Late Senator Ted Kennedy advocated a long-term disability insurance program throughout his 46-year Senate career and pushed for the Class Act — Community Living Assistance Services and Supports — as part of the health law before he died.  For a monthly premium, the long-term care program would have provided workers a cash stipend of at least $50 a day if they became seriously ill or disabled and needed care at home.

The 2010 health-care law specified that the government wouldn’t start the program unless actuaries concluded it would collect enough in premiums to cover the benefits.

In October, Health and Human Services Secretary Kathleen Sebelius said the administration was canceling the program because it wasn’t financially viable. Officials said healthy people may not enroll in sufficient numbers to finance benefits for everyone who needed them.

If too many sick people signed up for the program, premiums may have been as high as $3,000 a month, Kathy Greenlee, assistant secretary for aging, wrote in a memo explaining why it was canceled. She said the government didn’t have legal authority to limit enrollment.

“While the goals of the program are worthy, good intentions don’t make up for fundamentally flawed, actuarially unsound policies designed to show the illusion of savings,” Pennsylvania Republican Joe Pitts, chairman of the House Energy and Commerce health subcommittee, said during yesterday’s floor debate. 

Representative Henry Waxman of California, ranking Democrat on the Energy and Commerce panel, said Republicans who have majority control of the House haven’t offered an alternative long-care plan even though they say they want to “repeal and replace” the health-care law.

Senate Republicans may try to force a vote on the House measure, said Don Stewart, a spokesman for the chamber’s Republican leader, Mitch McConnell of Kentucky.  “We think it ought to be repealed and we’d sure like to find a way to vote on it,” Stewart said in an e-mail.

Republicans have called the program a gimmick to conceal the cost of the health-care law. After canceling the long-term care plan, the Obama administration reduced the estimated budget savings from the health-care law from $210 billion over a decade to $124 billion. The Class Act would have saved money in its early years because it wouldn’t have paid benefits for at least five years after people started paying premiums. Long-term care for the disabled can cost as much as $80,000 a year in a nursing home.

The fate of the federal estate tax is still unclear.  What is clear is that the results of the next election will play a significant role in the future of the federal estate tax system. Here is a little bit of historical background and the most likely future scenarios.

Recent Federal Estate Tax Law Changes

In December 2010 a tax compromise was reached between the President and Republican lawmakers which provides for a $5 million gift and estate tax exemption ($10 million for a married couple). Assets in excess of that level are taxed at a 35 percent rate. The $5 million exemption is indexed for inflation beginning in 2012 ($5.12 million).

The act unifies the gift and estate tax exemption so that the $5 million exemption can be used to make lifetime gifts and/or testamentary bequests. The act also provides for portability, a feature that eliminates the need for a married couple to establish an “A-B type” trust to ensure that their heirs receive the benefit of both spouse’s estate tax exemptions.

Sounds great right? Unfortunately, legislators did not make these changes permanent.  Instead, the Tax Relief Act of 2010 that established the current estate tax rules is set to automatically (e.g. - if Congress takes no action) expire on January 1, 2013.

Pursuant to the Budget Control Act of 2011, the so-called super committee had until November 23, 2011 to issue a formal proposal containing at least $1.2 trillion in deficit reduction for the full Congress to consider. The rumors were that the gift tax exemption amount would be decreased to $1 million effective January 1, 2012, instead of January 1, 2013.  In the end, the Super Committee did nothing.

President Obama’s 2012 budget proposes to bring the estate tax exemption back to 2009 levels - $3.5 million with a maximum 45 percent tax rate. The president also wants to eliminate unification by making the gift and generation-skipping tax exemption $1 million, with a top rate of 45 percent.

In addition, the president proposes to make the portability provision permanent so that married couples may continue to carry over unused exemptions, but the exemption amount that would be preserved would be limited to the estate and gift exemption in effect in 2013 and beyond.

In contrast to the president’s proposal, all Republican candidates for president call for the federal estate tax repealed. Most Democrats counter that reducing or eliminating estate taxes for the richest 1 percent of Americans is inequitable, given the large deficits facing the U.S. So clearly, the fate of the federal estate tax lies in the results of the next election.

Accordingly, at this time, here are the most likely scenarios:

Scenario No. 1

If Congress does what it does best - nothing - it could allow the new law to “sunset” (as it is scheduled to do on December 31, 2012). Since this scenario is already in place, it requires no further congressional action. If this happens, then a $1,000,000 estate tax exemption and 55 percent estate tax rate will begin on January 1, 2013.

Scenario No. 2

In November 2011, Congressman McDermott introduced the Sensible Estate Tax Act of 2011. The bill would, among other things, roll back the top estate tax rate to 55 percent, with a $1 million exemption ($2 million for married couples) indexed for inflation. The bill would also retain both unification and portability.

Scenario No. 3

If neither party has complete control over tax legislation, Congress “punt it forward” and extend the 2010 law in 2013 and beyond. This would mean that the estate tax exemption would be indexed for inflation above the $5,120,000 exemption that will go into effect in 2012 and the top rate would remain at 35 percent. Under this scenario, unification and portability remain intact.

Scenario No. 4

If the Democrats control tax legislation, Congress could pass some form of an estate tax compromise that will lower the estate tax exemption and increase the estate tax rate to something more in line with the 2009 numbers, as the president has proposed for his 2013 budget.

Scenario No. 5

If the Republicans control tax legislation, Congress could permanently repeal the federal estate tax. If a Republican wins the White House, this is a distinct possibility, given that Republicans are in control of the House and have gained significant ground in the Senate (where 60 votes are needed to repeal the estate tax).

Support for repealing the estate tax comes from various studies which show that

repealing the estate tax would increase GDP and because the estate tax represents a negligible amount of the government’s revenue.
The bottom line is that it’s impossible to know how and when lawmakers will act (and whether any new law will be permanent or just another extender bill). This makes it very difficult for clients (and their advisors) to do any intelligent estate planning.

If they are just looking for a “product” with very little understanding of what they are purchasing (or guidance in relation to) - then utilize a program.  However, if they are looking to establish a life long relationship with a trusted advisor who can provide ongoing advice and guidance about their particular situation, in addition to preparing the appropriate documents, then utilize an attorney.   

To help illustrate what I am saying, here are number of “services” that you get when you establish a relationship with an estate planning attorney that you do not get from a buying a program:

• Listen to your goals and desires and incorporate them into your plan
• Offer advice, not just words on paper
• Provide referrals to other trusted, competent professionals
• Ensure that the documents are properly executed
• Make sure that any trusts are properly funded
• Confirm that your beneficiary designations are properly completed
• Ensure that your accounts and real estate are properly titled
• Help with managing assets of incapacitated family members.
• Assist with probate and trust administration upon someone’s death
• Provide guidance when someone becomes incapacitated
• Help with income, gift and estate tax matters
• Assist with obtaining governmental benefits for disabled or incapacitated family members (i.e. - VA or Medicaid benefits)
• Serve as an advocate in dealing with financial institution and governmental entities
• You receive (or at least should) regular updates on changes in the law that may effect your situation (i.e. - like this e-newsletter)
• Care about what happens to you and your family!

Enroll in Medicare Part A and Part B. Almost everyone age 65 and older is eligible to enroll in Medicare Part A (inpatient care) and Medicare Part B (outpatient care). You may sign up as early as three months before your 65th birthday to ensure that your coverage begins on the day you turn 65.

Consider a Medicare Part C managed care plan. Many people age 65 and older enroll in a Medicare Part C Medicare Advantage HMO or other managed care plan. These plans replace and provide broader coverage than traditional Medicare Parts A and B. They can be cheaper than the combination of regular Medicare plus a private Medigap supplemental insurance policy, but they limit the health providers you may use. Some Part C plans include prescription drug coverage.  We can refer you to  a Medicare/health care agent/specialist to help you with this important decision.

Consider a Medicare Part D prescription drug plan. The high cost of prescription drugs leads the majority of people age 65 and over to enroll in a Medicare Part D prescription drug plan, which provides some reduction in yearly drug costs.

Shop for a Medigap insurance policy to supplement Medicare. Medicare leaves unpaid a large portion of most people’s medical bills. To fill in the gaps in Medicare payments, many people buy a private Medigap supplemental insurance policy. Your right to buy the policy of your choice only lasts until six months after you enroll in Medicare Part B.

Consider long-term care insurance. A private long-term care insurance policy can help pay for long-term home care or residence in an assisted-living facility or nursing home — things that Medicare doesn’t cover. If you haven’t bought long-term care insurance but think you might be interested, now — when you’re in your mid-60s — is the last age at which buying a new policy is affordable for most people.  We can refer you to  a long term care agent to help you with this important decision.

Plan your Social Security benefits claim. Age 66 is now Social Security’s “full retirement age” — when you can claim your full Social Security retirement benefits without any penalty for continuing to earn an income. But some people claim reduced benefits as early as age 62, while others wait until after full retirement age (up to age 70) to claim higher benefits. Deciding when it’s best for you to claim Social Security benefits for yourself, your dependents, and your survivors takes a little planning.

Find out about extra help if you have low income and few assets. There is both full medical coverage and direct financial help available to people 65 and over who have low income and few assets other than their homes. Medicaid can pay the full cost not only for medical care but also for long-term home care and nursing home residence. Supplemental Security Income can provide small monthly cash assistance in addition to Social Security benefits.  For more information about this program click here.

Get your legal documents in order. Although most 65-year-olds still have many years to live, a sudden illness or accident could make decision making difficult if not impossible. Getting legal documents in order can make sure your wishes are followed with regard to healthcare, including end-of-life care, your ongoing finances, and your estate. These documents include a will, a power of attorney for finances, an advance medical directive (also called a living will), and perhaps a living trust.

After leveling off last year, the cost of adult day care services went up by 4.5 percent to $70 per day.  But the average cost of home health aides and homemaker and companion service rates remained unchanged at $21 and $19 per hour, respectively.

The survey also reports on the cost of a semi-private room in a nursing home, which also increased 4.4 percent to $214 a day, or $78,110 a year. The cost of a semi-private room in an Alzheimer’s wing rose from an average of $75,190 to $81,030 annually.

Once again, the highest rates for a private nursing home room in 2011 were found in Alaska, where the average cost dropped slightly from $687 a day to $655 a day. The lowest rates were found in Louisiana (with the exception of Baton Rouge and the Shreveport area), at and average of $141 a day.

The cost of assisted living was the highest in the Washington, D.C., area, at $5,757 a month and the lowest in Arkansas (except for Little Rock) at $2,156 a month.

Average home health care aide services ranged from a high of $34 an hour in Rochester, Minnesota, to $14 and hour in the Shreveport area of Louisana. Adult day care services were highest in Vermont at an average of $148 a day and lowest in the Montgomery, Alabama, area, at $29 a day, a $2 drop from 2010.

For the full 2011 report, including listings of average long-term care costs in selected cities, click here. 

When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $5 million over your lifetime without incurring a gift tax. If your residence is worth less than $5 million, you likely won’t have to pay any gift taxes, but you will still have to file a gift tax form.  (And Congress may change the gift tax exemption, which is now scheduled to revert to $1 million at the end of 2012 unless Congress acts.)

While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient.

For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property’s tax basis would be “stepped up,” which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.

Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care.  There are other options for giving your house to your children, including putting it in a trust or selling it to them. In Michigan, the mere act of adding someone on the title to your property (e.g. - making someone a joint owner with you via a quit claim deed) can negatively affect your eligibility.  Before you give away or re-title your home, consult your elder law attorney, who can advise you on the best method for passing on your home.

Medicare Part B recipients must satisfy an annual deductible. Once the deductible has been met, Medicare pays 80 percent of what Medicare considers a “reasonable charge” for the item or service. The beneficiary is responsible for the other 20 percent.

However, in most cases what Medicare calls a “reasonable charge” is less than what a doctor or other medical provider normally charges for a service. Whether a Medicare beneficiary must pay part of the difference between the Medicare-approved charge and the provider’s normal charge depends on whether or not the provider has agreed to participate in the Medicare program.

If your doctor participates in Medicare it means that the doctor “accepts assignment.” In other words, the doctor agrees that the total charge for the covered service will be the amount approved by Medicare. Medicare then pays the provider 80 percent of its approved amount, after subtracting any part of your annual deductible that has not already been met. The provider then charges you the remaining 20 percent of the approved “reasonable” charge, plus any part of the deductible that has not been satisfied.

If your doctor does not participate in Medicare and does not accept assignment, the rules are different. Non-participating doctors can charge 20 percent of the approved amount plus up to an additional 15 percent more than the Medicare-approved amount. Non-participating doctors can also charge you for the care upfront and request that you bill Medicare, while doctors who accept assignment cannot.

For more information about Medicare, click here.

A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, it can be easy for heirs to miss important items or become overwhelmed trying to sort through all the documents you left behind. The following are some items that can be included in a letter:

• 1. A list of people to contact when you die and a list of beneficiaries of your estate plan
• 2. The location of important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
• 3. A list of assets, such as bank accounts, investment accounts, insurance policies, real estate holdings, and military benefits
• 4. Passwords and PIN numbers for online accounts
• 5. The location of any safe deposit boxes
• 6. A list of contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
• 7. A list of credit card accounts and other debts
• 8. A list of organizations that you belong to that should be notified in the event of your death (for example, professional organizations or boards)
• 9. Instructions for a funeral or memorial service
• 10. Instructions for distribution of sentimental personal items
• 11. A personal message to family members

Once the letter is written, be sure to store it in an easily accessible place and to tell your family about it. You should check it once a year to make sure it stays up-to-date.

Spousal Benefits

Spouses are entitled to benefits if the marriage lasted at least 10 years. A spouse is entitled to an amount equal to one-half of the worker’s full retirement benefit. To receive this benefit, you must be at your full retirement age or caring for a child who is under 16 years old. In addition, your spouse must have filed for Social Security retirement benefits even if he or she isn’t receiving them.

If you could receive more from Social Security based on your own earnings record than through the spousal benefit, the Social Security Administration will automatically provide you with the larger benefit. If you have reached your full retirement age, you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date. However, you cannot elect to receive spousal benefits below your retirement age and later switch to your own benefits.

If you begin collecting your spousal benefit before your full retirement age, your spousal benefit will be permanently reduced.  But if your spouse retires early, but you wait until your full retirement age, you will still receive benefits based on one-half of his or her full retirement benefit.  For more from the Social Security Administration on spousal benefits, click here.

Divorced spouses

An ex-spouse is also entitled to receive one half of the worker’s full retirement benefit as long as the marriage lasted at least 10 years. Unlike a current spouse, a divorced spouse can begin receiving benefits even before the worker has applied for benefits. The worker must be at least 62 years old and the divorce must have been final for at least two years.  For more from the Social Security Administration on qualifying for divorced spouse benefits, click here.

Survivor Benefits

If you are a surviving spouse at full retirement age, you are entitled to the worker’s full retirement benefits. If the worker delayed retirement, the survivor’s benefit will be higher. Survivors are entitled to benefits even if they are divorced as long as they had been married for at least 10 years. If you file for benefits before you are over age 60, but below full retirement age, you will receive a reduced percentage of the worker’s benefits. Surviving spouses who are younger than 60 receive benefits only in limited circumstances, such as cases of disability or caring for a disabled child.

For more from the Social Security Administration on the requirements for survivor benefits, click here. 

Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any wills made before the marriage, but if a couple divorces and there is no new will, the ex-spouse is the favored beneficiary. Fortunately, Winehouse reportedly updated her will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation firearm, would not inherit any of her estate. Under Winehouse’s will her fortune, estimated at $16 million, will go to her divorced parents and her brother.

In the United States, if you die without a will, the state dictates who will inherit from you. If you are married, most states award one-third to one-half of your estate to your spouse, with the rest divided among your children or, if you don’t have children, to other living relatives such as your parents or siblings. If you are single, most states provide that your estate will go to your children or to other living relatives if you don’t have children. If you have absolutely no living relatives, then your estate will go to the state.

If you have accumulated some assets (it doesn’t have to be Winehouse’s millions) or have young children that will need a guardian, then it is time to start thinking about an estate plan. Planning your estate with a will or trust is the best way to ensure your estate is distributed the way you want it to.