Trusts and Estates/ Elder Law Buzz

July 2013 (Issue I)


With the passage of The American Taxpayer Relief Act (ATRA) in January of 2013 to avoid the “fiscal cliff,” 2013 is an important year offering many planning opportunities to minimize tax burdens from both an estate and income tax perspective; but also sets the landscape to prepare for what seems to be an environment of increasing tax rates across the board and dwindling deductions and credits.

Tax Rates are on the Rise, Deductions on the Down

2013 marks the first year since the expiration of the Bush Tax Cuts and the income tax rates (for the top income earning bracket) have already increased by nearly 5%, following this trend, it can be conservatively forecasted, the other income brackets will be experiencing rate hikes in 2014 and the following years.

This year also indicated the return of the personal exemption phase outs (PEP) for taxpayers with certain income levels. Also beginning this year is a reduction in itemized deductions for taxpayers whose adjusted gross income (AGI) exceeds a certain threshold. New legislation before Congress could potentially further reduce itemized deductions as there are proposals to substantially reduce or completely eliminate the home mortgage interest deduction to help balance the budget.

Finally, this year indicated a return of high tax rates for long-term capital gain increasing from 15% to 20% for certain taxpayers. Across, the board, all taxpayers will be subject to a 3.8% surtax that will be due on their net investment income.

Estate Planning: “Permanent today, gone tomorrow”

While ATRA makes portability permanent, meaning that if a spouse dies it allows the surviving spouse to add the unused exemption to his or her gift tax or estate, this type of portability is not available at state levels which have much low estate exemption amounts, making the need for credit shelter and bypass trusts more important than ever, especially in areas where real estate alone accounts for a significant portion of estate assets.

Also contained in the Act was that the federal exclusion was made “permanent” at $5,250,000 indexed for inflation, but increased the estate tax from 35% to 40%. While it should appear as though this change would mitigate the anxiety of planning for the uncertain estate tax; there are already discussions before Congress to lower this number to $3,000,000 in the near future.

Protecting Your Future: Medicaid More Aggressive

As Medicaid becomes more proactive in their estate recovery efforts, the planning process to ensure your hard-earned assets stay protected for future generations to enjoy is become a topic that baby-boomers must address at an earlier age than their parents. With five-year look back periods in both New York and Connecticut for institutional care, planning for the future care must be done well in advance to achieve upmost financial security.

The changing landscape in the field, as states struggle to close budget gaps, includes current debates to eliminate spousal refusal, include a five-year look back period for home care, and broaden the definition of an “estate.” While these measures have not been adopted to date, the application procedure for home care in New York has substantially changed making the process more tedious and intensive than ever before. With all these perspective changes facing elder law, revisiting one’s plan every three years and watching for “Buzz” updates will help guarantee you are in the best position to respond to new legislation.

Contact Us

Kommer Bave & Ollman LLP (formerly Marcus, Ollman & Kommer LLP) specializes in trusts and estates, elder law (including Medicaid), income tax preparation and consulting, special needs planning, and guardianships. Please contact Patricia A. Bave or Joan D’Emilio at (914) 633-7400; serving Westchester, Fairfield, Putnam, Rockland, and Duchess counties.