Monthly Archives : December 2014

Congress Passes ABLE Act

Congress Passes ABLE Act

Congress has passed the ABLE Act of 2014 (Achieving a Better Life Experience.)  Beginning in 2015, states may choose to develop savings plans akin to the popular 529 college savings plans.  The ABLE account may provide an efficient way for family members or friends to provide small gifts to benefit a loved one with a disability.  The ABLE account should not be considered a replacement for special needs trust planning, but as an additional tool that may be appropriate under certain circumstances.

Importantly, the funds in the ABLE savings plan will not be countable when the beneficiary of the plan applies for needs based government benefits such as Medicaid and Supplemental Security Income (SSI).  However, if funds accumulate in the account in excess of $100,000, then the beneficiary’s eligibility for SSI will be impacted.

While the new savings plan look similar to 529 college savings plans, there are significant differences.   To be eligible, the beneficiary must have a disability that began prior to age 26. Funds in the account may be used for approved health care, education, housing, personal support and other care expenses.  Only one ABLE account can be set up for each eligible person.  Total annual contributions cannot exceed the federal annual gift tax exclusion ($14,000 for 2015), while each state can set limitations on total contributions from all donors.  (Illinois currently permits up to $350,000 to be contributed to the 529 college savings plans.)   Unlike 529 plans, contributions to the ABLE account are not tax-deductible; however, earnings in the account will not be subject to income tax.

Law Passed to Help Military Veterans Safeguard Survivor Benefits for their Children with Disabilities

Law Passed to Help Military Veterans Safeguard Survivor Benefits for their Children with Disabilities

As part of the National Defense Authorization Act (NDAA) of 2015, Congress will allow a special needs trust (SNT) to be designated to receive military Survivor Benefit Pans on behalf of the Retiree’s child with a disability. Prior to this law, children of eligible Veterans who received needs based government benefits to pay for the costs of long term care or other services were subject to losing those valuable benefits since the VA required that any Survivor Benefit be paid directly to the child with the disability.  Under the new provision, the Survivor Benefit can be paid instead to a first party SNT which will now protect a child from losing important government benefits, while allowing the Survivor Benefit to be used for other goods and services, such as therapy not covered by the government, respite care, computers that can enhance the child’s well being.    A first party special needs trust (SNT) is created for funds that belong to the person with the disability.  Upon his or her death, remaining trust assets must be used to repay Medicaid for services provided the individual during life.

2015 Estate Tax Update

2015 Estate Tax Update

The amount that individuals may transfer by lifetime gift or at death free of federal estate tax will be increasing to $5,430,000 for 2015, up from the $5,340,000 exemption in effect for 2014.  Illinois continues to impose a separate state estate tax and its exemption remains at $4,000,000.  While the federal exemption adjusts annually for inflation, the Illinois exemption does not.   For married couples with estates in excess of $4,000,000, they should review their estate plan to make sure their plans are designed not to inadvertently trigger Illinois estate tax  upon the death of the first spouse.

One simple way you can reduce estate taxes and, in limited circumstances, shelter assets to achieve Medicaid eligibility, is through lifetime gifting. Certain rules apply, however.  There is no actual limit on how much money you can give during your lifetime, but if you give any individual more than $14,000 in 2015, you must file a gift tax return reporting the gift to the IRS and use your available exemption to offset the gift tax due.

The $14,000 figure is an annual exclusion from the gift tax reporting requirement.  You may give up to $14,000 to each of your children, their spouses, and your grandchildren (or to anyone else choose) each year without triggering any IRS reporting requirements.  In addition, if you’re married, your spouse can duplicate these gifts.  For example, a married couple with four children could gift up to $112,000 in 2015 to their children with no gift tax implications.  In addition, the gifts would not count as taxable income to their children (although any earnings on the gifts would be taxed.)

Keep in mind that payments directly to an institution for tuition or to a provider for medical expenses on someone else’s behalf are not treated as taxable gifts and do not count against the $14,000 annual exclusion.

On the charitable giving front, on December 19, 2014, President Obama signed off on Congress’s a one-year extension for charitable IRA rollovers, but the extension is only good through December 31, 2014.   IRA owners 70 ½ or older can exclude up to $100,000 a year from income if the IRA funds are paid directly to certain public charities.   Without this extension, the IRA owner would have to pay tax on the IRA funds before claiming the deduction.  While we do not know if Congress will extend that tax break on IRA rollovers to charities for 2015 or beyond or indeed make this provision permanent, for future planning, an individual over 70 ½ might considering directing that his withdrawal from his or her IRA be paid directly to a charity.  If the law is again extended, then that individual would be able to exclude the withdrawal from his or her gross income.