Estate tax planning generally focuses on reducing the potential tax liabilities for a person’s estate. For larger estates, this process can be quite complex. Add to that the need to plan for possible nursing home expenses, and the focus becomes not only reducing the size of the estate but also protecting what is left of the assets in the estate. Reducing tax liabilities and maximizing what will remain of a person’s estate after long-term nursing home care are essential for leaving the most to beneficiaries, whether they are family members or favorite charities. To learn more about your options, consider contacting an experienced estate planning attorney with the Roulet Law Firm, P.A., by calling (941) 909-4644 in Florida or (763) 420-5087 in Minnesota. Or you can fill out the contact form on this page and a member of our team will reach out to schedule your consultation.
Estate Tax Planning
According to the Internal Revenue Service (IRS), the estate tax applies to the taxable estate—gross estate minus allowed deductions—if the value is more than the filing threshold, which is $13,990,000 for 2025. Estates that are subject to the estate tax must file a tax return Form 706. Notably, because the threshold is so high, the majority of estates will not need to file. For the estates that must file, the federal estate tax rate applies only to amounts over the threshold. An increasing base tax charge applies to all but the first tax tier, which is from $1 up to $10,000. The rate starts in that tier at 18 percent and caps at 40 percent for amounts over $1 million.
Florida Estate Taxes
The state of Florida does not have a state estate tax. Therefore, Florida residents can focus on the federal estate tax rules when they are planning their estates.
Minnesota Estate Taxes
Minnesota residents should be aware of the Minnesota estate tax in addition to the federal estate tax. Currently, state estate tax returns must be filed if the gross value of the estate exceeds $3,000,000, according to the Minnesota Department of Revenue. The tax rate as of 2023 was 13 to 16 percent. A skilled attorney from the Minnesota office of the Roulet Law Firm, P.A., may be able to help with estate tax planning to minimize the potential state and federal tax liabilities for your estate.
What Do Nursing Home Expenses Cover?
A nursing home is a facility that offers skilled nursing and residential services to people who are in need of long-term medical care or who cannot care for themselves. The average monthly nursing home expenses in 2023 were close to $10,000 in Florida and just over $10,000 in Minnesota. Nursing homes provide around-the-clock medical care, regular meals, and special activities for their residents. The cost of nursing home care includes all basic needs, so families should be able to enjoy peace of mind rather than stress over how to cover the costs of their loved one’s care.
How To Plan for Nursing Home Expenses
Some patients need only short-term rehabilitation services, but many elderly people will spend years in these facilities. Because the future is unknown, it is important to include nursing home expenses in the estate planning process. Medicare and Medicaid cover certain costs for eligible patients. However, some costs may require reimbursement from a person’s estate after his or her death. With careful advance planning, however, it may be possible to cover the costs of care and protect assets from government program liens. Possible methods include:
- Buying long-term care coverage
- Buying a Medicaid-compliant annuity
- Creating an irrevocable trust
- Giving financial gifts
- Drafting a life estate
Long-Term Care Coverage
Purchasing a long-term care insurance policy is one option to cover nursing home expenses that are not covered by Medicare. This type of insurance may offer peace of mind, ensuring that potential expenses will not reduce the value of the estate and, consequently, the amounts left to beneficiaries. However, these policies can be expensive, and the money paid in premiums is simply lost if the coverage is never needed.
Medicaid-Compliant Annuity
A Medicaid-compliant annuity (MCA) is another option for preserving a person’s estate while creating an opportunity to qualify for Medicaid to cover nursing home expenses. The annuity reduces a person’s total assets to meet Medicaid’s requirements, and it cannot be canceled. Annuities provide monthly payments to the healthy spouse while Medicaid covers the expenses of the approved spouse who needs care. Other arrangements may be available for a single person who wishes to reduce his or her assets with a Medicaid-Compliant Annuity. The state Medicaid agency must be named as the primary beneficiary.
Irrevocable Trust
When a grantor sets up an irrevocable trust, the assets used to fund that trust are no longer owned by the grantor. The trust legally owns those assets. A trustee manages the trust and distributes the assets to beneficiaries according to the terms originally defined by the grantor. Under most circumstances, irrevocable trusts cannot be changed or revoked. Transferring assets into an irrevocable trust effectively reduces the grantor’s net worth, which may allow the grantor to qualify for Medicaid coverage for nursing home expenses.
Unfortunately, the timing must be right when creating a trust due to the Medicaid lookback period. If a trust was created within that period, the grantor may be ineligible for coverage for a specific period and will need other means to pay nursing home expenses during that time.
A Life Estate
Creating a life estate is one method of reducing a person’s assets to qualify for Medicaid coverage as well as protecting property from potential liens after Medicaid pays nursing home expenses. A life estate is a type of deed that gives the life tenant, usually the original owner who created the deed, full control of the property during his or her lifetime. Upon this person’s death, the property automatically transfers to the remainderman, who may be the original owner’s child or children.
Life estate deeds are recognized in both Florida and Minnesota. However, Minnesota offers an alternative option that Florida does not recognize. The Transfer On Death Deed (TODD) does not add another person or persons to the title to the property. Instead, it works like an insurance policy by naming a beneficiary who will take ownership upon the owner’s death.
However, the law in Minnesota is such that life estates provide almost no protection for long-term care costs. And, for reasons I cover at length in this article, our firm does NOT recommend the use of Transfer on Death Deeds. If you own a home and want to protect it from long-term care costs, we suggest you use a trust.
Financial Gifts
Another way to reduce net worth and qualify for assistance is to gift financial assets to family members. These gifts must be under a certain amount to avoid gift taxes, and there is a lifetime limit not to exceed in order to avoid paying additional taxes.
Are Nursing Home Expenses Tax Deductible?
Some people may not be able to reduce their net worth in time to qualify for government assistance for nursing home expenses. This may be because their net worth is too high or because they were unable to make arrangements before care became necessary. According to the Internal Revenue Service (IRS), some nursing home expenses, including food and lodging, that are not compensated by insurance may be deductible as medical expenses on the Schedule A form.
Contact an Estate Planning Attorney Today
Reducing the federal and state estate tax and ensuring coverage for nursing home expenses are important considerations during the estate planning process. Not everyone will qualify for Medicare or Medicaid to pay for nursing home care without making adjustments to their net worth or including other components in their plan. Therefore, it is important to consider all options before the need for care arises. For help with your estate tax planning, consider contacting the knowledgeable legal team at the Roulet Law Firm, P.A., in Florida at (941) 909-4644 or in Minnesota at (763) 420-5087 to schedule a consultation. Or you can fill out the contact form on this page and a member of our team will reach out to schedule your consultation.
If you are not yet ready to schedule a consultation but would like to discover more, here are two additional resources for you:
