Dear Mr. Premack: I read that President Obama has
just released his budget proposal for next year. Your earlier columns said
that the current federal estate tax law will expire at the end of 2012.
What is the status of the estate tax for next year? Does the budget
proposal give us any hints as to what we may see out of Congress? – C.W.
This is a political process, in a highly charged political year.
Right now, the estate tax exemption is $5.12 million and the top tax rate
on amounts exceeding the exemption is 35%. Those rates will automatically
expire by law on December 31, 2012. Congress and the President must pass a
new law setting new rates (or keeping these rates); if they do not, then
the exemption automatically returns to $1 million and the top tax rate
returns to 55%.
The 2013 budget proposal from the President asks
Congress to set the 2013 exemption at $3.5 million, with a top tax rate of
There are three pieces of good news that emerge from the
President’s estate tax proposal. First, the proposed $3.5 million matches
the amount that the White House sought during the last vote in 2010 when
the President eventually agreed to the current $5 million exemption. The
White House is thus in favor of avoiding a total roll-back to the $1
million default exemption. Second, an estate tax rate that lasts for only
two years does not allow for long-range planning. The budget proposal
seeks to set the tax rate on a long-term basis, not just for another two
years. Finally, the proposal seeks to retain the current law’s portability
provision: that a married couple can combine their exemptions if they take
proper legal action.
This proposal is far from the final word.
Congress will begin debate and some type of compromise over the estate tax
(and a large group of other taxes) may be reached. As the election draws
closer, the likelihood of compromise diminishes. We may not see a final
vote until December 2012.
Dear Mr. Premack: My
step-father has been diagnosed with Alzheimer’s and may soon need to be
put in a nursing home. He currently receives social security and a pension
check from the school district where he worked. If it is necessary to put
him in a nursing home, I already know his social security check will go to
the nursing home. Will the nursing home take his retirement check also? If
so, my mother will not have any other source of income besides her $422
social security check to live on. – RSC
If your step-father needs
to move to a nursing home, there are only three ways to pay for his care.
First, from family savings and income. Second, from special long-term care
insurance if they purchased a policy. Finally, from government benefits if
he can qualify.
If they had long-term care insurance, you would
not have written to me – so we’ll focus on how their money and government
benefits interact under the Medicaid program. To qualify for Medicaid,
your step-father’s monthly income (checks written to him) must be below
$2,094. Further, his countable resources must not exceed $2000. In this
context, “countable resources” means that his wife can set aside various
assets, like their home, an automobile, and about half of their savings
(but not more than $113,640, unless their income is quite low, in which
case the ceiling may be set at a higher amount).
In addition to
setting aside some assets if he qualifies for Medicaid, his wife can
retain up to $2,841 from their combined monthly income. If his social
security and pension together total $2500 and your mother has her $422
social security, and if he qualifies for Medicaid assistance in every
other way, then she will keep $2,841 for her own living expenses and will
pay $81/month to the nursing home. Medicaid will pay the balance for his
monthly nursing home bill. They should seek personalized legal advice from
a certified elder law attorney before taking any other steps.