Estate Recovery

For many years, a personal residence in Michigan could be transferred to a family free and clear of any claim for nursing home expenses of a deceased parent. As you may be aware from the media, Michigan recently implemented an “estate recovery” program to change all of that.

The good news is that, for now at least, estate recovery is only going to apply to homes that actually end up in a probate court estate, and by pre-planning, there are several ways to prevent that, the simplest being a new special form of deed, known as a “ladybird deed” that we can prepare for you. In essence, a ladybird deed adds a “pay on death” designation to real estate, but it also has to be properly done to be effective.

Even for families who didn’t adequately pre-plan, a recent legal seminar pointed out several different avenues for defeating, or at least minimizing, a claim against a probate homestead for nursing home expenses. Though they are too complicated to get into here, there are several possible defenses having to do with notice and legal procedures that an attorney could raise. Better yet, while the issue is still winding its way through the courts at this writing, it may turn out that at least 50% of the value of a home is exempt from estate recovery, and that, combined with some other existing family allowances out of a probate estate, may be sufficient to leave the nursing home with very little. It will probably be a year or two before an actual precedent is established by a higher court.

John T. Svendsen

Dispatches from Thorvald

The Republican House leadership is finally waking up to the fact that it would help them in the election if Congress accomplishes something before then, lest they be thrown out in an anti-incumbent groundswell.Therefore, a Republican member of Ways and Means is proposing to bring to a vote PRIOR to the election, a permanent extension of part of the Bush tax cuts, including the present 5/35 on the estate tax. This same guy had proposed a permanent repeal of the Estate Tax and has over 200 co-sponsors for it, but they realize they won’t ever get 60 votes in the Senate for that, and for now, they’re trying to put together a package that would draw enough support to actually pass. They’re intentionally leaving out individual tax rate provisions until the lame duck session.

How do you know you’re getting a good nursing home for your Mom? Are there questions you can ask that will signal that you know what you’re talking about and will be adept at watching out for your Dad? An article in a recent Michigan law institute newsletter (written by Attorney Laurie Murphy) recommends the following ten questions:

1. Can you tell me about your care plans?
2. What were the results of the last three inspections?
3. How does the facility minimize use of restraints?
4. Can I take a tour?
5. Do you like living or working here?
6. How many staff members are working at a given time?
7. Is there an active resident or family council?
8. What happens if my source of payment changes?
9. How much control does the resident have?
10. How convenient is it for my friends and family to visit?

Eric J. Scheske

IRS Not Busy Enough?

Did you know the IRS isn’t busy enough with federal estate tax return audits? That’s a good thing, right? Not really. Because they aren’t busy enough with estate taxes, they’re increasing initiatives with respect to the federal gift tax (heaven forbid that they lay off revenue agents and save the taxpayers money). They are, for instance, looking into real property conveyances. For awhile, they were investigating transfers to 501(c)(4) organizations, but that initiative has been abandoned.

It could get scary. Failure to report gifts can result in interest, delinquency-related penalties, accuracy-related penalties, and criminal prosecution.

Eric J. Scheske

A Great Thing . . . with Pitfalls

Most people have heard that Congress last year inserted “portability” into the federal estate tax. “Portability” means that a surviving spouse can use her deceased spouse’s unused estate tax exclusion. Under current exclusion amounts, this means a married couple can shield up to $10 million worth of assets from estate taxes (without portability, each spouse would have a segregated $5 million).

But there are potential pitfalls. (1) If you re-marry, you lose the portability from your first spouse’s estate. (2) Portability expires after 2012 (though most commentators expect it to be renewed—it’s popular among Republicans and President Obama). (3) You must elect portability and the election is irrevocable. (4) You only get portability if you timely file IRS Form 706, which is a real pain. (5) There are complications if you have a non-citizen spouse.

If you’re lucky enough to have an estate tax problem, be sure to discuss portability with your tax and estate planning advisers.

Eric J. Scheske