ACT NOW - CHARITABLE IRA ROLLOVER ENDS JANUARY 31, 2011

Short Deadline. We are trying to get January's newsletter published early so that charities and clients with charitable intent are aware of the brief extension of the $100,000 charitable gift from IRA accounts. The compromise tax bill enacted by the lame duck Congress and signed by the President reinstates this special tax benefit for 2010 and 2011. However, this IRA Charitable Rollover extension expires soon - January 31, 2011.

Double-Up Opportunity. A Charitable IRA Rollover made by January 31, 2011 can be allocated to 2010 or the 2011 tax year. Thus, a Donor with a large IRA and charitable commitment could have a total of $200,000 charitable IRA gifts, with $100,000 allocated to 2010 and $100,000 allocated to 2011. Even for smaller gifts, this may be a once-in-a-lifetime opportunity to satisfy charitable pledges and charitable gift intentions in a tax efficient manner using IRA accounts!

The Old Law. The Pension Protection Act of 2006 originally enacted the Charitable IRA Rollover. The Charitable IRA Rollover was summarized in our newsletter of August 2006, available on our website. This offered tremendous tax advantages to a person 70-1/2 or older. This benefit has now been given new life for tax years 2010 and 2011.

Important Points.
(1) The Charitable IRA Rollover must be made directly by the IRA Custodian to the qualified charity.
(2) The account owner does not recognize any taxable income.
(3) If the gift is allocated in 2011, it can satisfy the minimum required distribution for 2011.
(4) This is particularly advantageous for individuals who take the standard deduction on their Federal Income Tax Return (without itemizing charitable gifts or other deductions).
(5) The Charitable IRA Rollover is especially helpful to Michigan residents, where itemized deductions are not allowed for state income tax purposes. In other words, the charitable rollover amount is not reported as income and therefore not taxable by Michigan.
(6) Generous donors have the opportunity to bypass limitations on charitable gifts covered as itemized deductions.
(7) Charitable IRA Rollovers are limited to persons age 70-1/2 or older.

Bottom Line. The 2010 Tax Relief Act created a brief window of opportunity for both charities and individuals. Satisfaction of charitable gifts and pledges can be made in the most tax efficient manner from an IRA account by January 31, 2011. All donors and potential donors should discuss the income tax planning opportunities with their income tax advisors.

Caution. Donors should contact their IRA Sponsor to determine the procedures and minimum contribution amounts of the particular advisor. We understand that some advisors establish minimums of $1,000-$5,000 each. Also, remember that contributions must be made to a public charity. Donor advised funds or private foundations do not qualify. For example, if a Community Foundation were a Donee, the contribution would have to be to its general fund, field of interest fund, or an endowment fund for a public charity that had a fund at the Community Foundation.

Conclusion. If you want more information about charitable gifting as part of your estate plan, or if your documents need a review and update as a result of the new law, contract Jim Modrall or Priscilla Hirt, as (231) 941-9660, or any of the other attorneys listed below, or to schedule a no obligation appointment. Other beneficial provisions of the 2010 law will be discussed in future newsletters.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Medicare Alert!

This is a critical time of the year for seniors, i.e. people 65 and older who are on Medicare. As most readers know, Medicare is the entitlement to medical services program for people 65 and older. Readers not in this category may have parents or friends who are Medicare recipients. Everyone with an interest in medical care services for seniors needs to be alert to the changes at hand.

There has been much nashing of teeth since the enactment of the Affordable Care Act (sometimes known as Obamacare). Whatever your views on this legislation, if you are directly affected, as all Medicare recipients are, these changes need your immediate attention.

1. Plan D - Drug Benefits. As many of you are aware, we are in the critical time of year for changes to Part D Drug Coverage. This is the time of year when many Plan D Insurers change benefits. One of these changes that can affect seniors is the change in "formulary", which is the list of drugs which is covered by the Plan. Drugs can either be added or deleted. These changes can cause confusion and perplexity. The advice right now: Talk to your Plan D Insurer or your Agent to find out what changes might be happening. Check the formulary for 2011 to see if it includes your drugs and what options you might have.

2. Doughnut Hole. The new law takes gradual steps to reduce the coverage gap known as the "doughnut hole." Those who reach the doughnut hole in 2010 may qualify for a one time $250 rebate check. A person reaching the "doughnut hole" in 2011 may get a 50% discount on brand name prescription drugs. Unless the law is changed, there will be a gradual closing of the "doughnut hole" through 2020.

3. Preventive Services. Those in original Medicare (not a Medicare Advantage Plan) will now qualify for a free yearly physical examination and other free preventive services. Your doctor will be aware of the services which will now be provided free under traditional Medicare. (Advantage Plans usually offered this service.)

4. Medicare Advantage Plans. As many seniors are aware, Medicare Advantage Plans were introduced in the last decade to provide medical services and drugs under separate plans administered by insurance companies. The administrators of these separate plans are principally Humana, United Health and the Blues. Among these companies there are literally dozens of plans that have been available with varying benefits, co-pays, exclusions and premiums. Many Medicare Advantage Plans included drug coverage at various levels.

You may be aware from the articles in the press that the 2010 Health Bill makes changes in Medicare Advantage Plans by reducing the subsidies to the insurance companies. As a result, there have been announcements by several insurers that they are either changing their Medicare Advantage Plans or discontinuing some of them. This is such a complicated area. We will not try to cover all the permutations and combinations. Seniors should refer to their 2011 handbook "Medicare & You," which is sent out by the government to all seniors. Medicare Advantage participants should consult their Agents and the reference book to see what changes might be in store for 2011. Decisions will need to be made before the first of the year, so "time's a wastin."

5. Part B Premium. The 2010 Affordable Care Act makes some changes in the Part B premiums to be effective in 2011. We are advised that the Part B premium will be affected by income, with higher income individuals having a larger amount deducted from their social security checks for Part B premiums. Check with social security at 1-800-772-1213, or the social security website to see if this change affects you.

6. Deadlines. As most seniors are aware, there are deadlines for making changes and elections. We are currently in the Part D enrollment period when changes in coverage can be made without penalty. Many seniors are also aware that there are penalties imposed for late elections and late changes.

7. Conclusion. This is a critical period for all Medicare Advantage participants, who include many of our clients. Blue Cross-Blue Shield has announced that they are terminating some of their Advantage Plans, while at the same time Humana and United Health are stepping up their recruiting. If you have an Advantage Plan, make sure what changes affect you. If you don't have an Advantage Plan, it may be that you will be able to enroll without penalty. Review the CMS 2011 booklet, Medicare & You.

Medicare services, benefits and costs are generally not within our professional competence. Our Elder Law work involves qualification for Medicaid (nursing home care), estate planning, guardianships and conservatorships. If you or your family have concerns in any of these matters, please contact Jim Modrall or Priscilla Hirt, or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, or Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

FIVE REASONS TO REVIEW YOUR ESTATE PLAN

This month's newsletter is a heads-up for clients and professional advisors, for the benefit of their clients. At the risk of preaching to the choir, here goes:

#1 - Tax Laws Have Changed. All readers are aware of the current uncertainties about the federal estate tax. Kiplingers' latest tax letter indicates that there is not likely to be any action with respect to those who die in 2010. Without Congressional action, the exemption goes down to $1.0 million and a maximum rate of 55%, effective January 1, 2011. Predictions are that the $3.5 million exemption of 2009 will be restored, rates will be subject to Congressional negotiation and there is a possibility that the exemption will be indexed to inflation.

Unfortunately, many people seem to be frozen in the headlights with respect to estate taxes. Assuming that death in 2010 is not imminent (with a potential free pass), there is really no good reason for putting off a review of trusts or wills, especially since many of these documents contain ambiguities about allocation of assets between A and B Trusts.

#2. Family Situation Has Changed. If estate plan documents were made more than ten years ago, it is very likely that some aspects of the family have changed. At a minimum, everyone is older! Maturing grandchildren and aging children often present obvious reasons for changes. Does a child's bequest need to be protected from creditors or divorce? Does the inheritance of a child or grandchild need to be deferred to provide retirement income or protection?

Are the Successor Trustees or Personal Representatives properly designated? Maturing children can take over instead of siblings or friends. A disinterested Trustee or Personal Representative may be needed to resolve potential disputes.

Special needs sometimes arise for children or grandchildren because of accident or disability. There are almost as many reason for family changes as there are families.

#3. Health Needs Have Changed. Health issues can require special provisions. The possibility of long term care (nursing homes) needs to be considered. Is an individual or spouse in need of assisted living facilities? If so, is Veterans Assistance a possibility? Remember that customary estate planning does not work for Medicaid Eligibility. Signs of dementia, Alzheimers or Parkinsons are themselves a reason to review estate planning documents and take precautionary action.

#4. Powers of Attorney and HIPAA Compliance Need to Be Checked. Patient Advocates previously designated may be unwilling to serve or may have moved out of the area. Individuals who spend significant portions of the year in several states may need multiple Medical Powers of Attorney. In many cases, Medical Powers of Attorney were executed before the federal HIPAA laws went into effect in 2003, and HIPAA compliant authorization for access to medical records need to be addressed.

General Durable Powers of Attorney may need to be changed, expanded and updated. Documents executed in middle age are probably not adequate or appropriate for people over 70.

#5. Is Your Trust Up To Date? Trust provisions are often out of date as it relates to allocation of trust assets between a Marital Trust and a Family Trust, in the case of married clients. Often Trusts have not been funded, defeating one of the principal reasons for revocable trusts - avoidance of probate.

Joint Trusts are special candidates for review. A married client with a sick husband recently was aghast to find out that their Joint Trust became irrevocable at her husband's death. Therefore, she would have lost complete control over their assets had the Trust not been amended by both husband and wife. In this instance, neither of them had any recollection or idea of the consequences of their existing trust document.

Second marriages pose special problems in estate planning. Often a husband and wife have not faced up to the normal emotional relationships with step-children, especially after the death of one spouse.

The passing of one's spouse is a particular reason for reviewing changes in trusts. We often see trusts signed by husband and wife with the persuasive influence of one spouse on the other. The death of the dominating spouse often brings about a complete change of mind and attitude on the part of the survivor. Sometimes attitudes of this nature are suppressed by a reticent spouse during marriage, only to come to the surface after the death of the dominant spouse.

Conclusion. I will add a sixth point of consideration because of the amount of trust litigation that we see. That item is the matter of trust administration. Often family members are not experienced in trust administration, do not keep good records and sometimes do not follow the terms of the trust. We strongly recommend that clients consider administration issues and rely on professional counsel, legal and accounting, to avoid the delay, expense and hard feelings from intra-family disputes and litigation. We can assist in a review and update of your estate plan, as well as professional assistance in trust administration. Please call Jim Modrall, Priscilla Hirt, or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, or Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

http://www.bfarlaw.com/

Small Business Gets Help

This subject is a bit removed from our usual estate planning, probate and Medicaid matters. Many of our readers are retired, but we also have professional advisors and CPA's on our distribution list. The occasion for our rambling into the business arena is the passage by the US Senate of HR 5297 Small Business Jobs and Credit Act.

One of the particular highlights of the new law, aimed at propping up small business and providing access to capital, is the expanded definition of a Small Business.

Media Attention on Small Businesses. Anyone reading the paper or watching TV is aware that all politicians are focused on helping "Small Business." We also know from media publicity that Small Business creates 70% of all new jobs. Over the past several months we have heard complaints that Small Business cannot get access to loans, because of the crisis in the financial sector.

This should change in the next few months. Professional advisors should be alert to the new opportunities for their small business clients. By customary definitions, many businesses would not qualify for SBA assistance because of a revenue cap of $6.0 million.

Now, in lieu of a $6.0 million revenue cap, the standard, as we understand the bill, will be tangible net worth of $15.0 million and two year average net income of $5.0 million or less.

We have read that approximately 90% of all companies in America will now qualify for SBA loan assistance. This can be a big deal, as explained below.

What Kind of Assistance Does SBA Give? SBA - Small Business Administration has typically arranged for government guarantees on loans made by banks to "small businesses." Limits on guaranteed loans to small businesses have been increased substantially:

1) General purpose working capital loans for existing or start-up small business, the 7(a) loan program, have been increased from $2.0 million to $5.0 million.
2) Express loans - turn around time 36 hours, have been increased from $350,000 to $1.0 million.
3) The second mortgage loan limit has been increased from $1.5 million to $5.0 million.

These are huge increases, some of which will expire December 31, 2010, unless Congress extends them.

Fee Reduction. The new law eliminates origination fees on all SBA loans through December 31, 2010. This is a huge saving for small businesses, as the up front fees have been a major deterrent to the use of SBA financing.

Increase in SBA Guarantee. While the percentage of SBA Guarantee may vary according to the size and amount of the loan, the former maximum 75% SBA Guarantee has now been increased to 90%. This reduction of risk for banks and other lenders should be a great incentive for them to make SBA loans.

Bottom Line. This advisory letter is not intended to be a thesis on SBA loan programs. This is an alert for all advisors that know business owners and entrepreneurs. If financing is a problem, the government is offering a new, much broader scope for relief. Supporting small business is a stated priority for both political parties!

Conclusion. Our firm is in contact with many active SBA lenders who are looking for business. Our business attorneys are skilled and experienced in expediting these matters. Any person you know who is interested in more facts, should call Doug Shepherd, Tom Pezzetti, or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Is Your Estate Plan Bullet Proof?

What Do You Mean By Bulletproof? By "bulletproof" we mean the ability of others to change or challenge a trust or will. For example, a person makes a trust and transfers real estate and securities to the trust. Since the trust is revocable, the trustor (settlor or grantor) has not bothered to change the provisions regarding disposition of property at death. One of trustor's children moves in with him to provide care. The care giving child feels that there should be some special recompense for giving up part of her independent life to be a care giver.

Then comes the important question, whether the trust can be validly amended to change the provisions for equal distributions among all children?

Now What Happens? This scenario can be a perfect setting for a legal battle after Dad dies.

A couple of things often happen:

1) Care giver takes Dad to an attorney for a trust amendment, giving care giver the house or a larger share (sometimes everything).

2) Care giver has Dad sign over property during lifetime, with or without an attorney, or adds care givers name to bank accounts or securities.

We have covered in a prior newsletter the estate planning problems presented by joint accounts.

What Are The Legal Challenges In These Circumstances? The first challenges that are presented to a family and their legal counsel are Dad's legal competency and the question of undue influence. Questions in Michigan about the level of competency required to make or amend a trust have been resolved by Michigan's new trust law, which explicitly states that the legal standard for trusts is the same as the standard of capacity to make a will. This standard of competency is quite low. It does not require Dad to count backward by threes from 100. Dad merely has to understand what his property is, who the objects of his beneficence are, and the consequences of the action being taken. Nonetheless, the case law is replete with challenges to competency, conflicting evidence and testimony and, ultimately, decisions by a judge or jury.

Undue influence is also asserted in these circumstances. Care giving creates a presumption of undue influence that has to be initially overcome by credible evidence. Care giver has to support any favorable action by Dad with testimony from third parties, or sometimes writings. Care givers and counsel need to anticipate potential challenges and make sure that the case to support Dad's changes can be made after the fact.

Durable Power of Attorney. What authority does the agent named in a Durable Power of Attorney (DPOA) have to make changes? First, the DPOA cannot make a will. Second, a DPOA can often amend a trust. However, because a DPOA is a fiduciary, the validity of a trust amendment made by a DPOA will likely be subjected to the same challenges discussed above and will require supporting evidence that the changes were really Dad's wishes and directions.

The Case For the Care Giver. Our experience is that the services provided by a care giver are often unappreciated by other members of the family who are not providing the same time and effort. Sometimes the care giver is regarded is a free loader "living off Dad's money". Added to a care giver's frustration is a presumption by the Michigan Department of Human Services that family members are supposed to provide care giving service to a parent or spouse for free, absent a written care contract executed in advance.

Unfortunately, families usually do not address these issues ahead of time. Claims are made after Dad's death that he promised payment or promised a particular asset or extra share for services being rendered. Generally, these claims and legal battles are a continuation of early sibling rivalry, which surface after Dad is gone.

Equal Is Not Always Fair. This is an axiom that we often repeat to clients of both generations. A care giving child should have his or her time and effort recognized. It is usually best if other members of the family are both knowledgeable and approving of arrangements. Unfortunately, however, lack of communication, secrecy or procrastination are often present and contribute to legal battles and family disharmony.

Competent elder law attorneys can help lay the ground work and counsel Dad, care givers and other family members ahead of time to work out a fair and just solution to the dilemma of recognizing care giver's services without destroying family unity and good will.

If you or a friend are facing issues of care giving and their effect on estate plans, please contact Jim Modrall, Priscilla Hirt or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe and Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Joint Ownership - Open Door to Litigation?

Avoiding Probate. We often counsel clients on the methods for avoiding probate, among which are revocable trusts and joint ownership.

Joint Ownership - JTWROS. As it is sometimes called in Michigan, JTWROS means that the surviving joint owner owns the property outright when other joint owners have died. At most financial institutions, this is an alternative to TOD (Transfer on Death) and POD (Payable on Death). In all three cases, JTWROS, TOD and POD, the surviving person or persons own the asset when the other named account owner dies. Many people are not aware of the alternative, or of the hazards that any particular account designation can present.

Two hazards should be considered when choosing a form of survivorship designation.

First Is Exposure to Creditors. This means, simply, that a mother who puts a son on her security account or certificate of deposit as JTWROS, may subject that account to attacks by the son’s creditors, even during the mother’s lifetime. This is a compelling reason not to use JTWROS. Personally, we have experienced clients with many sleepless nights when a son or daughter files bankruptcy. These claims can be avoided by using the TOD or POD account designations. Using either of these, the son’s creditors would have no recourse against mom’s financial assets.

Second Hazard - Litigation. The second hazard of any non-probate asset transfer has to do with litigation that can arise when other family members challenge the JTWROS, or other transfer designation, as being inconsistent with mom’s overall estate plan, which leaves property to all children equally, for example.

Michigan law, and the law of most states, creates a presumption that the surviving owner takes the property. However, that presumption can be overcome by evidence of undue influence or lack of capacity, or evidence that mom really intended that the account was a "convenience" account and that the son, as joint owner, would share the property would the siblings.

Generally, the son will usually counter that the special designation of him alone as a joint owner of the asset was in repayment for special care services rendered by the son, or an action separate from mom’s Will.
　
The recent Novosielski case in Pennsylvania is an example of a Treasury Direct account taken out in the name of Alice Novosielski and Tom Proach, her nephew, in the amount of $500,000. You can guess the result. Ms. Novosielski died and the nephew claimed that she intended that all of the Treasury Direct account belonged to him, even though that wish was inconsistent with her Will.

The Pennsylvania Courts have spent nine years trying to sort through litigation about what Ms. Novosielski’s intent was, whether there was undue influence and whether she had legal capacity to understand what she was doing. The nephew, Thomas Proach, was an agent under a Durable Power of Attorney, which creates a fiduciary relationship in itself.

What To Do In These Circumstances. In our experience, often the holder of a Durable Power of Attorney is in an excellent position both to influence the older person and to take self-benefitting actions that are generally questioned after the senior’s death. To avoid litigation, the senior’s intention should be fully documented. Is the account considered a "convenience" account for managing investments and paying bills? Or, is it intended to compensate the agent for end of life services? Did Ms. Novosielski intend that this joint account supersede the wishes expressed in her Will?

Dealing with seniors is a delicate matter, both to document and establish the competency of the senior, which is her understanding of the nature and consequences of her actions. Put another way, did she really know and understand what she was doing?

If a non-probate transfer is different from a Will, it is helpful to have a Codicil explaining intentions and reasons for differences. Absent any such explanations by the senior, self-serving joint account arrangements, or even TOD and POD designations are likely to be challenged in Court.
　
What Lessons Do We Learn From The Novosielski Case? We have outlined above some of the points that the attorneys, either for the nephew or Mrs. Novosielski, should have addressed when the joint account in question was established. If the nephew wanted to be sure that the joint account designation would hold up in Court, he should have made sure that Ms. Novosielski’s intentions were documented and that there were credible witnesses to her competency in doing so. Failure to take these precautionary steps is often a red flag that there has been fraud, lack of capacity or undue influence. In our experience, there is usually very little or no evidence, either supporting the account designation or evidence that the designation was for "convenience". Protracted litigation is the price of this lack of attention to proper details, or at a minimum, the price will be permanent disharmony and anger among the family.

Conclusion. Joint accounts, TOD’s and POD’s are important parts of estate planning. Often they are just as important as the provisions of Wills and Trusts. The same thing holds true with beneficiary designations for insurance and retirement plans. All of these methods of property transfer should be addressed in formulating an estate plan and keeping it up to date. If you, or anyone you know, is acting as a DPOA for an older family member, please let Jim Modrall, Priscilla Hirt or any of the attorneys listed below, assist in making sure that the estate plan in question avoids litigation and carries out the intention of the senior family member.
　
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe and Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.

IRA TRAPS AT DEATH

IRA Owner Dies - What Happens? As IRA owners age, death of an IRA owner will become a frequent event. What challenges and decisions confront the beneficiaries, family members, and their professional advisors?

Our thanks go out to Attorney Robert Anderson of Marquette, who published a succinct summary of the decisions facing advisors and beneficiaries in a 2009 edition of the NAELA News. This newsletter will recap some of those decisions and problems that need to be confronted.

Owner Over Age 70-1/2. The issue here is the Required Minimum Distribution (RMD) for the year of death. The RMD for the year of death has to be taken by December 31 by the designated beneficiary if the owner had not taken his or her RMD prior to death.

Owner's RMD has to be taken by the beneficiary, and the beneficiary pays the tax regardless of stretch or rollover possibilities discussed below. Tax is paid by the beneficiary making the withdrawal. If there is more than one beneficiary, any beneficiary can make the required RMD withdrawal.

If RMD is not taken by December 31 of the year of death, a steep 50% penalty applies.

Is Disclaimer Advisable? Some estate planning attorneys use disclaimers as an active estate planning device. A disclaimer is legal action by the beneficiary to refuse to accept a property right (IRA account ownership) by a "disclaimer." A disclaimer has the effect of passing the property right to the contingent beneficiary, if one is named. If there is no contingent beneficiary, the disclaimed interest would pass to the owner's estate (which is usually not a good option).

Why Would A Beneficiary Disclaim? A disclaimer can transfer ownership of property to a younger or lower-tax beneficiary, which could save estate, gift or income taxes, depending on the family circumstances.

The disclaimer should be considered by beneficiaries and their advisors. However, note the requirements:

1) A qualified disclaimer must be made within nine months of death;
2) The disclaimant cannot receive any funds from the account before disclaiming, including the RMD.
3) A disclaimer can be made for the beneficiary's total share, a specific dollar amount, or a percentage;

Decisions in the Year After Year of Death. If not made before, there are certain decisions that need to be made before September 30 of the year after the year of death. First, and most common, is a spousal rollover. A surviving spouse can "rollover" a spouse' IRA into the survivor's own IRA. The survivor can designate new beneficiaries and obtain a new stretch payout option.

Why Would a Surviving Spouse Not Do a "Rollover"? One reason would be if the surviving spouse is under 59-1/2 and wants to start taking withdrawals. Another reason might be that the beneficiary is older than the owner and would have a less advantageous stretch option.

Keep in mind that the Five Year Rule is a default option in just about all situations. In smaller IRAs this might be a good choice.

September 30 Cleanup Deadline. The September 30 year after year of death deadline is important to get rid of unqualified beneficiaries, whose existence might taint the whole IRA and prevent utilizing the stretch. This can be done by paying off any non-individual beneficiary, such as a charity or estate. Remember all IRA distributions are subject to income tax at ordinary tax rates. It is advantageous from an income tax standpoint to delay distributions as long as possible and accumulate appreciation and income in the IRA account, income tax free. However, this can be done only if there are no "unqualified beneficiaries", which would be charities, estate or unqualified trusts. Only individual beneficiaries get the stretch. (Trusts can qualify if properly drafted.)

Conclusion. IRA accounts are an increasingly important part of family wealth. The death of an IRA owner requires consultation with professional advisors to make sure that the proper decisions are made on a timely basis. If your IRA account is important part of your estate plan, contact Jim Modrall, Priscilla Hirt, or Tom Pezzetti or any of the attorneys listed below.

BFAR is proud to announce the addition of Attorney Priscilla Hirt to its roster of qualified professionals. Priscilla has over 30 years experience in probate, trusts and estate planning in Southeast Michigan and brings the benefits of her knowledge and experience to the probate, estate planning and elder law practice of the firm.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe and Nicole R. Graf at (231) 941-9660.

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.