Lower Federal Estate Tax Exemption Potentially Coming in March and Upcoming Changes (for worse) to NY Home Care Medicaid
The pandemic occupied most of our thoughts and overwhelmed almost every aspect of our daily lives in 2020. Most of us looked forward to 2021 with the hope and expectation that the new year would bring some welcome change. As more people get vaccinated against COVID-19, we are guardedly optimistic that the worst is behind us and very grateful for that. Beyond COVID-19, though, there are some potential estate tax changes and known Medicaid changes coming.
Potential Tax Changes under the Biden Administration
Since his inauguration, President Biden has already signed multiple executive orders in his first days in office. Many of these executive orders have focused on combatting the pandemic, climate change, and promoting equality and inclusion. The President has been carrying out his campaign promises. And if he remains faithful to all of those promises, his proposed tax plan includes drastic changes in the area of estate taxes.
The current federal gift and estate tax exemption is $11.7 million for individuals who die in 2021 and a combined $23.4 million for married couples. Biden’s proposed tax plan contemplates decreasing this exemption to $3.5 million ($7.0 million for married couples). The Biden plan further contemplates an increase in the tax rate for those in the top estate tax bracket from 40 percent to 45 percent. It is impossible to predict whether President Biden’s campaign proposal will become law during 2021. But with Democrats now controlling the House of Representatives and the Senate–assuming that Vice President Harris would cast the supporting ballot in favor of a tie–there is a strong likelihood we could see a lower estate tax exemption.
It is also likely that the President will re-introduce the Obama administration’s proposed Treasury regulations. Those regulations would sharply restrict valuation discounts frequently used when closely-held businesses are transferred. Presently, those discounts can be applied for individual transferors who hold minority interests, lack control, or where there is a lack of marketability.
These tax law changes could greatly impact the tax owed on death and limit the gifting opportunities that are available now. To avoid this impact, a person is allowed to implement a gifting plan before the law changes that takes advantage of the higher exemption and more favorable rules on valuation discounts.
Changes to New York State’s Medicaid Program
Last March–amid the first shelter-in-place order–New York State enacted a thirty (30) month look-back period for Medicaid Home Care for gifts made on or after October 1, 2020. Due to COVID-19, the implementation of this new rule has been repeatedly delayed. Though official guidance is still pending, the new look-back rule will not be implemented until after July 1, 2021 but only if you apply for Medicaid assistance before that date. If you or a loved one needs assistance at home, this is the time to consider transferring assets and applying for Medicaid while there is no look-back transfer penalty.
Hollis Laidlaw & Simon is here to help on each of these issues. Please contact Moira Laidlaw at firstname.lastname@example.org as soon as possible if you need more information on protecting assets from estate taxes or long term care costs.