative implications for your beneficiaries, especially if retirement plan benefits are involved.

If you have named your children as contingent beneficiaries, good for you.  But have you considered what will happen to your daughter's share if she predeceases you?  You may want her share to go to her brothers and sisters, or maybe to her children.  The default language in the contract will make that decision for you if you don't spell it out.  Default provisions will usually pay a deceased child's benefit to the other named children, leaving out grandchildren. Your deceased daughter's children will get nothing. Is that what you want? 

There is an additional reason to pay close attention to the beneficiaries on your tax deferred retirement plans.  Benefits that pass to named beneficiaries can usually be stretched out over the lifetime of that beneficiary, which means income taxes can be deferred.

Gather your paperwork and call your financial planner or agent to check that your beneficiaries are up to date.  Ask what happens if one of your beneficiaries dies before you.  Ask how to go about making changes, if necessary.   Only then can you declare your puzzle complete.  

Patti can be contacted at webmail@paelderlaw.com or at 1-800-401-4552  

 

Developing an Organized Medication System at Home

Written By: Wayne Miller, Medicap Pharmacist

  Caregivers can be overwhelmed with the number of medications that their loved ones need to take on a daily basis. Medication errors are too common, with administration of drugs accounting for 38 percent of errors. According to the ALARIS Center for Medication Safety and Clinical Improvement, at least 7,000 deaths annually are blamed on medication errors.

There are many options on the market for organization system. Deciding which one is right for your family needs to be the driving force behind the system that you ultimately choose. Most all of us are familiar with pill organizer boxes with various slots for time of day and days of the week. There are other options, though, that can be just as effective when implemented consistently.

There are many issues to consider when setting up an organization system for your loved one. Some of these include:

• How old is the person who is taking medication? Are they old enough to take their own medication or do they need someone else to give it for them?

• Are they capable of taking their medication independent of your help? Perhaps your loved one needs help in keeping track of which medications need to be given at a particular time of day, but they may be capable of choosing the correct medication from the shelf.

• Do they have impaired eyesight? Would it help to have larger print on the bottles?

• Does your loved one understand why they take each medication? (NOTE: Patients with some level of dementia and even children may not be able to comprehend the medications given.) It is important that persons understand the reason behind the medication to the best of their ability. As people age the answer, "because the doctor said so," may not be acceptable.

• Will others who may assist with caregiving be able to understand the system readily? If you leave town or are a long-distance caregiver, the system needs to be readily understandable to other friends, family, or even paid caregivers who may be in the household while you are away.

• Is the system flexible so that changes in medications and dosing schedules can be adjusted? It is not uncommon for doctors to change medications when there are chronic conditions involved. Be sure to develop a system that can adapt to these modifications and be implemented without confusion to your loved one.

No matter what system is chosen, proper storage of medications is essential. Keep medicines stored in a cool, dry area away from moisture or heat. The kitchen cabinets often serve as a favorite place to keep medicines. Be sure that the cabinets chosen aren't subject to the moisture or heat changes near refrigerators, dishwasher steam, or even steam from the kitchen sink. The holds true for bathroom cabinets as well.

Also, keep medications in their original container until they are ready to be administered or placed into a pill organizer. It is okay to make notes on the bottle with a black marker, such as a Sharpie®, to make instructions more clear for your loved one or other caregivers. When moving medicines into a pill organizer, make sure not to take out more than one week's worth.

The Canadian National Institute for the Blind recommends some of the following methods when considering a system to organize medications:

• Using a pill organizer with one or more sections for each day. If your loved one is taking multiple medications, it may be best to associate these with a meal or event rather than a particular time of the day. You can "re-label" the time slots with the event to make it more user-friendly.

• There are electronic pill organizers which can dispense medications on a set schedule. Some of these only have beepers or other reminders to let individuals know when medications need to be dispensed. Others can dispense medications on a pre-programmed schedule. The only caution with these is the programming and being certain that the device helps in your particular environment. The elderly may or may not be receptive to their use.

• Organizing medication on one shelf alphabetically or according to their frequency of use. If you choose this method, be sure that your loved one can read the labels on the bottle and that they are able to open the bottles without help. Also, you may need to set reminders to let them know when it is time to take each dose.

• Using personal markers or even colors on the top of the bottle so each medication can be readily identified. Blind persons can even put Braille wording on the top of the cap to make sure that each medication is taken accurately.

• Changing pill bottle shapes or sizes to differentiate between medications.

• Also, putting rubber bands on the bottle to indicate how many doses need to be taken each day. Each time a dosage is taken, remove a rubber band and at the end of the day, replace them.

While these suggestions may work well for individuals who can give medications to themselves, there are still others that may help individuals who are in the home providing care one-on-one. These suggestions include:

• Using a dry erase or bulletin board to write the medicine schedule. You can color code if needed. Dry erase boards need to be mounted to a wall rather than carried around the house since they can be erased easily, thus contributing to more medication errors. Poster board can also be used for this same purpose. A simple grid with medications down the side and dosing times across the time will help keep you organized.

• There are several online communities that offer simple medication logs where patients and caregivers can track the medications they need to take and when they need to be taken. Insert the log into a three-ring binder and keep it in a place where it is easily accessible. Find one that works for your situation and use it on a regular basis.

Taking medications that center on events such as breakfast, lunch, dinner, or bedtime may be easier than trying to maintain an elaborate time schedule. There is less room for error and it serves as a good reminder of when medications may be needed. Plus, with the number of medications that need to be taken with food, centering some drug administration at meal times makes it more comfortable for the patient.

These are a few ideas that will help get caregivers thinking about how to manage medications in the home. Certainly, there is no wrong way to develop a system as long as it meets physician orders and provides the necessary medications when they are needed. Being comfortable with the solution is just as important as finding the solution. To the extent possible, involve your family members in the planning process. They may provide insight and suggestions that you may have overlooked.  

Wayne can be contacted at 570-323-7344 or at Medicap99@aol.com

Back issues of The Elder Care Law Alerts are available on our website. 

 You can even search our site by a keyword or phrase!

Do you have a friend or colleague who would enjoy reading the Elder Care Law Alert?  If so, please feel free to forward it to them. Simply use the "Forward" button on your e-mail program.

To subscribe or unsubscribe to the Elder Care Law Alert,

simply send your request to:

webmail@paelderlaw.com  

*Attorneys Marshall and Parker are certified as Elder Law Attorneys by the National Elder Law Foundation under authorization from the Pennsylvania Supreme Court.  

---