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Communities in New York are dedicated to stopping the spread of the COVID-19 pandemic. As a result, the state has declared various cautionary measures to control the spread of the disease throughout the state. Tragically, despite these measures, New York is still facing a substantially high number of deaths due to the illness. If your loved one passes away in a nursing home from covid-19, it’s common to be left with various questions. One of the most common questions that people ask is who should be held accountable following such a devastating loss. This article considers such an occurrence.

How Families Respond to the Loss of Loved Ones from COVID-19

It’s never easy to say goodbye to a loved one, but COVID-19 tends to deprive individuals of the opportunity to say goodbye to their loved one in a face to face environment. Many times when a loved one passes away from COVID-19, good-bye’s must be made through digital means like Facetime. Due to this risk of transmission, family members and loved ones ultimately lose out on the closure of seeing a loved one for the last time. This closure can greatly help say goodbye to a loved one.

Due to not just the approaching US election but also continued economic uncertainty and a country that is dealing with the impact of the coronavirus pandemic, family gifting is likely not at the top of your list of goals. Despite its uncertainty, the current situation creates an opportunity for individuals with the appropriate types of assets to save on transfer taxes. This window of opportunity, however, will not last forever. The current $11.58 million per individual transfer tax exemption is scheduled to be reduced to $6 million on January 1, 2026. This decrease, however, could potentially be much sooner than 2026 based on who wins the US Presidential election. As a result, this article reviews some important factors that you should consider about making gifts that make the most of tax exemptions given the current state of these exemptions.

Trusts Are A Powerful Way to Transfer Assets

Passing gifts through trust allows a person to separate the timing of gifting from issues related to distribution. Additionally, placing assets in a trust also offers creditor protection which is not available if a person makes an outright gift to a beneficiary. If desired, a trust can give beneficiaries substantial control over assets consistent with those associated with enhanced creditor protection. Trusts can also be structured with transfers to them are viewed as gifts for either estate or gift tax purposes, which also allow the person transferring them to remain the owner of the property for income tax purposes. A person’s ability to pay income taxes on behalf of the trusts is then not classified as an additional gift. 

The transition between US presidents is often a trade-off. While some advantages come from the change in leaders, there are also setbacks. While president-elect Joe Biden has announced a more-extensive plan for containing the COVID-19 pandemic as well as plans for minorities in the country, Biden also has expressed the intent to raise capital gains and estate taxes as well as change how capital assets are taxed at the time of death. 

As a result of this change in US politics, some individuals have begun to reconsider their estate planning strategy. In much the same way that no two estate plans are the same, the course of action you decide to utilize in response will also be unique and depends on various factors including your income, what you need to live on, and your gifting objectives. This article briefly discusses the potential impact that Biden’s presidency will have on your estate plan.

# 1 – Estate and Gift Taxes

It’s an unfortunate reality that many people who apply for Medicaid end up discovering that they have too many assets to qualify for the program. Instead of being available to everyone, Medicaid is classified as a “needs-based” program and a successful applicant must be determined to have insufficient assets before the program will “kick in” and provide assistance. 

The process of reducing a person’s assets to qualify for Medicaid is also known as “spend-down”. Like many estate planning processes, many misconceptions exist about the “spend-down” process. For example, rather than only medical care, there are various things that a person can spend on without disrupting qualification for Medicaid. 

Allowable Spend-Down Categories

Family members as caregivers overwhelmingly provide for elderly and disabled loved ones at home. Although a labor of love, taking care of ailing loved ones also has a market value, meaning that caretakers may be paid as a way to protect assets.
Through the use of a Caregiver Agreement, also known as a Personal Services Contract, the disabled or elderly person may transfer money to family members as compensation rather than as a gift. Gifts to family members made in the last five years before applying for Medicaid to pay for nursing home costs disqualify the applicant from receiving Medicaid for a certain period of time, known as a “penalty period.”
For example, mom depends on daughter Janice for her care. If mom gifts $100,000 to Janice, then goes into a nursing home in the next five years and applies for Medicaid, the gift to Janice will result in about a ten month penalty period. Janice will have to give the $100,000 back to mom to pay nursing home costs during the penalty period, or mom will have to use other resources to pay.

Medicaid is state and federal funding that pays for long-term care costs, either at home, called “Community Medicaid,” or in a nursing home, called “Institutional” or “Nursing Home Medicaid.” The Medicaid rates change every year for income and asset requirements to determine eligibility for benefits. Following are the 2020 New York rates.

A single applicant for Community Medicaid may keep up to $15,750 in assets and $875 in income. If the applicant’s income is greater than the limit, a “Pooled Income Trust” created by a non-profit organization may shelter the excess income to make the applicant eligible for community Medicaid.

A married applicant for Community Medicaid may keep up to $15,750 in assets and $875 in monthly income. The non-applicant spouse may keep their own income and keep up to $128,640 in assets. The rules are different if one spouse is enrolled in a Managed Long Term Care Plan. The applicant spouse may keep $409 of monthly income and the other spouse may keep $3,216 of monthly income. The healthy spouse may keep between $74,820 and $128,640 in assets. “Spousal Refusal” is another option that may help the healthy spouse keep more income and assets. A review of the couple’s income and assets helps determine which approach is more favorable.

The Setting Every Community Up for Retirement Enhancement Act of 2019, Pub. L. 116–94, was signed into law by President Donald Trump on December 20, 2019, as part of the Further Consolidated Appropriations Act, 2020 (The Secure Act). Future beneficiaries of retirement accounts have different rules than current inheritors. What follows is a brief description of some of the ways the new rules under The Secure Act may impact your future beneficiaries.

 The Secure Act changes the way people will inherit money — are you affected by the new rules?

 The new rules do not treat all beneficiaries the same. Beneficiaries of qualified retirement accounts, such as individual retirement accounts and 401(k) plans, now must withdraw all of the money out of those accounts within 10 years, instead of over their lifetime as was previously allowed (commonly referred to as the “stretch IRA” provision). An IRA is an individual retirement account. There are no required minimum distributions within that time frame, but the account balance must be zero after the 10th year.

The average student loan payment, according to credit.com, is $393 a month. That represents almost 20% of the monthly household income after taxes. During your prime working years, you may be tempted to postpone saving for retirement or maxing out your 401K contribution. If you’re on a federal income-based repayment plan, however, saving for retirement while paying off your student loans may actually reduce your monthly student loan payment.

 
Most federal repayment plans calculate your monthly payment based on your adjusted gross income (your net pay after deductions for taxes). The lower your net income take-home pay, the lower your monthly student loan payment may be. Not all federal repayment plans will result in a lower monthly payment. The eligible repayment plans include:

  •   Revised Pay as You Earn Repayment Plan (REPAYE)

In 2019, the U.S. Census Bureau, determined that the average national retirement age was between 63 and 64 for men and 62 for women. Most Americans agree that in retirement they’ll need saving to supplement Social Security benefits. Social Security alone will not get them through retirement. The current life expectancy for Americans is 78.93.

 
Social Security benefits accounts for close to 40% of your pre-retirement income. The average Social Security monthly benefit in 2018 was $1,409.91 a month, or about $16,919 a year. You will need savings to cover the other 60% through a combination of cash, 401k, and other retirement accounts for income. Schwab conducted a survey of its  401k plan participants and found that the participants themselves calculated they’ll need savings of $1.7 million on average to get through retirement.  

 
To figure out how much money you’ll need to support yourself in retirement consider the following:

Millions of Americans are expected to experience a drop in their FICO score when the Fair Isaac Corporation, the company that invented the FICO score, modifies the methodology they use to determine a consumer’s FICO score. Beginning in the summer of 2020, lenders may opt to use the new methodology when assessing the creditworthiness of a consumer when extending credit and setting interest rates on mortgages and consumer loans, such as credit card or automobile loans.

 
Link between consumer behavior and your FICO score

Consumers with fair credit, growing debt, who take out personal loans to consolidate debt, or who are about to max out their credit cards are expected to see a negative impact to their FICO credit score. The Fair Isaac Corporation updates its scoring model every few years. The last time significant changes were implemented was in 2014, where it was thought that credit restrictions were lessoned. For individuals with little to no credit, utility payment histories, rental payment histories, and the elimination of civil judgments from individual’s credit histories, helped bolster their credit score.

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