Estate Planning Update 2019

By: Ethan R. Okura

Hawai‘i Herald Columnist

Happy New Year! The following is a 2019 update on important numbers used in estate planning and Medicaid planning in Hawai‘i.

How much money and property can a person have at death without paying estate taxes? At the end of 2017, Congress passed a new tax bill which the president signed into law. It doubled the previous estate and gift tax exemption from $5 million to $10 million (adjusted for inflation). Taking into account inflation, the actual amount exempt from federal estate tax for 2019 is $11,400,000 per person. This “doubling” of the estate tax exemption will expire at the end of 2025, so unless Congress acts to make it permanent, the estate tax exemption will go back to the $5 million per person exemption (adjusted for inflation) in 2026.

In 2012, the state Legislature amended Hawai‘i’s estate tax exemption to match the federal exemption. Hawai‘i’s estate tax exemption would likewise have been $11,400,000 for 2019. On June 7, 2018, however, Gov. David Ige signed Senate Bill 2821 into law, returning the Hawai‘i estate tax to the original $5 million adjusted for inflation, retroactive to January 2018.

On Nov. 20, 2018, the Hawai‘i Department of Taxation issued Announcement No. 2018-13. It stated that “the exemption amount will remain at the amount available to decedents dying during 2017.” That statement does not take into account the adjustment for inflation after 2017, so it’s unclear whether the Department of Taxation intends to allow an adjustment for inflation. The wording of the new law seems to require it, so if challenged in court, I believe the Department of Taxation would lose on the question of whether or not to allow an adjustment for inflation.

This makes estate tax planning more complicated and much more important for people who have close to or more than $5 million, especially if they have less than $11,400,000 and thought they wouldn’t have to plan for estate taxes at all.

How much can a person give away without paying a gift tax? In 2019, you can give $15,000 to each person without having to report it to the IRS. You can give any amount to your husband or to your wife without reporting it to the IRS, as long as he or she is a U.S. citizen. If your spouse is not a U.S. citizen, you can only give $155,000 each year as an exclusion from gift tax.

If you give more than $15,000 to any other person in one year, the amount over $15,000 becomes a “taxable gift.” You are supposed to file a gift tax return to report the gift, but you can give up to $11,400,000 of taxable gifts using up some (or all) of your total lifetime exemption amount and still not pay any gift tax. Hawai‘i does not have a state gift tax. This combination opens up many opportunities for the wealthy to give away assets without a gift tax or to protect assets from future creditors.

However, if you have more than $5,600,000, you may want to act now, as the larger gift tax exemption is set to expire in 2025. Just remember that if you do give assets away, there will probably be a Medicaid penalty if you need nursing home care in the future. Do not give away assets (not even your home or $15,000 per person) without first obtaining expert advice about the effects of gift tax laws, capital gains 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 $126,420 in non-exempt assets and still have Medicaid pay for the nursing home costs for one of them. This $126,420 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 and a burial plot for each household member; one wedding ring and one engagement ring and up to $878,000 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. For the married couple, each can have $2,000.

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 five years. However, this does not mean that you have to wait five years before getting Medicaid help. There are ways to reduce or eliminate the penalty period even before five years has passed. We can help families save their remaining money and/or the value of their home from nursing home costs and Medicaid liens without spending down everything —even at the last minute as the client is going into a nursing home without having planned ahead financially.

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 $3,160 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 $3,160. The one who is in the nursing home has to use the rest of his or her income towards nursing home costs and health insurance premiums, except for $50 a month, which can be kept for personal needs.

When is a probate necessary? Probate is necessary in Hawai‘i if a person dies with real estate of any value or other assets worth over $100,000, which are not in a revocable living trust, not in joint names with right of survivorship and do not name a beneficiary.

© OKURA & ASSOCIATES, 2019

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