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.
SWIRCA & More 2015 Rivercity Masquerade Ball and Auction. This wonderful annual event will be held on Saturday, February 28, 2015. For those readers who are unable to attend, please consider making a donation to this outstanding organization which provides essential help to people of all ages. Southwestern Indiana Regional Council on Aging (“SWIRCA & More”) provides assistance to children as well as adults and the elderly. Its principal goal is to enhance opportunities for independent living. SWIRCA & More provides a myriad of services which include serving almost 300,000 meals each year in its six-county service area covering Gibson, Perry, Posey, Spencer, Vanderburgh and Warrick counties, screening all persons who may require admission to a nursing home to be sure that the need for long-term care exists and that people are not simply being “warehoused” when other arrangements or facilities would be more appropriate, and helping the disabled to circumnavigate the complex processes of the Medicare and Medicaid programs. SWIRCA & More also helps retirees and disabled individuals to make choices pertaining to their insurance, including Medicare supplemental coverages and Part D prescription coverage. The foregoing is a very short list of only a few of the many services provided by SWIRCA & More. There is virtually no one who will not be impacted by SWIRCA & More at some point in his or her life, and when one considers the aging nature of our population, it is likely that our families will benefit from the efforts of SWIRCA & More staff at several different times during our lives. Please consider this wonderful organization when making decisions about the charities that you intend to support. Tax deductible donations may be made payable to SWIRCA & More and sent to Post Office Box 3938, Evansville, Indiana 47737-3938. Please consult the website of SWIRCA & More www.swirca.org and review the enclosed information accompanying this newsletter.
Estate And Gift Tax Exemption Update. Beginning in 2015, the federal estate tax exclusion amount, as well as the gift tax exclusion amount, increased from $5.34 million to $5.43 million. Each spouse will be entitled to a $5.43 million exclusion amount. With proper planning, a total of $10.86 million in value can be excluded for federal estate and gift tax purposes. The annual gift tax donee exclusion amount will remain unchanged at $14,000. The $14,000 annual exclusion amount is an issue that most people misunderstand. Most people think that if a person gifts more than $14,000 to any one individual, a gift tax will occur. What happens is that the excess gift should be reportable, but it would be offset by the $5.43 million gift tax exclusion amount until that amount has been exhausted. Stated differently, any person can gift $14,000 plus an additional $5.43 million, and still not pay any gift tax. The gift received by the donee is not subject to tax. Further, if a person makes a gift of more than $14,000 to any one individual, and does not file a gift tax return, there would not be a penalty imposed for the failure to file because there would be no taxes due. Nevertheless, when people make gifts in excess of $14,000 per donee, it is advisable to file a Form 709, U.S. Gift Tax return. It is through the return process that the IRS keeps track of the portion of the $5.43 million gift tax exclusion amount that a person has utilized during his or her lifetime. Any portion utilized during his or her lifetime will not be available at death, and will reduce the $5.43 million estate tax exclusion amount by the same amount used for gift tax purposes.
Medicaid vs. Medicare. Many people are confused about the difference between Medicare and Medicaid in the context of payment for long term care. Medicare will pay for no more than 100 days of nursing home care, and even then Medicare will pay only when the patient has had a hospital admission of three days and is receiving skilled care in the long term care facility. People who are admitted directly to the nursing home, or who are not receiving skilled care, will not receive Medicare reimbursement for long term care. Please refer to the September 2014 issue of this newsletter for additional information concerning Medicare coverage for long term care. People continue to be confused about what Medicare actually covers. For most purposes people should assume that Medicare will not pay for long term care, since the coverage, when it is applicable, is very limited.
Leaving Retirement Benefits To A Spouse. Unless there is a very good planning reason to do otherwise, it is generally best for one spouse to leave his or her IRA or other retirement benefits outright to the surviving spouse. The surviving spouse will then have many options available, such as rolling the IRA over into his or her own IRA, with the resulting flexibility that doing so affords, or perhaps disclaiming a portion of the IRA so that it will become payable to a contingent beneficiary. If the surviving spouse is a second or subsequent spouse, and if the deceased spouse has children by a prior marriage, then it may be necessary to interpose a certain kind of a trust arrangement in order to protect a part or all of the retirement proceeds. However, for most people, from a federal estate perspective, allowing the surviving spouse to receive the IRA outright and to make appropriate elections at that time, would provide the most flexibility. From a federal estate tax perspective, to the extent of the deceased spouse’s unused exemption amount (i.e., the portion of the $5.43 million federal estate tax exclusion amount not used at death), the unused amount (called the “deceased spouse’s unused exemption amount” or “DSUEA”) will be available to the surviving spouse at the time of the surviving spouse’s subsequent death. In other words, the deceased spouse’s exemption amount is “portable,” giving both spouses, together, a total of $10.86 million of federal estate tax exemption. Consequently, even if the deceased spouse’s IRA is substantial, and even if it is received outright by the surviving spouse, at the time of the surviving spouse’s death, unless the combined assets of the spouses exceeds the $10.86 million exemption amount, there would be no federal estate tax to result at the time of either death. All people need to give considerably more thought to IRA and retirement plan beneficiary designations than they typically do, as the issues applicable to retirement benefits are much more complex than most people realize.
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.