Welcome to the June issue of The Elder Law Update. We have a wide variety of timely and interesting articles for you this month. And don't forget to check out our blog, which can be found on the homepage of our website, www.elderlawassociates.com, for policy updates, firm news and information about our community involvement.

Partner Howard S. Krooks, Esq., CELA has been included in Super Lawyers South Florida 2008 edition

published by Law & Politics. Only 5 percent of the total lawyers in the state are selected for inclusion in Super Lawyers.

This month we attended the Palm Beach Memory Walk 2008 Awards Breakfast in West Palm Beach. We applaud everyone involved in the Walk, which far exceeded its goal and raised $120,000. Our team was recognized for second place in the category of Top Fundraising Team.

We are proud to be part of this successful effort. Stay tuned for the launch of our 2009 Memory Walk Team! We will need your help and support to help make an impact on this terrible disease.

As always, we welcome your comments and questions. You may send them to Info@ElderLawAssociates.com.

Wishing you and your family a safe and happy holiday weekend.

Disinheriting a Relative Can Be Complicated

You may feel that you have given one child more during your life, so he or she should get less in your will. Or you may want to cut out an heir altogether. Whatever the reason, disinheriting a close relative--especially a spouse or a child--can be complicated.

It may not be possible to completely disinherit a spouse. Even if you don't leave your spouse anything in your will, most states have laws that keep a spouse from losing everything. If you live in a "community property" state, your spouse already owns half the community property. Other states have laws that automatically entitle a spouse to portion of your estate.

Even if you don't completely disinherit your spouse, he or she can choose between taking what the will provides or taking what the law in your state says a spouse should receive in any case (the "statutory share," usually one-third to one-half of the estate). The only solution is to enter into an agreement with your spouse in which you each waive the right to receive anything from the other's estate.

Disinheriting a child is a different story. You will need to check with an attorney in your state to find out what is required. Louisiana is the only state that does not allow an adult child to be disinherited. While other states do not require that you leave anything to your adult children, there may be laws that protect minor children. For example, in Florida you are required to leave your house to either your spouse or a minor child, if they are living. In addition, there are often laws that protect children born after a will was written. To be safe, even if you are leaving a child nothing, you should specifically mention the child in the will. It may also help to state the reason the child is getting nothing or a reduced amount. If you don't mention a child at all, the state may conclude that you did not intentionally exclude the child.

Disinheriting a close relative can cause fights among family members. Squabbles over wills can drag on for years and prevent your heirs from receiving their inheritance, so if you are planning on disinheriting someone, it is important to take as many precautions as possible and consult with an elder law or estate planning attorney. For more information on how to prevent a will contest, click here.

Second Marriages and Life Insurance

As second marriages become more and more common, beneficiary designations become more complicated. If you are remarried, choosing a beneficiary for your life insurance policy may not be simple especially if you have children from a previous marriage. When it comes to life insurance, how do you make sure your spouse is provided for without forgetting your children?

If you already have life insurance with your first spouse as the beneficiary, you need to make sure you can change the beneficiary. If you are divorced, you may not be able to change the beneficiary designation. Bring your divorce decree with you to an attorney so he or she can make sure you do not violate the decree. If you can't change your beneficiary, you may want to buy additional life insurance or retirement plans that will include your new spouse.

The next question is who should be the beneficiary of the policy? If you name your new spouse, your children are not guaranteed to receive any of the money. If you name your children, your spouse will not get anything. The solution may be to create a revocable trust and name the trust as the beneficiary of the life insurance policy. When you die, your life insurance policy will fund the trust. You can set up the trust however you like. For example, you could allow your spouse to access the money while he or she is alive and have the remainder go to your children after your spouse dies.

Choosing a beneficiary for a life insurance policy is not as simple as it seems. Consult with an attorney to determine what the best option in your situation is. For more information on redoing your estate plan before you remarry, click here. For more information on trusts, click here.

Web Site Aims to Take the Rancor Out of Dividing Up an Estate

You have probably experienced or read about the ill will that often burgeons while dividing up family heirlooms, making it a difficult situation for all involved. Wills often deal only with financial assets, not personal possessions, and infighting between family members over who gets which personal item can damage relationships for years to come.

Now there is a Web site that may help families avoid acrimony and make the process of dividing up possessions in an estate easier. The site, eDivvyup, allows family members (and friends of the deceased) to divide up a loved one's personal estate using an auction platform similar to eBay's.

The estate's executor gives family members non-monetary points, which they can use to bid on estate items that can be listed and pictured on the site. Bids reflect a family member's desire to own an item. A sister who covets grandmother's Chinese vase will allocate more of her points to that item, making it more likely that her brother will be the winning bidder on the sideboard he would love to put in his dining room. eDivvyup seems particularly well-suited for families that are geographically dispersed, as many are.

"eDivvyup removes much of the sibling emotions and in-fighting, which can occur while deciding who should receive the estate items," says Heath Wheeler, the company's vice president of sales and marketing. The cost of the service is $49 to list 50 items. Additional item listings can be purchased as needed.

To find out more about eDivvyup, go to: www.edivvyup.com. For an article on dividing possessions before death, click here.

Planning for the New "Zero Percent" Tax Bracket

There was a recent change in the tax law that you might not be familiar with - yet it may entitle you to significant tax savings. Beginning January 1, 2008 and continuing through December 31, 2010 (unless extended by Congress), a zero tax rate may apply to long-term capital gain and dividend income that would otherwise be subject to the lowest federal income tax rates, 10% and 15%.

The new zero tax rate creates the opportunity for eligible individuals to sell certain appreciated assets at no tax cost. By working with you to ensure that you take advantage of this new opportunity, if available, we can help you pay less tax and preserve more of your wealth.

The Zero Tax Rate
There are two questions we must ask to determine whether a taxpayer is eligible for the new zero tax rate.

Is the taxpayer an individual who has "adjusted net capital gain."
If yes, is the individual eligible for the zero tax rate?

Adjusted net capital gain is, in essence, long-term capital gain minus short-term capital losses, if any, plus dividend income.

Planning Tip: There are exceptions when calculating adjusted net capital gain. Therefore, it is important that a knowledgeable tax advisor assist you with this calculation.

Who Gets the Zero Tax Rate?
Not surprisingly, determining whether someone is eligible for the zero tax rate is a complex calculation. We have tried to simplify it as follows:

Add all of your income to determine your Adjusted Gross Income (AGI).
Subtract exemptions and deductions from your AGI to determine your taxable income.
Subtract adjusted net capital gain from your taxable income to determine your "other taxable income."
Is your other taxable income less than the threshold of your 25% income tax bracket? If yes, subtract other taxable income from your 25% tax rate threshold.
The remainder is eligible for the zero tax rate.

Planning Tip: Your income does not have to be below the 25% tax rate threshold for you to be eligible for the zero tax rate. Even if your taxable income is significantly higher than your 25% rate threshold, some of your adjusted net capital gain may still be eligible for the zero tax rate.

For 2008, the 25% tax rate threshold is:

$32,550 for single taxpayers and married taxpayers filing separate returns;
$65,100 for married taxpayers filing joint returns and surviving spouses; and
$43,650 for heads of household.

Example
Suppose in 2008 Mr. and Mrs. Taxpayer have $105,000 of wages plus $120,000 long-term capital gain from the sale of stock. Thus, their 2008 adjusted gross income (AGI) is $225,000. If they have $65,000 in personal exemptions and itemized deductions, their 2008 taxable income is $160,000 ($225,000 minus $65,000).

From the formula above, the Taxpayers' other income, after exemptions and deductions, is $40,000 ($160,000 minus $120,000 adjusted net capital gain). Subtracting this amount from their 25% threshold of $65,100, the zero rate applies to $25,100 of their adjusted net capital gain ($65,100 minus $40,000). Thus, the zero rate would save them $3,765 ($25,100 x .15) of federal income tax. The balance of their adjusted net capital gain ($120,000 minus $25,100) would be subject to the 15% rate.

Planning Tip: If your taxable income is less than your respective 25% rate threshold, all of your adjusted net capital gain will be subject to the zero tax rate.

Planning Tip: Conversely, if your taxable income - other than adjusted net capital gain - is equal to or greater than your 25% rate threshold, you will not be eligible for the zero tax rate.

Planning Tip: You and your tax advisors should pay careful attention to year-end income and deduction timing. Careful planning may create eligibility for the zero tax rate.

Application of the "Kiddie Tax"
In establishing the zero tax rate, Congress was concerned that taxpayers would transfer appreciated assets to their young children to avoid tax on the sale of those assets. Absent some limitation, the children could then sell the assets at the zero tax rate and avoid paying tax on the capital gain. A limitation comes from Congress in the form of the so-called "kiddie tax."

With the kiddie tax, a child must pay federal income tax at his or her parents' highest rate on the child's unearned income over $1,800. For tax years before 2008, the kiddie tax applied only to children under 14. However, while the zero tax rate is in effect, the kiddie tax is extended to all children under 18. In addition, while the child is a full-time student, the kiddie tax now applies until the child is 23 years old if the child's earned income does not provide more than one-half of his or her support.

Planning Tip: The opportunity remains to transfer appreciated assets to children, grandchildren or other family members 24 or older to take advantage of the zero tax rate. The opportunity also remains with younger children, but is limited. We can help clarify your planning opportunities.

Conclusion
The zero tax rate presents a significant opportunity for those individuals whose income, other than adjusted net capital gain, is less than their 25% income tax rate threshold - no matter how high their total taxable income (including adjusted net capital gain). The zero tax rate may also be available through transfers to young adults and other low-income taxpayers. Like with so many other areas, your planning team should work together to ensure that you take full advantage of the zero tax rate without compromising your other planning goals and objectives.

The Need for Life Insurance

Chances are great that you should have life insurance. Whether you can afford to buy it and what kind you need are just two of the many issues that confront us when we consider life insurance.

There are few experiences more traumatic than trying to figure out one's life insurance needs. Many of us have a genuine fear of being underinsured, especially in the days of lengthening life expectancies and rising costs of living. How will my family pay the mortgage, pay for college, etc., and maintain the same standard of living should something happen to me? Insurance isn't a gambling proposition. But, alternatively, the insurance consumer frequently feels pressure to buy more than he or she needs.

"How much life insurance do I really need?"
Perhaps the soundest approach to purchasing life insurance is to consider personal "needs." There are three basic uses for life insurance.

Income Replacement ("How will my family pay the bills if I die?")
Life insurance can replace lost income for those of us who die unexpectedly. For example, what funds will be available to pay everyday bills? In determining the amount of life insurance necessary for income replacement, consider the following needs:

A "transition" fund to pay at least six months' bills during the grieving period;
An "emergency find" for a catastrophic illness or injury, sudden and unexpected accident or casualty, financial collapse or the like;
Funds to pay off mortgages and other debts; and
Funds to supplement or replace Social Security.

If you have young children, also consider an amount sufficient for child-rearing, college and post-graduate expenses, career help and even the cost of marriages.

Planning Tip: Consider life insurance to replace income from the premature death of a breadwinner spouse or parent. The amount of insurance necessary should take into consideration not only monthly living expenses, but also transition and emergency funds, plus child-related expenses.

Wealth Replacement ("How can my family receive the full value of my assets?")
The traditional wealth replacement use for life insurance was to replace wealth lost to the federal estate tax. However, in 2008 the exemption to the federal estate tax has increased to $2 million per individual, $4 million per married couple. As a result, fewer individuals are subject to federal estate tax, and thus few individuals need life insurance solely for the traditional wealth replacement need.

But life insurance also satisfies other wealth replacement needs. For example, many of our most significant assets are tax-qualified plans (such as IRAs, 401(k)s and pension plans). Because these are a special class of assets, they are subject to ordinary income tax when distributed to our beneficiaries. Given the statistics that beneficiaries often deplete these assets quickly, they will incur significant income tax in withdrawing these assets. Therefore, a million dollar IRA may be worth only $650,000 after federal income tax, less after state income tax. Realizing this, many of us would benefit from life insurance designed to replace this lost wealth.

Other wealth replacement needs for life insurance include:

Funeral and other last expenses; and
Estate administration expenses, including medical bills, hospital costs, decedent's debts and bills, taxes, fiduciary's commissions, attorney's fees and probate costs.

Wealth Creation ("What if I die before I build an estate for my family?")
The third basic need for life insurance is the creation of wealth. Examples of this need are families who wish to add to their wealth for future generations or to fund their philanthropic objectives. Wealthy families often use life insurance for the creation of additional wealth.

Other Uses for Life Insurance ("I didn't know there were so many other situations where only life insurance will assure me my goals will be reached even if I die!")
Many individuals use life insurance as a funding mechanism in other situations, including:

buy-sell planning for business owners;
key employee coverage;
non-qualified deferred compensation;
liquidity for state death taxes; and
inheritance equalization (for example, where only one child works in the family business).

Planning Tip: Life insurance is often the only vehicle that ensures that you will have the necessary liquidity when needed.

Irrevocable Life Insurance Trusts ("A little planning can provide enormous tax savings.")
Life insurance proceeds are not subject to income tax. However, if the insured owns the insurance policy, these proceeds will be included in the insured's gross estate and, therefore, be subject to federal and/or state estate tax. One simple way to avoid this result is to use a properly drafted and maintained Irrevocable Life Insurance Trust (ILIT). An ILIT that owns the life insurance can avoid federal and estate tax on the life insurance proceeds. Such a trust can also ensure that the life insurance proceeds are available as you intended.

Planning Tip: Use an Irrevocable Life Insurance Trust to purchase, own and be the beneficiary of life insurance. This will ensure that the life insurance proceeds are not subject to estate tax.

Conclusion
Life Insurance is a unique asset that can provide the highest degree of flexibility for changes in the law or changes in your circumstances. Therefore the quality of the life insurance agent and the life insurance company you select are among the most important choices you can make. We recommend that this professional be part of your planning team to help ensure that your life insurance is an integral part of a comprehensive financial and estate plan.

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Elder Law Associates PA is a boutique elder law firm that practices exclusively in Medicaid and long term care planning including long term care insurance, Medicaid applications, home and community-based Medicaid waiver services, diversion program benefits, nursing home benefits, spousal refusal applications, and Medicaid fair hearings and appeals; nursing home and assisted living facility residents' rights litigation; asset preservation planning with a special focus on planning in light of the Deficit Reduction Act of 2005, including personal service agreements, the purchase of life estates, income producing real estate and spenddown planning; disability planning, including special needs trusts and guardianship; estate planning, including wills and trusts and advance directives; and probate, which encompasses estate and trust administration as well as litigation.

We assist clients in planning for the possibility of disability, incapacity, home health care, assisted living and/or nursing home placement. Our firm enables clients to avoid impoverishment caused by the escalating cost of long term care, to maintain their right to make health care decisions and to avoid unnecessary medical treatment.

We hope you have enjoyed The Elder Law Update. If you have questions about something you read, elder law matters or issues concerning persons with disabilities, we would be delighted to hear from you. We serve as an elder law resource to many professionals and organizations and want to become your elder law resource as well. You can reach us at Info@ElderLawAssociates.com.

Warm regards,

Ellen S. Morris, Esq. & Howard S. Krooks, Esq., CELA

Elder Law Associates PA

email: info@elderlawassociates.com

phone: (561) 750-3850 / (800) 353-3752

fax: (561) 750-4069

web: http://www.ElderLawAssociates.com

This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer's particular circumstances.