ElderWeb

U.S. Senate on Friday voted to abolish estate taxes, and sent the bill to President Clinton, who pledged to veto it. The Senate voted 59-39 for the bill but supporters still lack the two-thirds majority needed to override a veto.

Voting in the Senate ran pretty much along party lines. Nine Democrats broke with the White House and joined the Republican majority to support the bill, and four Republicans joined the Democratic opposition. The House passed the bill in June, with 65 Democrats joining the Republican majority.

Clinton said the bill would benefit about 3,000 families a year. "While I am willing to support targeted and fiscally responsible legislation that provides estate tax relief for small businesses, family farms and principal residences, the estate tax repeal passed by the Senate is a budget-busting bill that provides a huge tax cut for the most well off Americans at the expense of working families." Clinton said he opposes big tax cuts until Congress acts to bolster Social Security, which faces financial strains when the baby boom generation starts to retire, and agrees to a prescription drug benefit for elderly Medicare health care recipients.

Republicans feel this issue could cause Democrats election-year discomfort, since public opinion polls that show a majority of Americans support repeal of the estate tax. The White House says repeal would cost the federal treasury $105 billion during the phase-out period and $750 billion during the decade after that.

Under current law, individuals get a $675,000 exemption, and that will eventually increase to a $1 million exemption. The new law would phase the tax out entirely over a ten year period.

A recent survey by the AARP found that only 38% of people age 50 and over have established both a will and a power of attorney, two vitally important documents. Another 20% have a will, but no power of attorney, and 5% have only a power of attorney. The majority of those with a power of attorney were age 70 or older. Only 44% of people age 50-54 had a will, but the occurrence rose with age, to a total of 85% of those age 80 or older. The survey also measured the number of people who had living trusts.

The U.S. Senate Special Committee on Aging held a hearing about the abuse of Living Trusts. A living trust is vehicle which can be legitimately used for estate planning purposes, but there is growing evidence of widespread scams and other fraudulent activity in this area, particularly aimed at vulnerable low income older people who probably do not need this sort of protection.

The AARP recently released a study that found that 18% of people with incomes of $25,000 or less had a trust, compared to a 1991 survey showing that only 8% of respondents at that income level had a living trust. This represents a 125% rate of growth in purchases among lower income older persons, far outpacing the 53% growth rate for seniors of moderate and higher incomes. Ironically, creating a trust creates an additional problem for low income persons who might need to rely on Medicaid to pay for nursing home costs, since the creation of the trust may make them ineligible for Medicaid if they apply for benefits within five years of the initiation of the trust.

Witnesses warned that "Living Trust Mills" are appearing in various parts of the country, which turn out cookie cutter documents not tailored to the needs of the participant. In some cases the documents are invalid in the state in which the older person lives, since trust laws vary from state to state. Sometimes the older people paid fees to set up trusts, but their assets were never actually transferred into them, rendering them useless. Other problems arise when the people selling the trusts use the process as a way of ascertaining the value of the estate their victim owns, so that they can sell annuities and other expensive and unneeded products to them.

These fraudulent operators often tell their victims not to use their attorney to draw up these documents, since the attorneys might talk them out of it "in order to collect fees from probating their estate." They tell their prospective clients that expensive and time-consuming probate will bankrupt their estate and leave their loved ones without an inheritance, and that delays in the probate process will freeze assets from a surviving spouse or heirs. And then they hammer the message home with "guilt trips" delivered through the mail, on the phone and at the door - over and over and over again. They also use the senior's fear and concern for outliving his or her savings as a way to convince him or her to re-invest their savings and retirement funds into annuity contracts with insurance companies that pay the highest commissions.