Recently released Rev. Proc. 2009-50 announced statutorily mandated cost-of-living adjustments to be effective during 2010, including items relevant to estate and gift taxes. Most importantly, from the life insurance perspective, the amount of gifts that may be made in 2010 by one person to another without causing the donor to include some portion in his taxable gifts (the "annual exclusion amount") will remain at $13,000.

Other estate and gift tax inflation-adjusted amounts that are affected (however minimally) include the following:

	2009	2010
Dollar Amount Used to Compute "2 Percent" Portion of 6166 Calculation	$1,330,000	$1,340,000
Section 2032A "Special Use" Qualified Real Property Value Reduction Limit	$1,000,000	$1,000,000
Exclusion for Present Interest Gifts from Citizen to Non-Citizen Spouses: Code Sec. 2503 and 2523(i) (2)	$133,000	$134,000

For more information regarding this topic, please e-mail your requests to Julius H. Giarmarco, or call Julius at (248) 457-7200.

If a client creates a "see-through" trust for his grandson naming his son as the trustee, and if after the client dies the sole asset of the trust will be the client's IRA, will either the payments from the IRA to the trust or the payments of trustee fees constitute a prohibited transaction that would disqualify the IRA? These were the questions submitted nearly three years ago to the Department of Labor by well-known IRA expert, Seymour Goldberg, regarding his own trust for his own grandson naming his own son as the trustee. (Mr. Goldberg has often urged use of see-through trusts as retirement plan beneficiaries. For example, in July 2008, on the occasion of what was then the sixth inherited IRA loss in bankruptcy court, Mr. Goldberg commented, "Naming an irrevocable discretionary trust with spendthrift language as IRA beneficiary now seems to be the safest way to keep creditors away from an inherited IRA." It is nice to see an advisor "put his money where his mouth is".)

The Department of Labor's answer? "No" in both regards. Neither distributions from the IRA to the trust nor the payment of trustee fees out of those distributions will disqualify the IRA. Advisory Opinion 2009-02A (9/28/09) is available here: http://www.dol.gov/ebsa/regs/aos/ao2009-02a.html .

As with PLRs, DOL Advisory Opinions have no precedential value other than to the parties receiving them. However, through them, we can see what the DOL thinks about an issue. (Mr. Goldberg reports that the IRS was consulted during the preparation of the advisory opinion.) The DOL's thinking favorably in this regard is a welcome development since it is a common client desire to name family members as trustees. Out of concern for the issue, but prior to this advisory opinion, non-family members may not have been named as see-through trust trustees, or they may have been named but with a prohibition against their receiving trustee fees where an IRA was the sole trust asset. Now, however, such is probably not needed.

That said, other transactions that could occur in these situations, such as a family member trustee who is also an investment advisor causing the IRA to invest with him or her, thereby collecting commissions, or causing the IRA to buy an annuity from him or her, thereby also collecting commissions, must be avoided, since it is widely held that, despite lack of enforcement, these and transactions like them are prohibited transactions (and not only in the inherited IRA/see-through trust context) that would result in IRA disqualification.

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

The determination of whether assets or income placed into a trust are available to pay for the cost of a Medicaid recipient's care generally depends upon whether the trust is revocable or irrevocable. The U.S. Court of Appeals for the Second Circuit recently held that Social Security Disability Income (SSDI) payments placed into a Medicaid recipient's special needs trust (SNT) count as income for purposes of calculating the amount that must be contributed towards the cost of nursing home care. The result of this case effectively prevents nursing home residents from using SNTs to shelter monthly SSDI income from certain Medicaid eligibility determinations.

The Medicaid recipient in this case had been receiving Medicaid assistance since 2005. In November 2006, he began transferring his monthly SSDI payment into his special needs trust, which was established pursuant to 42USC 1396p(d)(4)(a). The disputed issue on appeal related to whether the SSDI payments transferred to the SNT were "countable" towards his cost of care.

In general, the assets of an SNT do not count when determining the Medicaid eligibility of the beneficiary of the SNT. Moreover, assets or income transferred into an SNT by a person under age 65 are not considered to be "divestments", and are thus not subject to the Medicaid transfer of asset penalty provisions.

The Medicaid agency took the position that SNTs are not excluded from post-eligibility determinations. This position was upheld by the Second Circuit Court of Appeals. Thus, even though the assets of an SNT do not count in determining a beneficiary's eligibility for Medicaid, the income placed into that trust each month does count for purposes of computing the individual's contribution towards the cost of care.

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