Trust, Estates, and Elder Law Newsletter - 4th Quarter 2012

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O’Connell & Aronowitz Attorneys at Law

Trusts, Estates, and Elder Law Update Fourth Quarter 2012

Pictured above are the attorneys of our Trusts, Estates, and Elder Law Department, left to right: Matthew J. Dorsey, Esq. William A. Favreau, Esq. Heidi Dennis, Esq. Fred B. Wander, Esq. Jami Durante Rogowski, Esq. Not pictured: Brittnay M. McMahon, Esq.

In This Issue: • Do I Have To Pay Taxes When Making A Gift?

• Helpful Year End Tax Planning Tips for 2012 • How Can I Protect My Home?

• Meet Jami Durante Rogowski, Esq. • Ask the Lawyer: Do I Need A Trust?

• O&A Events • General Information about O’Connell & Aronowitz

Do I Have to Pay Taxes When I Make a Gift?

Questions and Answers on Gift Taxes

There’s a lot of misunderstanding when it comes to gift taxes. Since holiday time is now upon us and many people are considering making monetary gifts, this would be a good time to review the IRS rules on gift taxes.

Are gifts taxable?

There are multiple exceptions that keep gifts from being taxable. If your gift does not fit under one of the exceptions, then you must file a gift tax return – IRS Form 709 – and potentially pay gift taxes.

What are the exceptions to gift taxes?

Generally, a gift is not taxable if it is: • made to your spouse

• below the IRS annual exclusion amount

• made to a charity

• made to a political organization for its use

• paid on someone’s behalf for medical or educational expenses.

What is the “IRS annual exclusion amount”?

The IRS annual exclusion amount represents a monetary value under which gifts can be made in a calendar year, without any applicable gift taxes. In 2012, the amount is $13,000, and in 2013, the amount rises to $14,000. So in 2012, you can make a gift to someone of up to $13,000 without having to worry about gift taxes.

What if I give over the annual exclusion amount to someone?

If you give an amount over the annual exclusion amount, that excess amount needs to be reported on an IRS Form 709.

A gift tax is calculated on the amount over the annual exclusion, but you won’t have to pay a tax at that time, unless you’ve made taxable gifts over your lifetime in excess of $5,120,000 - a figure which may change in 2013.

Do the recipients of my gifts need to pay tax?

Generally speaking, the recipient of a gift does not have to pay gift tax or income tax because of the gift.

What is “gift splitting”?

You can “split” a gift by sharing the gift with your spouse. For example, if you gift $25,000 to your son in 2012, that amount is over the $13,000 annual exclusion for 2012 and therefore gift taxes would potentially apply. However, you can join with your spouse and “split” the gift into two gifts of $12,500 each, resulting in two gifts under the $13,000 annual exclusion for 2012. That “split” means the gift is not taxable, however you do have to file a Form 709.

As the holidays approach, please feel free to reach out to the experienced attorneys at O’Connell and Aronowitz to discuss any questions you have about gift tax planning.

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Saratoga Office: 1 Court Street Saratoga Springs, NY 12866 518.584.5205 Fax: 518.584.5441

Albany Office: 54 State Street Albany, NY 12207 518.462.5601 Fax: 518.462.2670

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Plattsburgh Office: 206 West Bay Plaza Plattsburgh, NY 12901 518.562.0600 Fax: 518.562.0657

New Developments in Trusts, Estates, and Elder Law Helpful Year End Income Tax Planning Tips for 2012 What you should consider before December 31st

Tax Increases Expected for 2013 Under normal circumstances, it’s generally best to defer income to future years and take deductions before year end. But with tax rates set to increase, high income earners may want to do just the opposite – recognize income in 2012 and delay expenses into 2013. Unless Congress and the President act, the top individual tax rate is set to increase to 39.6%, the capital gain rate is due to rise from 15% to 20%, and a new 3.8% Medicare Tax will be levied on unearned income in 2013. This 3.8% surtax is assessed on capital gains, dividends, interest and other passive income. The new tax is applied to singles with adjusted gross income (“AGI”) over $200,000 and couples with AGI over $250,000.

Tax Planning For individuals, certain deductions

can be deferred, such as your fourth quarter state estimated income tax payments and charitable contributions. Complicating matters for individuals is the fact that the 3% AGI phase-out for Schedule A Itemized Deductions is set to be reinstated for 2013, which means the deferral of deductions might not be appropriate in all instances. Income limits for the phase-out are unfortunately unknown at this time.

To plan for the 3.8% surtax, consider harvesting capital gains in 2012.

Before doing so, be sure to talk to your financial advisor, as this may be appropriate for you only if your intent is to liquidate the holding and take the gains in the short-term. Because the surtax is assessed against passive income, consideration must be also be given to the passive loss rules.

Businesses The increased individual income tax rates affect many businesses, such as partnerships, limited liability companies, sole proprietorships, and S-corps as these flow-through entities are taxed to the individual owners. If tax rates go up next year, recognizing income to the extent possible for 2012, and deferring deductions to January 2013, is a valid tax planning tool for businesses. Look at your overall business plan and budget to see what transactions you can enter into before year-end. A review of your tax accounting policies and elections may be in order.

To discuss tax planning strategies to fit your personal needs, please contact our tax attorneys at O’Connell and Aronowitz. We’ll work with you to develop a plan that fits your unique situation.

How Can I Protect My Home from being Sold to Pay for Nursing Home Costs?

It may be time to consider transferring your home to an irrevocable trust Why should I consider transferring my home?

If you transfer your home more than five years before you apply for Medicaid to pay for nursing home costs, your home will not be counted as one of your assets for Medicaid eligibility purposes. This allows you to “preserve” the asset and allow it to be passed on to the next generation. Three basic ways to transfer your home are explored below.

What happens if I deed my home to my child?

In that case, your child would own the home and you have no further legal rights to it. You would lose your STAR exemption for school taxes, and, if your child later sells the home, they may have to pay significant capital gains taxes because they would be using your cost basis in the property.

What happens if I deed my home to my child, subject to a life estate interest in me?

You will retain your STAR exemption. In addition, your child will receive a “step up” in basis equal to the home’s value at your death, as soon as your home is not sold before you die. Despite these advantages, there are disadvantages.

You would need your child’s cooperation if you wanted to sell the home during your lifetime. If a sale did occur, you would need to receive some of the sale proceeds, which could result in you having too many assets to qualify for Medicaid.

What happens if I transfer my home to an irrevocable trust, with my child as a remainder beneficiary?

You will retain your STAR exemption and your child will receive a “step up” in basis at your passing, as soon as your home is not sold before you die. The trustee of the trust could sell the home during your lifetime, without the concern that part of the sale proceeds would flow to you. The sale proceeds could be used to invest in assets that you receive income from or they could be used to purchase a new home for you to live in.

While every situation is different, the transfer of a home to an irrevocable trust is generally the best option for the preservation of the asset. For an evaluation of your particular circumstances, please contact the O’Connell and Aronowitz office closest to you.

O’Connell & Aronowitz • Attorneys at Law Since 1925 • www.oalaw.com

Meet Jami Durante Rogowski, Esq.

Congratulations...

Jami Durante Rogowski is a partner in our Saratoga Springs office with experience in estate planning and estate administration. Jami began her legal career with O’Connell and Aronowitz in 1994. She is also the supervising partner of our Residential Real Estate practice which represents purchasers, sellers, many lenders, builders and developers.

She founded the firm’s title company, and loves working with clients during the different phases of their lives. Her favorite and most fulfilling part of her job is handing people the keys to their new home.

Jami attended The College of Saint Rose and Western New England College School of Law. She is a member of the New York State Bar Association, the Albany County Bar Association, the Schenectady County Bar Association, the Capital District Women’s Bar Association and the Italian-American Bar Association.

She is co-chair of A Taste of the Capital Region, benefitting The Boys & Girls Clubs of Schenectady County. She enjoys fundraising for multiple charities and organizations throughout the capital region. Jami is a past recipient of Steve Coffey’s Legal Leaders award, which is given annually to members of the legal community at a fundraiser for the Muscular Dystrophy Association.

Jami is a native of Schenectady, NY where she currently lives with her husband Adam and their two daughters, Alexandra and Ariana. A diehard Yankees fan, she spends her spare time with her family, traveling and cooking.

O’Connell and Aronowitz would like to announce the addition of associate Caitlin Monjeau to our firm.

Ms. Monjeau is a graduate of Boston University School of Law, and Duke University. Caitlin interned with the United States Attorney’s Office, Criminal Division in Boston before joining O’Connell and Aronowitz. She is admitted to practice law in the State of New York and the Commonwealth of Massachusetts.

Ms. Monjeau will be practicing in our Health Law Department.

We are also pleased to announce the addition of associate John Musacchio to our firms Litigation Department.

Mr. Musacchio is a graduate of Albany Law School and Cornell University.

Prior to joining O’Connell & Aronowitz, John was a staff attorney with a prominent national law firm engaged in complex corporate litigation and the defense of corporations against anti-trust investigations by the United States Department of Justice.

An active member of the local community, John sings with and serves on the Board of Directors of the Mendelssohn Club of Albany, a 65-member male choir and the oldest continuously active performing arts group in the Capital Region.

O&A Events January 6-13, 2013: Jeffrey Sherrin and David Ross will be speaking at the New York State Health Facilities Association 2013 Midwinter Education Conference in San Juan, Puerto Rico. Mr. Sherrin will be covering recent legal developments concerning adult care and assisted living facilities and Mr. Ross will provide an update on issues related to the New York State Office of Medicaid Inspector General.

Team O&A at the Pancreatic Cancer Research Walk: In September, Team O&A, led by Brittnay McMahon, helped raise money for pancreatic cancer research. The walk, held in Elm Street Park, raised more than $82,000 and had over 300 participants. To date, these Walk/Run events have raised more than $16.1 million for pancreatic cancer research. Thank you to all who supported this event.

Holiday Food Drive: O’Connell and Aronowitz have teamed up with Kerr Slingerland in a food drive benefitting the Northeast Regional Food Bank. If you would like to help, we are collecting non-perishable canned foods, personal hygiene items and paper products at our Albany and Saratoga offices, and at Kerr Slingerland’s Latham office. We will be collecting through the holidays.

5th Annual Steve Coffey Legal Leaders: November 15th marked the 5th Annual event, which raised more than $20,000 for the Muscular Dystrophy Association and honored the legal community’s best and brightest. Congratulations, and thank you for making this a successful event!

For the latest information regarding our upcoming events, please visit our website, www.oalaw.com, or our Facebook page,www.facebook.com/oalaw

O’Connell & Aronowitz has been providing a broad range of legal services since 1925, with offices now in Albany, Saratoga Springs, and Plattsburgh. This newsletter is intended to provide general information about our firm and its services in the area of trusts, estates, and elder law. This newsletter is not legal advice and does not create an attorney client relationship with the reader or any other person. Legal advice may be rendered by the attorneys of O’Connell & Aronowitz after consultation and the retaining of our firm. Prior results do not guarantee a similar outcome.

Trusts, Estates, and Elder Law Update

Inside This Issue: • Do I have to pay taxes when making a gift?

• Protecting your home from being sold to pay for nursing home costs.

Albany Office: 54 State Street Albany, NY 12207 518.462.5601 Fax: 518.462.2670

Saratoga Springs Office: 1 Court Street Saratoga Springs, NY 12866 518.584.5205 Fax: 518.584.5441

Plattsburgh Office: 206 West Bay Plaza Plattsburgh, NY 12901 518.562.0600 Fax: 518.562.0657

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Ask the Lawyer: Do I Need A Trust?

Trusts come in many different forms and serve multiple different purposes. Whether a trust is right for you depends on your particular circumstances. Here are some examples of different types of trusts.

a disabled person by a third party. For example, a father may set one up for his disabled child in his Will, so that money will be available for the child’s care after the father’s death. A supplemental needs trust does not affect the eligibility of the disabled child for governmental benefits, such as SSI or Medicaid. One of the advantages of the third party supplemental needs trust is that the principal of the trust can be left to other family members after the death of the disabled person.

What is a Revocable Trust?

A revocable trust holds property for you during your lifetime. You can revoke the trust and take back ownership of the property at any time that you choose. Revocable trusts are sometimes used in the place of Wills in order to avoid the probate process.

What is a Special Needs Trust?

What is an Irrevocable Trust?

A special needs trust is similar to a third party supplemental An irrevocable trust cannot be revoked by the creator, but needs trust in that it does not affect the eligibility of a it allows the creator to have certain rights to the property disabled beneficiary for governmental benefits. In contrast transferred into the trust. For example, a mother can to a third party supplemental needs trust, a special needs transfer her house to an irrevocable trust and retain the trust is set up with the disabled person’s own funds – usually right to reside there as long as she lives. Since the trust is from the proceeds of a personal injury settlement. In irrevocable, however, she cannot later reacquire the house, addition, funds left in the trust after the disabled person’s sell it, and keep the sale proceeds. Irrevocable trusts are death must be used to pay off any lien Medicaid has for often used in Medicaid planning because anything providing medical care during the disabled person’s lifetime. transferred into an irrevocable trust five years before a Trusts come in many additional forms, including trusts Medicaid application is not counted as a resource of the set up for tax purposes or to manage funds for minor Medicaid applicant. children. To determine if a trust should be part of your What is a Supplemental Needs Trust? estate plan, talk to the estate planning attorneys at A supplemental needs trust can be set up for the benefit of O’Connell and Aronowitz.