By Ben A. Neiburger and Krystian R. Seebert, Attorneys, Generation Law
So, it’s been quite a while since we sent out new information and it’s been an exciting couple of years. We’ve prepared a wide-ranging summary of new laws we think you’ll find interesting or helpful. If you have questions about these (we’ve been brief and haven’t explained all the nuances) and how they can help you or someone you care about, email or call and one of our attorneys will be happy to talk to you about it. Remember, these summaries are not legal advice, so don’t rely on them without your lawyer on your side.
I. End of the Public Health Emergency (both at the Federal and State levels)
The COVID Public Health Emergency (PHE) will end this spring. The Centers for Medicare and Medicaid Services (a department of the U.S. Department of Health & Human Services) did not extend the emergency at its last renewal date (in late January) so beginning April 1, 2023 the states must change the way they have been administering Medicaid eligibility and annual redeterminations of that eligibility. This means the states will again look at Medicaid applications in detail and make sure that no gifts have been given in the five years prior to application. In addition, the annual redetermination process will start late spring with the state asking to verify assets and transactions. If Medicaid enrollees do not respond to these, they could lose Medicaid coverage. Illinois announced that it’s PHE will end on May 11, 2023 with the first round of robust Medicaid redeterminations to begin in April (with the first loss of coverage possible July 1, 2023).
II. Spousal Protections Under Medicaid Eligibility Rules Increase for 2023
Last year, Illinois passed a law to increase the assets and income a spouse who lives in the community can keep and still have their institutionalized spouse receive Medicaid benefits to pay for room and board in a skilled nursing facility. In 2009, Illinois froze its spousal protection numbers at the then federal maximum amount. Illinois is now moving towards undoing that freeze. For 2023, a spouse who lives at home while his or her spouse lives at a nursing home on Medicaid, can receive income from the sick spouse up to the 2023 federal maximum, $3715.50 of income per month (last year’s income was $2,739.00). Under the new law, in addition to a modest house and a car, the spouse who lives at home can keep assets of up to $120,780 (last year’s asset number was $109,560). This is not at the federal maximum, but Illinois will increase its number each year for ten years until it gets to the federal maximum level (currently $148,620).
III. Remote Witnesses and Notaries
During the COVID Public Health Emergency, just about everything went online and could be handled remotely by video. This includes the law permitting notaries and witnesses to do their thing based on a live video of someone signing a document. During the pandemic, the Governor signed various executive orders permitting the remoteness we had become used to.
In mid-2021, Illinois enacted new laws codifying portions of the executive orders related to witnessing documents remotely and notarizing documents effective as of January 1, 2022. Some of the detailed laws on remote notarization will not take effect until the Illinois Secretary of State creates additional rules. Those are still in process.
- There is a difference between a remote notarization (needs a wet signature) and an electronic notarization (completely electronic – rules are still incomplete)
- An increase in the fees a notary can charge (from $1 to $5 for non-electronic and a new fee maximum of $25 for electronic. Fee schedules are different for immigration forms).
- The person signing must be in Illinois when signing (and say so on the recorded video).
- The person signing must send paperwork to the notary and witnesses within 24 hours (there is an outside 30 day rule on this, but we are waiting for the Secretary of State’s rules on how to implement).
You can find The Illinois Electronic Wills and Remote Witnesses Act here.
IV. Medicaid Estate Recovery Changes
On page 100 of the 127 page law known as the “Wellness Checks in School Programs Act,” (page 100 has NOTHING to do with schools), the Legislature made some changes to Illinois’ Medicaid program. The only one of these we suspect you care about is estate recovery. Federal Medicaid law requires each state to recover funds from the estate of a Medicaid recipient who has died. There are certain exceptions to this requirement including housing for a spouse or disabled child and more. However, there is some wiggle room on how each state implements the recovery and Illinois now wants to wiggle a bit more vigorously.
Under the new law Medicaid must not seek recovery from an estate “where the recovery would not be cost-effective, would work an undue hardship, or for any other just reason, and shall make information about waivers and estate recovery easily accessible.” If the federal government approves, Illinois will waive recovery on estates worth less than $25,000. Illinois may also develop hardship waiver rules for income producing real property or a “modest” home.
V. Extended Portability Election Relief
Portability is a federal estate tax planning tool that allows the unused amount of a deceased spouse’s amount allowed at death that is not subject to the estate tax (“estate tax exemption”) to be transferred to the surviving spouse. In 2023, this applies to any estate worth more than $12.92 million. Under the portability rules, if the surviving spouse dies in the next following year, her or his estate could exclude from federal estate taxes the first $12.92 million (from the first to die) plus another $12.92 million (for the second to die – or whatever inflation adjusted number there is for 2024. This portability only works for federal law and not for Illinois. Illinois imposes an estate tax on estates worth more than $4 million. However, to use federal portability, the surviving spouse must file an estate tax return within a certain time period. Previous rules required the surviving spouse to file the estate tax return within three years (If there is an estate tax due, the surviving spouse must file and pay estate taxes within 9 months of death). The IRS recently changed its regulations to give surviving spouses an additional two years to file the return requiring a filing within five years of death. Sometimes, it’s hard to die with more than $12.92 million…
VI. Transfer on Death Instruments (“TODIs”)
TODIs are instruments that (when properly executed and recorded) essentially allow landowners to name beneficiaries to their land (“real property”). While Illinois has allowed TODIs on residential real property since 2012, changes to the Illinois Real Property Transfer on Death Act now allow TODIs to apply to commercial real property as well.
We advise you to be careful when you simply put beneficiaries on all of your assets, rather than using a trust or the probate process to transfer assets to your loved ones. When you place a beneficiary on your real estate using a TODI, the title passes automatically to that beneficiary. This also applies to bank accounts, securities accounts, retirement accounts, annuities and life insurance and other assets. While this is great because you don’t have to pay a lawyer to administer the estate afterwards, what do you do if there are selling expenses for the house? What do you do if your beneficiaries must pay an accountant or a lawyer to help with taxes and estate administration? Pay for your funeral? The beneficiary designation assets will not help with those. The person administering the estate must beg for funds from the other beneficiaries. Frequently, the beneficiaries don’t want to share or help.
That has caused big problems with many of our clients. So, if your beneficiaries are not the best of friends, use them with caution (or plan correctly by identifying a pool of assets that can pay for estate administration expenses and use an appropriate legal instrument to provide for that).
The last part of beneficiary designations that is really annoying (but not with the new TODI rules) is that after someone dies, you can’t get information on who is a beneficiary on an account unless you guess right and submit a claim or open a probate estate to obtain the legal authority to ask.
VII. Irrevocable Assignment of Life Insurance to a Funeral Home
A new law permits a person to assign the rights he or she has in a life insurance policy to a funeral home to pay for a funeral. This technique is used in Medicaid planning when a Medicaid applicant is spending down his or her assets to qualify for Medicaid coverage to pay for room and board at an assisted living or nursing home facility. Prior to this law there were limits on how the policies could be assigned and the value of the policies.
This new law simplifies the procedure and increases the previous limits ($7248 for funeral, not including cost of burial spaces). The new law also says that when the applicant makes the assignment, he or she cannot exercise certain rights under the policy, including the right to surrender the policy and receive its cash surrender value.
In addition, if the value of the policy is more than the cost of the funeral, the state gets the excess up to the out of pocket cost of the care the state provided. If there is anything left after that, the applicant can leave the remaining proceeds to family members.
If you are having trouble sleeping at night, you can find the text of the new law here.
VIII. Changes to IRS Letter Rulings
Taxpayers can apply to the IRS for a Letter Ruling or a Decision Letter to get the government’s opinion how the tax law applies to the taxpayer’s written representation of facts. Of course, the government does not want to opine on every application, so the IRS created an “exempt” list of certain areas of law in which it will not issue rulings or letters. After issuing Revenue Rev. Proc. 2022-3, the IRS expanded the list to include not telling you anything more about its interpretation of various matters that intersect with trusts and estates law, such as certain inquiries regarding charitable remainder trusts and gift tax marital deductions.
IX. Minor Changes to the Healthcare Power of Attorney Law
Effective, January 1, 2023, a health care agent can present an electronic device displaying an electronic copy of a healthcare power of attorney as proof of a valid POA.
X. Residential Real Estate Disclosures
Under Illinois law, sellers of residential real estate must disclose defects in that real estate that are known to them. Changes to the Illinois Residential Real Property Disclosure Act now clarify that beneficiaries of land trusts, wills, intestate succession (i.e., heirs who would inherit real estate from those who died without wills), and TODIs are also considered sellers of real estate, even if the real estate is technically titled to another entity.
For example, if Jane Doe’s will leaves her estate to her husband, John Doe, and instructs the executor of the will to sell the home and give him the proceeds, John Doe is a seller after Jane Doe’s death, even if the house is still technically owned by Jane’s probate estate and administered by her executor.
XI. New Federal Estate Tax Exemption for 2023
As mentioned above, the “estate tax exemption” is the amount allowed at one’s death that is not subject to the estate tax. For 2022, in addition to the Illinois State estate tax (which applies to estates with a value of $4 million or more), the federal estate tax applied to estates with a value over the 2022 federal estate tax exemption of $12.06 million. Because this amount is currently indexed for inflation through 2025, the 2023 federal estate tax exemption has been increased to $12.92 million. However, this amount is scheduled to be reduced by 50% in 2026.
XII. New Gift Tax Exclusion for 2023
In theory, if one makes a total amount of gifts (i.e., transfers without receiving anything in return) that is greater than the federal estate tax exemption throughout his or her life, then his or her assets above that amount will be subject to the federal gift tax. Given that the federal estate tax exemption for 2023 is $12.92 million and one can give an unlimited amount to his or her spouse while both spouses are alive, the chance of incurring gift tax liability is highly unlikely.
Further decreasing the odds of gift tax liability is the fact that each taxpayer may gift up to an “annual gift tax exclusion” each year without those gifts counting towards the lifetime gift tax exemption described above. The annual gift tax exclusion applies to each gift recipient. To illustrate, if Shemp has three best friends (Larry, Moe, and Curly), he may give gifts up to the annual gift tax exclusion to each of Larry, Moe, and Curly without any of those gifts counting against his lifetime gift tax exemption.
The annual gift tax exclusion is adjusted annually for inflation, and will be increased to $17,000 per recipient. While the federal estate tax exemption (and therefore the lifetime gift tax exemption) is scheduled to be reduced by 50% in 2026, the annual gift tax exclusion is not. This means that we can expect the annual gift tax exclusion to continue to increase in coming years.
XIII. SECURE Act 2.0
On January 1, 2020, the Setting Every Community Up for Retirement Act (the “SECURE Act”) took effect. The SECURE Act brought many legal changes. For the trust and estates field, the most notable change was to the tax treatment of retirement interests held in trust and otherwise. After that law passed, if you are not a spouse, minor child, or disabled, you need to take out (and pay taxes on) all the retirement monies you inherit within 10 years of death. Previously, you could elect to receive the money over your actuarial life expectancy. If you have not updated your estate plan since 2020, we encourage you to contact us to see if any changes are desirable.
As a further development, one of the last acts of a slightly functional Congress occurred on December 29, 2022 with the “SECURE Act 2.0.” The SECURE Act 2.0 expands on some changes of the original Secure Act. These include (but are not limited to) the following:
- Increase in age for beginning required minimum distributions (“RMDs”). Beginning on January 1, 2023, participants in employer-sponsored qualified retirement plans, IRAs, or individual retirement annuities do not have to take money out of those retirement interests until they reach age 73. This gives eligible people an extra year of tax benefits. The age for RMDs further increases to 75, beginning January 1, 2033.
- Decreased penalty for failing to take RMDs. Before the SECURE Act 2.0, failing to take a timely RMD resulted in a penalty as a 50% excise tax. Beginning in tax year 2023, this penalty is reduced to 25%, and can further be reduced to 10% if the situation is remedied in a timely manner.
- More “catch-up” 401(k) contributions allowed for those aged 60–63. Currently, those aged 50 and older can contribute an additional $7,500 per year to their 401(k) plans (a “catch-up”). Beginning January 1, 2025, the SECURE ACT 2.0 will increase the catch-up amount for those aged 60–63 to the greater of 1) $10,000 or 2) 150% of the catch-up amount otherwise allowed for those aged 60–63. After tax year 2025, this amount will be indexed for inflation.
- Indexed IRA catch-up limits. In addition to the increased catch-up for those between 60 and 63, the catch-up limit for all eligible will be indexed for inflation beginning in tax year 2024.
- Increased age limit for ABLE Programs. ABLE Programs are established by states to offer tax-advantaged accounts to those with disabilities. Currently, one can be the beneficiary of an ABLE account only if the individual becomes blind or disabled before age 26. Beginning tax year 2026, the SECURE Act 2.0 will increase this age limit to age 46.
- Automatic enrollment in retirement plans. Beginning in plan years after December 31, 2024, 401(k) and 403(b) plans will be required to automatically enroll employees when they become eligible. However, the SECURE Act 2.0 will permit employees to opt out of such plans.
- Tax-free rollovers from 529 accounts to Roth IRAs. 529 Accounts are state‑sponsored investment plans that trustees can use to pay for a beneficiary’s education. Subject to several rules, the SECURE Act 2.0 will permit trustees of 529 Accounts to make penalty-free transfers to Roth IRA accounts in their names. This change will affect rollovers made on or after January 1, 2024.
- Penalty-free IRA emergency withdrawals. Under current law, withdrawal from retirement accounts (e.g., IRAs, 401(k)s, etc.) are subject to a 10% penalty if made before the holder reaches age 59 ½. However, a number of exceptions apply to the penalty rule. Beginning January 1, 2024, the SECURE Act 2.0 will add another exception for “emergency expenses,” which include unforeseen or immediate financial need stemming from personal or family emergencies. Only one distribution of up to $1,000 will be permitted per year.
- Penalty-free early distributions for those with terminal illnesses. The SECURE Act 2.0 provides another exception to the 10% early distribution penalty if the distribution is made to someone with a terminal illness. This change is effective as of December 30, 2022.
- Lost and found for retirement plans. To address the problem of “lost” retirement benefits caused by company name changes and mergers, the SECURE Act 2.0 instructs the Department of Labor to create a database to search for the contact information of their pension or 401(k) plans. Under the SECURE Act 2.0, this database should be operational by December 29, 2024.
The Senate Finance Committee has a brief 19 page summary here.
XIV. Illinois Department of Labor (“IDOL”) – New Rules for Domestic Workers
Effective August 1, 2022, IDOL has adopted new rules that apply to the pay, record keeping, and overall engagement of domestic workers (i.e., those who work in housekeeping, house cleaning, other household services in private residences, etc.). Since many senior citizens employ domestic workers for help around the house, these rules are a development in Illinois elder law.
These rules, which may be found at 56 Ill. Adm. Code 210.125, introduce new requirements including, but not limited to:
- A requirement that domestic workers are paid for all hours worked;
- Recordkeeping requirements for all employers of domestic workers, including some senior citizens who directly hire a domestic worker (i.e., not through an agency);
- Required overtime pay for all hours worked over 40 hours per week, including all work by a domestic worker outside of the home environment (e.g., if a cashier works for a family-owned restaurant 40 hours a week, and the cashier cares for the owner’s children 20 hours a week, the worker is entitled to 20 hours of overtime pay).
I wish to thank Ben for a free 15 minutes consultation with my stand my boyfriend. He was very gracious!