Despite some people’s negative or selfish attitudes, it is not necessary that there be a loser for every winner. In other words, most successful people and businesses have found that they can often cooperate with others, with both sides achieving success. And, sometimes, we can win at more than one thing at the same time.
As we age, there are three goals that can seem mutually exclusive. We often want to avoid taxes, probate administration and nursing home expenses. Believe it or not, there are various win-win-win estate planning structures that can sometimes achieve all three objectives at the same time.
In our region, we work hard, sacrifice greatly and trust in the Lord in order to best position our descendants to have resources/opportunities that we did not have. To accomplish that, we do not want our descendants to pay excessive capital gains tax if they sell (even to siblings) a portion of what we pass on to them or if they have to liquidate our gifts to them to provide opportunities for their own kids.
With proper planning, minimizing our heirs’ eventual capital gains tax obligations is usually an achievable outcome.
For instance, a farmer may purchase some farmland for $100. If the farmer later sells the land for $500, the farmer owes tax on $400 of the $500 sale price. If the farmer gives the land to a child before the farmer dies and the child later sells the land for $500, the child will owe tax on $400 of the $500 sale price.
However, that tax may be avoided with proper estate planning. First, the farmer may own the land when the farmer dies. Then, the famer can give the land to the child through the farmer’s will. If the land is worth $500 when the farmer dies and the child later sells the land for $500, the child may owe literally no tax. In such a situation, based upon various other factors, millions of dollars of wealth can be preserved and passed to future generations without liquidating a family business or selling a family farm.
It is great to avoid tax, but we also usually want to avoid probate administration. The use of a properly organized trust or numerous other real estate-related tools can be added to an estate plan so that the inheritance entirely avoids probate while still also avoiding the capital gains tax.
Then, that same tax-avoiding and probate-avoiding plan can integrate one or more of several different “nursing home tools” to make the assets “not available” for purposes of Medicaid eligibility. Use of these “nursing home tools” can help a person become eligible for Medicaid benefits to pay for nursing home expenses instead of requiring the person to pay out-of-pocket for years or decades.
Importantly, if set up properly, nursing home tools can be organized to also avoid probate and help the family avoid capital gains tax later. In other words, if done properly, people can achieve win-win-win as to taxes, probate and nursing home expenses.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.