January 2014

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.

Make A “Gift Of Hope” To SWIRCA & More. We humbly and respectfully request that you will consider making a “gift of hope” to Southwestern Indiana Regional Council on Aging, Inc. (“SWIRCA & More”). I am enclosing a donation letter from SWIRCA & More which highlights only a few of the innumerable services provided by SWIRCA & More for the benefit of the elderly and the disabled of all ages. I have included other comments in my previous newsletters regarding the good work of SWIRCA & More and its talented and dedicated case managers and staff. SWIRCA & More provides assistance to people of all ages, from infants to the elderly, and provides assistance in the six counties in Southern Indiana which include Gibson, Perry, Posey, Spencer, Vanderburgh and Warrick counties. Please consider helping those in need in the SWIRCA & More six-county service area by making a tax deductible “gift of hope” to SWIRCA & More.

2014 Medicaid Spousal Impoverishment Figures Released. The Centers for Medicaid and Medicare Services released the Medicaid spousal impoverishment standards and home equity limit for 2014:

Minimum community spouse resource allowance – $23,448. 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 $23,448.

Maximum community spouse resource allowance – $117,240. 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 $117,240

Minimum monthly maintenance needs allowance – $1,939. The community spouse is entitled to a minimum income standard of $1,939. 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 – $2,931. 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.

Home equity limit – $543,000. In Indiana (and most states), even though the community spouse may retain the residence without regard to its value, which is not counted as a part of the community spouse resource allowance, if the value exceeds $543,000, the institutionalized spouse will remain ineligible for Medicaid for as long as the equity value continues at that level.

There are numerous planning issues relating to the foregoing concepts. For example, even if the combined countable assets (not including the residence) total $500,000 or more in value, there are ways of qualifying the institutionalized spouse for Medicaid, and yet the community spouse can retain virtually all of the resources. There are other related issues, such as anticipating the possibility that the community spouse may predecease the institutionalized spouse, thus disqualifying the institutionalized spouse for Medicaid benefits unless proper arrangements are put in place. Most people are aware of the fact that there is a five year look-back period that applies to certain Medicaid transfers. However, many do not realize that the five year look-back period is a maximum, and there are many things that can be done to protect assets over a much shorter period of time with proper planning, and in particular with advance planning. Readers are advised to consult previous issues of this newsletter for additional information.

Estate And Gift Tax Changes. Beginning in 2014, the federal estate tax exclusion amount now is $5.34 million. This applies also for gift tax purposes. Because each spouse is entitled to a $5.34 million exclusion amount, with proper planning a total of $10.68 million in value can be excluded for federal estate tax purposes as a consequence of the death of both spouses. The annual gift tax exclusion amount remains unchanged at $14,000. Many people do not realize that the $14,000 annual exclusion amount relates only to the filing of gift tax returns. If a donor makes a gift of more than $14,000 to any one individual, the donor is required to file a gift tax return, but he or she will not pay any gift tax, nor will the donee who receives the gift. Rather, the excess over $14,000 will reduce the $5.34 million exclusion amount, so that less value will be available at the time of the death of the donor.

Avoiding Probate. Many people paint a grim picture of the horrors of probate. Often this is because the person with that point of view is trying to sell you something. That person will typically be a financial advisor who in many instances will receive a commission for the sale of products that will be larger, particularly over time, than the cost of probate would be even if probate was required. The average person spends substantially less money settling their affairs than the cost of a funeral. Many people pay virtually nothing at all.

To be sure, avoiding probate is a legitimate estate and personal planning goal. However, there are many ways to avoid probate, and some alternatives make more sense than others. In some instances, the probate process is desirable, at least in regard to certain assets and in particular circumstances. As a general rule, however, it is much better to plan your affairs and to establish an orderly mechanism for the transfer of property at death with a minimum of complications. Probate avoidance is a part of that process.

Previous issues of this newsletter have highlighted some of the problems of the improper use of pay-on-death arrangements, transfer-on-death arrangements, and beneficiary arrangements. Those arrangements, as well as various kinds of trusts, will “avoid probate.” However, those arrangements must be utilized properly, and if not implemented effectively, the result can be worse than the probate process. Consequently, while people should plan to “avoid probate,” people should not worry or anguish about the process. It is rarely the nightmare predicted by some. The average person will spend more money on health care in one month than they will pay in legal costs, including the settlement of their estate, over a lifetime. People should put their concerns in perspective and get proper advice regarding their assets and finances.