Ethan R. Okura
Hawai‘i Herald Columnist
Happy New Year! The following is the 2018 update of important numbers used in estate planning and Medicaid planning in Hawai‘i.
How much money and property can a person have at the time of death without paying estate taxes?
At the end of 2017, Congress passed a new tax bill, which the president signed into law. We will discuss some of the income tax changes in detail in next month’s column. One of the main impacts of this new law, however, is that it doubles the previous estate and gift tax exemption from $5 million to $10 million (adjusted for inflation). Taking into account inflation, the actual amount exempt from estate tax for 2018 will be $11,200,000 per person (or perhaps slightly less, as the new law also changes the method used to calculate inflation). The Hawai‘i estate tax law was previously amended to follow the federal estate tax law, so there is also an exemption of $11,200,000 from Hawai‘i estate tax. (In other words, if you pass away in 2018 with less than $11,200,000, and you didn’t already use up any of your exemption by making gifts during your lifetime, you will not owe any federal or Hawai‘i state estate tax.) A married couple each has $11,200,000, so the two of you together can leave up to $22,400,000 tax-free to your children or other loved ones. This “doubling” of the estate tax exemption will expire at the end of 2025. Unless Congress acts to make it permanent, the estate tax exemption will go back to the $5 million per person exemption (adjusted for inflation) in 2026.
How much can a person give away without paying a gift tax?
In 2018, you can give $15,000 to each person without having to report it to the Internal Revenue Service. You can give any amount to your husband or your wife who is a U.S. citizen without reporting it to the IRS, but only about $150,000 to a non-U.S. citizen spouse each year as an exclusion from the gift tax. If you give away more than $15,000 to any other person in one year, then the amount over $15,000 is a “taxable gift.” You are supposed to file a gift tax return to report the gift, but you can give up to $11,200,000 of taxable gifts using up some (or all) of your total lifetime exemption amount and still not pay any gift tax.
For the wealthy, this opens up a lot of opportunities to give away assets without having to pay a gift tax or to protect assets from future creditors. However, if you have more than $5,600,000, you might want to act now, before the larger gift tax exemption expires in 2025. Remember, if you give away assets, there will probably be a Medicaid penalty if you need nursing home care in the future. Do not give away assets (not even your home or $15,000 per person) without expert advice about the effects of gift tax laws, capital gains tax laws and Medicaid laws.
How much in assets can a husband and wife have and still qualify for Medicaid to pay nursing home costs for one of them?
Together, a husband and wife can have $125,600 in non-exempt assets and still have Medicaid pay for the nursing home costs for one of them. This $125,600 is in addition to the following exempt assets, which the government will not count: necessities such as clothing, furniture and appliances; motor vehicles; funeral or burial plans and a burial plot for each family member; one wedding ring and one engagement ring; and up to $858,000 of equity in a home.
If a person is not married, or if both husband and wife need nursing home help, how much in assets can each have and still qualify for Medicaid for nursing home costs?
A single person can have $2,000. A married couple can each have $2,000, unless they are both applying for Medicaid at the same time, in which case they are only allowed to have $3,000, combined.
If you give away assets to your children, how long do you have to wait before you can qualify for Medicaid for nursing home costs without a penalty?
The answer is five years. However, this does not mean that you have to wait five years before getting Medicaid assistance. There are ways to reduce or eliminate the penalty period even before five years has passed. We can help families save their remaining money and/or the value of their home from nursing home costs and Medi-
caid liens without spending down everything — even at the last minute as the client is going into a nursing home without having planned ahead financially.
If a person qualifies for Medicaid for nursing home costs, how much of the family income can the spouse keep?
The spouse who is not in the nursing home (“community spouse”) can keep all of his or her own income (Social Security checks, pension checks, etc.). If the income of the community spouse is less than $3,090 per month, the community spouse can also be given some of the income of the one in the nursing home to bring the community spouse’s income up to $3,090. The one who is in the nursing home has to use the rest of his or her income towards nursing home costs and health insurance premiums, except for $50 a month, which can be kept for personal needs.
When is a probate necessary?
In Hawai‘i, probate is necessary if a person dies with real estate of any value or other assets worth over $100,000 that are not in a revocable living trust, not in joint names with right of survivorship and do not name a beneficiary.
© OKURA & ASSOCIATES, 2018
Honolulu Office (808) 593-8885
Hilo Office (808) 935-3344
Ethan R. Okura received his doctor of jurisprudence degree from Columbia University.
This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury regulations governing tax practice.)
This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.
See more articles by Ethan by visiting https://okuralaw.com/blog/