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Estate planning may reduce taxes, help with long-term care

New Jersey residents who are planning for their futures may wonder about how to reduce estate taxes or avoid using their savings to pay for their long-term health care needs. One advisor recommends that couples start their estate and nursing home planning while they are healthy.

In 2013, the IRS excluded up to $5.25 million of a person's assets from federal estate and gift taxes. In 2014, that amount will increase to $5.34 million per spouse. In addition, a surviving spouse now has the ability to use any portion of a deceased spouse's exemption that was not used previously. The portability law can benefit those with significant assets. In New Jersey, the state estate tax exemption is only $675,000. Therefore, many people who are exempt from federal estate taxes may find that their heirs will have to pay state taxes when the funds transfer.

Taxes are not the only consideration; private nursing care is expensive. Some people may benefit from structuring their finances in a way that allows them to pay for long-term care without depleting their assets. Medicaid may be available to some individuals who need help. However, there is a five-year look-back period where Medicaid will examine assets transferred during the five years prior to the application when determining eligibility.

An estate planning attorney may be able to help reduce state and federal estate taxes by implementing a variety of strategies. This may include establishing disclaimer trusts or marital trusts, making lifetime gifts to heirs or taking steps to equalize assets between spouses. The attorney may also be able to help transfer assets without affecting Medicaid eligibility.

Source: NJ.com, "Biz Brain: Estate planning strategies and long-term care", Karin Price Mueller, October 21, 2013

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