As we noted in our Spring 2003 Newsletter, the Maine Legislature has recently “decoupled” Maine’s estate tax system from the federal system. One consequence of this change is that married couples with an estate plan intended to minimize federal estate taxes through both estates (a “standard plan”) could be facing a state tax upon the first death. Under a standard plan, couples utilize a Credit Shelter Trust and a Marital Distribution (either outright or in a qualifying trust) to take optimal advantage of both available federal exemptions regardless of which spouse dies first. Historically, this approach resulted in no federal or state tax upon the death of the first spouse and minimized the total estate taxes paid upon the death of the surviving spouse. Under the new Maine system, however, utilizing this standard plan may lead to a Maine estate tax on the first estate (even though no federal tax would be due). The estate of a Maine decedent dying in 2004 (with a standard plan; a surviving spouse; and assets in excess of the federal exemption) will pay no federal tax, but will be liable for a $64,400 tax to the State of Maine! We have developed a simple Trust Amendment that you can sign without having to come into the office, which will eliminate this result by utilizing the lower State exemption, instead of the higher federal exemption, in measuring the amount that will pass to the Credit Shelter Trust. Couples who have a standard plan may want to consider executing such an amendment as an interim measure until the Maine Legislature makes a decision about the estate tax landscape beyond 2004. If the State decides to continue a separate state estate tax, the Maine estate tax could increase dramatically in 2005. If, however, the Legislature does nothing, the Maine estate tax will disappear after 2004. In either case, it may make sense for some clients to execute this simple trust amendment, although the amendment does not make sense for everyone. If you think you may be affected by the new Maine law, or if you would like to discuss your specific situation in more detail, please do not hesitate to call us.

Click here for a review of how the Maine Estate Tax affects Non-Resident Decedents who own Real Estate in Maine

If you have been to a doctor, dentist, or any other kind of medical provider in the last six months, you have probably been asked to sign a document acknowledging you have been made aware of the health care provider’s privacy policy pursuant to a new law known as HIPAA. In general, HIPAA limits who has the right to access personally identifiable health information and calls for severe civil and criminal penalties for unauthorized disclosure of personal health information, including fines of up to $250,000 and/or imprisonment up to 10 years. Understandably, health care providers are taking this new law very seriously. Although our Health Care Powers of Attorney and Health Care Advanced Directives authorize your agent to receive medical information, they do not reference the law directly and they do not provide for the release of information to other family members who may not be listed as your agent. Accordingly, we have developed a simple form which expressly authorizes your agent to receive information protected under HIPAA, and in which you can designate any additional individuals that you wish to have access to your medical information. Please contact us if you want to sign such a form.

As noted in our Tax Alert to clients in the Spring of 2002, the IRS issued Notice 2002 8 at the beginning of 2002 providing us with a preview of anticipated Regulations to be issued about the tax consequences of different types of split-dollar life insurance arrangements. Those Regulations have now been issued and they provide two separate “safe harbor” transitional rules for so-called “equity” split-dollar arrangements. Any taxpayer who has a pre-September 17, 2003 split dollar life insurance arrangement with “equity” in it (i.e. policy cash value in excess of the amount owed to the employer) is given two alternative ways to avoid any income tax on that equity if appropriate action is taken on or before December 31, 2003. If you believe you may fall into that category, please contact us, or your accountant or insurance advisor, to deal with the specifics of your situation and determine whether or not either of these safe harbors should be utilized prior to the December 31, 2003 deadline.

In our Summer 2001 Newsletter, we discussed proposed IRS Regulations relating to required minimum distributions from qualified retirement plans and individual retirement accounts (“retirement plans”). Since that time, the IRS has issued final Regulations, with several changes from the rules as originally proposed. Although most of the changes were minor, there were a few significant ones: First, the IRS updated the minimum required distribution life expectancy tables to reflect more current, longer life expectancies; second, the so-called “Separate Account” rules changed significantly; and third, the final Regulations moved up the “Designation Date” (the date for finalizing the decedent’s choice of beneficiary for purposes of determining required distributions) from December 31 of the year after the year of the Participant’s death to September 30 of the year after the year of the Participant’s death. Overall, as a result of the new Regulations, estate planning for retirement plans has become easier, but maximizing the value of the retirement plan benefits still depends on naming the right beneficiary. Whenever a retirement plan constitutes an asset of the estate, it is necessary to make sure that the proposed disposition of the retirement benefits will be permitted under the terms of the retirement plan and complies with these Regulations. Since the new rules have been finalized, we have updated our trust provision regarding qualified retirement plan benefits. If you have a retirement plan that designates your revocable trust as either the primary or contingent beneficiary, it is likely that your trust should be amended to include our updated Qualified Benefits provision.

Disclaimer: Nothing in this Client Alert should be taken as legal advice for any individual case or situation. The information in these articles is intended to be general in nature and should not be relied upon for any specific set of circumstances. You should consult with an experienced attorney before applying the information in this Client Alert to your own situation.

HTMLCounter.com