The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

DRA Status And New Senate Bill Signed Into Law. Although no developments have occurred concerning implementation of the DRA, I am happy to report that Senate Bill No. 301 was signed into law. This new law will be effective October 1, 2009. It disallows regulations to be adopted concerning transfers of property to the extent that the transfer occurred before the effective date of the new regulations. Some are interpreting the new rule to provide that planning transactions implemented before October 1, 2009 will be safe from more restrictive rules that will go into effect after that date. In any event, the effect of the new law should be that the current three-year look-back period will apply to non-trust transfers, at least until October 1, 2009, or until new rules are implemented after that date. Any new developments regarding the DRA as well as other related changes will be reported in future newsletters.

Charitable Giving Discussion Continued. The April 2009 issue of this newsletter commenced a discussion about certain charitable giving techniques. It was stated that it may be possible for you to make gifts, even of significantly appreciated property, and to retain a benefit from the gift through a trust or annuity arrangement. Two ways of retaining an interest include the charitable remainder trust and the charitable gift annuity. With a charitable remainder trust, the trust creator transfers assets to a trust and retains a right to the income. After a period of time, or at the creator's death, the remaining trust assets (the "remainder") will pass to one or more qualified charities. If the creator retains a fixed percentage of the value of the trust assets to be determined each year, such as five percent of the trust value, then the arrangement is called a "charitable remainder unitrust." If the creator retains an annual amount based on the initial value of the assets transferred to the trust, then the arrangement is called a "charitable remainder annuity trust." In either case, the creator can deduct as a charitable deduction for federal income tax purposes an amount equal to the present value of the charity's remainder interest. These arrangements can be relatively complex and there are different rules for the two types of charitable remainder trusts. For example, with a charitable remainder unitrust, additional contributions are permitted later, which is not allowed for a charitable remainder annuity trust. In either case, substantially appreciated property can be transferred, and the property can later be sold without incurring capital gain tax. The donor may deduct a significant amount based on the present value of the charity's remainder interest, even though the donor will continue to receive distributions from the trust based on the annuity amount or the unitrust percentage for a period that could be as long as the creator's lifetime.

A charitable gift annuity is similar but simpler to implement and does not offer as many planning opportunities. In effect, an amount is transferred to a charity, and the donor retains an annuity amount for his or her life, or for the life of the other income beneficiaries. Deductions are allowed similar to those afforded by charitable remainder annuity trusts. However, charitable gift annuities are easier to implement, and much smaller amounts can be used to fund the trust. There are many special rules, such as allowing not more than two annuitants to receive annuity payments. If the charitable gift annuity is funded with appreciated property, the capital gain is reduced but not avoided, and the gain incurred is spread over the donor's life expectancy.

As also mentioned in the April 2009 newsletter, a special benefit is available through the end of 2009, which allows an owner of a traditional or Roth IRA to direct the custodian to make distributions directly to public charities. The amounts are limited to $100,000 in the aggregate. These amounts can be excluded from income, and as a consequence no charitable deduction is allowed. This exclusion is available only to IRA owners over age 70 ½, and who are not participants in other plans, such as 401(k) or 403(b) plans. A direct transfer is required from the account custodian. Withdrawals cannot be taken by the account owner and then transferred to a charity. An advantage of this special technique is that the IRA distribution is not included income, and thus does not increase the participant's adjusted gross income, which would impact the amount of the beneficiary's medical or miscellaneous itemized deductions. A future edition of this newsletter will continue this discussion of charitable giving techniques.

Return Of Premium Term Insurance. The principal advantage of term life insurance is that pure life insurance is being purchased, which results in term insurance having the lowest cost of any life insurance product. However, there are problems and risks, since term insurance becomes more expensive as people become older, and of course there is the risk that a premium might not be paid, resulting in the termination of the insurance. Return of Premium ("ROP") term insurance includes a rider, which costs an additional premium, guaranteeing the full tax-free return of all premium payments. ROP insurance also accumulates cash value. If a premium payment is not made, then a premium loan can be made directly from the cash value of the policy, thus avoiding a lapse of the policy. ROP policies are often promoted as offering a means of supplementing retirement benefits, which may be more important in the future because of the dubious status of social security. The total premium for an ROP policy compared to a term policy can approximate or exceed twice the straight term premium. However, the rate of return on the premiums paid is fairly good in light of current investment returns in other markets. When considering insurance options, you should be certain to talk to your insurance advisor about the potential advantages of ROP term insurance.

Second Annual Mid-America Institute On Aging. Southwestern Indiana Regional Council on Aging, Inc. ("SWIRCA") and the University of Southern Indiana College of Nursing and Health Professions will be sponsoring the second annual Mid-America Institute on Aging on August 12 and 13, 2009, at the Health Professions Center on the University of Southern Indiana campus. This program will offer continuing education as well as information for health professionals and persons interested in issues surrounding aging. I will be presenting "Asset Preservation and Planning for Long-Term Care" on Wednesday, August 12, 2009, from 1:00 p.m. - 2:15 p.m. Those who are interested should be alert to news releases or should contact SWIRCA or USI.

A Brief Update On Healthcare Advance Directives. In Indiana, healthcare advance directives typically include (i) a power of attorney for healthcare and/or an appointment of healthcare representative designation, (ii) a living will, and (iii) a HIPAA (Health Insurance Portability and Accountability Act) authorization. These documents are interrelated, and all play a part in healthcare decision-making. Contrary to popular belief, the execution of a living will does not resolve the right-to-die dilemma in situations such as those demonstrated by the Schiavo, Cruzan or Quinlan cases. A living will only expresses an individual's wish to be allowed to die naturally and with dignity when he or she has been diagnosed with and certified to have a terminal condition, which generally means that death will occur within a relatively short period of time, such as six months. The seminal cases of Schiavo, Cruzan and Quinlan all involved young women who were existing in an irreversible coma or a persistent vegetative state, which is a condition not covered by a living will. Consequently, the most important health care document for people to sign is the power of attorney for health care, which in Indiana will designate a health care representative (and may include a separate or combination appointment of health care representative document), which will address all health care conditions. The HIPAA authorization is merely a document designed to facilitate obtaining access to protected health information by family members and designated healthcare decision-makers. I tell virtually all of my clients during the course of our planning discussions that more misinformation exists concerning healthcare advance directives than virtually any other legal area. Readers are encouraged to consult my website for additional information.