CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
ABLE Act Developments. The ABLE Act (“Achieving a Better Life Experience” Act) was approved by Congress earlier this year. It allows the creation of tax-favored accounts for disabled children and adults whose disability occurred before age 26. Contributions can be made after the age of 26, but the disability must have occurred before the age of 26, and total contributions by all contributors are limited to the annual gift tax exclusion amount (currently $14,000 per donee per year). In other words, not more than $14,000 can be contributed for one beneficiary by any number of contributors in a given year. It should be noted that only the first $100,000 of an ABLE account balance will not be counted toward the Supplemental Security Income (SSI) program’s $2,000 individual resource limit. Stated another way, if the balance of an individual’s ABLE account exceeds $102,000 ($2,000 representing the non-exempt asset limit), the individual would be suspended from eligibility for SSI benefits, but would remain eligible for Medicaid. The IRS published proposed rules on January 2, 2015, at http://www.gpo.gov/fdsys/pkg/FR-2015-06-22/pdf/2015-15280.pdf. It should be noted that an ABLE account is very similar to the so-called “(d)(4)(A)” special needs trust established as a “self-settled” trust for a disabled beneficiary using the disabled beneficiary’s own resources. For example, there is a “pay-back” requirement to the State of Indiana for Medicaid benefits provided during the beneficiary’s lifetime. However, an ABLE Account funded by a third party would be less advantageous than a third party special needs trust, because there is no Medicaid pay-back requirement in the case of a third party created trust, and there is no limit on the annual contributions or the total value, and there may be tax advantages to a third party SNT as well. No state has yet created a qualified ABLE program, which will be set up under rules similar to those applicable to Section 529 savings accounts.
Miscellaneous Itemized Deductions. The IRS issued its final regulations regarding which costs incurred by estates and non-grantor trusts are subject to the 2 percent floor for miscellaneous itemized deductions under Section 67(a) of the Internal Revenue Code. The regulations provide that a miscellaneous itemized deduction is subject to the 2 percent floor to the extent that it is incurred by an estate or a non-grantor trust, and commonly or customarily would be incurred by a hypothetical individual holding the same property. Ownership costs are subject to the 2 percent floor. The cost of preparing estate generation-skipping transfer tax returns, fiduciary income tax returns, and a decedent’s final individual income tax returns are not subject to the 2 percent floor. The cost of preparing all other tax returns, such as gift tax returns, would be subject to the 2 percent floor. The cost of appraisal fees would usually be subject to the 2 percent floor, but the final regulations reflect that estates and non-grantor trusts might be required to have assets appraised for the maintenance and administration of those entities which would not be required by an individual, and as a result, the fees for appraisals needed to determine the date of death value of the decedent’s estate, or to determine the value for the purpose of making distributions, or otherwise required to properly prepare the estate’s or trust’s tax returns, are not subject to the 2 percent floor. Other fiduciary expenses not commonly or customarily incurred by individuals and thus not subject to the 2 percent floor include probate court fees and costs, fiduciary bond premiums, legal publication costs and notices to creditors or heirs, the cost of certified copies of the decedent’s death certificate, and the cost related to fiduciary accounts. A portion of a bundled fee attributable to investment advice (including any related services that would be provided to any individual investor as a part of the investment advisor’s fee) is subject to the 2 percent floor. Refer to T.D. 9664, REGs.§ 1.67-4, 79 Fed.Reg. 26616 (May 9, 2014).
2015 Medicaid Spousal Impoverishment Figures. The following are the current applicable spousal impoverishment figures:
Minimum community spouse resource allowance – $23,844. Consequently, in the case of a husband and wife, if one spouse is admitted to a nursing facility, the community spouse can retain a minimum value of $23,844 (including the institutionalized spouse’s $2,000 limitation, the total would be $25,844).
Maximum community spouse resource allowance – $119,220. In general, in the case of a husband and wife, if one spouse is admitted to a nursing facility, the community spouse can retain one-half of the countable assets. However, that total value cannot exceed $119,220 currently (including the institutionalized spouse’s $2,000 limitation, the total would be $121,220).
Minimum monthly maintenance needs allowance – $1,992. The community spouse is entitled to a minimum income standard of $1,992. If the community spouse’s income is less than that, then the community spouse can receive an allocation of the institutionalized spouse’s income up to that amount.
Maximum maintenance needs allowance – $2,981. The community spouse may receive additional income from the institutionalized spouse if the community spouse has excess housing costs. This will most often arise when there is a mortgage or when there are rent payments.
In addition, for Medicaid applications filed on or after July 1, 2015, the divestment penalty divisor is now $5,923 (it was previously $5,733). Consequently, the penalty for a $100,000 transfer would now be 16.88 months ($100,000 ÷ $5,923 = 16.88 months), when prior to July 1, 2015 it would have been 17.44 months ($100,000 ÷ $5,733 = 17.44 months). This equates to approximately a one month saving which translates to a savings of approximately $7,000, or approximately one month of care, when a nursing home costs approximately $7,000 per month.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.