Bay Area Wills, Trusts & Probate Report : Bay Area Estate Planning Lawyer & Attorney : Karen Meckstroth Law Firm : CA Probate, Wills & Trusts : San Jose, Silicon Valley, Los Gatos

This week, the House and the Senate approved the concurrent budget resolution for fiscal year 2010.  The budget calls for a permanent extension of the 2009 federal estate tax levels -- in other words, a $3.5 million federal estate tax exemption per individual and a 45% top federal estate tax rate.  

The budget also calls on Congress to "extend incentives for enhanced charitable giving from individual retirement accounts, including life-income gifts."  This language refers to extending and expanding the IRA charitable rollover.

The budget resolution does not change current tax laws.  It is a nonbinding document.  Unless Congress acts, the estate tax will be repealed for 2010 and will return with a $1,000,000 federal estate tax exemption in 2011.  But the budget is a blueprint for major tax legislation and indicates Congressional support for a permanent extension of the 2009 federal estate tax levels.

The New York Times and the Wall Street Journal reported on Congress's approval of the budget resolution.

If you'd like a nice roadmap to the federal budget process, the Center on Budget and Policy Priorities offers this overview.

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I've always been a big reader.  I'm also fascinated by "recommended reading" lists.  The editors and writers of SmartMoney have recommended "10 Smart Books" that I wanted to pass along.  I think I will start with Bold Endeavors by Felix Rohatyn.

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Currently, individuals who are at least 70 1/2 are able to make tax-free charitable gifts directly from their IRAs to eligible charities.  This law is set to expire at the end of the year.  There are also some important restrictions under the current law:

• The donor must be at least 70 1/2
• Charitable IRA distributions are capped at $100,000 annually
• Gifts cannot be "life income" gifts -- the IRA distribution cannot be made in exchange for a charitable gift annuity, to a charitable remainder trust, or to a pooled income fund
• Gifts cannot be made to private foundations, donor advised funds, or supporting organizations

On April 22nd, Senator Dorgan (D-ND) and Senator Snowe (R-ME) introduced The Public Good IRA Rollover Act of 2009 (S. 864) to make the charitable IRA rollover permanent and expand current law.  Versions of this bill were introduced in prior sessions of Congress, but did not survive.  The Partnership for Philanthropic Planning issued a bulletin that describes the new Senate bill:

This legislation would make the IRA Charitable Rollover permanent, remove the $100,000 annual limit on donations, provide IRA owners with a planned giving option starting at age 59½, and allow for distributions to supporting organizations, donor-advised funds, and private foundations.

Companion legislation (H.R. 1250) was introduced in the House last month. 

The bill contains the following provisions: 

• Donors still have to be 70 1/2 to make direct charitable gifts from their IRAs
• Starting at age 59 1/2, donors can make planned gifts using IRA funds -- i.e., gifts in exchange for a charitable gift annuity, gifts through a charitable remainder trust or to a pooled income fund (with special rules, of course)
• The $100,000 annual cap is removed
• Gifts can be made to public charities and private foundations, donor advised funds and pooled income funds

The House and Senate bills are in committee.  As you know, many bills don't get any further.  But if the bills survive, I'll continue to report on their progress.  The ability to make lifetime tax-free gifts of IRA assets to charity has been an attractive choice for some individuals who are concerned about the heavy taxation of IRA assets and are charitably inclined.

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If you're an estate planning or litigation attorney in Silicon Valley and don't already have lunch plans for Thursday the 23rd, don't miss the presentation by trusts and estates litigation attorneys Ellen McKissock and Steve Braccini titled "Almost Everything You Ever Wanted to Know About Nearly Every Statute of Limitations, In an Hour."   The seminar is offered by the Trusts & Estates Section of the Silicon Valley Bar Association.  Here's a description:

Estate Planners and Litigators alike must be wary of the pitfalls of the various and intertwining statutes of limitations in the (mine)field of probate.   Some claims have explicit limitation periods called out in the Probate Code, while other causes of action dovetail with statutes of limitation in the Code of Civil Procedure. Some actions have no limitations period at all, while others require analysis of the underlying cause of action to determine the time deadline. Join Ellen McKissock and Steve Braccini of Hopkins & Carley as they attempt to unravel for you the various statutes of limitations and their interplay.  Attend, and don't be late or you will be time barred!

Seminars are open to both members and non-members of the Silicon Valley Bar Association.  There is still time to register.  Follow the link above for all the details.

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I find that one of the toughest parts of the estate planning process for many parents is deciding how they will leave their property to their children after their deaths.  Estate planning brings up many parenting issues -- our dreams for our children's futures, our concerns about giving a child too much too soon, our desire to help our children overcome obstacles without creating a disincentive to be productive. 

After sorting through these issues, parents end up structuring their estate plans in ways that make sense for their own families.  In some plans, parents direct that their assets will be used only as a safety net.  In others, parents direct the trustee to use trust assets to maintain their children in the same lifestyle the parents enjoyed.  Some parents decide property should pass outright to their children shortly after the children reach adulthood.  Some decide to keep property in trust until their children reach their 30s or 40s.  Others decide to keep property in trust for their children's entire lifetimes with the remaining assets eventually passing to grandchildren.  

When a parent has a child with disabilities, the parent faces the additional challenge of figuring out how to provide support and care for the child for the child's lifetime.  The child may be unable to earn an income.  The child may require the assistance of caretakers.  On-going medical costs may be high.  It is often critical to preserve the child's eligibility for SSI and Medi-Cal as part of the plan, whether the child currently receives benefits or may apply for benefits in the future.  

The approaches to estate planning that make sense in many family situations may not make sense if a parent is planning for a child with disabilities.  This is because there are strict restrictions on the assets and income of SSI and Medi-Cal recipients.  Parents and other family members may unknowingly jeopardize the SSI and Medi-Cal eligibility of a child by leaving property outright to the child or naming the child as the beneficiary of a support trust.  A properly drafted special needs trust preserves eligibility, because the trust assets are not counted as the resources of the SSI or Medi-Cal recipient.  The special needs trust allows the child to benefit from private sources -- such as life insurance proceeds and gifts from parents and other family members -- while preserving the child's eligibility for needs-based public benefits.

Special needs trusts fall into two categories -- third-party and first-party SNTs.  Third-party SNTs are funded by someone other than the beneficiary.  First-party SNTs are funded with the beneficiary's own assets.  This post focuses on the third-party special needs trust.  There are important requirements not mentioned here that must be followed to establish a first-party special needs trust.

Some key concepts about third-party special needs trusts:

• The trust can be established as a stand-alone trust during the parent's lifetime or can be established on the parent's death under the terms of the parent's own revocable living trust. 
• The beneficiary of the special needs trust cannot be the trustee of the trust, cannot control the distributions from the trust, and cannot revoke the trust and use the trust assets for his or her benefit.
• The trust assets must supplement and not supplant government benefits.
• Depending on the situation, the trust may be drafted to allow distributions that result in the reduction of public benefits in order to allow flexibility. 
• The concept of "special needs" is broad.  If the beneficiary receives SSI and Medi-Cal, then the trustee can use trust assets for basically anything other than food, "shelter," and Medi-Cal provided medical services.
• There are different ways to fund the third-party SNT.  Parents may want to seek the advice of an investment advisor or life insurance professional with expertise in planning for individuals with disabilities. 

A special needs trust does not always make sense, but in many cases it is an important part of the overall plan for a child with disabilities to lead a happy, productive and dignified life. 

The information provided in this website/blog is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice.

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I was in San Diego yesterday to give a presentation to the Board of Directors of Employment & Community Options, a public charity that provides employment services for disabled adults in multiple counties in California. 

The presentation focused on endowment building and planned giving.  We discussed why an endowment is key to the survival of a charity -- how, for example, an endowment can safeguard a charity if annual gifts or government funding drops off.  We talked about planned gifts -- gifts like bequests, gifts of life insurance, and charitable remainder trusts.

You might think that all charitable giving decreases in an economic downturn, when just about everyone is feeling the pinch.  But some recent studies conclude that charitable bequests (gifts in wills and revocable living trusts) actually increase in recessions.  (Thank you to the Nonprofit Law Prof Blog.)

This makes sense to me based on my own work with clients.  A lot of people want to make charitable gifts, but they may be unwilling or unable to part with any of their income.  Instead, they might name a charity in their will or trust to receive a specific sum or a percentage of their estate after their death. 

If you want to make a bequest and already have a will or trust in place, you should see your estate planning attorney to draft a codicil (for a will) or trust amendment (for a trust).  If you are doing your estate plan for the first time, part of the planning process should focus on your charitable goals, including whether you want to make gifts to charities in your will or trust.

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