Month: July 2014

Another Plus About Trusts: Federal Court Ruling Green-lights Trust’s Tax Deduction Claim

A federal tax court’s ruling in favor a trust on certain deductions that the trust claimed on its federal income tax returns highlights a potential added bonus to the use of trust planning, as the court decided that a trust could engage in the sort of active participation in a business needed to claim the business’s losses on its taxes. By refusing to foreclose trusts from claiming the losses of trust-owned business assets, the court’s ruling offers one more reason why family farmers and small businesspeople should ensure they have a proper estate plan in place that includes their business holdings.

In 1979, Frank Aragona created a trust where he was the grantor and the original trustee, with his five children and one unrelated person serving as the trust’s six successor trustees. This setup might sound familiar, as many living trusts created as part of an estate plan often have the grantor serve as the initial trustee, with family, friends or a trusted professional serving as the successor trustee(s).

Aragona died two years after creating his trust, having funded some rental real estate properties, as well as some other real estate assets, into the trust. His successor trustees managed the properties, some directly owned by the trust, with others owned by LLC that was itself wholly owned by the trust. The use of LLCs within an estate plan is also a potentially helpful technique, offering important advantages in terms of establishing protection between various assets. Through this type of planning, a liability risk related to the LLC-owned real estate (such as, for example, a slip-and-fall injury on a LLC-owned property) will not expose all of the trust’s assets in the event of an unfavorable court judgment. …

How Qualifying for Medicaid Will (or Won’t) Affect Your Estate Plan

For many seniors, few things are more intimidating than the thought of a required stay in a nursing home. In addition to the high degree of emotional stress that going into a nursing home entails, there’s also the scary thought of the financial repercussions. A Milwaukee Journal Sentinel article from last spring reported that the average cost of a nursing home stay in Wisconsin was more than $42,000 per year, with that number skyrocketing to almost $97,000 for a private room.

One way for some people to avoid the enormous costs of a nursing home is Medicaid, but it too comes with its own set of complications, mostly related to the steps needed in order to qualify for benefits. It is essential, though, as you consider your estate plan in light of a possible need for Medicaid benefits, to have a clear understanding of how Medicaid eligibility will — or won’t — impact you.

Eligibility for Medicaid means, among other things, having a monthly income and total assets that are small enough to meet Medicaid’s financial eligibility standards. Some people can become eligible for Medicaid by divesting themselves of income or assets, also known as “spending down.” Spending down your assets typically does not mean selling your house, though. As long as you intend to return home, or your spouse or a family member dependent on you still lives in the house, you generally do not need to sell immediately, and can proceed with distributing your house upon death as part of your estate plan, whether through your will, living trust or transfer-on-death deed.

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