Obama Signs Tax-Cut Bill Setting Estate Tax Exemption at $5 Million for Two Years

December 30, 2010

Congress has passed and President Obama has signed into law the deal extending the Bush tax cuts that he struck with Congressional Republicans. The legislation restores the estate tax for two years at a 35 percent tax rate, with estates up to $5 million exempt from paying any tax ($10 million for couples). If Congress does not change the law in the interim, in 2013 the estate tax will revert to what it was scheduled to be in 2011 — a 55 percent rate and a $1 million exemption. The $801 billion tax-cut bill makes several other significant changes to wealth transfer taxes:

  • The new $5 million estate tax exemption and 35 percent rate are retroactive to January 1, 2010. The heirs of those dying in 2010 will have a choice between applying the new rules or electing to be covered under the rules that have applied in 2010 — no estate tax but only a limited step-up in the cost basis of inherited assets. This will benefit the heirs of tens of thousands who died in 2010 with relatively modest estates and who would have been subject to capital gains tax on inherited assets above a certain threshold. (For more on this, click here.)
  • The law makes the estate tax exemption “portable” between spouses. This means that if the first spouse to die does not use all of his or her $5 million exemption, the estate of the surviving spouse could use it.
  • The law unifies the estate, gift and generation-skipping transfer tax exemptions at $5 million. (For 2010 there is no generation-skipping tax, while the gift tax exemption has been $1 million for a number of years.) A 35 percent tax rate will apply to gifts or transfers over the $5 million threshold. (There is no change in the $13,000 annual exclusion amount for gifts.) These high exemption levels mean that “[t]he rich will have a two-year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations,” wrote estates attorney Kevin Staker on his Estate Tax News Blog.

But that window is open even wider than was previously assumed because of an additional loophole for the wealthy in the new law. Although taxpayers have until December 31, 2010, to transfer funds outright to grandchildren and avoid the generation-skipping tax, there’s the risk that the grandkids will squander the sudden influx of cash. As Forbes blogger Janet Novak explains in a recent post, “the money doesn’t (as most planners had believed) have to be distributed outright to the grandkids to qualify for the 0% rate. Instead, according to the fine print in the tax deal, it can be put in a trust for them, [noted estate planning lawyer Jonathan] Blattmachr says. That means, he explains, that money can be taken from an existing multigenerational trust, declared subject to the 2010 GST tax, and deposited in a new trust for grandkids’ benefit, with the GST tax now pre-paid at a 0% rate.” Novak says Blattmachr has been telling his estate planning attorney peers, “Cancel your ski trip or trip to Hawaii. This is a once-in-a-lifetime opportunity.”

The generous estate tax provisions were the main sticking point for progressive Democrats. A vote in the House on an amendment to increase the estate tax, including lowering the exemption to $3.5 million, was defeated by a vote of 233 to 194. After some minor changes to the bill were made, it passed the House by a 277 to 148 margin, after having been approved overwhelmingly by the Senate 81 to 19.

The site Politico quotes one senior House Republican aide as saying, “I’m trying to remember something that we passed under Bush that was this good.”

The new tax law presents previously unavailable planning opportunities, especially for the well-off. For details, contact your estate planning or elder law attorney.

To read the legislation, titled the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” as originally introduced click here.

Federal Program Helps Nursing Home Residents Move Home

December 28, 2010

Once someone enters a nursing home, it isn’t always easy to move out again. While some residents may prefer nursing home care to living on their own, others would rather be independent. For residents who want to move out but need some assistance to live on their own, there may be help available. A federal program is trying to help nursing home residents in some states regain their independence.

Residents who have been in a nursing home for a long time may have to start all over again when they move out. They may need help finding a place to live, establishing a bank account, making a home accessible, and locating home care.

In 2005, Congress established a federal program called Money Follows the Person that is designed to make it easier for nursing home residents to move out. Currently, 29 states and the District of Columbia participate in the program, which provides personal and financial support to help eligible nursing home residents live on their own or in group settings. The new health reform law extends federal funding for the program until 2016. The law also reduces the amount of time an individual must reside in a nursing facility in order to qualify for the program, from 180 days to 90 days.

To find out if you are eligible for the program in your state, contact your Area Agency on Aging. Or ask a qualified elder law attorney to help you research options.

For an article in USA Today on the Money Follows the Person program that explains which states are participating in the program, click here.

While leaving a nursing home is a good move for some, it won’t work for everyone. The AARP has come up with some questions to ask before choosing to move out of a nursing home.

  • Do you want to live independently? You must be motivated enough to overcome frustration and inconvenience.
  • Are you able to live independently? People with limited mobility can often manage.
  • Can you afford to live independently? Government programs offer a variety of financial help.
  • Is in-home care available? Together, a doctor and a transition coordinator can help compile a list of needed services.
  • Is appropriate housing available? Requirements vary with health and mobility, and include access, safety features, security, and kitchen and dining facilities.
  • Does the home have everything you need? This includes a telephone, emergency contacts, kitchen equipment, and personal care items.
  • Does the community offer necessary medical services? Its crucial to identify and perhaps contact in advance doctors, pharmacies, hospitals, and emergency clinics in the community.
  • Do you have the necessary skills? These may include shopping, showering, or bathing, preparing meals, budgeting, and paying bills.
  • Is transportation available? Many areas have senior transportation programs.
  • Is social support available? Options include senior housing activities, religious programs, senior day-care, and family visits.


For the full article from the AARP on moving out of a nursing home, click here.