GeriLaw | Robert Fleming, Tucson elder law attorney, and colleagues

Tax Relief for Widows and Widowers

The Mortgage Forgiveness Debt Relief Act of 2007 is best known for its provisions regarding income tax treatment of mortgage debt forgiveness.  This Act also changed the rules governing the exclusion of gain realized on the sale or exchange of a principal residence.  A taxpayer generally can exclude $250,000 of such gain ($500,000 for certain married couples filing joint income tax returns).  The taxpayer has to have owned the residence and used it as a principal residence for at least two years of the five-year period ending on the date of the sale or exchange. 

For an unmarried taxpayer whose spouse is deceased on the date of sale of the property, the period that the unmarried individual owned and used the property includes the period the deceased spouse owned and used the property before death.   Under the previous law, a surviving spouse could exclude $500,000 of gain only if the following conditions were met:

1. The sale occurred in the year of the deceased spouse’s death;
2. The surviving spouse and the deceased spouse’s executor or personal representative filed a joint return for the year of death;
3. Either the surviving spouse or the deceased spouse met the two-year ownership requirements with respect to the property immediately before the spouse died;
4. Both spouses met the two-year use requirements with respect to the property immediately before the spouse died; and
5. Neither spouse was ineligible for the benefits of the exclusion with respect to the property by reason of the one sale every two years rule.

This could present problems when the spouse died late in the year and the survivor wanted to sell the family residence.  The surviving spouse would have to quickly sell the house in order to preserve the $500,000 exclusion.  If, however, the deceased spouse owned the house outright, the surviving spouse would receive the benefit of a full step-up in basis to the date of death or alternate valuation date value, and there would be no rush to sell the house before the end of the year of death.

The new law, effective for sales or exchanges after December 31, 2007, gives the surviving spouse additional options with respect to selling the residence after the deceased spouse’s death.  The taxpayer can still qualify for the $500,000 exclusion by meeting the conditions listed in items 1 through 5 above.  The taxpayer can also qualify for the exclusions if the sale occurs not more than two years after the date of death of the spouse, and the conditions listed in items 3 through 5 listed above are met.  If the sale meets these requirements, then the gain on the sale is treated in the same manner as if the spouses had sold the residence immediately before the deceased spouse’s death.  The new law should generally provide the greatest tax benefit for a surviving spouse who owned the residence in his or her own name before the death of the deceased spouse, and both the deceased and surviving spouse used the residence.  In this case, the residence would not receive a step-up in basis to the fair market value at the date of death or alternate valuation date, but the taxpayer could exclude up to $500,000 of gain.

If the surviving spouse remarried before the residence is sold or exchanged, this new section will not apply because the sale or exchange has to be made by an unmarried individual in order to qualify for the higher exclusion.  If the gain on the sale or exchange would exceed $250,000, and the taxpayer intends to sell the residence, then he or she should consider doing so before remarrying.

Andrew Hook
Oast & Hook
www.oasthook.com
Offices in Virginia Beach and Portsmouth, Virginia

Special Needs Alliance in the News

The Autism Perspective magazine recently published an article written by William Whitaker regarding the recent transition of the Special Needs Alliance (SNA) to a nonprofit organization. 

“Ours is the first, and to our knowledge the only, organization of its type for attorneys who practice in the special needs area,” says SNA immediate Past President Edward Wilcenski, a special needs planning attorney in New York State.  Mr. Wilcenski, the brother of a developmentally disabled adult, has helped to transform the alliance from an inconspicuous organization operating largely through word of mouth into what promises to be a significant voice in the fields of estate planning and disability law. He has recently passed the torch to incoming President Andrew Hook, a Certified Elder Law Attorney with Oast & Hook.

Mr. Hook says he became involved in the SNA “to work with other attorneys nationally to assist persons with disabilities and their families with the complex legal issues that confront them,” and for the families of individuals with autism, what a complex maze that can be.

Estate planning for individuals living with autism presents unique problems because of the comparatively high functionality of many of those coping with the disability, according to Mr. Wilcenski. Nevertheless, long-term financial security for individuals with autism can play a significant role in their emotional well-being. Better dietary options, better treatment, and better opportunities for interaction are necessary tools for improvement, and they come at a price.  If estates are structured improperly because of generalizations made by attorneys who are not well-versed in this highly specialized field, then the individual with disabilities could lose Supplemental Security Income (SSI) benefits, or Medicaid, or worse.

Enter the Special Needs Alliance.  Messrs. Wilcenski and Hook say that the most significant feature of the SNA is that the finest disability law attorneys in the United States are networked, which makes for robust and rapid communication of new legislation, new case law, and the forecasting of regional laws that may become important on a national level. And not only are SNA attorneys thus well-informed, but they are also the arguers of these cases.

“Not only do we share information about what’s going on,” Mr. Wilcenski observes, “but many of our members are litigating these issues.  There’s a high likelihood that it’s one of our members behind the effort.”

Beyond the legalese are the emotional difficulties associated with caring for a loved one with autism.  It is not often that an attorney can empathize with a client – which makes the SNA unique in the legal profession.

“Many of our attorneys have personal experience in assisting individuals with disabilities,” Mr. Hook notes.  “This personal experience is invaluable.”

“There’s an expression that goes something like ‘you walk the walk and talk the talk,’ and we have attorneys who can respond to the needs of families that look like their own,” says Mr. Wilcenski.  “There’s no substitute for growing up in an environment with an individual with a disability or raising a child with a disability.  It’s just different.  We can be lawyer and advocate, brother or sister or parent, and there’s something unique about that that you just can’t reproduce.  There’s an intangible benefit that’s brought directly to bear.”

Mr. Wilcenski notes that those member attorneys who do not have familial experience with individuals with disabilities are just as active in the realms of disability and estate planning advocacy.  The SNA considers for membership those attorneys who are on the cutting-edge of the law, and who are active in community organizations that assist individuals with disabilities.

“If an individual has not lived it, they’ve sought it out,” Mr. Wilcenski says.  “There’s just no substitute for credibility in this discipline,” which is evident in the SNA’s highly elective, invitation-only model.

For families, the challenges that autism present are many.  Establishing a routine, developing a strategy to create the best life possible for a loved one living with autism, and working diligently to help the individual succeed on a daily basis and for the long term are difficult challenges.  The Special Needs Alliance understands these issues, and its attorneys are eager to assist with the legal and financial considerations that accompany such a diagnosis.  The passion and empathy of these attorneys are refreshing virtues that speak to the core values of advocacy.

Andrew H. Hook
Oast & Hook
www.oasthook.com
Offices in Virginia Beach and Portsmouth, Virginia