CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Elder Abuse Prevention And Prosecution Act. The Elder Abuse Prevention and Prosecution Act enacted by Congress was signed into law on October 18, 2017. Its purposes are to increase the federal government’s focus on preventing elder abuse and exploitation, and to create a multi-pronged approach for protecting older adults. Several agencies (e.g., the Attorney General and Department of Justice, FCC, HHS, and others) must designate a person to coordinate prosecution, expand efforts toward education and consumer protection, and report to Congress, for the purpose of preventing and prosecuting elder abuse. The focus is on mandatory forfeiture of assets obtained by telemarketing fraud and criminalizing fraud using modern technology methods. Stated simply, the purpose is to demonstrate that the federal government is heightening its response to elder abuse and prioritizing ways to fix it.
Federal Estate And GST Tax Developments. The Revenue Reconciliation Act of 2017, also referred to informally as the “Tax Cuts and Jobs Act,” makes significant changes in the federal estate tax and GST tax rules. The federal estate tax is now a non-issue for almost everyone, affecting such a small percentage of the people that federal estate tax planning has become practically irrelevant. The federal estate tax and gift tax applicable exclusion amount as adjusted is now $11.18 million for a single individual, which means that in the case of a husband and wife, the total amount that can escape the federal estate and gift tax regime is now $22.36 million. The GST (“generation-skipping transfer”) tax exemption amount has been increased to the same amount, so that transfers that skip a generation in the same amount will likewise not be subject to the GST tax. Many people are confused about the federal gift tax rules, and believe that certain amounts that are gifted will result in the donee (i.e., the person receiving the gift) paying either income tax or gift tax, which is not true. Gifts are not subject to federal or state income taxation. Rather, if the donor gifts more than the current annual donee exemption amount, which is $15,000 per donee per calendar year, then technically the donor should file a gift tax return, but the donor will still pay no gift tax. Cumulative gifts over the lifetime which exceed $15,000 to any one or more donees during any calendar year will be eligible for the $11.18 million gift tax exclusion amount, which is the same as the federal estate tax exclusion amount. Consequently, gifts for all practical purposes for most people are devoid of federal or state taxation. Please remember, however, that “gifts” or other “uncompensated transfers” can have Medicaid implications by virtue of the five year “look-back” period that applies for Medicaid qualification if a transferor requires long term care or seeks eligibility under a Medicaid waiver for care in the home and applies for Medicaid within a five year period beginning with the date of the transfer. This does not mean that a person must wait five years to become eligible for Medicaid after a transfer, but rather that if Medicaid is applied for within five years of the date of the transfer, there can be a Medicaid penalty imposed, which can be a very short period of time, such as a month or even less, or a substantially longer period of time. However, the longest period of time that Medicaid would be impacted would be five years (although it is possible that due to a large transfer and an untimely filed Medicaid application, the penalty period could be longer than five years).
Non-Compete Clause In Buy-Sell Agreement. A covenant not to compete included in a buy-sell agreement is a way to compensate a business owner in conjunction with the sale of the business and possibly obtain a tax deduction for the non-compete payments. Special care should be given when payments are being made to a former spouse who was active in the business. Such payments will not be deductible unless it can be shown that the former spouse was a significant competitive threat to the enterprise and that there is substance to the agreement to make the payments. There should also be an agreement that the payments will be included in ordinary income and that the business contemplates deducting the payments.
Special Needs Trust Planning Issues. There are numerous planning issues that must be considered when contemplating the use of a special needs trust (“SNT”). An SNT is a trust established for a disabled beneficiary that is designed to protect the assets in the SNT and prevent those assets, as well as trust distributions, from adversely impacting the beneficiary’s eligibility for public benefits, especially Medicaid and Supplemental Security Income (“SSI”). The trustee of an SNT performs a multiplicity of functions and should be very familiar with the beneficiary’s needs. The trustee must handle investments, evaluate the need for services and providers to perform those services, become familiar with the various benefit programs, file tax returns and report certain payments to federal and state agencies, as well as deal with innumerable unforseen issues that can arise in conjunction with the SNT administration. When selecting a trustee, it is also important to consider the issue of trustee succession, and in some instances it may be a good idea to add a trust protector or a trust advisor or advisory committee to oversee the trustee’s performance and to better assure that the beneficiary’s needs are being met. Many individuals and family members are perfectly capable of performing the functions of an SNT trustee, as long as they receive proper guidance and know when to seek professional help, such as investment and tax expertise.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.