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.

Is A Reverse Mortgage Right For You? A reverse mortgage is one of the "home equity conversion" (HEC) options by which a home owner may "convert" the home's equity into additional spendable income. The most common HEC is a reverse mortgage (RM). There are many different types, but in general, interest is added to principal each month, and the total debt will increase over time, with the "principal" being pulled out by the borrower either in a lump sum, monthly, or sporadically. The principal and accumulated interest is not due until the home sells or the homeowner dies. An RM can affect public benefits such as Medicaid and SSI. The cost of implementing an RM is very high relative to other loans. Also, the aggressive marketing of RMs has made seniors vulnerable to predatory lending practices. Government Accountability Office (GAO) investigators have examined the issue of counseling, attending counseling sessions in diverse regions around the country, and found that adequate oversight by HUD has not been implemented, counselors failed to strictly comply with applicable statutes and have omitted information required by HUD, and borrowers did not have adequate information to make informed decisions.

There has also been a problem with cross-selling to RM borrowers. Because the borrower will have access to large sums of money from the mortgage proceeds, they have been targeted for the sale of inappropriate financial instruments, such as annuities and life insurance. It should be noted that there are proprietary, or private, reverse mortgages offered by the private sector, which are not HUD approved and not FHA insured. Because RMs are complicated, can affect public benefits, and may not be appropriate for many individuals, and because there are other options, I recommend that people not only be certain that they understand them before making any decision, but that they also evaluate other options and involve their immediate family in considering the other alternatives which are available. It is possible to work out different arrangements and even private reverse mortgage loans between family members that can be very flexible, considerably less expensive, and allow the family to control the residence and the wealth of the RM borrower without necessarily adversely affecting public benefits.

Why Bother To Plan? As noted in my previous newsletter, there is currently no federal estate tax and no generation-skipping transfer (GST) tax. Of course, most planners believe that the federal estate tax rules will return, although with exemptions at such a level that many people may feel that planning may be irrelevant for the foreseeable future. However, for both tax and non-tax reasons, that opinion could not be further from the truth. Without regard to the federal estate tax rules, which may or may not apply to certain individuals, a myriad of other laws and regulations exist which suggest the need for comprehensive planning. The effect of federal and state income tax laws and regulations must also be taken into account, in particular when the asset being disposed of is a qualified benefit, such as an IRA or 401(k). People who assume that a last will and testament can address all of their planning concerns are deluding themselves, since a person's last will and testament will have no effect on the individual's life insurance, annuities, or other contractual benefits, such as an IRA or 401(k), which all will pass by a beneficiary designation. Further, having those assets pass through your estate, to be disposed of by your will, can create some significant probate complications and tax costs. It is always necessary to coordinate the many ways that property can pass, such as through beneficiary designations, pay-on-death (POD) and transfer-on-death (TOD) payee designations, and contractual dispositions through trusts, to be consistent with the individual's last will and testament. Although every person should have a last will and testament, it is my opinion that the most important legal document for individuals to have is a comprehensive and well thought-out durable general power of attorney.

The next few issues of this newsletter will address several aspects of planning which are often overlooked. Many estate-planning professionals emphasize concepts which are designed to appeal to the wealthy, since it seems that many financial advisors are seeking out the wealthy client rather than trying to help the typical person deal with their own complex issues that are rarely adequately addressed by taking a holistic approach to planning, and emphasizing less the concept of "estate-planning," and concentrating more on issues relating to lifetime and asset protection planning and dealing with the issues of incapacity and long-term care. After all, it is more likely that at any given point in time, at the age of 2 or at the age of 92, that you will be incapacitated rather than that you will die at that particular point in time. To disregard those areas of concern is a fool's folly.

2010 Medicaid And Medicare Amounts. It has been quite some time since we have referenced some of the applicable Medicaid and Medicare factors which are important for planning and reimbursement purposes. The following are some of the relevant figures: