2011 ESTATE PLANNING UPDATE
By
Sanford K. Okura
Here is a 2011 update on important numbers used in Estate Planning and Medicaid Planning in Hawaii.
How much money and property can a person have at death without paying estate taxes?
Under a temporary federal law, $5,000,000 is tax free this year and next year. From 2013, only $1,000,000 will be tax-free. The amount will probably be changed again in the next year or two. There is now also a Hawaii Estate Tax. The State Tax Department is saying that $3,500,000 is tax-free. In my opinion, the law is ambiguous. It could be argued that the state exemption is meant to be the same as the federal exemption – $5,000,000. I will inform you in this column of further changes and clarifications.
How much can a person give away without paying a gift tax? You can give $13,000 each year to each person without having to report it to the IRS. You can give any amount to a husband or wife who is a U.S. citizen without reporting to the IRS. If you give more than $13,000 to any person in one year, then the amount over $13,000 is a “taxable gift.” You have to file a gift tax return to report the gift, but for 2011 and 2012, you can give up to $5,000,000 of taxable gifts in your lifetime without paying a gift tax. This amount goes down to $1,000,000 in 2013. For the wealthy, now is the time to give. If you give assets away, there will probably be a Medicaid penalty if you need nursing home care. Do not give away assets (not even your home) without expert advice about the effect of both gift tax laws and Medicaid laws.
How much in assets can a husband and wife have and still qualify for Medicaid to pay nursing home costs for one of them? A husband and wife together can have $111,560 in assets and still have Medicaid pay for the nursing home costs for one of them. This $111,560 is in addition to the following exempt assets, which the government will not count: necessities such as clothing, furniture and appliances; motor vehicles; funeral or burial plans; one burial plot for each family member; one wedding ring and one engagement ring, and up to $750,000 of equity in a home.
If a person is not married, or if both husband and wife need nursing home help, how much in assets can each have and still qualify for Medicaid for nursing home costs? A single person can have $2,000; a married couple can have $4,000.
If you give away assets to your children, how long do you have to wait before you can qualify for Medicaid for nursing home costs without a penalty? The answer is 5 years. However, this does not mean that you have to wait 5 years before getting Medicaid help. There are ways to reduce or eliminate the penalty period.
If a person qualifies for Medicaid for nursing home costs, how much of the family income can the spouse keep? The spouse who is not in the nursing home (“community spouse”) can keep all of his or her own income (social security checks, pension checks, etc.). If the income of the community spouse is less than $2,739 per month, the community spouse can also be given some of the income of the one in the nursing home to bring the community spouse’s income up to $2,739. The one who is in the nursing home has to use the rest of his or her income towards nursing home costs, except for $50 a month, which can be kept.
When is a probate necessary? Probate is necessary if a person dies with real estate of any value in his name only or as a tenant in common. With assets other than real estate, probate is necessary in Hawaii if a person dies with assets worth over $100,000 which are not in a revocable living trust or joint account, and do not name a beneficiary.
How does Medicaid treat a residence that generates income? My elderly parents currently rent out the lower floor of their 2-story residence and regularly collect rental income (approximately $1,600 per month) in addition to pension and Social Security income. Will the rental income be problematic in qualifying for Medicaid if and when they need nursing home care?
“A husband and wife together can have $111,560 in ASSETS assets and still have Medicaid pay for the nursing home costs for one of them”
If a person is not married, or if both husband and wife need nursing home help, how much in ASSETS assets can each have and still qualify for Medicaid for nursing home costs? A single person can have $2,000; a married couple can have $4,000.
QESTION: WHEN THEY USE THE WORD “ASSET” ARE YOU REFERRING TO INCOME?
QESTION: WHAT ABOUT RETIREMENT ACCOUNTS?
@Carolyn – In Hawaii, this is how I believe the rental income would be treated: If one parent has to go into a nursing home, and qualifies for Medicaid, that parent’s share of the rental income would have to go to the nursing home along with that parent’s social security and other rental income, except for $50 per month, which the Medicaid recipient is allowed to keep each month. The share of the income going to the “community spouse” (the parent who is not on Medicaid) would not have to be turned over to the nursing home. However, it is not that simple. There are many other issues you need to be aware of and deal with. You need the help of a competent Medicaid planning attorney in your state. I suggest that you find an attorney in the state where your parents live to help you. Go to my article on “Protect Your Home From Medicaid Liens (Part 2)” and see the comments to that posting, and follow the instructions I gave to SuLee for finding the right attorney, but search for one in the state where your parents live. Good luck to you.
@John – If a person is not married, he or she must have $2,000 or less in “countable assets” to qualify for Medicaid for nursing home costs. “Exempt assets,” which you do not have to count include the person’s home property, basic maintenance items (things in the home like applicances, furniture, clothes, etc. which the person needs), automobiles, 1 funeral plan, and 1 burial plot per immediate family member, 1 wedding ring and 1 engagement ring. (Be careful, because even though the home property is exempt for the purpose of determining qualification for Medicaid benefits, it is not exempt for purposes of the government recovering assets to pay back themselves all the money they paid out for the person’s nursing home costs.) If a married couple both need Medicaid for nursing home help, each one must have $2,000 or less in countable assets. The word “asset” is not referring to income. Countable assets are things like real estate other than the home property, money in a checking account, savings account, C.D., or at home; stocks and bonds and mutual funds, cash value of life insurance policies, and all other items of value other than exempt assets. Retirement accounts such as IRAs, 401(k)s, 403(b) plans, annuities which can be liquidated, etc., are all counted as assets. The things that are counted as income and not as assets are basically social security checks and pension checks.
Will this still hold true in 2012?
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