Q. I heard that the Medi-Cal rules to qualify for a long-term care subsidy are about to change. This would be very important to us, as my husband, now aged 85, will soon need care in a nursing home, and we are very concerned about the cost. Do you know anything about this?

A. Yes, indeed, and you heard correctly! The changes coming are probably the most dramatic since the Medicaid program was first established under President Lyndon Johnson back in 1965. A bit of background may be helpful:

Historically, Medicaid, which we call “Medi-Cal” in California, has been a healthcare program for “the poor”, defined over the years as an individual with less than $2,000 in savings or other countable assets. That very modest number has not changed over the years.

However, if that individual is married, and has a spouse living at home in the community (a “Community Spouse”), a 1989 amendment to the Medicaid Act recognized the need for a Community Spouse Resource Allowance (“CSRA”), to avoid the impoverishment of the spouse at home. That CSRA amount has adjusted over the years based on inflation, and the current amount is $137,400. So, under today’s Medi-Cal rules, a married individual with a Community Spouse could qualify for a Medi-Cal subsidy if, together, their savings and other countable resources do not exceed the sum of $2,000 + $137,400 = $139,400.

The big change coming is the increase, and ultimately elimination, of the resource cap for the individual seeking a Medi-Cal subsidy. Under California legislation signed by Gov. Newsom as part of the 2021 Budget Bill (“AB 133″, at Section 364), the resource caps are set to be modified, and ultimately eliminated, in two stages, as follows:

1) Stage #1: Effective July 1, 2022, just a few short weeks away, the $2,000 individual resource ceiling will increase from $2,000 to $130,000. In addition, another $65,000 will be allowed for each household member, up to a total of 10. However, if that individual is married and has a Community Spouse who is not, herself, seeking Medi-Cal, then the couple’s combined resource allowance will be the sum of the following: $130,000 + $137,400 = $267,400.

The rules are a bit complex in terms of who qualifies as a Community Spouse (and is thereby entitled to the full CSRA of $137,400), but in our practice we have found that in most cases the spouse at home will so qualify, provided that he/she is not also seeking a Medi-Cal subsidy.

Stage #2: The California legislation proposes that on January 1, 2024, the resource caps will be eliminated entirely, subject only to Federal approval! While this approval has not yet occurred, rumor is that approval is likely. In that event, California will be the only state in the entire country that will have completely eliminated the long-standing resource test to qualify for a Medi-Cal subsidy.

However, the following aspects of the Medi-Cal rules will not change:

1) The rules pertaining to the treatment of INCOME. Currently income is considered in determining whether an individual has a Share of Cost (“co-pay”), and is also a determinant for eligibility for certain Medi-Cal programs, such as the Aged & Disabled Federal Poverty Level Program, and the Assisted Living Waiver Program;

2) The rules pertaining to ESTATE RECOVERY. Under current rules, California may seek to recover the benefits paid, following the death of a Medi-Cal beneficiary, if his/her estate goes through a full probate, unless statutory exceptions apply, such as survival by a spouse or a disabled child. Note: assets held in a Living Trust typically do not require a probate and are therefore usually protected from estate recovery.

3) The rules pertaining to the making of GIFTS.

Caution: For those Medi-Cal recipients who are on other programs, such as the Supplemental Security Income Program (“SSI”), note that those rules will not change and $2,000 continues to be the resource ceiling for an individual receiving SSI. Thus, an individual on both SSI and Medi-Cal, may be obliged to continue to keep his/her resources below the $2,000 cap.

These Medi-Cal changes are dramatic, and I predict that California may ultimately become a Mecca for the relocation of elderly parents who are now residing in other states. Whether easier access to a Medi-Cal subsidy will impact the quality of care in long-term care facilities, only time will tell.


Note: the above discussion applies only to those persons over 65 years of age (and younger individuals on MediCARE due to a qualifying disability), the so-called Traditional Medi-Cal population (aka the Non-MAGI Population), but not to younger individuals who do not have a qualifying disability and are eligible for Medi-Cal pursuant to the “Patient Protection and Affordable Care Act”, based upon their modest incomes (i.e. the so-called “MAGI Population”). For this younger group, eligibility is based upon their “Modified Adjusted Gross Incomes”, alone, without regard to their resources). By raising and ultimately eliminating the resource requirement for the older, NON-MAGI population, AB 133 proposes to bring the (older) Non-MAGI population into line with the (younger), MAGI Population.


Q. One of our adult children has a disability and receives SSI and Medi-Cal. We are concerned that an inheritance may terminate his benefits. We have heard something about a Special Needs Trust. Can you tell us more about that?

A. Sure. As you apparently know, under present rules your son cannot have more than $2,000 in savings or other nonexempt assets and still remain eligible for these benefits. His receipt of an inheritance from you would likely put him over that ceiling and thereby terminate his eligibility.  However, the law permits you to create a Special-Needs Trust (“SNT”) to receive his inheritance without jeopardizing his public benefits.  The law’s purpose is to allow you to set aside “private funds” to supplement his SSI and/or Medi-Cal, and thereby enhance his quality of life in a kind of public–private partnership.

You could create the SNT as a stand-alone trust for your son and fund it during your lifetime, or you could do so as part of your own estate plan and fund it upon your demise. In either event,  you would designate someone other than your son to be the Trustee to hold and manage those funds, such as one of your other children, a trusted relative, or even the trust department of a bank. So long as properly created and managed, the funds in the SNT would allow the Trustee to  pay third-party providers of goods and services to him, while also preserving his public benefits.

Currently, a single individual on SSI in California, living independently, can receive a monthly benefit of up to $1,040.21(in 2022) or $1,110.26 if blind. Since the SSI program is designed to cover food and housing expense, there would be a modest reduction in his SSI if the SNT paid for those same expenses.  Therefore, it is usually best for the SNT to pay for expenses which are not food or housing, e.g.  transportation, cell phone, computer, training, etc.  Reason: payments for expenses which are not food or housing would result in no reduction in his SSI or Medi-Cal benefits.

The ISM Reduction: A Benefit Opportunity:  However, the SNT could even assist with the cost of food or housing, but in exchange for only a modest reduction in SSI.  Example: if the cost of an apartment were, say, $2,000 per month, your son could pay, say, $50 from his SSI toward that expense, and the SNT could pay the $1,950 balance directly to the lessor.  Your son’s SSI would then only be reduced by a flat $300.33 per month (in 2022), which is called the “Presumed Maximum Value” or “PMV”. Not a bad trade-off.  I call this the “PMV leverage”.

Further, if the SNT had sufficient assets, it could actually pay virtually any amount per month to any number of providers of goods and services to him, and here’s the beauty about how this works: no matter how much the SNT pays to all such 3rd parties for your son’s monthly housing or food expense, the maximum reduction in his monthly SSI benefit would never exceed the current PMV of $300.33 per month.  Thus, a well-endowed SNT could generate a substantial benefit to a person with a disability, with only a modest reduction in his or her SSI and usually none to his or her Medi-Cal eligibility.  The SSI rules which govern here are referred to as the “ISM Rules”, where ISM stands for “In Kind Support and Maintenance.”

Caution: the SNT should never distribute money directly to your son, as there would then be a dollar-for-dollar reduction in his SSI. Rather, payments should always be made to the third-party providers of goods and services to him.

Note:  if your son were receiving only Medi-Cal benefits, know that the Medi-Cal resource rules will be changing soon, and I plan to write an article on topic very soon.


Q.  My husband died last year, and I am now considering selling our home and relocating to be closer to our daughter.  I am concerned, however, about the potential tax consequences when I sell. Can you provide any information on this point?

A. Yes.  The biggest concern when selling property is capital gains taxes.  A capital gain is the difference between the “tax basis” in property and its selling price. The tax basis is usually the purchase price of property plus the cost of improvements. So, if you purchased a house for $250,000 years ago, added improvements at a cost of $100,000, your basis would then be $350,000.  So, if you sold it for $750,000, you would then have $400,000 of gain [$750,000 – ($250,000 + $100,000) =$400,000.

The $250K Exclusion:  However, you would then have the right to exclude a certain portion of that taxable gain using the home sale deduction provided in the Internal Revenue Code. Here is how that works: A single, unmarried person who has used the home as his/her principal residence for 2 out of the previous 5 years before sale can exclude up to $250,000 of that taxable gain. Couples, filing taxes jointly, can exclude up to $500,000 of that gain. But here’s the good news for persons in your situation:  Surviving spouses can claim a full $500,000 exclusion if they sell their home within two years of the date of their spouse’s death, and if other ownership and use requirements have been met. The result is that widows or widowers, who sell within two years of the passing of their spouse, will have a $500,000 capital gain exclusion!  By reason thereof, they may not have to pay any capital gains tax on the sale of their home (or at least far less than they would otherwise have to pay). So, consider a sale before the two years are up!

“Step-Up” in Basis:  However, the surviving spouse does not automatically owe taxes on the rest of any gain. This is because of another tax rule called the “step up in basis”.  Here’s how that works: When a property owner dies, the cost basis of the property is “stepped up” to its value at the time of his death.  This means the current value at death of the property becomes the basis. When a joint owner dies, half of the value of the property is stepped up. For example, suppose a husband and wife buy property for $200,000, and then the husband dies when the property has a fair market value of $300,000. The new cost basis of the property for the wife will be $250,000 ($100,000 for the wife’s original 50 percent interest and $150,000 for the other half passed to her at the husband’s death).

Double Step-Up for Community Property:  In community property states such as California, where property acquired during marriage is often the community property of both spouses, the property’s entire basis may stepped up when one spouse dies. However, the survivor would have to legitimately claim that the home was owned as the couple’s “community property” in order to get the “double step-up”.  If the couple held title to their home as their “community property” on their deed, the characterization would be clear. However, if they held it as “joint tenants” then the characterization would be less clear and the survivor might not be entitled to a double step-up in cost basis. This is why, where otherwise appropriate, I often urge couples to consider re-titling their home into their own names as their “community property”.

In California, there is a way to hold title that is similar to joint tenancy as regards survivorship. It is called “Community Property with Right of Survivorship”. I have written an article on topic which is available on our website

Property Tax:  There is one more tax to consider, and that is the Property Tax. If you are over age 55, then under recently enacted Proposition 19, you can relocate to any other county within the State of California and take your current low property tax with you, subject to certain conditions. In this regard, the Alameda County assessor has a lot of information on its website to explain this further and guide you.

Good wishes on your relocation:)

Q.  “Dad suffered a stroke and is in the hospital in ICU. I do not have signing power on his bank accounts and I need to pay his bills. I am told that I need a Power of Attorney so that I can take care of his finances. Can you help?”

A.  We frequently receive frantic calls like the above, and it saddens me that we usually have to advise the caller that it may now be too late. A Power of Attorney is a legal document and can only be signed when the signer, also called the principal, has legal capacity. If the principal is delirious, in a coma, or otherwise mentally incapacitated, he or she does not have the required capacity to sign a power of attorney or, indeed, any other legal document.  This advice often comes as a surprise to the well-intentioned family member who hopes to help a loved one manage his or her affairs.

In cases like this, I find myself wishing that the caller had contacted us sooner, before the crisis, so that we could have prepared the necessary documents to deal with just this problem.  Incapacity, especially if brought on suddenly by an injury, stroke or other acute event, can strike without warning, and is especially problematic for seniors in declining health.  Incapacity can also be a gradual process, brought on by declining memory, dementia or other mental problems.

Keep in mind that signing a Durable Power of Attorney (“DPOA”) does not necessarily mean that the signer instantly gives up control over his financial affairs.  Indeed, the DPOA can be a “springing power”, which means that it only becomes effective when, for example, a physician certifies in writing that the principal no longer has capacity to manage his or her affairs.  It can also provide that the principal’s power to manage his own affairs is restored if he later regains capacity.  Further, a DPOA can be a comprehensive legal document which delegates to a trusted agent authority to do almost everything that the principal could do on his own, or it can be a limited power which authorizes the agent to handle only certain types of transactions, such as the payment of bills from a specific checking account.

It is a common misconception that powers of attorney are all alike.  They are not.  Indeed, a DPOA can be as broad, or as limited, as the need and comfort of the principal requires.  By way of example, it can authorize the creation or modification of “Living Trusts”, the purchase or modification of insurance policies, the making of gifts to loved ones, and/or Medi-Cal planning for long-term care.  The important point, however, is to take steps to create one which meets your needs before a crisis strikes and while you are in full possession of your faculties.  In that way, it can serve you and your loved ones well in the event of future need, and likely avoid the need for a court-supervised, and often expensive, conservatorship proceeding.



Q. My wife and I don’t really understand what a “Living Trust” is and how it is different from a Will. Can you help us understand it?

A. Yes. A “Living Trust”, is a legal document which (1) provides for asset management in the event of your incapacity, and (2) allows your assets to go to your intended beneficiaries upon your death without the expense and delay of probate. By comparison, a Will does not provide for the management of your assets in the event of incapacity, and usually requires a court probate proceeding to distribute your assets, a process which is typically more time consuming and expensive.

The Living Trust is a legal arrangement whereby you, as “trustees”, hold legal title to your property. Attorneys often refer to is as a “Revocable Trust”, as it can be revoked by you during your lifetime if you wish.

As the creator of a revocable trust, you typically wear three (3) hats: (1) you are the “Trust Maker” (aka “Settlor”, or “Grantor”); (2) You are the Beneficiaries of your trust; and (3) you are the “Trustees” of the trust property. Married couples usually serve together as Co-Trustees.
Even though the assets are held by you as “trustee(s)”, you and your spouse still remain the real owners and you can manage assets placed into trust just as you always have.

An important difference between a Trust and a Will: in the event of your incapacity, a co-trustee (typically a spouse or adult child) can step in and manage the trust property for your benefit. While you might also accomplish this through a Durable Power of Attorney, banks and other financial institutions are often much more comfortable with trusts. Indeed, they have been known to reject Durable Powers of Attorney, especially if they are more than a few years old.

The secret to making revocable trusts work is to “fund” them. This means re-titling assets in the names of the trustee(s) of the trust. To place bank and investment accounts into your trust, you need to retitle them. Assuming your names are John and Mary Smith, you would re-title assets as follows: “John Smith & Mary Smith, as Trustees of The Smith Family Revocable Trust created [date].” As to bank and brokerage accounts, the financial institutions will also require a copy of a summary of the trust (called a “Certification of Trust”), which affirms the existence of the trust, the identities and powers of the Trustee(s), and their signatures.

To transfer your home into your trust, you will need to sign a deed transferring it into the trust, by deeding it to yourselves “as trustees”. Of course, the home will still remain yours, as before, notwithstanding this deed and you can continue to manage it as you wish.

All too often, attorneys draw up Trusts, advise clients to fund their Trusts, and then nothing happens. This omission can undermine the Trust, as the Trustees (and, especially, your successor trustee) would then not have legal control over assets that have not become part of the trust. However, if you execute “pour-over” Wills, along with your trust, saying that at your death all of your assets are to be distributed to your Trust, your wishes as to the ultimate distribution of your estate can still be honored. However, in that event, a probate proceeding would be required to formally transfer your assets into the trust. Further, if you do not fully fund your trust during your lifetime, your successor trustee may not be able to manage your assets for you in the event of your incapacity.

As long as you are serving as your own trustee or co-trustee, you can use your own Social Security number for the trust on your usual, individual tax returns. As before, you will still be taxed on all of the trust income.

Q. Our mother is in assisted living and may need to go into a nursing home soon. To raise money for her ongoing care, we are thinking of selling her home which is now vacant. Any thoughts as to whether that makes sense?

A. Well, here’s the thing: selling mom’s home may undermine her ability to qualify for a government subsidy to help pay for the cost of care, whether in the Assisted-Living Facility (“ALF”) now, or later in a nursing home. Reason: once she receives the sales proceeds she will then likely be “over resourced” and not eligible for government subsidies to help with the cost of her care.

Background: There are two principal government programs designed to help subsidize the cost of long-term care: (1) the Veterans Pension Program, which works best for wartime veterans or their spouses receiving care in a home or ALF setting, and the (2) Medi-Cal Long-Term Care (“LTC”) program. While the Medi-Cal Program was originally designed to subsidize care in a nursing home setting, more recently — because of the Affordable Care Act and California initiatives — it has been expanded to subsidize care at home under its “Home and Community Based Services” (“HCBS”) programs. It is also experimenting with coverage for a limited number of qualified residents at some ALF’s under so-called “waiver programs”. In this context, the word “waiver” refers to Medi-Cal ‘waiving’ the traditional requirement that care be received in a nursing home setting. However, both the VA and Medi-Cal programs currently have resource ceilings, and individuals with countable assets which exceed those ceilings will not qualify.

Were you to sell mom’s home while it remains in her name, the sale proceeds would likely cause her to exceed those resource ceilings. She would then be ineligible for benefits under both the VA and Medi-Cal programs, and would then be obliged to rely upon those home sale proceeds, alone, to pay the full cost of her care. Over time, those funds would be gradually spent down at a more rapid rate and, depending upon her longevity, even exhausted.

Often a better approach would involve the creation of a very specially designed Irrevocable Trust, which I sometimes call a “House Trust ”. This trust is different from the more common “Living Trust”, and is designed to preserve home sales proceeds in the Trust, while also permitting qualification for government subsidies to help with the cost of care. It only works where the Trustee and all beneficiaries are 100% trustworthy and are prepared to put mother’s interests first.

By this approach, your mother’s home would first be transferred into this ‘House Trust’ (more properly called a “Medi-Cal Asset Protection Trust”, or “MAPT“), and only then would it be sold. The Trustee would then distribute funds periodically to the trust beneficiaries, who would then – in turn– use them to help with mother’s expenses. Because of its special features, this trust:

(1) would permit the sale of the home in order to raise cash for her care;

(2) would not undermine her eligibility for subsidies under either the Veterans Pension Program or the Medi-Cal LTC program, as the sales proceeds would then officially be “owned” by the Trustee;

(3) would permit the Trustee to indirectly use the sales proceeds to help pay for mom’s care expenses, by authorizing periodic distributions only to the trusted beneficiaries (i.e., mom’s children), who would then, in turn, “gratuitously” use them to help pay for mother’s expenses to the extent of her need, after taking into account any available government benefits. Essentially, they would make gifts to the providers of mom’s care, and may need to file simple Gift Tax Returns each year;

(4) would preserve her eligibility for the $250,000 capital gains tax exclusion associated with the sale of one’s own personal residence, notwithstanding her transfer to the Trustee prior to sale!; however, your mother may still have a capital gain which exceeds this exclusion, so you must evaluate her overall tax liability in the event of sale before opting for this strategy; sometimes there are other options in lieu of sale, such as a Private Reverse Mortgage; and

(5) if your mother died while the home were still in the Trust, it would — under current rules — still receive a favorable “step-up” in tax basis, so that it would then go to her designated beneficiaries with a minimal tax burden, or perhaps none at all!

The result: Mother’s eligibility for government care subsidies is preserved, and she thereby avoids reliance upon the home sales proceeds, alone, to pay for her care. Indeed, this plan may enable her to have more funds available to improve the quality and increase the hours of her care. Further, by slowing the depletion of her own resources on care expenses, the plan may also preserve more of her estate for her children down the road or, perhaps, even for her own use should she later recover.

Q. My husband and I married years after he purchased what is now our home. We are both now up in years, and we still have an outstanding home loan that we pay on each month. What happens to the home loan if he predeceases me, as my name is neither on the title to the home, nor on the mortgage loan? Will the bank foreclose?

A. Good news! No, the bank will not foreclose, so long as you continue to make the house payments when due. This is because of a federal law passed by Congress in 1982 called the “GARN — St Germain Depository Institutions Act” (aka, “Garn Act”), so named after the legislators who sponsored the law. It prohibits a lender from foreclosing on a mortgage loan on a home, or a multi-unit residential dwelling containing less than five units, or even a manufactured home used as a residence, in certain circumstances described below.

In legal parlance, it prohibits the lender from exercising the “due on sale” or “due on transfer” clauses included in most home loans in the following situations:

1) Creation of a second mortgage;

2) Termination of a Joint Tenancy;

3) A transfer to a “relative” as a result of the death of the borrower;

4) Transfer of ownership to a spouse or children of the borrower;

5) Transfer due to Divorce or Legal Separation or related court orders;

6) Transfer to an Inter-Vivos Trust (e.g. a “Living Trust”) if the borrower is a beneficiary and continues his/her occupancy.

There are some exceptions to the list of prohibitions. The most important of these is regarding a Reverse Mortgage (“RM”). So, if you later take out a RM loan, the Garn Act will not prohibit the lender from calling the loan due if you transfer or sell the home. So, just be aware.

Also, unfortunately, the word “relative” in the above list is not defined by the Act nor the implementing regulations. So, it would presumably include spouses, children, and siblings, but would it also include in-laws?  The law is unclear. Again, just be aware.

In terms of your name not being on title, I would suggest that you and your husband see an attorney to discuss your future and prepare appropriate estate planning documents to plan what ultimately happens to the home upon his or both of your deaths. It may be that it might be time to add your name to title.   At that time, you might also address other planning issues, such as the need to plan for the disposition of your other assets, the possible need to develop a plan to finance Long Term Care, to prepare a Trust and/or Durable Powers of Attorney to manage your financial affairs if you can no longer do so on your own, to create Advance Health Care Directives, and the like.

Every good wish to you and yours. Don’t procrastinate, especially during this time of COVID.


ReferencesGARN — St Germain Depository Institutions Act

Garn Regulations




Q. My husband suffered a stroke and is essentially paralyzed. However, his mind is sharp. I need him to sign a Power Of Attorney so that I can take care of our financial affairs. Is there any way to do this?

A.  Yes. Where a person has sufficient mental capacity to understand the nature of the document he or she proposes to sign, and where the only limitation is a physical inability to perform the act of signing, the law provides alternative methods of obtaining a legally valid signature:

Signature by Mark: If the person is unable to sign his or her full name, he might make a mark, such as an “X”, on the desired document. The signing must be witnessed by two disinterested witnesses, each of whom must also sign the document reciting that they watched the principal place his mark, and one of the witnesses must actually sign the principal’s name adjacent to his mark. If the individual does not have use of his arms, a pen might be placed between his teeth to enable him to mark the legal document. However, care must be taken so that the actual mark or “dot” on the paper is the act of the principal, i.e. your husband in this case.

Signature by Amanuensis: Where a person is totally paralyzed and would not even be able to clench a pen in his teeth, but is able to speak and give instruction, there is another procedure called signing by amanuensis.  In legal parlance, an “amanuensis” is an assistant who copies or writes from the dictation of another.  Thus, if your husband is totally immobile, but if his mind is clear and he can speak or otherwise give direction, he could direct someone to sign his own name on a legal document. The actual signer should be a disinterested person, other than yourself, and the signing should occur in your husband’s presence.  It would be best if a notary were also present to notarize the document. Note:  most notaries will be unfamiliar with this procedure, and so you should engage a knowledgeable attorney who can explain the process to the notary and supervise the signing.

In some situations, the paralyzed individual may have also lost the power of speech. Yet, if he retains some method of communication, such as by eye movements in response to questions, the process of signing by amanuensis could be modified to accommodate that limitation. A doctor should write a letter affirming the person’s ability to understand and communicate by the eye movements, an attorney should supervise the process, and the signing process should be recorded on video.

Blind Signer: If the principal is blind, but otherwise has the use of his limbs, I would recommend that the entire document be read to him, word for word, and his understanding confirmed. A ruler or “cut out” template might be used to guide the placement of his hand so that he signs at the appropriate place on the document. Again, the entire process should be videoed. A witness might also certify the principal’s understanding and a notary should be present to notarize the document.

In your case, with patience and some thought, your husband’s signature on the Power of Attorney can be legally secured.

Q. 20 years ago, my husband and I created a Living Trust with provisions to avoid estate tax upon our passing. I believe it is called an A-B Trust. When my husband died four years later, my attorney helped me divide the trust assets between the A and the B portions. The problem: my CPA just told me that the assets we put into my husband’s “B” trust will incur a large capital gains tax when sold, even if my children sell them after I die. This is a big surprise to me. Does this sound right?

A. Yes. The division of trust assets when your husband died may have been necessary at the time to avoid estate tax, but the trade-off was exposure to capital gains tax as to your husband’s portion upon a later sale. A bit of background may help explain this:

When you both created your trust back in 2001, the estate tax exemption was only $675,000 per person and, unless special trust provisions were in place, it expired upon the death of the first spouse. If the value of your combined estate was greater than that exemption, your attorney probably suggested the A-B trust plan to preserve the first spouse’s exemption until the death of the survivor of you, to thereby minimize the estate tax. Back then, this was typically a good tax strategy, since assets in excess of the exemption were then taxed at a rate of 55%.

However, the trade-off in creating the A-B mechanism is that assets funneled into the B sub-trust were usually “frozen” in value from a tax standpoint, at their market value at the time of the first death. They usually did not get a second adjustment in tax basis upon the death of the survivor. If those assets later appreciated in value, then upon their later sale – whether by you or by your own children after inheriting the property — all appreciation after the first death would be taxed as capital gain. I believe this is your problem, and you are not alone in making this discovery.

Since the estate tax rate in 2001 was then about double the capital gains tax rate, the lower capital gains tax treatment was essentially sacrificed for the greater benefit of estate tax avoidance. At that time, the tax trade-off made sense.

Now, however, the estate tax exemption has increased to $12.06 million per person for individuals dying in 2022, and will likely increase through 2025 by an inflation factor. Even after year 2025, most observers feel that it will still be significant.

Furthermore, under current tax law, the exemption no longer expires upon the first spouse’s death, provided that the survivor takes steps to preserve it by timely filing an Estate Tax Return (Form 706) and opting to preserve the deceased spouse’s unused exemption amount. This is called “portability”. Hence, the A-B trust split is no longer necessary to preserve it. As a result, couples with assets of significant value can now create or modify their trusts to eliminate these provisions without incurring an estate tax upon the death of the second to die, and without exposure to a later capital gains tax.

Where both spouses are still alive and able to do so, we often recommend that couples modify their trusts to eliminate the older A-B provisions. These A-B provisions sometimes appear in trusts under names such as Survivor’s, ByPass, Marital, Family or Exemption, Trusts. Further, in situations where one spouse has already died, but the survivor still has an older A–B trust in place, there may still be strategies to minimize exposure to a later capital gains tax, provided they are implemented on a timely basis.

These are complex issues. I recommend that you consult an elder law or estate planning attorney to see whether anything can now be done to address your concerns and avoid the big tax surprise.

Q. My wife and I created our estate planning documents about 15 years ago and we really have not even looked at them since. Do you have any thoughts about when we should consider updating them?

B. Yes, I do. I would tie a review and update into a New Year’s Resolution. Many of us resolve to eat healthier and exercise more in the New Year. I would suggest another resolution: persons who have not created an estate plan should resolve to create one; and those who have already created one, such as yourself, should resolve to update them as need and changes in the law may require.

A very basic estate plan would typically consist of the following legal documents: a “Living Trust”, and a backup Will, Durable Power of Attorney, and an Advance Health Care Directive for each of you. These documents are designed to be reviewed, modified and updated as circumstances change. Benchmarks for updating these documents might include the following: changes in family structure, such as by births, deaths, divorces and marriages; changes in the ability to manage one’s own finances and/or the onset of incapacity; the need for long-term care; the disability of a child; and changes in tax law.

However, as much as we encourage clients to review and update their estate planning documents, too few actually take that advice. In this regard, I have seen wills of deceased parents, prepared two or three decades earlier, which still refer to their children as minors, and others that mention only one child when the parents subsequently had more children. Outdated documents can sometimes be more problematic than none at all.

If it has been many years since you created your documents, you very likely have provisions in them which were designed with old tax law in mind, and that would now make administration of your estate unduly cumbersome. I refer, specifically, to the common practice years ago, when the estate tax exemption was $1 million per person or less, of requiring asset splitting and sub trust funding at the first death in order to minimize the estate tax bite. Now, with the federal estate tax exemption set to expand in year 2022 to more than $12 Million per person ($12.06 Million for persons dying in 2022), and the corresponding option afforded married couples to double that amount, the need for burdensome sub-trust funding is no longer necessary for most couples. If your 15 year-old plan falls into this category, you may wish to modify it to eliminate this requirement and make trust administration easier for the survivor. Do note, however, that this boost in the Federal Estate Tax Exemption currently “sunsets” at the end of year 2025. What the exemption will be thereafter is presently unclear.

For those who have not created an estate plan, I would encourage them to do so at the earliest opportunity. Sometimes setting a specific calendar deadline is helpful, such as taking steps to create a plan and have it in place by March 31 of the coming year.

The New Year is a time for renewal. Let’s add getting your legal affairs in order to your other resolutions. Your elder law or estate planning attorney can assist you in crafting an appropriate plan to meet your present circumstances.