The Estate Tax is dead! Long live the Estate Tax!

If you have an estate worth more than $1 million (be sure to add in the face value of all life insurance):  READ THIS! If you are an attorney, accountant or financial advisor: READ THIS!

For almost 9 years I confidently predicted that Congress would certainly either eliminate the estate tax or "permanent-ize" it at an exclusion amount of $3 million or so. My predictions were confident and certain because: (A) Every other estate planning attorney was predicting the same thing, and (B) I adhered to the foolish notion that Congress would act rationally.

Silly me.

Background

As a result of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), beginning January 1, 2010, the estate and generation-skipping transfer taxes have been repealed for one year while the gift tax remains in place with a $1 million exemption and 35% maximum rate.

When Congress (a Republican one) first passed EGTRRA, the estate tax applied to individual estates worth more than about $1 million. That caught many estates, especially when a large insurance policy, and a house or a farm were tossed into the mix.

The idea behind EGTRRA was that the million dollar exclusion would ratchet up every year until reaching $3.5 million in 2009. Then in 2010, the estate tax would be repealed for a year before returning at pre-EGTRRA levels in 2011. That sort of craziness was due to arcane Senate rules and everyone seemed to agree that the estate tax would be permanently dealt with in some manner before then.

In fact, the House voted to repeal the estate tax in the summer of 2005 and sent the bill over to the Senate.  Senator Frist, then the majority leader, said estate tax repeal would be the first item up when the Senate returned from the summer break in September. Remember what happened Labor Day weekend 2005? Hurricane Katrina. People clutching to chimneys waiting for helicopters. Devastation. Misery. Politically, Katrina made estate tax repeal seem . . . unseemly.

Later the Democrats retook Congress. Then came Barack Obama. And the estate tax issue languished.

Parliamentary Machinations

On December 2, 2009, the House of Representatives, along strictly partisan lines, passed H.R. 4154, making 2009 law (with its $3.5 million estate and GST tax exclusions, 45% rate, and IRC § 1014) permanent.

On December 24, 2009, Senator Max Baucus (D-MT) attempted through parliamentary maneuvering (which would require bipartisan support) to skip the first and second reading of the bill and extend the then current tax scheme for two months into 2010, which would give the senate time early in 2010 to take up the issue and avoid the confusion that currently confronts us.  In response, Senator Mitch McConnell (R-KY) attempted to introduce a bill that would permanently raise the exemption to $5 million, lower the top rate to 35%, and allow a surviving spouse to use unused exemption "left over" from a deceased spouse.

At this point, full of the Christmas spirit and anxious to get home through a blizzard raging in the middle of the country, H.R. 4154 was docketed for the usual second reading immediately upon the return of the Senate in 2010.  On January 20, 2010, the bill was read the second time and placed on the Senate Legislative Calendar where, as of today, it languishes.

So right now, there is no estate tax.

However, the pre-EGTRRA estate tax scheme could borrow a line from The Terminator: "I'll be back!" Unless Congress acts, the estate, gift, and GST taxes as they existed before 2002 will be reinstated (automatically) on January 1, 2011, with a 55% rate and a $1 million exemption for lifetime and testamentary transfers (as well as a $1 million exemption from GST tax).

So . . . What Now?

Congress could act quickly . . . or not.  When and if it acts, the question remains with respect to prospective versus retroactive application. 

That being said, congressional Republicans may find an automatic reinstatement of the 2002 tax with a 55% rate and a $1 million exclusion highly unpalatable, which may put them in more of a mood to "make a deal". On the other hand, congressional Democrats can force a tax increase simply by doing nothing, which may be attractive given the state of federal coffers.

I'm betting on the former. The federal coffers are a mess. Talk of tax increases are commonplace . . . less a question of IF and more of WHEN? and HOW MUCH? A "new" estate tax will be on the books in less than a year by doing . . . nothing. No raucous debates, no filibusters . . . nothing. The temptation and expediency will be too much.

Bottom Line

We'll continue to monitor the situation and keep readers advised. If my predictions are correct, late 2010 and early 2011 could be a busy time for all as we revise estate plans for clients with estates in excess of $1 million.

You may email comments to Bob by clicking HERE.

One of the biggest dangers facing our elderly today may be right there in their own homes. No, I'm not talking about Lawrence Welk reruns. I'm talking about their medicine cabinets.

Many elderly suffer ill effects, are hospitalized, or even die due to medication errors. No, not the ones committed by doctors and hospitals that 60 Minutes likes to rant on about. I'm talking about the patients' (or in-home caregivers') own errors. It is very easy for an elderly person to get confused and skip a medication or double it or otherwise handle it incorrectly. Let me explain how this can happen.

A medication Uncle Frank takes regularly becomes available in generic form. The pharmacist, in response to a request from Uncle Frank's insurance company, dutifully fills the generic. Uncle Frank becomes confused at the different name and appearance, thinks it is a totally new medication his doctor has ordered, and since he still had some of the old pills from last winter when he was hospitalized and did not take his home meds for awhile, continues to take the old meds and the new meds as well, essentially double-dosing himself.

Or try this one: Aunt Sally sees her family doctor, who noticing her blood pressure is up, starts a new medication to help control it. Aunt Sally forgets to mention that her cardiologist had added some pills at her last visit there, two months ago. In fact, Aunt Sally forgets to mention that her daughter had her see a cardiologist at all. As it turns out, the medications both physicians had added were identical, but neither physician knew.

Many elderly people are on multiple medications for very necessary reasons. Although doctors should and usually do make every effort to minimize the number of pills one person takes, sometimes managing multiple chronic health problems requires multiple different medications. The regimens can be complex enough to confuse anyone, let alone someone with failing eyesight and memory.

My own mother moved in with us a few months ago. She is a retired registered nurse, and with that level of training, I had little patience with her inability to keep up with her medications and at times her failure to take them correctly. Two weeks of trying to manage her medications for her had me apologizing profusely for my lack of empathy. She takes a total of 17 different pills that are dosed at four different times of day. After the morning lot, she hardly has any room left in her stomach for breakfast!

It took some organizing and the purchase of a specialized divided pillbox, but we eventually worked out a good routine to make it easier for her. I suggest anyone watching out for an elderly relative take similar steps:

• Go through all the person's medication bottles, separating out any duplicate bottles or "old" doses. Often, the doctor might change the dosage, but our frugal elders, fearful of waste, hang on to the old bottles, which can add to confusion later.
• Get an updated list of medications from ALL of the person's doctors, to make sure they reconcile. An important medication might have been dropped by the patient or duplicated in some form by another physician. Create a "Master List" of meds to help with sorting pills each week and to also carry to doctor's appointments or the hospital in the event of an emergency.
• Obtain a pill box segregated by days of the week. Someone on many meds might need a box that also allows for a.m., noon, p.m., and bedtime dosing. Oversee filling of the box once weekly. Look in all the compartments to make sure the previous week's meds were taken as instructed.
• Check the "over the counter" med box as well. Throw out any expired medications, especially those containing expired acetaminophen (for example, Tylenol) as those can be hazardous to the liver.
  
  

Now that we have a good system, I can sort and prepare my mother's medications for the week in about ten minutes. It's not a large burden to me, and it has improved my mother's health as well as her peace of mind. I hope it can do the same for your loved one.

Beth Hodges, MD, is a principal in Hodges Family Practice, with offices in Asheboro and Ramseur, North Carolina.

Caregivers often struggle with the decision whether to take the car keys away from an elderly parent or grandparent.  However, the Federal Highway Administration reports that drivers age 70 and older experience more motor vehicle fatalities than any other driving group, with the exception of drivers under age 20.  No one wants to take away the independence that comes with driving, and it is difficult to know when it is safe or not safe for someone to drive.

Below are some warning signs that a senior citizen may be losing the ability to drive:

·         Abrupt lane changes, braking, or acceleration. Failing to use the turn signal, or keeping the signal on without changing lanes. Drifting into other lanes.

·         Trouble reading signs or navigating directions to get somewhere. Range-of-motion issues (looking over the shoulder, moving the hands or feet). Slow reaction to changes in the driving environment.

·         Feeling more nervous or fearful while driving or feeling exhausted after driving.

·         Getting lost more often. Missing highway exits or backing up after missing an exit. Trouble paying attention to signals, road signs, pavement markings, or pedestrians.

·         More frequent "close calls" (i.e., almost crashing), or dents and scrapes on the car or on fences, mailboxes, garage doors, and curbs. Increased traffic tickets or "warnings" by traffic or law enforcement officers.

If a family member or friend suspects that a senior should no longer be driving, they need to approach the subject with care and understanding.  The AAA has a screening tool, Roadwise Review, that allows seniors to measure their functional abilities in the privacy of their own home.  You can contact your local AAA club to obtain a copy of Roadwise Review. 

Studies reveal that older drivers give the least credibility to family members who criticize their driving.  Therefore, it might become important for a family member to enlist the help from a doctor or other family friends to broach the subject of driving.  Family members might find information on the website SeniorDrivers.Org helpful.  ( http://lpp.seniordrivers.org/lpp/ )  This website contains the screening, driving assessments and licensing renewal policies of senior drivers for each state.

For most people, giving up the keys is not a sudden event, but a gradual process.  Knowing the warning signs and being prepared for the conversation with a senior driver can make the transition much smoother.

You've worked hard all your life for what you have.  You're concerned about being left destitute by long term care costs.  You'd like to leave something of your hard work to your children.  You're tired of worrying about it all.

Maybe we've just described a parent. If so, you're concerned about your mother's or father's health care needs, you are busy and don't know where to start, your prime concern is making sure your parent's assets are used in the best way possible for their care.

We can help you.  Using state of the art mastery of complex trust, tax, testamentary, Medicaid, and VA law we can save you thousands, give you a sense of security and ease your troubled mind.