The 2010 Tax Relief Act, enacted December 17, 2010, provides good news and bad news concerning the federal estate ("Death") tax. First the good news: The tax does not apply for those dying with $5 million or less. The bad news: The $5 million exemption is only temporary. It applies to those dying in 2011 and 2012. Beginning January 1, 2013, which is less than two years away, the exemption drops down to $1 million dollars and the tax rate jumps up to 55%. Bear in mind that this levy applies to virtually all assets of the decedent. This includes life insurance death benefits, annuities, jointly-owned property, investments held by qualified retirement plans, and, of course, all probate property (assets that pass in accordance with one's will). The return to lower exemption and higher rate was scheduled to take effect on January 1 of this year. The new law simply postponed for two years what will amount to a massive tax increase that, for some, will be confiscatory. Tax considerations aside, there are many non-tax reasons to plan your estate, as discussed in Pennsylvania Pointers.

A conflict is brewing between rival groups of Pennsylvania Lawyers regarding the permissible scope of authority of an agent under power of attorney.  Stated otherwise, should one’s freedom to delegate powers to another regarding handling of financial affairs be significantly reduced?  Some argue yes, because of agents who abuse their authority.  Others, including Vasiliadis & Associates, point out that an unscrupulous agent will always find a way to circumvent the law.  Meanwhile, the honest agent will encounter new obstacles to effectively protecting the principal’s estate.  Recent recommendations by Pennsylvania’s Joint State Planning Commission include proposed new restraints on gifting by agents.  Among these; court approval, in some instances.  Pennsylvania’s legislature will likely take up these recommendations in next year’s legislative session.  Meanwhile, on October 27, Governor Rendell signed into law a provision restricting an agent’s ability to change beneficiaries of a qualified retirement plan (IRA, 401(k), etc.) to specified relatives.  Presently, a person can override this and other limitations on an agent’s authority by so specifying in the written power of attorney instrument.  This underscores the importance of having a comprehensive carefully crafted power of attorney.

Retirees typically pay for Medicare Part B (doctors and outpatient hospital treatment) via deduction from their monthly Social Security benefit.  For most people that charge will remain the same in 2011 at $96.40 per month.   But new enrollees and those whose premiums are not withheld from Social Security checks face an increase to $115.40.  Higher income persons will pay even more, ranging from $161.50 - $369.10 per month for married couples whose annual income exceeds $170,000 ($85,000 for single persons).  The Part B deductible increases to $162 while the Part A deductible (hospitalization) jumps to $1,132.  Co-payment for skilled nursing facility care for days 21-100 rises in 2011 to $141.50 per day.  That co-pay is picked up by private supplemental health insurance classified as Plan C or better.

In broad terms, health care coverage is expanded to include a larger number of persons, non-seniors, while purporting to increase existing coverage, primarily Medicare, to seniors.  However, the actual impact on the level and quality of services to seniors awaits implementation, which could take years.  Some observers, including many active health care professionals, have voiced concern that cost containment for this sweeping new expansion of health care mandates will come in the form of reduced payments to physicians, hospitals and other health care providers.  That could lead to fewer health care providers and, ironically, less care, not more, for seniors and others, who appear to benefit by the new law.

One clear result of this new legislation is more taxes.  Here is a list of new taxes contained in the new law:

• Individuals who earn more than $200,000 for the year ($250,000 for married couples) will be paying an additional 0.9 percent in Hospital Insurance (Medicare) tax, starting in 2013;

• Individuals whose adjusted gross income for the year exceeds $200,000 ($250,000 for joint filers), whether from wages or otherwise, will also be paying an additional 3.8 percent Medicare tax on net investment income, starting in 2013;

• Employers with 50 or more employees generally will be required to provide a minimum level of health insurance for their employees or pay a penalty per employee, starting in 2014;

• Small employers with no more than 25 employees are entitled to up to a 35 percent tax credit on the cost of providing health insurance for employees, starting immediately in 2010;

• Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014;

• Tax credits to subsidize the cost of health insurance premiums will be available to individuals earning up to 400 percent of the poverty level, starting in 2014;

• Health flexible savings arrangement (FSA) dollars will be limited to prescription medications with some exceptions after 2010, along with placing a $2,500 annual cap on expenses covered under health FSAs, starting in 2013;

• A 40 percent excise tax will be imposed on high-cost, "Cadillac" employer-sponsored health coverage, starting in 2018;

• Fees will be imposed on the pharmaceutical industry and health insurance providers , starting in 2011 and 2014, respectively;

• An excise tax will be imposed on medical device manufacturers after 2012; and

• Limits on tax-subsidized medical expenses will be imposed by raising the itemized medical expense deduction floor for regular tax purposes from 7.5 percent to 10 percent, generally starting in 2013.

You can’t buy fire insurance when your house is on fire.  Similarly, an insurance company will not issue long term care insurance to someone with Alzheimer’s or another physical or cognitive diagnosis that increases the likelihood of long term incapacity.  But under a recently enacted amendment to the Pension Protection Act of 2006, effective January 1, 2010, owners of life insurance and annuity policies can rollover, via 1035 tax-free exchange, such policies into new ones with long term care insurance riders.  Do you have life insurance you no longer need or a deferred annuity that you can’t access without penalty?  Do you want long term care insurance but don’t qualify or can’t afford it?  Consider a rollover to a new life policy or annuity contract with a long term care insurance rider.

Rate hikes are reportedly being sought by Prudential Insurance Company of America, MetLife, Inc., and John Hancock Life and Health Insurance Co. ranging from 18 percent to 25 percent. These large rate hikes are likely due to several different reasons. One is lower investment earnings by insurance companies due to low interest rate yields. According to the American Association for Long Term Care Insurance, investment returns fund up to 60 percent of the funds used to pay benefits. Another factor pushing rate hikes is rising longevity of policy holders. Yet another likely reason is that more policy holders are holding onto their policies rather than dropping them before drawing benefits.

Any decision regarding changes in your long term care insurance should be made in consultation with a qualified professional. Last July, Stanley M. Vasiliadis and Professor Lawrence A. Frolik, a University of Pittsburgh law school professor, co-presented a program on long term care insurance at the Elder Law Institute in Harrisburg, Pennsylvania. The program, entitled Long Term Care Insurance – Deal or No Deal?, focused on how attorneys should advise clients regarding whether, when, what kind, and how much long term care insurance to buy.

A five-star designation means the facility ranks "much above average," four-star indicates "above average," three means "about average," two is a "below average" ranking, with a one indicating that a facility ranks "much below average." The rankings, which will be updated monthly, are based on a nursing home's performance in three areas: quality measures, nurse staffing levels and health inspection reports.
In this first round of quality ratings about 12 percent of the nation's nursing homes received a full five-star rating while 22 percent scored at the low end with one star. The remaining 66 percent of facilities were distributed fairly evenly among the two-, three- and four-star rankings. The ratings indicate that nonprofit nursing homes deliver a higher quality of care than for-profit facilities, according to an analysis by
USA Today.

When the rating system was announced earlier this year, Toby Edelman, senior policy attorney with the Center for Medicare Advocacy, said that two of three criteria CMS uses for the ratings -- staffing data and quality measures -- are "self-reported by nursing facilities and are inaccurate." Edelman said, "Relying on nursing homes to describe accurately how well they are doing . . . just doesn't make sense."
The National Citizens' Coalition for Nursing Home Reform issued a statement saying it commends CMS for providing a new tool for long-term care consumers but urging consumers to "not oversimplify nursing home selection."

"In reviewing the Five-Star rating for a particular nursing home, consumers should compare the rating with their own experience during a personal visit to the home," the Coalition warned. "For example, staffing data that is used for the rating system is based on the two weeks prior to the nursing home's annual regulatory survey, an insufficient period of time to represent the usual staffing pattern of the home. Consumers should visit the home and review staffing data that is required to be posted for every shift, every day."

For its part, the nursing home industry is not pleased with the rating system. In an opinion piece in USA Today. Bruce Yarwood, president of the American Health Care Association, a long-term care industry trade group, called the new rating scheme "a complex and inaccurate system that fails to provide the consumer with an appropriate tool to measure quality of care in our nation's nursing homes."