Friday, February 29, 2008

"National Elder Law Network" Revitalized Online

Professor Kim Dayton, author of the Elder Law Prof Blog posted an entry on January 29, 2008, entitled "National Elder Law Network back on-line", which reported that the National Elder Law Network "is back on-line with new and updated bibliographies and articles".

NELN's website describes its heritage and its continuing educational mission in offering "Free, Reliable Information for Seniors and their Advocates":

The National Elder Law Network was founded in 1995, when it was called the Kansas Elder Law Network, and is one of the first Web-based sources of comprehensive information on elder law and policy.

Since that time, NELN has been a reliable source of free information on legal issues affecting seniors.

Its content includes annotated research bibliographies authored and updated by law students at the
William Mitchell College of Law [St. Paul, Minnesota] and the University of Kansas [Lawrence, Kansas], articles, and other materials aimed at the elderly, their attorneys and advocates, and their caregivers. [Links added.]

NELN’s founder, Professor Kim Dayton, remains involved. Much credit is given to "the dozens of law students, librarians, and staff members who have worked on this site over the past thirteen years."

The website's interface is starkly simple. Its content can be browsed or searched quite easily.

This website offers four types of media to convey its content:

The content is organized under thirty-three "topics", covering all aspects of elder law and seniors' experiences or challenges. The topical list begins with "Abuse and Neglect" & "Advanced Directives / Living Wills", and ends with "Taxation" & "Trusts", with many relevant subjects in-between. An expanded listing of content under these topics is available here.

Professor Dayton and the other dedicated contributors have assembled much useful information that can be useful for consumers & professionals. For those interested in this subject matter, it is a site that should be bookmarked.

Thursday, February 28, 2008

"Social Capital" and Estate Planners

On January 28, 2008, an editorial published in the Tribune-Democrat (Johnstown, PA) entitled "Status quo must go: Millions of dollars at risk", by Stephen Purich, urged estate planners (attorneys & accountants) to become "proactive" in influencing how clients' bequests could be directed in testamentary documents to local charities.

The editorial states: "
We must inspire our wealth holders to be more diligent in their planning, and challenge the professional advisers to be more proactive."

Millions of social capital dollars are currently at stake in the Johnstown region. The question is how, not if, that money will be used and whom it will benefit.

When the Community Foundation for the Alleghenies held a kickoff for a marketing campaign in December, 78 invitations were sent to professionals in Johnstown – mostly lawyers and accountants – but fewer than 10 chose to attend.

The foundation’s mission is to promote sound estate planning to preserve social capital in the region. The invitation stated that activity created by this initiative may have a substantial impact on their businesses and the future of our community.

If these are serious issues involving professional careers and virtually millions of community dollars, then why such a tepid response? Lack of experience in planned giving and apathy are usually the biggest stumbling blocks.

Most professionals do not recognize that estate giving is a viable option to sound estate planning.

After all, who promotes planned giving? Charitable organizations and a few individuals from the financial service industry. Both are dismissed as having a vested interest. One group wants our money, and the other wants to sell us something. * * *

This is the problem framed by the editorial writer:
Integrated planned-giving strategies are used so infrequently that they are not familiar to most advisers, including some of the nation’s most prominent estate planning lawyers.

There is a significant disconnect between perception and reality. * * *
The editorial raises, and then counters with statistics, two "perceptions" involving estate planners and their clients:

  • Perception: Estate owners have advisers who are specialists in planning, and have their clients’ affairs in order.
  • Perception: If planned giving was such a good idea, it would be promoted by my advisers.

The writer asserts that the realities are different; and he (a retired financial advisor) focuses on one effect: "As a result, few professionals are fluent in the art of charitable estate planning, which often results in either passive indifference or even skepticism."

The editorial's main point is that "the region’s substantial social capital reserve" should be retained locally, in the form of philanthropic gifts to local charities:
Social capital in estate planning is the money that can not be kept by the family at someone’s death. It is found in two forms – charitable gifts and taxes.

Taxes are defined as government-controlled social capital, while philanthropy is defined as personally controlled social capital. Both forms are intended to contribute to the general welfare of the country, and nearly everyone participates – in one way or another.

Social capital at death transitions from personal to public money. When it unnecessarily leaves the community, it affects the future of all of our children and grandchildren, not just those of the estate owner. * * *

I do agree with some points made in the editorial, such as:

  • Planned giving can be a very positive experience. It can define who we are as individuals and as a community.
  • It is a once-in-a-lifetime opportunity to teach children the importance of good stewardship and foster their responsibility for wealth.
  • [A] foundation can provide the vision and leadership.
  • It’s up to the citizens to transform that vision into reality.

What I dispute is that attorneys and accountants should become advocates to influence a client into charitable giving. These professionals must remain independent, responsive to the client's wishes alone, and trustworthy in implementing a client's intentions.

Certainly, for attorneys, these are basic ethical duties required by the Pennsylvania Code of Professional Responsibility. Furthermore, such influence applied to a client by a trusted advisor could be criticized on the basis of undue influence or conflict of interest, among other grounds.

I applaud the community spirit motivating an educational campaign targeted at individuals and families to act more philanthropically, locally. This is a proper way to invigorate charitable giving.

However, a community foundation should not urge estate planners to become advocates for charitable giving by their clients.

Enabling greater awareness & skill by an estate planner as to charitable giving techniques is laudable; but suggesting advocacy by estate planners for charitable dispositions from their clients is inappropriate.

Wednesday, February 27, 2008

Catholic Congress Studies End-of-Life Issues

On February 22, 2008, the Catholic News Agency issued a Press Release entitled "Vatican conference to examine ethics of end-of-life care" that announced an international congress named “Close by the Incurably Sick and the Dying: Scientific and Ethical Aspects,” sponsored by the Pontifical Council for Life, held February 25 & 26, 2008, at the Vatican.

Bishop Elio Sgreccia, president of the Pontifical Academy for Life, summarized the goal of the congress as an attempt to focus on the moment “in which human fragility is felt most deeply, a moment often intensified by solitude and suffering.”

This moment, he said, is very important in the Christian vision because “the physical body crumbles and the subject’s history comes to an end but they draw near the entrance to full life, eternal life.”

The bishop said the congress would examine the ethics of various medical therapies in response to “various doubts and continuing debate” about medical assistance.

“The main focus will be on treatments that respond to precise ethical questions,” he said. * * *

Monsignor Maurizio Calipari, a member of the Pontifical Academy for Life and a bioethics professor at the John Paul II Institute for Marriage and the Family, explained that new medical techniques ensure greater life possibilities and better health for many people. However, they can sometimes bring “a greater affront than personal suffering to the patient without there being, or even contrary to there being, a real perspective of benefit.”

Monsignor Calipari said the congress would consider the ethical and technical criteria for prolonging life. He proposed that the ethical standards of ordinary versus extraordinary treatment (a traditional category), and proportionate versus disproportionate treatment (a newer category), could be supplemented with a new ethical standard that joins the two.

Zbigniew Zylicz, a medical director at an English hospice, addressed the press conference on the topics of palliative care, hospices, and household assistance. "Death", he said, "should be seen as a part of life, a normal event. The death of a loved one can even be an important moment of personal growth.” * * *

That congress was convened on Monday & Tuesday of this week. This resulted in a further lengthy Press Release issued on February 25, 2008, by the CNA, entitled "Pope reaffirms Church’s stance against euthanasia", which reported that as Pope Benedict welcomed the participants, he reiterated that the Church is against all forms of euthanasia.
Reflecting on the moment of death, the Pope said that it “concludes the experience of earthly life, but through death there opens for each of us, beyond time, the full and definitive life. ... For the community of believers, this encounter between the dying person and the Source of Life and Love represents a gift that has a universal value, that enriches the communion of the faithful". * * *

Benedict XVI also spoke of the larger societal dimension of respecting those who are ill or dying.

All society "is called to respect the life and dignity of the seriously ill and the dying", he said. "Though aware of the fact that 'it is not science that redeems man', all society, and in particular the sectors associated with medical science, are duty bound to express the solidarity of love, and to safeguard and respect human life in every moment of its earthly development, especially when it is ill or in its terminal stages.

"In more concrete terms", he added, "this means ensuring that every person in need finds the necessary support through appropriate treatments and medical procedures - identified and administered using criteria of therapeutic proportionality - while bearing in mind the moral duty to administer (on the part of doctors) and to accept (on the part of patients) those means for preserving life which, in a particular situation, may be considered as 'ordinary'". * * *

Pope Benedict also pointed to how society can improve its support for the dying or seriously ill.

Society, said the Pontiff, must "ensure due support to families who undertake to care in the home, sometimes for long periods, sick members who are afflicted with degenerative conditions, ... or who need particularly costly assistance. ... It is above all in this field that synergy between the Church and the institutions can prove particularly important in ensuring the necessary help for human life in moments of frailty".

Catholics are one community of religious believers, among others, who study end-of-life decisionmaking, particularly in the context of advanced, life-prolonging, medical treatment. See: PA EE&F Law Blog postings (with links to resources) "UCC to Study Physician-Assisted Death" (06/29/07) and "Vatican Favors Living Wills" (11/28/06).

For a recent statement by the Catholic Bishops of Pennsylvania on one aspect of this end-of-life discussion, see "Statement on Nutrition and Hydration: Moral Considerations" (Revised 1999), posted by the Pennsylvania Catholic Conference.

These church discussions occur in the midst of continuing situations that question legal principles and medical ethics. See, for example, these recent articles:
  • Divorced parents contest life-sustaining feeding tube for brain-damaged adult daughter (02/08/08), posted by the Catholic News Agency.
    • Excerpt: In a case recalling the conflict over Terri Schiavo, two divorced parents in Delaware are fighting over whether to continue life-sustaining nutrition for their brain-damaged adult daughter, the News Journal reports. Lauren Richardson, 23, has been in a so-called persistent vegetative state since overdosing on heroin in August 2006. Pregnant at the time, she was kept alive at a hospital with feeding tubes and a breathing machine until she gave birth in February 2007 to a healthy baby girl. Her parents Randy Richardson and Edith Towers are currently disputing whether her feeding tube should be removed.Towers, who says her daughter did not wish to live in such a state and wants the feeding tube removed, was awarded guardianship of Lauren in January. Her father Randy Richardson disagrees, "She's committed no crime and doesn't deserve to have this death imposed on her," he told the News Journal. He is appealing the ruling awarding guardianship to Towers, his ex-wife. The appeal will take three months. Lauren lacked any living will or advance directive recording her wishes in writing. * * *
  • Families chafe at physicians' power to give up life support (02/08/08) published in The Atlanta Journal-Constitution.
    • Excerpt: From a legal standpoint, being brain-dead is the same as being dead. Before a patient can be declared brain-dead, two doctors must evaluate the patient on two occasions. Dr. Michael Hartman, a neurologist at Emory Eastside Medical Center, routinely removes patients from machines that support organ function after he declares brain death. Hartman said the physicians have to make the tough decisions when families can't. "If you let them take control, they will never let go," Hartman said. "I realize this lack of control families must feel when we go in, but it's part of the job." Hawkins' lawyer, Crongeyer, says that stance is "kind of a scary [thing]." * * *
For an extensive discussion about the pending case of Lauren Richardson, see: "Parents battle over life of brain-damaged daughter", published January 31, 2008, in The News Journal (Wilmington, DE), as reposted & updated with related reports by Delaware Online.

Update: 02/28/08:

On February 27, 2008,
Catholic World News published an article entitled
"Vatican concludes conference on end-of-life care".
The Pontifical Academy for Life has concluded a 2-day conference on ethical and pastoral questions involving care for those who are terminally ill.

The conference, held at the Vatican on February 25-26, explored the moral issues that arise in treatment of those who are approaching death. Participants discussed the moral principles involved in distinguishing between ordinary and extraordinary care, or proportionate and disproportionate efforts to preserve life.

The conference also addressed the issue of palliative care, and the reality that the alleviation of pain may indirectly cause an earlier death. * * *
Update: 03/03/08:

Professor Gerry Beyer noted this posting in his own, entitled "
Catholic Church Reiterates Its Position on End of Life Issues" (03/03/08) on the Wills, Trusts & Estates Prof Blog.

Update: 03/05/08:

On March 5, 2008, Michael D. Bonasera, Esq., who authors The Ohio Trust & Estate Blog, noted my posting and commented on it further as to Ohio law, in his entry entitled "Disability Planning and the Pope". He also provided a reference here in his closing comment:
"Thanks to Neil A Hendershot for this story on his always informative PA Elder, Estate & Fiduciary Law Blog."

Tuesday, February 26, 2008

"Sandwich Generation" Feeling Stressed

On February 15, 2008, the Pennsylvania Psychological Association circulated an article entitled "Feeling pulled in too many directions" by email to its e-newsletter subscription list.

The article addresses the stress felt by the "sandwich generation" in caring for both children and elders, while trying to sustain themselves.

I found its subject relevant to this Blog, its observations accurate, and its practical tips useful. So I asked Marti Evans, the Conference & Communications Manager of PPA, for permission to reprint it here; and PPA agreed, where credit is given.

PPA is a membership organization for licensed professionals.

The mission of the Pennsylvania Psychological Association is to advance psychology in Pennsylvania as a means of promoting human welfare through activities that:
  • Educate and support the professional development of our members
  • Educate the public through disseminating and applying psychological knowledge
  • Maintain and build organizational strength
  • Advocate vigorously for public access to psychological services
Like so many professional associations with an educational outreach, PPA offers useful information to the public on its website:
  • Other Online Resources -- A brief list of links to psychological organizations, addiction-related websites, and other resources.
  • Multicultural Resource Guide -- a 25-chapter discussion guide about diversity: "This guide grew out of the desire to provide the psychological community and the citizens of Pennsylvania with information about the commonwealth's and the nation's ethically and culturally diverse populations with whom many psychologists interface and serve daily."
You can subscribe to PPA's very worthwhile, periodic "Public Information E-Newsletter" here to receive information & updates, such as the article that follows.

The Pennsylvania Psychological Association Offers Tips for Managing Stress

You have a nice house, a great job and healthy children, but somehow the prime of your life is starting to feel, well, less prime than you had imagined. Those Americans in the "sandwich generation" (ages 35 to 54) report the highest level of stress, according to a recent national poll by the American Psychological Association.

Caring for aging parents and simultaneously raising children can leave many 35 to 54 year olds with high and untreated levels of stress. In fact,nearly two out of five Americans 35 to 54 years old report extreme levels of stress (39 percent vs. 29 percent of 18 to 34 year olds and 25 percent of 55+), and experience their highest level of stress for 8.2 days of each month, compared to 6.5 days for 18 to 34 year olds and 6.9 days for those over 55.

Furthermore, members of this generation report that their stress negatively affects others, citing relationships as a top stressor. In addition, 81 percent cite work or workload and money and housing costs as an extreme source of stress.

"It's not surprising that so many people in that age group are experiencing stress," says Dr. Andrea M. Delligatti, President of the Pennsylvania Psychological Association. "The worry of your parents' health, and your children's well-being as well as the financial concern of putting kids through college and saving for your own retirement is a lot to handle. The key is recognizing your stress and implementing healthy behaviors to address it."

The Pennsylvania Psychological Association offers the following tips for parents:

Understand how you experience stress. Everyone experiences stress differently. How do you know when you are stressed? How are your thoughts or behaviors different from times when you feel calm?

Identify your sources of stress. What events or situations trigger stressful feelings? Are they related to your children, family health, financial decisions, work, relationships or something else?

Recognize how you deal with stress. Determine if you are using unhealthy behaviors (such as smoking, drinking alcohol and over/under eating) to cope. Is this a routine behavior or is it specific to certain events or situations? Do you make unhealthy choices when you feel rushed and overwhelmed?

Take care of yourself. Eat right, get enough sleep, drink plenty of water and engage in regular physical activity. Ensure you have a healthy mind and body through activities like yoga, walking, working out at the gym or playing sports. No matter how hectic life gets, you need to take care of yourself -- which includes making time for yourself -- so you have the mental and physical energy to care for your parents and children.

Find healthy ways to manage stress. Consider healthy, stress-reducing activities -- taking a short walk, exercising or talking things out with friends or family. Keep in mind that unhealthy behaviors develop over time and can be difficult to change. Don't take on too much at once.

Focus on changing one behavior at a time. Reach out for support. Accepting help from supportive friends and family can improve your ability to manage stress. If you feel overwhelmed by stress to the point where you cannot perform your daily activities, you may want to talk to a psychologist who can help you better manage stress and change unhealthy behaviors.

Learn your own stress signals. People experience stress in different ways. When you are feeling stressed, you may have a hard time concentrating or making decisions, feel angry, irritable or out of control or experience headaches, muscle tension or a lack of energy. Gauge your stress signals.

To learn more about stress and mind/body health, visit the Pennsylvania Psychological Association's Web site, or the American Psychological Association's Consumer Help Center.

Update: 02/26/08 @ Noon:

On February 22, 2008,
The Capitol Times (Madison, WI) posted an article that confirms, with studies & practitioner commentaries, the main point made by PPA above.

In "Midlife depression on upswing", reporter Anita Weier noted two recent national and international studies that support the point: "Middle age is proving to be an increasingly difficult time, when people can be overwhelmed with depression and even contemplate suicide" * * *.
An analysis of U.S. death rates by the national Centers for Disease Control and Prevention found that the suicide rate among 45- to 54-year-olds rose nearly 20 percent from 1999 to 2004, more than all age groups.

In 2005, the suicide rate for those age 35 to 54 was 31.4 per hundred thousand, and the rate for those age 35 to 64 was 45.3 per hundred thousand, according to the National Center for Health Statistics.

A study of 2 million people from 80 nations by researchers from the University of Warwick and Dartmouth College found an international pattern of depression and unhappiness in middle age. Those researchers found that the probability of depression peaked around the age of 44 for British people, while in the United States the peak of misery came at age 40 for women and 50 for men. * * *

John Martin, Ph.D., a psychologist at Psychiatric Services in Madison, was not surprised by the findings, because those in mid-life -- Baby Boomers in particular -- are facing a mass of stressful problems.

"We are seeing clinically folks in that mid-life range who are facing a sandwich situation, having kids at an older age and still some obligations to them, and having parents who require some care," Martin said. "There are relatively few resources available to really support that position. We have all kind of learned to put your nose to the grindstone, which isolates us more and takes us out of the sources of support that could combat depression."

The boomers are also facing financial stress and ever more multi-tasking at work, he said.

"This is expected at everybody's job, but it is really multi-interrupting," Martin said. "They are working really hard and not seeing much come back to them, in money or appreciation. They are not seeing results from their efforts. They come home after work and say, 'What did I do?'" * * *

Monday, February 25, 2008

Developments from Heckerling Institute, Pt. III

I now post Part III -- the final installment -- of Paul T. Fabiano's observations from the annual Heckerling Institute held January 14-18, 2008, in Orlando, Florida. Paul works with Cornerstone Advisors in Allentown, PA.

For the first two installments of his observations from the Institute,
see: PA EE&F Law Blog posting, "Developments from Heckerling Institute, Pt. I" (02/11/08), and "Developments from Heckerling Institute, Pt. II" (02/18/08).

I thank him for his contributions, which have been noted by other bloggers and appear widely read.

2008 Heckerling Highlights
Part III

Paul T. Fabiano, JD, LLB
Cornerstone Advisors

Planning for Retirement Plans

This presentation gave a detailed economic analysis of IRA stretching versus planning alternatives, such as withdrawing the benefits before death or rolling into a Roth IRA. The stretch IRA proved best in most scenarios along with a Roth conversion that had the highest return under Monte Carlo simulations.

There was also a scenario where paying estate tax and going down a generation, avoiding a spouse’s required minimum distributions, provided more to the heirs in the long run. The materials contain excellent forms for beneficiary designations and trust provisions.

1. Nonspouse Rollover: Although the Pension Protection Act of 2006 allows nonspouse beneficiaries to roll an inherited qualified plan into an IRA account (using the deceased’s life expectancy for required minimum distributions), the IRS is not going to require employers to accommodate this in their plans.[1]

2. Wash Sale Rules: Revenue Ruling 2008-5 confirmed that wash sale rules, which disallow recognition of losses when taxpayers repurchase the same security, extends to repurchases made in an IRA.

3. Other Resources: If a trustee’s discretion to make distributions to a surviving spouse require trustee to consider other resources first, consider adding language directing trustee not to consider resources beyond minimum distributions from retirement plan assets.

Transfers to Parents and Siblings

This presentation discussed how wealthy family members can efficiently make gifts to, or provide for, parents and siblings. In general, the primary means to benefit these family members are annual exclusion gifts, gifts to trusts with multiple Crummey powers, payment for medical expenses (including the portion of long-term care that is medically necessary) and education expenses, and payment in the ordinary course of business.

4. Use of Property: Again, considering Dickman, the scope of gift tax law for transfers of property is broad and could extend to rent-free use of real estate.[2] To reduce the possibility of the free use being deemed a gift, alternatives are joint ownership or trust ownership of the property.
  • Co-Tenants. Generally under property law, a co-tenant does not have an obligation to pay a co-tenant rent unless he or she “ousts” the co-tenant. Possibly, under this reasoning, the beneficiary co-tenant could be a mere one percent owner.
  • Trust Ownership. A trust could also work because it cannot make a gift to a beneficiary, but there is a challenge with funding it initially with the property.
Section 529 Plans

This presentation gave a unique look at considerations that planners should address in implementing and changing 529 plans. The laws governing these plans and rules by institutions offering these plans are still evolving. Be alert of potential consequences when changing ownership, naming new beneficiaries or moving the plan to another state.

5. Successor Owner: An often overlooked consideration is the successor owner of a 529 plan account. There are at least two issues to be aware of: (1) the account owner has no fiduciary duty to the account beneficiary (e.g., he or she could take the funds personally) and (2) the exemption from estate tax inclusion can be lost if the account is subject to transfer taxes or debts of the owner.
  • Trust as Owner. By making a trust the account owner, the account management then falls into a fiduciary role and can survive incapacity or death; however, be aware of the potential estate inclusion and exclude the account from payment of taxes and debts.[4]
  • Additionally, note that an Advance Notice indicates that trusts may no longer be permitted account owners.[5]
6. 5-Year Election: It appears the five-year election for contributions to a 529 plan pro-rates the gift automatically and the annual gift over the period cannot be varied. Additionally, be careful to make the election on a timely return or the first late return. The election cannot be made once a return has been filed for the year of the contribution.[6]

7. Beneficiary Changes: There are no tax problems with changing the beneficiary of a 529 plan account as long as the change is to “a member of the family” of the prior beneficiary and in the same generation. If the new beneficiary does not meet these criteria, the old beneficiary is deemed to make a taxable gift and may have to recognize income on the account earnings. It is interesting to note, however, the old beneficiary could then file a five-year election on the resulting gift.

Section 2053

As introduced in Part 1 of these highlights, the Treasury released proposed regulations to IRC §2053 significantly changing the way estate tax deductions are taken into account.
[8] There are currently differences among Circuits in considering post death events and these regulations are intended to end the uncertainty.

8. Contingent Claims: Under the proposed regulations, any contingent claims or deductions cannot be reported until actually paid.[9] Additionally, only bona fide claims can be deducted even if already paid. Accordingly, such claims must be paid and enforceable under state law.
  • Family Presumption. Family claims carry a rebuttable presumption that they are not legitimate and bona fide.
  • Recurring Noncontigent Payment. For recurring payments due in the future, which are not contingent (e.g., installment payments under a buy-sell agreement), the estate may deduct an amount equal to the present value of the future payments.
9. Estimated Amounts: An exception to the actually paid rule applies for claims that are “ascertainable with reasonable certainty, and will be paid.” Under the proposed regulations, this exception could apply to executor’s or attorney’s fees if reasonable and within accepted amounts in the jurisdiction.[10] If later not paid, the executor must notify the Commissioner and pay the resulting tax with interest.

Defined Value Transfers

With the new penalties for undervaluation of gifts, it is a good idea to use a defined value gift to reduce any risk.

10. Formula Gifts: Although the Service dislikes all types of formula gifts, a defined value gift has a base of authority and is superior to a gift adjustment clause.
  • Adjustment. An adjustment clause, which the 4th Circuit held to be void as against public policy, is where the amount of the gift is retroactively adjusted if the value is later found to be different than assumed.[11]
  • Defined Value. The defined value clause, which is sanctioned by tax law in other contexts (such as GRATs, allocation of GST exemption and marital deduction formulas), instead, defines the amount transferred with reference to the final valuation. Such a clause was upheld for a gift in the 5th Circuit.[12]
  • Pour-Over. A variation of the defined value clause, is to have the excess value, as finally determined, flow into another place such as to a charity. This removes the incentive for the Service to challenge the gift value and involves an interested third party to substantiate the value used.
  • Incomplete Gift. The defined value and pour-over could be taken a step further by having a trust purchase an asset from the client then divide into a sale share and an uncompleted gift share. The uncompleted gift share of the trust, as defined by formula based on the asset’s finally determined value, would grant back to the client a power of appointment.
11. GRAT with Trust: While the ability to adjust the annuity in a GRAT eliminates the gift tax risk of gifting hard to value assets (e.g., business interests), the return of a higher annuity through principal distributions may frustrate the client’s intent. If the client established another trust and gifts cash to it, the trust could loan the cash to the GRAT to make the annuity payments to client with no valuation risk. At the GRAT term end, the GRAT could repay the loan with its principal.

Trust Decanting

States statutes are beginning to allow the decanting of trust assets into another trust.
[13] This can provide a great deal of flexibility to address many issues, such as solving trust liquidity needs, reducing administration costs, modifying administrative provisions, changing state law or correcting drafting errors. These powers are different from modification statutes because the trustee is acting without the consent of beneficiaries.
  • Common Law: If not specifically authorized by client’s state statute, it is possible to apply ordinary common law principals to establish a new trust when the trustee has the discretion to apply principal “for the benefit of” the beneficiary.[14]
  • GST Impact. Be careful to consider any impact on GST exemption. The regulations provide guidance on the extension of an otherwise GST exempt trust.[15]
  • Income Tax Effect. Another tax consideration is triggering a gain if the beneficial interests of the new trust differ from the old trust. There may be more leeway on this issue under a decanting statute then if done by modification.
  • Beneficial Interests. There are varying state provisions in the decanting statutes requiring similar beneficial interests or standards of distribution. Also, consider whether a taxable gift can occur if a beneficiary who is giving up some portion of interest does not object to a decanting.
Trust Distributive Provisions

This presentation provided good insight into the selection of trustees, the terms of trust distribution and tax implications of different arrangements.

  • Incentive Trusts. In particular, there is great coverage and language addressing incentive trusts, such as for education or employment incentives.
  • Mission Statement. Although most planners do not spend a great deal of time on the standards of distribution, there is a very broad range of interpretations and applications in such language. Consider spending more time on what the standards mean to the client and possibly develop a mission statement for them to that effect.

[1] Notice 2007-94.

Dickman v. Comm., 465 U.S. 330 (1984).

IRC §529(c)(4)(A) .


Advance Notice of Proposed Rulemaking, released on January 17, 2008.



Prop Reg. §20.2053-1.

Prop Reg. §20.2053-4.

Prop Reg. §20.2053-3.

Comm. v. Procter, 142 F.2d 824 (4th Cir. 1944).

McCord v. Comm., 120 T.C. No. 13, 120 T.C. 358, 2003 WL 21089049 (2003).

New York, Alaska, Delaware, Tennessee, Florida, and South Dakota.

See, PLR 200530012, Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940); but see Third Restatement on Property (which seems to disallow this by providing a distribution power is not the same as a power of appointment).

Reg. §26.2601-1(4)(i)(A).
You may contact Paul at Cornerstone Advisors, 1802 Hamilton Street, Allentown, PA 18104 (Ofc: 610-437-1375; Fax: 610-437-4575; Email:

Friday, February 22, 2008

Medicaid Cuts in PA, Other States

On February 20, 2008, the Times-Leader (Wilkes-Barre/Scranton, PA) posted an Associated Press article entitled "Pa. nursing homes protest Medicaid reimbursement proposal", by Martha Raffaele, that reported reactions by nursing home operators to Governor Edward Rendell's one-year freeze for Medicaid subsidies, as contained in his budget proposal.

Nursing homes had agreed for two years to accept lower payments to help the state cope with budget crises, but the operators had believed future state reimbursements would fully cover the cost of caring for low-income Medicaid patients, said Anne Wantz, chief operating officer of the Pennsylvania Health Care Association.

"Not only does the governor's proposed 2008-09 budget not fulfill this promise, it goes in the opposite direction," Wantz said Wednesday during a Capitol news conference. "Because of the increasing costs of caring for ever sicker (Medicaid) residents, the zero percent increase ... is a cut in funding."

The state would maintain its current average daily reimbursement rate at $180 per resident under the state budget Rendell presented to lawmakers earlier this month.

Wantz's organization and other nursing-home groups are beginning a statewide campaign to push for more funding. Over the last three fiscal years, the state's Medicaid program paid nearly $290 million less than it owed for nursing home care, Wantz said. About 80,000 of Pennsylvania's 1.9 million Medicaid recipients live in nursing homes. * * *

The article, which also appeared in The Sentinel (Carlisle, PA), reported the administration's viewpoint in offering the proposal:
Officials are anticipating a more difficult budget year for 2008-09, and they have decided to maintain current levels of Medicaid reimbursements for all health care providers, with a few exceptions, said Michael Hall, deputy secretary of long-term living for the Department of Public Welfare.

"We're trying to figure out how to build a budget in an environment where it appears the economy is dropping into a recession," Hall said. "State revenues will likely be in decline by the time this budget is enacted." * * *

State officials forming a budget must react to fiscal pressures created by national economics & demographics that increase demand, and also by federal regulatory changes that intend reductions in program costs nationally. The level of benefits has outstripped inflation, and likely cannot continue in scope. See: PA EE&F Law Blog posting, "USA Today on Costs of Seniors' Programs" (02/21/08).

Kaiser Daily Health Policy Report issued by The Kaiser Family Foundation (KFF) on February 20, 2008, entitled, "New Medicaid Rules Will Hurt States During Economic Downturn, Critics Say", reported that similar stressful fiscal situations exist in other states.
Critics of Medicaid regulations that will begin to take effect on March 3 contend that implementing the rules during an economic downturn "will only worsen the fiscal situation for already strapped state budgets," CQ HealthBeat [Johnson, February 19, 2008) reports.

Speaking at a forum sponsored by the Alliance for Health Reform and the Kaiser Family Foundation's Commission on Medicaid and the Uninsured, Barbara Edwards of the National Association of State Medicaid Directors said that as the economy weakens, more workers are becoming unemployed and some are enrolling in Medicaid because they have no alternatives for coverage.

At the same time, state revenues are declining, and states are faced with more demands for Medicaid services and fewer resources, Edwards said, adding that the timing "almost couldn't be worse for states for many reasons." * * *
For descriptions, by state, of Medicaid programs and other useful online resources offered by the KFF, see: "State By State Descriptions and Plans"; and "State Medicaid Fact Sheets".

An excellent source of information online regarding Pennsylvania's application of the Medicaid program is the Pennsylvania Medicaid Policy Center, operated by the
Graduate School of Public Health, at the University of Pittsburgh. For background, see: PA EE&F Law Blog posting, PMPC's "Faces of PA Medicaid Program" (03/16/07).

The Philadelphia Inquirer published an article recently reflecting another form of Medicaid cost-cutting in Pennsylvania directed towards care providers.

"Medicaid will not cover errors in Pa." (01/28/08), Josh Goldstein reported: "Gov. Rendell said hospitals will no longer be paid for costs to correct serious medical mistakes."
Taxpayers will no longer pick up the tab for extra care due to serious preventable hospital errors, Gov. Rendell said yesterday, a move that continues Pennsylvania's status as a leader of the growing national push to reduce mistakes in health care.

The state Department of Public Welfare launched a program last week to identify and stop Medicaid payments to hospitals when patients are seriously injured by mistakes. The policy also prohibits hospitals from passing the charges on to patients.

The agency will review hospital bills for 27 so-called never events, such as operations conducted on the wrong patient, medication errors that result in death or disability, and bad blood transfusions.

"This is another milestone in improving the quality of care," Estelle Richman, secretary of the Department of Public Welfare, said at a news conference in Harrisburg yesterday.

Pennsylvania is among a handful of states, including Minnesota and Massachusetts, to enact such measures. * * *

The new PA DPW policy is set forth in Medical Assistance Bulletin No. 01-07-11, re "Preventable Serious Adverse Events", issued January 14, 2008 (6 pages, PDF).

The nursing home providers warn that they are being stressed to a point of crisis in their ability to provide the intended services, according to a quote in the AP article:
“This safety net is in danger of disappearing within a few years if a concerted effort is not made by the commonwealth to adequately fund our facilities,” [Claremont Nursing and Rehab Center (Carlisle, PA) Administrator, Joanne] Wible said.
Update: 03/02/08:

On March 2, 2008, The Morning Call (Allentown, PA) posted an editorial, entitled "
As Medicaid funds shrink, Pa. needs a plan", which highlighted the states' problems with Medicaid, as discussed last week in sesssions at National Governors Association:
The meetings of the National Governors Association follow a pretty standard agenda. The governors, Republicans and Democrats alike, discuss issues important to the statehouses and use the podiums that the association provides to make sure the federal government hears about them, too.

At the meeting held last week, the cost of health care was in the forefront. Specifically, the governors are worried about proposed cuts in Medicaid money to the states in President Bush's 2008-2009 budget.

Pennsylvania Gov. Ed Rendell joined other governors last week in asking Senate Majority Leader Harry Reid, Minority Leader Mitch McConnell, Speaker Nancy Pelosi and House Minority Leader John Boehner to block the implementation of new rules that would reduce federal dollars going to the states for Medicaid.

The pending changes were announced by the federal Centers for Medicare and Medicaid Services, CMS, which administers those programs. However, it isn't clear that Congress will be able to do anything. * * *
The editorial concluded:
Gov. Rendell has offered a plan to make improvements in the state's health-care plans and to cope with the looming Medicaid cuts.

Funding for his proposal would come from additional tobacco taxes and about $266 million over 10 years from the growing surplus in the ''Mcare fund,'' which was created in 2003 to help physicians pay for medical malpractice insurance. About one third of the Mcare surplus could be applied to Medicaid shortfalls, he said.

Given that the state has imposed other operating economies on Medicaid programs here, this is a sound proposal.

He needs the Legislature's support if all the poor, disabled and elderly Pennsylvanians who need Medicaid services are to be able to keep getting them as the dollars from Washington keep shrinking.

Thursday, February 21, 2008

USA Today on Costs of Seniors' Programs

On February 14, 2008, USA Today reported, in the article "Senior benefit costs rise 24% since 2000", by Dennis Cauchon, that "the cost of government benefits for seniors soared to a record $27,289 per senior in 2007."

That's a 24% increase above the inflation rate since 2000.

Medical costs are the biggest reason. Last year, for the first time, health care and nursing homes cost the government more than Social Security payments for seniors age 65 and older.

The average Social Security benefit per senior in 2007 was $13,184. * * *

The federal government spent $952 billion in 2007 on elderly benefits, up from $601 billion in 2000.

It's the biggest function of the federal government. States chipped in another $27 billion in 2007, mostly for nursing homes.

All three major senior programs — Social Security, Medicare and Medicaid — experienced dramatically escalating costs that outstripped inflation and the growth in the senior population. * * *

The USA Today article reported key findings of its analysis:

•Medicare experienced the most explosive growth from 2000 to 2007. The Medicare prescription drug benefit, started in 2006, accounts for about one-fourth of the increase in Medicare, which provides health benefits for people 65 and older.

•Long-term care costs per senior have declined slightly in the last three years because of a move away from nursing homes to less-expensive home care.

•The cost of senior benefits is equal to $10,673 for every non-senior household.

•About 35% of the federal budget is spent on senior benefits, up from 32% in 2004. * * *

In a related USA Today article by the same author, entitled "Price of seniors' care to soar as boomers age", the trend in spending on senior citizens is shown as accelerating substantially during the past seven years.

Now such spending represents the largest expenditure in the federal budget:

The federal government spends more on seniors than on any other group or program. Last year, states paid $27 billion of the $979 billion in senior benefits, primarily for Medicaid payments to nursing homes.

Federal spending in 2007 (billions) Percent of budget
Senior benefits $952.3 34.9%
Defense $552.6 20.2%
Interest on debt $237.1 8.7%

Sources: Office of Management and Budget; and USA TODAY research

Now here's the warning: Such costs will rise further as the "baby boomers" age.
The number of people ages 65 and older increased by 2.3 million to 36.5 million from 2000 to 2007, mostly because of increased life expectancy.

Seniors remained at 12% of the population during that time because of overall population growth.

That will change when the 79 million people born during the baby boom — from 1946 to 1964 — begin turning 62 this year and 65 in 2011. * * *

The senior population boom — combined with rising Social Security payments and medical costs — is projected to cause the cost of senior benefits to accelerate at an unprecedented rate. The government predicts that the cost of Medicare, the most expensive program, will double in the next decade. * * *
Such warnings have been sounded at the federal level by the Comptroller General of the United States since September, 2005, in reports & presentations. See: PA EE&F Law Blog posting, "GAO's Warnings about US Fiscal Future" (11/01/07).

Contrast the present fiscal situation, and the projections for increase in expenditures related to seniors, with another present fact reported by USA Today: "The Urban Institute estimates that kids receive an average of about $4,000 per child in benefits, including the child tax credit and other indirect assistance."

USA Today articles were discussed beginning on February 14th in postings on the AARP Bulletin Board, with varied responses. I recommend reading the comments in this debate, which will not be resolved easily.

These verified trends affect established federal programs that have created long-held individual expectations. But benefits expected by some, will create substantial burdens on others to fulfill. Future fiscal realities likely will compel adjustments to the programs.

What will be an acceptable realignment of payments to senior citizens versus taxation of younger generations? How can we balance elder care versus child development? These issues should be discussed constructively now, with a high priority for solutions that can be politically acceptable.

In my next posting, I will note how these issues and this debate are playing out in Pennsylvania right now, and also in other states -- in the context of their budgets.

Update: 02/28/08:

On February 26, 2008, The Wall Street Journal posted an article entitled "
Medicare Spending to Surge", by Jane Zhang (Page A3):
Government spending on health care could nearly double by 2017 to more than $2 trillion, according to a new federal study, reflecting a surge that promises to complicate the campaign debate about health care.

Driven by the aging of the baby-boom generation and rising costs of new drugs and medical technology, Medicare, the big federal health program for the elderly, will take up 20.7% of national health spending by 2017, according to the report. * * *
  • What's New: Government spending on health care is expected to nearly double by 2017 to more than $2 trillion.
  • The Reasons: Two main factors are driving up costs: the aging population -- especially baby boomers -- and the rising price of new drugs and medical technology.
  • What's at Stake: The latest data renews the spotlight on the question of how the government should pay for the bulging cost of health care. * * *

Tuesday, February 19, 2008

Estate Planning "Checklist for Life" Available

On February 14, 2008, the Pittsburgh Post-Gazette published an article by Tim Grant entitled "Bank puts estate planning checklist onto the Internet", which described a "Checklist for Life" (PDF, 7 pages) posted on the Internet by Huntington National Bank.

, through its bank based in Columbus, Ohio (but with 61 branches in Pittsburgh & Western Pennsylvania), appears to be one of the few financial institutions that has posted publicly & freely a personal financial inventory form that could assist in scoping out personal financial & estate planning matters.

The article notes the usefulness of such an inventory form for an individual:

The only way to have peace of mind knowing that your affairs are in order and all property will be passed on according to your wishes if you were to die is to have an estate plan. * * *

Yet these seniors often do not have an estate plan because they don't think they're wealthy enough for one. Still, talking to family members about death and dying can be among the toughest conversations to have.

But managers at Huntington Bank have created a
Checklist For Life to get the conversation started. * * *

Such checklists are commonly used by lawyers and financial planners, but are not commonly placed on the Internet. * * *

The article quoted an officer of the Bank, who explained why the institution posted the form publicly:

"We did the Checklist For Life because it's the first step," said Tom Oehmler, senior vice president and regional manager for Huntington Bank, Downtown.

People who will be transferring their wealth need to understand where they are right now in terms of their net worth, what they own, how they own it and what they want to happen to it at the end of their lives.

The Checklist For Life is a tool they can use to pull all that information together in one place, Mr. Oehmler said.

"The more important thing from our perspective is that families have this discussion," he said. "If parents are going to pass assets to their children this will help them have that discussion to see what their financial picture is." * * *

Answers.Com describes the components of a basic Personal Financial Inventory, as follows:

Detailed descriptive list made available to the survivor(s) of the insured showing: attorney, accountant, insurance agent, and location of important documents such as wills, power of attorney, property deeds, insurance policies by account number, bank accounts by account number, investments by account number, loans by account number, credit cards by account number, and any other important financial papers. Safe deposit boxes and keys location should also be listed.

The Huntington personal financial inventory form joins a few others -- available in text, PDF, or software formats -- that I found on the Internet:

  • Financial Inventory (process explanation), posted by Financial Freedom Made Simple -- "The first step on the way to financial freedom is to take inventory of your current situation. This is important because you need to know where you are at to be able to make a plan of where you are going to go. Taking an inventory means getting a detailed overview. It is not complicated and do not have to have fancy equipment or special programs. Start by doing it simple. You will need to write down everything you owe and everything you own. * * *"
  • My Financial House – Personal Finance Software™, posted by the Insurance Information Institute -- "This free software enables you to take an inventory of your financial situation and track progress towards your financial goals. Once you complete your financial inventory, you can share it with your accountant, financial advisor and/or attorney – someone you trust – to help you plan for your future, so that even in an emergency you will know if your financial house is in order. You can also email your inventory and save it to a disk to store it for safe keeping. * * *"

The article noted the value of a personal financial inventory, when it quoted a representative of TIAA-CREF, a national financial services company with a Pittsburgh office.
Patrick Kennedy, head of wealth management services for TIAA-CREF, said, "Even if you have a small estate there are some basic things you can do, like making sure you have an inventory of your assets."
That is how the Huntington personal financial inventory form (and others like it) can be used: "It has been developed to help you organize all of your financial information or your parents' financial information in one place."

Update: 02/21/08:

Professor Gerry W. Beyer noted this posting by his own on the Wills, Trusts & Estates Prof Blog entitled
‘Checklist for Life’ – A Useful Tool in Estate Planning (02/21/08).

Update: 07/31/08:

I encountered a few more useful estate planning questionnaires/worksheets available online: