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           A few weeks back, President Obama proposed, in his State of the Union address, that the “step up in basis” provision of the capital gains tax be eliminated.  While Obama claims that he wants to eliminate a loophole for the rich, such a change could have a bigger impact on the average middle class American.              But before I explain why, let’s first review what the step up in basis is exactly.  Certain assets, such as stock, mutual funds and real estate, appreciate in value over time.  I bought stock in ABC Company for $1.  If it is now worth $10 and I sell it, I have a gain of $9.  That gain is subject to something called capital gains tax.  The gain is calculated by subtracting the sale price minus the basis, which usually is the purchase price. (There are cases where the basis gets adjusted but we’ll keep our example simple.)             There are certain instances where I may not have to pay capital gains tax.  One such instance is if I hold onto that stock and don’t sell it before I die.  Instead, I transfer it to my heirs

            New Jersey has one of the worst, if not the absolute worst, estate taxes in the country.  It is one of two states that has an estate tax and an inheritance tax.  Over the past 15 years the federal estate tax exemption, that amount that is exempt from federal estate tax, has increased more than fivefold.  Many states have gradually increased their exemptions but New Jersey has kept its exemption, the amount one can pass free of tax, at $675,000.  With the average cost of a home at $300,000 it doesn’t take much for the average resident’s estate to reach that threshold.              Over the past several years, I have often been asked about rumors that the state will raise the exemption.   Just this past week, a front page article in the Star Ledger talked about efforts in Trenton to generate more money to fix state roads and bridges.  New Jersey’s Transportation Trust fund will be out of money soon.               One way would be to raise the gas tax.  New Jersey has some of the lowest gas prices in the country, in part because

            It’s something I always remind clients when we talk about Medicaid eligibility.  Meeting the income and asset limits are not the only requirements.   An applicant must also be medically eligible.              What does that mean?  An applicant must establish the need for nursing home level care, needing assistance with the activities of daily living.  It’s one of the reasons why the planning that we do is so important.  If I run out of money before my health is bad enough for me to need long term care, I won’t be able to get New Jersey Medicaid to help me.  It’s a very common scenario, one which I was reminded of last week.               We received a call from Jim regarding his dad, who has been living with Jim for the last several years.  Dad is bipolar but functions well when he takes his medications.   It often is a struggle, however, to get him to take that medication.  Jim works during the day so he isn’t always at home to  monitor Dad.                Jim explained that his dad becomes somewhat agitated and occasionally wanders when he

            On January 23, 2015, the VA took the initiative in proposing new regulations that would penalize wartime veterans and their spouses up to 10 years for making gifts, if they wish to qualify for the VA’s Aid and Attendance program.              As many readers of this blog know, this non-service connected pension can provide as much as $2120 per month in tax free income to help pay the cost of long term care.  This program is means tested with an asset limit of about $80,000.  Currently, there is no look back as there is for Medicaid so that transfers for less than fair value to individuals or trusts do not result in a waiting or penalty period for benefits.              Federal legislators introduced two bills since 2012 seeking to impose a 3 year look back but neither bill has yet passed both houses of Congress. The VA has instead tried to take matters into its own hands.  A penalty of up to 10 years would result from uncompensated transfers. The penalty would be calculated by dividing the amount of the transfer by the claimant’s pension rate.  A married veteran, therefore, would

            Last week we were discussing Mary’s dilemma.  Her husband, George, has Alzheimer’s Disease and is going to need some care at home.  Mary is concerned that soon he will need nursing home level care and she wants to preserve their primary home and their second home.              The problem is that George does not have long term care insurance so will have to privately pay for care until Medicaid eligibility.  Mary can keep the primary home and $119,220 in assets but everything else needs to be spent down before Medicaid will cover his care.  She can’t simply take George’s name off the deed to their shore home.              So, what are their options?  It may still be possible to transfer the second home to a trust and try to get through the 5 year look back.  George doesn’t yet need nursing home level care and it may be possible to pay for the care he needs for 5 years if his decline in health is slow rather than rapid.  This would mean spending other savings during that time frame and if they can’t quite make it, maybe a family member can

            It’s something I have written about in past blog posts but just last week we received a call from Mary on this exact issue.  Her husband, George, has Alzheimer’s and now needs care at home.  She is concerned that as his condition worsens it won’t be long before he needs nursing home care.  At $120,000 a year she doesn’t have sufficient income to pay that kind of expense.              A few years ago Mary spoke with her attorney about planning for the possibility of needing Medicaid for George.  She wanted to insure that her primary residence and shore home would be protected, that they would not need to be sold and spent down for care.  Her attorney told her not to worry.  “We’ll transfer George’s interest in the homes to you.”  So that’s what they did.              “Unfortunately”, I told Mary, “that is not going to protect the shore property.” That’s because under  Medicaid’s division of asset rules, while Mary can keep their primary residence, all other assets, including the second home, are considered “countable” assets.  Mary is entitled to keep ½ of those assets but only up to a maximum