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THE TAX RELIEF, UNEMPLOYMENT INSURANCE
AUTHORIZATION, AND JOB CREATION ACT OF 2010
On December 17, 2010, The Tax Relief, Unemployment
Insurance Authorization, and Job Creation Act of 2010 (“Tax Act”) became law. This law has a sunset
provision, expiring on January 1, 2013. Read on for how this law may affect you.
Estate, Gift and Generation-Skipping Transfer Taxes
The Tax Act sets the unified estate and gift tax exclusion at
$5 million dollars per individual or $10 million for married couples. The exclusion amount is the amount you can pass, either
by lifetime gift or at death, or a combination of both, without incurring estate or gift tax. After you exceed the exemption
amount, transfers will be taxed at a 35% rate. The 35% rate is the lowest rate since 1931, when estates were taxed
at 20%.
The Tax Act is positive news for taxpayers
because without its enactment, the estate tax exemption was set to revert to only a $1 million exemption and a 55% tax
rate on January 1, 2011.
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Year
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Estate and Gift Tax Exemption
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Generation-Skipping Tax Exemption |
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$5,000,000 ($10,000,000 for married couples) |
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Other Tax Relief
All changes noted below will remain in effect
until January 1, 2013, when Congress must revisit these issues.
Income tax cuts implemented by the 2001 Economic
Growth and Tax Relief Reconciliation Act will remain in effect and the so-called "marriage penalty" will remain
repealed.
Families
will be entitled to a Child Tax Credit of $1,000 per qualifying child and a Child and Dependent Care Credit ($4,800-$6,000
for families with two or more children).
The tax on long-term capital gains will have a maximum rate of 15%. Taxpayers whose marginal income tax rate is 15%
or less will pay no capital gains.
Qualified
dividend income will also have a maximum tax rate of 15%.
The social security payroll tax will be cut 2% - from
6.2% to 4.2%. For self-employed individuals, the rate will decrease from 12.4% to 10.4%. The employer's share
of Social Security tax will not change.
The Act increases AMT exemption amounts as follows:
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AMT Exemption for Married Taxpayers Filing Jointly |
AMT Exemption for Single Taxpayers |
AMT Exemption for Married Taxpayers Filing Separately |
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2011
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$74,450
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$48,500
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$37,225
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Please consult with your tax advisor about how these and other aspect of the Tax Act will
affect your personal situation.
SPOUSE OF NURSING HOME RESIDENT RETAINS
THE RIGHT TO SHELTER ASSETS
Although significant changes have been made to tighten
eligibility for Medicaid benefits, a nursing home resident’s spouse can still shelter assets by creating and funding
a special trust for their benefit. The trust, as described in this article, can be created and funded in
the same month that Medicaid is applied for. In 1993, spouses of nursing home residents were granted special
protections under the federal Medicaid legislation allowing them to shelter assets during their lifetime. The
controlling public policy determined that spouses left at home should not be impoverished before the government was willing
to step in to help pay the way of their institutionalized spouse. Michigan’s Medicaid program eligibility
rules implement this public policy by classifying trusts established solely for the benefit of the community spouse as “non-countable”
assets.
These special trusts permit otherwise countable assets to be sheltered for the benefit of the at-home
spouse through a relatively easy and quick process. It works like this:
1. Spouse establishes a trust that meets the following requirements:In writing;Irrevocable;At-home spouse is sole beneficiary; andTrust assets are scheduled to be distributed back to the at-home
spouse on an actuarially sound basis.
2. Otherwise countable assets are transferred into the name of the trust.
3.
The institutionalized
spouse applies for Medicaid.
4. The trust assets are not countable for Medicaid eligibility purposes.
For example, Mary, age 70, has a published life expectancy of 15.72 years. She
and her husband, Art, own a home, a cottage worth $150,000 and have investments totaling $180,000. Under Michigan’s
Medicaid rules, their home is an exempt asset, however, the cottage and investments are countable ($330,000). If no trust
were established, the couple could keep $109,560 of their countable assets. They would have to spend down, convert or divest
the remaining $220,440 in countable assets before Art would be eligible for Medicaid assistance.
By creating a “Spousal
Trust” and transferring to the trust the cottage and $70,440 of investment dollars, Art can become immediately eligible
for Medicaid assistance. Art will still have a patient pay amount, based on his income, but there will
be no penalty for transferring these assets to the spouse’s trust before applying for Medicaid. [Note,
however, that if Mary subsequently requires nursing home care for herself, the assets remaining in the trust will be available
for payment of her care needs.]
The ability to qualify
the institutionalized spouse for Medicaid benefits while sheltering assets for the at-home spouse offers a valuable planning
technique for a couple faced with the costs of maintaining their home and other on-going expenses as well as the added (and
often, unexpected) high cost of nursing home care.
MILEAGE RATES FOR 2011
The IRS has set the following rates
for mileage reimbursement for 2011:
$ .51 per mile for business mileage $ .19 per mile
for medical or moving-related mileage $ .14 per mile for service to charitable organizations
Disclaimer: Bernick, Omer, Radner & Ouellette, P.C. publishes this website as a
service to our clients and friends for informational purposes only, and not for the purpose of providing legal advice. You
should not consider any information on this website to be legal advice and should not act upon any such information without
seeking professional counsel. Use of and access to this website does not create an attorney-client or any other relationship
between our firm and the user or browser. Do not send us any confidential information unless and until a formal
attorney-client relationship has been established, as such information will not be protected by the attorney-client or any
other privilege. We do not respond to email queries seeking legal advice; if you need assistance with a legal issue,
please call our office to discuss setting an appointment with the appropriate lawyer.
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