808-593-8885

Happy New Year!  Here is the 2020 update on important numbers used in Estate Planning and Medicaid Planning in Hawaii.

How much money and property can one have at death without paying estate taxes? At the end of 2017, Congress passed a new tax bill, which the President signed into law. This law doubled the previous estate and gift tax exemption from $5,000,000 to $10,000,000 (adjusted for inflation). Taking into account inflation, the actual amount exempt from federal estate tax for 2020 is $11,580,000 per person. This “doubling” of the estate tax exemption is set to expire at the end of 2025, so unless Congress acts to make it permanent, the federal estate tax exemption will go back to $5 million per person (adjusted for inflation) in 2026.

Back in 2012, the Hawaii State legislature passed a law amending Hawaii’s estate tax exemption to match the Federal estate tax exemption so Hawaii’s estate tax exemption would have also been $11,580,000 for 2020. However, on June 7, 2018, Governor Ige signed Senate Bill 2821 into law which froze the Hawaii estate tax exemption at the December 31, 2017 amount of $5,000,000 adjusted for inflation.

The wording of that law was vague so we weren’t sure whether the State of Hawaii Department of Taxation would take into account any adjustments for inflation after December 31, 2017.  However, the Hawaii Legislature cleared that up last summer by amending the law to add the words “as if the decedent died on December 31, 2017” making it clear that for 2018 and on, the Hawaii estate tax exemption amount is now set at $5,490,000 with no adjustments for inflation allowed.

This makes estate tax planning more complicated and much more important for people who have close to or more than $5,000,000. In other words, you might not have any federal estate tax, and yet have a Hawaii estate tax. In addition, the Hawaii State Legislature added a new estate tax bracket last summer charging 20% on net taxable estates over $10,000,000. A very wealthy person could be subject to a 20% state estate tax and a 40% federal estate tax, resulting in a combined 52% tax on every dollar in the highest bracket!

*Note: Non-resident, non-citizens only have an estate tax exemption of $60,000.

How much can a person give away without paying a gift tax?  In 2020, 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 wife who is a U.S. citizen without reporting to the IRS, but only $155,000 to a non-U.S. Citizen spouse each year as an exclusion from gift tax.  If you give more than $15,000 to any other person in one year, then the amount over $15,000 is a “taxable gift.”  You are supposed to file a gift tax return to report the gift, but you can give up to $11,580,000 of taxable gifts using up some (or all) of your total lifetime exemption amount and still not pay any gift tax.

Hawaii has no State gift tax. This combination creates a loophole for people with estates greater than the $5,490,000 Hawaii estate tax exemption amount, but less than the $11,580,000 federal estate tax exemption amount to possibly give away ALL their assets before death and completely avoid all gift and estate taxes.  However, you might want to act quickly before the larger federal gift tax exemption is set to expire in 2025 and go back to $5,000,000 adjusted for inflation.

Just remember that if you do give away assets, 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 expert advice about the effect of both 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 $128,640 in non-exempt assets and still have Medicaid pay for the nursing home costs for one of them. This $128,640 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 $893,000 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 a married couple, they can each have $2,000 unless they are applying in the same month, in which case they can only have $3,000 combined.

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 must wait 5 years before getting Medicaid help.  There are ways to reduce or eliminate the penalty period even before 5 years has passed.  We can help families to 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 couple’s 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 $3,216 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 $3,216.  The one who is in the nursing home must 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 Hawaii if a person dies with real estate of any value; or any other assets worth over $100,000 combined, which are not in a revocable living trust, not in joint names with right of survivorship, and do not name a beneficiary.

© OKURA & ASSOCIATES, 2020