When Protecting Assets Beware of Capital Gains Tax (Part 3)
The last two weeks I have been explaining the danger of ignoring a potential capital gains tax while focusing on the avoidance of estate tax and asset protection from the cost of long term care. Mom wants to protect her $600,000 home from being lost to the cost of long term care. If, however, she transfers the home outright to her children, when they sell it they’ll have to pay a pretty hefty capital gains tax because they get her carryover basis, what she paid for the home 50 years ago (see last week’s post about a “carry over” basis). If she holds onto the home and the children inherit it and sell it after she passes away they’ll save the tax because of a “step upped” basis, but that’s only if she doesn’t get sick, need a lot of care and have sell the home to pay for that care. Is there another way to accomplish Mom’s goal? The answer is “yes”. By transferring the home to a special type of trust she can preserve the step up in basis and prevent the State from forcing her to sell the home and spend down all the proceeds for
When Protecting Assets Beware of Capital Gains Tax (Part 2)
Last week I told you that when protecting assets from the cost of long term care or from an estate tax when you pass away, there is another tax – capital gains tax – to be aware of and I explained how the tax is calculated. This week let’s look at a few more terms that will help you understand the capital gains tax problem. There is something called the personal residence exclusion. You may exclude up to $250,000 of gain on the sale of your personal residence from tax and if married up to $500,000 of gain. To qualify, you (or your spouse) must have lived in and owned the house for at least two of the five years prior to the sale. Those years do not need to be consecutive. Another term you need to understand is a carry over basis. If you give property to someone else, such as stock or real estate, that person receives it with your basis. If A bought shares of a stock for $1 per share and gifts it to B, and B sells it for $10, B’s gain is $9 because he keeps A’s basis. It “carries over” to him.
When Protecting Assets Beware of Capital Gains
When we get calls with questions about how to protect assets from being spent towards long term care #longtermcareplan or how to protect an estate by minimizing or eliminating an estate tax the focus is limited to the value of the asset. In the case of asset protection a typical fear is that Mom does not want the State or the nursing home to take her home, which let’s say she could sell for $600,000. When considering estate tax, she might be thinking about transferring her home to reduce the size of her estate by that same $600,000 and thus reduce the estate tax. However, so many times when I mention that capital gains tax has to be considered I encounter some puzzling looks. That’s because many people forget about – or don’t really understand the impact of – this tax. It is like a silent assassin lurking in the shadows. Before I explain how so, let’s review what it is. Capital gain #CapitalGains is the difference between the “basis” in property and its selling price. Capital gain applies to property that appreciates – increases in value – over the time that you owned it, such as real estate and
Origins of Memorial Day
At some point in time, Memorial Day has become a holiday that signifies the unofficial beginning of summer. Of course, it is a much more important day than that. It is a time to honor those who fought and died in the service of the United States of America. Originally called Decoration Day, Memorial Day was the result of a desire to honor the memory of Union soldiers who died in the Civil War. It was officially proclaimed on May 5, 1868 by General John Logan, the commander of the Grand Army of the Republic, an organization of Union veterans. Interestingly, May 30 was chosen because that date was not the anniversary of any particular Civil War battle. The purpose was to decorate the soldiers’ graves with flowers on that date. The South initially refused to acknowledge Memorial Day, instead honoring Confederate soldiers on separate days. That changed after World War I when the holiday was expanded to honor not just deceased Civil War veterans but any solider who died fighting in any war. The name was changed from Decoration Day to Memorial Day, but not officially so until 1967. A year later Memorial Day was moved to the
Can Family Pay for Private Room When Loved One is Receiving Medicaid? #Medicaid
It’s a question that I’ve been asked numerous times over the years. It’s also one that has caused a lot of confusion. I’ve spoken with some nursing homes who have told me their belief that it violates Medicaid rules. That is incorrect. Here’s the scenario. Mom receives Medicaid, which pays for a semiprivate room, that is, one with a roommate. If the family wants a private room for Mom, they can pay the additional charge, provided of course that the home has a single room available. And what is that charge? Usually, $20 to $30 per day which is the difference between the private room rate and the semiprivate room rate that the general public is charged. In other words, Medicaid is picking up the semiprivate room rate but based on the much lower Medicaid reimbursement rate. Medicaid is billed at a rate that is approximately 40-50% less than the rate that the general public pays. But, while you and I must pay the much higher rate than does Medicaid, the good news is that the difference between a semiprivate and a private room is small. If your loved one is in an assisted living facility it works the same
A Most Unusual Support System
A recent story that made the news and spread quickly via the Internet reminds us of the importance of having a support system in place because you just never know when you might need it. In this case it came from a very unlikely source. A Domino’s Pizza shop in Oregon noticed that one of their very good customers hadn’t placed an order in 11 days. You wouldn’t think this is abnormal. I haven’t ordered a Domino’s Pizza since my college days when their tag line was “Delivery in 30 minutes or less or the pizza is free”. (They changed that a number of years ago after their drivers were involved in accidents which may or may not have been caused by their rush to get the pizzas delivered “on time”.) But I digress. In this case 11 days was unusual for Kirk Alexander who placed orders with the Oregon pizza shop every day. The shop’s managers took it upon themselves to first call Alexander but couldn’t get through to him. They then sent one of their delivery drivers to his home. The driver knocked on Alexander’s door but there was no answer despite the lights being on. He