Finally a New Estate Tax Law – But What Does it Mean?
December 27, 2010
Unlike last year, when Congress tried to pass a law preventing the no estate tax in 2010 scenario, this year it did manage to pass a law extending the Bush era tax cuts that went into effect in 2002 but were set to expire on December 31, 2010. So what does that mean for next year and beyond?
Well, first of all, the new law is yet another temporary solution, this time for 2 years. So, we might be right back here again in December 2012. Nevertheless, the changes come as a bit of a surprise. To review, had there been no change the federal estate tax would have returned next year for estates greater than $1,000,000, with a tax rate of 55%. There had been some talk about going back to an exemption amount of $3,500,000, which was the case in 2009. Instead, President Obama signed into law an exemption amount of $5,000,000 and a tax rate of 35%.
For a married couple, with tax planning through the use of a credit shelter trut, that means they can transfer as much as $10,000,000 without paying federal estate tax. Not bad. Keep in mind, however, that many states have their own estate tax which remains unaffected by this new law. New Jersey residents owe tax on estates greater than $675,000 and New York residents on estates greater than $1,000,000.
What is somewhat surprising, however, is that the federal gift tax exclusion is once again unified with the estate tax. Over the last 9 years, as the federal estate tax exemption kept increasing, the lifetime gift exclusion remained at $1,000,000. In 2011, however, the gift tax exclusion will go up to $5,000,000. The gift tax rate will be 35%, the same as the estate tax rate.
So, what does this all mean for you and me? For one thing, most estates will escape federal estate tax but estate planning will still be necessary to minimize, or in some cases completely avoid, state estate taxes. Secondly, there are significant reasons to consider gifting more than the $13,000 per person per year annual gifts, now that $5,000,000 of gifts are exempt. It might be a good idea to take advantage of the huge gift exclusion which may or may not be available beyond the next 2 years. What remains unchanged is the specter of long term care. Before one considers any gifting a carefully crafted long term care plan must be in place.
65 and Still Working – Should I Enroll in Medicare? (Part 2)
December 20, 2010
What do you think about when you turn 65 in this country? For most people, Social Security and Medicare will quickly come to mind. Last week were talking about the basics of Medicare. This week we’ll pick up where we left off with Medicare Part B.
Part B covers doctors’ bills. It is possible to sign up for Part A but not Part B. Part B carries a separate premium (unlike Part A which has none) that, when you collect Social Security, is deducted from your Social Security payment. The premium ranges from $96.40 to $110.50 for most people. Because it is optional, some may decide to delay signing up for it if they have other insurance, through their employer or former employer, for example. If you wait, however, you could be hit with higher premiums, 10% more for each year you could have signed up and didn’t. And that lasts for the rest of your life.
But, the rules on when you need to sign up are confusing. Most should enroll at age 65 or when they retire, whichever is later – maybe. If you still have health insurance through your employer or your spouse’s employer you might be able to delay signing up, as long as there are at least 20 employees in your company. Otherwise, you should enroll. There are also special rules for federal government workers and other groups.
Medicare Part D is the prescription drug coverage introduced a few years ago. Part D rules differ from Parts A and B. Enroll too late and there is also a premium penalty, 1% for each month you wait. If you have “creditable” drug coverage from your employer’s plan, then the penalty may not be imposed. Your employer must tell you each year whether its’ plan is better than Medicare’s.
Medigap insurance covers what Medicare doesn’t. So, for example, it may cover some of your Medicare co-pays. These plans are regulated by the government, meaning there are a few basic plans that will cover certain standard things, the more comprehensive the plan the higher the premium. Switching in and out of these plans can be tricky. If you want to change plans without going through a medical screening process there are separate rules that apply.
Another option that Medicare offers is called Medicare Advantage. Most Advantage plans are HMO managed care plans. If you are enrolled in one of these plans you don’t get Parts A and B and you don’t need a Medigap policy. The premium will generally be lower but the negatives to these plans are similar to other HMOs in that your options for treatment may be more limited.
Turning 65 is a milestone. Making a decision on Medicare enrollment will have long term ramifications so do your research and choose wisely.
I’m 65 and Still Working – Should I Enroll in Medicare? (Part 1)
December 13, 2010
Much has been written about the oldest baby boomers starting to turn 65 next month and what it might mean for the future of long term care in this country. But, from a practical standpoint there are decisions that each new senior must make that so many are unaware of. Take Medicare for example. More Americans than ever are working beyond what once was the “automatic” retirement age of 65. How does that impact Medicare eligibility?
Most people know that Medicare is the government health insurance program for seniors and the disabled that is now 45 years old. For many years, turning 65 in this country has meant collecting Social Security and enrolling in Medicare. Except that for new seniors now, Social Security won’t start till they turn 66 years old. Many may then assume that age 66 applies to Medicare – it doesn’t – or they may simply choose to wait to enroll in Medicare, which could be a big mistake. That’s because you could limit your options in the future and it could cost you more money in premiums for the rest of your life.
Even if you are working and have health insurance benefits through your employer when you turn 65 you should sign up for Medicare Part A, which covers hospitalization expenses. The initial enrollment period is 6 months, beginning 3 months before and continuing through 3 months after your birthday. However, when during that 6 month period you sign up also matters. If you sign up before the month of your birthday then your coverage starts on the first day of the month of your birthday. Sign up during your birthday month and coverage begins the month after. Sign up later than that and your beginning date will be even longer, possibly 3 or 4 months later.
What about Medicare Part B? When should you sign up for that? We’ll discuss it next week along with Medigap policies Medicare managed care.
When is it Too Late to Plan?
December 6, 2010
Last month we lost one of our clients to an unfortunate accident. John was suffering from the early stages of Alzheimer’s Disease and living at home with his wife, Mary (not their real names). Mary was 20 years younger than John and still working to support the couple. We had begun to long term care plan and recommended a part time home health aide for John while Mary worked.
Early one morning, while Mary was still asleep, John awoke to use the bathroom. The progression of the disease had recently caused John to become increasingly unsteady on his feet and he had experienced a few minor falls but he was resistant to using his cane. When Mary awoke, she noticed the bathroom light on. When she went to investigate, she discovered John in the bathtub. He probably lost his balance, fell in the bathtub and died from the blow to his head. The news was devastating.
Could this tragedy have been prevented? Did we, as counselors to John and Mary, do everything we could? Certainly, a situation like this one calls out for the use of a Personal Emergency Response System (PERS) or Medical Emergency Response System (MERS). (Life Alert is the one most people know.) These systems enable seniors, in the event of emergency, to contact a call center which in turns notifies the police, ambulance or fire services. The senior wears the device as a wrist bracelet or necklace pendant. It is impossible to say whether John would have had time to use it in this instance.
There is, however, a broader lesson here. When we talk with clients about planning for long term care, especially with families that are already in crisis mode, their focus is usually on the here and now, which is certainly understandable. What services or assistance does Mom or Dad need right now? What most fail to realize, however, is that the level of need is anything but stable. What Mom or Dad needs now isn’t likely to be what they need 6 months or a year from now. But there isn’t a set schedule as to when those care needs will increase. It won’t be the same for everyone. And there won’t be anyone tapping you on the shoulder to say “now is the time to move to a safer environment”.
We so often talk with families about getting the appropriate level of care. It might mean in home care. It could be selling the home and moving to a facility. It’s never easy to hear, usually frightening to consider, and often the issue of cost is a primary obstacle. The failure to adapt, however, can have serious consequences, as we saw in John and Mary’s case. It is best to be “ahead of the curve”, not waiting for something to happen and then reacting to it. Tragedies can be avoided and financially, a better result is the outcome as well.
