Law provides Medicaid special protections for the spouses of Medicaid applicants to make sure the spouses have the minimum support needed to continue to live in the community while their husband or wife is receiving long-term care benefits, usually in a nursing home.

The so-called “Medicaid spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of “institutionalization,” the day on which the ill spouse enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days. (This is sometimes called the “snapshot” date because Medicaid is taking a picture of the couple’s assets as of this date.)

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in assets (an amount may be somewhat higher in some states). In general, the community spouse may keep one-half of the couple’s total “countable” assets up to a maximum of $130,380 (in 2021). Called the “community spouse resource allowance,” this is the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $26,076 (in 2021).

Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse.

Some states, however, are more generous toward the community spouse with Medicaid spousal protections. In these states, the community spouse may keep up to $130,380 (in 2021), regardless of whether or not this represents half the couple’s assets. For example, if the couple had $100,000 in countable assets on the “snapshot” date, the community spouse could keep the entire amount, instead of being limited to half.

The income of the community spouse is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted. Thus, even if the community spouse is still working and earning, say, $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid. In some states, however, if the community spouse’s income exceeds certain levels, he or she does have to make a monetary contribution towards the cost of the institutionalized spouse’s care. The community spouse’s income is not considered in determining eligibility, but there is a subsequent contribution requirement.

But what if most of the couple’s income is in the name of the institutionalized spouse and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depends on what the Medicaid agency determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula based on his or her housing costs. The MMMNA may range from a low of $2,155 to a high of $3,259.50 a month (in 2021). If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income.

Example: Joe Smith and his wife Sally Brown have a joint income of $3,000 a month, $1,700 of which is in Mr. Smith’s name and $700 is in Ms. Brown’s name. Mr. Smith enters a nursing home and applies for Medicaid. The Medicaid agency determines that Ms. Brown’s MMMNA is $2,200 (based on her housing costs). Since Ms. Brown’s own income is only $700 a month, the Medicaid agency allocates $1,500 of Mr. Smith’s income to her support. Since Mr. Smith also may keep a $60-a-month personal needs allowance, his obligation to pay the nursing home is only $140 a month ($1,700 – $1,500 – $60 = $140).

In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support.

Contact the elder law attorneys at Elville and Associates to find out what Medicaid spousal protections are available and what you can do to make sure your spouse has enough income to live on.  The firm’s elder law attorneys are well-versed in Medicaid law and can offer solutions and peace of mind to your family’s situation. 

For the dollar amounts that your state allows community spouses to retain, go to Find an Attorney, click on your state, and then “Key Medicaid Information” for that state.

Posted in Blog | Comments Off on Medicaid Spousal Protections for the Healthy Spouse

By:  Jeffrey D. Stauffer, Executive Director – Elville Center for the Creative Arts, Inc.

Do you have an instrument taking up space in a closet or attic not being used anymore?  Perhaps your son or daughter has moved on to other activities and their instrument could use a good home!

As the fall semester in schools is underway, the Elville Center has developed many new school partnerships that have many, many needs for instruments for students that want to participate in band or orchestra but don’t have the means to do so on their own.  And, that’s where the Elville Center and you come in.

The Elville Center for the Creative Arts depends on people like you to donate musical instruments we then refurbish so they’re like new before we get them in the hands of student musicians in music programs we support in local schools.  We also fund other educational initiatives in schools as well as in organizations such as the Columbia Orchestra and The Annapolis Symphony Orchestra, to name just a couple.  Virtually all instruments are gladly accepted – clarinets, trumpets, saxophones, violins, bassoons, flutes, guitars, cellos, baritones – and everything in between (no pianos or recorders, though – sorry!)

The Elville Center is a small charity and we work hard to make a difference in the communities we serve.  Typically, an instrument can cost  anywhere between $75 and $200 to refurbish.  And, as a small charity, we ask anyone looking to donate an instrument to consider making a monetary donation of $50 or more to help with the cost to refurbish the instrument and/or purchase necessary items such as a new case, new mouthpieces, reeds and other supplies.  If this is something you’re willing and able to do, it would be most appreciated and make a tremendous difference; however, if it is not, you’re still welcome to donate the instrument and it will find a good home with one

of our school music partners.

If you’re willing and able to donate, you can do so by visiting here — https://www.paypal.com/donate/?hosted_button_id=TPBET4HBSGC6W —

which is the donation page on our website.

The one instrument we are not accepting at this time are pianos, and this is for many reasons.  To learn how you can donate your piano, please view our suggestions on our website here.

Lastly, if you’d like the Elville Center to furnish a tax receipt for your instrument and/or monetary

donation, as a 501(c)(3) non-profit we’re very happy to do so.  The two pieces of

information we need to furnish this receipt are your full name and home address (to be used solely for this letter).

You’re welcome to drop off the instrument at our office, which is located within the office of Elville and Associates, P.C., an estate planning, elder law, and special needs planning firm based in Columbia.  The charity was founded by the firm’s Managing Principal and Lead Attorney, Stephen Elville.  I, Executive Director Jeffrey Stauffer, also work for the firm as its Community Relations Director.

To donate or for more information, please contact me at jeff@elvillecenter.org, or at 443-676-9691.  You can also fill out a contact form on our website home page by clicking here.

Thank you again for your interest in the Elville Center for the Creative Arts and have a wonderful day!  We value your support!

With appreciation,

Jeffrey D. Stauffer

Executive Director

Elville Center for the Creative Arts, Inc.

7100 Columbia Gateway Drive, Suite 190 Columbia, Maryland 21046

P:  443-393-7696 (Main)

E:  jeff@elvillecenter.org

W:  jeff@elvillecenter.org

Posted in Blog | Comments Off on Donate Your Used or Unwanted Musical Instruments to the Elville Center Today!

Inheriting real estate from your parents is either a blessing or a burden — or a little bit of both. Figuring out what to do with the property can be overwhelming, so it is good to carefully think through your choices. 

There are three main options when you inheriting real estate: move in, sell, or rent. Which one you choose will depend on your current living situation, whether or not you have siblings, your finances, whether the house has a mortgage or liens, and the physical condition of the house. The following are some things to consider:

• Taxes. In most situations, you do not have to pay taxes when inheriting real estate, but if you sell the property, you will be subject to capital gains tax. The good news is that inherited property receives a step-up in basis. This means that if you inherit a house that was purchased years ago for $150,000 and it is now worth $350,000, you will receive a step up from the original cost basis from $150,000 to $350,000. You should get an appraisal done as soon as possible to find out how much the house is currently worth. If you sell the property right away, you should not owe any capital gains taxes. If you hold on to the property and sell it for $400,000 in a few years, you will owe capital gains on $50,000 (the difference between the sale value and the stepped-up basis). On the other hand, if you use the property as your primary residence for at least two years and then sell the property, you may be able to exclude up to $250,000 ($500,000 for a couple) of capital gains from your taxes. 
• Mortgage. Does the house have a mortgage on it – either a regular mortgage or a reverse mortgage? Sometimes it is specified in the estate plan that the estate will pay off the mortgage. In cases where it doesn’t, with a regular mortgage you will likely have to assume the monthly payments. There are some mortgages, however, that require the heirs to pay off the mortgage immediately. With a reverse mortgage, you usually have a limited time to pay off the mortgage in full. 
• Repairs. After inheriting real estate, it is a good idea to hire a home inspector to assess the condition of the house. If the property needs significant repairs, it may affect what you do with it. Renovations and repairs can be costly and time-consuming. You may want to consult with a realtor before taking on any big projects. It may not make sense to spend a lot of money on the house.
• Property Maintenance. Once you inherit the property, you will be responsible for maintaining it. The first thing you want to do after inheriting real estate is make sure the utilities and homeowners’ insurance are transferred to the new owners and continue to be paid on time. You will also need to pay all the property taxes and any other fees associated with the property. 
• Other Owners. If inheriting real estate with siblings, you will all need to agree on what to do with the property. If one sibling wants the property, he or she can buy it from the other siblings. Otherwise, you can sell or rent the property and split the profits. If there is a dispute among siblings, you can try professional mediation. In mediation, the disputing parties engage the services of a neutral third party to help them hammer out a legally binding agreement that all concerned can live with. The disputing parties can control the process and they have a chance to explain their perspectives and feelings. If you go to court, the judge will likely order the house to be sold so the profits can be split. 

Ultimately, there are many decisions to make when inheriting real estate and deciding what to do with it can be a very emotional decision. If possible, try not to rush into any decisions until you’ve had time to thoroughly consider your options.  Also, be sure to speak with the estate planning attorneys at Elville and Associates to ensure your inherited real estate is accounted for in your estate plan.

#elvilleeducation

Posted in Blog | Comments Off on When Inheriting Real Estate, Consider Your Options

When interest rates are low, intrafamily loans can be a good way to assist a relative (typically a child) with purchasing a house or a family business, and in certain circumstances they can be used to gift money to the next generation. 

An intrafamily loan allows family members to borrow money from each other at a special rate, but it must be structured properly so that the loan is not considered a gift. This means the intrafamily loan must have a written promissory note, require repayment, and charge interest (if the loan is for more than $10,000). The IRS sets the Applicable Federal Rate (AFR) each month, and the interest on the intrafamily loan must equal the AFR. The rate is different, depending on the term of the loan, which can be a short-term loan (0-3 years), a mid-term loan (3-9 years), or a long-term loan (9 or more years). The AFR is typically lower than the interest rate a bank would charge, and the borrower’s credit doesn’t affect the loan, so someone with bad credit can still get an intrafamily loan. 

When structured properly, an intrafamily loan can assist children with purchases and pass on assets. The following are some of the ways an intrafamily loan can be used: 

• Pay for a house. An intrafamily loan can be used to fund a mortgage for children or grandchildren. Because the interest rates are lower, the children will pay less overall than going through a traditional mortgage lender. 
• Pass on a family business. Depending on how large the business is, giving away a business could exceed the prevailing gift tax exemption. Instead, parents can loan money to a child to purchase the family business. Parents who are financially able could use the annual gift limit ($15,000 in 2021) to give children money to repay the intrafamily loan. Alternatively, if the family business produces income, the child can use the income to pay back the loan. Even if the business doesn’t exceed the gift tax exemption, this can be a good strategy for parents who want to pass on the business, but still need a steady income stream. 
• Pass on assets. An intrafamily loan can be used as a method of passing on assets provided the borrower can invest the money in a way that brings in a higher rate of return than the interest rate on the loan. Given the low interest rate on an intrafamily loan, this can be a successful strategy. If the intrafamily loans are a large one, it may be wise to loan the money to a family trust. The trust invests the money and repays the loan. After the loan is repaid, the remaining assets are protected by the trust and can be distributed to beneficiaries as dictated by the trust terms. 

The downside of an intrafamily loans are the same as with any loan: The loan must be repaid. If the child defaults on the intrafamily loan, it could trigger a gift tax for the person making the loan. It is also important to have the correct paperwork and documentation. 

An intrafamily loan should only be set up in consultation with the experienced estate planning attorneys at Elville and Associates.  Consider a consultation to discuss your situation further by contacting the firm’s Legal Administrator, Mary Guay Kramer, at mary@elvilleassociates.com, or at 443-741-3635.

#elvilleeducation

Posted in Blog | Comments Off on How to Use Intrafamily Loans as Part of Your Estate Plan

The SECURE Act, passed at the end of 2019, changed a number of rules regarding inherited IRAs, making it more difficult for most beneficiaries to save on taxes by “stretching” distributions over many years. However, an exception to the new rules potentially changes advice that special needs planners often give clients, and leaving an IRA to a special needs trust is no longer such a bad idea.

For many reasons, it’s usually not advisable to make an individual with special needs the beneficiary of an IRA or 401(k) plan (i.e., leaving an IRA to a special needs trust). She may not be able to manage the funds, and owning the account may render her ineligible for vital public benefits. This is why planners always recommend that parents with children with special needs leave their share of their estates in a special needs trust for the child’s benefit. But parents are often encouraged to leave their retirement plans to other children, if any, because holding a retirement plan in a special needs trust gets complicated.

Why a SECURE SNT Can Save in Taxes

But in light of the SECURE Act’s new rules, this advice may no longer apply, especially in the case of people with larger retirement plan accounts. Under the terms of the SECURE Act, most people who inherit retirement plans now must withdraw all the funds, and pay income taxes on them, within 10 years of inheriting them. One of several exceptions to this rule is recipients who are disabled. They can withdraw the funds over their life expectancies, which can be several decades, both postponing tax payments and potentially paying at lower rates for two reasons.

First, by spreading out the withdrawals over many years, the withdrawn funds are less likely to push the recipient into a higher tax bracket. Second, a beneficiary with a disability is likely to be in a lower tax bracket in the first place than a non-disabled beneficiary.

Happily, the new law states that the retirement plan owner can designate a SNT as the beneficiary, and the trustee can use the required minimum distributions to pay for the care and support of the person with special needs.  Leaving an IRA to a special needs trust is now a viable option. 

For these reasons, it may well make more sense for some people to have some or all of their retirement plans payable to a special needs trust for their children or grandchildren with special needs, including leaving an IRA to a special needs trust. It’s still more complicated to make use of a trust, but now the benefits of doing so are more likely to justify the added expense and complications. Whether it makes sense in your case depends on your exact situation.

Review Your Existing SNT

You should also be aware that if you have an existing special needs trust that was designed to accept retirement plan benefits, it needs to be updated to conform with the SECURE Act. Whether you have questions about your existing plan or would like to consider creating a SECURE special needs trust, contact your special needs planning attorneys at Elville and Associates.  Through their educational approach to planning, they’ll counsel you on the best approach for you and offer peace of mind along the way.  You can also reach out to the firm’s Legal Administrator, Mary Guay Kramer, at mary@elvilleassociates.com or at 443-741-3635, and she’ll gladly work with you to set a convenient time to meet with one of our attorneys to discuss your planning needs.

#elvilleeducation

Posted in Blog | Comments Off on Leaving an IRA to a Special Needs Trust Is No Longer Such a Bad Idea

The VA offers two veterans’ disability programs. Disability compensation is available only for veterans with service-connected disabilities, while the disability pension benefit is available to anyone who served during wartime and has a disability. The disability does not have to be related to military service.

Disability compensation benefit

If you have an injury or disease that happened while on active duty or if active duty made an existing injury or disease worse, you may be eligible for disability compensation/veterans’ benefits. The amount of compensation you get depends on how disabled you are and whether you have children or other dependents. To determine your disability rating, which is used to calculate compensation, you may use this disability calculator. Click here to see the current compensation rates. Additional funds may be available if you have severe disabilities, such as loss of limbs, or a seriously disabled spouse.

Disability pension benefit

The Veterans’ Administration pays a pension to disabled veterans who are not able to work. This veterans’ benefit is also available for surviving spouses and children. This pension is available whether or not your disability is service-connected, but to be eligible you must meet the following requirements:

• You must not have been discharged under dishonorable conditions.
• If you enlisted before September 7, 1980, you must have served 90 days or more of active duty with at least one day during a period of war. Anyone who enlisted after September 7, 1980, however, must serve at least 24 months or the full period for which that person was called to serve.
• You must be permanently and totally disabled, or age 65 or older. You will need a letter from your doctor to prove that you are disabled.

In addition, your income must be below the yearly limit set by law; called the Maximum Annual Pension Rate (MAPR). The MAPR for 2021 is below:

Veteran with no dependents	$13,931
Veteran with a spouse or a child	$18,243
Housebound veteran with no dependents	$17,024
Housebound veteran with one dependent	$21,337
Additional children	$2,382 for each child

Your veterans’ benefit depends on your income. The VA pays the difference between your income and the MAPR. The pension is usually paid in 12 equal payments.

Example: John is a single veteran and has a yearly income of $8,015. His pension benefit would be $5,916 (13,931 – 8,015). Therefore, he would get $493 a month.

Your income does not include welfare benefits or Supplemental Security Income. It also does not include unreimbursed medical expenses actually paid by the veteran or a member of his or her family. This can include Medicare, Medigap, and long-term care insurance premiums; over-the-counter medications taken at a doctor’s recommendation; long-term care costs, such as nursing home fees; the cost of an in-home attendant that provides some medical or nursing services; and the cost of an assisted living facility. These expenses must be unreimbursed. This means that insurance must not pay the expenses. The expenses should also be recurring this means they should recur every month.

Aid and Attendance

A veteran who needs the help of an attendant may qualify for additional help on top of the disability pension benefit. The veteran needs to show that he or she needs the help of an attendant on a regular basis. A veteran who lives in an assisted living facility is presumed to need aid and attendance.

A veteran who meets these requirements will get the difference between his or her income and the MAPR below (in 2021 figures):

Veteran who needs aid and attendance and has no dependents $23,238 Veteran who needs aid and attendance and has one dependent $27,549

How to apply

You can apply for both veterans’ benefits by filling out VA Form 21-526, Veteran’s Application for Compensation or Pension. If available, you should attach copies of dependency records (marriage & children’s birth certificates) and current medical evidence (doctor & hospital reports). You can apply online at https://www.va.gov/disability/how-to-file-claim/.

Veterans of the United States armed forces may be eligible for a broad range of program, services, and veterans’ benefits provided by the U.S. Department of Veterans Affairs (VA).  The process to apply can be complicated, though, and rules have recently changed.  Contact Elville and Associates’ senior elder law attorney Lindsay V.R. Moss to discuss how she can assist you with the application process for VA Aid & Attendance veterans’ benefit.  Ms. Moss is one of a select few VA-accredited attorneys in the Howard County area and an outstanding resource for your loved one’s or your needs.  She can be reached at 443-393-7696 or by email at lindsay@elvilleassociates.com.  You can also fill out a contact form here and she’ll respond to your request promptly.

Other resources for veterans:

https://www.mesotheliomaveterans.org/ — The Mesothelioma Veterans Center offers free resources that are reviewed by certified oncologists and provide detailed information about mesothelioma and its health impacts. Its mission is to raise awareness about cancer and other asbestos-related diseases such as mesothelioma.

Posted in Blog | Comments Off on An Introduction to Veterans’ Benefits

Parents or other family members establishing a special needs trust for their child often want to name a professional — usually a bank, trust company, attorney, certified public accountant or non-profit — as one of the trustees of the trust in order to take advantage of that individual’s experience with investments, money management and tax planning. The professional trustee can also be a great option for families looking for a “disinterested party” to provide a counterweight to a family trustee who may be much more familiar, and much more emotionally invested, in the beneficiary’s day-to-day life. If your child is about to receive a large cash settlement, hiring a professional trustee may even be essential in order to preserve and manage the trust’s assets for the long-term, especially if you have little investment experience.

But not every professional trustee recommended provides the best services for trusts designed for children with special needs. Here are some questions to ask while searching for the right professional trustee for your trust.

• How much experience do you have working with special needs trusts?
  Special needs trusts have very complicated rules regarding distributions to and for a beneficiary with a disability. Not every bank trust department or attorney understands these rules, so it pays to look for a professional trustee who works with other special needs trusts and who can give you concrete examples of their expertise in this area. Remember: one mistake by a trustee could significantly compromise your child’s benefits for a long time.
• What kinds of specific services do you provide for special needs trusts?
  Unlike some trusts that merely require the trustee to pay income checks at quarterly intervals to a group of beneficiaries, special needs trusts often require a great deal of coordination and support from a trustee. Since most beneficiaries are not allowed to receive significant cash payments, the trustee often has to pay numerous bills directly to service providers, and will often have to arrange for services and care for a beneficiary who is incapable of making the proper requests himself. A good professional trustee will have a support staff or structure in place to handle these matters quickly and efficiently.
• Do you provide tax planning and do you prepare tax returns in-house?
  Large special needs trusts usually have large tax returns. Some trustees would rather not deal with the sophisticated tax planning that goes into a well-run special needs trust. Make sure to ask how a professional trustee handles tax planning and annual tax filings, and what makes her qualified to do so. Just because a trustee may know everything about special needs law does not mean she is able to get the taxes right, too.
• What do you charge and what other requirements must the trust meet in order to retain your services?
  A professional trustee will typically charge a set percentage of the trust’s assets in order to manage the trust. But this may not be the only fee. Professional trustees often charge extra for tax planning, other time-consuming projects, and brokerage services. Sometimes, large integrated banks will require the trust to allow them to hire their own subsidiaries at market rates to perform tasks that the trustee should be doing on his own. Make sure to see a list of all fees and changes to the actual trust that a professional trustee wants to make before making a decision.

This list is by no means exhaustive.  To download a list of 34 questions to give to family members who are considering hiring a private professional trustee, click here. 

The special needs planning attorneys at Elville and Associates, including Academy of Special Needs Planners’ member and firm Managing Principal Stephen R. Elville, can help you select an appropriate professional trustee, and they have the names of certain companies and people who have performed this work well for other clients in your situation.  Contact Elville and Associates today to schedule a consultation to discuss your situation.  Or, please reach out to the firm’s Legal Administrator, Mary Guay Kramer, at 443-741-3635 or at mary@elvilleassociates.com.

#elvilleeducation

Posted in Blog | Comments Off on Four Questions to Help You Choose the Right Professional Trustee for Your Special Needs Trust

Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets.  Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future. 

A trust is a legal entity under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. An irrevocable trust cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal of the irrevocable trust is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. 

While gifting assets outright is much simpler process than setting up a trust, the following are some of the advantages of setting up an irrevocable trust instead:

• Income. Putting assets in an irrevocable trust means you can receive income from the assets to continue to pay for living expenses. Depending on how the trust is set up, you can receive regular income payments or the trustee could have discretion to make payments. 
• Control. With an irrevocable trust, you as the grantor can maintain some control over the assets. You get to choose the trustees and establish the rules of the trust. You can also retain the right to change beneficiaries with a power of appointment in your will.  
• Asset protection from creditors. If you give money to a family member directly, that money could be lost to the recipient’s carelessness, creditors, or divorce. Keeping the funds in an irrevocable trust protects the assets for the future. 
• Taxes. If the irrevocable trust is structured properly, it can have a tax advantage for your beneficiaries. Assets that have gone up in value will receive a “step-up” in basis on your death, which means your beneficiaries will pay less in capital gains taxes. Assets that are gifted do not receive a “step-up.” 
• Medicaid. If you anticipate needing long-term care benefits in the future, then it is important to plan ahead. If you give away money or fund an irrevocable trust within the five years (the “look-back period”) before applying for Medicaid, you may face a period of ineligibility for Medicaid benefits. The actual period of ineligibility will depend on the amount gifted or transferred to the trust. Putting assets in a trust allows you to plan ahead while retaining some income and control over the assets. 

To set up an irrevocable trust and become further educated regarding this option, contact the experienced estate planning attorneys at Elville and Associates. 

Posted in Blog | Comments Off on Why an Irrevocable Trust May Be a Superior Option to Gifting

Passing assets to your grandchildren can be a great way to ensure their future is provided for, and a generation-skipping trust can help you accomplish this goal while reducing estate taxes and also providing for your children.  

A generation-skipping trust allows you to “skip” over the generation directly below you and pass your assets to the succeeding generation. While this type of trust is most commonly used for family, you can designate anyone who is at least 37.5 younger than you as the beneficiary (except a spouse or ex-spouse).  

One purpose of a generation-skipping trust is to minimize estate taxes. Estates worth more than $11.7 (in 2021) have to pay a federal estate tax. Twelve states also impose their own estate tax, which in some states applies to smaller estates. When someone passes on an estate to their child and the child then passes the estate to their children, the estate taxes would be assessed twice—each time the estate is passed down. The generation-skipping trust avoids one of these transfers and estate tax assessments. 

While your children cannot touch the assets in the trust, they can receive any income generated by the trust. The trust can also be set up to allow them to have some say in the rights and interests of future beneficiaries. Once your children pass on, the beneficiaries will have access to the assets. 

Note however, that a generation-skipping trust is subject to the generation-skipping transfer (GST) tax. This tax applies to transfers from grandparents to grandchildren, even in a trust. The GST tax has tracked the estate tax rate and exemption amounts, so the current GST exemption amount is $11.7 million (in 2021). If you transfer more than that, the tax rate is 40 percent.  

The trust can be structured to take advantage of the GST tax exemption by transferring assets to the trust that fall under the exemption amount. If the assets increase in value, the proceeds can be allocated to the beneficiaries of the trust. And because the trust is irrevocable, your estate won’t have to pay the GST tax even if the value of the assets increases over the exemption amount. 

Generation-skipping trusts are complicated documents. Consult with the attorneys at Elville and Associates to determine if one would be right for your family. 

Posted in Blog | Comments Off on Passing Assets to Grandchildren Through a Generation-Skipping Trust

As we have written previously, there are a number of tax proposals being considered in Congress that could significantly affect gifting and estate plans. There are planning strategies to help protect your estate from future tax changes, so now is a good time to review your estate plan and see if you need to make adjustments. 

Under Vermont senator Bernie Sanders’ For the 99.5 Percent Act, the estate tax exemption would be reduced from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. Any estate that is valued at under the exemption amount will not pay any federal estate taxes, while those exceeding the exemption threshold would be subject to a progressively increasing tax rate that starts at 45 percent. The Act would also slash the lifetime gift tax exemption from $11.7 million to $1 million, although individuals would still be able to give away $15,000 a year without the gift counting toward the lifetime limit.  Take time to review your estate plan to ensure your plan is protected from future tax changes. 

Another proposal in the Senate is the Sensible Tax and Equity Promotion (STEP) Act, which would eliminate the step-up in basis that beneficiaries receive when they inherit property. The proposal would require an estate to pay tax on all previously untaxed gains. This means that if an estate includes property that has increased in value, the estate would have to pay taxes on that increase. However, the Act would allow the first $1 million of appreciated assets to pass without taxation. In addition, families that inherit a farm or business would be able to pay the tax in installments over a 15-year period. Any taxes paid under the bill would be deductible from the estate tax.  Be sure to review your plan with the attorneys at Elville and Associate to ensure it is prepared for these proposed changes.

President Biden has also introduced his tax proposals, which include an increase of the capital gains tax rate to 40 percent. This would apply only to income over $1 million. Biden’s proposal also contains a similar elimination of the step up in basis as the STEP Act. In addition, the proposal targets dynasty trusts. The income that has appreciated in a dynasty trust may be subject to capital gains if it hasn’t been subject to recognition in the past 90 years. There would also be no valuation discounts when calculating capital gains. 

It isn’t clear which if any of these proposals will make it all the way through Congress and get signed into law, but with Democrats in control of both houses of Congress and the presidency, some changes are likely. It is difficult to plan given such uncertainty, but the following are some options to talk to the attorneys at Elville and Associates about before any of these proposals become law: 

• Maximize the use of available exemptions by transferring assets into a trust before the end of the year. There are a number of different types of trusts that might be beneficial, including a spousal lifetime access trust (SLAT). Don’t forget about the generation-skipping transfer tax exemption, which allows you to transfer funds to a trust that benefits grandchildren. A review of your plan will help you understand how exemptions affect you.
• Consider including charities in your estate plan. A charitable remainder trust allows you to provide yourself and your spouse income during your lifetime and leave the remainder to a charity. Profits from the trust are not subject to capital gains taxes and the trust can help reduce your taxable estate.  Consider a review of your plan to determine if a charitable remainder trust is a good strategy for you. 
• Include a disclaimer in any trust you may have that would change provisions if there are changes to the tax code. To be effective, the disclaimer has to be carefully crafted. 
• To avoid paying capital gains taxes on appreciated assets, consider borrowing money and putting it into a trust instead. 
• Consider giving away a fractional interest in property before the end of the year and any valuation discounts may be eliminated. 
• Make sure you have enough liquidity in your estate to pay any possible taxes that are due. You can do this using life insurance or through borrowing or increasing access to credit. 

Before taking any steps, talk to the attorneys at Elville and Associates about what you can do now to protect your estate from future tax changes. To schedule a consultation to review your estate plan, please reach out to the firm’s Legal Administrator, Mary Guay Kramer, at mary@elvilleassociates.com, or fill out our contact form on our website by clicking here.

#elvilleeducation

#elvillewebinarseries

Posted in Blog | Comments Off on New Tax Proposals Mean You Should Review Your Estate Plan