With every new year brings a new set of numbers to live by when it comes to estate planning and elder law. Here are some of the key numbers you should know.
On January 1, 2019, the federal estate tax exemption climbed from $11.2 million to $11.4 million per person. This is the amount of assets a person may own at death without their assets being subjected to federal estate tax, which can be as high as 40%. In addition, federal “portability” rules allow a married couple to combine their exemptions, meaning that in 2019 a married couple can shelter a combined $22.8 million from federal taxation at death. The federal estate tax exemption amount is pegged to inflation and therefore increases each year. The tax bill passed in 2017 doubled the estate tax exemption; however, it is slated to sunset in 2026 and may return to pre-2017 levels. For individuals with net worth approaching these figures, it makes now a good time to consider whether gifting assets makes sense as part of an overall tax mitigation strategy.
The annual exclusion for federal gift tax remained at $15,000 per person per year for 2019. This means that a person may gift up to $15,000 in assets per person in 2019 without having to file a gift tax return. Gift taxes are assessed at death, so the gift tax return is merely informational. Deciding whether to file a gift tax return is easy for gifts of cash, but what about gifts of stock or other assets? If there is any uncertainty as to the value of the gift, it’s a good idea to file a gift tax return. The filing of the return starts a three-year statute of limitations on an IRS audit, which means that if the return is not audited in that time frame, the IRS cannot go back and say that the amount claimed on the return was inaccurate. This is especially important in succession planning when gifts of stock in a closely held company are transferred and minority interest discounts are claimed. Also, keep in mind that a married couple can double their exclusion, gifting up to $30,000 per person per year when their exclusions are combined.
If you’re a resident of Minnesota when you pass away, your estate may be subject to Minnesota estate tax. The Minnesota estate tax exemption amount is $2.7 million for persons who die in 2019. That figure will increase to $3 million next year. This means that if your assets exceed this figure, your estate may owe Minnesota estate tax. The top marginal rate for estate tax in Minnesota is 16%. Also, Minnesota does not follow federal “portability” rules, which means that spouses cannot easily combine their exemption amounts to protect more assets from taxation. If you live in Minnesota full-time or part of the year and your net worth is approaching this figures, it’s a good idea to seek legal advice on how to minimize a tax impact to your estate.
If you or your spouse needs long-term care in a nursing home, assisted living, or care in the home, and you need assistance with paying for care, Medical Assistance is the program that pays for that care in Minnesota. To be eligible, however, your assets must be reduced below a certain threshold. The spouse who needs care cannot have more than $3,000 in their name. The spouse who is healthy cannot have more than $126,420 if they apply this year. This figure is adjusted annually to account for inflation. This means that a married couple cannot have more than $129,420 combined to qualify for Medical Assistance. Compared to the other numbers we’ve been discussing, this may seem shockingly low. While there are other options for paying for long-term care, many of these options are also very expensive, like paying premiums for a long-term care insurance policy or paying for care out of pocket. If you or your spouse is facing a diagnosis of a degenerative condition, it’s a good idea to talk with an elder law attorney about your options for paying for care and for preserving assets to support the spouse who does not yet need care.