001hi I'm art Brant and the presentation you're about to see is the one that I pre-recorded for showing in Ashland in December uh this is all about December so it's all about giving and the fact that there's no limit to the amount that you can give there's this myth that there is you can give any amount any time and now because of the new changes to the estate tax law this year there's actually an added incentive that you can give if you give assets away before you die you can give your way uh below the estate tax threshold thereby avoiding the stay tax I also talk about tax deferred funds most seniors uh always want to take their required minimum distribution only uh that's probably a mistake for most seniors most seniors if you've got
002a significant accumulated funds you want to be taking those out every year um so that in the in the in the longer run if you need to qualify for Mass Health later on you don't find yourself having to take out a huge amount as a lump sum in order to qualify for Mass Health so uh watch the seminar if you got any questions please give me a call 5085 8601 1470 happy holidays hi I'm art bir run and welcome to the 12th and last episode of a series that I started uh in January it's now December uh on El which I in on Elder Law 101 I tried very hard through this series and I think I interesting I've gotten comments from folks who said they they've actually been following it all the way through
003that the point of this series was to really um help you as a senior or as the relative of a senior understand all of the issues that a senior might confront really during their whole lifetime so I started off by taking my friends Frank and Mary uh and their kids Peter Paul and Mary Jr and I always tell people you know if you're old enough to get the joke you're old enough to be my client I took them kind of through their lives from the first presentation when they were under 60 and they had problems that were very different from from when they get older through issues in their 60s as they were heading to a reti retirement and then into their 70s when they were starting to you know think about maybe moving from
004their home or slowing down um we talked a lot we talked in back in April about income taxes because it was tax season uh then we talked about life uh for Frank and Mary in their 80s uh how those issues how they dealt with those issues I talked about how you can always qualify for Mass Health which is the one of the first questions that people talk to me about when they walk in the door any client of mine my median client age of 74 any client of mine who was talking to me wants to know about those issues I talked a lot about um in one seminar about the last year of your life which you might be living right now and it could be that that it that death comes upon you suddenly
005or gradually but the point is there are a set of issues when you're in during that time especially if you kind of know ahead ahead of time that things are coming because you're getting Frailty there are a set of things that you really need think to think of doing to do uh I talked specifically about postmortem what happens after you're dead what are all the things that your children or your spouse or whoever need to do to deal with issues that you might have left behind and how can you plan better so as to um reduce the stress and the time involved in all of that I talk specifically about trusts the three basic kinds which people are always I'm always talking to folks about the revocable trust the irrevocable trust and the so-called testamentary
006trust that's part of your will I had a specific presentation about what to do about in your estate planning um regarding the kids and the grandkids um I talked about Medicare which is an essential part of life as a senior is constantly reexamining your Medicare package uh and then finally today is the season so we're talking about uh issues that you would be facing typically at the end of the year um and and a lot of times this is just about giving but I I want to be talking specifically about some um uh income tax and related estate tax planning as it relates to giving so once again I always talk about my friends Peter or Frank and Mary and the kids Peter Paul and Mary Jr their their goals are very simple they want
007to stay in their house until they die they want to be buried in the backyard they want to leave everything to the kids but there are a couple of other things that they want they want to not pay taxes or pay as little as possible and they don't want to get clobbered by nursing home care which for seniors becomes the biggest issue uh and really comes to outweigh tax considerations avoiding probate the big potential catastrophe that can happen to a senior um is is what happens if you need nursing home care so I'm going to talk about about things in relation to that especially so uh in my um my case for today we're talking about Frank and Mary who own their house it's currently worth about $400,000 now once again I do a lot
008of work on the islands where this number is somewhere between a million and $2 million but all of the concepts are the same say the house is worth of $400,000 say they've got joint Savings of $300,000 for today's purposes I'm assuming that Mary is the one with the Big R Ira uh typically for my clients it's Frank but it just makes it easier for me to explain today to assume that Mary has a very large Ira the total assets a million3 u Frank their income not counting their required minimum distribution um uh is about $40,000 a year uh so you should know that on that $40,000 a year the top marginal tax rate for their money is 12% uh and the tax is about 2% or excuse me the tax is about $2,000 a year
009if that's Frank and Mary's situation so um first question before you can understand uh how Frank Mary may want to think about their Assets in relation to nursing home issues you need to understand what would happen if today Mary just fell down the stairs or or and was now in or had a stroke and was now in a nursing home and was going to need to stay there for the rest of her life what would happen in that case to a person with these kinds of assets um well amazingly enough because Frank is alive in that situation Mary could actually qualif ify for Mass Health which is the Massachusetts name for the Medicaid Program um that it would be really important to Mary since um once she'd been in that nursing home um for more
010than a 100 days uh her Medicare would no longer pay for the nursing home care so if she had that stroke uh and it sounded like she was just going to be there for for a long long time um she'd be very concerned that that after that 100 days she'd be paying privately at a rate which is around $116,000 a month now on the private pay side obviously this varies by nursing home but the point is that as as I've talked about before in that situation Mary could actually qualify for Mass Health almost immediately how could she do that um well first she could do it by transferring all of her assets to to Frank but wait you say isn't there a look back period no as I've so often repeated there is no look
011back period regarding transfers between spouses I'm always talking to clients uh who are couples who are telling me that they're sure that the only way they can protect their assets of one of them needs a nursing home is to give them away and wait five years um with a very few exceptions that is not the case that is not the case because at the last minute in as in this situation if Mary needs nursing home care Mary could transfer her interest in her home she could transfer everything else to Frank and the day after she did that there by reducing her assets below uh $2,000 um in certain situations she could qualify for Mass Health the only caveat on that is that in order for her to qualify for Mass Health she needs to show
012that she has less than $2,000 and Frank needs to show that he has less than a particular amount of assets not counting the house Frank can have the house no matter what the value and once again I emphasize this um because so often that's where people's big value is especially on the island especially on Anka and Martha's Vineyard so um Frank can have the house no matter what the value Franco can have an additional 148,000 $148,600 in other cash or cash equivalent assets so in this case after all assets had been transferred to Frank I would tell Frank well if you want mared to qualify for Mass Health you need to keep say $100,000 and use the rest of the money to buy in a new U it and as long as that annuity calls
013for equal monthly payments over a term that was shorter than Frank's Actuarial life expectancy at that time uh then the purchase of that annuity in any amount would would convert those assets into a non-countable income stream Frank can have unlimited income so if by doing that he's reduced his assets below the magic number $148,600 the next day um Mary can qualify for Mass Health and one she's on Mass health her income from pension and social security would go to the nursing home she wouldn't have any other income because all of her other money all of her other assets would have been transferred to Frank um and at that point her pension her her income from pension and social security would go to the nursing home um um all all the rest would be paid by
014Mass health so there is this wonderful strategy for dealing with all of this stuff right except in Mary's case she's got this issue because she's got $600,000 in an IRA and so her big question is well how do you know or or Frank's big question because at this point Mary's in the nursing home um um Frank's big question is wow how do I balance the fact that I'm going to get a benefit here if Mary is is on Mass health because our nursing home cost is going to go way down but this is going to be a big tax hit specifically um if remember in the earlier slide we indicated Frank and Mary's income is $440,000 if all of a sudden her her $600,000 has to go to him their income for that year jumps
015to $640,000 the at the top marginal um federal income tax rate which is which on that money the the top rate would be 35% uh on that piece of the money their total tax would be about $161,000 so she'd really be so Frank would really be needing to weigh what is my benefit of qualifying Mary versus the fact that I'm taking this huge tax hit so it may end up being that Frank ends up deciding at that point that it's actually worth if if he doesn't think Mary's going to be living very long that it's worth paying her care privately just in order to avoid this big tax hit an alternative strategy though this gets and this gets down to what the the the gifting strategy we want to talk about would be for Frank
016for Mary to to C in um those tax deferred funds over a period of time thereby reducing the tax rate if for example in 2023 when the top tax rate on income of 40 of 89,4 is only 12% right if Mary could say take the income that she's going to be getting for 2023 $40,000 and instead of taking the her required minimum distribution regarding her um IRA funds which would be really minimal she pulls out $49,400 thereby getting her total income to $89,400 then her tax would only end up being or the additional tax that would end up being paid on that additional $449,450 is only $66,000 um and and and over the uh the and and if these and if she took these payments now this was assuming the tax rat stay the same
017stay constant over 12 years so this isn't an exactly the right number but if you assume that if Mary took out her $600,000 over 12 years the total amount of extra tax that she would be paying over that 12 years would only be $72,000 compare that to the $161,000 that she would have to be paying if she took it out all at once so the message for folks for for the all of the Frank and Marys out there if you're thinking about your your about the end of the year tax planning you may want to talk to your ad to your financial advisor or to your accountant about whether there is an amount of money that you could take out in addition to your required minimum distribution in addition to the rmd which wouldn't push
018your total income into a really high tax bracket and would over time get all that money out of tax deferred status so you've paid the tax and now you can do whatever you want with it I always talk to clients about you know when you're a senior the goal of so much of your planning is flexibility and the best thing you can do to give yourself that flexibility is to is to get rid of this this Spectre that if you need to take a lot of money out of tax deferred funds you're going to end up with this really big tax hit now what could Mar do with those funds well she could just pull them out and and just put them into her savings together with the other savings that Frank and Mary had
019because remember at the last minute if she were in the nursing home she could always just shift those savings to Frank and in this case that shift is going to be taxfree she could also put the money into a Roth IRA right um shift it just convert the funds into a Roth IRA from then on in the the the the income on that Ira is going to be tax-free even when she T even if she takes it out ahead of time so she could do that or she and Frank could decide that they want to give some of that money away to the kids or to whoever right and if they did that five years in a day after they had made those gifts to the kids to Peter Paul and Mary Jr those gifts
020would be no longer countable or lean if Mass health later said that Mary uh was trying to if or if Mary was trying to qualify for Mass Health now let me give you the other example the related example say Frank's dead and they haven't done any of this Advanced planning and so now Mary has all of the assets she has 900,000 but but say she has been pulling that money out over time so now she has the she's she's paid the taxes and say she now has $900,000 in savings and she has the house it's worth a million three right and say and say that Mary was trying to figure out how to qualify for Mass Health well she'd have a real problem with that point because that $900,000 would all have to get spent
021down before she could qualify at that point the house would be safe uh except Mass health would put a lean on the house but the point is she'd be on private pay at $116,000 a month for a long time so T what is the standard asset protection strategy in that case if I talk to Mary and she's single and Frank has already died and now I'm typically talking to her and one of the kids and they're like oh my God what can we do to protect these assets I tell I would tell her at that point the only way to protect the assets is to give them away and wait five years give them away that's the classic fiveyear look back period typically if there were multiple children she'd give those assets away to one
022of the children as the trustee of an irrevocable trust the trust would be would specify that while Mary is alive the trustee could always make early distributions not to Mary but to one of the kids so that if Mary needed the money um Mary would need to trust and this is why say that's why they call him trust you have to trust the trustee Mary would have to trust that in that case Peter would pull out the money give it to himself or to one of the other kids and they would turn around and give the money back to their mother so you'd set up that irrevocable trust and then Mary would gift she wanted if she wanted to she could gift her $900,000 into that trust and the money would be safe 5 years
023and a day after she had done that but remember in this this situation in the case I'm giving you Frank has just died now Mary's in to talk to me she's probably older and she's say and she and she's saying to herself but wait a minute I'm older now I may need nursing home care wait you know next year I may need it really soon I may not have five years and that's the point the point is to keep Mary from ever having to be in that situation just like keeping Frank and Mary from having been in that situation by giving things away right so the question then is um and by the way that's consistent with what Franken Mary's estate plan was which is after the two of them die they want to leave
024everything to Peter Paul and Mary Jr right so the question that they may want to ask themselves is so why not give away some of those assets now we either Frank and Mary together or after Frank has died why doesn't Mary just give away some of those assets now especially if she's if she has already paid the in income tax on all of the income and therefore by giving them away she's not going to get penalized right or maybe she wants to Simply start pulling money out from her Ira every year um in a larger amount than she otherwise would have and simply giving that money away to Peter Paul Mary Jr right so why not give it away now um well tip this standard answer that everybody will tell me is oh well my
025God you know because there's a there's some kind of a gift tax right I can't give away more than a particular amount which it which for 2023 was $117,000 a year for 2024 it's actually $188,000 a year but and and and because if I do something bad is going to happen well actually nothing bad happens um let me talk to you a little bit about that there is there is there is no Massachusetts gift tax therefore and I'm going to talk about this a little bit later on because this really has affects your tax planning now that the Massachusetts state tax has just changed there is no Massachusetts gift tax so um Mary could literally give away all of her money the day before she died um and not pay any estate tax U and
026the receipt of a gift is not income right and so you give this money to your kids they're not going to pay anything in tax so the question is but what about that $177,000 which everybody in their head says yes this this amount that I can that I have to Beyond which I can't give money away that relates to the Federal gift and estate tax system as I mentioned in Massachusetts you can literally give away things the day before you die thereby reduce the estate tax at the federal level some thought about that and said when they were creating this the the estate many years ago well we don't want that to happen and so what they did was they created a combined Federal and gift ta federal estate and gift tax system and the
027system is that if you die leaving more than a given amount of money and and for for for uh 2023 that amount was $ 12, 920,000 right you pay an estate tax in the meantime while you're alive if you make a gift to anybody not a gift to an to a nonprofit organization to a 501c3 or to a church but a gift to anybody else then regarding that gift you're going to pay a gift tax unless you qualify for one of the two exclusions the one that everybody knows about and the one that nobody knows about the one that everybody knows about is that there's an amount which which used to be $10,000 but but because of the gift tax bills in as an inflation provision is was now up to 177,000 in this year
028and by the way it's going to go to 18,000 in 2024 if you give below a particular amount to a particular person then then you don't have to pay any gift tax and everybody knows that in addition to that though you have a lifetime exclusion equal to the estate tax exclusion which is now $1,920 th000 so unless you are planning during your lifetime on giving away more than $1,920 th000 effectively there is no gift tax there is no gift tax right now by the way you will you will the place that this often comes up is at the end of the year when your your accountant is is sending you or your Tax Repair is sending you a thing that says oh give us all your information for for the for 2023 and include if
029you made any gifts which in 2023 were more than $177,000 and the and if you tell the accountant that you did that the accountant's going to say oh my my goodness in that case you have to file a federal gift tax return which is technically true but ask the accountant in that case well what if I don't what if I don't the answer is nothing happens if you don't and the reason for that is because the only penalty for failure to file the gift tax return is interest on the gift tax that you otherwise would have owed and in this case you don't owe a gift tax and therefore there's no penalty and so there's really no specially good reason to file the gift tax return so let me talk about that a little bit
030as it relates to estate tax uh avoidance this is now a really big deal um the Massachusetts legislature as many of you know recently CH changed the Massachusetts state tax they it was changed in several ways the it's kind of like I said earlier the the one that everybody knows about and then there's this one that kind of no one's really paid attention to one that everybody knows about is that the threshold subject to taxation jumped from a million dollar to $2 million the other one of the other big changes though is it used to be that if you were over that $1 million threshold um but you had made gifts during your lifetime in excess of those the limits that I had just talked about that a you needed to file an estate tax
031return and B you were going to owe some end up owing some estate tax right that's no longer the case so say that you're Frank and Mary and your total assets are $2,200,000 say there's the house 600,000 Mary's IRA and Joint Savings of a million um and say um well if Frank dies he can leave all the assets to Mary because there is no um there is no because any assets given to a surviving spous are always subtracted from um the estate tax but say Mary was single and Mary gave away some of those assets right Mary could just literally gift her away down below $2 million give away sufficient assets so what he had left was worth less than $2 million and not pay any estate tax your which leads me to um the
032ideal plan for Frank and Mary they each have Wills with so-called asset protection trust so Frank said Frank's will says when I he say when I die any assets that were going to go to Mary are instead going to go in trust for my um for my spouse uh if you structure things that way then any assets when the that when the first spouses to die um any assets owned by that first spouse to die are automatically protected if the surviving spouse needs to qualify for Mass he we talked about that right but in addition to that if Frank owns the house at the time of his death even though they own it joint rely right now if they Frank owned the house at the time of his death the tax basis of that house
033would jump all the way to the the date Frank's date of death value right in this case to $600,000 even though they had paid much less for it think about that though if you're on Martha's Vineyard in net where you PID a couple hundred, for your house and now it's worth between a million5 and two million you get the house to the into the name of the first spouse to die before that first spouse dies and as long as the assets are not going directly back to that spouse but rather into a testamentary trust with a third party trustee for the benefit of that spouse you can do that transfer the day before that spouse dies and at the moment of that spouse's death the tax basis jumps all the way to a million all
034the way to the to the the current value of the property right so remember if if Frank and if one of if if if either Frank or Mary needed a nursing home um then in the meantime one if one needs a nursing home we shift everything to the other the other spouse and the and and the spouse qualifies for Mass Health um but then once again we specify each person's will that when one spouse dies um the the house everything including the house goes into trust for the benefit of the surviving spouse which means the tax bases have jumped all the way to the date to the date of death value of the first spouse to Die the surviving spouse can then sell the house with that stepped up basis pay zero in capital gain
035stack and giv away the proceeds or could just give away the house right in either case if by doing this the surviving spouse has reduced the surviving spouse's assets to less than $2 million there will be no estate tax when the surviving spouse dies so with that in mind uh I hope this information was useful to you I hope that all the information that I've given through those 12 seminars was useful to you if there are any things that I haven't covered in those 12 seminars please give me a call or email me you can just um you can email me at at um ABR Maro con.com um and I'll try to cover that issue that we haven't covered in something called a burgon briefs I've done a number of short burgon briefs dealing with
036very specific issues ultimately though um the best thing you can do if you're think if you you're a senior and you're thinking about any estate planning issue is watch these seminars I've really tried through these 12 seminars to capture all to at least raise all of the flags that would cause you to say I really need to talk to a lawyer about this right and if and if that flag does go up go talk to a lawyer because most elder law attorneys won't charge you for that advice and the advice is is ultimately probably the most valuable thing that you can get so I hope you enjoy this presentation uh happy holidays uh and I hope and I and and if you if you can watch all these presentations I think they'll give you a
037good sense of elder law thank you very much