Wednesday, January 30, 2013

Medicare "Improvement Standard" Settlement Approved by Federal Judge

Last October I discussed an important settlement in a class action lawsuit brought against the Department of Health and Human Services that would end Medicare's longtime practice of imposing an "improvement" requirement for persons doing rehab as a condition for continuing Medicare coverage during the statutory 100-day period.

I'm happy to report that on January 24, 2013 the settlement was approved by the Chief Judge of the Federal District Court for the District of Vermont.  

Going forward, Medicare coverage should be provided for up to 100 days (with a patient co-pay beginning the 21st day) so long as a patient requires skilled care, regardless of whether their condition is "improving."

Here is a press release discussing the settlement in more detail.

Blustein, Shapiro, Rich & Barone's Elder Law attorneys can help you plan for, or litigate, elder care.

Friday, January 25, 2013

Crisis Averted -- Federal Estate and Gift Tax "Permancy" Achieved

For years, estate planners have been fretting about the potential impact of a "sunset" of existing federal estate and gift tax legislation that would have resulted in a significant reduction in the federal estate and gift tax exemptions.  As 2012 drew to a close and our federal government crept towards the edge of the "fiscal cliff," we faced the real possibility of a reduction in the federal estate and gift tax exemption from $5.12 million per person with a top tax rate of 35%, to a $1 million per person exemption and a top rate of 55%.

Fortunately, in the wee hours on New Years' Day, 2013, Congress passed sweeping tax legislation - known as the Taxpayer Relief Act ("TRA") -  that incorporated a "permanent" solution to the estate and gift tax issue.  Here are a few key highlights of the TRA as it pertains to estate and gift tax rules:
  • Estate Taxes: an estate tax is a federal tax (and in some states also includes a state tax) on the transfer of a deceased person's assets to his heirs and beneficiaries, and can include prior transfers made to those heirs and beneficiaries. However, under federal law, there is a certain amount that can be transferred without incurring any tax liability. In 2010, every individual could transfer (gift) up to $5 million tax-free during life or at death to avoid paying estate taxes on that amount. This amount is called the "basic exclusion amount" and is adjusted for inflation (usually on an annual basis). In 2012 it was raised to $5.12 million per person.

    This year's new "fiscal cliff legislation" did not change how much an individual could transfer during life or at death to avoid paying federal estate taxes on that amount. And, on January 11, 2013, the IRS announced that the estate tax exclusion amount for individuals who die in 2013 is now $5.25 million, as the prior figure has now been adjusted for inflation.
  • Married Couples: the TRA did not change prior law that stated that spouses do not have to pay estate tax when they inherit from the other spouse. Rather, when the first spouse dies, the other spouse can inherit the entire estate and any estate tax due would be postponed until the second spouse dies. This is called the "marital deduction." If the surviving spouse is not a U.S. citizen, then there are restrictions on how much can be passed to the surviving spouse tax-free. It is also important to remember that this type of tax benefit between spouses is not always automatic - any married couple who may be subject to estate tax should seek the advice of an attorney to make sure their estate plan is properly set up to take advantage of this particular tax incentive.
  • Lifetime Gifts: the current basic exclusion amount of $5.25 million per individual is an exclusion for both lifetime gifts and gifts at death. This is often referred to as the "unified credit" amount. For example, an individual could transfer assets of $3 million during their lifetime and an additional $2.25 million at death, and the total, $5.25 million, would not be subject to either gift or estate tax. However, if an individual transferred more than the $5.25 limit, that individual (or the heirs) will owe a tax of up to 40%.

    The donor should report any gifts made during their lifetime to the IRS so a proper calculation can be made at the donor's death. Using the above example, the $3 million lifetime gift would have been reported to the IRS even though no gift tax would be due. And, the IRS would then know that individual had $2.25 remaining to pass at death free of estate taxes.
  • Annual Gift Exclusion: there is an amount each year that can be transferred without counting toward the $5.25 exclusion amount. In 2013, that amount is $14,000 per year, per person (called an "annual exclusion amount"). For example, an individual can give three different people $14,000 in 2013, and it will not count toward the $5.25 lifetime exemption amount. Couples can double this amount and give $28,000 per person per year.
The TRA provides welcome assurance to Americans that they can engage in estate tax planning with a modicum of certainty that their tax planning will not be undone by a dramatic reduction in the federal estate tax exemption.  But keep in mind that no tax legislation is truly "permanent," and a regular review of one's estate plan with an experienced estate planning attorney is always the best way to ensure the desired outcome.