OCTOBER 2023
CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
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.
2024 Best Lawyers in America. I am pleased to announce that I have again been selected for inclusion in The Best Lawyers in America for exceptional work in Trusts and Estates. The 2024 recognition list was released on August 17, 2023. Best Lawyers has been regarded for more than 40 years as the most credible measure of legal integrity and distinction in the United States. It is based on a comprehensive peer-review survey. During the current year, almost 25,000 people responded to the survey. Fewer than 5% of attorneys in practice are recognized for inclusion in The Best Lawyers in America. I have been included as one of the Best Lawyers every year since 2009.
Common Asset Protection Planning Errors – Continued. Continuing our discussion of some of the common asset protection planning errors that people make, one error is the mistake of applying for Medicaid too soon in a Medicaid waiver spousal case. In the case of a Medicaid waiver, such as a waiver for care in the home or in a participating assisted living facility, when there are spouses, the “snapshot” date is very important. That will be the date that the application is filed in the case of a Medicaid waiver, while in the case of a nursing facility, it will be the date of the original hospital admission or the direct nursing home admission. The importance of the snapshot date, as previously explained in other issues of this newsletter, is that all of the resources of both spouses must be taken into account on that day. Since resources can vary significantly from oneday to another, and since Medicaid eligibility will depend on what the assets were on that day, the “snapshot” date is a very important determination. For a Medicaid waiver, there must first be approval of the waiver slot (i.e. the determination that the disabled or ill spouse meets the Medicaid waiver criteria). Once that occurs, the filing of the application will be the snapshot date. If resources are spent down or otherwise used before the snapshot date, then as of the “snapshot” date, that is, the date of the filing of the Medicaid application, the resources will be lower. This means that the community spouse, that is, the non-Medicaid spouse, will be able to keep fewer resources rather than more resources. If the application is filed while the resources are still high, then the community spouse can keep more value. In general, by waiting for the waiver slot approval, the necessary liquidity can be obtained by liquidating assets needed to generate necessary cash. As soon as the waiver slot approval has been obtained, the Medicaid application can be filed, thus establishing the “snapshot” date. After that, a non-negotiable promissory note or other planning strategy can be put in place so that as of the first day of the month after the filing of a Medicaid application, the applicant’s spouse is positioned for Medicaid eligibility. All of this can be done within a matter of days after obtaining the waiver slot approval as long as the funds are available to implement the non-negotiable promissory note or other planning arrangement. It is even possible to increase the resources that otherwise would have existed through such arrangements as a home equity line of credit (HELOC). By doing so, the available cash is increased. There will then be more cash available as of the “snapshot” date, and then the community spouse could keep more resources. The HELOC loan could then be repaid with the excess resources, thus allowing the community spouse to keep more of the total resources. Planning in such circumstances is extremely important.
When To Use A Corporate Trustee For A Trust. Designating a corporate trustee may often be a good choice. Corporate trustees have the resources and experience to administer trusts properly and to provide money management expertise. Corporate trustees will also generally have the financial resources to provide recompense if a mistake is made. However, there are disadvantages as well. Corporate trustees do charge trustee fees and they can be relatively expensive, although in most instances they earn the fees that they charge. A corporate trustee must also follow certain systematized policies and procedures, which may seem bureaucratic and result in more time being required to implement an action. On the other hand, a corporate trustee can manage the process well and expeditiously. Corporate trustees might be less inclined to take certain actions because of the perceived risks involved and might not want to deal with certain kinds of assets, such as commercial real estate or a closely held business. It should be noted that it is possible to address some of these issues by using a corporate trustee as a co-trustee with individuals or as a trust advisor. Of course, there are problems associated with having more than one trustee as well. If co-trustees are used, their responsibilities should be well-defined. A corporate co-trustee might have the ability to make certain decisions, or the ability to override particular decisions. It might be appropriate in certain instances to mandate that a trustee act in accordance with the directives given by a trusted advisor. All such issues must be well thought out and proper guidance written into the terms of the trust. Some people have a definite bias against co-trustees and believe that it is better to designate a sole trustee who can make decisions (perhaps with guidance or directions from a trusted advisor). Grantor Trusts. A “grantor” trust is a trust for tax purposes that is treated as if all of the assets are still owned by the grantor, i.e., the person who created the trust (or sometimes another person). It is a tax concept. A grantor trust does not pay taxes, and in many cases will not even file fiduciary income tax returns (or if it does, it will report all of the income and deductions as attributable to the grantor, which is then picked up on the grantor’s returns). A grantor trust arises because the grantor or someone close to the grantor holds some prescribed interest in or control over the trust assets. A single trust could be treated as a part grantor, or part non-grantor trust if the person owns only a portion of the trust. The typical revocable trust that a grantor sets up for probate avoidance purposes will always be treated as a grantor trust. Assets held in the trust will generally be reported under the grantor’s Social Security number and separate fiduciary returns will not be required. If a tax ID number is obtained and a tax return is filed, it will be informational. It will summarize the income and deductions which will then be picked up on the grantor’s returns. Irrevocable trusts can be grantor trusts as well. A very common trust that I have established in thousands of cases is the irrevocable income-only trust (“IIOT”) that is set up for asset protection purposes. The grantor (in the case of a husband and wife, the grantors) will create the IIOT and transfer assets to the IIOT and will receive the income (but not capital gains) from the trust assets. Because of the right to receive the income, the grantor(s) will be treated as the owner of the trust and will be taxed on all of the trust income. In the case of an IIOT, the grantor(s) will also generally retain a limited power of appointment, i.e., the ability to determine by will how their assets will ultimately be disposed of. This retained interest makes the IIOT a grantor trust for capital gain purposes as well. Consequently, the grantor will also be taxed on capital gains inside the trust, but an IIOT is typically set up so that the capital gains will stay in the trust to protect the trust’s investments. More information will be provided regarding grantor trusts in subsequent issues of this newsletter.
Additional Information. Future issues of this newsletter will address other issues of current interest.
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