CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING

BY ATTORNEY AT LAW RANDALL K. CRAIG, J. D., CELA, GAP

The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

A New Year’s Message. To all we pray for a healthy, happy, and prosperous New Year! We are indeed a unique and great country, having elected a black president, and having now chosen as our president-elect our first “blue-collar billionaire.” We have recently completed our Thanksgiving and Christmas holidays, and we are reminded that Benjamin Franklin’s statement concerning Thanksgiving applies to every American holiday: It is a time to express gratitude to God for the “‘Enjoyment of Liberty, civil and religious.” The United States has generated some great humorists and political observers, such as Will Rogers, who stated that Alexander Hamilton started the U.S. Treasury with nothing, and that is the closest our country has ever been to breaking even! He also said that the only difference between death and taxes is that death doesn’t get worse every time Congress meets! As we embark on a new year with a new administration, let us all be open-minded and not become prisoners of our own ideologies. We should remember the biblical admonition contained in the Book of Proverbs, that fools find no delight in understanding but take pleasure in their own opinions. Let us all strive together to make America greater and to be thankful for our many blessings, some of which are very basic. As the Bible says, for a man to enjoy his work and to accept his lot in life is indeed a gift from God.

Business Succession (Continued). Although business issues in farming are very similar to other businesses, such operations are much more likely to involve family members and to include assets of significant value which are very illiquid (sometimes referred to as being “land rich and cash poor”). There is often not a lot of money left in the business after compensation is paid and debt is serviced, which may create significant friction when other family members own a piece of the enterprise but are not involved in the operation of the business. It is usually too expensive to involve outside management due to the lack of business liquidity. In order to properly structure a buy-out, particularly in the event of death, life insurance may be a significant beneficial tool. Dividing land among the next generation is not often a workable plan due to many factors, such as differences in quality and value and the loss of continuity of scale when large tracts are divided into smaller tracts. It should be noted that if the federal estate tax is a concern, there are certain special valuation and payment options available that will relieve some of the burden. Section 2032A of the Internal Revenue Code will allow property used in a business to be valued at its current use rather than at its highest and best use as long as certain criteria are met, and Section 6166 of the Internal Revenue Code

(Continued on Reverse Side)

allows for the deferral of payment for perhaps as long as 15 years. Nevertheless, many of the business succession issues in agri-business will be very similar to those of other business enterprises.

Naming A Successor IRA Beneficiary. When a beneficiary inherits an IRA, the beneficiary should consider naming his or her own successor beneficiary to inherit whatever will remain in the account after the original beneficiary passes away. If the plan will not permit naming a successor beneficiary, or if the beneficiary fails to do so, the account would most likely become an asset of the original beneficiary’s estate. Naming a successor beneficiary will not change how the Required Minimum Distributions (RMDs) are calculated, which are based on the life expectancy of the original beneficiary. Please note that a different rule will apply in the case of a surviving spouse because of the ability of the surviving spouse to do a roll over of the IRA so that it becomes his or her own account rather than an inherited account.

Medicare “Under Observation” Versus “Admission.” Many hospital patients are surprised to find that after thinking they have been admitted to a hospital, they in fact were only “under observation” for a lengthy period of time. The result is that if the patient is later admitted to a long term care facility, the patient will not be eligible for Medicare’s “skilled nursing facility” coverage, which combined with appropriate Medicare supplemental coverage, will pay for the long term care costs attributable to skilled nursing care for up to 100 days. Patients are often surprised to find that they must pay for their long term care from the first day of admission, even though they may be receiving a skilled level of care, because they have not satisfied Medicare’s three-day admission mandate for skilled nursing facility coverage. The Notice of Observation, Treatment and Implications for Care Eligibility Act (“NOTICE”) took effect in August of this year, although the Centers for Medicare & Medicaid Services (CMS) announced that the rules implementing the NOTICE Act would not become effective until October 1, 2016. The NOTICE Act does not curtail the practice of placing patients under “observation,” but it does require notice to those who are under observation for more than 24 hours, which must be given within 36 hours or upon discharge if that occurs sooner. It will behoove patients to check with their physicians to confirm whether or not they are under observation or whether they have actually been admitted to a hospital.

Crisis Intervention. Vanderburgh County has established a mental health court which in some cases can be used to combine judicial supervision with community mental health treatment and other support services. The goal is to reduce criminal activity and improve the quality of life of participants in the program. Certain people who are charged with certain crimes are eligible for the mental health court process. As part of the mental health court, Evansville and Vanderburgh County have prepared through “crisis intervention training” (CIT) law enforcement officers whose specialized skills may de-escalate certain situations. If readers are confronted with a situation involving someone who is behaving erratically, perhaps in the case of a domestic dispute, if law enforcement is called, consider asking for a CIT officer. One would presumably be assigned if available. The goal would be to de-escalate the situation, so that perhaps it is not necessary for charges ever to be filed or it might result in an emergency or temporary detention or mental health commitment. The end result may be that charges are not filed, or if people are charged and participate in the Vanderburgh County mental health court process, charges may be dropped or the sentence may be suspended

Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.