The Florida Estate Planning and Probate Law Blog is focused on recent federal and state case law and planning ideas.

SPECIAL NEEDS TRUST FAIRNESS ACT

The Special Needs Trust Fairness Act (the “Act”) was signed into law on December 14, 2016. The Act amends federal law to enable disabled individuals to establish their own first-party payback Special Needs Trusts under 42 U.S.C. § 1396p(d)(4)(A). A first-party funded Special Needs Trust will enable a disabled individual, who receive assets outright, including through a gift, inheritance, personal injury settlement or child support, to protect such assets for their future use while remaining eligible for essential means-tested government benefits (Supplemental Security Income and Medicaid). The Act will amend Section 1396p(d)(4)(A) of the Social Security Act to exclude first-party funded Special Needs Trust as a transfer for less than fair consideration and countable asset. This amendment will only apply to trusts established on or after the date of the enactment of the Act. Prior to the passage of the Act, federal law required disabled adults who were capable of handling their own affairs (and thus without legal guardians) to rely upon their parents, their grandparents or the courts to establish a first-party funded non-pooled payback Special Needs Trusts for their benefit. This requirement contradicted the fact that such Trusts were being funded by the disabled individuals with assets legally belonging to them (i.e. not third-party funds). This requirement was also inconsistent with the law governing the creation of Pooled Special Needs Trust which allows disabled individuals to create their own first-party funded Pooled Special Needs Trust with non-profits.

YEAR END ESTATE PLANNING ITEMS FOR REVIEW

As our circumstances change with life events these changes should be reflected in your estate planning documents (your plan should be reviewed periodically anyway). The following list is meant to give you an idea of when changes should be made to your estate planning documents: Your marriage, divorce or remarriage. The birth or adoption of a child, grandchild or great-grandchild. The death of a spouse or another family member. The illness or disability of you, your spouse or another family member. When a child or grandchild reaches the age of majority. When a child or grandchild has education funding needs, The death of the person named: as guardian for minor children, personal representative or successor trustee of your trust. Sizable changes in the value of assets you own. Sale or purchase of a principal residence or second home. Receipt of a large gift or inheritance. Sale of a business interest. Special Needs child or family member. Changes in federal or state income tax or estate tax laws. Don't put these changes off to the future because you may not have the ability to change them later.

SPECIAL NEEDS TRUST PLANNING

Families with a special needs child/adult need more estate planning than families without. A Special Needs Trust (SNT) can play an important role in helping families plan. Issues to consider: Preserve public benefits while enhancing your child/adult's lifestyle. Many individuals with special needs obtain basic support from Supplemental Security Income (SSI) - a gateway to Medicaid and other critical programs. Since SSI covers only essential expenses, it is important to create a supplement for their lifestyle. But because SSI imposes limits on income and assets, gifts or an inheritance could adversely impact benefits eligibility. The Social Security Administration (SSA) does not count assets in an SNT as income for determining benefits eligibility because the assets are owned by the trust rather than the special needs beneficiary. Ensure assets will be used as intended. With an SNT, distribution of assets is directed by trust documents as well as SSA and IRS guidelines. By comparison, if you leave assets to an "able-bodied" child and ask that some of the funds be used for the sibling with special needs, the child may fail to honor your request, lose the assets to creditors or die prematurely and leave the funds to his or her own children. Allow others to contribute. If you establish the trust now, family members and friends can make gifts to the SNT. Anyone interested in leaving an inheritance or making a gift should be advised to direct bequests to the SNT. Maximize the benefits of a personal injury settlement. If the child/adult is the recipient of a sizable settlement, having the payout (often a lump sum plus a structured settlement) directed to a self-settled SNT offers several benefits. They will still qualify for public benefits, can use settlement funds for nonessential expenses and may enjoy the financial security of receiving regular payments for life.

2016 YEAR END ESTATE PLANNING THOUGHTS

With December 31, 2016, right around the corner, it is important to look at your year end personal tax and estate planning situation. With a Trump administration and a Republican-controlled Congress, much attention has been paid to the tax proposals in the president-elect’s Contract with the American Voter and the House Republicans’ Task Force for A Better Way to see how they match up. The key points that both proposals have in common, as they affect our tax and estate planning clients, include: • Elimination of the estate tax, although the Trump proposal states that “capital gains held until death and valued over $10 million will be subject to tax.” • Reduction of the maximum individual federal income tax rate to 33 percent. Remember, states income tax rates are not affected. • Limitations on itemized deductions. • Repeal of the 3.8 percent net investment income tax and continue the current low tax rates for investment income. • Reduction of corporate tax rates. • Taxation of “carried interest” income at ordinary income tax rates. • Elimination of the alternative minimum tax. Estate Planning: wait and see. While it would be unwise to modify an existing estate plan simply to anticipate estate tax changes that may or may not occur, clients who are in the middle of planning (e.g., to make year-end gifts using valuation discounts or for business succession purposes) might want to continue and implement their planning, but with a view toward the possibility of estate tax repeal. Estate planning is not all about taxes. • Defer income and accelerate deductions. Since tax rates would be reduced next year, it would be smart to consider deferring income to be taxed in 2017 at, presumably, lower rates, and accelerate deductions to 2016 to reduce taxable income that would be taxed at higher rates and to take advantage of deductions that might disappear. The same thinking would apply to sales of capital assets: gains should be deferred to next year and losses should be harvested this year. • Make your charitable contributions now. You might want to make larger charitable contributions this year to reduce taxable income that would be taxed at higher rates. If you have pledged to make future contributions, consider honoring those pledges now. • Be prepared to review and possibly rewrite your existing estate plan. Of course, the action you take depends on what tax law changes are ultimately enacted. • Consider making annual exclusion gifts on or before Dec. 31. Each year you can give up to $14,000 in value (e.g., cash, property interests, stock, etc.), or $28,000 in value for gifts by a married couple, to an unlimited number of people. These dollar amounts will remain at $14,000 in 2017. • Consider front-loading a 529 Plan. 529 Plans provide some exceptional income tax planning benefits for those who are putting aside funds for college. • Consider making large lifetime gifts tax-free using your lifetime gift tax exemption. You may want to consider using part or all of your gift tax exemption by making a gift to your family members or others, thereby removing the value of the gifted asset, plus future appreciation, from your estate. Preferably, high basis assets should be gifted. While the possibility of a estate and gift tax repeal exists, there will be no tax cost by using your lifetime exemption (currently $5,450,000 and increasing to $5,490,000 in 2017), and if there is a repeal, you will have simply made additional tax-free gifts. • Review your entire estate plan. While there may be nothing to do now in response to the anticipated tax law changes, it is still a good time to review your existing estate plan to make sure it still expresses your wishes, discuss with your family and your professional advisors (including your tax accountant, financial planner, investment advisors, insurance professionals, and us) whether any non-tax related changes are desired or advisable, and then establish an action plan, which might include taking some action now and deferring some action until the tax laws have changed. Questions for Consideration: 1. Have you nominated the right individuals or organizations to serve as trustee, executor, guardian, conservator, attorney-in fact and/or health care agent? 2. Did you accidentally omit a beneficiary who should be included, or include someone as a beneficiary who should not be included? 3. Have you reviewed all of your beneficiary designations, including life insurance, IRAs, 401(k) plans, other employer-sponsored plans, to make sure they are not out of date and that they are consistent with your wishes and your other estate planning documents? 4. Are your assets properly titled (e.g., assets intended to be held in a Revocable Trust have been formally transferred by deed, change on account name, etc.)? 5. Are your estate planning documents in a safe location and easily accessible to the people named to handle your affairs (e.g., executor, trustee, attorney-in-fact or health care agent)? Have you communicated the location of these documents to these people? 6. Do you have in force adequate life insurance, disability insurance, liability insurance and, perhaps, long-term care insurance? 7. Are there changes within your family (such as births, deaths, aging, health problems, marriages, divorces or a family member’s ability to handle financial matters responsibly)? 8. Have there been changes in your financial situation, including increases or decreases in your income, net worth, liquidity, indebtedness, and major investments? 9. Are you contemplating retirement (or have you retired)? 10. Have you started a new business or sold an existing business?