GOOD FOR CERTAIN SUBSET OF POPULATION

A health savings account is another way to save your money, tax free, for an inevitable expense that everyone will have to face and deal with eventually. Unfortunately one of the variables of retirement is that you will never know how much you will spend on health care costs. At the same time, as the body ages health invariably declines with more visits to the family doctor or perhaps even more expensive specialists. To further add to the expense, modern medicine has added significantly to the life expectancy of the majority of people who do not meet some unfortunate trauma or accident.

This is often the result of more expensive treatments, more costly medicines and more diagnostic tests or procedures that occur more often. Often these treatments, medicines, tests and procedures are medically appropriate, so any money spent is money well spent. But as with anything in life, the question must be asked, from where did the money come from? Insurance does not cover all medicines, tests and procedures and even when it does, it does not one hundred percent of their costs. You can pay for better insurance plans, with the inevitable higher monthly premiums, which leads back to the original question of where does the money come from for these costs? A more sound approach to these unknown variable but inevitable costs is a health savings account. Health savings accounts are not for everyone, but for a sizable portion of the population they are a good fit.

ROBIN WILLIAMS UNIQUE ESTATE PLANNING GENIUS

This blog discussed some of the aspects of Robin Williams estate in the past. Mr. Williams will be remembered for a long time due to his many accomplishments, with a long, funny, inciteful and compassionate comedic wit. While it seems fairly certain that Mr. Williams mental state was brought on by a biological or, more accurately, a neurological condition that spawned a profound depression. Mr. Williams will also be remembered for his estate which was perhaps the first of many to come from actors, singers or other celebrities who have value in their likenesses or other unique personal attributes.

While Mr. Williams created a multi-tiered estate plan, he was sure to include the right to profit, or, more accurately, to curtail a person, company or entity from profiting from his likeness and publicity for 25 years following his death. In other words, movie studios, music producers or producers of Mr. Williams stand up comedy routine cannot take Mr. Williams image, voice or any other asset tied to his likeness or even his publicity and profit from it. While some pundits commented on the novelty of it and the breadth of the prohibition on his likeness and the length of time, it is not surprising that someone created such a blanket prohibition. Look at what the producers of Forrest Gump did with John Lennon or President Lyndon B, Johnson. To someone unaware of the times, they would be unaware that the producers of the movie morphed and cut and pasted the images and footage into the movie and could believe that Mr. Lennon or President Johnson personally appeared in the movie.

ROTH IRA ACCOUNTS ARE FUNDAMENTALLY DIFFERENT

This blog explored the topic of inheriting an individual retirement account (IRA) in a previous blog. It is necessary to explore the topic of inheriting a Roth IRA, as a Roth IRA is fundamentally different from a traditional IRA. Some of the differences between a Roth IRA and a traditional IRA:

STILL TAXABLE

Death and taxes, the old saying goes, are the only two things in life that are guaranteed. Taxes unlike passing away, can at least be deferred, mitigated and reduced. If your total estate is less than $5.45 million (2016), it is logical to believe that an individual retirement account (or IRA) would pass tax free to your heirs. Indeed this is true, but the taxable event is when the account owner withdraws money in the account. As such, depending on the exact nature of your estate, it may make sense to pass your IRA to your estate, so that your heirs can inherit your IRA. The IRA would avoid being taxed under the estate tax, assuming the whole of the estate is under the estate tax threshold. That does not make the IRA, however, tax exempt or otherwise free of tax liability. In other words, the IRA is a taxable asset, just not taxable under the estate tax, but rather under tax schema that controls distributions of an IRA, namely income tax schema.

ESTATE TAX VERSUS INCOME TAX

TRUST SETTLOR GIVES UP CONTROL

When a settlor creates a trust, he/she passes title of the property or asset to the trust or gives cash money to the trust, wherein the trustee invests the money as a fiduciary or manages the asset or asset in issue for the best interest of the trust beneficiary. It is true that in some circumstances the settlor, or the person who created the trust and most likely provided the seed capital, asset(s) or property for the trust, is or can be the trustee. The settlor is also known as the grantor, trustor or even donor; the terms can be used interchangeably. Often enough also, the settlor may not give up complete control of the money, asset(s) or property that he/she otherwise gives to the trust, for the trustee to manage, by, for example, providing for a life estate of the property in the settlor or his/her spouse.

There are a great many types of trusts that are permitted with a great variety of factual scenarios imaginable. For some special needs trusts, however, the trustee must receive assets, properties or monies from a third source, for the sole use by the beneficiary. Many rules apply for the funding and ongoing management of a special needs trust in order for the trust to maintain its privileged position, being excluded from the assets of the beneficiary for government benefits qualification. This blog has already discussed the various elements of special needs blogs, here, here and here. It is important to note that there are important restrictions on trusts, such as what the distribution of the funds can be used on as well the method and manner of initial funding and ongoing funding of the trust. The question should also be asked, how does a trustee wrap up the affairs of a special needs trust? What if the beneficiary uses up all of the funds? Is legally unable to recieve the funds? For any number of reasons. What if the beneficiary passes away and there are still funds in the trust? What then?

DAVID BOWIE BONDS

        As the world learned, David Bowie passed away on January 10, 2016.  Mr. Bowie was always on the leading edge of creativity, an advocate for meaningful social change and a musical genius to boot.  He started his musical career at the same time as the Beatles, Rolling Stones and the Who and remained just as socially relevant, if not more so, compared to his contemporaries.  As well as being a singer and songwriter, Mr. Bowie was also an accomplished actor and painter.  More pertinent to the topic of estate planning, Mr. Bowie was a trailblazer in financial or investment products.  In 1997, Mr. Bowie issued Bowie bonds, the first of any celebrity bonds.  Since their initial offering, many credit agencies downgraded Bowie bonds status to just one level above junk bond status.  True to form, Mr. Bowie was a first, with many other talented artists following suit.

BACKGROUND TO MR. BOWIE’S FORTUNE

LEGALLY DEAD BUT STILL ALIVE

New York like every other state in the nation has a law to deal with people who go missing and are presumed dead. Most states follow the common law time of seven years, although New York has a three year requirement for which it will wait to declare someone deceased. It is not unheard of for a Court to issue a death certificate only for the dead person to show up and show themselves to be very much alive. In Ohio the law prohibits a Court from vacating a death certificate three years following its issuance. Of course there was a case, very recently, in 2013 wherein a man was declared deceased in absentia, passed the three year statute of limitations to vacate or modify the death certificate and appeared in Court to request that the Court nullify the death certificate so he could get a driver’s license.

Another recent case out of Pennsylvania was in the news where a mother of two kids simply disappeared one day in 2002, declared legally dead in absentia and the resurfaced after 11 years, in 2013. Perhaps the strangest case was the case of Ben Holmes, who disappeared in 1980, declared deceased after eight years by his wife and then tried to reconnect with his wife in the 1990s. When he learned she was in a relationship with another man he confronted her and she shot him. He never tried to nullify the death in absentia although he did collect a personal injury settlement from his wife.

FEDERAL COURTS ARE COURTS OF LIMITED JURISDICTION

There is little question that Federal Courts are courts of limited jurisdiction. If there is neither original jurisdiction, meaning a question of federal law or rights that arise as a result of federal legislation nor complete diversity of the parties, meaning that all of the defendants domicile in a different jurisdiction from the plaintiffs home state, then there is no jurisdiction for a federal Court to preside over a case. In all matters of diversity jurisdiction, the matter has to involve  at least $75,000 in property or damages. Certainly at least some probate cases fit into the requirements of diversity jurisdiction. Yet, there is generally a federal Court hands off approach to dealing with probate cases, known as the probate exception to federal jurisdiction.

A famous case from 1946 in the United States Supreme Court held that a federal Court can adjudicate various suits against a decedents estate, so long as they do not assume general jurisdiction over the probate proceeding itself or assume control over the property that is properly in the hands of the state probate Court. Markham v. Allen, 326 U.S. 490, 494 (1946). The meets and bounds of this holding have caused volumes of case law and law journal articles. It was not until 2006 with the celebrity, Anna Nicole Smith case that came before the United States Supreme Court that the Court expounded on the federal probate exception in any meaningful regards. Specifically the Supreme Court held that when one court is adjudicating a claim over a specific piece of property (or in the case of an estate, a bundle of property rights) a second court will not assume jurisdiction over the same property.

NEW YORK RULE ON ARBITRATION FOR PROBATE DISPUTES

The idea of using quasijudicial means to settle disputes is as old as the country itself. More specifically arbitration is a method that parties utilize that is usually cheaper, quicker and often with much less formality, yet still adheres to principles of fundamental fairness. George Washington famously included a proviso in his will that outlined a method to arbitrate certain disputes in the execution of his will. Certainly this was no minor matter, as President Washington was perhaps the wealthiest landowner in Virginia and by extension maybe the wealthiest American at the time.

In today’s dollars, President Washington would be worth an estimated half a billion dollars, succeeded by perhaps only President John F. Kennedy’s wealth. By the time of President Washington’s passing in 1799, arbitration was already well established in the United States. New York no longer permits arbitration in the context of a dispute over a last will and testament, as it would unconstitutionally interfere with the power of the Surrogate’s Court to adjudicate disputes involving the disposition and transfer of property of decedents, the administration of estates and probate of wills. Matter of Jacobovitz, 58 Misc. 2d 330 (Nassau County, 1968). The same cannot be said of arbitration clauses in trust documents. There is much diversity of treatment of arbitration clauses found in trust documents, with New York taking a middle of the road approach to interpretation and enforcement of arbitration clauses in trust documents. That principle, however, only applies to the application of the transfer of property via an individual’s last will and testament. It does not apply to the mediation and adjudication of disputes in trust documents controlled by New York law.

When a married person applies for Medicaid, the government looks at the collected, or, pooled, resources of the two to determine if one of the two spouses is eligible for Medicaid. If the combined income of the two spouses is above the income threshold set by law, the balance must be paid to the nursing home of the dependent spouse.  But what income provisions are allowed for the spouse who remains in the community?  What do the get to keep?  Is the community spouse allowed to tap into the income of the dependent spouse if his/her income is not enough?

The legal, financial benefits that allow for the community spouse to keep a certain amount of income has the terrible name of spousal impoverishment standards. This contains an amount of money, known as the minimum monthly maintenance needs allowance (commonly known as or referred to as the MMMNA). The figure from July 1, 2015 to June 30, 2016 is $1,991.25 per month. Starting on January 1, 2016 the maximum monthly maintenance needs allowance is set at $2,980.50 per month. This is the maximum the community spouse may keep before being required to contribute to the medical needs of the dependent spouse (NOT minimum, so not to be confused with the MMMNA).

WHAT IF THIS IS NOT ENOUGH?

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