The beginning of a new calendar year brings many changes. Some of us might choose to welcome those changes with a nice glass of wine or champagne. This new year, consider following up the wine and champagne with a “COLA.”
No, not Pepsi Cola or Coca Cola. Many of the important monetary thresholds relevant to estate planning are updated annually to account for inflation—a “cost of living adjustment,” or COLA. These annual inflation adjustments ensure laws continue to “make sense” in future years when the dollar is worth less than it once was.
In 2014, for example, the Colorado legislature added a COLA to the dollar threshold under which a “small estate affidavit” can be used to administer a decedent’s estate. A small estate affidavit allows successors of a decedent to collect the decedent’s personal property without opening a court proceeding. When used appropriately, a small estate affidavit can be a powerful planning tool to avoid the time and expense of probate.
In 2019, the legal threshold for using a small estate affidavit was $68,000, up from $66,000 in 2018. The Colorado Department of Revenue is required to publish a list with any adjustments to the threshold by February 1 of each year, so in all likelihood the number cited in this article will be outdated within a month.
Another important inflation-adjusted threshold is the maximum equity you can have in your home without disqualifying yourself for Medicaid. In 2019, that amount was $585,000. As home values continue to rise, Medicaid’s equity threshold can be an important number to watch for those Coloradans who hope to qualify for Medicaid.
There are three lessons here.
First, be wary of old articles and blog posts. The older a resource is, the more likely its numbers are out of date. Whenever possible, take note of when an article or blog was written.
Second, if you read about a monetary threshold in the law that sounds nonsensical or arbitrary, there is a good chance that threshold is inflation-adjusted. These numbers often start out “round”—for example, $50,000 for small estate affidavits and $500,000 for Medicaid’s equity threshold—before COLAs ratchet them up to less intuitive amounts.
Finally, COLAs may necessitate updates to your estate plan. Estate planning updates should account for two basic types of change: (1) changes to the law, and (2) changes to your assets or life circumstances. COLAs are simply annual, automatic changes to the law. Like any other changes to the law, COLAs make periodic reassessment of your estate plan a “must.”
Always seek out legal advice from an estate planning attorney before relying on anything you read or hear. Again, the older the resource, the more likely that resource is out-of-date. Even assuming a resource is still current, an attorney can help you explore opportunities concerning which you might otherwise be unaware.
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