MAY 2008

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.

Deficit Reduction Act Update. The Indiana Chapter of the National Academy of Elder Law Attorneys has determined through conversations involving the Indiana Family and Social Services Administration that implementation of the DRA will occur "soon." What that means is anyone’s guess. Nevertheless, it is likely that DRA implementation will occur by the end of the year. In the meantime, my clients and others who are following these developments should continue to monitor their planning arrangements in light of the prospect of DRA implementation.

Developments In Trust Taxation. The IRS recently issued Notice 2008-32, 2008-11-IRB, concerning the treatment of investment advisory fees subject to the two percent floor (i.e., as in the case of individuals, such "miscellaneous" deductions are only deductible to the extent that they exceed two percent of adjusted gross income or "AGI"). It should be noted that the U.S. Supreme Court held earlier this year that investment advisory fees paid by a trust are deductible only to the extent that they exceed two percent of the trust’s AGI. The IRS issued last year proposed regulations providing that investment advisory fees incurred by an estate or a non-grantor trust would be subject to the two percent-of-AGI floor and that if an estate or non-grantor trust paid a single fee that included both costs, it would have to use a reasonable method to allocate the single fee between the two types of costs (i.e., the trust would have to "unbundle" the costs). The IRS is planning to issue final regulations consistent with the Supreme Court’s recent holding, but in the meantime, Notice 2008-32 provides that taxpayers do not have to determine the portion of a "bundled" fiduciary fee for any tax year beginning before January 1, 2008.

In Revenue Ruling 2008-22, the IRS determined that the corpus of an irrevocable trust that was created by a grantor during his life would not be included in his estate for federal estate tax purposes under either IRC § 2036 or IRC § 2038 even though the grantor retained the power, exercisable in a non-fiduciary capacity, to acquire the property held by the trust by substituting other property of equivalent value. In the circumstances of the subject trust, the grantor was barred from acting as the trustee, and under the applicable state law, the trustee had a fiduciary obligation to insure that the properties being changed were of equivalent value. For that reason, the grantor was not deemed to have a power that could affect the ultimate disposition or enjoyment of the trust that would cause federal estate tax inclusion in his estate.

ElderLawAnswers Reports Of Interest. Several recent reports were issued by elderlawanswers.com which readers may wish to refer to for additional information. One report concerns a 2008 survey by Genworth Financial which finds that costs for nursing homes, assisted living facilities and some in-home care services have risen significantly for the fifth consecutive year in a row. According to the survey, a private room in a nursing home now costs $76,460 a year, or $209 per day, a 17 percent increase since 2004. A semi-private room in a nursing home is now $68,408 a year. Of course, the costs in Indiana will vary and will be less in many areas, but Indiana costs have continued to escalate as well. For additional information, refer to http://elderlawanswers

.com/resources/article.asp?id= 6898&section=4.

In addition, the federal Centers for Medicare & Medicaid Services (CMS) announced that its website comparing nursing homes will now identify facilities that are on its list of those that have a history of poor performance. Troubled facilities are identified. A Wall Street Journal article is also noted, which suggests that nothing can substitute for visiting the nursing home in person. For additional information, again refer to http://elderlawanswers.com/resources/article.asp?id=6898&

section=4 to locate that commentary.

Common Planning Errors. What are the most frequent mistakes made in the area of estate and business planning? Some of the more common errors are as follows: