A. This is easy. The answer is yes.

A. Aha. I thought that first question was too easy. The answer is "yes and no." You can make a gift of up to $11,000 per year to as many people as you want. If your spouse joins with you, you can gift up to $22,000 per year. You can give more than this, up to the current gift exemption limit of $1 million, but you will have to file a Form 709 Gift Tax Return. This will decrease the amount you can pass at your death without incurring federal estate tax.

A. This is a case-by-case determination. If the children are young or spendthrifts, by all means consider using a trust. If the children are older and capable of managing their own affairs, there is nothing wrong with making the gift outright.

A. No, neither of you will have to pay income taxes and you will only be assessed gift taxes if the total of all reportable gifts you have made during your lifetime exceeds $1 million.

Q. Will I have to pay capital gains tax if the value of the property I’m giving to my children has increased in value?

A. No. You may, however, want to consult with an attorney before making the gift as you may inadvertently cause your children to incur taxes in the future that could have been avoided through proper planning.

Q. What if I want to give my son my farm, but still live there and work it for as long as I’m able?

A. You can do this by gifting the farm to your son, but retaining a life estate in it. Be sure the deed is properly worded so you, not your son, derive the economic benefit of the farm’s operation. Rather than gifting the farm to your son, you might consider placing the farm in your revocable trust and letting it pass to your son at your death. Your son can be your co-Trustee or successor Trustee, as appropriate. The language of the trust can provide all the safeguards you want or need.

Q. Can I give my daughter property which has increased in value without having to worry about her paying capital gains tax?

A. There won’t be any capital gains tax when you give the property to her. She will take the property at your basis unless its fair market value is lower. When she sells it, she will have to pay capital gains tax on the difference between your basis and the selling price she receives unless the property qualifies for an exception to the capital gains tax rules, such as if the property is being used as her personal residence. If you retain a life estate in the property, however, your retained interest will make the property taxable in your estate and will pass it to your daughter at its fair market value at the time of your death, avoiding the specter of capital gains.

Q. What happens if I sign my home over to my son and daughter? Do I have to worry about tax consequences?

A. There are no tax consequences to you. Your children may face the capital gains consequences mentioned above. And you may be denied Medicaid coverage if you apply for Medicaid within three years of transferring the property to your children (five years if you transfer it from a trust).

Q. What is the best way to save money for my children’s education. Should I consider one of the college savings plans?

A. This is open to discussion and depends on your particular situation. For most families, the 529 College Savings Plan is best.

Q. What is a 529 savings plan?

A. It is a tax-advantaged education plan established under the 529 section of the Internal Revenue Code. It helps families and individuals prepare for future higher education costs. A parent, grandparent or anyone can contribute to a college savings plan on behalf of a beneficiary.

Q. Is there risk involved with a 529 college savings plan?

A. They carry some investment risk as they are investments in one particular fund or group of funds based on the type of portfolio chosen. As with any investment, the value may increase or decrease depending on the market.

Q. Are there federal tax considerations with a 529 college savings plan?

A. Earnings grow tax-free as long as they stay in the plan. Earnings withdrawn from a 529 plan and used for qualified higher education expenses are free of federal income tax for state sponsored programs. Starting in 2004, programs of any eligible higher education institution will be tax-free.

Q. What about contributions? Can I deduct them from my federal income tax?

A. An individual can contribute up to $55,000 in one year per beneficiary ($110,000 for married couples) without incurring federal gift taxes. This falls under the $11,000 annual gift tax exclusion with a five-year carry forward, so the individual can not contribute any more money to the beneficiary during the next five years.

Q. Once I pick a plan, do I have to stay with that plan until the beneficiary goes to college?

A. No, you are not limited to just one 529 college savings plan. You may change plans at least once every 12-months.

Q. What happens if the beneficiary decides not to go to college?

A. Ah. This is the good part. The money remains part of the assets of the Account Owner, who retains control of the account throughout the life of the plan (there is an exception to this if the funds were transferred from a custodial account to a 529 plan). If the beneficiary does not use the money, the funds can be transferred to any family member of the original beneficiary. An Account Owner may request a refund for the funds and not be charged with the 10 percent federal tax penalty if the refund is requested because of death, disability or receipt of a scholarship for the beneficiary.

Q. Does an Account Owner have to pick his or her state’s 529 plan?

A. No, but often the home state’s plan offers favorable tax treatment that aren’t available if the Owner chooses another state’s plan.

Q. Can I withdraw money from a 529 college savings plan?

A. With most 529 plans, you can withdraw the money, but if it is used for non-qualified expenses, you will have to pay a 10% federal tax penalty on earnings.

Q. Am I the only one that can contribute to the plan?

A. No. Anyone can contribute to a beneficiary’s account, but only your contributions will qualify for the special state tax deduction.

Q. Can a 529 plan affect my son’s ability to receive financial aid?

A. It depends. Seriously, the assets in a 529 plan are usually assets of the Owner (you), not of the beneficiary (your son). Financial aid will depend on your son’s personal income and your assets. Approximately 5.6% of the 529 account will considered a contribution to your son’s college costs (which is better than the 35% assessment if the account was owned by your son or in his Uniform Transfer to Minor’s Act (UTMA) account.) If the account is owned by a grandparent, it isn’t considered at all.

Q. Is a Uniform Transfer to Minor Act (UTMA) Trust a good option?

A. As noted above, the value of the trust account will count against your child when he applies for financial aid. Also, UTMA accounts are more complicated to administer.

Q. What about Coverdell plans?

A. As with any other question, it depends on your situation. The following table compares the benefits of the various types of educational savings plans.

A. First, begin planning your transition now. Will another family member be taking over the business? Do you have a transition of ownership plan in place? Are you going to need the proceeds from the sale of the business to live on? If so, are you sure you are going to get your asking price? How are you going to secure your income if the new owner goes bump in the night? It isn’t too early to consult with an business transactional lawyer who can help lay the groundwork for your successful and financially secure retirement.

Q. I want to move to Colorado when I retire. What should I be looking at before I make my final decision?

A. Do you already own a home in Colorado? If not, have you priced the market to be sure you can find what you want within your budget? Will you have to work to supplement your retirement income? If so, are jobs in your field readily available in this area? Will you be moving further from or closer to family? How do property, sales tax and income tax rates compare to Oklahoma? What about the cost of living? Be sure you will be able to live within your means before you make any irreversible decisions.

Q. I understand I can trade my Enid home for one in Colorado. How does this work?

A. What you are referring to is a Section 1031 like-kind exchange. There are various ways of accomplishing this. Consult with an attorney knowledgeable in real estate law to be sure you can accomplish the transfer without incurring unnecessary taxes.

Q. I’m starting to think about retirement and long-term care. Just what is this Medicaid Planning I’ve been hearing about?

A. Medicaid planning is usually thought of as institutional care or nursing home planning. If you qualify, Medicaid, a federal insurance program, will pay for your institutional care, nursing home, prescription drugs and medical costs. Medicaid planning is particularly helpful for the elderly, those permanently incapacitated as the result of injuries, or those with special needs.

Q. Isn’t this really just cheating the government by having it pay for care you could otherwise afford?

A. The federal and state governments are the ones establishing the rules. So long as the rules are followed, there is nothing illegal or wrong about taking advantage of laws passed for your benefit. Medicaid planning is no different than estate tax planning. For years, those with wealth have used estate planning techniques to avoid paying estate and gift taxes. Medicaid planning is for those who don’t have the wealth to pay for their own care.

A. Some 40-50% of Americans enter nursing homes. Of these, only some 4% have any form of long-term care insurance. Another small percentage is able to cover the costs of this care without impoverishing the stay-at-home spouse. Total nursing home and medical costs run $3,500-5,500 per month. This can easily decimate a family’s assets.

Q. How can Medicaid planning help?

A. First, it can help the spouse at home meet his or her needs. Second, it can save the home or family farm for the family. Finally, it can ensure the availability of funds to meet special needs or provide special care not covered by Medicaid.

Q. Doesn’t Medicaid planning have to be done three years before I enter a nursing home?

A. This is a common misperception. Even if you are about to enter institutional care or are already in a nursing home, in most cases it is still possible to preserve assets and qualify you for Medicaid benefits, even if not immediately.

Q. What if I plan to stay at home with family members? Is Medicaid assistance still available?

A. Yes. Oklahoma’s Advantage Waiver program provides in-home services so long as the cost of in-home care doesn’t exceed the cost of living in a nursing home.

Q. I have a Revocable Trust and I’ve been told this disqualifies me for Medicaid purposes?

A. This is another misunderstanding of the rules. If you transfer property from a Trust to anyone other than yourself, you incur a 5-year disqualification period before you can apply for Medicaid. With proper planning, however, this 5-year period can be reduced to 3-years or even less. An experienced Elder Law Attorney can help you with this situation.

Q. I’m in the process of establishing my estate plan. Should I consider Medicaid planning, as well?

A. Definitely. The two are often mutually exclusive, so it is important to find an attorney who is knowledgeable in both of these areas of the law. The attorney will help you decide on the best approach to follow.

Q. My DHS representative has told me I won’t qualify for Medicaid. Should I start trying to find other alternatives to meet my long-term care needs?

A. By all means, sit down with an Elder Law Attorney. Sometimes the DHS representative doesn’t have a clear picture of the situation and gives you an incorrect or incomplete answer. Even if you don’t qualify for Medicaid now, there may be things you can do to qualify in the future. Plus the attorney will be able to help you locate long-term care insurance if you qualify. Many of my clients went to DHS first before they consulted with me. A large number of them are now receiving Medicaid benefits.