Because Congress failed to act before the end of 2009, the federal estate tax (but not the Washington state estate tax) was repealed effective January 1, 2010. Also repealed as of the same date is the Generation Skipping Tax (GST). The federal Gift Tax remains in effect, with a rate of 35% and a lifetime exclusion amount of the first $1 million gifted.

 

Some Congressional leaders have stated that they intend to reinstate the federal Estate Tax and GST early in 2010, and have said they hope to make this reinstatement retroactive to January 1, 2010.

 

During the time the estate tax is repealed, the ability to obtain a “stepped-up” basis in inherited assets is limited. Under the law before January 1, 2010, if you inherited property, your tax basis in the property was its fair market value on the date of death. This meant that you could immediately sell the property with no taxable capital gain. With the repeal of the estate tax, an heir usually receives the tax basis of the decedent in the inherited asset. (This is called “carryover basis.”) However, a surviving spouse can increase carryover basis by up to $3 million in assets inherited by the surviving spouse, and any other heir can increase carryover basis by up to $1.3 million. (In no case, can carryover basis be increased above the fair market value of the property on the date of the decedent’s death.)

Medicaid - Change of Transfer of Asset Penalty Calculation   

For Medicaid applications submitted on or after October 1, 2009, the divisor used to calculate a period of ineligibility caused by gifts will be 227, up by 10 from the prior figure 217. This is the number that is divided into the amount gifted after May 1, 2006 to determine how many days of ineligibility are caused by such gifts. For instance, if an applicant has gifted $10,000 between May 1, 2006 and the date of application, it will cause a period of ineligibility of 44 days (10,000/227 = 44). The period of ineligibility begins to run when Medicaid coverage would have begun if the gifts not been made.

The period of ineligibility can be estimated more simply by dividing the total amount gifted after May 1, 2006 by the number 6,900. This will yield the number of months of ineligibility caused by the gifts. For example, gifts of $69,000 will cause a period of ineligibility of 10 months.

Estate Planning – Estate Tax Protection Increased

For persons who die after 2008, estates having a value of up to $3.5 million can pass free of any federal estate tax liability. This compares with the $2 million in estate value that could pass free of estate taxes in 2008. This means that married couples can now pass up to $7 million to their children free of federal estate taxes if a “credit shelter trust” is established when the first spouse passes away.  The Washington State estate tax shelter remains at $2 million however.

Also, after 2008, the limit for gifts that qualify for the annual exclusion from the gift tax increases from $12,000 to $13,000 per person per year. This is the amount that can be gifted without having to file a gift tax return and without having any affect on the amount that can pass free of estate taxes at death.

Medicaid – Spousal Annuities

1. The term of the annuity cannot be shorter than five years. If the actuarial life expectancy of the spouse not on Medicaid is less than five years, the term of the annuity cannot be shorter than the actuarial life expectancy of the spouse not on Medicaid.
2. The annuity must provide that if the spouse not on Medicaid dies during the term of the annuity, Medicaid must then be paid back what Medicaid has paid for the care for the spouse who has qualified for Medicaid.

Medicaid – Maximum Asset Limit for Married Couple

The maximum asset limit for a married couple when one spouse is in a nursing home and applying for Medicaid long term care benefits was increased as of January 1, 2009 to $111,560.   Not all couples can qualify for this maximum asset limit, however,  so it is important to get individual legal advice before submitting an application.  The maximum asset limit for married couples when one spouse is applying for the COPES program remains at $47,104. 

Social Security - 2009 Benefit Changes

• Cost of Living Increase 5.8%
• Maximum Taxable Earnings:  $106,800
• Exempt Earnings if under Full Retirement Age:  $14,160/year
• SSI Payment Standard Individual:  $674
• SSI Payment Standard Couple:  $1,011

Medicare – 2009 Benefit Changes

The following are the 2009 Medicare premiums, deductibles and co-payments for the Medicare program:

• Medicare Part B basic premium will remain at $96.40

• Medicare Part A annual deductible will increase from $1,024 to $1,068

• Medicare Part B annual deductible will remain at $135

• Medicare co-payments for nursing home care will be $133.50 per day for days 21 – 100

Medicare Part B premiums will now be calculated on a sliding scale based upon annual income.  Premium will be increased from $96.40 to $308.30 depending upon income reported on the beneficiary’s tax return.  (There is a separate chart for married beneficiaries who file a separate return and live with their spouse at some point during the tax year.)

 

• Premiums will be $96.40 for individuals filing an individual income tax return with income of less than $85,000 or a joint return with income of less than $170,000. 
• Premiums will be $134.90 for individual filers with income between $85,000 and $107,000 or joint filers with income between $170,000 and $214,000. 
• Premiums will be $192.70 for individual filers with income between $107,000 and $160,000 and joint filers with income between $214,000 and $320,000.
•  Premiums will be $250.50 for individual filers with income between $160,000 and $213,000 and joint filers with income between $320,000 and $426,000.
•  Premiums will be $308.30 for individual filers with income greater than $213,000 or joint filers with income greater than $426,000.