October 31

Estate Exclusion to Rise to $5.49M in 2017

The IRS has announced that the basic estate tax exclusion amount for the estates of decedents dying during calendar year 2017 will be $5.49 million, up from $5.45 million for calendar year 2016.

Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,120,000, up from $1,110,000 for 2016.

The increase in the estate tax exclusion means that the lifetime tax exclusion for gifts will also rise to $5.49 million, as will the generation-skipping transfer tax exemption. The annual gift tax exclusion will remain at $14,000 for 2017.

For details on many of these and other inflation adjustments to tax benefits, go to: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf

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May 12

Court Must Open Medicaid Recipient’s Estate Before Ruling on Validity of Estate Recovery Claim

A Missouri appeals court reverses a lower court’s decision to deny the state’s Medicaid recovery claim against a Medicaid recipient’s estate because the court was prohibited from ruling on the validity of the claim at the initial hearing to open the estate. Estate of Tiefenbrunn (Mo. Ct. App., No. SD34045, April 6, 2016).

Shirley Tiefenbrunn executed a beneficiary deed that left her house to her daughter and son-in-law. Ms. Tiefenbrunn began receiving Medicaid benefits, and the state filed a lien on the property. After Ms. Tiefenbrunn died, the state filed a release of the lien, stating that Ms. Tiefenbrunn no longer owned the property.

A year after Ms. Tiefenbrunn died, the state filed a petition to open Ms. Tiefenbrunn’s estate and to recover Medicaid benefits paid on her behalf. Ms. Tiefenbrunn’s daughter opposed the petition, arguing that the release of the lien waived the state’s claim. The trial court entered judgment denying the state’s claim. The state appealed.

The Missouri Court of Appeals reverses, holding that the trial court did not have discretion to deny the state’s petition. According to the court, when an interested party timely files a petition to open the estate, the trial court is required to grant the petition and is prohibited from determining the validity of the claim at the initial hearing.

For the full text of this decision, go to: https://www.courts.mo.gov/file.jsp?id=99473

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January 14

Bank Not Liable for Improper Withdrawals Made Under a Power of Attorney

A New Jersey appeals court holds that a bank is not liable for improper withdrawals made by a nursing home resident’s caregiver under a power of attorney because the resident’s signature was on the power of attorney. In re Estate of Yahatz (N.J. Super. Ct., App. Div., No. A-0099-14T1, Dec. 14, 2015).

Michael Yahatz opened a bank account and signed an agreement that provided that the bank would not be liable if Mr. Yahatz failed to notify the bank of suspected problems within 60 days of receiving a bank statement. Mr. Yahatz entered a nursing home where Nydia Davalia was one of his caretakers. Mr. Yahatz signed a power of attorney appointing Ms. Davalia as his attorney-in-fact and authorizing her to make withdrawals from his bank account. Ms. Davalia withdrew $80,000 from the account.

After Mr. Yahatz died, his estate filed a claim against the bank, arguing that it was negligent when it accepted the power of attorney. The trial court granted the bank summary judgment, ruling that the claims were time-barred because Mr. Yahtaz did not notify the bank about the contested withdrawals until more than 60 days after he received the bank statement. The estate appealed, arguing that the power of attorney was invalid on its face because of the way it was signed.

The New Jersey Superior Court, Appellate Division, affirms, holding that the bank was not negligent when it accepted the power of attorney from Ms. Davila because the signature on the power of attorney was Mr. Yahatz’s signature. According to the court, “there can be no violation of a duty of ordinary care, or a finding of bad faith, where a bank fails to take action to confirm the authenticity of a signature the customer does not dispute is his own.”

For the full text of this decision, go to: http://njlaw.rutgers.edu/collections/courts/appellate/a0099-14.opn.html

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November 9

What Is Cost Basis and How Do You Prove It?

Knowing the “cost basis” of your property is important for tax purposes, but proving cost basis can be difficult. Cost basis adjusts at death, so it is a good idea to appraise property when a joint owner dies.

Cost basis is the monetary value of an item for tax purposes. When determining whether a capital gains tax is owed on property, the basis is used to determine whether an asset has increased or decreased in value. For example, if you purchase a house for $150,000, that is the cost basis. The cost basis can be increased by improvements to the property. If there are no improvements and you later sell the house for $250,000, you will have to pay taxes on the $100,000 increase in value.  (However, if the property is your principal residence, you can exclude up to $250,000 in gain, or up to $500,000 for a couple.)

When a property owner dies, the cost basis of the property is “stepped up.” This means the current value of the property becomes the basis. For example, suppose you inherit a house that was purchased years ago for $50,000 and it is now worth $250,000. You will receive a step up from the original cost basis from $50,000 to $250,000. If you sell the property right away, you will not owe any capital gains taxes.

When a joint owner dies, half of the value of the property is stepped up. For example, suppose a husband and wife buy property for $200,000, and then the husband dies when the property has a fair market value of $300,000. The new cost basis of the property for the wife will be $250,000 ($100,000 for the wife’s original 50 percent interest and $150,000 for the other half passed to her at the husband’s death).

The burden is on the property owner to prove cost basis, and it isn’t always easy to prove, especially if it has been awhile since the property was purchased or improvements were made. Homeowners should keep good records of improvements to a house, which means keeping receipts and purchase orders. If a joint owner of property dies, you should get the property appraised to show the value at the time it is “stepped up” in basis. Be sure to save the documentation so you can use it later.

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June 1

Spousal Support Is Obligation of Deceased Spouse’s Estate (Pa. Super.)

The executrix of Ronald Renninger, Sr.’s estate appealed an order requiring the estate to pay spousal support to Ronald’s common law wife. The executrix argued that the trial court erred in its order because the divorce abated due to Ronald’s death and an order for support cannot be granted following the death of a party to the divorce action. The appellate court disagreed.

The court held that the trial court entered an interim support order while Ronald was alive awarding support from the time of the wife’s filing of the support action until the date of death. This is consistent, according to the court, with a longstanding rule that a spouse can collect unpaid support as a creditor of the deceased spouse’s estate. Thus, the lower court did not err in denying the support action simply because Ronald died during the pendency of the action. The court also disagreed with the executrix’s contention that the wife was not entitled to receive support due to her violence toward Ronald. The court held that the Executrix has the burden of presenting clear and convincing evidence to establish a defense to spousal support and the Executrix’s evidence that both parties sought mutual personal protection orders against each other is merely evidence of a troubled relationship and not sufficient evidence to overcome a spousal support obligation. For these reasons, the court affirmed the spousal support award from the date Ronald’s wife filed her petition until his date of death.

Moser v. Renninger, 2015 WL 1959448 (May 1, 2015)

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