With the 2021 federal estate tax exemption amount at $11.7 million for individuals and $23.4 million for couples, many estate planning attorneys have shifted to other financial savings objectives to plan for their clients whose taxable estates fall below these thresholds. Because of this high exemption amount, the federal estate tax has impacted less than 1 percent of the US population, and thus the planning focus has shifted towards reducing income tax liability for clients. More specifically, the focus has been on how to strategically and effectively reduce a client’s capital gains tax liability. Although these strategies may eventually need to change given new proposals by the Biden administration, there are several important rules regarding capital gains taxes that currently apply to gifts made during a client’s life or at death that legal counsel must consider when advising clients. 

Yesterday, you were alerted to the groundbreaking decision out of Minnesota that confirmed an irrevocable trust could be an exempt asset regarding Medicaid eligibility and struck down state law that contradicted federal law on the matter.

Now, let’s discuss a similar case out of Montana.

In this case, Marilyn owned a home. Her sister, Glenda, moved into it with her. In 2008, Marilyn sold to Glenda a one-half interest in the home. Thereafter, both sisters established an irrevocable trust and transferred their respective shares of the home into the trust. In 2016, Marilyn’s health was failing and she needed care. She entered a nursing home and applied for Medicaid the next year. Her application was denied because the state counted the trust property in her eligibility determination.

Lawyers who represent family businesses often also represent the business owners, serve as a trustee or fiduciary on the business’s board, and provide personal estate planning for the owners and other family members. While fulfilling multiple goals  for clients may seem effective and efficient, it is important that the attorney consider potential ethical complications and the potential need to narrow the representation, obtain clients’ informed consent, or withdraw from a particular matter.