How Will the Trump Administration Impact Estate Taxes and Medicaid Benefits for Long-Term Care?

By:
Anthony J. Enea, Esq.
Published Date:
Dec 1, 2017

While it still remains to be seen which specific legislative policies the Trump administration will enact, a repeal of the federal estate tax may be very likely if Congress passes tax reform or tax cuts.  

Presently, the federal and estate gift tax credit is $5,490,000 per person for 2017. Thus, a husband and wife can shelter $10.98 million from federal estate taxes. For estates of either single or married persons beyond the credit amount, the federal estate tax rate is 40%. Currently, there are 15 states—including New York and the District of Columbia—that also assess an estate tax. Thus, when the federal estate tax is combined with a state estate tax, as it is in New York, it is not unusual for the overall taxable rate to be close to 50%.

For all the attention the federal estate tax receives, it is still a tax that has no impact whatsoever on more than 99% percent of Americans. For example, in 2015, the Tax Policy Center estimated that 10,800 federal estate tax returns were filed. Approximately half of those were for taxable estates. According to the Tax Policy Center, the tax collected on those returns were in excess of $18 billion—a staggering amount of estate tax revenue, considering the relatively small number of estate tax returns filed. The collection of so much from so few estates helps bolster the argument of those seeking its repeal, who say that it is onerous and confiscatory in nature.

When a total repeal of the federal estate tax is contemplated, one of the anticipated consequences is that any beneficiaries of the estate will not receive a step up in the cost basis of the assets inherited for capital gain tax purposes to the date of death value—and will instead receive the decedent’s original cost basis (purchase price) plus any capital improvements. Under the Trump administration’s plan, however, the tax on capital gains above $10 million would have to be paid only when and if the assets are sold.  This will obviously place the burden on the taxpayer to retain accurate records as to the cost basis of the assets in his or her estate. Assuming, for the sake of argument, that Trump’s proposal to eliminate the Medicare surtax of 3.8% is also implemented, a capital gains tax at the highest rate of 20% would still be imposed on capital gains.

Critics of the Trump administration’s proposal argue that its effect will be to allow the wealthiest families to avoid federal estate taxes and create greater dynastic wealth because, in most cases, the beneficiaries will not need to sell the inherited assets. Families with more modest estates, on the other hand, will need to sell and pay the capital gains tax.

There is greater uncertainty with respect to the impact of the Trump administration on Medicaid programs that pay for nursing home care, home care, and other long-term care needs.

President Trump has proposed turning over the control of the program to the individual states.  Under his proposal, rather than financing the Medicaid program through a federal match based on enrollment in the program, states would receive a fixed amount of money (known as a “block grant”) and  administer the program as they see fit. The emphasis of this proposal is to maximize the flexibility of each state to create and deliver long-term care as innovatively as possible. It would discourage states from enrolling as many people as possible into their programs and thus incentivize them to make the programs cost-effective.

It should be noted that Trump vowed throughout his campaign that Medicare and Social Security would remain untouched. Because the Affordable Care Act (Obamacare) and Medicaid are so inexorably intertwined, it is difficult to determine whether Trump’s block grant proposal will be implemented beyond said healthcare programs.

As is true about many things in life, only time will tell where we end up; however, one thing is for certain: For the vast majority of Americans, protecting their assets from the cost of long-term care is critical to preserving their life savings. The effects of estate taxes are often of little relevance.

 


Anthony_EneaAnthony J. Enea, Esq., is the managing member of Enea, Scanlan & Sirignano, LLP, with offices in White Plains, N.Y., and Somers, N.Y. He can be reached at (914) 948-1500. He is AV Rated Preeminent and has been designated as a “Super Lawyer” and “Best Lawyer.” He is also fluent in Italian. 

 
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