Few of us want to think about what might happen to our pets in the event of our incapacity or untimely death, but with over 62% of households owning a pet, providing for our pets becomes an important piece of estate planning. In fact, more people in the United States have companion animals than children!

Pets whose owners are suddenly unable to take care of them because of incapacity or death sometimes run away, are taken to a shelter and put up for adoption, or euthanized. The Humane Society of the United States estimates that 4 to 5 million pets are euthanized annually, with more than 1 million of these as a direct result of the failure of their owners to provide for their pets in the event of death or incapacity.

This doesn’t have to happen to our pets. Advance planning for your pet gives you peace of mind that your animal companion will be cared for as you wish, and protects the pet, your family, and the community, by responsibly providing for your pets throughout their lives, with or without you.

Gifts made directly to pets in wills are invalid because pets are not legally recognized as “persons”. Although nonbinding, you may give your pet to someone in your will and make a cash gift to that person to help offset the expenses of your pet. Minnesota has not yet adopted a statute expressly permitting pet owners to establish a Pet Trust, as most states have done. However, it is possible to set up a type of common law “honorary” trust, as well as other options that can fully accomplish a pet owner’s goals.

We have recently developed a “Pet Profile” form to help you plan for your pet’s future. Please contact our office if you would like the form sent to you.

With the Holiday Season upon us, it is now the time of year when many people are making their year-end charitable contributions. If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here is a brief summary of several “Tax Tips” for charitable givers that the IRS published earlier this year.

1)    Make sure the organization qualifies. – Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.

2)    You must itemize. – Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3)    What you can deduct. – You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

4)    When you receive something in return. – If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

5)    Recordkeeping. – Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.

6)    Pledges and payments. – Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.

7)    Donations made near the end of the year. – Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

8)    Large donations. – For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.

9)    Tax Exemption Revoked. – Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions. For the list of organizations whose tax-exempt status was revoked, visit the IRS web site: www.IRS.gov.

By law, the IRS periodically adjusts the amount of many Federal tax deductions, exemptions and credits to reflect increases in the cost of living. The IRS has recently announced 2012 adjustments.

With respect to the estate and gift tax:

• The Federal Estate Tax Exemption increases from $5,000,000 (the 2011 exemption) to $5,120,000 for persons who die in 2012.  If Congressional gridlock continues, however, the exemption decreases to $1,000,000 in 2013.  The Minnesota Estate Tax Exemption remains at $1,000,000.

• The deduction for special use valuation method of qualified real property increases in 2012 to $1,040,000, a $20,000 increase.

• The gift tax annual exclusion remains at $13,000.  The IRS adjusts the gift tax annual exclusion in $1,000 increments, and the IRS is likely to increase the exclusion to $14,000 in 2013 or 2014.

On October 6th and 7th, Billi M. Ellingson and Claire Langton-Yanowitz, who joined our office in October as an Associate Attorney, attended the Minnesota State Bar Association’s Elder Law Institute. Here are some highlights of the conference:

• New long-term care consultation requirement:

Starting this October 2011, consultations must be offered to all those signing a lease for assisted living facilities. The consultation may occur over the phone or in person, and it can be refused after the offer. The Minnesota Dept. of Human Resources hopes that consultations will inform people of home health care options and reduce long term care costs for individuals and the government by encouraging people to wait longer before entering any type of facility.

• Understanding your long-term care insurance:

Many people with long-term care insurance mistakenly believe that the amount of assets that they can protect from a “spend-down” under the Medical Assistance regulations is increased by the lifetime benefit allowed under the policy. Actually, the insured may only shelter additional assets above the statutory spend-down requirements to the extent that long-term care benefits have already been received under the policy ($50,000 used under the insurance policy results in additional $50,000 not spent down for purposes of Medical Assistance).

• Community Spouse Income Allowance Changes in July 2012:

Assuming the Centers for Medicare and Medicaid Services approve the new law, a community spouse (a spouse not receiving government support) may have to contribute 7.5% to 33% of his or her income to the spouse who receives government support to the extent that income is greater than $1840 plus an allowance for shelter expenses.

• Medicare Part D enrollment ends Dec. 7th – this is earlier than prior years:

Seniors have 80 options to consider and are encouraged to call the Senior Linkage Line for explanations (800) 333-2433.

• Provider Orders for Life Sustaining Treatment (POLST) form:

This new form was developed and approved by the Minnesota Medical Association (MMA) to create a signed provider order to carry out a patient’s end of life health care wishes. The MMA recommends that terminally or seriously ill patients discuss their concerns and wishes with a physician so that another physician can carry out the orders should an emergency arise. Our office continues to advise clients that appointing a trusted agent under a health care directive and communicating your general feelings about your emergency or end-of-life care to the agent are the best ways to make sure your wishes are carried out.

If you have any questions or would like further explanation of these topics, please call our office at (507) 252-8997 or email Billi@MnEstatePlanning.com or Claire@MnEstatePlanning.com.

Alan J. Yanowitz recognized as a Minnesota SuperLawyer.

Alan Yanowitz has been notified that he was again elected a Minnesota Super Lawyer.  Alan has been elected a Super Lawyer every year since 2003.  On its website, Super Lawyers describes its selection process as follows:

“Super Lawyers selects attorneys using a rigorous, multiphase rating process. Peer nominations and evaluations are combined with third party research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis.  The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel.  The Super Lawyers selection process involves three basic steps: creation of the candidate pool; evaluation of candidates by the research department; and peer evaluation by practice area.”

Alan’s recognition on the Super Lawyer web site can be seen at the following URL. http://tinyurl.com/3mdqgx

On July 20, 2011, Governor Dayton signed an Omnibus Tax bill, which will eliminate the Minnesota estate tax on many “qualified” small businesses and “qualified” farms.  The bill excludes from the Minnesota taxable estate $4,000,000 or the value of such qualified property, whichever is less.  This exemption is in addition to the $1,000,000 exclusion from estate tax allowed to all individuals.

The new provision is complex, and a number of provisions will not be clear until there are regulatory or judicial interpretations.  However, it is likely to provide significant benefits to many families.  It is effective for the estates of persons who die after June 30, 2011.

An understanding of the statute will require complying with a number of rules and defined terms that are new to the Minnesota estate tax.  In general, the statutory framework requires that the decedent or his or her spouse owned and “materially participated” in the operation of the property for 3 years before the decedent’s death (narrow exceptions are provided in the case of certain retired or disabled owners who materially participate in operations before such retirement or disability).  The property must pass to a “qualified heir” and both the estate and the qualified heir must agree to pay a 16% tax on such property if he or she does not continuously “materially participate” in the operation of such for 3 years after the decedent’s death.

A qualified small business is defined as a trade or business:

• Which had gross annual sales for the most recent tax year of $10 million or less,
• It may be owned directly, or indirectly as a result of ownership of shares of stock or other ownership interests,
• Cash or cash equivalents are not treated as part of the business.

A qualified family farm is defined as:

• A farm subject to the requirements of the Minnesota Statutes Section 500.24.  The Minnesota Department of Agriculture has ruled that property in the CRP program is not subject to this section, and therefore it may be excluded from benefiting under this provision.
• The farm must be classified for tax purposes as an agricultural homestead.
• Unlike the qualified small business provision, the statute does not directly address property owned indirectly as a result of ownership of shares of stock or other ownership interests.  

A qualified heir is a spouse, an ancestor, a descendant, or a spouse of a lineal descendant who inherits the qualified small business or family farm and who agrees to continue to use the property as a qualified small business or farm and to repay the recapture tax if the property ceases being used by the qualified heir during the 3 year recapture period.

 Comment

The statute does not give any guidance with respect to the qualification requirements for interests in businesses or farms inherited by family members in a trust.  This is unfortunate.  Assume a child is the primary beneficiary of a trust, and the child’s descendants are the secondary beneficiaries.  Who has to sign the recapture agreement?  The child only?  Or the child and his or her descendants?  In the latter case, it may be necessary to get approval of the recapture agreement with respect to any minor or unborn descendants (this is the case with respect to the Federal Special Use Valuation provision which the Minnesota statute is loosely based upon).

To qualify for this provision in the case of leased farm property, the landowner will need to be an active participant in a crop share lease.  A cash lease will not qualify.

Hopefully, the Minnesota Department of Revenue will soon provide guidance on its interpretation of this new and very important provision.