Estate Planning | Making a Difference One Family at a Time

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good estate planningIn our last post, we shared some of the things that good estate planning can do for you and your family. Since there are so many of them, we have to follow up with a second installment.

Long-Term Care

When you get good estate planning information from an attorney, you can avoid costly errors related to long-term care. Let’s look at the details.

First, you can have an ideal asset transfer plan in place, but it won’t do much good if there is nothing to pass along to your loved ones. Even if you have planned ahead for retirement effectively, there is a looming expense that you may have overlooked.

About 70 percent of seniors will need help with their activities of daily living at some point in time. Over half of them will require professional assistance, and 35 percent of elders will spend time in nursing facilities.

Medicare does not cover a stay in a nursing home or assisted living community. Plus, it will not pick up the tab for in-home care that is provided by a paid provider. This is a problem, because long-term care is very expensive.

How much are we talking about? In the Hartford area where we practice, the median charge for a private room in a nursing home last year was just under $180,000. According to the U.S. Department of Health and Human Services, 13 percent of people that require paid care receive the assistance for at least five years.

Nursing Home Asset Protection

This is a serious matter, but good estate planning can provide a solution. Medicaid will pay for long-term care if you can gain eligibility. To get assets out of your name to develop the right financial profile, you can establish and fund an irrevocable trust.

You would be able to accept distributions of the trust’s earnings before you apply for Medicaid. Many people rely on income from investments, so this is a key element. The principal would not be accessible, but that’s the point. It will not count if you apply for Medicaid.

Advance planning is the key to the successful execution of this strategy. There is a five-year look back period, so you have to fund the trust at least 60 months before you apply.

Estate Tax Efficiency

Financial success is great on the one hand, but there is a potential estate planning challenge. The federal estate tax can significantly impact your legacy with its 40 percent rate. It is potentially applicable on the portion of your estate that exceeds the exclusion or credit.

This year, the exclusion stands at $12.06 million. This is the highest it has ever been, and it is a product of a provision in the Tax Cuts and Jobs Act of 2017.

There is also a federal gift tax in place to stop people from giving gifts to avoid the estate tax. This multimillion-dollar exclusion applies to large gifts and the estate that will be transferred after you are gone.

The provision that established this exclusion is going to sunset when 2025 comes to a close. In 2017 when the measure was enacted, the exclusion was $5.49 million. When it sunsets, the exclusion will return to this level indexed for inflation.

Between now and then, you can divest yourself of assets to gain estate tax efficiency before the exclusion is cut in half. There are certain types of trusts that can be funded to transfer assets at tax discounts, and of course, direct giving is always a possibility.

In addition to the federal estate tax, Connecticut is one of 12 states with a state-level estate tax. On top of that, we are the only state with a gift tax. The exclusion is contact form on this site you can use to send us a message.

Jeffrey A. Nirenstein, Estate Planning Attorney
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