Bill Owens: The Death Of Estate Planning

Feb 6, 2018

Excuse the pun, but with the federal exemption going to $11.2 million per person, one may initially conclude that there is little or any need left for estate planning.  Obviously, for the vast majority of us (around 99%) there would be very little to do in terms of federal estate tax planning.  New York State, however, retains its exemption at $5.2 million, which means there is a spread of almost $6 million, thus, the need for estate planning still exists for those with assets in excess of $5.2 million utilizing, if you will, the standard techniques of the marital deduction, life insurance (presumably using an Irrevocable Life Insurance Trust), gifting,  and portability of exemptions.

There also may be other more pragmatic reasons for continuing to do estate planning.  The first, of course, is directing where your assets go and this is particularly important if you have a family owned business. Most entrepreneurs seek control for as long as possible and continuing ownership and management of the family business is generally a significant priority for them..  The second issue that still needs to be focused on, of course, is Medicaid planning, assuming that you do not have long-term care insurance that meets the state required mandates to eliminate the threat to your assets. 

In the many family businesses that we represent, the issue surrounding the continuation of the business and the distribution of assets is always complex. Family business owners struggle with how to provide an equitable distribution of the assets to their children, particularly when not all of the children are participants in the business. , The resolution needs to address not only for financial issues but emotional ones, as well. 

The question of Medicaid planning also poses both emotional and financial issues to be resolved.  The basic rule that is at play for Medicaid, assuming no qualified long term care insurance exists is that assets that you desire to protect must be transferred or placed in a Trust sixty (60) months before you enter a nursing home.  The economics of this process are impacted by the fact that private pay nursing home care in Clinton County ranges between $12,000 and $15,000 a month which translates to between $720,000 and $900,000 which you must have available to pay for your care, today.  There is the added complexity that if you place assets in a Trust today and go into a nursing home at month fifty, the sixty months begins to run again from that point. In effect, your assets would have to be in a Trust for 110 months under those facts.  Thus, you need to preserve outside of the Trust sufficient assets and/or income to pay for that care.  This requires complex planning, and the ability to give up control of the assets that are placed in Trust which is difficult for many of us.  There are other rules that may come into play in this process, including what is known as the “Spousal Refusal” which requires that the spouse not have the vast majority of assets in his or her ownership, and is prepared to pay the Medicaid rate to the nursing home which is typically in the range of about $8,000 a month.  This translates to the need for about $480,000 today. 

There can be many other reasons to develop an estate plan, including a disabled spouse or child; the concern that your beneficiaries will deplete the assets left to them; the desire to make charitable gifts, to name a few.    

Some things to think about.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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