Did you know that twelve percent of Texans are over the age of 65?

While longevity is a wonderful byproduct of our modern society, the downside is that age often arrives at a cost. Declining health often means that seniors require daily support; from meal preparation to hygiene and medical nursing care. These necessities quickly become expensive. In the state of Texas, there are options for seniors in need of care, as well as financial resources and options the family may need to consider.

In-home Care

Sometimes, an elderly family member may need someone to shop, cook meals, and do some light house cleaning chores. If cooking has become an issue, there is a Texas outpost of the national Meals on Wheels organization, providing food to seniors for little or no cost.

If you are comfortable having an outsider visit an elderly family member in their home, there are many in-home care services available from agencies and franchises, as well as from individuals. Several national resources are also available, such as Care.com and visitingangels.com, but there are local and county options as well. Costs can vary widely and payment is either by the hour or a day-rate. There are also local and state agencies that provide some limited financial and services support. Details on those programs are available on the Texas Health and Human Services (HHS) website. If the senior owns his/her home but is running low on cash, looking into a reverse mortgage may provide the needed cash for services while allowing them to remain in the home.

Assisted Living and Nursing Home Care

The inability to cook meals or travel to the store, a pharmacy, or a doctor without assistance is relatively easy to remedy with piecemeal service options, from ride-share and UBER to delivery services. However, if your elderly family member has a deteriorating medical condition, such as Alzheimer’s, dementia, or physical impairment such as onset Parkinson’s, or blindness, being alone may no longer be an option. If a live-in caregiver is not an option, he/she may not be able to remain in their home. If this situation develops, it may be time to investigate an assisted-living or nursing home alternative.

If the individual is still relatively ambulatory and possesses strong cognitive powers, moving to an assisted living situation can be an ideal solution. Assisted living facilities offer both single and shared living quarters and provide meals and activities that are ideal for someone who would benefit from social interaction. They are expensive, unfortunately. In Texas, costs for assisted living facilities range from $4,000, to as much as $10,000, a month or more. Of course, amenities vary widely as well.

Facilities are licensed. There is also a nonprofit organization, Assistedliving.org that may be a useful guide to the cost, location, and quality of Texas providers. Again, they may range in cost from high $3,000 to $10,000/month. Most assisted living facilities offer step-up care options or can refer you to comparable facilities when your senior needs nursing care, or memory care support.

Costs associated with a nursing or assisted living facility vary. However, the senior’s assets, including a home (unless alternative asset planning has been undertaken years in advance), will be drawn down to pay the monthly costs. There are often entry fees or deposits of thousands of dollars that may or may not be drawn upon for monthly expenses. While room and board, including meals, may be part of the monthly cost, other incidentals, such as hair salon services, cable, and turn-down services, may cost extra.

Finally, if a senior has spent down their assets and requires nursing home care, it is never too early to visit Medicaid options. Medicaid is both a Federal and State-run program. There are nursing facilities in the state that accept Medicaid-eligible seniors, but space is often limited. There are many asset limitations for Medicaid and the paperwork could take weeks, perhaps months to complete.

Of course, financial planning today often includes consideration for older parents and relatives that may need assistance—both physically and financially—beyond their means. Talking to your accountant and estate planner is a good first step in discovering what options and resources will be needed in advance of when your senior needs a helping hand.

Please do not hesitate to reach out to Insogna CPA for more information or a discussion on this matter.

Article Highlights:

Exemptions from Gift and Estate Taxes
Annual Gift-Tax Exemption
Gifts for Medical Expenses and Tuition
Lifetime Exemption from Gift and Estate Taxes
Spousal Exclusion Portability
Qualified Tuition Programs
Basis of Gifts

The tax code places limits on the amounts that individuals can gift to others (as money or property) without paying taxes. This is meant to keep individuals from using gifts to avoid the estate tax that is imposed upon inherited assets. This can be a significant issue for family-operated businesses when the business owner dies; such businesses often have to be sold to pay the resulting inheritance (estate) taxes. This is, in large part, why high-net-worth individuals invest in estate planning.

Exemptions – Current tax law provides both an annual gift-tax exemption and a lifetime unified exemption for the gift and estate taxes. Because the lifetime exemption is unified, gifts that exceed the annual gift-tax exemption reduce the amount that the giver can later exclude for estate-tax purposes.

Annual Gift-Tax Exemption – This inflation-adjusted exemption is $15,000 for 2018 and 2019 (up from $14,000 for 2013–2017). Thus, an individual can give $15,000 each to an unlimited number of other individuals (not necessarily relatives) without any tax ramifications. When a gift exceeds the $15,000 limit, the individual must file a Form 709 Gift Tax Return. However, unlimited amounts may be transferred between spouses without the need to file such a return – unless the spouse is not a U.S. citizen. Gifts to noncitizen spouses are eligible for an annual gift-tax exclusion of up to $155,000 in 2019 (up from $152,000 in 2018).

Example: Jack has four adult children. In 2019, he can give each child $15,000 ($60,000 total) without reducing his lifetime unified exemption or having to file a gift tax return. Jack’s spouse can also give $15,000 to each child without reducing either spouse’s lifetime unified exemption. If each child is married, then Jack and his wife can each also give $15,000 to each of the children’s spouses (raising the total to $60,000 given to each couple) without reducing their lifetime unified tax exemptions. The gift recipients are not required to report the gifts as taxable income and do not even have to declare that they received the gifts on their income tax returns.

If any individual gift exceeds the annual gift-tax exemption, the giver must file a Form 709 Gift Tax Return. However, the giver pays no tax until the total amount of gifts in excess of the annual exemption exceeds the amount of the lifetime unified exemption. The government uses Form 709 to keep track of how much of the lifetime unified exemption that an individual has used prior to that person’s death. If the individual exceeds the lifetime unified exemption, then the excess is taxed; the current rate is 40%.

All gifts to the same person during a calendar year count toward the annual exemption. Thus, in the example above, If Jack gives one of his children a check for $15,000 on January 1, any other gifts that Jack makes to that child during the year, including birthday or Christmas gifts, would mean that Jack would have to file a Form 709.

Gifts for Medical Expenses and Tuition – An often-overlooked provision of the tax code allows for nontaxable gifts in addition to the annual gif-tax exclusion; these gifts must pay for medical or education expenses. Such gifts can be significant; they include

Tuition payments made directly to an educational institution (whether a college or a private primary or secondary school) on the donee’s behalf – but not payments for books or room and board – and
Payments made directly to any person or entity who provides medical care for the done.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursements to the donee do not qualify.

Lifetime Exemption from Gift and Estate Taxes – The gift and estate taxes have been the subject of considerable political bickering over the past few years. Some want to abolish this tax, but there has not been sufficient support in Congress to actually do that; instead, the inflation-adjusted lifetime exemption amount has been increasingly annually. In 2019, the lifetime unified exemption is $11.4 million per person. By comparison, in 2017 (prior to the recent tax reform), the lifetime unified exemption was $5.49 million. The lifetime exemption for the gift and estate taxes has not always been unified; in 2006, the estate exclusion was $2 million, and the gift exclusion was $1 million. The tax rates for amounts beyond the limit have varied from a high of 46% in 2006 to a low of 0% in 2010. The 0% rate only lasted for one year before jumping to 35% for a couple of years and then settling at the current rate of 40%. This history is important because the exemptions can change significantly at Congress’s whim – particularly based on the party that holds the majority.

Spousal Exclusion Portability – When one member of a married couple passes away, the surviving member receives an unlimited estate-tax deduction; thus, no estate tax is levied in this case. However, as a result, the value of the surviving spouse’s estate doubles, and there is no benefit from the deceased spouse’s lifetime unified tax exemption. For this reason, the tax code permits the executor of the deceased spouse’s estate (often, the surviving spouse) to transfer any of the deceased person’s unused exclusion to the surviving spouse. Unfortunately, this requires filing a Form 706 Estate Tax Return for the deceased spouse, even if such a return would not otherwise be required. This form is complicated and expensive to prepare, as it requires an inventory with valuations of all of the decedent’s assets. As a result, many executors of relatively small estates skip this step. As discussed earlier, the lifetime exemption can change at the whim of Congress, so failing to take advantage of this exclusion’s portability could have significant tax ramifications.

Qualified Tuition Programs – Any discussion of the gift and estate taxes needs to include a mention of qualified tuition programs (commonly referred to as Sec 529 plans, after the tax-code section that authorizes them). These plans are funded with nondeductible contributions, but they provide tax-free accumulation if the funds are used for a child’s postsecondary education (as well as, in many states, up to $10,000 of primary or secondary tuition per year). Contributions to these plans, like any other gift, are subject to the annual gift-tax exclusion. Of course, these plans offer tax-free accumulation, so it is best to contribute funds as soon as possible.

Under a special provision of the tax code, in a given year, an individual can contribute up to 5 times the annual gift-tax exclusion amount to a qualified tuition account and can then treat the contribution as having been made ratably over a five-year period that starts in the calendar year of the contribution. However, the donor then cannot make any further contributions during that five-year period.

Basis of Gifts – Basis is the term for the value of an asset; it is used to determine the profit when an asset is sold. The basis of a gift is the same for the giver and the recipient, but this amount is not used for gift-tax purposes; instead, the fair market value is used.

Example: In 2019, Pete gifts shares of stock to his daughter. Pete purchased the shares for $6,000 (his basis), and they were worth $22,000 in fair market value when he gifted them to his daughter. Their value at the time of the gift is used to determine whether the gift exceeds the annual gift-tax exclusion. Because the gift’s value ($22,000) is greater than the $15,000 exclusion, Pete will have to file a Form 709 Gift Tax Return to report the gift; he also must reduce his lifetime exemption by $7,000 ($22,000 – $15,000). His daughter’s basis is also equal to the asset’s original value ($6,000); when she sells the shares, her taxable gain will be the difference between the sale price and $6,000. Thus, Pete has effectively transferred the tax on the stock’s appreciated value to his daughter.

If Pete’s daughter instead inherited the shares upon Pete’s death, her basis would be the fair market value of the stock at that time ($22,000) is she sold them for $22,000 she would have no taxable gain.

This is only an overview of the tax law regarding gifts and estates; please contact us for further details or to get advice for your specific situation.

Estate Planning

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