Saturday, December 10, 2011
Doctors and elderly patients
A commenter (herself a physician) makes an excellent recommendation, based on her experience in helping her elderly parents as they visit their primary care doctors: she writes out her parents' medical history, including current medications and dosages. She lists the main complaint, any related complaints, how long the problem has persisted, the tests that have been done, and the results. The parent takes this sheet to the doctor's office, so it helps to guide him in his assessment of the problem.
Being a physician herself of course makes it easier for her to do this, but it can be done by any reasonably knowledgeable adult.
It would also be helpful for the doctor to do the same thing: prepare a written sheet, providing his diagnosis (and an explanation about it), his recommended treatment, and when to return for followup, that his patient can take with him to help with discussions with his family.
Tuesday, November 22, 2011
Case report: IRAs and money judgments
In conformance with the principle that "hard cases make bad law", the circuit court's ruling and reasoning were quite clumsy and difficult to decipher. The facts of the case were particularly egregious. Blodgett, who worked for Vinyl Tech as its comptroller, had embezzled large sums of money and diverted the funds to a company owned by her husband. The circuit court entered a judgment in favor of the employer in the amount of $1.72 million against Blodgett, her husband, and his company.
The circuit court opinion indicates that the husband had created a number of IRAs through some form of trust arrangement. It appears but probably was never proven that most of the funds ending up in the IRAs originated from the embezzled funds. It also appears that the circuit court had entered an early order freezing the funds held by the defendants; it noted that the creation of the IRAs had been done in violation of its order.
In its opinion, the Court of Appeals noted an early Michigan case, Long v. Earle, 277 Mich 505, 511-512 (1936), in which the Michigan Supreme Court had held that, despite the statutory homestead exemption from execution on judgment, one cannot embezzle money, buy a homestead with the proceeds, and then try to claim the exemption.
The problem in applying the Long case here may well have been the uncertainty whether the funds used to fund the IRAs were traceable to the embezzled funds. Since the embezzlement had gone on for many years, it is likely that that had been the case, but it does not appear that the plaintiffs were able to establish that that had occurred.
Rather than accept some of the questionable rationales pronounced by the circuit court, the Court of Appeals upheld its decision based on the defendants' failure to cooperate with a number of post-trial proceedings. They did not respond to discovery requests, they failed to appear for a creditors' examination, and they tried to prevent the discovery of assets that had been transferred to relatives. As a result of this behavior, the Court ruled, they had failed to meet their burden of proof of demonstrating that they were entitled to the exemption. The order that the funds be paid over to the judgment creditors was upheld.
Full text of case (PDF)
Saturday, November 19, 2011
Supreme Court upholds most of the pension tax
The court did find that the provision that phased out eligibility for the exemption for higher-income taxpayers did create a graduated income tax, in violation of Article 9, section 7 of the state constitution. This part of the new law will need to be redone or eliminated.
The state of state estate taxes
Michigan currently has neither an estate tax or an inheritance tax. To quote Shel Silverstein, Michigan "is tough on the living", but it leaves the dead pretty much alone.
The Federal government currently applies a $5 million per person exemption to its estate tax. There is no Federal inheritance tax.
Friday, November 4, 2011
Reasons not to do it
- Once a parent puts a child on the title of the home as a joint owner, the child is from that point forward a full joint owner. The parent cannot later decide to sell the house, rent it out, or seek a mortgage or home equity line from a bank or credit union, without the agreement of the child.
- An older parent who is facing the prospect of admission to a nursing home in the next few years will find that the act of adding a child as joint owner of the home will be regarded by the Department of Human Services as a partial divestment of property, and this will result in a period of ineligibility for Medicaid benefits.
- Depending on the circumstances, the creation of a new joint tenancy may result in the inadvertent “uncapping” of the taxable value of the real estate, resulting in higher property taxes.
- If the child who is added as a joint owner later has a judgment entered against him by a court, the judgment will have to be paid if the house is to be sold - even though the parents were the ones who paid for the house.
Under the General Property Tax Act, there is a limit (“cap”) on increases to property tax assessments while the property remains under the same ownership. In most cases, a transfer in ownership removes that limit and allows for “uncapping” the assessment, often leading to a higher property tax liability. The law provides for a number of exceptions.
The March 2011 decision of the Michigan Supreme Court in Klooster v. City of Charlevoix changed the general understanding of how and when the creation, modification, or termination of a joint tenancy will uncap assessed value.
Under the newly clarified rule explained in that case, you will not uncap the taxable value of the property by adding one or more new joint tenants if
- you or your spouse were an owner immediately after the most recent uncapping event and
- you have remained as an owner continuously since then.
Update 1-24-15: John Payne's article The Curious Case of the Persistent Step-Up deconstructs a myth that misleads many lawyers. So long as the property is included in the decedent's estate, the surviving joint will still receive the step-up in basis. Thus capital gains considerations should not affect the decision on whether to use this probate avoidance technique.
Sunday, October 30, 2011
State tax credits expiring in two months
The fact that these are credits essentially means that you can redirect that much of your state tax payments to these recipients.
The complete listing of public agencies, from the instructions to the state tax return:
Gifts qualify for credit if given to:
• Michigan colleges or universities and their fund-raising organizations
• The Michigan Colleges Foundation
• The State Art in Public Places Fund
• The Michigan Historical Museum
• Michigan public libraries
• Michigan public broadcasting stations
• A Michigan municipality, or a nonprofit corporation affiliated with a Michigan municipality, for an art institute in that municipality or to benefit the art institute (art institutes are those whose primary function is the displaying and teaching of visual arts)
• The State of Michigan for the preservation of State archives.
Wednesday, October 26, 2011
Social security planning
Thursday, October 20, 2011
Retirement plans and creditor claims
Tuesday, October 11, 2011
A real bucket list
- insurance policies, with policy numbers, names and addresses of agents, and locations of policies
- bank accounts, brokerage accounts, and retirement accounts, with account numbers and contact information for custodians
- e-mail logins, passwords for social sites and online accounts
Sunday, October 9, 2011
Reasons to keep the home out of the trust
Medicaid planning - if the client is concerned about qualifying for Medicaid in the event of a nursing home admission, the home held by a trustee is non-exempt in Michigan.
Home loans - for mortgages, refinanced mortgages, and home equity loans, the lender will not lend and title insurance will not insure a home held under a trust.
In both instances, the recommendation is typically to transfer the home out of the name of the trustee, finalize the needed transaction, then transfer the home back to the trustee. Unfortunately, as described in this item, clients sometimes forget to do the last transfer. Worse, sometimes they are not aware that the transfer took place. Either way, the client's planning has been disrupted, and this can often lead to undesired results.
For these reasons, it is often recommended that the home not be included in funding a revocable trust.
Sunday, October 2, 2011
I just inherited an IRA. Now what?
- The participant is the original owner of the IRA, the person whose earnings were contributed while working.
- The designated beneficiary (DB) is a person who has been properly named on the account. The DB must be a natural person or, if properly designed, a trust.
- The contingent beneficiary is a person who has been named as such. If the DB predeceases the participant, the person named as contingent beneficiary succeeds and has the rights of the DB as described below. Note that the contingent beneficiary has no interest in the account if the DB dies after the participant.
- The life expectancy of a participant or beneficiary is calculated using formulas and tables that the IRS has devised for this purpose.
- The required beginning date is the date by which the participant is required to begin taking distributions from the account. It is defined as April 1 of the year after the participant "reaches age 70½".
- If there are two or more people named as DB, the life expectancy of the oldest must be used. Alternatively, the account may be divided into two or more separate accounts, and the separate life expectancy of each will govern his part.
- Dividing the account is a way to keep the ability to stretch out distributions if a charity has been named as one beneficiary. There is a time limit for doing this.
More: The Zucker Law Firm discusses the Five Options available to beneficiaries
Saturday, September 24, 2011
Scott Adams on investing and planning
Wednesday, September 21, 2011
- $60,000 in value for all motor vehicles, MCL 257.236(2)
- $100,000 for all boats and watercraft, MCL 324.80312(3)
Tuesday, September 20, 2011
Obama's plan to limit charitable contributions
- A donor gives a public library a $1,000 gift.
- Under current law, the $1,000 is a deduction from taxable income
- The net effect is that he saves $350 on his taxes. The net cost of his gift is $650.
- Under the proposal, the savings would be limited to 28%, or $280. The net cost of his gift is $70 higher.
Tuesday, September 13, 2011
Divorce and IRAs
- The account must be transferred, not distributed. If the funds are paid from the account, it is a distribution, and this is a taxable event. A distribution from the account cannot be rolled over, as with an rollover from a qualified plan to an IRA.
- The transfer must be ordered by a court, in
- a decree of divorce
- a decree of separate maintenance, in states which recognize such decrees
- a written agreement "incident to" (incorporated in) a judgment of divorce or separate maintenance
- A written separation agreement or a court's support order which is not incorporated into one of the orders identified above is not sufficient to meet the requirements of Section 408(d)(6).
"It is further ordered that the interest of the Husband in the Individual Retirement Account number 94-98334 maintained with the Michigan National Bank is hereby transferred to the Wife and shall be held as her account as provided in Section 408(d)(6) of the Internal Revenue Code."
Wednesday, September 7, 2011
Using life insurance in cottage succession
The original purchase of a cottage, as with the purchase of any big-ticket item, is an economic decision. If you are looking at a cottage that will cost you $100,000, you may choose to buy if you want the cottage more than you want to keep your $100,000. You will do so, of course, only if you believe that you have the resources to make the payments that will be needed to keep it in good condition going forward.
Like most owners, you will want your children to enjoy it after you are gone. But what you want and what your children will want, when the time comes, may be very different.
A child who succeeds to the interest of the original buyer through inheritance may not feel he is making an economic decision with immediate consequences. He will soon find, however, that the costs of upkeep are a significant expense to him. And if he is not using it as often as his co-owners, he may resent being expected to share those costs equally.
One way of dealing with the acquisition in an inheritance scenario is to make the issue of succession an immediate economic decision for the beneficiaries by the use of life insurance. Make the beneficiaries decide, at the outset, whether they really want to participate in owning and using the cottage.
Let us assume that D has four children and owns a 100% interest in an LLC whose sole asset is a cottage worth $100,000. He buys insurance on his life with a $100,000 death benefit. The proceeds are payable to the LLC. The LLC is directed to use the funds to buy out the interests of those who do not want to inherit the cottage. The remaining funds will be used to pay for upkeep and repairs.
Using this approach, each child may opt to receive $25,000 in cash if he prefers to do so instead of continuing as a member of the LLC. Each beneficiary will decide at the outset whether a partial interest in the cottage is worth more to him than the $25,000 in cash. The beneficiaries who remain get a better deal: a partial interest in the LLC which owns the cottage and has the remaining funds.
Of course, once the funds are used up, the remaining member(s) will have to contribute to repairs and upkeep.
Friday, September 2, 2011
Focus on a graying America
Wednesday, August 31, 2011
Family fight in a country song
Tuesday, August 23, 2011
Sunday, August 21, 2011
Thursday, August 18, 2011
Michigan's "new" state tax on retirement distributions
Michigan has not adopted a new tax. Pension distributions were subject to tax previously, but there was a fairly high exemption. What Michigan has done is significantly lower the exemption.
One justification that has been made for this step is that the exemption of distributions was inconsistent with the overall structure of retirement plans. IRAs and 401(k) plans are built up with untaxed money. The contributions are not taxed at the time they are made. Rather, the funds grow (if the participant is fortunate) and then are taxed only when they are distributed. That is what happens at the Federal level. All such distributions are taxed as ordinary income. At the state level, where other income is taxed at a flat 4.35% after the application of the personal exemption, the distributions from those accounts were not taxed under previous law until they exceeded $45,120 per person, or $90,240 per couple.
The newly-adopted plan has several exceptions and limitations:
- It does not apply at all to those who will be 67 or older by the end of 2011. For them, the current exemptions will remain in effect.
- The exemption is reduced to $20,000 per person, $40,000 per couple. For those earning more than $75,000/$150,000, that exemption is phased out.
- For those who are 60 to 66 by the end of 2011, those figures apply beginning in 2012.
- For all others, that exemption will apply only after age 67. Any distributions between ages 60 and 67 will not have any exemption other than the small state personal exemption. (The thinking apparently is that most people will not be living on retirement income until age 67.)
- After age 67, the taxpayer may elect to have the tax apply to his social security benefits instead of pension distributions.
- Significantly, social security benefits (unless the election is made) and military pensions will remain entirely exempt.
There have been legislative proposals to add police and firefighter pensions to the exempt list.
More: The state's information site.
Monday, August 15, 2011
Responding to Buffett
Warren Buffett's Very Strange Tax Argument, in which Tim Worstall notes that Buffett's comments ignore the effect of corporate income taxes, which are paid before dividends are paid to shareholders.
The Real Reason Warren Buffett's Taxes Are Low in which Peter Reilly makes a very simple point: Berkshire Hathaway, Buffett's company, simply does not pay dividends at all. The company's famous investment strategy is to buy and hold - seemingly forever.
Saturday, August 13, 2011
Medicaid and home care
A pair of related stories on NPR on the question of whether the Americans with Disabilities Act requires that Medicaid pay for care at home for those who do not require care in a nursing home environment. The case of Olmstead v. L.C., decided by the U.S. Supreme Court in 1999, is cited in support of that position.
Care At Home: A New Civil Right (Dec 2010)
At 88, A Chance To Be Independent Again (Aug 2011)
Several law review articles on this topic by Michael Perlin, who has a penchant for titles based on Dylan lyrics:
Their Promises of Paradise: Will Olmstead v. L.C. Resuscitate the Constitutional Least Restrictive Alternative Principle in Mental Disability Law?
37 Hous. L. Rev. 999 (2000)
I Ain't Gonna Work on Maggie's Farm No More: Institutional Segregation, Community Treatment, the ADA, and the Promise of Olmstead v. L.C.
17 T. M. Cooley L. Rev. 53 (2000)
What's Good is Bad, What's Bad is Good, You'll Find Out When You Reach the Top, You're on the Bottom: Are the Americans with Disabilities Act (and Olmstead v. L.C.) Anything More Than 'Idiot Wind'
University of Michigan Journal of Law Reform, Vol. 35, Pp. 235-261, 2001-2002
Friday, August 12, 2011
To roll over or not
Saturday, August 6, 2011
Packers succession planning
An item of interest to many in the U.P.
Tuesday, July 26, 2011
Planning for "virtual" assets
"These. . . death and disability issues begin to arise when they were not previously anticipated. As time goes on, we can anticipate that online communities and document custodians will come to add new provisions to deal with the online property of deceased or disabled owners. Facebook’s new initiative is a start, but there are still several needs left unaddressed."More and similar:
PINs that Needle Families - Wall Street Journal - 7-23-11
Wednesday, July 20, 2011
Debts of the decedent
- If the parents are residents of a community property state - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin - then the mother would have a responsibility to follow up on these debts.
- If they live elsewhere, then she has no legal responsibility for the debt.
- She may still feel a moral obligation to make good on the debt.
- She needs to know about the arrangement, because she is likely to be contacted by the creditors, and is likely to be give false information suggesting that she has a legal obligation to continue to pay on the accounts.
- Both of them should consult with counsel regarding their rights and obligations.
- Any debt which is secured (car loans, mortgages) must still be repaid. If it is not repaid, the property securing the debt can be seized and sold.
- Any debt which is unsecured must be repaid from the probate assets of the deceased, or from his trust assets.
- If there are no such assets, then the creditor will not be able to collect.
- Is my family responsible for my debts? at the AARP web site
- Debt After Death: Banks Chase Down Mourners - CNN
- The Michigan statute governing payment of life insurance benefits - MCL 500.2207 - makes special provision for certain beneficiaries, but not for others.
- Intestate succession
- Real estate ownership - joint tenancy, life estates, LLCs
- Conservatorships and Guardianships
- Powers of attorney
- Medical directives and patient advocate documents
- Lifetime gifts to children, grandchildren and others
- Estate administration
- Trust administration
- Asset protection
- Charitable bequests
- Retirement accounts (pensions, IRAs, 401(k) plans)
- Retirement planning
- Elder law
- Medicaid planning
- Medicare issues
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