In THIS ISSUE To Tax or Not to Tax Irrevocable Life Insurance Trusts Financing a Child's Education Elder Law: Medi-Cal Update Elder Law Corner

We are delighted to present a client seminar entitled Options for Saving and Investing for Your Child's Education. Joshua D. Miller, a Certified Financial Planner from American Express Financial Services, will discuss numerous options for accumulating college funds, while we will review educational trusts and children's trust options you might want to consider. Parents with small or soon-to-be-college-aged children are encouraged to attend, and we'd love to see some of you grandparents as well! Don't miss this opportunity to learn about the variety of alternatives available just in time for the holidays. What a meaningful present the assurance of a college education will make.

After all the changes mentioned in our last newsletter, things have finally settled down at Carney & Sugai. Construction is complete, and two terrific additions to our staff are receptionist, Bevery Luther, and clerk, Sue Anderson. We've also added a suitemate, The Law Office of Michael G. Desmarais.

Leslie has returned from maternity leave and is bringing baby Lauryn to work with her. Janis has decided not to hire an additional attorney as she and Leslie are successfully dividing the work load, with each of them handling a variety of cases. Our firm continues to offer legal services in the areas of estate planning, probate, trust administration, and elder law matters. Please feel free to contact us with questions in any of these areas.


You are probably aware of efforts by Congress to repeal the estate tax. Despite some bi-partisan support, the latest bill by Congress regarding estate taxes failed to receive enough votes to override President Clinton's veto. Now we must wait for the November election (or potentially into the next administration) to determine the fate of this tax.

Republican Presidential Candidate Bush has promised to eliminate estate taxes altogether. It appears he would seek to eliminate the tax immediately, rather than phasing in relief over a number of years as Congress recently proposed.

Democratic Presidential Candidate Gore favors a less dramatic version of estate tax relief. His plan, though not as well-defined, will presumably reduce estate tax rates while raising exemption levels. The current exemption is $675,000 per person, increasing to $1,000,000 by the year 2006. An increase of that exemption under Gore's plan of up to $5,000,000 per couple has been discussed. However, we understand that it would be phased in over a period of years, necessitating continued estate planning efforts until the phase-in was complete. No matter which candidate is elected, some sort of estate tax relief seems likely. Of course, if the tax is not completely eliminated, some of you will still have taxable estates despite the increase in the exemption amount. Once we know how much tax relief is forthcoming, we can evaluate the impact on your estate plan. Meanwhile, do contact us with questions and concerns.


Irrevocable Life Insurance Trusts (ILIT) are helpful to shelter life insurance proceeds from estate tax. Proceeds are then used to purchase assets from the decedent's estate or revocable trust to pay whatever estate tax might be due. Remaining funds can be distributed as desired.

Current uncertainties in the estate tax system place the usefulness of an ILIT in question. Those of you with existing ILIT's may continue them and should do so if you want to maintain the insurance policy the trust owns. We will be reserving judgment on recommending them to clients in the future, however, due to potential changes in the system. If the estate tax is revoked, and you would like to determine whether to preserve your existing ILIT, please call and schedule an appointment.

We had planned to hold a client seminar on ILIT's this fall but have decided to postpone until after the election. Depending on the type of estate tax relief enacted, ILIT's may still be the most useful advanced estate planning tool available. We are happy to discuss the benefits of an ILIT with anyone who is interested.


If you know anyone who is receiving Medi-Cal benefits, a recent change in the Medi-Cal recovery upon death procedures can have severe consequences. (Medi-Cal recovery is the process by which the State seeks to recoup the payments it has made on behalf of a Medi-Cal recipient by attaching assets which were considered exempt for Medi-Cal qualification purposes.) The state is now focusing recovery efforts against the personal residence or any interest in that residence (including a life estate interest) of the Medi-Cal recipient upon death. Many so-called Medi-Cal estate plans are set up with a life estate interest in the personal residence. If you know someone who finds himself in this situation, please contact Janis for an appointment to discuss additional options to protect the residence from the recovery process.


For many of us, the thought of saving for anticipated college expenses for our children is daunting. The estimates for future college costs are very high. For a one-year-old to attend college (Stanford University for instance), in the years 2017 through 2021, experts estimate that the cost, including housing, books and entertainment will exceed $700,000. Not only do we need to stop avoiding the issue of the cost for college but we need to become informed regarding real solutions for saving for these expenses.

Recent years have brought methods of saving for college which were not previously available. We have always been able to place funds in Uniform Gift to Minors Act Accounts (UGMA) or Uniform Transfers to Minors Act Accounts (UTMA), but now we have options like Educational IRA's, Scholarshare Accounts, and Educational Trusts. In addition, some traditional retirement saving vehicles can also be utilized to pay for college expenses. Deciding which course is best can be difficult and depends on your unique financial picture.

In order to determine the right investment and savings vehicle for you, a number of questions must be addressed. Do you wish to give money (ie. transfer it out of your estate) directly to your children while restricting its use for education purposes? Are you interested in maximizing the funds you have without giving up control of those funds to your children? Would you like to invest in a manner which would take advantage of your child's lower income tax rate?


Looking ahead to probable changes in the estate tax system, you may be asking, "Why have an estate plan at all?" Our answer is simple. An estate plan goes beyond striving to reduce estate taxes. In fact, for the elderly a complete estate plan is crucial.

Incapacity can trigger huge expenses for an elderly person with no planning documents. In the absence of a spouse, being without documents giving authority for someone else to act means a conservatorship may have to be initiated. Not only is this a costly, time-consuming and degrading proceeding, but it can usually be avoided by having a Durable Power of Attorney for Property Management (financial affairs), an Advance Health Care Directive, and some sort of estate planning documents, typically a revocable trust.

For the family, the death of a family member without a living trust can cause unnecessary expense and time spent handling estate administration. The probate of a $500,000 estate will cost over $23,000 dollars in attorneys fees and executor fees. Not only is probate expensive, but the probate process can last up to a year or longer. To avoid the probate process, a living trust is the best option. The court process is eliminated, so that the administration can be completed much more quickly, and usually at much lower cost.

Some of you attended our seminar entitled "Caring for our Elders" in May. Janis discussed the concerns family members of the elderly have over the necessity of long term care and the high costs of nursing home care. Approximately 40% of people over the age of 65 will enter a nursing home at some point. With such a large number of us needing care, it is vital to understand and recognize the costs of that care and the availability of long term care insurance to offset those costs as well as the Medi-Cal eligibility rules.