Posted tagged ‘special needs trusts’

Complimentary Online Estate Plan Review

May 15, 2020

Does the pandemic have you worried about whether your existing estate plan works for you now?

Or maybe you are simply using the enforced quarantine time to catch up on important things that you keep putting off.

Either way, Chipman Mazzucco Emerson has an easy way to guide you through what you need to know to make sure your estate plan is updated and meets your current needs.

Our complimentary updated Online Estate Plan Review asks a series of specific questions that will alert you to issues you should address to make certain your plan still works. The latest version of this program covers a number of recent law changes, including:

  • The Tax Cuts and Job Act of 2017
  • SECURE Act of 2019
  • Numerous changes in State and federal estate tax exemptions

You can complete the process in ten to fifteen minutes. When you are finished, you’ll receive a detailed personalized report that identifies issues that require your attention.   Here is our new video explaining how the review works and how to register for your personalized report.

To access our complimentary Online Estate Plan Review, please click on the link or image below:

Complimentary Online Estate Review Plan

We hope our online estate plan review helps you.  If you have questions about the review, please call.

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Posted by Richard S. Land, Attorney, Chipman Mazzucco  Emerson LLC, Attorneys at Law, Danbury, CT, 06810, 203-744-1929 x29, rsl@danburylaw.com.

Seminar: How Resilient is Your Estate Plan? Will Your Plan Work as Things Change?

October 8, 2019

Estate Planning Seminar!

October 17, 2019

We invite you to a free seminar on October 17, 2019, at the Ethan Allen Hotel in Danbury, Connecticut (21 Lake Avenue Ext).

Topic: How Resilient is Your Estate Plan?

The presentation will start at 6:30 PM.

To register, call 203-744-1929 (please provide your email address) or email us at dvv@danburylaw.com.  You also can register here: Seminar Registration.

Informative and fun. Come learn and have a great time.

We intend to cover changes of all kinds (not just law and taxes) that will most affect your estate plan.

Reconnect with all the attorneys in our estate planning and probate practice group.

Topics include:

  • Probate Courts
  • Issues related to Change of Residence
  • Coping with the Surge of Conservatorship Proceedings
  • How Estate Planning Changes with Each Stage of Life
  • Changes in Law that Could Affect Your Estate Plan.

The presentation will start at 6:30 PM. Light refreshments will be served.

To register, click below or call us at 203-744-1929 or email us at
dvv@danburylaw.com.

REGISTER HERE


The Presenters and Their Topics:

Richard L. Emerson

Topic: Insights from a Former Probate Judge

The Probate Courts have been affected by important changes. Attorney Richard L. Emerson will inform us about the workings of the Probate Courts as only a former Probate Court Judge can.

Attorney Richard L. Emerson served as the Probate Judge in Redding, Connecticut, for over thirty years. His legal practice concentrates on estate administration, probate, estate planning, trust and estate disputes and general corporate representation. He also has mediated contested probate matters and has appeared as an expert witness for other attorneys.

James J. Flaherty, Jr.

Topic: Thinking About Moving Out of Connecticut? Consider
This.

We often hear about people moving out of Connecticut. Is this merely a case of “the grass is always greener…”? James J. Flaherty, Jr., will discuss issues related to a change of residence. Whether you stay or go, if you are wondering about leaving, this is information you need.

Attorney James J. Flaherty, Jr., practices from the firm’s Southbury office and is a member of the estate planning and probate group. Jim’s practice focuses on assisting high net worth individuals, including closely held business owners, in the creation of wealth succession plans. In addition to estate planning, Jim works with individuals on Medicaid (Title 19) and asset protection planning.

Alyson R. Marcucio

Topic: Coping with the Surge in Conservatorship
Proceedings

The increasing number of conservatorship proceedings creates additional demands on our Probate Courts. Alyson R. Marcucio will discuss planning steps to work around crowded court dockets and long wait times.

Attorney Alyson Marcucio is a member of the firm’s estate planning and probate group, with an emphasis on elder law and
planning for those who have chronic disabilities. Alyson’s practice includes long term care, incapacity and special needs planning, eligibility for Medicaid and other public benefits, and conservatorship proceedings.

 

Elizabeth J. Hartery

Topic: Estate Planning for Each of Life’s Stages

Life is often thought of as having twelve stages. Estate planning starts with the sixth stage and ends with the twelfth: late adolescence; early adulthood; midlife; mature adulthood; late adulthood; and death and dying. Liz Hartery will discuss how the planning focus changes as we pass through each stage.

Attorney Elizabeth J. Hartery is an associate in the firm’s estate planning and probate group, assisting with estate planning, estate settlement, probate matters, and elder law issues.

 

Richard S. Land

Master of Ceremonies

Attorney Richard S. Land heads up the firm’s estate planning and probate group, helping individuals from all walks of life to manage and dispose of their assets in an orderly fashion through lifetime transfers and through transfers at death by wills and trusts.

Richard has authored and produced dozens of educational videos on estate planning and trust and estates topics, authored several computer generated estate planning document assembly systems and authored an online estate plan review program.

No Admission Charge

Our seminars are always strictly educational and well attended.  Space is limited so please let us know if you plan to attend.

Light snacks, desserts and beverages will be offered.

To register, click on this link: Seminar Registration.

Please join us at the Ethan Allen Hotel (21 Lake Avenue Ext., Danbury, CT) on October 17, 2019.

We look forward to seeing you.

Chipman Mazzucco Emerson LLC
Attorneys at Law
44 Old Ridgebury Road
Suite 320
Danbury, CT 06810
203-744-1929

 

Estate Planning for Beginners; Elder Law in a Nutshell; How to Make Certain Your Estate Plan Works as Everything Else Changes

September 30, 2018

FREE Estate Planning Seminar!

October 25, 2018

We invite you to a free seminar on October 25, 2018, at the Ethan Allen Hotel in Danbury, Connecticut (21 Lake Avenue Ext).

Topics: Estate Planning for Beginners and Elder Law in a Nutshell

Including: How to Make Certain Your Estate Plan Works as Everything Else Changes (including Trump Tax Changes)

The presentation will start at 6:30 PM. For more information, click here:  Seminar October 25.

To register, call 203-744-1929 (please provide your email address) or email us at dvv@danburylaw.com.  You also can register here: Seminar Registration.

The presenters and their topics:

Make Certain Your Estate Plan Works as Everything Else Changes

As everything around you changes, you may not recognize the impact the changes have on your estate plan.

Laws change; your health and financial condition change; the health and financial condition of your beneficiaries change; maybe your beneficiary designations change as your assets change; and the fates of the people you are depending on to act as your Executors, Trustees, agents under a power of attorney and health care representatives change.

Attorney Richard S. Land will discuss how to make certain that such changes will not interfere with, or totally disrupt, your estate plan.

Elder Law in a Nutshell

Alyson's Favorite Photo

What is Elder Law and how can an Elder Law attorney help you through the complex issues associated with aging?

The special needs of the elderly are not unique to the elderly, however. Persons of all ages may suffer from chronic conditions resulting in special needs requiring specialized legal help.

Attorney Alyson Marcucio will cover legal issues and solutions related to the special needs of the elderly and all others with special needs.

Estate Planning for Beginners: Features of Wills, Trusts and Powers of Attorney

 

What is the difference between a will and a revocable trust? What are the powers in a Power of Attorney? Do I even need an estate plan?

Attorney Elizabeth J. Hartery will answer those questions and many others in her presentation, which will explain the basic features of wills, trusts, Powers of Attorney, living wills and more.

 

No Admission Charge

Our seminars are always strictly educational and well attended.  Space is limited so please let us know if you plan to attend.

Light snacks, desserts and beverages will be offered.

To register, click on this link: Seminar Registration.

Please join us at the Ethan Allen Hotel (21 Lake Avenue Ext., Danbury, CT) on October 25, 2018.

We look forward to seeing you.

Chipman Mazzucco
Attorneys at Law
44 Old Ridgebury Road
Suite 320
Danbury, CT 06810
203-744-1929

 

October 5, 2017, Seminar: Senior Autonomy for Families as Roles are Reversed

September 2, 2017

Save the Date October 5, 2017
FREE Seminar!

 

We invite you to a free seminar on October 5, 2017, at the Ethan Allen Hotel in Danbury, Connecticut (21 Lake Avenue Ext).

Topic: Senior Autonomy: A Guide for Families as Roles are Reversed

Including: How to Make Certain Your Estate Plan Works as Everything Else Changes

The presentation will start at 6:30 PM. For more information, click here:  Seminar October 5.

To register, call 203-744-1929 (please provide your email address) or email us at rsl@danburylaw.com.  You also can register here: Seminar Registration.

The presenters and their topics:

Make Certain Your Estate Plan Works as Everything Else Changes

Richard S. Land, Attorney

As everything around you changes, you may not recognize the impact the changes have on your estate plan.

Laws change; your health and financial condition change; the health and financial condition of your beneficiaries change; maybe your beneficiary designations change as your assets change; and the fates of the people you are depending on to act as your Executors, Trustees, agents under a power of attorney and health care representatives change.

Attorney Richard S. Land will discuss how to make certain that such changes will not interfere with, or totally disrupt, your estate plan.

Preserving Autonomy as Independence Declines

Alyson R. Marcucio, Attorney

How do you plan to maintain autonomy as your independence declines?

To help guide our clients, last year we invited Attorney Alyson R. Marcucio to join us as a Member of the firm after an exhaustive search for an attorney with her skills, knowledge and experience performing long-term care and estate planning services for seniors and the chronically disabled.

Alyson’s presentation will cover planning techniques designed to preserve autonomy as independence declines with aging including home care options, resources available to help create and maintain a safe home environment, planning techniques to maintain control through properly prepared trust agreements, powers of attorney and health care directives, and the relationships necessary to protect your independence when you are most vulnerable.

No Admission Charge

Our seminars are always strictly educational and well attended.  Space is limited so please let us know if you plan to attend.

Light snacks, desserts and beverages will be offered.

To register, click on this link: Seminar Registration..

Please join us at the Ethan Allen Hotel (21 Lake Avenue Ext., Danbury, CT) on October 5, 2017.

We look forward to seeing you.

Chipman Mazzucco
Attorneys at Law
Matrix Corporate Center
39 Old Ridgebury Road
Suite D-2
Danbury, CT 06810
203-744-1929

A Seminar: Planning to Protect Seniors & Remedies for Financial Elder Abuse

September 2, 2016

Join Us September 22, 2016

To Our Clients, Clients’ Advisers and other Friends of Chipman Mazzucco:

We invite you to our September 22 Seminar.  For details click here: September 22 Seminar.

We added another segment on Powers of Attorney to our seminar.

A Power of Attorney is an essential part of any plan related to protecting seniors.

The grant of broad powers to the right person can be a lifesaver.

The grant of any power to the wrong person can be tragic.

In addition to the other seminar segments Attorney Richard Land will be making a short presentation on Connecticut’s new wer of Attorney law which is effective October 1.

To register, call us at 203-744-1929 (make certain you give us your email address) or email us at rsl@danburylaw.com.

You also can register by clicking here: REGISTER.

Location: Ethan Allen Hotel (21 Lake Avenue Extension, Danbury, CT) on September 22, 2016, at 7:00 PM (doors open at 6:30).

We look forward to seeing you on September 22.

Posted 2/11/2016 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC, 39 Old Ridgebury Road, Suite D-2, Danbury, CT 06810.

P.S.  See below for brief descriptions of the rest of the program:

Alyson Marcucio presents: What Seniors Need to Know about Long-Term Care but Would Never Think to Consider (a/k/a traps for the unwary) regarding Medicaid and planning for long-term care.

Christopher J. Gawley presents: FINRA Rules Designed to Protect Seniors: Warning signs of elder abuse; best practices for financial professionals when serving aging clients; the special responsibility of financial institutions and professionals when encountering seniors with signs of diminished capacity.

Timothy H. Herring presents: Legal Remedies for Financial Elder Abuse Victims (A Case Study):  What can litigators do when asked to make things right after something has gone wrong?

No admission charge.

Our seminars are always strictly educational and well attended.  Space is limited so please let us know if you plan to attend.

Light snacks, desserts and beverages (even wine and cheese) will be offered.

Please join us at the Ethan Allen Hotel (21 Lake Avenue Extension, Danbury, CT) on September 22, 2016, at 7:00 PM (doors open at 6:30).

Achieving a Better Life Experience (ABLE)

June 27, 2016

There is welcome news for people with disabilities and their families.

In December 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law.  Since 2014, the ABLE Act, which sailed through Congress with overwhelming bi-partisan support, has been signed into law in a record 47 states, including in Connecticut and New York.

As those with disabilities and their families know all too well, qualifying for means-based public benefits programs requires the recipient to be poor – one can have no more than $2,000 in assets ($1,600 in CT).  While public programs such as SSI and Medicaid provide vital services, they cannot nearly provide for all of the needs of a disabled person.  Living with disabilities is expensive, and many families fret about how to meet the supplemental needs of their disabled loved ones.

The ABLE Act will provide a new tool for supplementing income of a disabled person receiving public benefits, without jeopardizing eligibility for those public benefits.  Similar to the 529 Education Savings Plans, where families can set aside money for higher education, the new ABLE 529A plan enables the creation of tax-free savings vehicles for qualified individuals with disabilities.

Basic facts are presented below in a question and answer format.

  1. How much can be contributed annually to an individual ABLE account? Total annual contributions to an individual’s account by the beneficiary, family or friends may not exceed $14,000, or the current annual gift exclusion amount.  Contributions must be made in cash.
  2. How can a person qualify to be a beneficiary under an ABLE account?  An individual who has a documented and diagnosed significant disability, or is blind, PRIOR to turning 26 is eligible providing (1) he or she currently receives SSI or SSDI; or (2) the beneficiary can certify, under penalty of perjury, that he or she meets the qualification standards (stated above in this paragraph), and has a signed physician’s diagnosis that can be provided to the ABLE program or the IRS upon request.  While the disability must have been diagnosed before age 26, an ABLE account may be opened at any age, including for those above age 26.
  3. How much money can be put into an ABLE account?  Although the amount that may be contributed to an ABLE account is equal to the limit for State higher education related 529 accounts (currently $300,000 in CT and $375,000 in NY), SSI benefits will be suspended once the account reaches $100,000.  Should the account go below $100,000 at a later date, SSI benefits will be reinstated.  Medicaid benefits, on the other hand, continue and remain in effect even after the $100,000 mark is reached.
  4. What sorts of qualified expenses can the ABLE account pay for?  Broadly, qualified expenses are any expenses related to the Beneficiary as a result of living with a disability.  Such expenses may include education, transportation, housing (but distributions for housing may reduce SSI payments), employment support and/or training, assistive technology, personal support services, health and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.
  5. Who will be taxed on the money in the ABLE account?  Assets in the ABLE account grow tax-free, just as they do in 529 accounts.  No gift tax is due for contributions, because the total annual contribution may not exceed the gift tax exclusion amount.   As long as the payouts are used for qualified expenses (see 4 above), the payouts are tax free.  These are the basic rules that apply if contributions are kept within annual and overall limits.
  6. Who will administer the ABLE accounts?  In most states, the accounts will either be administered by the State Treasurer or by the State 529 Plan Administrator.  Connecticut has not yet set up an ABLE account mechanism, and it is rumored that it may join a consortium of other states to run its program.
  7. Who owns the ABLE account?  The designated beneficiary owns the ABLE account.  The account must be set up and controlled by the designated beneficiary, legal guardian or through a Power of Appointment.
  8. Can a person benefit from more than one ABLE account?  No, a person may only have one ABLE account for his or her benefit.
  9. Where can I set up an ABLE account? An ABLE account can be set up in any State that runs a 529A program and authorizes out-of-state persons to set up a an account.  On June 1, 2016, Ohio became the first state in the nation to launch its own ABLE account.  Eligible individuals nationwide (including Connecticut and New York residents) may set up an online account through the Ohio program at http://www.stableaccount.com.  Once ABLE programs become available in multiple states, as is widely expected, one will be able to shop around for a program that offers competitive terms.
  10. Once an ABLE account is established, may I roll it over it into another ABLE account?  Yes.  Although a beneficiary may have only one account, transfers can be made by establishing a new qualifying ABLE account, and rolling over the assets, free of penalty, to it.  Similarly, assets may be transferred from an ABLE account to that of another qualifying relative.

All in all, this is good news.

Is there a downside?  Yes, the ABLE Act contains a payback provision.  Any funds remaining in the 529A account at the death of the beneficiary must be used to repay the State for any Medicaid assistance received by the beneficiary after the account was created.  Medicaid expenses, however, are paid only after other qualified expenses, such as funeral expenses, are paid.

With an estimated 5.6 million people eligible to become beneficiaries of an ABLE account, these accounts are a welcome addition to help plan for the needs of a disabled person.   Once ABLE accounts become widely available, they will add an attractive option to families or individuals who seek to supplement the lives of a disabled person without sacrificing needs-based government benefits.  With lower costs, fewer administrative burdens, as well as favorable tax-free growth within the account, the ABLE account offers a good alternative or additional option to a Special Needs Trust.

Please note that the federal government and state regulations are still evolving and there will be ongoing modifications to the information provided above.

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Posted on June 27, 2016
by Mary Dale Lancaster
Chipman Mazzucco

 

 

Video on Long Term Care Issues and Medicaid Posted to YouTube

February 20, 2014

 New Video: Long Term Care Issues and Medicaid

Parts One and Two of our video/slideshow presentation on Long Term Care Issues and Medicaid have been posted to YouTube.  They discuss the following:  (1) What is long term care?  (2) Who and what does Medicaid cover?  (3) What are the income limitations?  (4) What are the asset limitations?

Future video posts on this topic will cover rules related to transfers of assets made with the intention of qualifying for Medicaid, insurance products that help pay for the costs of long term care, and programs to help pay for care at home. Expected completion date: April 2014.

Go directly to the YouTube Playlist. Click on the image below:

 We hope you find our Long Term Care video informative.  Stayed tuned for the rest of the videos in the series.

 If you have any questions, please contact us.

 Posted on 2/20/2014 by Richard S. Land, Member,

Chipman, Mazzucco, Land & Pennarola, LLC.

 Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.
We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

Trusts and Trust Administration Video Finished

November 23, 2013

Our  video/slideshow presentation on Trusts and Trust Administration  has been completed and posted to YouTube.

The video (in 3 Parts) covers trust administration including a Trustee’s duties, risks that Trustees face, applicable rules and regulations, common problems Trustees face, and Trustee compensation.

You can view the video here:

We hope you find our Trusts and Trust Administration video informative.

 If you have any questions, please contact us.

 Posted on 11/23/2013 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC.

Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

Estate and Trust Administration Video Finished

November 10, 2013

Parts 4, 5 and 6 Posted to YouTube

The trust administration portions (Parts 4, 5 and 6) of our  video/slideshow presentation on Estate Settlement and Trust Administration in Connecticut  have been completed and posted to YouTube.

The videos cover trust administration including a Trustee’s duties, risks that Trustees face, applicable rules and regulations, common problems Trustees face, and Trustee compensation.

You can view Parts 4, 5 and 6 here:

Estate and Trust Administration Part 4 (Trusts):  What is a trust?  What is trust administration? What are the rules that apply to trust administration?  What does a Trustee do?  What risks are Trustees exposed to?  What are the Trustee’s duties?

Estate and Trust Administration Part 5 (Trusts):  Part 5 covers common problems faced by trustees while administering a trust including issues relating to accounting, investments and self-dealing.

Estate and Trust Administration Part 6 (Trusts):  Part 6 (the final Part) continues coverage of common problems faced by trustees while administering a trust including potential claims related to contracts that a trustee makes while administering a trust, claims based on a trustee’s negligence and other torts, claims based on environmental contamination of trust real property, and claims related to improper payments and distributions. This Part also includes a brief discussion on Trustee compensation.

To view the complete video starting with Part 1 click on the image below:

We hope you find our Estate Settlement and Trust Administration videos informative.

 If you have any questions, please contact us.

 Posted on 11/10/2013 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC.

Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

Estate Planning For Married Couples: The Basics

April 28, 2013

Married couples who are U.S. citizens have estate planning options available to them that are not available to unmarried couples. Opportunities arise upon the death of the first spouse which, if proper planning is done, can protect assets from estate taxes, creditors, and long term care costs.

The following is a massive oversimplification of the estate planning process as it relates to estate taxes for U.S. citizen spouses (the rules for non citizens spouses are different and will not be addressed in this article). The purpose of this article is to help married couples understand some of the basic estate planning and estate tax concepts that we typically cover in an initial estate planning meeting. Without this basic understanding, important estate planning decisions are frequently postponed or, too often, ignored.

Although I refer primarily to Wills in this article, it should be noted that, for estate tax purposes, the planning techniques described below can be implemented through the use of Wills or Will substitutes such as Revocable Trust Agreements.

Estate Taxes

The Internal Revenue Service imposes a tax on certain transfers made for less than fair market value. If the transfers are made during life (i.e. gifts) the IRS imposes a gift tax. If the transfers are made upon death either through the terms of our Wills or through the laws of intestacy, the IRS imposes an estate tax. To keep things simple, I will limit our discussion to transfers at death and the estate tax. However, it is important to note that the two taxes are related and gifts made during life may have an impact on estate taxes payable upon death.

For the last few years, we have been writing about the uncertainty of the federal estate tax laws. Will the estate tax be repealed? Will the estate tax exemption be $1,000,000 or $5,000,000 or something in between? Will the portable exemption law become permanent or was it just a flash in the pan? Thanks to some last-minute decisions made by Congress, as of January 1, 2013, we now have some “permanent” federal estate tax laws (whatever permanent means). The federal estate tax exemption is now $5 million, indexed for inflation, which means that each U.S. citizen has a $5,250,000 estate tax exemption in 2013. In addition, portability has become a permanent fixture. I will discuss the portable exemption law later in this article.

Congress was not the only one keeping us on our toes – state estate tax laws have also fluctuated drastically over the years. Within the last decade, the Connecticut estate tax laws have changed numerous times and the Connecticut estate tax exemption has recently swung from $2,000,000 to $3,500,000 and back to $2,000,000.

As a result, for at least the time being, we are facing a $5,250,000 federal estate tax exemption and a $2,000,000 Connecticut estate tax exemption. New York has a $1,000,000 estate tax exemption which, unlike the Connecticut and federal exemptions, has remained relatively consistent over recent years.

Planning Considerations for Married Couples

At the core of estate tax planning for married couples is the concept that transfers between spouses who are U.S. citizens occur free of gift or estate tax because there is an unlimited marital deduction. Accordingly, if our focus was merely on estate tax exposure upon the first spouse’s death, our job as estate planners would be pretty easy: “Just leave everything outright to your spouse and you have no estate tax issues! (Now here’s our invoice).”

Instead, our focus is on the surviving spouse’s estate and what happens at the surviving spouse’s subsequent death. If the first spouse to die gives everything outright to the surviving spouse, there may not be any estate tax issues upon the first spouse’s death, but the surviving spouse may end up with an estate that is larger than the applicable estate tax exemptions and may be exposed to estate tax upon the surviving spouse’s death.

For example, let’s say that Gracie and Dunkin are married U.S. citizens (in reality Gracie and Dunkin are our family dogs, but for the purposes of this article they are a happily married human couple). Dunkin dies (sorry dad) owning an estate worth $4,000,000 which passes outright to Gracie according to the terms of Dunkin’s Will. Now Gracie has Dunkin’s $4,000,000 in addition to her own assets worth $2,000,000 leaving her with a total estate of $6,000,000. When Gracie passes away, if the federal estate tax exemption is $5,250,000, then (ignoring the impacts of the portable exemption law discussed below) $750,000 could be exposed to federal estate tax. In addition, if Gracie was a Connecticut resident when she died, $4,000,000 could be exposed to Connecticut estate tax ($6,000,000 – $2,000,000 (the Connecticut exemption)).

If Gracie and Dunkin had taken certain steps in their estate planning, their estate tax liabilities could have been eliminated or significantly reduced. The most common way to do so is through the use of trusts which would be established through the terms of the Wills (or Will substitutes). For a discussion about the basics of trusts, including factors to consider regarding the use of trusts, please see: The Benefits of Trusts and Avoiding the Trustee’s Worst Nightmare.

The Wills would allow for a portion of the first spouse’s estate to pass to a trust for the benefit of the surviving spouse (frequently called a “credit shelter trust,” “bypass trust” or “exemption trust;” for the purposes of this article, we will call it an “exemption trust”). Property passing to the exemption trust would not qualify for the marital deduction because it is not property passing to the surviving spouse (unless the trust is drafted in a way which would qualify for the marital deduction). Instead, the property passing to the exemption trust would use part of or all of the first spouse’s exemption. The exemption trust would then be shielded by the first spouse’s exemption and would not be subjected to an estate tax when the surviving spouse dies (again, this is an oversimplification, intended to highlight the basic concepts).

There are two techniques which are frequently used to reduce or eliminate estate taxes for the surviving spouse through the use of exemption trusts – the Disclaimer Option and the Formula Option.

The Disclaimer Option

The Disclaimer Option would look like this: Dunkin’s Will provides that, upon his death, all of his estate will pass to Gracie outright, but it would give Gracie the option to “disclaim” (refuse to accept) all or a portion of the property. The “disclaimed property” would pass to a trust for Gracie’s benefit (the “Disclaimer Trust”). The Disclaimer Trust is a type of exemption trust which would use a portion of or all Dunkin’s estate tax exemption and would not be subject to estate tax on Gracie’s subsequent death.

[Note: A “disclaimer” is the irrevocable refusal to accept a gift of property. The general rule is that for a disclaimer to be effective for tax purposes the disclaiming party cannot have any interest in the disclaimed property following the disclaimer. There is, however, a special exception which allows a surviving spouse to disclaim property passing into a trust created under the deceased spouse’s Will for the benefit of the surviving spouse. Such a trust must, however, be narrowly drafted because the surviving spouse may not have any powers over trust principal.]

The Formula Option

The Formula Option would look like this: Dunkin’s Will provides that, upon his death, a fraction of his estate equal to the applicable estate tax exemption at the time of his death (either the federal exemption or the state exemption) will pass to a trust (the “Formula Exemption Trust”) for Gracie’s benefit. The Formula Exemption Trust would use a portion of or all Dunkin’s estate tax exemption and would not be subjected to estate tax on Gracie’s death. The rest of Dunkin’s estate would pass either outright to Gracie or to a trust for Gracie’s benefit which could qualify for the marital deduction.

Which Works Best?

The Disclaimer Option and the Formula Option can produce almost identical estate tax results but in different ways; and there are pros and cons associated with both options.

Under the disclaimer option, the surviving spouse has flexibility to make the planning decisions at the time of the first spouse’s death. No trust is created unless the surviving spouse decides that it makes sense from a tax perspective (with some help from advisors). The surviving spouse would have the option to disclaim any portion (or none) of the deceased spouse’s property. This is typically viewed as a good thing – allowing the decision to be made when all the facts are available (applicable exemptions, value of estate assets, surviving spouse’s needs, etc.).

The Formula Option also has advantages. The most significant advantage is that the surviving spouse can have broad power over the principal of the trust in the Formula Exemption Trust but not in the Disclaimer Trust. For example, the surviving spouse can have unlimited authority to appoint principal to other family members (typically descendants) both during life and at death through the terms of the surviving spouse’s Will.

This can be particularly beneficial in situations where a child falls on hard times (drug addiction, creditor issues, bad marriage, etc.) after the death of the first spouse. The surviving spouse would have the flexibility to change how the assets in the Formula Exemption Trust will be distributed when the trust terminates. For example, the surviving spouse’s Will could direct that assets in the Formula Exemption Trust will not pass outright to the child dealing with problems, but would be held in a separate trust which would protect the assets from creditors, divorcing spouses, or the beneficiary’s addictions. The surviving spouse can not have this authority over assets in the Disclaimer Trust.

Another potential advantage with the Formula Option is that the terms of the Will already provide the amount (based on the formula) that will pass to the Formula Exemption Trust. With the Disclaimer Option, the decision to disclaim assets is left to the surviving spouse and must made within nine months of the first spouse’s death. This can be challenging for a surviving spouse who is grieving and may have trouble focusing on estate tax planning issues soon after the first spouse’s death.

On the other hand, if assets or estate tax exemptions change significantly and documents are not updated to reflect the changing circumstances, the Formula Option has the potential to “disinherit” a surviving spouse. For example, if the formula is based on the federal exemption (currently $5,250,000), and the value of the first spouse’s estate is less than $5,250,000, all of the assets could pass to the Formula Exemption Trust and nothing would pass outright to the surviving spouse. This may not have been the couples’ intent back when the federal exemption was $1,000,000 (when the Wills were prepared).

Each couple will need to determine which option is best suited to their unique situation. If you prefer the “wait and see” approach and are not concerned about your spouse’s ability to make the decision in the future, then perhaps the Disclaimer Option would be your best bet, even though the Disclaimer Trust is a less flexible trust. On the other hand, you may decide that the Formula Option is better suited for your situation since it will provide your spouse with greater control over the property in the Formula Exemption Trust.

Portable Exemption Law

The now “permanent” federal estate tax laws have introduced another layer to our estate planning discussions. This added layer is referred to as the portable estate tax exemption law. The portable estate tax exemption law is applicable to married couples and provides that, when the first spouse dies, the surviving spouse may elect to take the unused portion of the deceased spouse’s federal estate tax exemption.

For example, if Dunkin dies and leaves everything outright to Gracie, we’ve already established that the assets pass free of estate tax due to the unlimited marital deduction. This means that Dunkin has not used any of his $5,250,000 federal estate tax exemption. The portable exemption law allows Dunkin’s executor to elect to allow Gracie to add Dunkin’s unused exemption ($5,250,000) to Gracie’s own estate tax exemption ($5,250,000), leaving Gracie with a total federal estate tax exemption of $10,500,000 (in this example) at her death.

The new portable exemption law has led many estate planners to encourage clients to consider simplifying their documents and eliminate complex trust provisions. However, trust provisions, like the ones described above, are still applicable in many cases.

For instance, the portable exemption does not change the state estate tax obligation. The fact that the portable exemption law may allow $10,500,000 to be sheltered from Gracie’s federal estate tax, does not mean that the same amount would be sheltered from Gracie’s Connecticut or New York estate tax. She would only have her $2,000,000 Connecticut estate tax exemption (or her $1,000,000 New York exemption if she moved to New York). Accordingly, for Connecticut and New York residents, planning techniques described above are still an important tool in reducing or eliminating estate taxes.

Factors unrelated to estate taxes such as asset management, young beneficiaries or beneficiaries dealing with special problems, may also warrant the use of trusts and other complex provisions in our Wills. For more on this issue, see: Simplify Your Estate Plan Maybe.

In addition, many people are worried about nursing home costs and are interested in protecting assets from the costs of long term care. Married couples have a unique opportunity to shelter assets upon the death of the first spouse through the use of trusts established under the terms of their Wills. For more information about protecting assets from long term care costs, please see our other posts:

Special Needs Trusts

Elder Law – Basics of Planning for Incapacity

Posted on 4/28/2013 by Kasey S. Galner, Associate, Chipman, Mazzucco, Land & Pennarola, LLC.

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Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.


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