Estate and Medicaid Planning Advice for the New Year

West Essex Tribune
January 8, 2004

Several new laws go into effect this year that mean you should review your estate and Medicaid planning to make sure you are taking full advantage of the new laws and avoiding traps for the unwary and unprepared.

The federal estate tax exemption (the amount you can leave to people other than your spouse without a federal estate tax) has been increased to $1,500,000 and the generation skipping tax exemption (the amount you can leave to grandchildren without a federal tax of 48%) has also increased to $1,500,000. This means, with proper planning, more money can be left to your heirs without taxes. Remember that your home, retirement plans and life insurance are all included in your estate, so it can add up quickly.


While the federal estate tax exemption is now $1,500,000, New Jersey’s exemption is only $675,000. If you leave $1,500,000 to your children, there will be no federal estate tax, but your heirs will lose $64,400 for New Jersey estate taxes. With proper planning, a married couple can leave $1,350,000 with no federal or New Jersey taxes.

If your Will refers to an estate tax exemption amount, you must have an estate planning attorney review it to see whether your Will refers to the federal or New Jersey exemption. If your Will refers to the federal exemption, then a New Jersey estate tax will be paid. If your Will refers to the New Jersey exemption, then some of your federal exemption will be wasted. A careful consideration of your assets and family situation is needed to determine which exemption makes sense for you in your particular circumstances. Of course, without a Will, you cannot plan to save your family taxes.

Certain amounts for determining Medicaid eligibility have increased. The penalty rate for calculating periods of Medicaid ineligibility for gift transfers is now $6,050 per month. The New Jersey income limits for nursing home Medicaid is now $1,692 (but those above the income cap may still qualify as “medically needy”). Proper Medicaid planning now can save your family thousands of dollars later. This must be done well in advance of actual need – so take care of this sooner rather than later.

While not a new law, the recent Florida case of Terri Schindler-Schiavo shows the importance of having a living will. In that case, a woman’s family is being torn apart in a case that is likely headed to the United States Supreme Court. Ms. Schiavo did not have a living will (health care declaration), and the family is now in litigation over whether or not to remove her life support. A living will expresses your desires regarding your medical treatment and whether or not to withhold life support and nutrition, and you appoint someone to make sure your wishes are followed if you cannot make those decisions yourself – for example, if you are in a coma.

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