End of Year Estate Planning?

by Jerrold Bartholomew

Many people develop and execute a tax plan between now and the end of the year. With just about seven weeks remaining in the year, it is time to move quickly.

But very few people need to plan their gifting for tax purposes anymore. With the estate tax being eliminated in 2010 and the estate tax exemption at $3.5 Million in 2009, there is very little tax planning to do anymore. The current $13,000.00 per person per year gift exclusion actually impacts very few people.

What is much more likely to be an issue is the 5 year look back period on all gifts for Medicaid purposes. What that means is that any gifts to family members can be reviewed in the event of needing long term care for up to five years. End of year planning should really be focused on protecting both an estate and gifts from the estate from the cost of long term care.

Think about the situation this way: gifts that you give now can be reviewed for up to five year in the event that you need long term care. If it is found that you have given a gift, your beneficiary could be asked to return that money in order to pay for your long term care. That is because Medicaid will not cover your expenses for a period time equal to the gifts you have given away within five years of qualifying for Medicaid divided by the average monthly cost of care. For Michigan residents, the monthly cost of care is $6,326.00 according to the state. That means that a gift of $31,810.00 will result in six months of ineligibility for Medicaid.

One way to avoid this problem is to create a family trust in advance of needing care. A properly drafted trust can help to protect assets, provide you with control of those assets, and avoid the concerns of penalties and look-back periods.

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