Exceptional Parent - August 2009 - (Page 62) PART ONE Taxation of Special Needs Trusts By Dennis Sandoval The special needs trust, or SNT, is a very valuable tool in assuring that your special needs loved one retains all of his or her government assistance and is well cared for after you are gone. Parents and grandparents often have questions relating to the taxation of SNTs, such as: Do I have to pay a gift tax when I transfer property to a SNT established during lifetime? or, Will there be an estate tax on the assets I transfer to my loved one’s SNT at my death? and, Who will pay the income tax on the earnings of the SNT? • Gift Tax. The government imposes a tax on the transfer of wealth from one generation to the next. This is in the form of the “gift tax” while you are alive and in the form of the “estate tax” when you pass away. Under current law, the gift tax is 45%, but there is an exemption by which each person can make lifetime gifts up to $1 million free of any gift tax. A married couple can transfer double that amount. In addition to the $1 million gift tax exemption, each person can transfer $13,000 per donee, per year. (However, for reasons too complex to address here, the $13,000 annual exemption usually doesn’t apply to a gift to a trust.) For example, a married couple with three children could transfer $78,000 ($13,000 x 3 = $39,000 x 2) per year to their children (assuming a present interest gift) – in addition to their lifetime $2 million exclusion ($1 million x 2) – without owing any gift tax. For this reason, gift taxes are usually not an issue in transfer- ring assets to a SNT during life unless the married couple has substantial wealth. And even for such individuals and couples, there are advanced estate planning strategies that attorneys experienced in drafting lifetime special needs trusts can use to minimize or eliminate any gift tax. (Note: As of early April, 2009, there are several proposals in Congress to change the tax law. However, all of these proposals increase the amount of lifetime gifts that can be made free of gift tax and so should not affect the ability to create and fund lifetime SNTs without incurring any gift tax liability.) • Estate Tax. The amount that can be passed free of federal estate tax at death, which is known as the “applicable exemption amount,” is $3.5 million in 2009. With proper planning, a married couple could double this $3.5 million to $7 million. (Note: Under the current law, the estate tax is scheduled to be repealed entirely in 2010 and then, in 2011, the applicable exemption amount is scheduled to return, but reduced to $1 million. In that case a married couple with proper planning would be able to pass $2 million free of federal estate tax.) If a person makes a gift during life which uses some or all of his or her lifetime $1 million gift tax exemption, this would reduce the amount the person could pass free of estate tax at death. For instance, a mother who made a one-time transfer of $1 million of stock to her son could only pass an additional $2.5 million of assets free of estate tax at death (assuming death in 2009). Some states do not have a separate estate tax. Other states impose a separate estate tax or inheritance tax. The amount that can be passed free of state inheritance or estate tax varies widely from state to state, and you should consult with an experienced estate planning attorney who specializes in special needs trusts to learn more about any taxes imposed at death by your state. Because of the current $3.5 million threshold for estate taxes, there is usually no estate tax to be paid by the trustee of a lifetime SNT or one created at death by either last will and testament or revocable living trust. Furthermore, there are advanced estate planning strategies to reduce estate taxes available to individuals with net worth in excess of $3.5 million or married couples over $7 million. • Generation-Skipping Transfer Tax. In the past, smart planners were able to avoid estate taxes on several generations by passing assets directly to grandchildren or even younger generations. For instance, rather than transferring assets to children and then, at the death of the children, those assets would pass to the grandchildren, thereby subjecting the assets to an estate tax at the death of the parent and a second estate tax on the death of the child, the parents would transfer the assets to a trust for children and grandchildren and avoid the intervening tax at the death of the children. Congress got wind of this planning strategy and imposed the generation-skipping transfer tax (“GST tax”) on transfers to persons more than one generation younger than the donor. Thus, a transfer by wealthy grandparents to an SNT for a grandchild could be subject not only to estate tax but also to generation-skipping tax. Fortunately, Congress has given each individual a lifetime and death GST exemption amount of $3.5 million (2009 amount, subject to change in future years). As such, assuming a special needs child’s grandparents have not otherwise 62 August 2009 • EP MAGAZINE/www.eparent.com http://www.eparent.com Table of Contents for the Digital Edition of Exceptional Parent - August 2009 Exceptional Parent - August 2009 Contents Ancora Imparo What's Happening Further Reading New Products 2009 Disability Awareness Night Schedule 2009 Models of Excellence in the Healthcare Profession Preterm Birth: How It Affected My Family Treatment of Neurosensory Disorders Improves Psychological Well-Being in Children Federal Program Encourages Health Service Innovations on Developmental Disabilities Close Encounters of the Medical Kind Sitting on top of the World: One Physician's Journey to Success Raising a Noonan Syndrome Child When We Found Out Our Daughter Had CMT August is Spinal Muscular Atrophy Awareness Month! Newborn Screening Saves Babies, One Foot at a Time Another Day in the Life of the National Children's Study Evidence Based Humanity Must Be Part of the Equation Incontinence Education Series Part 7 Emergency Preparedness Series Part 4 On the Road to Recovery - Self-Deiscovery: The Crown Jewel of Psychotherapy Asperger Syndrome and the Difficulties of Diagnosing and Treating Related Conditions EP Bookstore Special Needs Alliance Specialcare AADMD - American Academy of Developmental Medicine and Dentistry Organizational Spotlight Living with a Disability Exceptional Parent - August 2009 Exceptional Parent - August 2009 - Exceptional Parent - August 2009 (Page Cover1) Exceptional Parent - August 2009 - Exceptional Parent - August 2009 (Page Cover2) Exceptional Parent - August 2009 - Exceptional Parent - August 2009 (Page 1) Exceptional Parent - August 2009 - Contents (Page 2) Exceptional Parent - August 2009 - Contents (Page 3) Exceptional Parent - August 2009 - Contents (Page 4) Exceptional Parent - August 2009 - Contents (Page 5) Exceptional Parent - August 2009 - Ancora Imparo (Page 6) Exceptional Parent - August 2009 - Ancora Imparo (Page 7) Exceptional Parent - August 2009 - Ancora Imparo (Page 8) Exceptional Parent - August 2009 - Ancora Imparo (Page 9) Exceptional Parent - August 2009 - What's Happening (Page 10) Exceptional Parent - August 2009 - What's Happening (Page 11) Exceptional Parent - August 2009 - Further Reading (Page 12) Exceptional Parent - August 2009 - Further Reading (Page 13) Exceptional Parent - August 2009 - New Products (Page 14) Exceptional Parent - August 2009 - New Products (Page 15) Exceptional Parent - August 2009 - New Products (Page 16) Exceptional Parent - August 2009 - 2009 Disability Awareness Night Schedule (Page 17) Exceptional Parent - August 2009 - 2009 Models of Excellence in the Healthcare Profession (Page 18) Exceptional Parent - August 2009 - 2009 Models of Excellence in the Healthcare Profession (Page 19) Exceptional Parent - August 2009 - Preterm Birth: How It Affected My Family (Page 20) Exceptional Parent - August 2009 - Preterm Birth: How It Affected My Family (Page 21) Exceptional Parent - August 2009 - Treatment of Neurosensory Disorders Improves Psychological Well-Being in Children (Page 22) Exceptional Parent - August 2009 - Treatment of Neurosensory Disorders Improves Psychological Well-Being in Children (Page 23) Exceptional Parent - August 2009 - Treatment of Neurosensory Disorders Improves Psychological Well-Being in Children (Page 24) Exceptional Parent - August 2009 - Treatment of Neurosensory Disorders Improves Psychological Well-Being in Children (Page 25) Exceptional Parent - August 2009 - Federal Program Encourages Health Service Innovations on Developmental Disabilities (Page 26) Exceptional Parent - August 2009 - Federal Program Encourages Health Service Innovations on Developmental Disabilities (Page 27) Exceptional Parent - August 2009 - Close Encounters of the Medical Kind (Page 28) Exceptional Parent - August 2009 - Close Encounters of the Medical Kind (Page 29) Exceptional Parent - August 2009 - Close Encounters of the Medical Kind (Page 30) Exceptional Parent - August 2009 - Close Encounters of the Medical Kind (Page 31) Exceptional Parent - August 2009 - Sitting on top of the World: One Physician's Journey to Success (Page 32) Exceptional Parent - August 2009 - Sitting on top of the World: One Physician's Journey to Success (Page 33) Exceptional Parent - August 2009 - Raising a Noonan Syndrome Child (Page 34) Exceptional Parent - August 2009 - Raising a Noonan Syndrome Child (Page 35) Exceptional Parent - August 2009 - When We Found Out Our Daughter Had CMT (Page 36) Exceptional Parent - August 2009 - When We Found Out Our Daughter Had CMT (Page 37) Exceptional Parent - August 2009 - August is Spinal Muscular Atrophy Awareness Month! (Page 38) Exceptional Parent - August 2009 - Newborn Screening Saves Babies, One Foot at a Time (Page 39) Exceptional Parent - August 2009 - Another Day in the Life of the National Children's Study (Page 40) Exceptional Parent - August 2009 - Another Day in the Life of the National Children's Study (Page 41) Exceptional Parent - August 2009 - Another Day in the Life of the National Children's Study (Page 42) Exceptional Parent - August 2009 - Another Day in the Life of the National Children's Study (Page 43) Exceptional Parent - August 2009 - Evidence Based Humanity Must Be Part of the Equation (Page 44) Exceptional Parent - August 2009 - Evidence Based Humanity Must Be Part of the Equation (Page 45) Exceptional Parent - August 2009 - Incontinence Education Series Part 7 (Page 46) Exceptional Parent - August 2009 - Incontinence Education Series Part 7 (Page 47) Exceptional Parent - August 2009 - Incontinence Education Series Part 7 (Page 48) Exceptional Parent - August 2009 - Emergency Preparedness Series Part 4 (Page 49) Exceptional Parent - August 2009 - Emergency Preparedness Series Part 4 (Page 50) Exceptional Parent - August 2009 - Emergency Preparedness Series Part 4 (Page 51) Exceptional Parent - August 2009 - On the Road to Recovery - Self-Deiscovery: The Crown Jewel of Psychotherapy (Page 52) Exceptional Parent - August 2009 - On the Road to Recovery - Self-Deiscovery: The Crown Jewel of Psychotherapy (Page 53) Exceptional Parent - August 2009 - On the Road to Recovery - Self-Deiscovery: The Crown Jewel of Psychotherapy (Page 54) Exceptional Parent - August 2009 - On the Road to Recovery - Self-Deiscovery: The Crown Jewel of Psychotherapy (Page 55) Exceptional Parent - August 2009 - Asperger Syndrome and the Difficulties of Diagnosing and Treating Related Conditions (Page 56) Exceptional Parent - August 2009 - Asperger Syndrome and the Difficulties of Diagnosing and Treating Related Conditions (Page 57) Exceptional Parent - August 2009 - Asperger Syndrome and the Difficulties of Diagnosing and Treating Related Conditions (Page 58) Exceptional Parent - August 2009 - Asperger Syndrome and the Difficulties of Diagnosing and Treating Related Conditions (Page 59) Exceptional Parent - August 2009 - EP Bookstore (Page 60) Exceptional Parent - August 2009 - EP Bookstore (Page 61) Exceptional Parent - August 2009 - Special Needs Alliance (Page 62) Exceptional Parent - August 2009 - Special Needs Alliance (Page 63) Exceptional Parent - August 2009 - Specialcare (Page 64) Exceptional Parent - August 2009 - Specialcare (Page 65) Exceptional Parent - August 2009 - Specialcare (Page 66) Exceptional Parent - August 2009 - Specialcare (Page 67) Exceptional Parent - August 2009 - AADMD - American Academy of Developmental Medicine and Dentistry (Page 68) Exceptional Parent - August 2009 - AADMD - American Academy of Developmental Medicine and Dentistry (Page 69) Exceptional Parent - August 2009 - AADMD - American Academy of Developmental Medicine and Dentistry (Page 70) Exceptional Parent - August 2009 - Organizational Spotlight (Page 71) Exceptional Parent - August 2009 - Organizational Spotlight (Page 72) Exceptional Parent - August 2009 - Organizational Spotlight (Page 73) Exceptional Parent - August 2009 - Living with a Disability (Page 74) Exceptional Parent - August 2009 - Living with a Disability (Page Cover3) Exceptional Parent - August 2009 - Living with a Disability (Page Cover4) http://www.eparentdigital.com/nxtbooks/exceptionalparent/201009 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201008 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201007 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201006 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201005 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201004 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201003 http://www.eparentdigital.com/nxtbooks/exceptionalparent/201002 http://www.eparentdigital.com/nxtbooks/exceptionalparent/2010rg http://www.eparentdigital.com/nxtbooks/exceptionalparent/200912 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200911 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200910 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200909 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200908 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200907 http://www.eparentdigital.com/nxtbooks/exceptionalparent/200906 http://www.nxtbookMEDIA.com
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