Debra Rahmin Silberstein

Attorney and Counsellor at Law

 

69 Park Street

Tel 1-978-474-4700

Andover, MA 01810

Fax 1-978-474-4701

Debra@debrasilberstein.com

 

 

TRUSTEES CERTIFICATE

JANUARY 2003

            Effective immediately, a new bill was passed by the state legislature and signed by then-Governor Jane M. Swift on January 1, 2003 that allows attorneys to record a Trustees Certificate at the Registry of Deeds rather than the full trust document when a property interest is owned by a trust.

            Under the new law, a Trustees Certificate may be filed at the Registry of Deeds:

·        identifying the trustees or the beneficiaries in the trust;

·        giving the trustees authority to act with respect to the real estate owned by the trust; and

·        certifying that the “existence or nonexistence of a fact which constitutes a condition precedent to acts by the trustees or which are in any other manner germane to affairs of the trust, shall be binding on all trustees and the trust estate in favor of a purchaser or other person relying in good faith on the certification.”  

            This Trustee Certificate shall be equivalent to actual notice to all persons claiming under a conveyance, attachment or execution thereafter made or levied.  

            This new law will allow individuals to have real estate held in Trust without sacrificing the privacy of their estate planning documents or having an additional trust (nominee).  In addition, this bill will reduce the expense of recording by recording only a one or two page Trustee Certificate as opposed to the full trust document.

These materials are intended to assist readers as a learning aid but do not constitute legal advice and, given their purpose, may omit discussion of exceptions, qualifications, or other relevant information that may affect their utility in any planning situation.  Diligent effort was made to insure the accuracy of these materials but Attorney Silberstein assumes no responsibility for any reader’s reliance on them and encourages all readers to verify all items by reviewing all original sources before applying them.  The reader should consider all tax and other consequences of any planning technique discussed

 

 

To:      All Estate Planning Clients

Re:      New Massachusetts Estate Tax

Date:   January 3, 2003

            Effective January 1, 2003 , Massachusetts has enacted an estate tax for decedents dying after December 31, 2002 .  The statute is ambiguous.  It is my understanding that both the Massachusetts Department of Revenue and the legislature are aware of this.  Although there has been some talk of corrective legislation, I am doubtful this will occur given the state’s economy.

The new state estate tax will impact estates over $700,000 for 2003.  The state exemption, $700,000, is below the federal exemption of $1,000,000 (for 2003).  This means that estates which are exempt from federal estate tax may still owe state estate taxes.  See summary of exemptions on page 2 of this memo.

Background

This revision results from changes to the federal estate tax, The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which phases out the state death tax credit (or Massachusetts’ share of the “sponge” tax).  By the 1990’s, most states, including Massachusetts (for decedents dying after 1996), had adopted a state estate tax equal to the maximum credit available under IRC §2011.  This was known as a “sponge tax” or “pickup tax”.  Part of the reason was because studies indicated that any state estate tax beyond the amount of the federal credit resulted in a net revenue loss to the state, because the tax was one factor influencing retirees, along with their taxable income, to relocate to states without a state estate tax in excess of the federal credit.  To offset the loss of revenue, Massachusetts will now require the payment of estate taxes even if there is no federal estate tax liability.  The state estimates this will add $30-$40 million in state estate tax revenue for 2004.

            In the case of a married couple, the estate tax due to the Commonwealth upon the death of the first spouse to die will be $33,200, based on traditional by-pass trust funding with the applicable federal exemption amount (currently $1,000,000).  The tax due increases as the federal estate tax exemption increases.  See chart below.

            Four options are noted in this memorandum.  First, if you are married, your revocable trusts can be amended to limit the amount allocated to the “credit shelter” or “by-pass” share to the amount of the Massachusetts exemption.  This solution could cost more in federal estate taxes upon the second death.  This solution also requires a more complicated Trust formula, but it is the formula estate planners used prior to Massachusetts adoption of the “sponge” tax.  A second option is to pay the Massachusetts estate tax.  A third option is to provide liquidity through the use of life insurance (preferably owned by an Irrevocable Life Insurance Trust) to pay the estate tax.  A fourth option might include increasing your annual gifting.  Finally, many of you will choose to wait and see what the state legislature does.

            The impact of EGTRRA law was not unique to Massachusetts .  All states which had adopted a “sponge” tax, tying their revenues to the federal death tax credit, faced significant revenue losses.  To date, approximately 15 states, including Massachusetts have moved to “de-couple” their estate tax rules from the federal government to avoid this significant revenue loss.

            Should you have any questions or need additional information, please do not hesitate to call.

Summary of Exemptions and Estimated Massachusetts Estate Tax

                                                                                                Massachusetts

            Massachusetts                          Federal                         Estate Tax on Federal

             Year                Exemption                                Exemption                    Exemption Amount

2003                $   700,000                              $1,000,000                  $    33,200

2004                $   850,000                              $1,500,000                  $    64,400

2005                $   950,000                              $1,500,000                  $    64,400

2006                $1,000,000                              $2,000,000                  $    99,600

2007                $1,000,000                              $2,000,000                  $    99,600

2008                $1,000,000                              $2,000,000                  $    99,600

2009                $1,000,000                              $3,500,000                  $  229,200

2010                $1,000,000                              No estate tax

 

 

These materials are intended to assist readers as a learning aid but do not constitute legal advice and, given their purpose, may omit discussion of exceptions, qualifications, or other relevant information that may affect their utility in any planning situation.  Diligent effort was made to insure the accuracy of these materials but Attorney Silberstein assumes no responsibility for any reader’s reliance on them and encourages all readers to verify all items by reviewing all original sources before applying them.  The reader should consider all tax and other consequences of any planning technique discussed

 

 

Federal Estate Tax Credit Shelter Amount

 

 

 

 

 

Year

              Applicable  Exclusion Amount

      Applicable              Credit        

     Maximum Estate         Tax Savings       

Top Tax        Rate       

 

 

 

 

 

2002

$1,000,000

$345,800

$500,000

50%

2003

$1,000,000

$345,800

$490,000

49%

2004

$1,500,000

$555,800

$720,000

48%

2005

$1,500,000

$555,800

$705,000

46%

2006

$2,000,000

$780,800

$920,000

45%

2007

$2,000,000

$780,800

$900,000

45%

2008

$2,000,000

$780,800

$900,000

45%

2009

$3,500,000

$1,455,800

$1,575,000

45%

2010

$0

$0

$0

0%

2011

$1,000,000

$345,800

$550,000

55%

 

 

 

 

 

 

 

 

 

 

Important:  This diagram is intended for discussion purposes only and by itself should not be the basis for any

 

specific planning decisions.  You should always consult with your attorney, tax advisor or other appropriate

 

professionals before changing or implementing any financial or estate planning strategy.

 

 

 

 

 

 

Last updated January 2003

 

 

 

 

New Mass Estate Tax

To:       All Estate Planning Clients

Re:       New Massachusetts Estate Tax

Date:    January 3, 2003

            Effective January 1, 2003 , Massachusetts has enacted an estate tax for decedents dying after December 31, 2002 .  The statute is ambiguous.  It is my understanding that both the Massachusetts Department of Revenue and the legislature are aware of this.  Although there has been some talk of corrective legislation, I am doubtful this will occur given the state’s economy.

The new state estate tax will impact estates over $700,000 for 2003.  The state exemption, $700,000, is below the federal exemption of $1,000,000 (for 2003).  This means that estates which are exempt from federal estate tax may still owe state estate taxes.  See summary of exemptions on page 2 of this memo.

Background

This revision results from changes to the federal estate tax, The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which phases out the state death tax credit (or Massachusetts’ share of the “sponge” tax).  By the 1990’s, most states, including Massachusetts (for decedents dying after 1996), had adopted a state estate tax equal to the maximum credit available under IRC §2011.  This was known as a “sponge tax” or “pickup tax”.  Part of the reason was because studies indicated that any state estate tax beyond the amount of the federal credit resulted in a net revenue loss to the state, because the tax was one factor influencing retirees, along with their taxable income, to relocate to states without a state estate tax in excess of the federal credit.  To offset the loss of revenue, Massachusetts will now require the payment of estate taxes even if there is no federal estate tax liability.  The state estimates this will add $30-$40 million in state estate tax revenue for 2004.

            In the case of a married couple, the estate tax due to the Commonwealth upon the death of the first spouse to die will be $33,200, based on traditional by-pass trust funding with the applicable federal exemption amount (currently $1,000,000).  The tax due increases as the federal estate tax exemption increases.  See chart below.

            Four options are noted in this memorandum.  First, if you are married, your revocable trusts can be amended to limit the amount allocated to the “credit shelter” or “by-pass” share to the amount of the Massachusetts exemption.  This solution could cost more in federal estate taxes upon the second death.  This solution also requires a more complicated Trust formula, but it is the formula estate planners used prior to Massachusetts adoption of the “sponge” tax.  A second option is to pay the Massachusetts estate tax.  A third option is to provide liquidity through the use of life insurance (preferably owned by an Irrevocable Life Insurance Trust) to pay the estate tax.  A fourth option might include increasing your annual gifting.  Finally, many of you will choose to wait and see what the state legislature does.

            The impact of EGTRRA law was not unique to Massachusetts .  All states which had adopted a “sponge” tax, tying their revenues to the federal death tax credit, faced significant revenue losses.  To date, approximately 15 states, including Massachusetts have moved to “de-couple” their estate tax rules from the federal government to avoid this significant revenue loss.

            Should you have any questions or need additional information, please do not hesitate to call.

Summary of Exemptions and Estimated Massachusetts Estate Tax

                                                            Massachusetts

                                 Massachusetts                                                                 Federal                         Estate Tax on Federal

Year                 Exemption                                Exemption                    Exemption Amount

2003                $   700,000                              $1,000,000                        $    33,200

2004                $   850,000                              $1,500,000                        $    64,400

2005                $   950,000                              $1,500,000                        $    64,400

2006                $1,000,000                              $2,000,000                        $    99,600

2007                $1,000,000                              $2,000,000                        $    99,600

2008                $1,000,000                              $2,000,000                        $    99,600

2009                $1,000,000                              $3,500,000                        $  229,200

2010                $1,000,000                              No estate tax

 

 

 Update on the Medicaid Lien

 

 All long-term care policies issued on or after March 15, 1999, will need to satisfy new minimum coverage requirements if a policyholder is to qualify for the following MassHealth exemptions. These exemptions are:

 

  • Financial Eligibility Exemption: If an individual purchases a long-term care policy meeting certain regulatory standards, the individual's home will not be considered a countable asset for purposes of determining financial eligibility for Medicaid.

 

  • Liability Exemption: No recovery for nursing facility or other long-term care services may be made by Medicaid from the estate of any person who:
    • was institutionalized
    • notified the Division of Medical Assistance that he or she had no intent on returning home; and
    • on the date of admission to the long-term care institution had long-term care insurance whose coverage met the requirements of the Massachusetts long-term care regulation.

 

Previously, a long-term care policy met requirements if it included a fifty ($50.00) dollar nursing home daily benefit and a two (2) year benefit period. As of March 15, 1999 the daily benefit requirement was increased to one hundred and twenty-five ($125.00) dollars.

 

HOW DOES THIS IMPACT YOU?

 

Under the new proposed regulation, if the policyholder is to qualify for the MassHealth exemptions, a long-term care policy issued on or after March 15,1999 must meet the following minimum requirements:

 

  • an individual must be covered under an individual, group, or employment- based group policy issued on or after March 15, 1999;

 

  • the policy must cover nursing and custodial care in a nursing home;

 

  • the policy must have a nursing home daily benefit equal to at least one hundred and twenty-five (125) dollars;

 

  • the policy must have a minimum of a two (2) year benefit period;

 

  • the policy must provide nursing and custodial care in a nursing home for individuals who meet certain minimum medical criteria, and;

 

  • the policy may not have an elimination period that exceeds three hundred and sixty-five (365) days.

 

WHAT IF YOU'RE AN EXISTING POLICYHOLDER?

 

If you have a policy that was issued prior to March 15, 1999, which met the requirements of the Massachusetts long-term care regulation, it is grandfathered, meaning that the new standards do not apply to you.

 

 

Long Term Care Initiatives

 

The White House has announced what it calls "an historic new initiative" to provide relief for families with long-term care needs. The proposal would spend $6.2 billion over five years to help, either directly or indirectly, an estimated 2 million people. The proposed programs would provide:

 

· A $1,000 tax credit either for the individual needing care, or if that person's income is too low, for a relative with whom the disabled person lives at least six months of the year (or 12 months if a distant relative). If approved, this would represent the biggest tax credit for families in the administration's proposed budget. The cost of the program would be $5.5 billion over five years.

 

· An increase of $125 million a year for five years in funding to states to provide respite care, adult day care, supportive services, and information and referral about available long-term care services. Such services and activities are already supported by federal programs such as the Older Americans Act.

 

· An expenditure of $10 million for fiscal year 2000 to launch "a national campaign to educate Medicare beneficiaries about the programs' limited coverage of long-term care and how best to evaluate their options." Congress has twice before (in 1988 and 1990) directed the Secretary of Health and Human Services to mount similar campaigns.

 

· A proposal to spend $15 million over five years to offer unsubsidized long-term care insurance to federal employees, retirees, and their families at group rates that the White House estimates will be 15 to 20 percent lower than rates individuals now pay for such insurance. The government estimates that about 300,000 federal employees would take part in such a program.

 

The long-term care insurance industry continues to focus efforts on gaining an across-the-board tax deduction for long-term care premiums. The current law provides limited deductions for long-term care insurance only if premiums exceed 7.5 percent of adjusted gross income. Other options lawmakers may consider include allowing medical savings accounts to be used for long-term care needs and permitting employees to invest pretax dollars in long-term care contracts.

 

Long-Term Care Insurance Minimum Coverage  Requirements to Avoid "Medicaid Lien"

 

All long-term care policies issued on or after March 15, 1999, will need to satisfy new minimum coverage requirements if a policyholder is to qualify for the following MassHealth exemptions. These exemptions are:

 

    • Financial Eligibility Exemption: If an individual purchases a long-term care policy meeting certain regulatory standards, the individual’s home will not be considered a countable asset for purposes of determining financial eligibility for Medicaid.

 

    • Liability Exemption: No recovery for nursing facility or other long-term care services may be made by Medicaid from the estate of any person who:
      • was institutionalized
      • notified the Division of Medical Assistance that he or she had no intent on returning home; and
      • on the date of admission to the long-term care institution had long-term care insurance whose coverage met the requirements of the Massachusetts long-term care regulation.

 

Previously, a long-term care policy met requirements if it included a fifty ($50.00) dollar nursing home daily benefit and a two (2) year benefit period. As of March 15, 1999 the daily benefit requirement was increased to one hundred and twenty-five ($125.00) dollars.

HOW DOES THIS IMPACT YOU?

 

Under the new proposed regulation, if the policyholder is to qualify for the MassHealth exemptions, a long-term care policy issued on or after March 15,1999 must meet the following minimum requirements:

 

    • an individual must be covered under an individual, group, or employment- based group policy issued on or after March 15, 1999;

 

 

    • the policy must cover nursing and custodial care in a nursing home;

 

    • the policy must have a nursing home daily benefit equal to at least one hundred and twenty-five (125) dollars;

 

    • the policy must have a minimum of a two (2) year benefit period;

 

    • the policy must provide nursing and custodial care in a nursing home for individuals who meet certain minimum medical criteria, and;

 

    • the policy may not have an elimination period that exceeds three hundred and sixty-five (365) days.

WHAT IF YOU’RE AN EXISTING POLICYHOLDER?

 

If you have a policy that was issued prior to March 15, 1999, which met the requirements of the Massachusetts long-term care regulation, it is grandfathered, meaning that the new standards do not apply to you.

The U.Fund College Investing Plan

To: All Estate Planning Clients

Date: December, 2000

Re: The U.Fund College Investing Plan

 

The U.Fund College Investing Plan is a fairly new tax advantaged college savings plan sponsored by the Commonwealth of Massachusetts Educational Financing Authority and managed by Fidelity Investments. In the right situation the Plan offers income, gift and estate tax benefits to individuals wanting to fund a college education for a child, grandchild, niece, nephew or anyone.

How does the plan work?

  • An account is opened in the name of a child, who becomes the beneficiary.
  • Money deposited in the account grows federal and state income tax deferred until the child reaches college age.
  • Contributions may only be made in cash.
  • Money may be withdrawn to pay for tuition, fees, room*, board*, books or required equipment or supplies for college. Upon withdrawal, earnings are taxed at the child’s then tax rate (assuming this is lower than the parents).
  • The beneficiary may use money invested with the U.Fund to attend most colleges and universities nationwide for "qualified higher education expenses" as defined in the Internal Revenue Service Code Section 529(e).
  • If the beneficiary does not use all the money, it can be transferred to another beneficiary without penalty.

How is money invested and managed?

  • Money is invested according to a plan developed by the Commonwealth of Massachusetts and Fidelity. The plan starts out with a more aggressive mix stocks and bonds when a child is young, and becomes steadily more conservative as the child approaches college age.

 

  • Money is managed by Fidelity. A 1% annual management fee and a $30 set up/annual fee (the annual fee may be waived in some circumstances) are charged. No contributor or designated beneficiary may directly or indirectly direct the investment of contributions to the Plan.
  • There is no guarantee of any specific rate of return on your investment.

Who is eligible to participate in the plan?

  • Residents of any state may participate, although residents of states other than Massachusetts may face different state income tax treatment.
  • There are no income tax limitations for participation.

What are the tax benefits?

  • Income tax benefits include tax deferred investment growth and taxation at the child’s rate at time of withdrawal.
  • Gift tax benefits include qualification for the $10,000 annual gift tax exclusion or a special election will allow contribution of up to $50,000 in one lump sum also qualifying for exclusion from gift tax.
  • Estate tax benefits include removal of funds contributed to the plan and future earnings from the gift giver’s estate.

What is the maximum contribution allowed?

  • The maximum contribution allowed is determined by calculating the cost of five years at the highest priced college in Massachusetts. This amount is currently $158,750.

This program complies with the Internal Revenue Code Section 529, Qualified State Tuition Program.

____________________________

*See Internal Revenue Service Code Section 529(e)(3)(B).

Tax Alert - Family Owned Business Exclusion

TO:        Estate Planning Clients

FROM:  Debra Rahmin Silberstein, Esquire

DATE:   January 12, 1998

RE:        Tax Alert - Family Owned Business Exclusion

 

            The Taxpayer Relief Act of 1997 (TRA '97) introduced several federal estate tax changes.  Section 2033A of the Internal Revenue Code was added, providing a $1.3 million dollar exclusion from a decedent's gross estate for his or her interest in a "Qualified Family-Owned Business" (QFOB).  This provision is effective for estates of decedents dying after December 31, 1997 and is reduced by the applicable exclusion amount of the unified credit.  The estate tax savings from Section 2033A decreases proportionately for years after 1998 because the applicable unified credit exclusion amounts increase until the year 2006.  Assuming a maximum estate tax rate of 55%, approximately $371,000 of estate tax is saved for estates of decedents dying in 1998 ($1.3 million less the 1998 unified credit exclusion of $625,000 multiplied by 55%).

 

            A QFOB interest is defined as an interest in a trade or business, regardless of the form in which it is held (sole-proprietorship, partnership, trust, S-Corp, etc.), with its principal place of business in the United States.  Certain requirements must be met in order to qualify for the QFOB exclusion.

 

            1.  A QFOB is a business that constitutes more than 50% of the value of the adjusted gross estate of a U.S. citizen or resident.  The executor of the estate must elect to have the QFOB provision apply.

 

            2.  The trade or business must be held at least 50% by one family, 70% by two families, or 90% by three families, as long as the decedent's family owns at least 30% of the trade or business.  Family ownership percentages are determined using both value and voting percentages of all classes of stock.

 

            3.  An individual's family includes the individual's spouse, the individual's ancestors, lineal descendants of the individual, of the individual's spouse, of the individual's parents, and the spouses of such lineal descendants.

 

            4.  The decedent or a member of the decedent's family must have materially participated in the trade or business for at least five of the eight years preceding the date of death of the decedent and the QFOB must pass to a "qualified heir".

 

            5.  A "qualified heir", or a member of the qualified heir's family, must materially participate in the trade or business for an aggregate of five years in any eight year period within ten years following the decedent's death.  If this requirement is not met, a recapture tax is triggered.  (No one factor controls, but physical work and managerial responsibilities are key to the determination of material participation).

 

            The requirements of Section 2033A are difficult to satisfy, but significant planning opportunities may be available with proper planning.  If you would like information outlining these planning opportunities or if you have any other questions please contact me.    

Estate Tax Law Changes June 2001

Estate tax law changes are of primary interest.  The estate tax will phase-out gradually.  The unified credit or the amount that an individual may pass free of estate or gift tax (either at death or during life) will be:

 

Year                Top Estate Tax Rate            Exemption Amount

2002                            50%                                    $1,000,000

2003                            49%                                    $1,000,000

2004                            48%                                    $1,500,000

2005                            47%                                    $1,500,000

2006                            46%                                    $2,000,000

2007                            45%                                    $2,000,000

2008                            45%                                    $2,000,000

2009                            45%                                    $3,500,000

2010                            repealed                                N/A

2011                            55%                                    $1,000,000

 

There is a full repeal of the estate tax in 2010.  Simultaneously the plan reduces the top estate and gift tax rates gradually over the same period from 50% to 45%.  However, the full repeal is only in effect for the year 2010.  In 2011, the bill provides for an automatic reinstatement of the 2001 estate tax rules.  Tax experts disagree on whether the tax will be revived and if so, to what extent.  

 

            Upon full repeal of the estate tax, the law will replace the current stepped-up basis on assets given at death with carry over basis.  This will require heirs to keep track of the original basis.  The law does allow $1.3 million of basis to step up for some assets and $3 million to step up with regard to assets transferred to a surviving spouse.  This provision excludes property acquired by a decedent by gift from a non-spouse within three years prior to decedent’s death.

 

            The law retains the gift tax, in part to prevent the use of gifts to transfer property from higher to lower rate taxpayers.  Upon repeal of the estate tax the maximum gift tax rate will be 40% with a lifetime gift exclusion rising to $1 million in 2002 and remaining at the said $1,000,000.  The current annual exclusion will remain unchanged at $10,000 per individual.  After 2010, transfers to a trust will be a taxable gift unless all of the trust’s income is taxed to the donor or the donor’s spouse.  

 

            The state death tax credit that has previously been allowed against the federal estate tax will be phased out as well.  The law reduces the credit by 25% in 2002, 50% in 2003, 75% in 2004, and thereafter it is repealed and replaced by a deduction against the federal estate tax in place of the credit for the state death taxes paid.  It has been estimated[1][1] that this will result in a loss of $50-$100 billion to the states over the next 10 years, or approximately 1.5% of state tax collection revenues.

 

The estate tax changes are difficult for “planning”.  Revisions to wills and trusts and/or the funding of the typical revocable trust will be necessary on an ongoing basis.  Full repeal of the estate tax will occur only for one (1) year, 2010.  The automatic reinstatement of the 2001 rules in 2011 will undoubtedly force Congress to revisit this issue again.


 

Legal Links