Estate Planning Update
Estate Tax Update
As you may have heard, the "Economic Growth and Tax Relief Reconciliation Act of 2001" ("Act") gradually reduces the Federal estate tax rate over the next several years until 2010, when the Federal estate tax is repealed. It also provides that the amount that each person can pass free from Federal estate tax ("exemption") will increase in stages over the next several years as follows:
| Year | Federal Exemption |
| 2006 | $2,000,000 |
| 2007 | $2,000,000 |
| 2008 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010 | Repeal |
| 2011 | $1,000,000 |
However, unless Congress takes further action, the estate tax will reappear in 2011 with a $1,000,000 exemption. Depending on Congress, the staged reduction and full repeal of the estate tax pursuant to the Act could be revised, delayed, or even abandoned.
Please note that the Act only applies to the Federal estate tax and each individual state is still free to have its own estate or other inheritance tax. The current Minnesota estate tax exemption amount is $1,000,000 as of January 1, 2006. It is scheduled to remain at this level for the foreseeable future. Thus, if your estate is over $1,000,000 there is the potential for Minnesota estate taxes.
Given the uncertainty with Federal law in this area, it is more important than ever for everyone to review his or her estate plan more frequently.
Changes to Medical Assistance Laws
The "Deficit Reduction Act of 2005," which is currently before Congress and almost certain to be passed when the House of Representatives reconvenes on or shortly after January 31, 2006, will make some significant changes to the Medicaid (known as Medical Assistance in Minnesota) asset transfer rules. Two of the proposed provisions will severely impact the ability to preserve assets from having to be used to pay for nursing home care:
- Increase in the "Look-Back" Period. The proposed new law will increase the current look-back period for transfer of assets from 3 years to 5 years. This means that upon application for medical assistance you will be required to provide documentation of all transfers or gifts that have been made during the 5 years prior to the application date. For any gifts or uncompensated transfers made during this look-back period, you will be deemed "ineligible" for medical assistance benefits for a certain period of time, depending on the amount of the uncompensated transfer or gift. (Please note this includes any type of uncompensated transfer, including gifts to an individual, group, or even a charitable organization.)
- Change in the Start Date of the "Ineligibility" or Penalty Period. The proposed new law will also change the start date of any "ineligibility" period created by gifts or uncompensated transfers during the look-back period. During any period of ineligibility, it is the responsibility of the individual to pay for the cost of care (medical assistance will not pay). Under the proposed new law, instead of the ineligibility period beginning to run on the first day of the month after any such gift or uncompensated transfer is made, the ineligibility period will not begin to run until the date one applies for and is otherwise eligible for medical assistance. In other words, the ineligibility period will not begin to run until the nursing home resident is down to a minimal amount of assets and there will not be sufficient funds to pay for care during the ineligibility period. This will effectively eliminate many of the opportunities for gifting (preservation of assets) that exist under the current law.
- Effective Date of Provisions. The new transfer rules are expected to apply to all transfers occurring on or after the date of enactment of the new law. As noted above, it appears likely this law will be enacted when the House of Representatives reconvenes, or very shortly thereafter. They are currently scheduled to reconvene on January 31, 2006. There are some situations, therefore, where persons will want to consider gifting at this time.
Beware of Aggressive Marketing of "One Size Fits All" Estate Plans
It has come to our attention that people in the area are being increasingly contacted by individuals who offer to provide them with a comprehensive estate plan for a considerable fee, such as $2000 or $3000. Many times these claims involve the use of Revocable Trusts. Although at times the use of Revocable Trusts is an appropriate tool to use in the estate plan, it by no means is the only tool, and many times not even the best tool, depending on the situation. In addition, there are many other details that need to be addressed when creating an estate plan, other than just preparing documents. It appears many of these firms/companies do not take care in handling all aspects of the estate plans and many times are forcing a "cookie-cutter approach" onto individuals with regard to their estate planning.
It appears that many of these firms/companies are particularly targeting elderly individuals. If you should receive any such solicitation, we encourage you to carefully review their claims and to "just say no" if you are at all uncomfortable with their sales pitch. Also, please feel free to contact us if you have any questions.
If you have additional questions on Estate Planning, contact one of Melchert Hubert Sjodin's Estate Planning attorneys.
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