Home Posts tagged Estate Planning (Page 6)

Estate Planning: Not Just for Elders

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Law Sections
You Should Prepare Now to Prevent Future Problems

Hyman G. Darling

Hyman G. Darling


Maintaining your estate plan is very important, regardless of your health or age. In fact, the Commonwealth of Massachusetts has already drafted a will for you, so if you want to make your own decisions about the distribution of your assets, the only way to do so is through your own will. But that’s just the first step.
This year has brought many state-specific changes in laws that require an update of your plan. For instance, in Massachusetts, there is a new homestead declaration law, which was enacted to provide an automatic exemption for homeowners. There is an additional increased exemption available if it is claimed; however, a document must be prepared, notarized, and recorded in order to become effective.
In addition, the federal law relative to estate taxes has changed so that the exemption is now $5 million per person, but only for two years. Then you must also consider your own state-specific tax laws and tax rates. Since no one knows what the law will be in two years, you shouldn’t count on the $5 million exemption forever, and therefore should plan around an anticipated reduction in the exemption.
Additional documents also need to be revised regardless of the size of your estate. One of the most important is the health care proxy, also known as a health directive, advance directive, or living will in some states. This is not just for the elderly. In fact, everyone over the age of 18 should have one, and this includes your college-age kids, because hospital privacy laws may actually prevent you from obtaining information about them if they become hurt or sick. Three of the most-highly publicized cases regarding the right to die included Karen Quinlan, Nancy Cruzan, and Terri Schiavo, all relatively young women who did not have a health care proxy in place.
This document allows you to designate who will be your decision maker in the unfortunate event of incapacity, as well as whether you wish to be kept alive by machines, and donate your organs. It also may include directives for funeral arrangements, such as cremation, burial, memorials, etc.
The power of attorney is another vital document that every individual should have. It nominates an individual or an entity, such as a bank or trust company, to make financial decisions for you when you become incapacitated and are unable to attend to your own financial matters. This would include paying bills, attending to investments, maintaining or selling a residence, paying a mortgage, filing tax returns, and all other financial matters.
Please note that the person nominated under the power of attorney does not have to be the same person who is serving for health-related decisions. This is an important concept, and the people that you nominate may serve different roles and have different strengths in performing various tasks. Care should be given when making these decisions to select the most appropriate, responsible, and trustworthy individuals to carry out these duties. If you already have a health proxy and power of attorney, it may be appropriate to review them at this time to be sure that the individuals named are still able and competent to make these decisions.
Your will should also be reviewed to be sure that the individuals who are named as executors and beneficiaries remain appropriate for the tasks. If your child or grandchild is named as a beneficiary and has financial or marital problems, or has been declared disabled, it may be appropriate to have their share held in a trust as opposed to providing an outright distribution for them. If a trust is being established, care should be given to choose a trustee who will be capable and willing to attend to all financial affairs.
Consideration for guardians to care for your minor children if you are unable to do so is another important consideration. Please also consider this if you are a grandparent caring for your grandchildren.

Financial Matters
Other areas of concern that must be considered include retirement planning and financial planning. It’s never too early to plan for retirement and provide funds for your children’s education. Setting up so-called 529 Plans, as well as establishing IRAs, Roth IRAs, and funding a 401(k) and other qualified plans, are a necessity. Funds that are contributed at an early age may contribute significant appreciation with compounding and will provide for additional retirement funds to augment whatever your private pension or Social Security may fund.
Other considerations in your planning process include verifying beneficiary designations of life insurance, annuities, and retirement plans. Be sure that the individuals named are still appropriate and listed in the correct percentages and amounts. Also, charitable planning is a major consideration if you want charitable deductions, either during your lifetime or upon your death. Long-term care insurance is also important if you want to alleviate the need to spend private funds for long-term care, be it institutionalized care or home care. The sooner and earlier a policy is purchased, the less costly the premiums, and the more likely you will be insurable, since medical issues may prevent coverage in the future.
In addition, preparing an inventory of your assets, making a list of your professional advisors, and also providing your login names and passwords to online accounts should be completed, so if you become disabled or pass away, there won’t be any delay or problems in accessing those accounts and paying your bills. This includes social-media sites, because your family may wish to create an online memorial or take your pages down.
Nobody likes to contemplate what the future inevitably holds, but it is critically important to follow through on the planning process and complete the necessary documents to minimize taxes, avoid probate, and preserve assets for the next generation.

Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law Departments. His areas of expertise include all areas of estate planning, probate, and elder law. He is a frequent lecturer on various estate-planning and elder-law topics at local and national levels, and he hosts a popular estate-planning blog at bwlaw.blogs.com; (413) 781-0560; baconwilson.com.

Issues of Time and Space

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Health Care Sections
Navigating the Minefield of Long-distance Caregiving

Gina Barry

By Gina M. Barry, Esq.

There comes a point when most of our nation’s elders will need assistance with various tasks, such as household management, bathing, dressing, medication management, meal preparation and eating, transferring, and/or using the restroom. In the past, such assistance was typically provided by family members; however, with the increased mobility of our society, it is now common for family members to be too physically distant to provide hands-on care.
It is also common for an elder to be unwilling to move closer to their family, even if staying where they are means receiving care from someone other than their family members. Although the distance creates many hazards, steps can be taken to allow successful navigation of the minefield of legal, financial, and administrative issues that lie in wait for the long-distance caregiver.
The most common legal issue associated with providing proper care and oversight from a distance involves establishing proper legal authority to ensure ongoing care in the event of incapacity of the elder. When proper legal authority is not established, caregiving can be interrupted, leaving the elder at risk for physical, mental, and/or financial harm.
This legal issue can be easily resolved through the elder’s execution of a durable power of attorney and health care proxy. The durable power of attorney and health care proxy are two distinct legal documents that give a person the elder chooses the authority to make financial and medical decisions on the elder’s behalf if the elder is incapacitated.
In the event that a durable power of attorney and health care proxy are not established and the elder loses capacity, it will be necessary to petition the probate court to appoint a conservator and/or guardian to make financial and medical decisions for the elder. The process of having a conservator or guardian appointed is expensive, time-consuming, and results in the elder’s loss of privacy and legal rights. As such, the overseer of the elder’s care should discuss with the elder the need to establish these documents while the elder is still capable of executing them.
In addition, end-of-life decisions should be discussed with the elder, and the elder’s wishes should be memorialized in writing within the proper legal document. Ideally, the estate plan will also include a will, which provides clear instructions as to the disposition of the elder’s estate upon their passing away.
Because the law varies from state to state, another common legal pitfall arises when the estate planning documents that have been established are not valid or are not recognized. This pitfall usually arises because: (1) the documents were not properly prepared or executed; (2) the documents were prepared in the caregiver’s state and are not recognized in the elder’s state; or (3) the documents were prepared in the elder’s state and the elder moves to the caregiver’s state where documents are not recognized.
To avoid the pitfall of having unusable estate-planning documents, it is best to hire elder-law attorneys practicing in both the elder’s and the caregiver’s states, so that you can be sure the advice you receive will pertain to the law of each state, and any necessary state-specific provisions will be incorporated into the estate-plan documents. Otherwise, it is possible that the elder could lose the protection of the documents, especially if the elder moves after losing his or her capacity to execute new documents.
Financing care is another area loaded with potential problems for the long-distance caregiver. Many times, the elder expects that public benefits (Medicaid) will pay for his or her care needs. Again, each state has different rules relative to obtaining approval for public benefits, and there are vast differences between the states as to various issues, including, but not limited to, asset and income limits, the effects of long-term-care insurance, and the effects of past gifts. Again, it is imperative to consider the rules in both states when planning if there is any possibility that the elder will relocate.
Further, there are also differences in the reach of each state’s estate-recovery rules, which are the rules that allow the state to recover benefits paid for care from the estate of a recipient who has passed away. Here, proper planning can ensure that benefits will be obtained as efficiently as possible and, at the same time, minimize the exposure of the elder’s estate to recovery efforts.
With respect to administrative issues, coordinating caregivers can be a daunting task. It can also be a serious mistake to rely on an elder’s self-reported care needs, because many do not recognize their own needs when they arise. As such, every long-distance caregiver should hire a geriatric care manager in the elder’s area. A geriatric care manager is a health care professional with training in gerontology, social work, and nursing. In most cases, the geriatric care manager will conduct an assessment of the elder and develop an individualized care plan.
In the long-distance-caregiving situation, the geriatric care manager will act as a liaison for the distant caregiver. Here, the geriatric care manager will oversee the elder’s care, providing a report to the caregiver at regular intervals and alerting the caregiver to any potential problems. The geriatric care manager’s additional oversight not only provides peace of mind for the long distance caregiver, but also guards the caregiver from claims that he or she is not conscientiously carrying out his or her duties due to the distance and/or lack of personal oversight.
Even though long-distance caregiving is a minefield, the wisest of caregivers knows that hiring professionals in the elder’s area, the caregiver’s area, or both is the equivalent of employing a minesweeper. With proper planning and the advice of elder-care professionals, caregivers can defuse or altogether avoid the mines and successfully navigate the minefield of long-distance caregiving.

Gina M. Barry is a partner with Bacon Wilson, P.C. She is a member of the National Assoc. of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Assoc. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships, and residential real estate; (413) 781-0560; baconwilson.com

Tax-exempt Bonds

By
Gary Fentin
Banking and Financial Services Sections
These Are Commercial Loans at Below-market Interest Rates

Gary Fentin

Gary Fentin


For business owners and nonprofit managers, there is a way to finance your next capital project from your own bank, on the same terms you would obtain conventionally — but at a reduced interest rate.
The vehicle is a tax-exempt bond issued by the Mass. Development Finance Agency (“MassDevelopment”), a product that comes in several forms, including industrial revenue bonds (IRBs), bonds for nonprofit organizations (501c3 bonds), and bonds for other eligible entities.
But what is a tax-exempt bond? What do they cost? How do you get one? Who is eligible? Are they more trouble than they’re worth?  These are all commonly asked questions.
This article is geared primarily to tax-exempt bonds that are purchased by a bank or single lending institution. Bonds that are publicly issued or credit-enhanced involve additional parties and additional cost. Here are the answers to those questions and several others.

What is a Tax-exempt Bond? It is a financing vehicle that works basically like a loan from a bank that satisfies certain federal tax and MassDevelopment requirements. From the borrower’s and the bank’s perspective, it looks and feels like a regular bank loan, typically with the same payment terms and collateral as the borrower would obtain generally, but with a lower interest rate.

What are the federal tax requirements? The primary federal tax requirement is that the project finance capital costs incurred for qualified initiatives. Although there are other federal tax requirements, if your project qualifies and you feel that a bond is cost effective, you should contact MassDevelopment or the author of this article to inquire regarding qualification.

What are the MassDevelopment requirements? MassDevelopment must approve the project and the applicant. This is a fairly straightforward process that includes speaking to the local MassDevelopment representative for Western Mass., Frank Canning, and completing and submitting an application. Canning will coordinate with one of the agency’s bond counsels to review the application and to prepare the forms of votes for the agency approval and notices of public hearing. Shatz, Schwartz and Fentin, P.C. is the only approved MassDevelopment bond counsel firm with offices located west of Worcester.

What is a qualified project? Tax-exempt bonds are available to finance eligible capital costs incurred in Massachusetts by manufacturing companies, 501(c)(3) entities, and certain assisted-living and long-term-care facility developers, affordable rental housing developers, and solid waste and recycling facilities.

What do they cost? The cost of an IRB includes the following: (1) the cost the borrower would otherwise incur to close a conventional loan for the same project with a bank (2) plus MassDevelopment’s issuance fee and the cost of bond counsel, which is generally $12,000 to $13,000. For a bond amount of $2 million, MassDevelopment’s fee would be $20,000 (1%) for a manufacturing project, or $10,000 (.5%) for a 501(c)(3) project, plus $13,000 bond-counsel fee, for a total of about $33,000 for a manufacturing project and $23,000 for a 501(c)(3) project.

Are they worth the money? Typically the interest rate on a bond is up to 2% or more less than conventional financing.  For a $2 million bond, the interest savings could be $40,000 in the first year, which would pay all of the extra issuance costs in one year. The savings on a $1 million bond ($20,000) would pay the extra issuance costs in about one year for a 501(c)(3) project, and in about 1.5 years for a manufacturing project.

What does bond counsel do? Bond counsel is responsible for filing the necessary federal and state approval and filing documents, drafting the basic bond documents, and issuing an opinion that interest payments received on the bond are exempt from federal taxation. The exemption from federal taxation of interest on the bond is the reason that the bank can charge a lower interest rate and still earn a similar after-tax yield as it would have received on a conventional loan.
Bond counsel is also allowed to represent the borrower or the bank, in addition to acting as bond counsel.

Who should you contact to see if you are eligible? Frank Canning at MassDevelopment, 1350 Main St. 11th Floor, Springfield, MA 01103; (413) 731-8848; [email protected]

How long do they take to get?  A bond can usually close on the same closing schedule the bank and the borrower would use for a conventional loan. Generally it takes about 4-6 weeks to close a bond from the issuance of a bank’s commitment letter, which is the time that the borrower and the bank generally need to prepare and submit their respective due diligence items.

Attorney Gary S. Fentin is a shareholder of Shatz, Schwartz and Fentin, P.C., and concentrates his practice in the areas of commercial and real estate finance and development, industrial revenue bonds, affordable housing, estate planning, business law, and business foreclosures and workouts. He is the only approved bond counsel for Massachusetts Development Finance Agency with offices located west of Worcester;  (413) 737-1131.

Electing Small-business Trusts

By
Sections Supplements
An Effective Way to Plan for Succession in a Closely Held Business

Julie Lackner, Esq.

Julie Lackner, Esq.

Planning for an estate that includes an interest in a closely-held business always requires special attention. Not only will the business likely be the culmination of a lifetime of work, it is usually a large part of the owner’s estate. If the business interest is in the form of S-corporation stock, even greater care must be taken to ensure that the benefits of S-corporation treatment are not lost.
An S corporation enjoys substantial income-tax benefits because its shareholders are subject to only one layer of taxation, instead of the two layers imposed upon a C corporation. In order for a corporation to qualify for S treatment, a number of requirements must be met as follows:
• The corporation can have no more than 100 shareholders;
• No shareholder can be a non-resident alien individual;
• The corporation can have only one class of stock; and
• No shareholder can be an entity other than estates, certain charities, and certain types of trusts.
The primary operating document in an estate plan is often a revocable trust, so care must be taken to ensure that the trust complies with the S-corporation rules and that the beneficiaries of the trust are qualified shareholders. If either of these conditions is not met, the disastrous result will be that the corporation will lose its S status and its favorable tax treatment for all its shareholders.
One type of trust that always qualifies as a shareholder of an S corporation is the statutorily created Electing Small Business Trust (ESBT). The ESBT was created by Congress in 1996 as a means of authorizing a discretionary trust to be a qualified shareholder. Prior to the creation of the ESBT, the only type of trust that was authorized to hold S corporation stock after the death of the grantor was the Qualified Subchapter S Trust (QSST).
The QSST has the drawback, however, of allowing only a single-income beneficiary, to whom all of the income of the trust must be distributed currently. The income beneficiary is also the only beneficiary of the trust principal while he or she is alive. These restrictions on the trust diminish its usefulness as an estate-planning tool. The ESBT, on the other hand, allows for multiple-income beneficiaries, among whom the trustee can distribute income and principal at the trustee’s discretion, as well as allow income to be accumulated within the trust.
There are only two requirements for a trust to qualify as an ESBT:
• All of the beneficiaries must be either individuals who are U.S. citizens or resident aliens, estates, or certain types of charitable organizations; and
• None of the beneficiaries can have acquired his or her interest in the trust by purchase or taxable exchange.
For purposes of determining whether an S corporation has fewer than 100 shareholders, all the potential current beneficiaries of the trust are counted. A potential current beneficiary is any beneficiary to whom the trustee is required or has the discretion to make current distributions of income or principal. A beneficiary who has only a future interest in the trust is not counted as a shareholder of the ESBT. On the other hand, for purposes of determining whether all the individual beneficiaries are U.S. citizens or resident aliens, all the beneficiaries of the trust, including those holding a remainder or reversionary interest, are taken into account.
To elect ESBT treatment, the trustee must sign and file a specified statement with the IRS. The statement must include:
 • The name, address, and taxpayer-identification number of the trust;
• The potential current beneficiaries, and the S corporations in which the trust currently holds stock;
• An identification of the election as an ESBT election made under the relevant Internal Revenue Code section;
• The first date on which the trust owned stock in each S corporation;
• The date on which the election is to become effective (not earlier than 15 days and two months before the date on which the election is filed); and
• Representations signed by the trustee stating that the trust and all the potential current beneficiaries meet the definitional requirements of the relevant code section.
The ESBT has the advantage of greater flexibility for estate-planning purposes, but it carries a higher tax cost than most other trusts. For the portion of an ESBT that holds S-corporation stock, the trust is taxed at the highest individual income-tax rate, regardless of whether it distributes the income from the S-corporation stock to the beneficiaries. If the beneficiaries of the trust are not in the highest income tax bracket, the ESBT can carry a significant tax cost. For example, in 2010, the highest marginal income-tax rate was 35%.
All the income of the ESBT would be taxed at that rate, even if was distributed to beneficiaries who were all in the 15% bracket. For a $10,000 distribution, that is the difference between paying taxes of $3,500 versus $1,500. Furthermore, the trust cannot take many of the deductions or offsetting losses that would be available to an individual beneficiary.
The trustee must weigh the options and determine whether the greater flexibility is worth the higher tax cost of the ESBT. Although the election to be treated as an ESBT is irrevocable, the ESBT can be converted to a QSST under certain circumstances to take advantage of pass-through taxation.
The ESBT can be a very useful tool in planning for an estate that will hold S-corporation stock. It provides greater flexibility, albeit at a higher tax cost, than other subchapter S-qualified trusts. Such trusts must be carefully drafted, however, because their many technical requirements can prove to be a trap for the unwary.
 
Julie R. Lackner is an estate-planning attorney with the Springfield-based regional law firm Bacon Wilson, P.C. She is a member of the Estate Planning Council of Hampden County and the National Academy of Elder Law Attorneys; (413) 781-0560; baconwilson.com; bwlaw.blogs

People On the Move

By
Abby Mahoney
Departments People on the Move

Robert F. Borawski

Robert F. Borawski

Robert F. Borawski has been elected Chairman of the Board of Directors of Florence Savings Bank. Borawski is President of Borawski Insurance Co. in Northampton. He is a Certified Insurance Counselor and a Licensed Insurance Advisor. Borawski was elected a Corporator of Florence Savings Bank in 1981 and a Director in 1992.
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Abby Mahoney

Abby Mahoney

Abby Mahoney has been selected as Director of Career Services at American International College in Springfield. Mahoney will maintain the career library, Web site, database, and current job listings, as well as plan and conduct career days, job fairs and a majors fair. She will also design and deliver workshops, seminars, and fairs to assist students with job-search strategies such as interviewing, résumé writing, mock interviews, and other related supports. Mahoney will also contact, schedule, and arrange guest speakers from local businesses, the community, and alumni to present information about specific careers.
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Roberta Hillenberg-Gang has been appointed Link Senior Project Coordinator for the Link to Libraries Inc.’s collaboration to offer read-aloud programs to area public elementary schools with Loomis Communities residents.
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Pamela Simpson

Pamela Simpson

Pamela Simpson has been promoted to Commercial Banking Officer at United Bank. Working from United’s Northampton branch, Simpson’s primary responsibility will be business development in the Hampshire County marketplace.
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Denise Remillard

Denise Remillard

Denise Remillard has joined the Insurance Center of New England in Agawam as Manager of Human Resources.
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Mark A. Germain has been appointed Vice President and Partner in charge of technology at Gomes, DaCruz & Tracy. He will have overall responsibility for the development, implementation, and support of internal technology-related design and procedures as well as providing clients with technology consulting. He will also be responsible for providing accounting and tax services, focusing on the construction and manufacturing industries.
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van Schouwen Associates in Longmeadow announced the following:
• Shannon Filippelli has been promoted to Director of Strategic Communications; and
• Staasi Heropoulos has been hired as Manager of Strategic Communications.
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Kate Reagan has been hired by PeoplesBank as a Mortgage Consultant.
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Attorney Danielle P. Ferrucci has been named a Partner at the law firm of Shipman & Goodwin in Hartford, Conn. Ferrucci’s practice encompasses the areas of estate planning, estate settlement, and trust administration. She also represents individual and corporate fiduciaries and beneficiaries in contested matters in probate courts throughout Connecticut.
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The Chicopee Chamber of Commerce announced the following:
• Richard Kos of Egan, Flanagan & Cohen, P.C., has been named Incoming Chair of the Board of Directors;
• Tina Kuselias of BusinessWest has been named to the Board of Directors;
• Cid Inacio of Chicopee Savings Bank has been named to the Board of Directors;
• Corey Briere of Complete IT Solutions has been named to the Board of Directors;
• Ben Garvey of Insurance Center of New England Inc. has been named to the Board of Directors; and
• Lt. Col. James G. Bishop of Westover Air Reserve Base has been named to the Board of Directors.
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Gregory B. Chiecko, Sales Director at the Eastern States Exposition in West Springfield, has been elected to the International Assoc. of Fairs and Expositions’ Board of Directors and will serve as Chair of Zone 1 of the organization, which includes the Northeast U.S. as well as New Brunswick, Newfoundland, Nova Scotia, and Prince Edward Island in Canada.
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Attorney William Hart, specializing in estate planning with the law firm of Bulkley, Richardson & Gelinas, has been appointed to the Professional Advisors Board of the Mason-Wright Foundation. The foundation provides housing and daily-living services to the elderly, regardless of their ability to pay.

Mistakes That Make a Litigator’s Day

By
Carol Cioe Klyman
Sections Supplements
How to Avoid Turning Private Estate Matters into Public Conflicts

Carol Cioe Klyman

Carol Cioe Klyman

Litigators love conflict.
In the world of trust and estates litigation, an innocent transaction, such as adding a child’s name to a bank account, could set the stage for a legal battle royal after the parent’s death.
Consider the questions mom will not be around to answer. Did she put Johnny’s name on her account because she wanted him to be able to withdraw funds while she was living, or rather to inherit the account when she died? Or did she intend to give Johnny access to the money just in case something happened to her, but she really wanted all her children to split the account when she died?
The siblings never got along that well, but think about what could happen in this family when mom is no longer around to referee.
Walk into most courthouses these days, and you will soon realize that ambiguity and conflict mean money. Trust and estates litigation is booming in no small part because the innocent transactions of life conflict with family dynamics and the complex realities of the legal system. Litigators sue, but estate-planning attorneys try their best to keep clients out of court. So here, from my observations, files, and trials, and those of my colleagues, are some of the mistakes that can drive what should be private matters into public conflict.
1. DIY estate planning. Filling out forms from the Internet for wills, trusts, and powers of attorney is the easy part. Thinking through the ramifications of those documents takes knowledge and skill. Most people plan one or two generations ahead, but life is not that simple.
Divorce, biology, human frailty, and the simple passage of time all affect our planning. It also takes knowledge to separate the useful from the flawed in these Internet documents. Litigators will exploit ambiguities and unintended consequences.
2. Not having a will, power of attorney, and health care proxy. If you don’t have these basic documents, the government controls where your property goes and monitors who makes decisions about your health care and your funds. If you become incapacitated, a judge will appoint a guardian and conservator to take care of your financial and medical affairs. Families often disagree over who will serve in these roles, and these conflicts often end up in court. These cases can be brutal, costly, and time-consuming.
The judge, usually the person in the room who knows the least about your case, is confronted with choosing between children, as often as not appointing a professional who is a stranger to the family.
3. The law of unintended consequences. Even people who have estate plans can fail to consider the consequences. In one glaring example that came across my desk some years ago, a man terminally ill with cancer thought he had provided for his adult children in his will, signed six months before his death. The will left everything to his second wife, whom he had married two years previously, and then to his five children if she were dead. When he died, his wife inherited his entire estate, and his children got nothing.
His children sued. The case settled with the widow agreeing to give them their father’s property at her death. Many such cases end only after protracted and expensive litigation that leaves the children empty-handed.
4. “My child will do the right thing.” I can’t tell you how many times a client has told me, “I’m leaving everything to my daughter. She knows what I want.” The law favors certainty over sentiment. The certainty is, the daughter owns everything at the parent’s death. Fortunately, in most cases, the child will do the right thing when a parent dies. However, at times the ‘right thing’ is unclear.
The person in charge may believe she knows exactly what the deceased person wanted. Others may disagree, and even resent the authority given to the favored person.
5. Promising more than you deliver. Many lawsuits are won and lost over the issue of a promised inheritance that failed to materialize. In many of these cases, the neglected survivor performed an uncompensated service expecting to be rewarded later. In one recent case, a son was promised he would inherit the family business and real estate if he ‘employed’ his mother at a substantial salary and paid her living expenses.
He faithfully performed his obligations until her death. Unfortunately for the son, the mother changed her estate plan in the intervening years and split the business among her children when she died. The dutiful son sued his siblings and won. The sympathetic judge found that the son acted based on his mother’s promise and should be compensated for his trouble.
6. Picking the wrong person to be in charge. A corollary to this is, “Sheila is the oldest, so I’ll name her.” Much sadness, loss, and many expensive lawsuits arise from this mistake. An executor of a will, trustee of a trust, and agent with power of attorney or health care authority — each of these jobs requires a person of intelligence, honor, loyalty, and diligence. Putting the wrong person in charge can completely derail a perfectly crafted estate plan.
Individuals abuse the trust placed in them when they use funds for their own purposes, contradict their principal’s instructions, or fail to follow the directions expressed in the decedent’s will. These cases run the gamut: a grandmother serving as executor of her daughter’s will spent her grandchildren’s inheritance on herself; an agent transferred property owned by her incapacitated mother to herself without permission; an executor used estate funds to repair and improve his own home. Often the people who are wronged — an incapacitated person, trust beneficiaries, a decedent’s heirs — have the law on their side but cannot recover what was lost or taken. The wrongs can occur many years before discovery, and perpetrators often are poor and ‘judgment-proof,’ and not required by the court to have insurance to cover losses.
7. Dueling powers of attorneys. When a parent cannot choose which child to put in charge, they sometimes put too many children in charge. They will sign a power of attorney naming one child, a second power of attorney (sometimes drafted by a different lawyer) naming another child, and so forth. The question then becomes, who is really in charge?
If the parent is incapacitated, unable to pick the first among equals, and the children can’t agree, the decision will end up in court. My advice is to say what you mean in one document only, and don’t let your children bully you into creating another. If you can’t pick one and then another as backup, you can name two serving together, but it is best for an odd number to serve in case a tiebreaker is needed. You might also spread the jobs of executor, attorney-in-fact, and health care agent among your trusted family members so no one feels slighted.
8. Failing to name successor executors, agents, and trustees. If an office is vacant, the court may need to appoint an individual or corporation to serve. Refer to points 2, 3, 5, and 6 for the ramifications.
9. Not specifying how taxes are paid when you die. If you leave assets of more than $1 million, Massachusetts will tax your estate (more than $5 million, and the federal government is also interested). Unless you decide differently, taxes are paid from general probate assets, which do not include specific assets bequeathed in a will, insurance policies, annuities, retirement accounts, and other assets with beneficiaries. The result could be that the people you want to benefit the most will pay all the taxes and receive the least.
10. Specifying that taxes be paid from tax-exempt assets. Some assets transferred at death, such as gifts to charity or to a trust for a surviving spouse, are exempt from estate tax and can actually result in reduced taxes for an estate. However, an improperly drafted estate plan can cause a portion of these exempt assets to be spent on estate taxes, reducing the amount of the exempt gift, and in turn increasing the taxable estate and the tax bill — a mathematical spiral that often ends in court. Charities, marital trust beneficiaries, and litigators can do the math.
11. The ostrich estate plan. Pretending problems don’t exist, and not meeting them head-on, is a gift that keeps on giving to a litigator. A parent may disinherit a child or children for any reason, sometimes out of sheer dislike. Most parents can’t live with the thought of treating one child differently, even a child with substance-abuse, financial, or marriage problems, or perhaps physical or mental challenges. Failing to address these issues by sweeping them under the rug or pretending they don’t exist can be destructive to the family. With proper planning, children can be protected from themselves in many positive ways.
However, if ever your loved ones would have reason to race to their lawyer, an estate plan that singles out a child with problems, disinherits children, or leaves the entire estate to the poodle would be it. Care must be taken to evidence that the parent acted willfully and with full understanding. Plans that seem irrational or flippant leave much room for doubt and speculation — and make a litigator’s day.

Attorney Carol Cioe Klyman is a shareholder with Shatz, Schwartz and Fentin, P.C., Springfield, Northampton, and Albany, N.Y. Her practice concentrates in the areas of elder law, estate and special-needs planning, estate administration, and trusts and estates litigation. She is a fellow of the American College of Trust and Estates Counsel and immediate past president of the Hampden County Estate Planning Council; (413) 737-1131.

People On the Move

By
Bethany Hinton
Departments People on the Move

The Holyoke-based accounting firm Meyers Brothers Kalicka, P.C. announced the following:

James T. Krupienski

James T. Krupienski

• James T. Krupienski, CPA, MSA has been promoted to Senior Manager in the Audit and Accounting Division of the firm. In this role, he will be a key contributor in two distinct niches within the firm. A member of MBK’s health care niche, Krupienski works with an array of medical and dental groups in Western Mass. and Connecticut, providing accounting and consultative services. He also brings 10 years of experience to the firm’s employee-benefits division, providing a strong focus on compliance audits and employee-benefit-related consultative services.
Scott Adams

Scott Adams

• Senior Associate Scott Adams has earned the certified valuation analyst (CVA) designation through the National Assoc. of Certified Valuation Analysts (NACVA). Business valuations are a tool often used by business owners, stockholders, bankers, financial planners, attorneys, and others, when an objective analysis of a business worth is indicated. This may occur in scenarios that range from mergers and acquisitions, succession planning, stockholder disputes, estate planning, and gifting to transitional life events such as divorce. The certified valuation analyst is the premier accreditation for providing business valuation and litigation support consulting services, and the certification process is open only to licensed, certified public accountants who meet NACVA’s rigorous standards of professionalism, expertise, objectivity, and integrity.
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Julie Cowan has been appointed to the Board of Trustees of the Clarke Schools for Hearing and Speech in Northampton. Cowan is a Vice President for Commercial Lending at TD Bank.
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Pamela Wells

Pamela Wells

Pamela Wells, Resident Service Manager at the Springfield Housing Authority, was recently appointed to the Springfield Advisory Board of the Department of Transitional Assistance. Her appointment to the advisory board is through 2013.
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American International College in Springfield announced the following:
• Thomas E. Dybick has been appointed Vice President for Finance; and
• Linda Dagradi has been hired as the Associate Vice President for Student Financial Services.
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Mary Fallon

Mary Fallon

Mary Fallon, Media Director at Garvey Communication Associates Inc., recently attained Google AdWords Individual Certification. Fallon passed two exams to gain certification, including an advanced-level exam on search advertising covering best practices for managing AdWords campaigns.
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William Murphy has joined Connie Laplante Real Estate in Franklin, Hampshire, and Hampden counties. Real-estate offices are located in Belchertown and South Hadley.
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Marcos A. Marrero recently joined the Pioneer Valley Planning Commission in Springfield as a Land Use and Environment Planner.
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Christina Cronin was recently qualified as a Certified Fund-raising Professional by CFRE International. Cronin is Director of Major Gifts and Campaign Coordinator for Wilbraham & Monson Academy.
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Kimberly A. Klimczuk

Kimberly A. Klimczuk

Attorney Kimberly A. Klimczuk has returned to Skoler, Abbott & Presser, P.C., in Springfield. Her focus is labor law and employment litigation.
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Arthur Marshall has been awarded the accredited Senior Appraiser designation by the American Society of Appraisers. He is employed at Berry, Dunn, McNeil & Parker.
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Caroline Fisher

Caroline Fisher

Caroline Fisher, M.D. Ph.D., has been appointed Medical Director of Child and Adolescent Services at Providence Behavioral Health Hospital in Holyoke. In addition to her responsibilities in Holyoke, she serves as Medical Director of Pediatric Behavioral Health, LLC, in West Boylston, and as editor-in-chief of the Carlat Child Psychiatry Report.
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U.S. Sen. Scott P. Brown has named Nick Powers to serve as his Constituent-services Representative for Western Mass. Powers is available to provide assistance to constituents in navigating federal programs ranging from veterans’ benefits to Social Security.
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Bethany Hinton

Bethany Hinton

Bethany D. Hinton has been named Loan Servicing Officer of Florence Savings Bank.
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Certified Public Accountant Linda Syniec has joined the firm of S. Reichelt & Co. Her expertise is in providing tax services to clients in most every industry group, including closely held private companies and high-net-worth individuals.
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The Western Massachusetts Jewish Ledger announced the region’s Jewish Movers & Shakers for 2010:
• Robert Engell, working in health care management, has used his experience to help rebuild the health care system in Afghanistan;
• Susan Jaye-Kaplan, co-founder of Link to Libraries, collects and distributes new and gently used books to elementary-school libraries and nonprofit organizations for children in Western Mass. and Northern Conn.;
• Jeremy Pava has served on the board of the Harold Grinspoon Foundation for 20 years, and is president of the Hebrew High School of New England;
• Rabbi Saul Perlmutter instituted the Ride to Provide, an annual event for students at UMass Amherst Hillel that brings cyclists together to raise funds and to enjoy a scenic bike ride through Amherst. In addition, an executive director of the Hillel House for more than 35 years, Perlmutter has helped UMass Hillel grow from an office in the Student Union to a three-story building and a home to Jewish students at the school. Along with his responsibilities at Hillel, Perlmutter is also rabbi at Congregation Sons of Zion in Holyoke;
• Shamu Sadeh is director of ADAMAH, the farming fellowship for young Jews at the Isabella Freedman Jewish Retreat Center. A leader in the Jewish food movement, Sadeh is an environmental-studies instructor, Jewish educator, writer, organic farmer, and wilderness guide;
• Barbara Sanofsky founded the Pioneer Valley chapter of the Pomegranate Guild of Judaic Needlework, an organization of Jewish needle artists that create ceremonial objects for their synagogues, homes, and communities. She has been named president of the national organization, which has chapters throughout North America; and
• Ruth Webber recently received the 2010 Kipnis Wilson/Friedland Award, the biennial lifetime achievement award given by the Jewish Federations of North America.
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PeoplesBank of Holyoke announced the following:
Heidi Nowak

Heidi Nowak

• Heidi Nowak Leonard has been appointed a Mortgage Consultant. She is responsible for residential mortgage business in the Greater Westfield area; and
Kate Reagan

Kate Reagan

• Kate Reagan has been appointed a Mortgage Consultant. She will be responsible for residential mortgage business in South Hadley, Northampton, Easthampton, and the surrounding areas.
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Kate Phelon

Kate Phelon

Kate Phelon has been named executive director of the Greater Westfield Chamber of Commerce.
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Erik Skar has been named Vice President of the Board of Directors at the Pioneer Valley Montessori School of Springfield. He is a financial-services professional at MassMutual.
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The law firm Shatz, Schwartz and Fentin, of Springfield and Northampton, has several members currently serving on boards and committees throughout the region, including:
• Ellen W. Freyman, appointed by Gov. Deval L. Patrick to the Springfield Technical Community College Assistance Corp.;
• L. Alexandra Hogan, serving as a member of the board of Junior Achievement of Western Massachusetts; and
• Carol Cioe Klyman, named to the editorial board of the National Academy of Elder Law Attorneys Journal.
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Merriam-Webster Inc. of Springfield announced the following:
• Jane Mairs has joined the firm as Director of English Language Learning Publishing;
• Meghan Lieberwirth has been promoted to Director of Marketing; and
• Matthew Dube has been named Business Development Manager.
•••••
The Williston Northampton School announced the following:
• Peter Valine has been named Dean of Faculty; and
• Jen Fulcher has been named Director of the Middle School.

The CLASS Act

By
Julie Lackner, Esq.
Sections Supplements
Health Reform Adds a Twist to Long-term Care Insurance

Imagine that long-term care insurance meets Medicaid, and you will begin to have some idea about the new CLASS Act. CLASS is a program established by the new health care reform law, and it stands for Community Living Assistance Services and Supports.
At a time when long-term care costs are expensive and only becoming more so, the program represents the first major attempt of the federal government to provide long-term care benefits. The program went into effect on Jan. 1, 2011, but it is unlikely that you’ll be able to enroll before 2012 because a number of details still need to be ironed out.

Julie Lackner, Esq.

Julie Lackner, Esq.

The program will be administered by the federal Department of Health and Human Services (HHS) and its secretary, Kathleen Sebelius. CLASS is completely voluntary and is meant to provide cash benefits to working adults who become functionally disabled.
The program is similar to private long-term care insurance because you pay the premiums. It resembles Medicaid, however, in that it offers lifetime benefits and can’t exclude people with pre-existing conditions.

Who Can Enroll?
Any working adult can participate. You must be over 18 years old and actively employed. The details of what constitutes actively employed will be determined by the HHS, but will include part-time employees who earn enough to pay Social Security taxes, or about $1,120 per year. It will also include self-employed people. Retirees, unless they continue to work part-time, will not be eligible. Patients in nursing homes and other institutions, as well as incarcerated people, will be eligible to enroll. The most attractive part of CLASS is that you are not ineligible if you already have health issues.
One major drawback of private long-term care insurance is that you are often disqualified for pre-existing conditions. The CLASS legislation prohibits this kind of underwriting. As long as you can pay the premiums for five years and continue to work at least part-time during three of those years, you can enroll, and you won’t be excluded from receiving benefits. You can either become enrolled through your employer, or you can enroll on your own if your employer decides not to participate. The method for enrolling on your own hasn’t yet been determined, but it will be up to HHS to institute that. If your employer signs up, then all employees will be automatically included. Nevertheless, you can always choose to opt out of the system.

How Much Will It Cost?
Payments for the cost of the premiums will be deducted directly from your paycheck if you enroll through your employer. When the Congressional Budget Office analyzed the legislation, it estimated that monthly premiums would average around $120. This means that, if you get paid weekly, about $30 will come out of each paycheck to pay the premiums for your coverage. Your employer will have the option of deciding whether it wants to cover any of the cost of the premiums. If you’re lucky, your employer may decide to do so as an additional part of the benefits package it offers to employees.
Under the law, premiums can be lower for younger people and higher for older participants. Generally, this makes sense because younger people will usually be paying the premiums for a longer period of time. Additionally, there are some very attractive provisions: premiums are intended to remain the same throughout a person’s lifetime, and people with health issues cannot be charged higher premiums. For people below the federal poverty line and for working students, there will be a special low premium that may be as little as $5 per month. All the premium information has to be determined by HHS by October 2012. Until then, no one knows for sure how much CLASS will cost.

How Do I Get Benefits?
The CLASS Act has various vesting requirements that you must meet before you can become eligible for benefits. First of all, you must pay the premiums for at least five years before you are eligible for benefits. Second, you must have been actively working at least three of those five years. Special rules will apply if you drop out of the program and then subsequently reapply. If you re-enroll within 90 days, your premiums will not change. After 90 days, however, the premium may be adjusted based on your current age. So if you join the program when you are 22, drop out for more than three months when you are 40, then re-enroll a year later, your new premium will be based on your current age of 40, and it is sure to be higher than the premium you had at age 22.
In addition to meeting the vesting requirements, you must have a qualifying level of disability to begin receiving benefits. The benefits granted by the program will depend on the level of physical and/or cognitive disability. The qualifying level of disability is defined as being unable to perform at least two or three of the Activities of Daily Living (ADLs), which include eating, bathing, and dressing yourself. Alternatively, the qualifying level of disability can be met if you require substantial supervision due to cognitive impairment. The disability must occur for at least 90 days consecutively to qualify. But as long as a qualifying level of disability exists, you can continue to receive benefits.

How Large Are the Benefits?
CLASS will pay a cash benefit of no less than $50 per day on average. This means that some people will receive more than $50 and some will receive less, but the average amount paid out cannot be less than $50. The benefit will depend on the level of disability and will increase annually to keep up with inflation. The beauty of CLASS is that there is no lifetime limit on benefits. If you’re eligible for benefits under CLASS and you get into a car accident at age 40 resulting in the need for care for the rest of your life, you’ll get a payment from the government every month, adjusted for inflation, as long as you live.
One criticism of the program is that CLASS could never cover the entire cost of long-term care in a nursing home. Although that is likely to be true, even $50 a day will help finance extra help at home, or take care of part of the cost of assisted living or adult day care. With the cost of a private room in a nursing home averaging over $9,700 per month in Massachusetts in 2010, every little bit helps.
CLASS can provide assistance to people who have pre-existing conditions and would never be able to obtain long-term care insurance. It can also provide benefits to those who make too much money to qualify for Medicaid but not enough to pay the premiums on private insurance. The bottom line is that CLASS is likely to be a winner because it will cost less than long-term care insurance, while providing benefits to more people.

Julie R. Lackner, Esq. is an associate attorney with the Springfield-based law firm Bacon Wilson, P.C. She handles all aspects of estate planning and elder law; (413) 781-0560; baconwilson.com; bwlaw.blogs.com

Understanding Veterans’ Benefits

By
Sections Supplements
Assistance Is Available to Those Who Qualify Financially

Hyman G. Darling

Hyman G. Darling

There are currently approximately 25 million veterans alive in the U.S., many of whom are not disabled. In addition, there are more than 9 million surviving spouses of veterans, many of whom will need long-term care or are currently receiving long-term-care benefits. The Veterans’ Administration has benefits available to assist veterans and their spouses with financial and other necessary services. Often these benefits allow a veteran or their spouse to remain at home rather than requiring assisted living or long-term care in a nursing-home environment.
This article will describe the various available options. It must be noted, however, that many services are available only to veterans who qualify financially and have honorable discharges.
A significant document that a veteran needs is the DD-214, or Separation from Service document. If it is missing, you are urged to apply to the Veterans’ Administration for a replacement copy so that, when the time comes that you need assistance with your care, you will have the required evidence of an honorable-discharge status.
One important benefit that you should be aware of is a service pension. The Veterans’ Administration (VA) provides a monthly cash payment to wartime veterans who meet active-duty and discharge requirements, who are either 65 years or older, or disabled. These veterans must also have a limited income or status requirement. Benefits are also available to a surviving spouse of the wartime veteran. At this time, the unmarried veteran may receive up to $985 per month while a married veteran may receive up to $1,291 per month, and a surviving spouse may receive up to $661 per month. There may be an additional payment available if the spouse is at home with dependent children. This is especially significant if there is a disabled child who is living at home and dependent on the parent for support, as this circumstance may increase the VA benefit further.
A slightly higher monthly payment may also be available to wartime veterans who are confined to their home for medical reasons. An unmarried veteran may receive up to $1,204 per month, and a married veteran may receive up to $1,510 per month. If there is a surviving spouse in the home, he or she may receive up to $808 per month, again, with additional benefits available in some cases if there are dependent children.
One of the most popular and most-frequently used benefits is called the pension with aid and attendance (A&A). This benefits veterans or spouses who require assistance to perform activities of daily living (ADL), or those residing in an assisted-living facility or nursing home. A&A offers the highest monthly payment. Usually a care manager, social worker, or admissions director at a facility will suggest that a veteran apply for this benefit. An unmarried veteran may receive up to $1,644 per month, and if married, they may receive up to $1,949 per month, while a surviving spouse may receive up to $1,056 per month. There are also additional funds available for a dependent child. It is noteworthy that this type of benefit is available to veterans who served during wartime, but did not necessarily serve directly in the war overseas, and this veteran must also be either disabled or over the age of 65.
To receive A&A benefits you also must have served 90 days of active duty, with at least 1 day beginning or ending during any period of war. After Sept. 1, 1980, the active-duty requirement increased to 180 days, and you must have been discharged under circumstances other than dishonorable. You must also be unemployable and reasonably certain that you will be unemployable in the future. In addition, you must suffer from a disability that makes it impossible for you to stay gainfully employed.
There are also additional tests to ensure that a veteran or spouse will qualify for benefits. At the current time, a married veteran and spouse may have no more than $80,000 in countable assets (this excludes a home and vehicle). A single veteran or surviving spouse must have less than this amount. This is somewhat of a guideline, and it is anticipated in the future that there will be stricter guidelines for determining eligibility.
Also, currently, there is no transfer penalty for gifting or transferring of assets for the purchase of an annuity or establishment of an irrevocable trust. However, any transfers are still countable for Medicaid purposes if you or your spouse need long-term care benefits in the future. It is very important that legal counsel is considered in this type of situation to be sure that all issues regarding gift taxes, Medicaid issues, veterans benefits, and all other estate-planning considerations are reviewed before any transfers are made irrevocably.
The veteran or the veteran’s spouse must have ‘income for veteran’s purposes’ that is less than the benefit for which you are applying. This amount, known as IVAP, is calculated by taking your gross income from all sources, less countable medical expenses. Countable medical expenses are considered those that are out of pocket and recurring on a continuous basis, and are expected to be paid throughout your lifetime. In the event that your IVAP is greater than or equal to the annual benefit amount, then you will not qualify for VA benefits.
If you or your spouse qualify for a regular pension and are housebound, your maximum allowable increases, as does the annual benefit amount. The VA defines housebound as being substantially confined to the home or immediate premises due to a disability that will likely remain throughout your lifetime. A veteran with no benefits who is housebound is eligible for benefits of up to $14,457 annually. A surviving spouse with no dependents who is housebound must have an IVAP of less than $9,696.
If the veteran or spouse is able to establish through medical evidence that they require the aid and attendance of another person to perform the ADLs, a special monthly pension may be provided. The VA defines the need for aid and attendance as:
• Requiring the aid of another person to perform at least two activities of daily living, such as eating, bathing, dressing, or undressing;
• Being blind or nearly blind; or
• Being a patient in a nursing home.
In the event that the applicant or recipient of VA benefits is institutionalized, then a substantial portion of those funds would probably have to be paid to the long-term care facility that is providing the benefits.
The application process for special monthly pension benefits from the VA may be somewhat tedious and slow. While the VA is attempting to process applications more quickly, the current delay is anywhere from six months to a year. When filing an application, be sure to submit all information on time and in a single package, maintaining copies of all documents in your own file in the event that they are misplaced by the VA.
Remember to include your discharge paper (DD-214) with medical evidence, proof of medical expenses, verifications from physicians, a death certificate of a deceased veteran, marriage certificate, and the properly completed application. Once the application has been approved, benefits may be retroactive to the month after the month the application was received.
Time is of the essence in filing an application, so benefits may begin as soon as possible. Again, it is important to consider consulting an appropriate legal advisor, usually an elder-law attorney, or possibly an attorney who has been certified through the Veterans’ Administration, as only those who are certified may file appeals on behalf of a client.

Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law departments. His areas of expertise include all areas of estate planning, probate, and elder law. Darling is accredited by the Department of Veterans Affairs (VA) to prepare, present, and prosecute claims for veterans before the VA. He hosts a popular estate-planning blog at bwlaw.blogs.com; (413) 781-0560; baconwilson.com

People on the Move

By
Mitcheline M. Mekal
Departments People on the Move

Henry J. Drapalski Jr. has been named Vice President of Business Planning and Analysis at the Center for Human Development in Springfield. In his new role, Drapalski is responsible for analyzing business operations and fiscal performance and planning future growth for the nonprofit agency.
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Attorney Carol Cioe Klyman of Shatz, Schwartz and Fentin, P.C., of Springfield and Northampton, has been elected as a Fellow of the Board of Regents of the American College of Trust and Estate Counsel (ACTEC). Klyman concentrates her practice in elder law, estate planning and administration, special needs trust planning, estate settlement, guardianships, and probate litigation. ACTEC, based in Washington, D.C., is a nonprofit association of lawyers whose members are elected by demonstrating the highest level of integrity, commitment to the profession, competence, and experience as trust and estate counselors.
•••••
Hatch Mott MacDonald of Holyoke announced the following:
• Holland Shaw has joined the firm as a Senior Project Manager. As a survey manager, he will be responsible for coordinating survey projects in the region. He has more than 36 years of experience in surveying as a party chief, survey manager, and project surveyor.
• Daren Gray has joined the firm as a Senior Project Manager. He is experienced in stormwater and site design, site- and wetlands-related permitting, environmental-issue mitigation, and utilities design, permitting, and coordination.
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Ellen Noonan has been promoted to Associate Vice President for Educational Enterprise and Executive Director for Extended Campus Programs at American International College in Springfield.
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Carla Oleska, Chief Executive Officer of the Women’s Fund of Western Massachusetts, participated in the first “Women Leaders Summit: Global Solidarity for Empowering Women” in October at the United Nations in New York. She was also chosen as a Vision 2020 national delegate and met with the Congress of National Delegates in Philadelphia on Oct. 21.
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Rosemary J. Nevins has joined Royal & Klimczuk, LLC of Springfield and Northampton, as Senior Counsel. She has more than 25 years of experience in labor and employment law.
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Rodney C. Scott has been named Vice President in Commercial Lending for TD Bank in Springfield. He is responsible for providing portfolio management, focused on retaining and growing existing and new clients throughout Western Mass.

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Holly Mott has joined Bidwell ID in Florence as an Account Coordinator. She will support client services and operations.
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Attorney Megan E. Kludt has joined Curran & Berger LLP of Northampton as an Associate. She has been practicing immigration law since 2006, with experience at immigration law firms in New York City, Detroit, and Boston.
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Mitcheline M. Mekal

Mitcheline M. Mekal

Mitcheline M. Mekal has joined the Polish National Credit Union as Senior Vice President of Risk Management.
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Kevin Nestor has joined the Feeding Hills office of Park Square Realty as a Sales Associate.
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Sara E. Campbell was recently presented with the Citizen Engineer of the Year Award at the 162nd annual awards dinner of the Boston Society of Civil Engineers Section of the American Society of Civil Engineers. The award is presented to a society member or registered professional engineer for outstanding public involvement in local or national legislation, education at all levels, nonprofit volunteer organizations, community activities, and similar activities improving the image of civil engineering.
•••••
S. “Thai” Thayumanavan, chemistry professor at UMass Amherst, has been chosen as the school’s first Spotlight Scholar in recognition of his research and innovation in clean-energy science. The Spotlight Scholar program recognizes scholarly achievements and contributions of faculty members. Thayumanavan, who co-directs the Mass. Center for Renewable Energy Science and Technology, was chosen in part for his discovery of a solution to one of the biggest obstacles in the development of hydrogen fuel cells. He and colleagues Ryan Hayward, in polymer science, and Mark Tuominen, in physics, discovered a new material that improves ‘charge transport,’ a key energy-generating process for efficient and affordable hydrogen fuel-cell design.
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Ana Lapinski recently joined Dietz & Co. Architects in Springfield as a licensed Architect.
•••••
Michael R. Fanning, Executive Vice President of the MassMutual Financial Group, was recently among seven life-insurance executives named to LL Global, the international trade group for the life-insurance industry.

Proper Incentive

By
Sections Supplements
New Law Offers Tax Savings to Real-estate Industry

By JEFFREY CHENEY, CPA/CFE

After several months of negotiations and overhauls within the House and Senate, President Obama recently signed into law the Small Business Jobs Act of 2010. This bill contains two key provisions for the real-estate industry: enhanced Section 17 depreciation and the return of ‘bonus’ depreciation.
Both provisions are designed as incentives targeted to small-business owners, but owners of many large businesses will benefit, too.
 
Boost to Section 179 Depreciation
Rather than depreciating business property over several years, Section 179 now allows a taxpayer to expense the entire cost of certain property in the year of purchase. The new law allows a Section 179 deduction for up to $500,000 in 2010 and 2011 for qualified property. If the total purchase of all acquired property exceeds $2 million, there is a dollar-for-dollar decrease in the allowable deduction.
Generally, qualified property includes tangible personal property (such as equipment and furniture) and software that must be used more than 50% in a trade or business. Prior to this new act, real property (buildings and structural components, air and heating units) did not qualify for this special treatment. Now the definition of qualifying property expands to include ‘qualified real property,’ and limits the Section 179 deduction on this type of property to $250,000. Qualified real property includes the following:
• Qualified leasehold improvements. These are improvements to interior parts of non-residential real property placed in service more than three years after the date the building was first placed in service. This does not include improvements to the exterior, elevators or escalators, common areas, or internal structural framework.
• Qualified restaurant property, a building or improvement to a building if more than 50% of the building’s square footage is devoted to preparation of and seating for on-premises consumption of prepared meals.
• Qualified retail improvement property, improvements to non-residential real property if such space is open to the general public and used in the retail business of selling to the general public that meets the other definition of qualified leasehold improvements.
The Section 179 deduction is allowed to the extent of taxable income, with the remainder carried forward to the next year. Be careful, however, because Section 179 carry-forwards on qualified real property are not allowed beyond 2011.

Extension of ‘Bonus’ Depreciation
The bill also extends through 2010 the 50% first-year bonus depreciation that had expired. The allowance is 50% of the depreciable basis of qualified property for assets purchased and placed in service for 2010. To qualify, the property must be a new (not used) asset that has a depreciable tax life of 20 years or less, software, water-utility property, or qualified leasehold-improvement property.
Land improvements also qualify as eligible property and include items such as sidewalks, roads, fences, bridges, and landscaping. There are no purchase or income limitations as described in the Section 179 deduction, and many large businesses can benefit from taking this extended provision to offset taxable income.

New Reporting Requirements
The law provides for $12 billion of tax relief and builds in some revenue raisers to help foot that bill. One revenue booster requires informational reporting (typically 1099-MISC) on rental-property expense payments of $600 or more for individuals who receive rental income. There are exceptions to reporting requirements, such as for individuals who can show that the requirements create a hardship, individuals who receive rental income of a minimal amount, for members of the military who rent their principal residences temporarily. Further guidance on these exceptions should come out by the end of the year.

What This Means for Your Business
For many, 2010 may be a year when cash flow does not match taxable income, and businesses are striving to maintain their capital in the business instead of paying taxes. If qualified-asset purchases are less than $2 million, a Section 179 deduction can be taken to reduce taxable income.
In addition, if there are new land improvements or qualified asset purchases over $2 million, taxable income can be offset by taking the bonus 50% depreciation. Businesses can also elect to exclude real property from qualified Section 179 property if the regular $2 million cap is close to being reached. Whichever method is used, there are several strategies that may be implemented to defer taxation. In deferring taxation, property owners have additional cash available to grow their business.
The act has given plenty to discuss over the coming months. With proper planning and analysis of capital purchases, businesses can achieve favorable tax treatment. Consult your tax professional as to the most effective approach as well as proper qualification and timing of purchases.

Jeffrey Cheney, CPA/CFE, is a manager in the Tax Department at Kostin, Ruffkess & Co., LLC, a certified public-accounting and business-advisory firm with offices in Springfield as well as Farmington and New London, Conn. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in employee-benefit-plan audits, litigation support, business valuation, succession planning, business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information-technology assurance; (413) 233-2300; www.kostin.com

Matters of Trust

By
Ann I. Weber, Esq.
Sections Supplements
10 Reasons Why You May Need One — and Why You May Not

Ann I. Weber, Esq.

Ann I. Weber, Esq.


Perhaps you have heard a neighbor or a friend comment that they have put their house in a trust or that they have a trust that avoids probate or saves taxes. These are good reasons to have a trust, but all trusts are not alike, and there are just as many reasons not to set up such an arrangement.
Trusts can be revocable or irrevocable, for the benefit of the individual who set them up or for family members, friends, or charities. Trusts are set up by one person and managed by an individual or institutional trustee for beneficiaries.
So, you may need a trust:
To avoid probate. If your assets are held in a revocable trust rather than in your name alone, your property passes to your heirs directly without going through the expense, delay, and publicity of probate. But you don’t need a revocable trust if all of your property is held jointly with a right of survivorship with another person, and your life insurance, retirement benefits, bank accounts, and investment accounts all have beneficiaries.
To minimize estate taxes. In Massachusetts, if an estate exceeds $1 million, the estate will pay taxes on the entire amount, not just the excess. If a married couple has $2 million and leaves everything to the survivor, the tax on the survivor’s estate will be in excess of $100,000. However, if the property had been left through a revocable trust to a marital trust for the survivor, there is no tax on either estate. But if you are married with assets under $1 million or single with any amount of assets, you do not need a revocable trust for estate-tax purposes. Note: the federal estate tax returns in 2011, and revocable trusts work just as well to reduce federal taxes. For larger estates, specialized trusts such as qualified personal residence trusts or grantor-retained income trusts can also help to reduce taxes.
To protect assets for children of your prior marriage. A revocable trust can pass assets to a marital trust for a current spouse, with the property remaining at the spouse’s death going to the children. But mutual wills leaving all assets to the children also work as long as your spouse does not change his or her will after your death.
To protect a family member whose medical expenses may exceed their resources. A special-needs trust (SNT) can hold assets for the beneficiary without adversely affecting eligibility for Medicaid, MassHealth, etc. But a SNT cannot be for your own or your spouse’s benefit.
To delay distribution to your beneficiaries. A revocable trust pours over into a family trust which holds property until trust beneficiaries reach specified ages or a sufficient level of maturity. But in these days of merging financial institutions, be sure the beneficiaries can remove and replace an institutional trustee.
To provide centralized management. A trust can hold and administer property for the benefit of multiple trust beneficiaries and succeeding generations. But a limited-liability company may be more appropriate for business-property management.
To provide liquidity at death to pay estate taxes. An irrevocable life insurance trust can hold life insurance proceeds outside of your taxable estate. But if your estate is not taxable, life insurance (and the creation of a trust) may not be the best investment.
To provide financial-management services while you are living. A trustee named by you in a revocable trust can do this. But you could individually hire a trustee to do the same thing.
To make gifts to charity. A charitable-remainder trust allows you to receive annual payments from trust property, often well in excess of customary investment returns. The charity receives what is left at your death, and you receive a charitable deduction against income. But charitable gift annuities frequently work better for smaller gifts and are much less expensive to create.
To preserve some of your assets for your heirs in the event of a long-term illness. An income-only trust can own your home, and you can continue to live there or in a replacement home purchased by the trust. But do not use such a trust if you anticipate the need for nursing-home care for you or your spouse in the next five years, because the transfer disqualifies you (and your spouse, if applicable) for MassHealth nursing home benefits for five years.
So, a trust is a great tool, but only if you need it!

Ann I. Weber is a partner with the Springfield-based law firm Shatz, Schwartz & Fentin. She specializes in estate planning, elder law, and probate; (413) 737-1131.

Joining Forces

By
Jack St. Clair, right, with Steve Krevalin
Sections Supplements
Jack St. Clair Becomes a Bold Addition at Bacon Wilson

Jack St. Clair, right, with Steve Krevalin

Jack St. Clair, right, with Steve Krevalin, managing partner of Bacon Wilson.

Jack St. Clair says he rose to the ranks of the region’s most prominent criminal-defense lawyers in large part because he was always pushing himself to reach higher and accept new challenges. This philosophy helps explain his recent decision to join Bacon Wilson, a firm that has aggressively expanded its reach and more than doubled in size in the past eight years. Both sides are looking forward to seeing how this move works out, and they’re both using the same language to describe it: “perfect fit.”

Jack St. Clair says that, while he was recovering from a serious automobile accident this past spring and summer — he was broadsided by a driver who ran a red light, and sustained nine broken ribs and a collapsed lung, among other injuries — he had a lot of time to think and reflect on his life and career.
As he was doing all this thinking, he told BusinessWest, he came to the conclusion that, despite what most would consider a highly successful career, mostly as a noted criminal-defense lawyer, he thought something was missing from the equation.
That ‘something’ became somewhat difficult for him to articulate, but it boils down to a desire to do more for many of his clients, while also honing his skills in what would have to be considered a new specialty within the law — representing the families of special-needs students with the goal of securing them the rights and services to which they are entitled from the community in which they live.
This new career ambition was spawned in large part by St. Clair’s grandson, an autistic child whom he referred to early and often as he talked with BusinessWest. Successfully representing the child and his parents in a recent case involving claims of unmet needs prompted St. Clair to want to do the same for others. And he’s hoping to achieve all that and much more by joining the Springfield-based firm Bacon Wilson, a move that both sides believe will bring a number of benefits.
A sole practitioner for most of his career, St. Clair said he opted to join a firm now because of the many opportunities such a move presents.
“When you’re one person, as I was for most of my career, you’re limited in what you can do,” he said, referring to both the volume of cases he could handle and the services he could provide to specific clients. “I didn’t want to be limited any more. I want to continue to develop a client base and service them in areas that I did at times, such as tax law and business law, but couldn’t continue to do.”
Meanwhile, Steve Krevalin, managing partner for Bacon Wilson, said the addition of St. Clair will enable this steadily growing firm, now with 44 lawyers, to reach new levels of prominence in this region and far outside it.
“He’s one of the best-known and highest-regarded lawyers in Western Mass. — by far,” Krevalin said. “His reputation allows him to attract a lot of clients.”
For this issue and its focus on business law, BusinessWest talked with St. Clair and Krevalin about what this partnership means for the lawyer and the firm.

Cases in Point
St. Clair officially arrived at Bacon Wilson on Nov. 1, and now occupies a large office in space that was most recently occupied by PeoplesUnited Bank (formerly Bank of Western Mass.) while it was still a tenant in the building at 33 State St., which is owned by several partners at the law firm.
There are boxes still to be unpacked, but St. Clair is mostly settled in. While his desk and credenza are dominated by pictures of his family, and especially his grandson, the walls are devoted mostly to paintings of the holes that comprise Augusta National Golf Club’s fabled Amen Corner.
St. Clair had the opportunity to attend a number of Masters tournaments, and has also amassed a sizable amount of golf memorabilia, including some letters from Bobby Jones, thanks mostly to his father, who was the long-time head of design and custom manufacturing with Spalding back in the days when it was a major player in the golf-equipment market. But St. Clair also secured from his father an intriguing outlook on retirement.
“He never retired, and I have the same opinion on that subject,” St. Clair explained. “My father used to say that, when you retire, you start to hang around with people who are only interested in whether there’s enough mayonnaise on the tuna salad; I have no intention of ever retiring.”
It was with this knowledge that his 34-year career is on the proverbial back nine, but certainly not near its end, that St. Clair contemplated what its next chapter would be. After all that contemplation while recuperating from the accident, he said it was time for a change — and to be re-energized.
“There’s a tremendous amount of vision in this firm — they don’t want to remain stagnant,” he said of Bacon Wilson. “They’re always looking for new ways to serve a client base, and they have a philosophy based in growth; that started the discussions, and after we talked, everyone felt that this could be an extremely good fit.”
St. Clair was with a smaller firm early in his career — he was part of Chicopee-based Murphy, McCoubrey, Murphy, St. Clair, Gelinas, and Auth — but for the past 20 years or so, he’s been on his own.
Part of the reason he didn’t join a large firm early on is that he was fairly certain that, if he did so at that stage of his career, he probably wouldn’t have been able to try the high-profile cases he would go on to handle.
“I wanted to try cases right away,” he explained. “And if I was the head of any large firm in Boston, Washington, or here, I wouldn’t let a rookie out like that. But I had the confidence, and I won those cases. That’s something I wouldn’t have had the opportunity to do if I was with a large firm.”
Three decades later, however, circumstances had certainly changed. St. Clair was no longer a rookie and didn’t have to worry about getting high-profile cases. He was, however, looking for an opportunity to tap the resources of a larger firm and generate growth potential for himself and those he would work beside.
That’s when talks began in earnest, first between St. Clair and Gary Fialky, a long-time friend and senior partner with Bacon Wilson, and later with Krevalin, who told BusinessWest that the addition of St. Clair made sense for both parties, which is a pre-requisite for any move of this nature.
“The first threshold before we take in anyone — first year or after 30 years — is that the personalities have to gel; if that doesn’t work, we pass,” he explained, adding that St. Clair easily met this test, and that his personality, track record, and reputation combined to make this a a solid fit.
Krevalin said the decision to bring in St. Clair is perhaps the firm’s most high-profile addition in recent years, but also simply the latest of many steps taken to give the firm more depth and opportunities for growth. Elaborating, he said the firm has added a number of lawyers with established practices over the past decade, many in Hampshire County, where the firm has greatly increased its presence with offices in Northampton and Amherst, but also several in Springfield.
Growth opportunities from such additions come from essentially acquiring those lawyers’ existing books of business, but also from the potential to provide other services to those clients from attorneys in the firm that specialize in many different areas, Krevalin continued, adding that, in St. Clair’s case, the potential is vast.
“He has a lot of clients that have used his litigation services that have other requirements, including estate planning, business, and many others,” he said. “We’re able to provide the backup and safety net for him.”
St. Clair agreed. “I’ve always had a practice that was all-consuming in that I was always running from one court to another,” he said. “And I’ve had a varied practice, doing a lot of criminal work in seven different states, but also civil work in three. I’ve always had a lot friends and acquaintances I couldn’t service because I was a sole practitioner. And this firm can service almost any need a person could have.”
While shedding some of the prior limitations he mentioned, St. Clair said he is also looking forward to working with other lawyers at Bacon Wilson to develop a specialty in special-needs work.
“I saw what can happen in a school district that fails the child and doesn’t provide the resources it agreed to provide,” he explained. “I really wanted to develop a practice dealing with the special needs of children; it’s certainly one of the most rewarding areas one can get into, and I’m going to bring a passion to this.”

Powerful Arguments
As he talked with BusinessWest, St. Clair used the words ‘energy’ and ‘energized’ several times each.
He said there is quite a bit of the former at Bacon Wilson, a firm that has more than doubled in size over the past eight years. And he utilized the latter when talking about what both his move to the firm and the experiences representing his grandson have done for him.
Just where all this energy will take St. Clair and the firm remains to be seen, but it’s certain that this high-profile change for both parties will bear watching. n

George O’Brien can be reached at [email protected]

Ready or Not…

By
Joe Milardo
Sections Supplements
Changes Are Coming to Lease-accounting Rules

The recently issued exposure draft on lease-accounting rules proves to be one of the more significant and far-reaching proposals presented this year. Even though proposed lease-accounting changes are in draft form as we write this, they have been years in the making. As a result, the core elements are unlikely to change and will impact every organization that enters into a lease agreement.

Kyle Richard

Kyle Richard

Therefore, lessors, lessees, and other concerned parties must engage in conversations about the effect the proposed changes will have on their financial statements and their business, and be prepared to adjust operations accordingly.
Generally speaking, the proposed lease-accounting rules will require that all assets and liabilities arising from leased assets are recorded on the balance sheet. This will effectively eliminate off-balance-sheet accounting for operating leases. The proposed requirements would affect most any organization that enters into a lease. These changes are intended to more closely align the U.S. Financial Accounting Standards Board (FASB) standards with those of the International Accounting Standards Board (IASB), acknowledging the global nature of today’s market.

Apply Right Model
The FASB’s exposure draft states that, with a few exceptions, lessees and lessors should apply a ‘right-of-use’ model in accounting for all leases. On its balance sheet, a lessee would recognize an asset representing its right to use the leased asset for the lease term and a liability to make lease payments. Meanwhile, the lessor would recognize an asset representing its right to receive lease payments depending on its exposure to risks or benefits associated with the underlying asset. Your accountant should be prepared to share additional details about this part of the proposed lease changes.
Calculating these assets and liabilities can be a challenge because the exposure draft assumes the longest possible lease term that is more likely than not to occur. To make these calculations, management, with its accounting professionals, must make certain assumptions, including expected future payments, probability of lease renewal, current and future market conditions, and other considerable changes that may affect the assets and liabilities.
A larger liability could exist in the event that lease-extension options stated in the original lease contract are exercised. For example, if the exercised lease agreement states a five-year contract, with options to extend an additional five years, and management determines it will use the space for the entire 10 years, then all 10 years of lease payments must be recorded as a liability at the present value based on all 10 years.

Joe Milardo

Joe Milardo

The FASB also notes that the life-of-lease estimate may need to be reassessed at each point of financial reporting if significant changes to the facts and circumstances surrounding the lease would impact the original estimate and present value. The ‘right-of-use’ asset (which at initial recording is equivalent to the lease payment liability) would then be amortized over the life of that tenant’s estimated occupancy. Certain initial direct costs incurred to originate the lease and/or place the right-of-use asset into service (commissions, legal fees, negotiation of lease terms) can be capitalized, placing the right-of-use asset at a higher cost basis than the lease liability.

Key Accounting Changes
If confirmed, the proposals included in the exposure draft will result in considerable changes to the accounting requirements for both lessees and lessors.
Impacts to profit-and-loss statements as a result of the proposals in the exposure draft will be significant, as will balance-sheet alterations. Compared to current U.S. Generally Accepted Accounting Principles (GAAP) standards, if accepted, the proposals could result in much larger reductions on the profit-and-loss statements. For example, currently, U.S. GAAP requires the recognition of only a lease expense in an entity’s financial statements. The new proposal will require that same entity to recognize an interest expense on the lease liability, as well as an amortization expense on the right-of-use asset.
Here, the right-of-use asset is also subject to impairment. So an entity could record this right-of-use asset at the present value of its future minimum lease payments and immediately have to impair the asset as a result of fluctuations in the market. This could result in an extraordinary loss that would require close accounting and valuation attention as it comes into effect.

Response by Banks and Regulators
As a result of the new lease-accounting standards, balance sheets reflecting these new rules will be subject to immediate change. Will regulators and bankers consider the impact of the new lease-accounting rules when calculating financial-statement ratios and debt covenants? That’s uncertain.
We’ll have to wait and see how regulators and bankers interpret financial statements after the accounting change. To strengthen relationships with regulators and bankers, take a proactive approach by engaging in conversations about how the new lease-accounting rules will affect your business and financial statements.

Looking Forward
Tenants may prefer shorter-term leasing options to avoid recognizing larger lease liabilities. The downside is that shorter leases may increase lease rates to recover leasehold improvement build-outs and/or commissions paid to originate the lease. Some tenants may even be enticed to purchase real estate because there will no longer be a benefit to excluding these assets and liabilities from their financial statements.
The proposed lease-accounting changes will have a profound impact on all those entities that enter into leases — especially in the real-estate industry. Attending to your business yet ignoring the impending changes would be a mistake. Instead, in anticipation of the adoption of the new lease-accounting rules, talk with your accountant and build a plan to ensure the financial position of your company.

Kyle Richard, CPA, and Joe Milardo, CPA, are members of the Real Estate Services Group at Kostin, Ruffkess & Co., LLC, a certified public-accounting and business-advisory firm with offices in Springfield, as well as Farmington and New London, Conn. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in employee-benefit-plan audits, litigation support, business valuation, succession planning, business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information-technology assurance; (413) 233-2300; www.kostin.com

Demystifying Death

By
ToddRatner
Sections Supplements
Steps to Take from the Funeral Home Right Through to Probate

ToddRatner

ToddRattner

Coping with the death of a loved one is difficult. Since family members and friends will be experiencing a time of emotional strain, it is important for those involved with the funeral arrangements and estate settlement to have the fundamental information necessary to perform their respective tasks.
This article will demystify the important action steps needed to ensure a smooth process of administrating and settling a loved one’s estate.

Actions Immediately upon Death
Upon the death of a loved one, there are certain actions that should take place immediately. A funeral director should be notified, and an appointment should be made to discuss funeral arrangements. These may include transfer of your loved one to another location and the decision whether to pursue burial or cremation, which has become increasingly popular.
At that time, you should request certified death certificates from the funeral director, and in the event that you require additional ones, they may be obtained through the municipality or town where the death occurred. Notification of your loved one’s death should be made to the post office, especially if the decedent lived alone; the Social Security administration; a retirement plan custodian, if any; investment professionals; an accountant or tax-return preparer; and the attorney for your loved one’s estate, among others.

Duty to Deliver the Will
Massachusetts law requires that any person having custody of a will must, within 30 days of acquiring knowledge of the death, deliver the will to the Probate and Family Court Department for the county in which the decedent lived at the time of death. However, as a practical matter, oftentimes the will is filed more than 30 days after without penalty.

To Probate or Not to Probate the Will?
Probate is the court’s supervision of the process that transfers the legal title of property from your loved one’s estate to his or her beneficiaries. The court appoints an executor as the personal representative of the estate and adjudicates the interests of heirs and other parties who may have claims against the estate.
In short, the probate process proves the validity of the will. This counters the erroneous but widely held belief that, if you have a valid will, you will avoid probate. However, not all estates need to go through the probate process.
Basically, any property held in trust or in joint names is non-probate property, so in the event that all of your loved one’s property passes outside of his or her will, there is no need to go through probate. In addition, property passing by beneficiary designations to anyone other than the estate of the decedent, such as TOD accounts, POD accounts, life insurance, annuities, retirement, and pension accounts, are non-probate property. However, if any asset is owned individually by the decedent, without a joint owner or beneficiary, or is held in trust, the asset is considered a probate asset and must go through the probate process to reach its proper beneficiary.

The Probate of the Will
To start a probate action in Massachusetts, you must petition the Probate Court, asking for the allowance of the decedent’s will and appointment of the executor. Until the executor is appointed, he or she has no authority to pay bills or distribute your loved one’s property.
In the event that the decedent did not have a will, a similar procedure is necessary to appoint an administrator with power to handle the decedent’s property. It is important to note that, if the decedent’s assets are below $15,000, a shortened procedure, called a voluntary administration, may be possible.
An executor, or administrator, as the case may be, typically engages an attorney to prepare and file the petition for probate, as well as the fiduciary bond and other corresponding legal documents. After the petition is filed, the Probate Court will issue a formal notice that needs to be published in a local newspaper and sent to all heirs. This notice alerts any creditors and other interested parties that the will has been offered for probate. If no one objects to the will or to the appointment of the nominated executor or administrator, the attorney requests the allowance of the will, the judge to sign the fiduciary bond, and the appointment of the nominated executor or administrator.
Three months after the judge signs the fiduciary bond, and the executor or administrator is appointed by the court, Massachusetts requires the filing of an inventory showing the probate estate held at date of death. However, oftentimes the executor waits until the estate-tax figures have been established to complete and file the final inventory.
Massachusetts also requires an accounting at the end of the administration of an estate that provides for all probate estate items received and distributed during the administration, income earned, and fees and expenses paid. Accounts are either prepared annually, or a single account called the first and final account is prepared at the end of administration. Typically, once the court allows the account, the executor’s liability for the estate ends.
During the probate process, the executor typically performs the following tasks:
• Identifying and inventorying estate property;
• Paying estate debts, expenses of administration, and taxes;
• Distributing property as directed by a will or state law;
• Accounting to the Probate Court or beneficiaries for the collection and distribution of probate assets; and
• Preparing estate-tax returns if necessary.

Estate-tax Returns
Executors are required to have estate-tax returns prepared if the estate assets (probate and non-probate) reach a certain threshold. Under current law, the threshold for Massachusetts estate tax is $1 million. As of now, no federal estate-tax return is required for a decedent dying in 2010. However, Congress may enact a law during 2010, and if it does, it may be retroactive to Jan. 1, 2010. Federal and state estate tax returns are due nine months after the date of death.
Many people are interested in the distribution of the estate, including creditors, a surviving spouse, government taxing authorities, beneficiaries, and executors of the estate. Individual parties may have competing interests in the probate and estate administration, so sound estate planning during one’s lifetime often facilitates the estate administration upon death and prevents the various challenges and potential disputes that may plague the unprepared.

Todd C. Ratner is an estate-planning, business, and real-estate attorney with the Springfield-based law firm Bacon Wilson, P.C. He is a member of the National Academy of Elder Law Attorneys and recipient of Boston Magazine’s 2007, 2008, and 2009 Massachusetts Super Lawyers Rising Stars award; (413) 781-0560; baconwilson.com; bwlaw.blogs.com

Ethical Wills

By
Sections Supplements
Bequeathing Life’s Lessons, Dreams, and Hopes

Gina Barry

Gina Barry

There is richness to your life that cannot be measured in dollars and cents, but should be shared with future generations. In fact, some would argue that your emotional wealth — values, ideas, beliefs, and life experience — is worth far more than your financial wealth ever could be.
Yet many times, the wisdom of the generations is lost simply because the questions were never asked and the conversations were never had. Where typical estate-planning documents falter by not conveying this intangible wealth, ethical wills fill the void.
It is likely that you have executed a last will and testament and have possibly even established a trust. You’ve probably protected yourself from times of incapacity by executing a durable power of attorney and health care proxy. By most standards, your estate plan is considered complete, but it seems that a critical aspect is missing. While these documents are crucial to addressing the legal aspects of estate planning, they are very technical and ill-suited for passing on the intangible assets you have accumulated throughout your lifetime.
Ethical wills are the spiritual counterparts to traditional wills and trusts. They distribute blessings, life lessons, dreams, and hopes, as opposed to tangible possessions. As such, the creation of an ethical will often involves serious consideration of your values and morals, advice to loved ones, invaluable memories, and important events in your life. You may also contemplate themes, such as regrets and forgiveness, personal love, mentors and teachers, cultural beliefs, ancestry, or how you would like to be remembered.
There is no set format for an ethical will because it is not a binding legal document. Unlike traditional wills, ethical wills are not written in stone and are often revised to reflect turning points and transitions in the writer’s life, such as the birth of a child, a marriage, or end-of-life planning. Each ethical will is as unique as the individual who creates it, and your personal preferences are the only constraints.
You may choose to develop and impart a family mission statement or provide blessings for future generations. An ethical will can be a letter to loved ones or to children not yet born. It may also be a detailed account of a life journey or even a set of instructions regarding your family business. Your ethical will need not be limited to writing, either. It may incorporate multimedia messages, such as photos, drawings, music, or videos. The possibilities are endless.
While some may choose to keep their ethical will private until they pass away, creating one need not be an individual endeavor. You may share your ethical will with your family, friends, and loved ones during your lifetime. Indeed, by encouraging input from others, an ethical will may serve as a tool to give them insight into your wishes and intentions. Likewise, many a family rift has been healed during the creation of an ethical will, as the process serves to promote a family cohesiveness that can heal old wounds and last well beyond your lifetime.
If the thought of creating an ethical will is overwhelming, there are various resources available to assist you, including professionals who specialize in this area. These professionals may provide an individual consultation or group writing workshops. If you desire to make an ethical will that is oral or videotaped, they can assist you with the production aspects. They can also help you ascertain what is most important for you to express, and then guide you along in the process so that you will be certain to create an ethical will that is a true reflection of you. If you are inclined to work alone on your ethical will, an Internet search will provide a variety of free resources and examples that you may use as you pursue this process.
Although they have recently gained in popularity, the concept of ethical wills is not new. Medieval models of ethical wills have been found in Jewish, Christian, and Islamic cultures. In the days of illiteracy, wills were read aloud so that all concerned may hear. Thus, it became common practice to attach one last communication to a captive audience.
Today, ethical wills are increasingly being created alongside traditional wills as part of the estate-planning process. While traditional wills are filed in probate court and become public documents, ethical wills often become privately treasured family heirlooms.
Throughout their lives, your loved ones can continuously glean wisdom and advice from the life lessons you have bequeathed in your ethical will.

Gina M. Barry is a partner with Bacon Wilson, P.C. She is a member of the National Assoc. of Elder Law Attorneys, the Estate Planning Council, and the Western Mass. Elder Care Professionals Assoc. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships, and residential real estate; (413) 781-0560; baconwilson.com/barry

Family Limited Partnerships

By
Kevin Hines
Features
This Time-tested Vehicle Remains a Solid Estate-planning Tool

Kevin Hines

Kevin Hines

Family limited partnerships (FLPs) have long been considered an estate-planning tool for transferring wealth at discounted values and ultimately reducing estate-tax transfer costs. With the possible repeal of the federal estate tax (maybe, maybe not), is there still a need for these family limited partnerships?
The answer remains a strong ‘yes,’ and there are many reasons for this. What follows is a basic primer on the FLP and as well as some of the best practices that should be followed so that your partnership will be recognized as an entity and not considered a sham.

Family Limited Partnership
First, what is a partnership? A partnership is a joint venture between at least two investors or owners to manage and operate a business or investments. Generally, there is a written plan (operating agreement) that lays out various terms of the agreement such as, but not limited to, who and how will the partnership be managed, who are eligible partners, if and when earnings and profits will be paid, and how and when the relationship will end. A partnership is a ‘flow-through entity’ for income-tax purposes. This means that the individual partner will be responsible for payment of the taxes rather than the partnership.
A limited partnership is a similar entity but will have two classes of investors, general partners and limited partners. As the name implies, the limited partners have limited powers in the management of the partnership. This can be good and bad. You may not have a say in the management, but you also have a limited liability based on those decisions (your loss is limited to your investments into the partnership). Family limited partnerships will usually be formed as a limited partnership. The managing partner determines in accordance with the operating agreement if and when distributions will be made and when to terminate the partnership, thus controlling the management of the assets.
 
How It Works
The family limited partnership is formed by the senior generation. Oftentimes, a second-generation family member will manage the partnership (general partner). Assets of the senior generation will be transferred into the FLP in exchange for limited partner interests. These limited partner interests are then gifted to family members either at one time or through a systematic annual gifting program. The managing partner can then determine the level of distributions from the partnership.
Should limited distributions be made to cover income taxes of the partners, since this is a pass-through tax entity? Or should the distributions be higher to help pay for college education or another life event? The options are numerous but at the discretion of the manager.
 
Purpose of the FLP
Although the primary reason for using a FLP might be the possible reduction of the estate and gift transfer tax due the IRS (through the use of valuation discounts), there continues to be other non-tax purposes to validate the formation of the family limited partnership. Additionally, there is a requirement that one or more of these other purposes be met so that the partnership is recognized as a business entity for legal reasons. These purposes and benefits should include one or more of the following:
• Transfer of the family business or investments for succession planning (ease of transferring FLP interest);
• Centralized management of investments or other family assets such as a second home or other assets that you would rather not have to liquidate;
• Diversification of investments;
• Management during the senior generation’s lifetime and thereafter; and
• Credit protection and spendthrift  protection.
Remember, when forming the FLP, think long-term. What will your situation be in 10 years or 15 years?

Dos and Don’ts of an FLP
Operation of the FLP is key (in addition to the business purpose of the entity) in order to withstand a challenge to the entity recognition. Here are some of the dos and don’ts to formation and operation of the FLP.
• Provide for a succession plan from the senior generation;
• Limited partners should contribute assets to the partnership at start-up. Consider using prior gifts from the senior generation;
• The senior generation should retain other liquid assets in their name to cover living costs. Don’t transfer all of senior-generation assets nor the primary residence;
• Do not commingle personal assets and FLP assets; 
• Ensure that distributions follow the operating agreement and are in proportion to ownership;
• Prepare management reports on a regular basis and distribute to all partners; and
• Do not terminate FLP shortly after the passing of senior members.
As we all wait to see how the debate regarding the federal estate-tax law plays out in Congress, recognize that there are other non-estate-tax reasons for having your own family limited partnership. But the most important point is that once you set up your FLP, it is of the utmost importance to follow good business practices in managing it. You want your state and the federal government to recognize it as a separate entity so that you will be able to achieve your goals that were set out when the FLP was formed. Always consult with your accountant and attorney when setting up these entities.
 
Kevin E. Hines, CPA, MST, CVA, CSEP, is a partner with Meyers Brothers Kalicka, P.C., with specialties in business valuations, estate planning, and taxes; (413) 536-8510.

Postnuptial Agreements

By
Carla Newton
Sections Supplements
A Recent SJC Decision Clarifies Their Status Under Massachusetts Law

Carla Newton

Carla Newton

Prior to the recent decision by the Mass. Supreme Judicial Court (SJC) in the matter of Kenneth S. Ansin vs. Cheryl A. Craven-Ansin, the status of ‘postnuptial’ or ‘marital’ agreements in Massachusetts was uncertain.
Massachusetts has long recognized (since 1981) the rights of parties to enter into premarital or antenuptial agreements before marriage and to enter into separation agreements (since 1976) when they are approaching divorce. Prior to Ansin, however, the issue of postnuptial or marital agreements, which are entered into after marriage and alter marital rights or distribute marital assets between parties not contemplating divorce, had not been decided in Massachusetts.
The use of postnuptial/marital agreements has been determined in other states with mixed results. Courts in Florida, Arizona, Wisconsin, and Tennessee, for example, have allowed such agreements under certain circumstances while Ohio, by statute, specifically prohibits them no matter when or where signed.
With the decision in the Ansin case, the SJC has now established criteria for the enforcement of what will be known as ‘marital’ agreements, which differ from the criteria for enforcement of prenuptial agreements or separation agreements. The SJC’s rationale for the difference in criteria rests on the leverage that a party has during the negotiation of the agreement. In the case of prenuptial agreements, if a party is not in agreement with the terms that have been proposed, then the party is free not to marry. When negotiating separation agreements, the parties have acknowledged that their marriage has failed, and each is negotiating for their own independent interests, and if they cannot agree, they are free to proceed to a determination of their rights by the courts. Once parties are already married, the scrutiny applied to the terms of a marital agreement should be more strenuous.
There are specific criteria set forth in the Ansin case that provide guidance as to factors by which future cases will be determined as follows: (1) each party must have had an opportunity to obtain separate legal counsel of his or her own choosing; (2) the marital agreement must have been signed freely and voluntarily without any fraud or coercion; (3) the marital agreement must contain a full disclosure of all assets with their approximate market value, a statement of each party’s approximate annual income, and, equally as important, disclosure of any significant future acquisitions or changes in income which are reasonably anticipated; (4) the marital agreement must also contain a clear and explicit waiver of the right to a judicial determination of marital rights and asset distribution in the event that a divorce does take place at some point in the future; and (5) the martial agreement must be evaluated to determine if the terms were fair and reasonable at the time of the execution of the agreement and are still fair and reasonable at the time of the divorce.
The SCJ has established that the spouse who seeks to enforce a marital agreement is the one who has the burden to prove that the other spouse’s consent was not obtained through coercion or fraud. In the Ansin case, Cheryl argued that Kenneth had committed fraud by misrepresenting his intention to remain in the marriage in his effort to convince her to execute the marital agreement. Kenneth presented evidence that he had made significant efforts to improve the marriage, that they had purchased and renovated at great expense a new home after the signing of the agreement, and that he did not file for divorce until Cheryl had asked him to leave the home and was involved with another man. It should be expected that, in any review of a marital agreement, a court will closely examine whether or not a spouse has been misled regarding the other party’s commitment to the marriage.
The decision in the Ansin case includes detail for the evaluation of whether or not there has been a valid waiver by a party of his or her right to have a judge determine his or her marital rights and asset distribution at the time of the divorce. The criteria for a valid waiver include whether or not a party has been represented by independent counsel, whether they had sufficient time to review the terms of the agreement, whether they understood the terms of the agreement and their impact, and whether or not they understood what their rights would have been absent the agreement.
The standard for evaluation of a marital agreement will differ from that of a prenuptial agreement because of the context in which the marital agreement takes place. There will be heightened scrutiny in the evaluation of marital agreements. Massachusetts has already described the contractual obligations between spouses in the matter of Krapf vs. Krapf in 2003 by stating that spouses “stand as fiduciaries to each other and will be held to the highest standards of good faith and fair dealing in the performance of their contractual obligations.”
When reviewing whether or not the marital agreement was fair and reasonable at the time of its execution, there are standards a judge ‘should’ consider and standards which a judge ‘may’ consider. The SJC has stated that a judge should consider the entire context in which the agreement arose, including a consideration of whether or not each party was represented by independent counsel. While the failure of independent representation will not be fatal to an agreement, it is likely to impact the scrutiny which is applied. A judge may consider: (1) the difference in the outcome under the marital agreement from the outcome under current law, (2) whether the purpose was to benefit the interests of third parties such as children from a prior relationship, (3) the impact of the agreement on the children of the parties, (4) the length of the marriage, (5) the motives of the parties, (6) the bargaining positions of the parties, (7) the circumstances which gave rise to the agreement, (8) the degree of pressure experienced by the spouse who is contesting enforcement of the marital agreement; and (9) other circumstances that the judge may want to consider.
When reviewing whether or not the marital agreement is fair and reasonable at the time of a divorce, the SJC requires that the same criteria be used that is utilized to evaluate a separation agreement. A judge may consider: (1) the nature and substance of the objecting party’s complaint, (2) the financial and property provisions of the agreement as a whole, (3) the context in which the negotiations took place, (4) the complexity of the issues involved, (5) the background and knowledge of the parties, (6) the experience and ability of counsel, (7) the need for and availability of experts to assist the parties and counsel, and (8) the mandatory and, if the judge deems it appropriate, discretionary factors set forth in G. L. c. 208 § 34.
Marital agreements will likely find a variety of uses as a method to protect third parties such as children from a prior marriage or to strengthen a relationship by providing assurances of asset distribution should there be a divorce in the future. Marital agreements also have significant estate planning consequences for married couples. Similar to those couples who enter into prenuptial agreements, a marital agreement will need to be reviewed by the attorney doing one or both parties’ estate plan.
Ideally, a marital agreement should be drafted in consultation with both parties’ estate-planning attorney(s). The document may set forth parameters within which the estate planning attorney must work to effectuate the individual or couple’s estate planning goals while ensuring that those goals will not interfere with the mandates of the new marital agreement.
Marital agreements, like pre-nuptial agreements, will often contain guidelines concerning gifts between the spouses as well as benefits to a surviving spouse upon the death of the other. All of these provisions, as well as others, can have a significant impact on a client’s overall estate plan. Further, marital agreements may well impact certain spousal rights and/or obligations with regard to Medicaid or MassHealth planning for either or both spouses.
In any contemplation of the use of marital agreements, it is clear that great care must be taken so that the intentions of the parties will not be undermined by the failure to follow the clear criteria that have been established.
This article is a general summary only and does not constitute legal advice.

Carla Newton is a partner at Robinson Donovan, P.C.; (413) 732-2301.

Estate Planning Myths Explained

By
Sections Supplements
Knowledge of the Law Can Be Your Best Asset When Coping with These Issues

Gina Barry

Gina Barry

Certain ideas with respect to estate planning are widely accepted, yet unfortunately, inaccurate. This article will reveal and explain the most commonly stated estate planning myths.

Myth No. 1: ‘If I have a valid will, my estate does not have to go through probate.’
Many people believe that having a will means that their estate will not have to be probated when they pass away. A will is a document that, in part, gives instructions as to the distribution of the assets in the decedent’s probate estate. The assets in the probate estate are those assets that are held in the decedent’s name alone that do not have a designated beneficiary. Thus, whether or not probate is needed is not based upon whether or not the decedent had a will; rather, it is based upon how the assets are owned by the decedent.
If the decedent left probate assets, then in order for their will to ‘speak,’ a probate estate must be opened. If all the assets held in the decedent’s name are jointly owned with a right of survivorship or have named beneficiaries, then there is no need for probate.

Myth No. 2: ‘I can give away $10,000 to as many people as I want each year, but if I give more, then I have to pay gift tax.’
This myth emanates from the gift-tax system. In 2010, the rule with respect to gift tax is that you may give up to $13,000 to as many people as you want without having to file a gift-tax return. Note that the amount that can be gifted is stated incorrectly in the myth because most people remain unaware of the ongoing increases to the allowable gift amount.
Also under the current rules, even if a gift-tax return must be filed because more than $13,000 is given to one person, the giver of the gift will not pay any gift tax until he or she has gifted more than $1 million during their lifetime. Thus, if a person has $100,000 and gives all of it away in one year to one person, they will need to file a gift tax return, but they will not owe any gift tax because the gift does not exceed the lifetime threshold.

Myth No. 3: ‘I can give away assets when I enter a nursing home and still obtain Medicaid benefits.’
When faced with a nursing home bill of approximately $8,000 per month, many people wish to obtain Medicaid benefits to pay for this care. In order to obtain Medicaid benefits, an asset limit must be met; therefore, assets valued above this amount must be reduced to the asset limit before benefits will be granted. In their efforts to reduce the excess assets, many people believe that they can gift the excess assets due to the gift-tax exclusion explained in Myth No. 2. While a person can make a gift of up to $13,000 per person in 2010 without filing a gift tax return, the Medicaid program is not governed by the gift tax rules.
The Medicaid program imposes a penalty when any assets are given away within five years of the application for benefits, except in very specific circumstances. This penalty results in being unable to obtain Medicaid benefits for at least five years after such a gift is made. Thus, a gift of any amount will typically result in a penalty being imposed even if the gift does not have to be reported on a gift-tax return.

Myth No. 4 – ‘If I need nursing home care, Medicare will pay for my care.’
In part, this myth is perpetuated due to the fact that “Medicare” sounds very much like “Medicaid,” which does pay benefits for nursing home care for approved applicants. Medicare Part A will pay for medically necessary inpatient care in a skilled nursing facility, but only following a three-day hospital stay. Medicare will pay for up to 100 days of skilled nursing care or rehabilitation services. The actual length of benefits could be much shorter than 100 days if those services are no longer required.
When Medicare benefits are paid, Medicare pays 100% of the cost for the first 20 days, but only 80% of the cost of the next 80 days. Most Medicare recipients also have Medigap insurance, which will pay the balance not paid by Medicare. When Medicare benefits are exhausted, an alternative payment source is needed to pay for ongoing nursing home care.

Gina M. Barry is a partner with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Assoc. of Elder Law Attorneys, the Estate Planning Council, and the Western Mass. Elder Care Professionals Association. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships and residential real estate; (413) 781-0560; [email protected].

Caregiver Stress

By
Gina Barry
Sections Supplements
It’s Real, and Its Impact Can Be Severe; How to Avoid the Epidemic

Gina Barry

Gina Barry

‘I’m so stressed out!’ ‘I just can’t take it anymore!’
Certainly, almost all of us have made one, or both, of these proclamations in response to any number of events that have occurred in our lives. Take a moment now to think of how you felt during those moments, and you will get a glimpse into the daily lives of our nation’s family caregivers.
Approximately 44 million Americans (21% of the adult population) provide unpaid care to someone in need. While most people think that nursing homes provide the majority of long-term care, the U.S. Department of Health and Human Services estimates that informal caregivers actually provide 80% of the long-term care in the U.S. As our population continues to age, demands for care will steadily increase, and caregiver stress, unless recognized and remedied, will become even more pervasive.
A caregiver is anyone who helps another person in need with daily tasks, such as bathing, cooking, eating, taking medications, dressing, using the bathroom, shopping, housecleaning, and the like. Typically, the person receiving care has a medical condition that makes them unable to perform these tasks for themselves, or at least without some assistance. According to the U.S. Department of Health and Human Services, 61% of our nation’s caregivers are women. Our nation’s caregivers are mostly middle-aged, with 13% of caregivers being 65 years old or older.
Caregiver stress is real, and its impact can be severe. A spousal caregiver over the age of 65, who is experiencing ongoing mental or emotional stress as a result of providing care, has a greatly increased risk of dying over those people in the same age group who are not caring for a spouse. Providing care is physically and emotionally demanding, especially when the care recipient requires 24-hour care. Very often, the caregiving spouse neglects his or her own health issues, which are usually compounded by stress, because he or she is too busy addressing the care needs of the spouse. When an adult child is the caregiver, the caregiver generally experiences additional stress, as they have other responsibilities outside of caregiving, such as providing care for young children, running their own household, managing their professional life, and maintaining a busy social life.
Many caregivers provide care without realizing the impact of caregiver stress. Obvious physical signs of stress include, but certainly are not limited to, fatigue; high blood pressure; irregular heartbeat or palpitations; chest pain; back, shoulder, or neck pain; frequent headaches; digestive problems; and hair loss. Caregivers experiencing sustained stress may also exhibit a weakened immune system, which means they will be more susceptible to colds, flu, and other infections. As the majority of these signs are not open and obvious, it is important for a caregiver to be self-aware. It is also important that the caregiver be asked whether they are experiencing any of these signs.
Emotional signs of stress are usually not easily observed. These signs include a gamut of feelings, including but not limited to anxiety, depression, irritability, frustration, lack of control, and isolation. A stressed caregiver may also report or exhibit mood swings, memory problems, and/or general unhappiness with their position as a caregiver, including resentment toward the care recipient and family members who do not contribute in any meaningful way.
Additional signs of caregiver stress may be observed. The caregiver may be missing meals or eating an unhealthy diet for a period of time, such that their weight either increases or decreases dramatically. An overwhelmed caregiver will often miss or delay their appointments, whether medical or social, as they often give up their ‘me’ time. They will stop engaging in their usual activities and often lose connections with friends and family. Further, they may stifle feelings of anger and frustration, which then surface as angry outbursts directed at family, friends, co-workers, or even strangers. Overall, they may seem sad, depressed, or hopeless, and show a loss of energy.
Most often, caregivers have difficulty asking for help. Either they do not recognize the stress they are under, or they are so stressed that they feel hopeless as to help being available. Caregivers will also often express feelings of extreme guilt associated with asking someone else to provide care in their stead, even if only for a short period of time. In this regard, it is very important for the family and friends of caregivers to encourage regular respite for the caregiver and to ensure that the caregiver takes these regular breaks from caregiving. Respite can be provided in home or at a facility and may take the form of day care or involve a short stay at the facility.
In addition to regular respite, there are many ways that caregivers can reduce their stress. First and foremost, it is important for caregivers to learn about programs that are available to assist with caregiving and how to qualify for such assistance. There are a variety of programs available, including meal delivery, home health care, day care, transportation, and the like. When assistance is available through these programs, clearly it is important to accept the help offered. When a family member or friend offers to help, the caregiver should offer a list of ways to help, while allowing the friend or family member to choose what they would be most comfortable doing.
A caregiver should objectively look at the care they are providing and determine whether it may be done more efficiently. For example, it would likely be preferable to purchase a new washing machine and dryer than to continue to use a public laundromat. It may be worthwhile to obtain an emergency-response system that would allow the person being cared for to summon help if needed. Likewise, an intercom system or even a Web camera can allow for remote monitoring of the person requiring care. Finally, for dementia patients who wander, a mobility monitor may be employed that will sound an alert if the person being cared for wanders outside of a previously set range. In addition, the caregiver should prioritize tasks, use lists, and establish a daily routine with realistic goals. A caregiver should also be careful not to take on additional projects, such as hosting a holiday meal or agreeing to help with a remodeling project.
Actively taking care of their own emotional health is a must for caregivers. Some caregivers find individual counseling to be helpful for dealing with the variety of emotions that caregiving evokes. Many different support groups also exist, some of which are specific to the illness being suffered by the person in need of care.
Support groups are great for developing friendships with other caregivers and also for caregivers to learn improved ways to provide care or to cope with the difficulties they experience when providing care. It is also vital for a caregiver to remain in touch with family and friends — or for family and friends of the caregiver to make sure that they stay in touch.
Moreover, a caregiver should be sure to include some fun in their weekly schedule. Taking in a movie, going for a walk, or meeting a friend for coffee and conversation can be delightful distractions from caregiving stresses. Although some may not consider this fun, a caregiver should be sure to get regular exercise. Exercise provides stress relief and has a positive effect on mood. In addition, the caregiver should plan healthy meals and adhere to a sleep schedule that ensures they will receive adequate, ongoing rest.
When a caregiver is cognizant of the signs of caregiver stress and actively works to combat this stress, he or she will be much better able to provide care and for a much longer period of time. Whenever possible, the caregiver should not be alone in this endeavor. Family and friends should also be sure to support the caregiver and to be on the lookout for any signs of stress.
With the continued graying of our nation and the anticipated increase in caregiving by family members, if we do not adhere to these practices, our nation’s next disabling epidemic will likely be caregiver stress.

Gina M. Barry is a partner with the law firm Bacon Wilson, P.C. She is a member of the National Assoc. of Elder Law Attorneys, the Estate Planning Council, and the Western Mass. Elder Care Professionals Assoc. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships, and
residential real estate; (413) 781-0560; [email protected]

What Bonding Companies Find Important

By
Joseph Spagnoletti
Sections Supplements
You Don’t Need a Crystal Ball to Figure Out What They’re Thinking

Joseph Spagnoletti

Joseph Spagnoletti

Construction companies need the support of their bonding company to sustain the growth of their business. As a result of the current economic realities of the construction industry, bonding companies are spending more time scrutinizing the viability of their clients’ financial future and operations before issuing a bond.
Here are the 10 topics you need to be prepared to address the next time you sit down with your surety agent.

1. Banking covenants. Bonding companies want to know that you are satisfying the covenants as outlined in your loan or line of credit documents. If you’re not meeting the covenants, you need to talk to your banker about rewriting the covenants or developing a strategy for meeting them. Bonding companies get concerned when they see that construction companies are not meeting their banking covenants.
In fact, this could result in an immediate end to a line of credit or an immediate call for repayment of a loan. Needless to say, without access to financing, some construction companies couldn’t afford to complete their work in progress. In the end, bonding companies want to see a positive working relationship with your lending institution.

2. Accounts receivable. Your accounts-receivable aging report will be examined throughout the year. What are bonding companies looking for? They want to make sure that you’re being paid for your work, and you have business systems, policies, and procedures in place to track and encourage timely payments. Before starting work for a customer, perform enough due diligence that would lead you and your bonding company to believe you’ll get paid for your work.

3. Accounts payable. Pay your bills in a timely fashion. Bonding companies assume that, if you’re not paying your bills in a timely fashion, you either don’t have the resources to do so, or you have weak internal business systems. Either way, that’s bad news.

4. Backlog. In construction, it’s all about the backlog. Really, whether you are an accounting firm, law office, or a construction company, a backlog of work secures the future of your business. The longer the backlog, the more confidence bonding companies will have in your business, and the more likely they are to insure the completion of your work. Keep in mind that bonding companies will look at more than the total number of jobs backlogged; they’ll look for the number of profitable jobs.

5. Strategic business plan. We all get distracted by today’s challenges, but taking the time to write a strategic business plan is good for the future of your business. And that’s just what bonding companies are concerned about — the future of your business. What are your short-term, mid-range and long-term goals, and what is your strategy for achieving them? Write them down. A good strategic business plan includes timelines and benchmarks to measure progress. If your bonding company comes in for a visit and asks to see your strategic business plan, be ready to share a thoroughly prepared document.

6. Profitable and cost-controlled work. Your bonding company wants to know that your jobs are profitable and that costs can be controlled as shifts in the market demand. So be prepared to show how you plan to profit from your work and control costs. In addition, if market conditions change, you need to have a plan in place to adjust. Take a proactive approach to challenges by implementing smart solutions on a timely basis.

7. Equipment. Equipment represents a major investment for most construction companies. The patterns of acquisition and disposition of equipment tell the bonding company a story. Be ready to discuss the reasons why you are either acquiring or disposing of equipment. If you’re stuck supporting debt for idle equipment, there may be creative ideas you could explore to turn idle equipment into a revenue source. Discuss strategies like this with your surety agent.

8. Loans from owners. As an owner of any business, when times are tough, you may have to loan your company money to help it through a temporarily challenging time. Don’t be surprised if loans you make to your company get subordinated to other obligations of the company and require approval from your surety before you get paid back. As an aside, be sure to consult with your accountant and attorney before loaning money to your company; there may be tax benefits or implications that deserve additional discussion.

9. Indemnity. Personal and spousal indemnity is becoming commonplace, especially if your surety agent considers a particular job to be a stretch for your company. Your bonding company sees more risk associated when you do work outside of your areas of expertise. With additional risk comes additional indemnity. If this sounds like you, be prepared to discuss why your company can meet its obligations even outside its areas of expertise.

10. Unexpected taxes. If your construction company (structured as a C-corporation) has adopted the completed contract basis of accounting for tax purposes, you may not be in a position to defer taxes to next year without a sizeable backlog. As backlogs at some construction companies aren’t so large, this could mean that those deferred taxes are payable now. Unanticipated, this could place significant strain on cash flow. Even if your deferred tax is at the individual level, as is the case with a flow-through entity, be prepared to discuss this issue with your surety agent.

Surety agents can be supportive in helping you grow your construction business. That being said, in higher-risk environments, they’ll need additional and more detailed information about you and your business.
Take a proactive approach in developing a positive working relationship with your surety agent. Get together throughout the year. Share your success stories and your challenges. Tell your surety agent what your company is doing to improve business processes and procedures, and what strategies you’ve put into place to control costs and become more profitable. When you and your surety agent are on the same page, that’s good for business.

Joseph Spagnoletti, CPA, CCIFP is partner in charge of the Construction Services Group at Kostin, Ruffkess & Co., LLC, a certified public-accounting and business-advisory firm with offices in Springfield as well as Farmington and New London, Conn. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in employee benefit-plan audits, litigation support, business valuation, succession-planning business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information technology assurance; www.kostin.com.

What Bonding Companies Find Important

By
Uncategorized
You Don?t Need a Crystal Ball to Figure Out What They?re Thinking

Construction companies need the support of their bonding company to sustain the growth of their business. As a result of the current economic realities of the construction industry, bonding companies are spending more time scrutinizing the viability of their clients’ financial future and operations before issuing a bond.

Here are the 10 topics you need to be prepared to address the next time you sit down with your surety agent.

1. Banking covenants. Bonding companies want to know that you are satisfying the covenants as outlined in your loan or line of credit documents. If you’re not meeting the covenants, you need to talk to your banker about rewriting the covenants or developing a strategy for meeting them. Bonding companies get concerned when they see that construction companies are not meeting their banking covenants.

In fact, this could result in an immediate end to a line of credit or an immediate call for repayment of a loan. Needless to say, without access to financing, some construction companies couldn’t afford to complete their work in progress. In the end, bonding companies want to see a positive working relationship with your lending institution.

2. Accounts receivable. Your accounts-receivable aging report will be examined throughout the year. What are bonding companies looking for? They want to make sure that you’re being paid for your work, and you have business systems, policies, and procedures in place to track and encourage timely payments. Before starting work for a customer, perform enough due diligence that would lead you and your bonding company to believe you’ll get paid for your work.

3. Accounts payable. Pay your bills in a timely fashion. Bonding companies assume that, if you’re not paying your bills in a timely fashion, you either don’t have the resources to do so, or you have weak internal business systems. Either way, that’s bad news.

4. Backlog. In construction, it’s all about the backlog. Really, whether you are an accounting firm, law office, or a construction company, a backlog of work secures the future of your business. The longer the backlog, the more confidence bonding companies will have in your business, and the more likely they are to insure the completion of your work. Keep in mind that bonding companies will look at more than the total number of jobs backlogged; they’ll look for the number of profitable jobs.

5. Strategic business plan. We all get distracted by today’s challenges, but taking the time to write a strategic business plan is good for the future of your business. And that’s just what bonding companies are concerned about — the future of your business. What are your short-term, mid-range and long-term goals, and what is your strategy for achieving them? Write them down. A good strategic business plan includes timelines and benchmarks to measure progress. If your bonding company comes in for a visit and asks to see your strategic business plan, be ready to share a thoroughly prepared document.

6. Profitable and cost-controlled work. Your bonding company wants to know that your jobs are profitable and that costs can be controlled as shifts in the market demand. So be prepared to show how you plan to profit from your work and control costs. In addition, if market conditions change, you need to have a plan in place to adjust. Take a proactive approach to challenges by implementing smart solutions on a timely basis.

7. Equipment. Equipment represents a major investment for most construction companies. The patterns of acquisition and disposition of equipment tell the bonding company a story. Be ready to discuss the reasons why you are either acquiring or disposing of equipment. If you’re stuck supporting debt for idle equipment, there may be creative ideas you could explore to turn idle equipment into a revenue source. Discuss strategies like this with your surety agent.

8. Loans from owners. As an owner of any business, when times are tough, you may have to loan your company money to help it through a temporarily challenging time. Don’t be surprised if loans you make to your company get subordinated to other obligations of the company and require approval from your surety before you get paid back. As an aside, be sure to consult with your accountant and attorney before loaning money to your company; there may be tax benefits or implications that deserve additional discussion.

9. Indemnity. Personal and spousal indemnity is becoming commonplace, especially if your surety agent considers a particular job to be a stretch for your company. Your bonding company sees more risk associated when you do work outside of your areas of expertise. With additional risk comes additional indemnity. If this sounds like you, be prepared to discuss why your company can meet its obligations even outside its areas of expertise.

10. Unexpected taxes. If your construction company (structured as a C-corporation) has adopted the completed contract basis of accounting for tax purposes, you may not be in a position to defer taxes to next year without a sizeable backlog. As backlogs at some construction companies aren’t so large, this could mean that those deferred taxes are payable now. Unanticipated, this could place significant strain on cash flow. Even if your deferred tax is at the individual level, as is the case with a flow-through entity, be prepared to discuss this issue with your surety agent.

Surety agents can be supportive in helping you grow your construction business. That being said, in higher-risk environments, they’ll need additional and more detailed information about you and your business.

Take a proactive approach in developing a positive working relationship with your surety agent. Get together throughout the year. Share your success stories and your challenges. Tell your surety agent what your company is doing to improve business processes and procedures, and what strategies you’ve put into place to control costs and become more profitable. When you and your surety agent are on the same page, that’s good for business. n

Joseph Spagnoletti, CPA, CCIFP is partner in charge of the Construction Services Group at Kostin, Ruffkess & Co., LLC, a certified public-accounting and business-advisory firm with offices in Springfield as well as Farmington and New London, Conn. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in employee benefit-plan audits, litigation support, business valuation, succession-planning business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information technology assurance;www.kostin.com.

Long-term Care Insurance

By
Uncategorized
How to Protect Your Nest Egg and Provide for Your Care

Americans are largely independent folks who could not imagine a future where their independence is compromised because they require long-term care as a result of prolonged illness or disability. Long-term care refers to the wide range of medical, personal, and social services a person may receive as a result of a prolonged illness or disability. It can include help with activities of daily living, home health care, adult day care, nursing-home care, and care in a group-living facility.

On average, you will have worked more than 30 years before you retire and will have accumulated a nest egg to support yourself during retirement and to hopefully pass on to your children and family as an inheritance. The thought of losing the independence you value or the funds you have worked so hard to put aside, as a result of needing long-term care, is a major concern. Sound financial and estate planning can address these issues.

Part of the planning process can include the purchase of a long-term care insurance policy that can protect your nest egg and provide a means to pay for necessary long-term care expenses. This is the best way to protect yourself from spending your resources on nursing-home expenses and medical services. Long-term care insurance is designed to cover all or some of the services provided by long-term care and create options regarding where you will receive services and the type of services you will be able to access. After satisfaction of an elimination period, a number of days you must need the nursing-home or home-health care before the policy will pay benefits, the insurance will kick in.

A long-term care policy typically pays a daily benefit ranging from $50 to $250, which can be paid for a specific number of days, months, or years. The maximum benefit period can range from a year to a lifetime depending upon the policy you purchase. Additionally, policies can include an inflation rider that will provide for coverage increases over time. Of course, a higher daily benefit or longer term of coverage will increase the premium paid for the insurance.

Other factors such as age and life expectancy, gender, family situation, health status, income, and assets should be considered when determining whether or not to purchase long-term care insurance. Naturally, the longer you live, the more likely it is that you will need long-term care, and younger and/or healthier people will pay lower premiums. Women are more likely to need long-term care due to their longer life expectancies, and people with families or children are more likely to obtain in-home care from those family members. Of course, if family care is not available and you can’t care for yourself, insurance can pay for care outside of your home, which may be your only alternative.

People with family history of chronic illness or poor health histories may be also at greater risk for needing long-term care. Perhaps most significantly, however; if you have accumulated assets during your lifetime, long-term care insurance can protect those assets from being spent on your long-term care. But if you have low income or minimal assets, long-term care insurance is not a wise investment.

Another major consideration is whether or not your long-term care insurance will meet the Medicaid eligibility standards in effect at the time the insurance is purchased. Medicaid is the federally funded, state-administered health program that pays for your long-term care bills if you meet certain poverty levels. If you have assets in excess of the minimum allowances, you will be required to spend down those assets to qualify for Medicaid. You will also need to have income at or below the federal poverty level before Medicaid will pay for your long-term care. This can deplete your nest egg very quickly, as the average annual cost of nursing-home care is upward of $95,000 per year.

Some states, Massachusetts included, have programs designed to minimize the financial impact of spending down assets to meet Medicaid eligibility standards. By purchasing a qualifying policy, you will receive partial protection against the normal Medicaid requirement to spend down your assets to become eligible.

For Massachusetts residents, the policy must provide certain benefits in order to qualify for the Medicaid-eligibility and asset-recovery exemptions. Specifically, when you enter a nursing home, your policy must:

  • Cover nursing home care for at least 730 days;

  • Pay at least $125 per day for nursing-home care; and
  • Not require an elimination period (days that services must be provided before your policy will begin to pay) of more than 365 days, or, in lieu of a waiting period, a deductible of more than $54,750.

    • A visit to your state’s division of insurance will provide you with the current requirements necessary for a policy to be qualifying. It is of paramount importance to ensure that your policy meets the qualifying requirements necessary for your state to accept it.

    When purchasing a policy, it is important to work with a knowledgeable agent and reputable insurance company, as you want to ensure compliance with the requirements set forth by Massachusetts regulation and also remain confident that the insurance company will be solvent at the time you need to make a claim.

    While most folks do not think they need this insurance coverage at first glance, it should be noted that 58% of people making claims under long-term care policies are under the age of 65. Of those making claims, the majority of long-term care utilized, approximately 66%, is for care in one’s own home, compared to only 17% being provided in a nursing home.

    Interestingly, age-related ailments such as dementia and Alzheimer’s disease are not the major claim. In fact, the leading cause for needing long-term care is cancer. Given these facts, long-term care is likely necessary for most people, and finding a way to pay for it by means other than depleting your savings makes sense.

    Like all insurance policies, you pay for long-term care coverage hoping you will never need to use it. However, accepting the fact that it is likely you will need long-term care at some point in your life will make the payments more palatable. Giving yourself options for where you will receive your care is invaluable.

    Julie A. Dialessi-Lafley, Esq. is a partner with the law firm Bacon Wilson, P.C. She focuses her practice in business, real estate, estate planning and administration, elder law, and family law; (413) 781-0560 begin_of_the_skype_highlighting              (413) 781-0560      end_of_the_skype_highlighting;[email protected];

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    A Whole New World

    By
    Uncategorized
    Strategies for Navigating the Uniform Probate Code

    Imagine that your spouse or parent is in an accident or develops an illness that renders them incapacitated. Certainly, you would be dealing with worry and fear due to their situation, and you would most likely want to do all that you could to assist them. Unfortunately, when adults lose capacity to make their own decisions, if they do not have the proper documents in place, it is necessary to petition the court to have a guardian and/or conservator appointed. In order to have a guardian and/or conservator appointed, the court must first declare the incapacitated person to be incompetent.

    While guardianship and conservatorship laws have existed in the Commonwealth for many years, the laws changed dramatically with the enactment of the Uniform Probate Code (UPC) on July 1, 2009.

    Recently, the Probate Court has endured harsh criticism. Many felt that guardianships and conservatorships were obtained too easily, and that there were not enough due-process protections in place for the incapacitated person. With the enactment of the Uniform Probate Court, additional safeguards have been put in place to protect the incapacitated person and to ensure that their rights are protected throughout the process. While this is beneficial to the incapacitated person, it means additional time, expense, and consternation for the petitioning party.

    Prior to the UPC, a guardian could be appointed to handle personal and financial decisions for an incompetent person, or a conservator could be appointed to handle financial decisions. Under the new law, a guardian is empowered only to make personal decisions, such as those involving support, care, education, health, and welfare, and a conservator is empowered only to make financial decisions. As such, if a person is seeking to be appointed to handle both personal and financial matters, this person will have to request that the Probate Court appoint them as both guardian and conservator. Under the new law, this requires two separate petitions to the court.

    Some of the terminology that has been used for many years has also changed. While in the past all incompetent people were called ‘wards,’ the term ‘ward’ is now reserved solely for guardianships of minors. Under the new law, a person under guardianship is called an ‘incapacitated person,’ and a person under conservatorship is called a ‘protected person.’ Court personnel, attorneys, and the public will need some time to master the terminology now used in these matters.

    The UPC has also established priority as to whom should be appointed as guardian or conservator. The highest priority is given to the person named in the incapacitated person’s health-care proxy or durable power of attorney, unless good cause can be shown as to why they should not be appointed. The order of priority differs depending on whether a guardianship or a conservatorship is sought, but in either case, the court may pass over a person having priority and appoint a person having lower priority or no priority.

    A new provision also ensures that a person who is being investigated, or who has charges pending, for committing an assault and battery that resulted in a serious bodily injury to a minor or otherwise incapacitated person cannot be appointed as a guardian or conservator. The court will run a criminal-record check to determine a petitioner’s status and to ensure that they are not prohibited from serving.

    Prior to the UPC, completing the petition to appoint a guardian or conservator was fairly simple. The entire petition consisted of one double-sided page. Under the UPC, the petition has increased to seven pages, and the information requested therein is much more comprehensive. The court is seeking information that would allow the court to restrict the guardian or conservator to making only those decisions that are absolutely necessary, while allowing the incapacitated person to maintain as much independence as possible.

    At the time that a guardian or conservator is appointed, it is necessary to provide the court with a medical certificate completed based upon an examination of the alleged incapacitated person that occurred within 30 days of the hearing. In the past, the medical certificate consisted of one double-sided page, and the physician could complete it with information that the physician believed to be pertinent. Now, a medical certificate spans six pages, and the physician must answer specific questions detailing the incapacity.

    Under the new law, a medical certificate meeting the same requirements must also be filed when the petition is initially filed. It is generally impossible to have a guardianship or conservatorship allowed within 30 days of filing. As such, this new rule essentially guarantees that two examinations and two certificates will be needed, which translates into added expense and increased time pressures.

    Once a petition is filed, notice must be given to all interested parties, including the alleged incompetent person. This notice provides a date by which the person could object to the petition. Under the new law, the alleged incompetent person has a right to counsel, which would likely be exercised if they desire to object. Under the new law, it appears that the appointment of counsel can be requested by anyone, even if they are not involved in the case. If the alleged incompetent person is indigent, then their counsel will be paid for by the Commonwealth.

    The UPC has also restricted some decisions typically made by a guardian that were not restricted in the past. For example, the guardian must receive court approval prior to revoking a previously executed health-care proxy. In addition, the guardian must receive court approval prior to admitting the incapacitated person to a nursing home.

    This provision is extremely problematic, as it prevents incompetent individuals who have been hospitalized and who are in need of rehabilitation from being admitted to the rehabilitation facility without a prior court order. This requirement could easily delay the needed admission to the rehabilitation facility for as much as 30 days or longer.

    With respect to substituted-judgment determinations, in which the court places itself in the incapacitated person’s shoes in order to make the decision that the incapacitated person would make if competent, the new law requires the incapacitated person to attend the hearing thereon. The most common substituted-judgment determination is related to whether the incapacitated person should be treated with anti-psychotic medications. In the past, it was possible and fairly easy to waive the appearance of the incapacitated person. Now, the court must find that extraordinary circumstances exist requiring the incapacitated person’s absence from the hearing.

    In the past, it was the duty of a conservator or guardian of an estate to file an account with the Probate Court on a yearly basis. If the account was not filed, it would not be uncommon for this failure to go unnoticed. The new law mandates that, within 60 days following their appointment, a conservator must report all assets that may be coming under their control in addition to filing an account on an annual basis.

    With the use of new software, it is understood that the court will be proactive and will require conservators to file accounts in a timely manner. If an account is not filed, the court may order the account to be filed. In the event that the conservator does not file his account in a timely manner, or if the judge is not satisfied with the account, the conservator could be removed and a successor conservator appointed by the court.

    Given the increasing difficulty involved in appointing and maintaining a guardianship or conservatorship, it is increasingly important for competent adults to execute health-care proxies and durable powers of attorney. A health-care proxy is a document in which someone is designated to make health-care decisions in the event of incapacity. A durable power of attorney is a document in which someone is designated to make financial decisions in the event of incapacity. Executing these two documents allows a person to avoid the need for guardianship or conservatorship, as the documents cover the two areas in which the court would appoint a decision maker — personal and financial.

    Ultimately, the enactment of the UPC has vastly changed the legal landscape with respect to incapacity. The easiest way to avoid having to navigate this landscape is to plan ahead for incapacity. By executing a health-care proxy and durable power of attorney now, you can put a plan in place that can be carried out without court intervention. n

    Gina M. Barry is a partner with the law firm Bacon Wilson, P.C. She is a member of the National Assoc. of Elder Law Attor-neys, the Estate Planning Council, and the Western Mass. Elder Care Professionals Assoc. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships, and residential real estate; (413) 781-0560 begin_of_the_skype_highlighting              (413) 781-0560      end_of_the_skype_highlighting;[email protected]

    On-the-money Advice

    By
    Uncategorized
    Preventing Check, Wire-transfer, and ACH-debit Fraud

    Despite the predications of the demise of the paper check, check fraud is on the rise. Shockingly enough, the value of paper-check fraud this year alone is expected to exceed $50 billion.

    With the growing popularity of electronic payments and banking, how is it that paper-check fraud continues to be such a huge problem? Two reasons — technology and the lack of, or weak, internal controls. Technologically adept counterfeiters, armed with check stock and a high-quality color printer, can create close-to-perfect documents that pass for the real thing. When you combine a tech-savvy criminal with weak internal controls, your exposure to fraud skyrockets.

    You’re Not Responsible? Think Again

    Don’t assume that your bank will accept liability for counterfeit checks written against your bank accounts. The Uniform Commercial Code (UCC) changed more than a decade ago to make the liability for check fraud allocable based upon the negligence of each party. Therefore, it is critical to take precautions and insert controls to protect your company’s assets.

    Implementing payee-positive pay is the most effective way to prevent counterfeit- or altered-check fraud and protect your company from liability for these items. With payee-positive pay, your company sends your bank a file detailing all checks issued. The details include the check number, check date, check amount, and payee. When checks are presented to the bank for payment, the above attributes are compared to the file provided by your company. If any of the details do not match, the bank will contact the company to determine if the check is valid and should be paid. Even though implementing payee-positive pay may carry an additional service fee from your bank, the added protection is worthwhile.

    In short, it pays to understand your bank’s responsibilities regarding check fraud. Contact your bank to obtain a clear understanding of their policies and services available with respect to prevention.

    In addition to implementing payee-positive pay, it’s important to understand that the UCC put a significant amount of responsibility on business customer accounts regarding timely discovery of unauthorized transactions. Section 4-406 of the UCC subsection (c) states that the customer must exercise reasonable promptness in examining the statement provided by the bank for unauthorized transactions, and, if they are identified, they must promptly notify the bank.

    If the bank can prove that you failed in this responsibility, you’re precluded from making a claim against the bank unless you can prove that the bank failed to exercise ordinary care in paying the item. In this instance, the loss may be allocated between the customer and the bank. To protect your company, be sure to maintain proper control over check stock, use check stock with proper security features, and perform timely reconciliations.

    Check-stock security features are also important in deterring check fraud by making checks difficult to copy, alter, or counterfeit. Some of the more effective security measures include watermarks, copy-void pantograph, and chemical voids.

    Watermarks make subtle designs on the front and back of the checks via the printing process that are visible only if held up to the light at a 45-degree angle. This protects against photocopying as a counterfeit measure, since watermarks cannot be copied accurately.

    Copy-void pantographs are also protection against photocopying. When the check is photocopied, the pattern changes, and the word ‘VOID’ appears, making the copy non-negotiable.

    Finally, chemical voids involve the check stock being treated with a chemical that reacts only when a chemical is used to wash the check (to wash out the payee, amount, etc). When the chemicals are applied, the word ‘VOID’ appears, again, making the check non-negotiable.

    Wire-transfer Fraud

    Wire-transfer fraud presents another risk to your company’s most liquid asset. Like check fraud, the most effective way to prevent wire-transfer fraud is with proper internal controls. Some of the key controls that all businesses should have in place are:

    • Written wire-transfer procedures, which include who is authorized to initiate the transfer, who is authorized to verify the transfer, and the types of transactions that are authorized (list of vendors, banks, etc.);

    • Required verifications for all wire-transfer orders placed with a person independent of the employee requesting the transfer; and
    • Prompt review and reconciliation by someone independent of those who request transfers.

      • It’s important to note that wire-transfer information should never be provided to anyone via a telephone request. The company should require the bank to receive actual verbal confirmation/verification of transfers requested. Faxed instructions and/or authorized signatures should not be adequate authorization for the bank to initiate a transfer. For additional security, a code word or password should be required by the bank to verify the identity of the employee authorized to verify transfer requests.

      ACH-debit Internal Controls

      Finally, the company should also implement controls regarding automatic clearing house (ACH) debits. The ACH network has been around for some time now but is gaining more widespread use. Rules and regulations governing the ACH network are established by the Federal Reserve.

      Using ACH debits allows a company to schedule payments to be automatically debited to its account. The benefit of this type of service is the convenience of not having to take time to write the check and mail the bill, and the assurance that the bill will always be paid on time.

      The risks related to this convenience are that you must give the vendor your bank-account information, you may be billed the wrong amount, and you give up some of your ability to manage cash flow.

      There have been instances of ACH-debit fraud where unauthorized ACH debits are charged against a company’s bank account. In these cases, the perpetrator gained access to the company’s bank account information. It could have been as simple as obtaining it from one of the company’s checks.

      Again, if your company is using this type of service to make payments, timely reconciliations are a critical control to ensure that only authorized and proper amounts are deducted from your checking account.

      Finally, there are bank services that you can implement to help your company manage these risks, such as ACH blocking, which is a service from the bank that blocks all ACH debits, or ACH filtering, which allows only ACH debits that match the company’s instructions.

      Technology certainly makes business processes more efficient, but without the installation of proper internal controls as part of a larger fraud-prevention program, organizations risk exposing themselves to a higher incidence of fraud. A fraud-prevention program is good for the protection of your business.

      Joseph Centofanti is a member of the firm and the director of the Fraud Services Group at Kostin, Ruffkess & Co., LLC, a certified public-accounting and business-advisory firm with offices in Springfield as well as Farmington and New London, Conn. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in fraud investigation, fraud prevention, forensic accounting, employee-benefit-plan audits, litigation support, business valuation, succession planning, business consulting, wealth management, estate planning, and information technology assurance;www.kostin.com.

      The Push for Corporate Sustainability

      By
      Sections Supplements
      It’s Good for Public Relations, Good for the Bottom Line

      Lock four business professionals in a room, and chances are you’ll get four different opinions about what ‘sustainability’ means. Some may see it as a way that corporations can help stop global warming. Another might say that global warming is a lie, and corporations are wasting their time spending money trying to save the environment. Still others may say sustainability is simply replacing Styrofoam cups with paper or coffee mugs that can be washed.

      The truth is that there really is no one definition of sustainability and all of the above answers have a kernel of truth. By adopting a sustainability plan, a company can take steps that may reduce their carbon footprint. Even if you don’t believe in global warming, your company may still see a financial benefit in switching from electrical heat to natural gas. But no matter how you slice it, sustainability is the new corporate buzzword, and, like it or not, the public is watching.

      Right now most American companies are about a decade behind European companies when it comes to understanding what sustainability is and how a company can use sustainability efforts to not only save money but position themselves ahead of their competition. Sustainability efforts are no longer just being undertaken by hemp clothing retailers in San Francisco. In July 2009, Wal-Mart announced a major restructuring of the way it handles packaging and vendors based on a new sustainability index. And we all know that once a company like Wal-Mart is on board, the business landscape changes.

      A modern sustainability program is based upon the idea of a triple bottom line, which refers to a company’s economic viability, its social responsibility, and environmental responsibility. Adopting a sustainability program doesn’t mean that your company has to generate all of its own power and convert its fleet to battery-operated cars. It simply means deciding what types of graduated steps you’d like to adopt to show social and environmental responsibility and then letting the world know what you’re doing through an annual Corporate Social Responsibility (CSR) Report.

      “CSR reports are just starting to catch on among American businesses. A good example is one that is on the Starbucks Web site,” explains Kretz. “If you look at the Starbucks report, you’ll see that the company outlines various initiatives that it is undertaking to minimize its environmental impact and give back to the communities that it serves. For example, they talk about their transition to only selling fair-trade coffee beans, powering their stores with renewable-energy sources and employee volunteer programs. When you read it, you begin to understand that Starbucks hasn’t undergone a drastic transition. Rather, they are implementing something gradual but purposeful — and looking good while doing it.”

      Winning the PR Battle

      One of the benefits of developing a sustainability strategy is the fact that it automatically opens your company up to positive public-relations opportunities. The number of consumers who value environmental and sustainability efforts is growing every day, and by communicating your actions to those who are interested, you are positioning your company to look more attractive versus a company that has no sustainability plan.

      “There are Web sites devoted to help interested people find information about what companies are doing with regard to sustainability,” says Kretz. “CSR reports are indexed and readily available online. And it’s important that they’re accessible because many consumers and business will refuse to patronize a business that isn’t implementing at least some type of sustainability initiative.”

      A perfect example of using sustainability practices for PR comes from Kostin’s homebuilding clients. Many are building higher-end homes in accordance with Leadership in Energy and Environmental Design (LEED) specs because, in a tough home market, a LEED rating can be the difference between a home selling or languishing on the market for months.

      A commitment to sustainability also helps with internal PR because studies have shown that employees — especially younger ones — look favorably upon such efforts. A CSR is an easy way to illustrate your company’s commitment to sustainability, which can also be of use when hiring.

      Going Green Means Saving Green

      Remember that a good sustainability program is supposed to contribute to a company’s triple bottom line. This means that a good sustainability campaign will also help save the company money.

      There are a number of ways that a company can help the environment and save money at the same time. The easiest way to do this is by taking advantage of the numerous tax credits and incentive programs for installing energy-saving equipment or replacing older equipment with newer, more efficient items. The recent stimulus packages included more than $61 billion in credits and grants for energy conservation.

      Some examples of the government credits available are for adding insulation to your home and purchasing hybrid vehicles. On the business side, there are grants available for solar panels and wind, power, tidal, and geothermal power. Of course, these programs start and end all the time, so speaking with your tax professional is a good start to find out what types of programs are currently available.

      Beyond tax credits and incentive programs, sustainability programs have other benefits that may be small but add up over time. For example, a company changing from disposable cups to having employees bring in washable mugs will not only reduce waste but will save the company the money they spent supplying the cups. Implementing a data-warehousing system can not only help a company reduce the need for printed, archival copies of files, but it will also reduce the square-foot cost for storage needs and usually results in quicker retrieval of data.

      There are experts who specialize in sustainability audits who can come into a company, see how it is currently operating and suggest small measures that can really add up. When the price of gas spiked above $4 a gallon, many companies started trying to figure out ways to reduce travel with videoconferencing or by stacking together trips so that multiple clients could be visited in one day. Even though gas is now below $3 a gallon, that strategy of reducing travel not only enhances a company’s sustainability efforts, it will mean less money burned down the tailpipe.

      The Wal-Mart example illustrates the ultimate bottom-line impact. Part of Wal-Mart’s plan is to measure the sustainability of every product it will sell. It is forecasting a day in the next couple of years when it will be able to label all of its products with a ‘sustainability index’ number. Those companies that aren’t currently working to minimize their packaging and quantify the environmental impact of their product and manufacturing processes will find that the large retailer will no longer sell their product. That’s where you can easily see that companies with no sustainability plan won’t be able to sustain their business model.

      What the Future Holds

      There’s no question that companies need to start working on assessing their sustainability efforts. The time is drawing nearer when it will be a necessity to have at least some type of report available that outlines what your company is doing with regard to minimizing its impact on the planet and maximizing its efforts to help members of your community.

      For example, the American Institute of CPAs has set up a task force to figure out best practices around sustainability initiatives. In fact, Prince Charles, a proponent of sustainable farming and other practices, spoke to the group’s annual conference this year to encourage further development of sustainability in the U.S.

      CSR accounting has only been around for a decade, and it’s still evolving. But companies that commit to measuring their sustainability can demonstrate their interest in the environment to their employees and communities, build trust and promote transparency, and show their commitment to their important stakeholders. CSRs are gaining momentum, and companies that aren’t taking action now risk finding themselves on the wrong end of business and consumer sentiment in a few years. n

      Richard Kretz is managing member and Brian Newman is member of the firm at Kostin, Ruffkess & Co., LLC, a certified public accounting and business-advisory firm with offices in Springfield as well as Farmington and New London, Conn. Beyond traditional accounting, auditing and tax consulting, the firm also specializes in employee benefit-plan audits, litigation support, business valuation, succession-planning business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information technology assurance;www.kostin.com.

      By
      Departments

      Dean McKenzie, M.D., MHSA, has joined Providence Behavioral Health Hospital in Holyoke as Chief Medical Officer. In this role, McKenzie acts as a liaison between administration and members of the medical staff to support patient care services, while focusing on quality of care, patient satisfaction, risk management, and patient safety. A graduate of Hope College and the University of Michigan Medical School, McKenzie served his residency in the Department of Psychiatry at the University of Arizona. He is board-certified in psychiatry and neurology. He most recently served as Utilization Management Medical Director for Magellan of Arizona, a state-contracted, regional behavioral-health authority that provides a wide range of services, including crisis assistance, children’s services, and substance-abuse treatment.

      •••••

      Jennifer L. Snyder, Esq. has opened the Hadley Law Center at 216 Russell St., Hadley. Areas of practice include elder law, special needs, estate planning, and family law.

      •••••

      Christina J. Quinby has been promoted to Community Development Planner at the Pioneer Valley Planning Commission in Springfield. She joined the organization in 2008 as a Planning Assistant following an internship in the Community Development section. She holds a master’s degree in Social Work from Boston College.

      •••••

      Attorney L. Alexandra Hogan of Shatz, Schwartz and Fentin, P.C. in Springfield recently lectured on “Massachusetts Data Security Law, Compliance, and Confusion” with Marco Liquori, President of Net Logix Inc., of Westfield, at the 48th annual Tax Institute seminar at Western New England College in Springfield. Their presentation focused on the new law and compliance requirements state businesses must have in place to protect their clients’ and customers’ personal information.

      •••••

      Susan Leschine, co-founder of Qteros, has been named one of the Top 25 Women in Tech by media trendsetter AlwaysOn. Those named to the first-annual list were chosen for overall innovation, ability to identify new market opportunities, and creation of stakeholder value, among other criteria. In her lab at UMass Amherst, Leschine continues to work diligently on the Q microbe for ethanol production.

      •••••

      Dr. Keisha A. Jones has joined Baystate Urogynecology where she will assist Dr. Oz Harmanli, Chief of the Urogynecology and Pelvic Reconstructive Surgery division at Baystate Medical Center in Springfield. Jones completed a fellowship in female pelvic medicine and reconstructive surgery at Magee-Women’s Hospital in Pittsburgh. She earned her medical degree from Virginia Commonwealth University, completed her internship and residency at Yale New Haven Hospital in Connecticut, and earned a master’s degree in clinical research from the University of Pittsburgh. She will serve as Resident Rotation Coordinator in Urogynecology at Baystate.

      •••••

      Ben Scranton, Executive Vice President of the Realtor Assoc. of Pioneer Valley, was recently honored by the National Assoc. of Realtors with its certified executive designation, which recognizes exceptional efforts made by association executives. Scranton is one of more than 360 executives who have achieved this mark of excellence.

      •••••

      Marysue Mooney has been promoted to Classified Advertising Manager at The Republican in Springfield.

      •••••

      Dr. Tashanna K.N. Myers has joined the Baystate Regional Cancer Program’s Gynecologic Oncology Division at Baystate Medical Center in Springfield. Myers completed her fellowship in gynecologic oncology at the University of Oklahoma. She completed her doctor of medicine in obstetrics and her residency at Temple University School of Medicine in Philadelphia. She also holds a bachelor’s degree in English from Yale University.

      •••••

      Paul Papaluca of the Sydney Hirsch Team at RE/MAX Prestige in East Longmeadow, has earned the Certified Distressed Property Expert designation, having completed extensive training in foreclosure avoidance and short sales.

      •••••

      Vikki D. Lenhart has joined the Hart & Patterson financial planning team in Northampton. She holds Series 7 and Series 66 licenses and is licensed in life, accident, and health insurance.

      •••••

      Howard Stanton III recently joined Rockville Bank as Controller. He will be responsible for planning, organizing and directing the accounting and financial control activities of the bank, its holding company, and all subsidiaries.

      •••••

      Dr. Neal C. Hadro has joined the medical staff of the heart and vascular program at Baystate Medical Center in Springfield. He comes to Baystate from the Cleveland Clinic and Marymount Hospital in Garfield Heights, Ohio, where he served as faculty and as a staff vascular and endovascular surgeon. He earned his medical degree at Tufts University School of Medicine in Boston and completed his residency in general surgery, as well as a peripheral vascular surgery fellowship, at Walter Reed Army Medical Center in Washington. Hadro also completed an endovascular fellowship at New York Presbyterian Hospital. He is board certified in surgery with added qualifications in vascular surgery.

      •••••

      Corey M. Dennis has joined the law firm Skoler, Abbott & Presser in Springfield as an Associate representing management in labor and employment-law litigation.  

      By
      Departments

      Jiminy Peak Mountain Resort in Hancock announced that Darcy Rogers has joined the resort’s conference sales team as Sales Manager. In her new position, Rogers will be responsible for soliciting new business, managing existing accounts, and working with other departments at the resort to offer high-quality conference and meeting services to clients. She works with clients in New York, New Jersey, and Pennsylvania, with a particular emphasis on the Albany area.

      •••••

      Fuss & O’Neill, an engineering firm with offices in Springfield and several other locations, announced the following changes in senior management:
      • Jeffrey Heidtman has been elected CEO and Chairman of the Board, and is stepping down as President;
      • Peter Grose, PE will be assuming the duties of President. He is a 30-year Fuss & O’Neill employee who has directed some of the firm’s largest design and construction services programs;
      • Michael Curtis, PhD, PE has been promoted to the newly created position of Director of Strategic Initiatives; and
      • James Parry, PE has been promoted to Director of Business Development and Marketing.

      •••••

      TSM Design in Springfield announced the following:
      • Janet Bennet has joined the firm as an Account Executive. She will develop clients’ marketing communications strategies as well as manage day-to-day account activity; and
      •Michael Sjostedt has joined the firm as a Copywriter. He will be responsible for generating copy for clients’ communications.

      •••••

      Andrea Comstock-Tague has joined the staff of United Bank as a Human Resources Officer. In her new position, she will be responsible for the daily management of the bank’s human-resources functions, with an emphasis on training and development.

      •••••

      J.M. O’Brien & Co., P.B., with offices in Springfield and Easthampton, announced the following:
      • Ryan Sabin has joined the firm; and
      • Natalya Zubenko has joined the firm.

      •••••

      Karen King of the Karen King Group, Re/Max Prestige Realty in Wilbraham, has been accepted into the Allen Hainge CyberStars group, an invitation-only group of 200 top real-estate agents from the U.S., Canada, Australia, and the Bahamas. King is the only representative selected from Western Mass.

      •••••

      Elizabeth Howell has joined the All About Women Midwifery practice as a certified Nurse Midwife with the Baystate Ob-Gyn Group.

      •••••

      Anthony J. Worden recently joined Greenfield Co-operative Bank as Vice President for Commercial Lending.

      •••••

      Deborah Duncan, Senior Program Manager for the Day Treatment Program at Behavioral Health Network in Springfield, was recently awarded the Moe Armstrong Award for adult peer leadership for her contribution to strengthening the role of consumers in the mental-health and substance-abuse treatment systems by the Assoc. for Behavioral Healthcare.

      •••••

      Tighe & Bond of Westfield announced the following:
      • Elizabeth G. Baldwin has been promoted to Project Manager. Her experience lies in water resources and wastewater projects;
      • Marc J. Richards, a professional Engineer and licensed site professional specializing in environmental assessment and remediation projects, has been promoted; and
      • Antonio J. daCruz, with more than 16 years of experience in civil and environmental engineering, has been promoted.

      •••••

      James Haughey of the Behavioral Health Network in Springfield has been recognized with the Innovation Practice Award by the Assoc. for Behavioral Healthcare.

      •••••

      The Greater Springfield Convention & Visitors Bureau has appointed seven new officers and members to its Board of Directors. They are:
      • John Doleva, of the Naismith Memorial Basketball Hall of Fame, to serve as Vice Chairman;
      • Anthony Frasco of the Williams Distributing Corp.;
      • Joanne Gadoury of the MassMutual Financial Group;
      • Michael Jonnes of the Springfield Symphony Orchestra;
      • Bruce Lessels of Zoar Outdoor;
      • Anthony Maroulis of the Amherst Area Chamber of Commerce; and
      • Remo Pizzichemi of the Hampton Inn in West Springfield.
      Officers nominated to serve a two-year term include:
      • Michael Hurwitz of the American Restaurant Corp., to serve as Vice Chairman; and
      • Kathleen Anderson of the Holyoke Office of Planning and Development, to serve as Treasurer.
      Continuing as officers with terms expiring in 2010 are:
      • Greg Chiecko of the Eastern States Exposition to serve as Chairman; and
      • Robert Schwarz of Peter Pan Bus Lines as Secretary.
      Members of the board nominated to serve an additional two-year term include:
      • Bill Hess of the Springfield Marriott;
      • John Hesslein of CBS-3;
      • Matt Hollander of the MassMutual Center;
      • Shardool Parmar of the Pioneer Valley Hotel Group; and
      • Rod Warnick of the Hospitality Tourism Management Department at UMass Amherst.
      Other board members include:
      • Joseph Carvalho of the Springfield Museums Assoc.;
      • Carolyn Edwards of Prime Outlets;
      • Debra Flynn of Eastside Grill;
      • Robert Gilbert of Dowd Insurance;
      • Stuart Hurwitz of Rein’s Deli;
      • Harlan Kent of Yankee Candle Co.;
      • Larry Litton of Six Flags New England;
      • Bruce Nable of SER Expo Services;
      • Christina Pappas of Open the Door Communications;
      • William Rogolski of the Holyoke Mall at Ingleside;
      • Peter Rosskothen of The Log Cabin Banquet & Meeting House and The Delaney House; and
      • Daniel Walsh of the Columbus Hotel Group.

      •••••

      SS&C SummerWind Performing Arts Center announced the appointment of insurance executive Michael D. Rabbett to chair its Development Committee. Rabbett is owner of Rabbett Insurance in Windsor, Conn., recipient of the Windsor Chamber of Commerce 2008 Business of the Year Award, and a member of the Professional Insurance Agents and Independent Insurance Agents of Connecticut.

      •••••

      Kate Putnam, president of Package Machinery Co. Inc. in West Springfield, has been named a Top Woman Entrepreneur for 2009 by Work Life Matters magazine. She will be honored at a breakfast on Dec. 14 at Club 101 in New York City. Package Machinery Co. is a manufacturer of wrapping machinery for consumer products. Putnam has been president since the company’s inception in 1996.

      •••••

      Bacon Wilson, P.C. of Springfield announced that the following lawyers were named “New England SuperLawyers” in the November issue of Boston magazine:
      • Paul R. Salvage, Co-Chairman of the Insolvency Department;
      • Gary L. Fialky, Chairman of the Corporate Department;
      • Michael B. Katz, Co-Chairman of the Bankruptcy Department;
      • Paul H. Rothschild, Chairman of the Litigation Department;
      • Stephen N. Krevalin, Managing Partner;
      • Hyman G. Darling, Chairman of the Estate Planning and Elder Law Departments;
      • Francis R. Mirkin; and
      • Stephen B. Monsein.
      Also, in the same issue, the following Bacon Wilson lawyers were named “Rising Stars”:
      • Justin H. Dion;
      • Adam J. Basch;
      • Todd C. Ratner;
      • Mark A. Tanner; and
      • Kevin V. Maltby.

      By
      Departments

      United Personnel employee Jim Kervick was awarded the Massachusetts Staffing Assoc. Employee of the Year Award for 2009 at the MSA’s annual awards dinner at the Harvard Club in Boston. The prestigious honor, awarded to one staffing employee in Massachusetts, is given to an employee who exemplifies the five main reasons to consider temporary staffing as an employment option — jobs, flexibility, bridge, choice, and training. In his role as an On-Site Manager at two of United’s larger-volume clients, Kervick is responsible for the day-to-day communication with the on-site temporary staff and for assuring that performance standards, policies, and procedures are met. United Personnel is headquartered in Springfield, with a satellite office in Easthampton.

      •••••

      James M. Buker has joined the Insurance Center of New England as a Senior Account Executive in the Group Employee Benefits Department.

      •••••

      Springfield resident David Ewen recently released his third edition of Let’s Make It Simple, which simplifies the complexities of book publishing and marketing into easily understood steps for new and experienced authors. Ewen is an author, speaker, and college instructor. The book is available at amazon.com.

      •••••

      Attorneys Ann I. Weber and Michele J. Feinstein, Shareholders of Shatz, Schwartz and Fentin, P.C., recently spoke on “Planning for Long-Term Care: New Laws and Regulations” at the Visiting Nurse Assoc. The intensive workshop focused on a multitude of issues individuals face when planning for long-term care. Their law firm has offices in Springfield, Northampton, and Albany, N.Y.

      •••••

      Liz Washer has joined UMass Amherst as Director of External Relations, College of Humanities and Fine Arts. In this role, Washer will provide leadership for promoting the college’s ideas, events, and initiatives to advance its strategic goals, and will support and coordinate similar efforts within the academic departments and programs that report to the Dean.

      •••••

      Rob Scoble has been named the top Operational Officer for Hyde Tools Inc. of Southbridge. As Executive Vice President and Chief Operating Officer, he will oversee Hyde’s professional products and industrial blade divisions.

      •••••

      Brittney Kelleher has been promoted to Commercial Loan Officer at Westfield Bank.

      •••••

      Samuel A. Smith has joined TD Bank as Manager of its location at 178 Main St., Sturbridge. He is responsible for managing day-to-day operations at the branch, and developing and overseeing small business loans, deposit accounts, consumer lending, investments, and insurance services.

      •••••

      Bacon Wilson, P.C. of Springfield has announced that Partner Hyman G. Darling has been selected to serve as a volunteer member of the American Cancer Society’s new Nationwide Gift Planning Advisory Council. The council will be an active source of expert planned-giving and estate-planning consultation, will assist in the development of promotional strategies, and will serve as a resource for the society’s marketplace introduction to potential donors. Darling will serve a two-year advisory council term, providing guidance in estate planning law, tax, investment and wealth management, real estate, insurance, personal financial planning, and marketing. Darling is Chairman of the Estate Planning and Elder Law departments at Bacon Wilson, P.C.

      •••••

      Michael J. Schrader has joined the engineering firm of Hoyle, Tanner & Associates of Manchester, N.H. Schrader’s expertise in wastewater, water, stormwater and site-civil projects will play a key role in expanding the firm’s presence in southern New England.

      •••••

      The Mass. Society for Medical Research has recognized the following individuals for their contributions to biomedical research and education in the state and region. They are:
      • State Sen. Stephen J. Buoniconti, D-West Springfield;
      • Angela Avery, recently retired Superintendent-Director of the Norfolk County Agricultural High School;
      • Terry McGuire, Co-Founder and General Partner of Polaris Ventures; and
      • Robert Langer of the Massachusetts Institute of Technology.
      The society is a nonprofit educational and research support organization whose members are biotechnology firms, colleges and universities, hospitals and institutes, pharmaceutical companies, and others that support research.

      •••••

      Jeffrey Folkins has been promoted to Vice President of Sales at Classic Coil Co. in Bristol, Conn. He was previously the national sales manager.

      •••••

      Jill Senecal was recently named Graduate Admissions Counselor for the Office of Graduate Admissions at American International College in Springfield. Senecal will be responsible in helping the office recruit prospective students and increase enrollment.

      •••••

      Daniel J. Barrieau, Director of Respiratory Care at Cooley Dickinson Hospital in Northampton, was among 45 health care professionals from across Massachusetts who recently received the Rx for Excellence Award in a Boston ceremony.

      •••••

      Qteros announced the following:
      • Kevin F. McLaughlin has been named to the Leadership Team. McLaughlin brings 30 years of financial and operating management experience from the high-tech, biotech, and education industries; and
      • Ralph M. Lerner has been named to the Leadership Team. Lerner has industry experience in general management, business development, and strategy development and implementation in the global petrochemical and energy industry, with companies including Amoco and BP.

      •••••

      Diane France of the Karen King Group at RE/MAX Prestige in Wilbraham has earned the Certified Distressed Property Expert designation, having completed training in foreclosure avoidance and short sales.

      When Opportunity Is Disguised as Anything But

      By
      Sections Supplements
      Staying in the Market Using Active Management Is a Wise Strategy

      Successful investing has never been for the faint of heart.

      This has been especially true during this most recent 24-month period. Riding these recent highs and lows leaves one feeling quite dizzy. We have always maintained that a well-diversified portfolio employing high quality, active managers, coupled with a disciplined approach, will position investors favorably to take advantage of opportunities that the markets offer during periods of extreme volatility.

      Last fall, when the economy and the markets came to a screeching halt, investor sentiment turned extremely negative in a very short period of time. As we then moved from the end of 2008 into the start of the new year, sentiment and the markets turned even gloomier.

      Many investors could not stomach the idea of seeing their investment values decrease any further on paper; therefore, they moved to cash. These investors fled to ‘safe’ havens such as cash and Treasury bills, even when doing this meant receiving no interest payments. This stampede to cash created various dislocations in the markets, or, in other words, opportunities for those investors with the fortitude to stay the course. Since this year’s low on March 9, when the Dow reached levels in the 6,500 range, we have seen a tremendous run up in stock prices. It is, however, very important to note that not all stock price levels have increased significantly. This highlights the importance of investing with quality managers who can identify trends and pick stocks wisely.

      There are market cycles when active managers, as opposed to passive management (as in index funds), produce significant value for their investors. We believe we have entered such a cycle. Extreme volatility in investor sentiment has resulted in an unprecedented amount of cash on the sidelines (not invested in the stock market). There is currently more than $11 trillion in cash and/or money-market accounts. Eventually much of those balances will be deployed in investments with the potential for a higher return than cash and/or money-market accounts. The successful investor should already be positioned in a diversified portfolio before other investors enter the markets chasing returns as prices increase.

      As financial advisors, we believe it is our responsibility to assist clients in taking as much emotion out of investment decisions as possible; following the herd is not an investment strategy. These investors who have stayed the course have been, and in our opinion will continue to be, rewarded with rebounding portfolio values.

      Once again, the old adage that it is time in the market, not timing, is proving to be the successful long-term strategy. Research has shown that being out of the market for just 20 of the best market days over the last 25 years cut investor returns in half. Since none of us ever knows what the best or worst days will be until we have the benefit of hindsight, staying the course will allow investors to take advantage of opportunities that are disguised as anything but.

      Lorraine A. Hart and Cheryl A. Patterson are principals of Hart & Patterson Financial Services, LLP. They are certified financial planners, each with more than 25 years of financial planning experience. Hart & Patterson Financial Services, LLP is an independent financial-planning firm with offices in Amherst and Northampton. It handles multiple facets of financial planning, including wealth management, investment management, retirement plans for businesses and individuals, estate planning, insurance services, charitable giving, and tax planning; (413) 253-9454.

      Living Proof

      By
      Sections Supplements
      Know the Difference Between a Residence and a Domicile

      There are many reasons to consider a move to Florida, particularly later in life, the most obvious being the significant difference in winter weather between Boca Raton and the Pioneer Valley. A less obvious reason that could rival the weather in importance is tax planning — in particular, income- and estate-tax planning. Indeed, if done properly, tax planning could provide that last extra bit of incentive an individual or couple needs to start spending winters in the sun.

      What are the tax benefits of a move to Florida, and how are those benefits realized? Must a taxpayer sever all ties with Massachusetts, or can a taxpayer maintain homes in both Massachusetts and Florida while still reaping the tax benefits Florida offers? This article will discuss these and surrounding issues.

      Why should taxes enter into the equation of whether to live in Florida for part or all of the year? The basic tax incentive is that Florida does not have an income tax or an estate tax. Also, the Florida Homestead limits the amount of real-estate tax on a primary residence in Florida and provides for much greater protection from creditors than the Massachusetts homestead exemption.

      A taxpayer who is ‘domiciled’ in Massachusetts (that is, whose legal residence is in Massachusetts) will pay Massachusetts income tax on his or her ‘worldwide income.’ Taxation of this worldwide income may be partially or wholly avoided by a change in domicile to Florida, since Florida does not have an income tax. It must be noted, however, that even those properly domiciled in Florida will pay Massachusetts income tax on Massachusetts source income — essentially, any income tied to a business or employment carried on in Massachusetts, or derived from Massachusetts real-estate rents and capital gains.

      With regard to estate taxes, Massachusetts remains an expensive place to die even for the moderately wealthy. The Massachusetts estate tax filing requirement is $1 million. Estates of less than $1 million are not required to file a return or pay a tax; however, estates over $1 million will pay a tax on the entire estate, not just the amount exceeding $1 million. (For comparison purposes, the federal estate-tax shelter for 2009 is $3.5 million, and Connecticut’s shelter is slated to rise to $3.5 million in 2010). Florida has no state estate tax. For example, a $1.2 million Massachusetts estate will incur an estate tax of $45,200, while the same estate in Florida will incur no estate tax. Taxpayers properly domiciled in Florida, however, will pay Massachusetts estate tax on real estate and tangible personal property located in Massachusetts. Careful planning for those domiciled out of state is necessary to avoid a backdoor Massachusetts estate tax on those assets. Thus, a change in domicile from Massachusetts to Florida (or a similarly tax advantaged state) could result in significant tax savings.

      The Massachusetts Department of Revenue (DOR) will look at each particular case to determine if the taxpayer at issue is domiciled within or outside of Massachusetts for tax purposes. The analysis is fact-based and undertaken without regard to federal law or the law of any other state.

      Before proceeding, however, some basic definitions are in order. At issue in the DOR’s analysis is the legal status of a taxpayer’s domicile, as distinguished from his residence. A taxpayer may have many residences — homes in Massachusetts and Florida, for example — but has only one domicile. A taxpayer’s domicile is the residence the taxpayer regards as his or her true home or principal residence. As reiterated in numerous cases decided by the Massachusetts courts, domicile is “the place of actual residence with the intention to remain permanently or for an indefinite time and without any certain purpose to return to a former place of abode.”

      So how does a taxpayer convince an auditor, the DOR, and, if necessary, the Appellate Tax Board that the taxpayer has relocated his or her domicile outside of Massachusetts? There are some hard and fast rules that provide a starting point for the analysis. The first and most important rule is to have an actual home — either rented or (preferably) owned — in the state where the taxpayer is attempting to prove domicile (in this case, Florida). Domicile requires, at minimum, an actual residence, and Massachusetts courts have stated that a person can have a home in a place where he is not domiciled, but he cannot be domiciled in a place where he has no home. While this seems obvious, a taxpayer recently lost a case before the Appellate Tax Board partly on the basis of a Florida lease that lapsed while the taxpayer paid an extended visit to Massachusetts.

      The fact of having a home in the place of domicile must concur with the intent to make that home the taxpayer’s domicile as opposed to a mere residence. This is where the DOR’s inquiry will become highly fact-intensive, and where careful planning becomes essential. As the DOR has stated, “the most persuasive indicators of domicile are the physical, business, social and civic activities of the taxpayer.” Taxpayers must demonstrate that the center of these activities occurs at their new domicile. The level of steps that must be taken varies based on whether or not the taxpayer will maintain a home in Massachusetts. How is this accomplished?

      Regardless of whether the taxpayer will continue to maintain a home, business, or social contacts in Massachusetts, the following steps should be taken to demonstrate intent to change domicile to a different state:

      • registering to vote and actively voting in the new state, and simultaneously terminating Massachusetts voting registration;
      • changing vehicle registrations to the new state;
      • obtaining a driver’s license in the new state and terminating the Massachusetts license;
      • keeping all primary bank accounts in the new state and maintaining as few ties to Massachusetts banks as possible;
      • changing addresses for bills, including credit-card bills;
      • changing addresses for magazines;
      • changing the address on one’s passport; and
      • joining clubs and undertaking other social activities in the new domicile and resigning or changing Massachusetts memberships to non-resident status.

        • The taxpayer should also file a declaration of domicile and citizenship, in duplicate, with the clerk of the circuit court in the county of residence of the new domicile.

        Finally, the taxpayer should release any homestead exemption applicable to his or her real property in Massachusetts and file for homestead protection in Florida. Note, however, that the taxpayer must own Florida real estate on Jan. 1 of the year in question and make that property his or her principal residence in order to qualify for the Florida homestead protection.

        There are several additional considerations if the taxpayer is maintaining a residence in Massachusetts. Massachusetts considers that a taxpayer’s legal residence for tax purposes will be Massachusetts, even if the taxpayer is domiciled in another state, if the taxpayer maintains a permanent place of abode in Massachusetts and spends more than 183 days (including partial days) in the aggregate in Massachusetts during the year. If both of these criteria apply, the taxpayer’s efforts in establishing domicile outside of Massachusetts will be for naught.

        The surest way of avoiding the application of these rules is to spend 183 days or less in the aggregate in Massachusetts during each tax year in question. The Department of Revenue, however, will not simply take the taxpayer’s word on whether he or she spent more or less than 183 days in Massachusetts. The taxpayer should maintain detailed records to prove the amount of time spent within or outside of Massachusetts.

        In an audit, the Department of Revenue will demand copies of all monthly credit-card statements, phone bills, and bank-account statements for the year(s) in question as evidence of location during the tax year(s). Consequently, the taxpayer should use a credit card regularly while outside Massachusetts and keep copies of all credit-card bills and bank-account statements.

        The taxpayer should keep receipts indicating where items were purchased for non-credit-card transactions. If the taxpayer spends considerable time outside of Florida, the taxpayer can use evidence of credit-card charges or similar means to explain the taxpayer’s location and rebut the Department of Revenue’s assumption that the taxpayer was in Massachusetts. The taxpayer should keep all airline tickets, indicating dates of stay within and outside Massachusetts, and should keep a journal of all dates spent in Massachusetts.

        If the taxpayer is unable to limit his or her time to 183 days in Massachusetts, then the taxpayer will need to establish that he or she maintains no ‘permanent place of abode’ in Massachusetts. A permanent place of abode is a dwelling continually maintained by a person, whether or not owned by the person, and includes a dwelling owned or leased by the person’s spouse. This definition will encompass most homes maintained in Massachusetts by those domiciled elsewhere.

        The Department of Revenue does maintain a list of very narrow specifically delineated exceptions to the definition of a permanent place of abode. Under these exceptions it is very difficult for the owner of a home in Massachusetts to avoid that home being treated as a permanent place of abode. Having children or grandchildren move into the home will not suffice; nor will renting out the property for less than a term of one year. The only rental exception that the Department of Revenue recognizes with regard to the ‘permanent place of abode’ definition is a full rental of the property at issue to a non-related individual, for a period of at least one year, where the taxpayer has no right to occupy any portion of the premises during the lease period.

        As a practical matter, therefore, taxpayers who wish to maintain a home in Massachusetts yet receive the tax benefits of having a domicile outside of Massachusetts will need to prove that they have spent more than 183 days outside of Massachusetts and that they have established a domicile outside the Bay State.

        For taxpayers who maintain homes in Massachusetts, there are often continuing ties to Massachusetts beyond the maintenance of real estate. These may include, for example, visits to children and grandchildren living in Massachusetts and continuing social, legal, financial, and business relationships with friends and advisors in Massachusetts, as well as receiving specialized medical treatments in Massachusetts. The Appellate Tax Board has recognized that such ties may exist, and that they do not defeat a change in domicile. As the Board has stated, “continuing ties to [Massachusetts] do not foreclose a finding of change of domicile: such change does not require that a taxpayer divest himself of all remaining links to the former place of abode, or stay away from that place entirely.”

        The taxpayer should apply common sense in such situations. Items near and dear to the heart of the taxpayer should, to the extent possible, be located at the new domicile. Department of Revenue auditors will look to determine where the taxpayer centers his or her life in determining the taxpayer’s intent.

        In a recent case, the Appellate Tax Board overruled the Department of Revenue and held for a taxpayer who had maintained social ties to Massachusetts. The Board noted the taxpayer couple’s joining a church in Florida, becoming members and eventually directors of their neighborhood housing association, their development of a large circle of friends in Florida, and their attendance at local Elks and Moose lodges in Florida in rebutting the DOR’s argument that the taxpayer’s social ties to Massachusetts prevented a change in domicile. When combining these facts with the necessary changes in the taxpayers’ drivers’ licenses, voter registrations, and similar items, the Appellate Tax Board concluded the taxpayers had indeed changed their domicile to Florida.

        This article is not meant to provide a full guide to a successful, tax-advantaged change of domicile outside of Massachusetts. As discussed above, even those who successfully change their domicile will still face tax issues in Massachusetts, many of which can be minimized or perhaps eliminated with proper planning. It is therefore essential for any taxpayer seeking to realize tax benefits in conjunction with a change of domicile to consult with his or her advisors to determine the feasibility of such a move, its chance of success, and the methods of maximizing the potential benefits to the taxpayer.

        Michael Simolo is an associate with the law firm of Robinson Donovan, P.C., specializing in estate planning, estate and trust administration, fiduciary litigation, and business law; (413) 732-2301.

        By
        Departments

        Monson Savings Bank announced the following:
        • Michael Rouette has been promoted to Senior Vice President, Commercial Lending;
        • Nancy Dahlen has been promoted to Vice President, Residential & Consumer Lending;
        • Dan Moriarty has been promoted to Vice President, CFO; and
        • Terri Fox has been promoted to Senior Vice President, Retail Administration.

        •••••

        Springfield Armor has announced that:
        • Nicole Hoffman has been named Director of Marketing and Public Relations; and
        • Greg Noonan has been promoted to Account Executive.

        •••••

        Attorney Kristen L. Miller has joined Cooley, Shrair P.C. of Springfield as Associate Legal Counsel. Most recently, Miller served as Clerk in the United States Bankruptcy Court, District of Massachusetts, Western Division. Her practice areas include bankruptcy law and non-bankruptcy law.

        •••••

        Ronald Briggs, an experienced financial services expert, has opened the Horizon Investment Management Group in East Longmeadow. The firm provides a full line of financial services and products, personalized to fit the needs of individual investors, corporations, and institutions.

        •••••

        John Simeone has been promoted to Vice President of Technical Operations for the Western New England Region for Comcast. In his expanded role, Simeone will drive the continued adoption of the new tools, technologies, and practices that are powering Comcast’s proactive approach to customer service. He will oversee field operations for the region, including technical and workforce operations, as well as the company’s service centers. He will also focus on maintaining and developing a skilled, diverse, and motivated workforce.

        •••••

        Laurette Bishop has been promoted to Manager of the Springfield office of Kostin, Ruffkess & Company, LLC, based in Farmington, Conn.

        •••••

        Benjamin Fitts has been hired as a Web and Software Engineer at van Schouwen Associates in Longmeadow. He is responsible for developing and managing a range of Web site design projects, including e-commerce, interactive, and social-media applications for clients throughout the U.S.

        •••••

        Charles Urquhart has been named Associate Director for Museum Advancement at the Norman Rockwell Museum in Stockbridge.

        •••••

        Sharon Shumway, a Family Nurse Practitioner, has joined Dr. Mark Bigda and Leah Carrasquillo, also a Family Nurse Practitioner, at Nashawannuck Internal Medicine in Southampton.

        •••••

        Attorney Carol Cioe Klyman, Shareholder of Shatz, Schwartz and Fentin, P.C. of Springfield, has been named to the Editorial Board of the National Academy of Elder Law Attorneys Journal. The NAELA Journal is a peer-reviewed, scholarly publication of articles on elder- and special-needs-law topics, and is published twice a year. Klyman specializes in elder law, estate planning, guardianships, special-needs planning, and probate litigation.

        •••••

        Jeffrey Siegel has joined the United Wealth Management Group as Vice President of Estate Planning. It is part of United Bank, based in West Springfield.

        •••••

        The Realtor Assoc. of Pioneer Valley announced the following:
        • Robert Cohn, Broker-Owner of Cohn & Co. Real Estate Agency in Greenfield, received the 2009 Good Neighbor Award. Cohn was nominated for his commitment to Greenfield Community College as a member of the college’s campaign leadership team and an honorary member of the Greenfield Community College Foundation Board;
        • Lisa Kraus of Bank of America Home Loans in West Springfield, received the 2009 Good Neighbor Award. Kraus was recognized for the dedication she has shown in helping the Realtor association achieve its outreach goals in the region;
        • Ben Scranton has been named Executive Vice President of the association; and
        • Mary-Leah Assad has been named Communications Coordinator.

        •••••

        The Greater Westfield Chamber of Commerce will recognize the following area residents during its Nov. 12 Annual Meeting:
        • Michael Stolpinski of Westfield Electroplating Company will be named Businessman of the Year;
        • Dawn Carignan Thomas of Instrument Technology Inc. will be named Businesswoman of the Year; and
        • Barbara Braem will receive the Don Blair Community Service Award.

         

        Think Like a Banker

        By
        Sections Supplements
        That’s How to Get More of What You Want From Your Financial Institution

        In the movie Caddyshack, Ty Webb (played by Chevy Chase) offers a piece of sage advice to his caddy: “Danny, there’s a force in the universe that makes things happen. And all you have to do is get in touch with it, stop thinking, let things happen, and be the ball.” Ty then blindfolds himself, walks up to his ball, and sticks it stiff to the pin.

        In the spirit of that famous line, when you want to score a great deal and cultivate a longstanding business relationship with your banker, be the banker. Think like a banker. If you were the banker, what would make you sleep like a baby or give you nightmares?

        As a certified public accountant, I advise my clients that there are several important characteristics a banker evaluates before lending you money. These characteristics can be broken down into three categories: financial, management, and environmental.

        Financial characteristics include cash flow, collateral, and the availability of liquid assets to cover unanticipated losses. Management issues take into account the integrity, history, and reputation of the management team, as well as the ability to include additional guarantors on the note and the existence of a compelling strategic business plan. Environmental characteristics could include national and local economic conditions and legal and regulatory issues impacting the financial health of the business.

        Let’s start with financial characteristics, and your first opportunity to be the banker. What do cash flow, collateral, and the availability of liquid assets have in common? They determine a business’s ability to repay a loan. Now, can you really blame a banker for being concerned about your ability to repay a loan? Any viable business needs to ensure that their customers can pay their bills. Banks are the same way.

        In a perfect banking relationship, the banker lends money; the customer lives by the covenants of the loan and repays the loan. But sometimes the banking relationship becomes less than perfect, and the customer defaults on the loan. In the event of a default, the banker will want to sell the assets that were used to collateralize the loan.

        So put on your banking shoes and say to yourself, “I don’t really want to get stuck with a bunch of assets that are valued less than the loan … I don’t really want to get stuck with any assets at all. I just want my customer to repay their loan. On the other hand, I’d sleep better knowing that if my customer defaulted, I’d have some way to recover my losses and make my bank whole.” Valuable, saleable collateral and back-up sources of liquid assets make bankers happy.

        With a focus on management issues, be the banker again. As a banker, why would you be so interested in the integrity, experience, history, and reputation of the management team? The management team makes most all of the decisions impacting day-to-day and long-term operations. If the management team makes well-thought-out decisions, the business will probably be successful and have the ability to repay its debts. If the management team makes poor decisions, the business will suffer — it may fail — and be unable to repay its debts. If I’m the banker, I’d feel a lot better lending money to an experienced management team with a good track record.

        Moreover, the ability to add additional guarantors to the banking relationship helps your banker sleep at night. Additional guarantors provide another safety net for a banker. If you and your business are unable to meet the obligations of the loan, the bank would have another option to seek repayment. That being said, an individual would only agree to be a guarantor if they believed in you and your business. Guarantors are typically stockholders of the company or family members. Many times, you’ll need to present your strategic business plan to potential guarantors to persuade them to sign their name on the dotted line. This is yet another reason to write an intelligent strategic business plan.

        A good management team alone does not make for an attractive customer to a banker. It’s easier for a banker to lend money to a management team with a compelling strategic business plan than to lend money to a management team with scribbles written on Post-it Notes. A talented, experienced management team armed with a clear, compelling strategic plan is a winner in the eyes of most bankers.

        So how can you get more of what you want from your bank? As a business leader, think as a banker thinks and make decisions as a banker makes decisions.

        • Before initiating conversations with a banker, I advise my clients to take some of the following steps:

        • Strengthen your cash position. Start now, as this may take time;
        • Build a solid management team. Be prepared to talk about their track record;
        • Dust off and update your strategic business plan. Make sure it’s presentable;
        • Carefully examine your operating environment. Be ready to talk about strengths, weaknesses, opportunities, and threats;
        • Plan for the unknown. Aggressively project expenses and conservatively project revenues;
        • Conduct a valuation of your assets. You may have to hire a business-valuation professional;
        • Line up additional guarantors who believe in you and your business model; and
        • Retain earnings in the business or personally to protect the business in challenging times. It’s good business sense, and bankers really like seeing that cushion.

          • Want a great deal from your banker? Of course you do. A banker wants to reduce the risks associated with writing a deal. A banker wants you to repay your loan. A banker wants to protect himself if you default on the loan. If you think your business will need access to funds sometime in the future, start preparing it now. And think like a banker. n

          Umberto Santaniello is a member of the firm and the quality control group at Kostin, Ruffkess & Co., LLC, a certified public accounting and business advisory firm. Beyond traditional accounting, auditing, and tax consulting, the firm also specializes in employee benefit plan audits, litigation support, business valuation, succession planning, business consulting, forensic accounting, wealth management, estate planning, fraud prevention, and information technology assurance; (413) 233-2300;www.kostin.com

          How to Pass Your Wealth On to Your Heirs

          By
          Sections Supplements
          Shielding Your Estate from Taxes Using Annuities and Life Insurance

          The growth of IRA funds accumulated for retirement now exceeds more than $4.75 trillion in the U.S. This figure is sure to increase over the coming years as age and retirement planning come to the forefront for a larger segment of the population.

          In many cases, people who have no use of an IRA account for retirement income may have the intention of passing these funds onto their heirs, but are unaware of the tax consequences that may ensue.

          While the initial contributions and earnings growth are tax deferred, the distribution is another matter entirely. Because the money used to create the IRA was never taxed, an IRA distribution is subject to income tax and, as a large portion of a person’s estate, may also be subject to estate taxes, increasing the tax burden. This is where a knowledgeable adviser can be a real asset.

          Additional Advantages with

          Life Insurance

          The easiest way to pass wealth on to the next generation is through the use of life insurance. This vehicle carries two main advantages in the transfer of wealth; first, life insurance benefits are tax-free to the beneficiary, and second, the increase of cash value is tax-deferred.

          Taking Advantage of Your IRA

          One way in which you can pass more of your estate on to your heirs is by using your IRA. You can use the funds in the IRA to purchase a fixed annuity, and then use the income stream from the annuity to purchase life insurance. The annuity is set up for guaranteed lifetime income in order to assure the ongoing maintenance of the life-insurance policy.

          Calculate the amount of income needed to purchase the insurance, taking into account the affects of taxation. The after-tax income is used to pay the policy premiums, with the heirs named as the beneficiary for the life-insurance policy.

          At the time of death, the annuity has no value; therefore there are no taxes due. The death benefits are paid to the beneficiary tax-free. Compare this to a situation with no planning, and the IRA being fully taxable at death, and it’s easy to see the benefits.

          You will, of course, be paying income taxes on the annuity income, but with the estate taxes eliminated, the end result should be a tax burden much lower than the combined income tax and estate tax that would be in effect without the proper planning.

          Create a Trust Account

          Finally, the establishment of the insurance policy should be done within a trust in order to avoid the inclusion of the death benefits as part of one’s estate.  There are additional tax and legal issues that should be considered.

          If you are interested in this concept, you should consult an attorney and tax advisor specializing in estate planning to ensure that your financial plan is structured to meet your particular situation and objectives.

          Marco Amato is the President of Dowd Financial Services, LLC and has been in the financial-service business for more than 30 years. Dowd Financial Services is a full-service financial division of the Dowd Agencies, with more than 50 years of combined monetary experience. The Dowd Agencies has four offices in Western Mass. Amato can be reached at (413) 538-7444;[email protected]

          What to Do When You’re Caught in the Middle of Caring for Children and Parents

          By
          Sections Supplements

          If you are one of the many millions of Americans who are responsible for your own personal financial needs, as well as supporting and caring for your own children, in addition to your elderly family members, you are part of the Sandwich Generation (SandGen).

          Approximately 44% of Americans between ages 45 and 55 are stuck right there in the middle of two generations who are both financially and emotionally dependent for their well-being. According to a recent AARP report, there are nearly 20 million Baby Boomers in this situation. This SandGen must look at planning from many different angles in order to ensure that they can secure their own financial future as well as provide for those they care about.

          Common expenses and responsibilities that you may face if you’re a part of the SandGen are college tuition, wedding expenses, helping with housing for your children, caretaker responsibilities, health care costs and cost-of-living expenses for your adult parents, all the while still trying to save for your own retirement. Despite the fact that advanced planning is usually best, attacking the issues at any time will bring more success than a do-nothing approach.

          The SandGen parents in this situation must first have an open conversation about the importance of financial planning and solid money-management skills with their children — the younger the better, as this conversation can jump-start planning for future education expenses as well as other major lifetime expenses. Although many parents crack into their retirement nest egg in order to finance college education, children should be encouraged to look into other financial resources that may be available. They may be able to access education savings plans, scholarships, grants, money earned from part-time employment, and student loans in order to offset the financial strain on their parents.

          A low-interest loan for a college education seems a better choice than the invasion of principal and the associated taxes and penalties that may result from using retirement savings. If the SandGen continues to deplete assets on college as well as the other caring responsibilities, they will likely extend their working years on average an additional 10 years.

          There are also luxury expenses — for example, helping with weddings or assisting with the purchase of homes for their children. Here, the SandGen needs to take into consideration that these financial outlays are going to dramatically affect their retirement and lifestyle. Children need to understand the implications that these requests may have on their parents as well, so the SandGen must find a way to discuss with their children what is necessary and what is luxurious. Those who give in and offset major purchases and expenses for their children may need to adjust their estate plans to account for disproportionate distributions during their lifetime between their children.

          An aging parent, grandparent, or other elderly relative who is dependent upon this generation comes with major potential financial needs. Assisted-living facilities that help a relative with the activities of daily living such as bathing, eating, and personal care can cost on an average $48,000 yearly. Nursing-home care costs over $100,000 annually.

          The average household is not in a position to absorb these types of extraordinary expenses, and the average household is not equipped to take in an elderly family member or provide at-home care in the family member’s home. The decision to bring an elder family member into one’s home often results in a major home renovation. This can be funded by the elder’s money, but although it is often much less expensive than what an elder would spend on nursing-home or assisted-living care, it still may become cost-prohibitive if the elder requires a level of care greater than family members can provide, as in-home care costs can be daunting. Also, down the road, the elder may require a level of skilled care that cannot accomplished at home.

          One way to prevent these types of expenses is through the ownership of a long-term care insurance policy that begins to pay when a policy holder suffers from a chronic condition and needs constant care. The policy can pay for in-home assistance, assisted-living facilities, as well as nursing-home care, depending upon the level of need. The most affordable premiums are quoted to people in their early 50s who are in good health. Although the premiums are often expensive, especially for older applicants, it still is less expensive than the annual costs of privately paying for the care.

          Families should discuss sharing these premiums if an elderly person can’t afford the expense alone. Siblings sharing in the cost can dramatically reduce the financial burden to a single household.

          In the event that a parent cannot qualify for long-term care insurance, Medicaid, a state’s health care system for individuals who meet a predetermined poverty level, can be accessed. Bear in mind however, that in order to qualify, the applicant must be devoid of nearly all assets and the family will be spending assets on the private-pay costs of care.

          Families should consult with an elder law attorney who can advise on the development of an asset-preservation plan that may reduce the cost to the family or benefit them by determining what can be protected from Medicaid recovery and prevented from being spent on care.

          A reverse mortgage is another option for individuals who desire to remain in their own home. For many elderly people, this is of paramount concern; however, they may not have the day-to-day resources to afford to remain there. In the absence of assistance from their children to pay the monthly carrying costs of real-estate taxes, hazard insurance, water, sewer, utilities, maintenance, and any debt service, there would be no feasible way for the parent to remain in the home. A reverse mortgage allows the elder to access the equity in their home for expenses for as long as they continue to live in their home. This loan is then paid back upon the death of the elder, or the sale or refinance of the property. A reverse mortgage may deplete the potential inheritance to be received from a elderly family member; however, balanced against the financial security of not having to invade one’s retirement and savings, as well as giving the elder the peace of mind of remaining at home, it seems a win-win option.

          During this time of determining housing options, it is a good idea to speak with the elder about the need for a proper estate plan, creating one if no plan exists or updating an outdated existing plan. What may often be a touchy subject among children and parents or elderly relatives may be broached more easily when working together to reach health care, housing, and lifestyle decisions. In any event, a SandGener who is taking on the financial obligations and/or personal care responsibilities of an elderly relative must ensure that the relative has at least a health care proxy, durable power of attorney, and last will and testament in place in order to stave off problems in future decision-making.

          All in all, the SandGen is one that still needs to save for themselves in addition to saving for their children’s education and paying to support the expenses of their elder family members. They can’t ignore their own needs while succumbing to the pressure of meeting everyone else’s needs. Proper planning for this generation includes not only their own individual retirement and financial and estate planning, but that for their children and elder relatives as well. This can include, but not be limited to, the use of traditional savings vehicles, life insurance, long-term care insurance, qualified retirement funds, 529(c) plans and other available college savings plans, as well as a good old-fashioned budget and proper estate planning to ensure that everyone’s needs are met. With proper planning, there should be plenty of eggs left in the nest to go around. n

          Julie A. Dialessi-Lafley, Esq. is a partner with the law firm Bacon Wilson, P.C. She focuses her practice in business, real estate, estate planning and administration, elder law, and family law; (413) 781-0560;bwlaw.blogs.com/familylawbits;[email protected]

          Usernames, Passwords, and Logins, Oh My!

          By
          Sections Supplements
          How to Prevent a Potential Disaster for Your Heirs

          If you pay bills and bank online, and handle much of your financial activity there, your agents under your durable power of attorney, or the executor of your will, or the administrator of your estate must have access to that information in order to manage your financial affairs when you are no longer able to do so.

          Even something so seemingly simple as canceling a deceased person’s account on a social-networking site such as Facebook, LinkedIn, or Twitter may be extremely frustrating and heartbreaking for a fiduciary who doesn’t have the username and password combination to access that account.

          Most security officers of Web sites will allow access with proper documentation, such as a certified death certificate and certificate of appointment from a probate court, appointing someone as the fiduciary of the decedent’s affairs. However, when someone becomes incapacitated, the guardian or conservator who needs access to the information is often blocked by the Web site’s privacy officer, who may require a specific order from a judge. In fact, some credit-card companies and other vendors will also not allow a fiduciary to have access without a specific court order.

          The entire process can be quite frustrating and expensive, and it may also require the filing of separate documentation with the court. Very often, the executor or power of attorney spends countless hours tracking down information and attempting to locate and obtain access to the Web sites holding accounts of the deceased or incapacitated person.

          This may all be prevented by taking a few simple steps right now.

          In this day and age, most individuals with Internet access have login names and passwords. In fact, it is likely that you may have several passwords and/or usernames for various Web sites, as some require a combination of capital and lowercase letters as well as numbers or symbols.

          All is well so long as you are alive and healthy. Unfortunately, a problem is likely to occur upon your incapacity or death if access to your login names and passwords is not available to the person functioning as your durable power of attorney, executor, or administrator.

          Think about this. It is likely that you perform all or many of the following functions online: banking, booking flights, paying bills, and purchasing goods and services. Even Web-based e-mail programs like AOL, Gmail, Hotmail, etc. may contain vital information that will be necessary once you can’t handle your own finances any longer.

          You may not wish to share this private information with anyone during your lifetime, but in the event of incapacity or death, it is vital that this information is available to those who will handle your affairs. Certainly, with the significant issues of fraud and identity theft so prevalent, you don’t wish to share your passwords; however, it is prudent to have them documented so they can be accessed upon your death or incapacity.

          This information may remain private simply by telling whoever will be responsible for your financial affairs the login name and password for access to your computer and that there is a document there with all of the necessary information. In this manner, if passwords are changed routinely and often, then the person who will act on your behalf knows how to access the information when it is required.

          The person who is trusted with this information may be the agent under a durable power of attorney and/or the executor of your will. Often, the same person is nominated to serve as your fiduciary. If there are two separate individuals or entities serving, then both may receive it, or one could be given the information, and the other may be provided with the knowledge as to who is in control.

          Some people choose to keep this information in a safe place, such as a safe in their home or a safe-deposit box. However, when you pass away, what happens if no one knows where the key is or the combination to your safe? It is critical to trust at least one person with your sacred information regarding passwords. An often preferred option is to place this information in a sealed envelope and keep it with your original will and durable power of attorney at your attorney’s office. Because passwords are changed and new sites are added to the list, this envelope may be updated or substituted.

          In the past, when a person completed an estate-planning questionnaire for their lawyer, it required information such as names, addresses, and financial accounts. In this day and age, it is important to also have access to an individual’s e-mail, because many clients prefer to communicate through that channel, so it likely contains vital information.

          In addition, if you are self-employed, access to your Web site, personal, and business e-mail, customer service departments, orders, marketing, etc. may not be available without password knowledge. This information is private, but crucial to have available if and when you become incapacitated or die.

          Naturally, this problem is providing an opportunity for businesses to provide solutions. One such entity that will provide private storage and access to this information is Legacy Locker. This company provides family members or fiduciaries safe and secure access to account information in time of need. It maintains information including e-mail addresses, photo-sharing accounts, online auction access, and all other online information. It even allows other private information to be stored, such as memoranda regarding the ultimate distribution of tangible personal property and any special information regarding end-of-life decisions, funeral arrangements, etc.

          When opening the Legacy Locker account, you designate the ‘verifiers’ who will have access to the information upon your death or disability. This provides peace of mind regarding personal information privacy while living. Confidential information will be preserved in one place and distributed only under emergency circumstances. Fees are generally charged annually or as an upfront lump sum for your lifetime.

          It is likely that safeguarding this private information is going to be an integral part of preparing an estate plan in the future. This will provide peace of mind so you can be assured that your personal information will remain confidential until it must be accessed by someone responsible for handling your affairs. n

          Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law Departments. His areas of expertise include all areas of estate planning, probate, and elder law. Darling is a past president of the Hampden County Bar Assoc., teaches Elder Law at Bay Path College, and is an adjunct professor at Western New England College School of Law (the LLM program), where he teaches elder law. He is a frequent lecturer on various estate-planning and elder-law topics at both the local and national levels, and he hosts an estate planning blog at bwlaw.blogs.com; (413) 781-0560;[email protected]

          The Benefits of Low Interest Rates

          By
          Sections Supplements
          How They Can Impact Gift- and Estate-tax Planning Strategies

          The Applicable Federal Rates (AFR) established by the Internal Revenue Service have a substantial impact on various gift- and estate-planning strategies. Each month the IRS determines the interest rate that must be used to measure the present value of annuities, income interests, and remainder interests for gift-tax purposes. This is known as the ‘Section 7520 rate.’

          Low AFR rates are particularly beneficial to certain gift- and estate-tax planning strategies, and thus create opportunities for transferring assets to the next generation without, or with fewer, gift- and estate-tax consequences. This article discusses strategies for realizing these benefits.

          Intra-family Loans

          An example of an intra-family loan is when a parent loans money to a child and the child issues the parent a promissory note evidencing the loan. The then-applicable AFR rate is the minimum interest rate the parent must charge on such a loan to avoid potential gift-tax problems. Another example is a similarly structured loan from a grandparent to a grandchild. However, with respect to the intra-family loans, it is important that the payments required under the note actually be paid to the lender. Moreover, any forgiveness of debt by the lender will constitute a gift to the borrower, which could lead to gift- or income-tax consequences.

          Generally, the loan proceeds are invested by the borrower with the expectation that the return on those invested assets will be greater than the interest rate on the promissory note. Thus, the net effect of such a loan should be that the future appreciation of the invested assets in excess of the interest rate on the promissory note will go to the borrower as a tax-free gift.

          Loan to Grantor Trust

          A loan by a parent, for example, to an irrevocable trust that the parent established is also very effective. However, such a trust should have some other assets to repay the loan that is made to the trust. Otherwise, the IRS might contend that the lender retained an interest in the trust for estate-tax purposes.

          If it is a ‘grantor trust,’ it will provide even greater benefits. If the trust is properly drafted and administered, the trust assets will not be subject to estate taxes upon the death of the grantor. Additionally, because of grantor trust status, all the net taxable income of the trust is reported by the grantor on his or her own personal income tax return. This results in the trust being able to grow faster since the income taxes attributable to the trust’s taxable income are paid by the grantor and not by the trust.

          From an income tax point of view, it’s as if the grantor had made the loan to himself. The intra-family loan to the grantor trust should have no income-tax consequences since the interest is not taxable to the grantor. The tax laws do not treat the income-tax payment made by the grantor as an indirect gift to the trust. The promissory note from the trustee of the trust should use the minimum AFR rate.

          Sale to Grantor Trust

          Another type of intra-family loan involves the sale of appreciated assets to a grantor trust in exchange for a promissory note from the trustee of the trust using the minimum AFR rate (unless the lender wants a higher rate). Because of the grantor trust status, there is no income tax on the difference between the value of the asset sold to the trust and its cost basis.

          The payment of interest by the trust to the grantor has no income-tax consequences. It is neither deductible by the trust nor treated as interest income by the grantor. With respect to this type of sale, it is very important, however, that the promissory note be paid in full to the grantor before his or her death. Otherwise, the non-recognized gain at the time of the original sale to the trust might be recognized in the event that the trust still has a debt to the grantor at the time of his or her death.

          This type of sale can be leveraged if the sale involves a fractional interest in an asset rather than the entire asset. The value of a fractional interest in an asset should be less than its percentage value of the entire asset because a bona fide purchaser would insist on a discount for purchasing a fractional interest.

          Grantor Retained Annuity Trust

          A Grantor Retained Annuity Trust (GRAT) provides an excellent opportunity for someone who wants to pass wealth to his or her next generation and minimize transfer taxes (e.g., gift or estate taxes). The GRAT is an irrevocable trust for a term of years to which the grantor makes a one-time transfer of property. The grantor retains the right to receive a fixed payment at least annually from the GRAT for the specified term of years.

          At the time of the transfer, the grantor makes a gift calculated on the present value of the remainder interest. At the end of the term of years, the trust property is distributed to or held for the benefit of the remainder persons named in the trust.

          The grantor-beneficiary of the trust must outlive the term of years in order for the GRAT to remove the trust assets from the grantor’s estate. As with many of the techniques, the successful use of a GRAT calls for a balance of factors. The longer the term and the larger the annual payment, the lesser the amount of the gift that reverts to the next generation. On the other hand, the longer the term, the greater the risk that the grantor-beneficiary of the trust will predecease that term, in which case the then-value of the GRAT is includable in the deceased grantor’s estate. However, if the grantor dies during the term of the GRAT, the estate of the deceased grantor is no worse off than if that grantor had never used the GRAT (except for the cost of having set up the GRAT).

          Private Annuity

          Private annuities provide various tax advantages. In a typical transaction, a parent transfers property to his or her child, and the child gives an unsecured promise to pay the parent a fixed amount of periodic income for life. To avoid a gift, it is important to structure the private annuity so that the value of the assets transferred to the child equals the present value of the annuity to be paid. With a lower AFR rate, the amount the child has to pay as an annuity to his or her parent is less.

          The private annuity is a good strategy when the parent has a short life expectancy. This is due to the fact that the private annuity automatically terminates upon the annuitant’s death. If the parent is deemed to be terminally ill, then the mortality component of the IRS valuation tables cannot be used to determine the present value of the annuity. A person is deemed to be terminally ill if there is at least a 50% probability that he or she will die within one year.

          However, a private annuity certainly becomes disadvantageous if the annuitant lives beyond his or her life expectancy since the payments must be made for the annuitant’s lifetime. Moreover, it is important to note that the payer of the private annuity does not get a tax deduction for any of the payments made, which would be the case if the transaction had instead involved a loan by the parent.

          Charitable Gift Annuities

          An increasingly popular method of benefiting a charity, but with the donor receiving regular payments from the charity, is through a charitable gift annuity. Many charities offer these annuity opportunities. With a low AFR rate, the potential income-tax charitable deduction for the gift annuity will be less, but a lower AFR rate permits a higher portion of the annuity payments to be received income tax-free. This would be particularly valuable to an individual who does not itemize his or her deductions.

          Charitable Lead Trust (CLT)

          A charitable lead trust (CLT) is a trust that pays income to a charity for a period of years, after which the trust assets revert back to the grantor. If the CLT is established upon the grantor’s death, then the reversion would be to the individuals and/or trust designated to receive the trust assets upon the expiration of the time period. If the CLT is set up as a grantor trust, the grantor will be taxed on the trust income each year but will receive, in the first year that the trust is funded, a charitable deduction for the present value of the charity’s interest over the specified period of years. A low AFR rate results in a lower present value of the reversionary interest to the grantor or other beneficiaries, and thus increases the grantor’s charitable deduction.

          Using a non-grantor CLT, there is no initial charitable deduction, but the grantor is not taxed on the CLT income each year. Instead of the trust assets at the end of the term reverting to the grantor, the assets are distributed to named family members, other third persons, or trusts. The low AFR rate increases the present value of the charitable interest and thus reduces the value of the remainder interest for determining whether there is a gift subject to a gift tax (if the CLT was funded during the grantor’s lifetime), or whether the value of the remainder interest is subject to an estate tax (if the CLT was funded upon the grantor’s death).

          Charitable Remainder Interest in Personal Residence

          An individual can make an outright gift of his personal residence to charity but retain a life estate to continue to use and occupy the personal residence during his or her lifetime. The residence may be the primary or secondary residence. When a low AFR rate is applied, the present value of the charity’s remainder interest is higher, and thus the donor receives a larger income-tax charitable deduction.

          When a Low AFR is Detrimental

          A low AFR rate makes it more difficult to properly structure a charitable remainder trust (CRT). The typical CRT is funded by the grantor and provides for a fixed percentage payment each year to the grantor during the grantor’s lifetime or for a specific term of years. On the grantor’s death or the expiration of the term of years, the CRT’s assets are distributed to charity. The grantor should get a partial income-tax charitable deduction when he or she funds the CRT. Additionally, appreciated assets can be used to fund a CRT, and the trust in turn can then sell the assets without any tax on the gain. If the payout rate to the beneficiary is greater than the income of the CRT, however, then some of that non-taxed gain will be considered distributed to the beneficiary for that year and thus taxable to the recipient as a capital gain.

          A low AFR rate complicates the use of a CRT because it is more difficult to satisfy two of the code requirements for the CRT to be qualified. One requires that the remainder interest to the charity cannot be less than 10% of the initial value of the assets transferred to the trust. Second, the possibility for exhausting the CRT assets before the end of the CRT cannot be more than a 5% probability at the time the trust is funded. Despite these difficulties, there are certain ways to design a CRT to be able to satisfy these percentage requirements even when a low AFR rate is applied.

          Qualified Personal Residence Trust

          A qualified personal residence trust (QPRT) generally involves an individual transferring his or her personal residence (either a primary or secondary residence) to a trust for a fixed term of years. The consequences are similar to that of the GRAT discussed above. If the grantor survives the term of years, then the residence in the QPRT is transferred to the designated beneficiaries. If the grantor does not survive the term of years, then the value of the residence is includable in his or her estate for estate-tax purposes.

          When the QPRT receives the residential property, a gift to the remainder beneficiary is deemed to have occurred. The value of that gift is based on the value of the retained right to occupy the residence by the grantor during the term of years, the applicable AFR rate, and also the age of the grantor. With a low AFR rate, the value of the retained right to occupy is lower, thus increasing the present value of the gifted remainder interest for gift-tax purposes. Nevertheless, the use of a QPRT can be an effective way to transfer a residence with a lower gift value then an outright gift of the property to that remainder beneficiary. This can be especially effective if the gift involves a fractional interest in the residential property.

          Conclusion

          With interest rates still low, there are substantial wealth-transfer opportunities available for parents, grandparents, and others who wish to transfer assets to the next generation or beyond and, in the process, minimize or eliminate transfer taxes, whether they be gift or estate taxes. Current economic conditions have resulted in depressed asset values, but when combined with the attractive growth-shielding tools discussed in this article, now is the time to be calling your estate-planning attorney.

          As Steven Leimberg, a nationally recognized estate planner, wrote in his April 2009 newsletter, estate planners are witnessing a “rare convergence” of events favorable to their clients. These events include depressed value of assets, low AFR rates, and significant valuation discount techniques. As with many issues surrounding tax-centered estate planning, however, these factors are vulnerable to economic and legislative change. It is therefore important to take advantage of these opportunities while they are available.

          Richard M. Gaberman, Esq. is of counsel to the Springfield law firm Robinson Donovan, P.C. He specializes in estate and trusts, tax and estate planning, corporate and business transactions, and commercial real estate; (413) 732-2301.

          By
          Departments

          Ten Points of Joint Tenancy:
          By: Todd C. Ratner

          Joint tenancy is a form of co-ownership. An advantage is that, when one co-owner dies, the surviving co-owner has instant access to the jointly held property, eliminating the need for probate. However, joint tenancy can have its perils.

          1 Control Issues. By providing someone with co-ownership, you give them control of your asset. If you add another person as co-owner of your home, you cannot sell or mortgage the home unless that person agrees.

          2 Creditor Issues. If creditors seek out your co-owner for outstanding debt owed, the creditors may be able to obtain part of your home or bank account that is held in joint tenancy.
          3 Relationship Issues. If you and your co-owner experience a falling out, the co-owner may be able to take all of the money out of the bank account.
          4 Substitute for Will Issues. Parents of several children may place one child’s name on an account and assume he will divide assets equally among all siblings. Unfortunately, this method provides no stipulations over control of the money. The surviving co-owner can do with it what he pleases, with no legal obligation.

          5 Uncertainty Issues. Unplanned ownership of property often leads to unwanted results, especially for people unable to manage assets.

          6 Tax Issues. Careful planning to eliminate or reduce estate taxes can be completely thwarted by a joint tenancy that passes property outright to a surviving joint owner.
          7 Long-term Care Issues. Thoughtful planning to reduce long-term care financing can also be thwarted by a joint tenancy that passes property outright to a surviving joint owner.
          8 Marriage Issues. Individual property may become marital property once it is transferred into a joint tenancy.
          9 Incompetency Issues. If a co-owner becomes incompetent, part of the property may go into a conservatorship, making it burdensome if the other joint tenant wants to sell the jointly held property.

          10 Distribution Issues. Joint tenancies deprive you of the flexibility of a will or trust, where you can stagger the distribution ages of the beneficiaries. In a joint-tenancy arrangement, the joint tenant receives the asset all at once.

          Todd C. Ratner is an estate planning, business, and real-estate attorney with the Springfield-based law firm Bacon Wilson, P.C. He is a member of the National Academy of Elder Law Attorneys; (413) 781-0560; [email protected]; bwlaw.blogs.com/estate_planning_bits

          Taxing Situations

          By
          Sections Supplements
          Some Recent Developments in the Law Bear Watching

          Congress continues to pass a variety of new laws, many of which have significant implications for individuals and businesses. What follows is a summary of some key developments enacted during the second quarter of 2009.

          Guidance on the Limited Subsidy for COBRA

          The American Recovery and Reinvestment Act of 2009 provides a 65% subsidy for COBRA continuation premiums for up to nine months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage for small employers if required by states (including Massachusetts, other than employers with fewer than 11 employees).

          In most instances, the federal subsidy works as follows: the employer advances the 65% subsidy to the health plan and is reimbursed through a payroll tax credit. To qualify for premium assistance, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy is not taxable when received, but higher-income recipients — those with modified adjusted gross income above $125,000 ($250,000 for joint filers) — will have to pay back part or all of it at tax return time. This subsidy has been the subject of much guidance from the IRS, posted at www.irs.gov. This guidance includes the following posts:

          • In early May, the IRS posted Q & As on its Web site providing additional guidance on recovery of the COBRA premium subsidy by way of a payroll credit claimed on Form 941, and clarifying when the subsidy begins and ends.

          • In late May, the Department of Labor released a form that terminated workers (or their qualifying family members) can use to request expedited review of their being denied the COBRA premium subsidy.
          • In early June, the IRS added 19 new Q & As confirming that the premium subsidy will not be reported to the IRS or the recipients on either Form W-2 or Form 1099. The IRS also clarified a number of other topics, including events that will be treated as involuntary termination for COBRA subsidy purposes, determination of who is entitled to claim the payroll tax credit for the premium subsidy, and certain record-keeping requirements.

            • Business Cell-phone Substantiation Requirements

            An employee may exclude from gross income the business use of an employer-provided cell phone as a working-condition fringe benefit. However, because cell phones are so-called listed property, strict substantiation requirements must be satisfied for business cell-phone usage to qualify for the exclusion. Additionally, any personal usage of an employer-provided cell phone is a taxable fringe benefit. Thus, the current rules require documentation of the business and personal use of the cell phone. The IRS is currently considering three alternative methods to simplify the substantiation requirements applicable to employee usage of employer-provided cell phones: a minimal personal-use method, a safe-harbor substantiation method, and a statistical sampling method (or some combination of the three).

            Cash for Clunkers Law

            President Obama recently signed legislation into law that gives a cash incentive for individuals and businesses to trade in older gas-guzzling vehicles for new and more fuel-efficient ones. The incentive takes the form of a voucher of $3,500 or $4,500 depending on the type of vehicle traded in and the fuel efficiency of the vehicle purchased. The new vehicle must be purchased between July 1 and Nov. 1, 2009. The vouchers are not treated as gross income for purposes of the Internal Revenue Code (or for federal or state assistance programs).

            IRA Rollover Pitfall to Avoid

            Subject to certain limited exceptions, withdrawing funds from an IRA before reaching age 59 1/2 triggers a 10% penalty. One way to avoid the penalty is to take a series of substantially equal periodic payments (SOSE or SOSEPP), not less frequently than annually, for the life (or life expectancy) of the IRA owner or the joint lives (or joint life expectancies) of the IRA owner and his designated beneficiary.

            The IRS has been fairly unforgiving on inadvertent, good-faith errors with respect to SOSEPPS. In one case, an owner took advantage of this exception, but later moved her IRA funds out of equities and into safer certificates of deposit at another institution after the market soured. In a private ruling, the IRS said that this move triggered the 10% penalty for all years going back to when she started taking the periodic payments. The IRS said that the rollover of the IRA to the new institution was a modification of the periodic payments that triggered imposition of the back penalties under a so-called recapture rule. It was irrelevant that the move was inspired by safety concerns, and that the individual was willing to take the payments out of the new IRA.

            The IRS also refused to allow her to correct the situation by placing the funds back into the original IRA. Note, however, that a new private ruling issued on July 17 indirectly calls that conclusion into question. The ruling provides relief where an amount was erroneously rolled over into the IRA from which periodic payments were being taken following a rollover from the original IRA from which the payments commenced. The ruling did not affirmatively address whether the original rollover constituted a modification, but assumed that it did not.

            Note also an education exception to this somewhat harsh rule. Another litigated matter involved a taxpayer who took advantage of the SOSEPP exception. She subsequently varied the amount to access additional funds for her son’s education. The IRS maintained that this was a modification, triggering the penalty. However, the Tax Court overruled the IRS, holding that there is no penalty because of the exception for IRA funds withdrawn before age 59 1/2 for education, and that the rules allow an individual to qualify for more than one exception at the same time.

            Claiming Motor-vehicle Sale-tax Deduction

            For 2009, there is a new deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes, and motorcycles after Feb. 16, 2009 and before Jan. 1, 2010. The deduction generally is available regardless of whether you itemize deductions on Schedule A or claim the standard deduction. The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle.

            This dollar limitation is imposed on a per-vehicle basis, so taxpayers can deduct taxes on one or more purchases of qualifying motor vehicles, up to the limit on each one.

            New Guidance on Life Settlements

            The IRS recently lifted some of the uncertainty surrounding life settlements by explaining their tax consequences. Until recently, individuals who no longer needed a life-insurance policy had few options: they could surrender the policy to the issuing insurance company for its cash-surrender value, or they could stop paying the premiums and let the policy lapse. For a term insurance or other policy without cash-surrender value, the only choice was to let the policy lapse.

            Now, for some individuals, there is a secondary insurance market in which they may be able to sell a policy for more than its cash-surrender value or even sell a policy without cash-surrender value, such as a term policy. These transactions are called life settlements.

            This is an important development for anyone contemplating a life settlement because they will now be in a position to gauge how much they will be left with after tax once they reach an agreement on the settlement amount and fees.

            Brenda Doherty is a partner with the Springfield-based firm Doherty, Wallace, Pillsbury, & Murphy P.C. She practices in the areas of corporate law, estate planning, and taxation; (413) 733-3111.

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            Departments

            Estate Planning Workshops for Parents

            May 27, June 3: Attorney David K. Webber of Shatz, Schwartz and Fentin, P.C., with offices in Springfield and Northampton, will present two free workshops titled “Estate Planning Workshops for Parents of Young Children” at the Sunderland Library Community Room, 20 School St. Workshops are planned from 5:30 to 7:30 p.m., and are open to the public. Pre-registered participants will be offered the opportunity to complete a will, health care proxy, and durable power of attorney at a reduced rate. For more information and to register, call (413) 737-1131.

            Economic Illusions Lecture

            May 28: Edward Guay, principal of Wintonbury Risk Management in Bloomfield, Conn., will present a lecture titled “Recovering from Economic Illusions and Global Credit Shocks” at noon at One Financial Plaza, Community Room, third floor, 1350 Main St., Springfield. The lecture, part of the Instant Issues Brown Bag Lunch Series, is sponsored by the World Affairs Council of Western Mass. Guay is a global macro strategist. He has a long history of accurately predicting major shifts in business, financial, and political conditions. Guay specializes in the identification of those forces for change that will shape future events, either gradually or in climactic fashion, causing consensus business, investment, political, or geopolitical strategies to go awry. The cost of the lecture is $8 (bring a lunch) or $15 (tuna, turkey, or vegetarian sandwich). Reservations must be made by calling (413) 733-0110.

            Extreme Business Makeover

            June 5: The Western New England College Law and Business Center for Advancing Entrepreneurship will host an “Extreme Business Makeover” from noon to 1:30 p.m. in the TD Banknorth conference center at 1441 Main St., Springfield. The event features experts in the fields of law, accounting, marketing, and finance, offering advice on a range of issues to a pre-selected business or nonprofit group. This year’s makeover recipient is JELUPA Productions Inc. The event is free and open to the public and will be of particular interest to entrepreneurs, small-business advisors, and anyone interested in nonprofit management.

            New Energy Landscape Seminar

            June 9: The Pioneer Valley Planning Commission and Western Mass. Electric will sponsor a seminar titled “The New Energy Landscape: An Overview for Economic Development Professionals” from 8 a.m. to noon at the Kittredge Center at Holyoke Community College. The seminar is free; however, registration is required by June 1. For more information, contact Lori Tanner at (413) 781-6045 or visit www.pvpc.org.

            Wine & Microbrew Tasting

            June 12: Members of the Greater Easthampton Chamber of Commerce will host a Wine & Microbrew Tasting from 6 to 8 p.m. at One Cottage St., Easthampton. Proceeds raised from the event will benefit the chamber’s community programs. Organizers expect more than 50 wines and microbrews to be available for tasting, as well as fine food and a raffle. Tickets are $25 per person or $30 at the door. To purchase tickets, call the chamber office at (413) 527-9414 or visit www.easthamptonchamber.org.

            Leadership Development & Teambuilding

            June 15: SkillPath Seminars will present a daylong conference titled “Leadership Development & Teambuilding” at the Holiday Inn, 711 Dwight St., Springfield. Workshops include: “Developing the Leader within You,” “30 Tips for Becoming an Inspired Leader,” “It All Starts with You … Discover Your Team Player Style,” and “Building a Team That’s a Reflection of You.” Also, “Leadership Mistakes You Don’t Have to Make,” “Light the Fire of Excellence in Your Team,” “Speak So Others Know How to Follow,” “Positive Feedback … the Fuel of High Performance,” “A Team Approach to Dealing with Unacceptable Behavior,” and “What Teams Really Need from Their Leaders.’ The conference is targeted for managers, supervisors, team leaders, and team members who would like to learn skills to motivate, inspire, lead, and succeed. Enrollment fee is $199 per person. or $189 each with four or more. For more information, call (800) 873-7545 or visit www.skillpath.com.