For most, the primary focus of their estate plan is the avoidance of probate and the prevention of family discord. The estate tax exemption increased this year to $5,340,000. That’s up from $5,250,000 last year. So, unless you have a large estate (those in excess of $5 million), estate taxes are becoming more of a secondary concern.
This does not mean, however, that tax planning should be ignored. Many people do not realize that they may end up paying taxes anyway even if their estate is significantly less than the exemption. Call it a stealth estate tax. As a result of the passage of the Affordable Care Act, millions are signing up for coverage on the Obamacare Healthcare Exchanges. At least, that’s what they say on the news, so it must be true.
The elephant in the room here is that a great number of those signing up for Obamacare will obtain their coverage, not through private insurance, but instead through the expansion of their state Medicaid Program. This has serious ramifications for estate planning because, as the late economist Milton Freedman once said, there is no such thing as a free lunch. The healthcare provided to you under the Medicaid Program (we call it Medi-Cal here in California) is actually a government loan and when you pass away, the government will collect from your estate in order to satisfy that debt. This includes the equity in your home that you wanted to leave to your kids or grandkids. J.D. Heyes discusses this problem in his article, “The big Medicaid lie exposed: Govt. to collect healthcare costs from your estate even after you die.”
I assume that the same estate planning tools used to avoid Medi-Cal recovery for long term care is also available with respect to healthcare costs, but time will tell.