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The new Tax Cuts and Jobs Act of 2017 (“2017 Tax Cuts Act”) P.L. 115-97, doubled the Estate and Gift tax “Applicable Exclusion Amount,” from $5 million to $10 million, for gifts made, and estates of decedents dying, after December 31, 2017, and before January 1, 2026. (These amounts were previously adjusted for inflation.) By increasing the applicable exclusion amount, the new law automatically increases the Generation Skipping Tax (“GST”) exemption. Code Sec. 2631(c). See my prior article entitled, “The 2017 “Tax Cuts Act” and its Impact on the Federal Estate and Gift Tax Law.”

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The Pennsylvania Department of Human Services has revised the dollar amounts it uses to calculate eligibility for Medical Assistance Long-Term Care benefits (MA-LTC benefits). These cost-of-living inflation adjustments to Medicaid dollar amounts occur quarterly, effective January 1, July 1, and October1 of each year. 1. Penalty Divisor. The daily transfer penalty divisor increased from $321.95/day to $330.19/day. This new penalty divisor is to be used when calculating transfer penalties for Medicaid applications filed on or after January 1, 2018. To illustrate the use of the penalty divisor, assume an Applicant for MA-LTC benefits makes a gift (or other transfer for less than fair market value) in the amount of $10,000 within the 60 months look-back period. Further assume that the gift is not exempted from the transfer penalties. Such a gift will result in to 30 days of ineligibility for MA-LTC benefits. ($10,000 divided by $330.19 equals 30.28 days; the partial day of ineligibility is ignored under applicable rules.) 2. Spousal Impoverishment. Spousal impoverishment guidelines have been adjusted as follows: a. The minimum community spouse resource allowance (“CSRA”) for 2018 is $24,720. b. The “standard” maximum CSRA is $123,600. 3. Home Equity Limitations. a. For a married recipient, there is no cap on the dollar amount of home equity. b. For a single applicant, the limit on home equity is now $572,000. 4. Home Maintenance Deduction. The home maintenance deduction for individuals applying for MA-LTC benefits for short-term stays has been increased to $772.10/month, for up to 6 months. 5. […]

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The new Tax Cuts and Jobs Act of 2017 (“2017 Tax Cuts Act”) P.L. 115-97, doubled the Estate and Gift tax “Applicable Exclusion Amount,” from $5 million to $10 million, for gifts made, and estates of decedents dying, after December 31, 2017, and before January 1, 2026. (These amounts were previously adjusted for inflation.) By increasing the applicable exclusion amount, the new law automatically increases the Generation Skipping Tax (“GST”) exemption. Code Sec. 2631(c). See my prior article entitled, “Tax Provisions Impacting Estate Planning In the New Tax Act.” However, the 2017 Tax Cuts Act changed the inflation index used after 2017 for the applicable exclusion amount and GST exemption. The IRS recently confirmed that the new law’s doubling of the basic exclusion amount, when adjusted for inflation based on the new index, produces a $11,180,000 Exemption figure for 2018. This is slightly less than double the $5,600,000 figure that the IRS had announced before enactment of the Tax Cuts and Jobs Act. This new figure reflects the application of the new C-CPI-U inflation factor to the 2018 adjustments for the applicable exclusion amount. The bottom line is, clients having aggregate estates valued less than $11,180,000 will not need to worry about the Federal Estate or Gift Tax for the next 10 years (when the current law sunsets). (Don’t forget, life insurance death benefits are included in your taxable estate.) Please call or email us if you have questions about the new Exemption Amount and how it impacts your current […]

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Pending legislation could have a major impact on the Federal Estate and Gift Tax. H.R. 1, the “Tax Cuts and Jobs Act” (“Tax Cuts Act”) released on November 2, 2017 by the Ways and Means Committee of the U.S. House of Representatives, would double the basic exclusion amount for gift and estate taxes from $5 million to $10 million per person, indexed for inflation. It appears that, if the Tax Cut Act is enacted, in 2018 a single person could shield up to $11.2 million, and a married could shield up to $22.4 million, due to inflation adjustments. The Tax Cuts Act would repeal the estate tax and the generation skipping tax in six years, as of Jan. 1, 2024, while still maintaining a full stepped-up basis for inherited property. (The retention of the step-up in basis had been in doubt.) The Tax Cuts Act keeps the Federal Gift Tax intact (still “unified” with the Federal Estate Tax), with a $10 million basic exclusion amount for gifts (adjusted for inflation). However, it provides a break in 2023: a new lower top rate of 35%, down from 40%. There is substantial opposition to the Federal Estate Tax repeal. “This is a tax plan that fails to address fiscal soundness and morality,” stated Gene Sperling, former director of the White House Economic Council under Presidents Bill Clinton and Barack Obama, on a Center for American Progress conference call discussing the bill. The Center considers the federal estate tax repeal to be both […]

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The new Tax Cuts and Jobs Act of 2017 (“2017 Tax Cuts Act”) signed by the President on December 22, 2017, P.L. 115-97 (115th Cong., 1st Sess.), contains important tax provisions related to estate planning. The most important such provision is the doubling of the Applicable Exclusion Amount for Federal Estate and Gift Taxes, described in Paragraph 1 below. 1. Doubling the Applicable Exclusion Amount for Federal Estate and Gift Taxes. The new law doubles of the estate and gift tax “Applicable Exclusion Amount,” from $5 million to $10 million, for gifts made, and estates of decedents dying, after December 31, 2017, and before January 1, 2026. (These amounts were previously adjusted for inflation.) This means that by employing appropriate estate planning measures, a married couple’s total exemption may be increased from $10 million to $20 million. By increasing the applicable exclusion amount, the new law automatically increases the Generation Skipping Tax (“GST”) exemption. Code Sec. 2631(c). By way of Background: a. A federal “gift tax” is imposed on certain lifetime transfers (Code Sec. 2511), and a federal “estate tax” is imposed on certain transfers at death. (Code Sec. 2001) b. Under pre-2017 Tax Cuts Act law, the first $5 million (as adjusted for inflation in years after 2011) of transferred property was exempt from estate and gift tax. For estates of decedents dying and gifts made in 2018, this “basic exclusion amount” was $5.6 million ($11.2 million for a married couple). c. For estates of decedents dying and gifts […]

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The most commonly used method for tax-free giving is the annual gift tax exclusion, which allows you to make a gift of up to $14,000 (per donor, per donee, per year) on an annual basis to each donee with no gift tax and no reporting by donor(s) or donee(s). The IRS recently announced that this exclusion amount will be increased due to inflation to $15,000 effective January 1, 2018. There is no limit on the number of donees to whom you can make such gifts. If you make gifts to 10 donees in 2017, you can exclude up to $140,000 of such gifts from gift tax. In addition, if you are married you can double the amount of the exclusion to $28,000 per donee ($30,000 in 2018), because you and your spouse can combine your exemptions in a single gift from either of you. Your annual gift tax exclusion expires at the end of each year, and does not carry over into subsequent years, so the sooner in the year you take advantage of this type of gifting, the better. If you want to make a gift that exceeds the amount of the exclusion, you can effectively double the exclusion by making one gift in one year (before December 31) and the second early in the next year (after January 1). For example, if you are married, you can make a total tax-free gift of $56,000 to any individual by making a gift of $28,000 in December, 2017 and another […]

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A very effective strategy to employ in order to ensure that your estate will not be subject to estate tax is to make sufficient gifts during your lifetime so that at your death your estate is smaller than the then-current federal estate tax exemption amount. Your lifetime gifts above the annual exclusion amount are, however, subject to a gift tax that is imposed at the same rate as the estate tax. This “unified” system is intended to eliminate any tax advantage to making gifts. But certain types of lifetime transfers are not subject to gift tax. While many wait until year-end to make such tax-free gifts, any time during the year is a good time to do so, and the sooner the better. In separate articles, we discuss how to take advantage of the Annual Gift Exclusion; the Tuition Payment Exclusion; Section 529 Plans; the Medical Payments Exclusion; making Gifts in Trust; Charitable Gifts; and Making Gifts from your IRA. If you would like to discuss making lifetime gifts, please contact us to set up a free consultation.

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Section 2503(e) of the Internal Revenue Code of 1986 provides for an unlimited gift tax exclusion for payments of tuition made directly by a donor to an educational institution on behalf of a student for the purpose of education or training. This tuition payment gift exclusion is in addition to and separate from the annual gift tax exclusion limit for gifts made to the student. You may give unlimited amounts of money for tuition costs directly to a student’s college or university without incurring a gift tax. You may simultaneously give tax-free money directly to the student up to the annual gift tax exclusion (14,000 in 2017). If you have the choice of making either a tuition payment or an annual exclusion gift for a particular beneficiary, it will usually be better to make the tuition payment, because that will leave you the option of making an annual exclusion gift later in the year. Gifts made to a college or university on behalf of a student will likely impact the student’s eligibility for need-based financial aid. This is because third party payments for the benefit of a particular student made directly to a college or university are normally treated as cash support. This is a form of untaxed income to the student and should be reported as such on the Free Application for Federal Student Aid (FAFSA) and other financial aid forms such as the CSS/Financial Aid PROFILE. The U.S. Department of Education defines cash support in the Application and […]

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Contributions to a Section 529 College Savings Plan (“529 Plan”) do not qualify for the exclusion for tuition payments, but can take advantage of the $14,000 (soon to be $15,000) annual gift tax exclusion. The contribution to the plan may also qualify you for a state income tax deduction, but only if the plan is sponsored by your state. Distributions from a 529 Plan can be used for a wide range of educational expenses, including tuition, fees, books, supplies, and room and board. An added advantage of a gift to a 529 Plan is that the income earned on the contribution is tax-free, as long as the contribution is eventually used for educational purposes. And because you can name yourself as the custodian of the account, you ensure that your beneficiary uses the account for educational purposes. There are two types of 529 plans: Prepaid Tuition Plans and College Savings (Investment) Plans. A Prepaid Tuition Plan locks in the current costs of tuition and protects against future increases in the costs of education. A College Savings Plan does NOT lock in current costs, but rather allows for savings to be applied against actual future costs, which will likely be much higher than current educational costs. College Savings Plans have grown in popularity and overtaken Prepaid Tuition Plans. In fact, several prepaid tuition plans have stopped accepting new enrollees or shut down entirely. This is because Prepaid Tuition Plans have drawbacks. For example, money put into a state-run Prepaid Tuition Plan […]

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The payment of a beneficiary’s medical expenses is excluded from the gift tax, with no limitation on the amount excluded. To qualify for this exclusion, the payment must be made directly to the provider, and it must be for medical expenses that would qualify for an income tax deduction. You cannot claim an income tax deduction for the payment unless the payment is made for your spouse or dependent. The exclusion for medical payments includes the payment of medical insurance. If you have a child or grandchild who is paying for his or her own insurance, payment of their insurance premiums is an efficient means of making a tax-free gift that does not consume the $14,000 annual exclusion. Qualifying medical expenses are defined by reference to Code Section 213(d). See IRC § 2503(e)(2)(B). The exclusion applies to payments for (i) the diagnosis, cure, mitigation, treatment or prevention of disease, (ii) the purpose of affecting any structure or function of the body, or (iii) transportation primary for and essential to medical care. Treas. Reg. § 25.2503-6(b)(3). Payments for medical insurance are also covered. The Section 213(d) definition of medical care is extremely broad. It also covers long-term care services, such as the costs of nursing homes or assisted living facilities, if provided by a licensed health care provider. The most notable area it does not cover is cosmetic surgery, unless to correct a birth defect or disfigurement from injury or disease. See IRC § 213(d)(9)(A). Try to confirm that your donee’s […]

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