Making a Difference

We have just celebrated the MLK Holiday with a day of service for many across the nation.  Carolyn Newsom, an attorney and intern at my office, recalls her father saying “we have a responsibility in life to put more jelly beans back in the jar than we take out.”   She expressed that “it was his folksy way of saying that we have a duty to serve others and to help make the world a better place in which to live.”

As evident in the rise of volunteerism, many others would agree with this “folksy” expression.  In honoring Martin Luther King, Jr., many organizations sponsored not only parades, speeches, panel discussions but also projects to clear vacant lots, help rehab a housing unit or plant a garden for a homeless shelter.  We have witnessed volunteers who helped victims of Sandy and other devastations.

 In addition to volunteer efforts, many people give their financial support.  With proper planning this support can also have a lasting impact.  Make charitable contributions a part of your estate plan which can establish the basis for continuation of your dream.

Federal Estate Tax

The American Taxpayer Relief Act which was signed into law on January 2, 2013 provided “permanent” (unless continued political debate over the federal budget result in further changes) rules that create a  more predictable environment for planning and decision making.  As pertains to the Federal Estate Tax the following is now in effect:

1.      Who has to pay federal estate tax?  If your estate is in excess of $5 million dollars (excess of $10 million for couples), the federal estate top tax rate would be 40%.  Your estate will not be subject to federal estate tax if your estate falls under these limits.

2.      Do spouses have to pay the tax when they inherit from each other?  The unlimited spousal deduction from estate tax still applies under the new law.  Though there will not be a tax upon the death of the first spouse, the tax would apply at the second spouse’s death if the estate exceeds the limits noted in the first question. 

3.      What is the status on lifetime gifts?  The federal estate gift tax exemption is the same as the federal estate tax, $5 million dollars, indexed for inflation. The 2013 exemption is $5,250,000.  Gifts in excess of the limit will have a top tax rate of  40%.  In 2013 you can give up to $14,000 to as many individuals as you like and this does not require filing of a gift tax return.    

Health Care Expenses

I was reading an article recently in an AARP publication that experts now estimate a couple aged 65 will need nearly $250,000 in addition to Medicare, to pay for future medical costs.  This amount is much higher if nursing home care is ever needed.  More importantly, if planning is not done, children could be held responsible for their parents’ long term care debt.

Approximately 25% of seniors will spend some time in a skilled nursing facility and Medicare benefits for these services are conditional and time limited.  Therefore, the options for payment are, private pay (if you have the money), long-term care insurance (if you purchased when younger and healthy) or Medicaid.  Medicaid is only available to those eligible for the benefit.  An individual or couple is required to spend down assets to apply for Medicaid.      

In a recent case, the court held that a son was liable for his mother’s nursing home bill under Pennsylvania’s Filial Support law.  This law is not new but was rarely used to go after children.  Financing healthcare and protecting your estate can be complex.  Minimizing your risks requires planning and proactive action that should start with a comprehensive estate plan.