If things stayed the same, keeping up with the law would be a breeze. Unfortunately, tax and Medicaid laws seem to change on a daily basis. Over the past year, there have been a number of developments. In this article, I’ll offer some of the highlights.
As a result of the 2017 tax package, the federal estate tax exemption has increased to $12.92 million for those dying in 2023 ( up from $12.06 million in 2022). This means that your estate will not be subject to federal estate taxes in 2023 unless it exceeds $12.92 million. If you are fortunate enough to have such a large estate, the amount in excess of the exemption will be taxed at 40%.
A companion to the estate tax is the federal gift tax. On the gift tax side, the so-called annual gift tax increases to $17,000 for 2023. It was $16,000 in 2022 and had been $15,000 from 2018 through 2021. This means that you can gift up to $17,000 to each recipient each year without having to file any gift tax return or declare any gift. If you exceed this amount, you have to file a gift tax return and use some of your $12.92 million estate tax exemption. Keep in mind that this is a federal gift tax rule and it has no bearing on how those gifts might be treated if you need to seek Medicaid benefits for long-term care. Medicaid is a public benefit program that pays for nursing home care if you meet certain guidelines. Under the current Medicaid rules, most gifts made within 5 years of asking for Medicaid will make you ineligible for Medicaid and therefore create a problem. This means you must be extremely cautious when making any gift.
While the Medicaid program has a very strict rule on making gifts in order to qualify for benefits, each January we do get an increase in the “Community Spouse Resource Allowance”. This is the amount that a healthy spouse gets to keep when the “sick” spouse enters a nursing home. For nursing facility residents, Pennsylvania’s general rule is that the healthy spouse can keep one-half of the available resources that were owned by the couple on the date of admission to the nursing facility. However, this protected “Community Spouse Resource Allowance” is subject to a ceiling and a floor. In 2023, the maximum is $148,620 and the minimum is $29,724. This means that if the couple has $400,000 in savings when the husband enters the nursing home, the wife’s protected share is $148,620 and not one-half of the assets. Once the couple has reduced their countable resources to the eligibility limit, the spouse in the nursing home qualifies for Medicaid benefits. Once on Medicaid, the most that the couple has to pay towards nursing home expenses is the institutionalized spouse’s income, which typically consists of Social Security benefits and pension income. Keep in mind that this is the bare minimum protection for the community spouse. Fortunately, you can take steps to increase these protections even after there is a placement in a nursing home. Despite the 5-year rule, it’s never too late to preserve assets.
In addition to the “resource” protections for a so-called community spouse, there are also income protections. The income protections are designed to ensure that the community spouse has sufficient monthly income to meet his or her needs when the sick spouse enters a nursing home. Under the guidelines, the community spouse is entitled to keep all of his or her income. If the community spouse’s income is less than his or her “income allowance,” then they are entitled to keep a portion of the institutionalized spouse’s income. In 2023, the “income allowance” which takes into consideration one’s housing expenses, is a maximum of $3,715.50 per month and a minimum of $2,289 per month.
A final 2023 change is the amount of the Medicare skilled nursing facility co-pay. If you recall, traditional Medicare’s coverage for nursing home care is limited to “skilled” care only for a maximum of 100 days. If you are in a skilled nursing facility after a 3-day hospital stay (observation status does not count) and meet all the other requirements, then Medicare Part A will cover up to 100 days of skilled care for each benefit period. Under Part A, the total cost at the nursing home, including all room charges and prescription drugs, is covered. For the first 20 days of skilled care, traditional Medicare pays 100%. If you continue to need “skilled” care, then for days 21-100, there is a co-payment of $200.00 per day in 2023. Similar coverage is provided if you get your health care through a Medicare Advantage plan rather than traditional Medicare.