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San Antonio Express-News
Copyright 2012, Paul Premack
February 20, 2012

Federal Budget Proposal gives hints on future Estate Tax rates

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 45%.
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.

Prior Week: Specialized Life Estate Deed is better option for transfer of house
Next Week: 66-year old ponders pros and cons of getting married

Disclaimer: This column answers a specific legal question asked by an individual in Texas. The answer may or may not match your individual situation. Be careful not to treat this column as specific legal advice, as it may not meet your individual needs. It may give you a solid basis for discussion with your own attorney.  You should consult with your personal attorney before you take any action on this or any legal issue. Also, please be aware that laws change, so  this column is valid only as of the date it was published. This communication does not create an attorney-client relationship between the author and the reader.