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E-Update )
Editor: Salvatore J. LaMendola, Esq.
Associate Editor: Randall A. Denha, Esq.		 November 2008
In This Issue:
  • Inflation-Adjusted 2009 Figures for Estate and Trust Tax Brackets

  • IRA Charitable Rollover is Extended

  • Estate Planning Self-Examination for the Fiscally Fit

  • Michigan's Medicaid Estate Recovery Program Rejected by CMS

  • December AFRs

    		•

    GREETINGS!

    Thank you for subscribing to E-Update, the complimentary monthly electronic estate planning bulletin from the Trusts and Estates Practice Group of Giarmarco, Mullins & Horton, P.C.

    Our estate planning attorneys provide sound estate and business succession plans utilizing:
    • Revocable Living Trusts
    • Irrevocable Life Insurance Trusts
    • Qualified Personal Residence Trusts
    • Grantor Retained Annuity Trusts
    • Sales to Grantor Trusts
    • Business Succession Plans
    • Split-Dollar Plans (Private and Employer)
    • Generation-Skipping Transfers
    • Charitable Trusts
    • Buy-Sell Agreements
    • Specialized Trusts for Retirement Benefits
    • Asset Protection Trusts
    For a referral to one of our attorneys, please call Julius H. Giarmarco, Esq. at (248) 457-7200.

    		Inflation-Adjusted 2009 Figures for Estate and Trust Tax Brackets

    Based upon the August 2008 Consumer Price Index released by the U.S. Department of Labor, the 2009 gift tax annual exclusion, estate and trust income tax rate schedule, and other transfer tax items have been calculated. These are not the IRS's officially published calculations, but they are expected to be exactly what the Service will release by December 15, 2008.

    For estates and trusts, the 2009 brackets are:

    If Taxable Income Is: The Tax is:  
    Not over $2,300 15% of taxable income
    Over $2,300, but not over $5,350 $345, plus 25% of the excess over $2,300
    Over $5,350, but not over $8,200 $1,107.50, plus 28% of the excess over $5,350
    Over $8,200, but not over $11,150 $1,905.50, plus 33% of the excess over $8,200
    Over $11,150 $2,879, plus 35% of the excess over $11,150


    In other words, estates and trusts will be taxed at the highest rate on any taxable income in excess of $11,150.

    Gift tax annual exclusion: For gifts made in 2009, the gift tax annual exclusion will be $13,000 (up from $12,000 in 2008).

    Increased annual exclusion for gifts to noncitizen spouses: For gifts made in 2009, the annual exclusion for gifts to noncitizen spouses will be $133,000 (up from $128,000 in 2008).

    Kiddie tax: The exemption from the Kiddie Tax for 2009 will be $1,900 (up from $1,800 in 2008). Additionally, a parent will be able to elect to include a child's income on the parent's 2009 return if the child's income is more than $950 and less than $9,500.

    For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457- 7218.

    THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

    		IRA Charitable Rollover is Extended

    Buried in the $700,000,000,000 banking bailout legislation is a two-year extension (through December 31, 2009) of the IRA charitable rollover legislation originally enacted as part of the Pension Protection Act of 2006. Prior to the rollover law, donors would have to take a taxable withdrawal of IRA funds and hope that the charitable income tax deduction for the contribution to charity would offset the IRA income - resulting in a wash for income tax purposes. Even where a wash was possible, the increased AGI produced any one or more of the following: reductions in itemized deductions or the AMT exemption or the medical expense deduction or the miscellaneous itemized deduction; a decrease in Roth conversion eligibility; increases in Medicare premiums or taxability of Social Security or of state income taxes (in states that do not allow charitable income tax deductions).

    The rollover rules have remained the same. The charitable rollover only applies to IRAs (not 401(k)s, 403(b)s, or qualified retirement plans) and may not exceed $100,000 per year per IRA owner. The donor must be at least 70½. The transfer must be direct from the IRA to the charity. Transfers to donor-advised funds, non-operating private foundations, and supporting organizations do not qualify. Finally, the transfer cannot be used to fund a gift annuity, charitable remainder trust, or any other split-interest charitable plan.

    The extension should encourage additional charitable giving in a difficult fundraising environment for charities.

    For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

    THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

    		Estate Planning Self-Examination for the Fiscally Fit

    The following is a list of items to consider when discussing estate planning with a client. A printable version of this list is available for download here. The list is simply illustrative and by no means exhaustive as there are a number of other questions that can be discussed. Nevertheless, some of the common ones are:

    1. Have you done anything to plan your estate?


    2. What is the date of your Will or Trust? Have the documents been reviewed in the past three years?


    3. Have you and your spouse planned your estates to use both of your estate tax credits and, if so, are your properties titled correctly to carry out the plan? Does your Trust allow you to avoid probate?


    4. Are you giving away the right type of asset?


    5. Have you and your spouse each used your available $2,000,000 generation-skipping transfer exemptions?


    6. Are you taking advantage of the $12,000 gift tax annual exclusion for "Present Interest" gifts?


    7. Have you set up a trust that will qualify for the gift tax exclusion?


    8. Is your Executor or Trustee the right choice today? Can he or she be changed after your death? If yes, by whom? In favor of whom?


    9. Do you have a durable power or attorney and if so, can the attorney-in-fact make gifts of your property?


    10. If your spouse is not a U.S. citizen, have you established a Qualified Domestic Trust?


    11. Does your Will name a guardian for minor children, or an adult spouse or child with a special need?


    12. Have you created a trust to exclude life insurance proceeds from your taxable estate?


    13. Did you know that the federal estate rate is a flat 45% on estates greater than $2,000,000?


    14. When did you last review your IRA beneficiary designations? Have you reached age 70½? Have you properly funded your Trust with IRA benefits?


    15. Have you properly titled assets to protect them from creditor claims? Have you considered asset protection planning?


    16. Have you created a special needs trust for any gifts or inheritances that may be left to a special needs child?


    For more information regarding this topic, please e-mail your requests to Randall A. Denha, or call Randy at (248) 457-7205.

    THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

    		 Michigan's Medicaid Estate Recovery Program Rejected by CMS

    As many of our subscribers may recall, the Fall 2007 Quarterly Newsletter included an article on Michigan's Estate Recovery Program, which passed on October 1, 2007. Michigan was given the deadline of September 30, 2007, to comply with the federal mandate of implementing an estate recovery program. Prior to that date, Michigan was the only state that had failed to comply with sections 1902(a) (18) and 1917(b) of the Social Security Act (enacted in 1993), which require states to implement a Medicaid Estate Recovery Program.

    The federal law requires states to recover any Medicaid benefits paid on behalf of Medicaid recipients upon his or her death. At a minimum, the law requires states to recover from the Medicaid recipient's probate estate (i.e. assets that pass by will or intestate succession). Michigan met the bare minimum by enacting a modest Estate Recovery Program limiting recovery to the recipient's probate estate, due largely in part to the potential withholding of federal funding for the state Medicaid program - an estimated $5 billion annual loss - if Michigan continued to be in noncompliance. Michigan's Program, in its current form, also provides significant protections and opportunities to avoid the harsh impact of estate recovery, and even affords several exemptions from recovery even if assets are part of the Medicaid recipient's probate estate.

    As a prerequisite to implementation of the Estate Recovery Program, Michigan was required to establish mechanisms to track Medicaid recipients' assets and services, develop policy, create written materials for Medicaid applicants that explain both the Estate Recovery Program and the process for applying for a hardship waiver to exempt the recipient from recovery, propose amendments to the Medicaid state plan and receive approval from the Centers for Medicare & Medicaid Services (CMS) for its program. On December 28, 2007, Michigan submitted State Plan Amendment (SPA) 07-21. On September 2, 2008, CMS denied Michigan's request for an amendment to their Medicaid State Plan to allow for an estate recovery program.

    The introductory paragraph of the November 13, 2008, Federal Register Notice regarding the disapproval of the state's request is critical in understanding the reasons for denial:

    "Under this SPA, the State indicated that it would provide for the implementation of an estate recovery program under sections 1902(a)(18) and 1917(b) of the Social Security Act (the Act). CMS issued a request for additional information on March 5, 2008, which included a request for information about the State's projected cost savings resulting from implementation of the estate recovery program. In discussions with CMS regarding submission of SPA 07-21, State officials stated that these projected cost savings estimates would require revision because the state recovery program had in fact not yet become operational. The State did not provide additional information indicating when and to what extent it would come into compliance with sections 1902(a) (18) and 1917(b) of the Act. Thus, the State's overall submission did not provide sufficient detail or information for us to determine that the State has an estate recovery program that meets statutory requirements."

    The state has appealed the denial. A reconsideration hearing of CMS's denial of the state plan amendment request is scheduled for January 6, 2009. The hearing will focus on whether the state complied with the statutory requirements to implement an estate recovery program, and whether the state has provided the information necessary for CMS to determine whether the plan can be approved to serve as a basis for federal financial participation in the state's Medicaid program. If the appeal is denied, the state is back to the drawing board. Even worse, CMS may hold a compliance hearing and impose substantial penalties on the state for noncompliance in passing an estate recovery program. On the other hand, if the appeal is successful, the state will begin implementation.

    For more information regarding this topic, please e-mail your requests to Brenna D. Mansfield, or call Brenna at (248) 457- 7227.

    THIS ARTICLE MAY NOT BE USED FOR PENALTY PROTECTION.

    		December AFRs

      Annual Semi-Annual Quarterly Monthly
    Short Term AFRs (Term 3 Years or Less) 1.36% 1.36% 1.36% 1.36%
    Mid Term AFRs (Term More Than 3 Years and 9 Years or Less) 2.85% 2.83% 2.82% 2.81%
    Long Term AFRs (Term More Than 9 Years) 4.45% 4.40% 4.38% 4.36%
    Section 7520 Rate 3.4%      

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