Home' Island Sun : ISN 121616 Contents “C
armen” had a daughter “Julie” who had disabilities
and was on Medicaid among other government
programs. When Carmen prepared her estate plan,
she told her attorney about Julie’s disabilities and government
benefits. As opposed to Medicare which most retirees are
eligible for, Medicaid is a government health care program for
those without money or income. In fact, an individual must
have less than $2,000 of assets and may only have income of
$2,094/month in order to so qualify. Any amounts above that
would usually disqualify the recipient from receiving Medicaid
So Carmen did not want the amounts that she was leaving Julie to disqualify
Julie from receiving her Medicaid benefits. Carmen’s estate-planning attorney did
an excellent job drafting a Special Needs Trust naming Julie as a beneficiary after
Special Needs Trusts (also known as Supplemental Needs Trusts) are designed
to provide for those “extras” or necessaries that the government may not provide
for, while at the same time not disqualifying the beneficiary from receiving much-
needed government assistance. Those extras might include a single room in a care
facility as opposed to a double room, a home, automobile, travel to visit relatives or
even some prescription drugs.
While the attorney drafted an excellent trust, he did not consider something
very important. Most of Carmen’s assets were in the form of IRA accounts. When
Carmen withdraws money from her IRA account, the amount withdrawn is taxable
income to Carmen. When Carmen dies naming Julie’s Special Needs Trust as the
beneficiary, a number of serious tax problems arise.
First, the beneficiary of an IRA (who is not the spouse of the deceased)
following the account owner’s death will have Required Minimum Distributions
(RMDs) even if the beneficiary is not yet 701⁄2 years old. Although in general the
beneficiary may stretch out the RMDs over the beneficiary’s lifetime.
When a trust is named as the beneficiary, however, there are special IRS rules
that must be met for the trust beneficiary to be considered the beneficiary of the
IRA, enabling the “stretch out.” These are known as the “identifiable beneficiary”
rules. If all five of the identifiable beneficiary rules are not met, then the inherited
IRA will generally distribute all of the assets in the year following the account
owner’s death into the trust.
Special Needs Trusts, because they accumulate income, generally do not qualify
the beneficiary as “identifiable.” So Carmen’s IRA would have distributed the entire
account balance to the trust at Carmen’s death. This is a bad result since it results
in the recognition of all of the income and hence the payment of the income
tax, plus Julie lost all of the potential tax deferred grow th over the course of her
But this isn’t the end of the bad news. Since the Special Needs Trust is designed
to hold all of the money that came into it, and only disburse it for those items that
would not disqualify Julie from receiving Medicaid benefits, it accumulates all of the
taxable income rather than distributing it. Testamentary (after death) irrevocable
trusts (like the special needs trust) that accumulate income subject that income
to a compressed income tax rate schedule. What this means is that to the extent
that the distributions exceed $12,000 of taxable income, the highest marginal
income tax bracket (39.6 precent) applies. Further, an additional Affordable Care
Act (Obamacare) Medicare surtax of 3.8 percent would likely apply, resulting in a
whopping 44.4 percent of the IRA benefits being lost to Uncle Sam in the year
following Carmen’s death.
There are methods to plan around this potential disaster, and fortunately
Carmen did amend her trust and therefore Julie will be well taken care of. This
true story illustrates the importance of considering not only the legal aspects of
estate planning, but the income tax planning aspects of the plan as well.
If a significant portion of your net worth is held in IRA or other qualified
plan accounts, it behooves you to discuss the income tax consequences of your
planning with a knowledgeable estate planning attorney.
©2016 Craig R. Hersch. Learn more at www.sbshlaw.com.
Qualified Plans Into
by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
ISLAND SUN - DECEMBER 16, 2016
Island Resident, Licensed & Insured
• General Maintenance
• Power Washing
THE SANIBEL HANDYMAN
“NO JOB TOO SMALL”
HOME REPAIRS SPECIALIST!
It is election time at IWA again, and next year three seats on our Board
of Directors will be up for election. The seats are currently held by Paul E.
Garvey, Jim Griffith and Lewis Garrett Dutton Jr. Mr. Garvey is running for his
3rd term, and Mr. Griffith and Mr. Dutton are completing their 3rd and final
IWA is governed by a five member Board of Directors who serve without
pay. Directors must be residents of Sanibel or Captiva, so that they can attend
all Board meetings, and must be IWA Members or an official representative
of a condominium or other IWA Corporate Member. Directors must have
no conflict of interest, including but not limited to, active involvement in an
enterprise which could potentially do business with IWA or which could benefit
from involvement with IWA.
Meetings are normally held on the fourth Tuesday of every month. Directors
are elected by the Membership at IWA’s Annual Meeting to be held in April.
Anyone who would like to run for one of the open seats should contact our
Board Recording Secretary, Beau Stanley, at (239) 472-2113 (extension 114)
or by e-mail at email@example.com by no later than January 6, 2017.
Background checks are required on all Board candidates.
Sundial Beach Resort & Spa has
announced the addition of 12
regulation pickleball courts to its
lineup of resort amenities and public
offerings. The Plexicushion system courts
will provide the area with state-of-the-art
tournament-grade facilities in a beautiful,
lake-front setting. Construction is under
way, with an anticipated early spring
Pickleball was invented in 1965
as the result of family boredom and
ingenuity and has enjoyed a rapidly
growing burst of popularity. A
combination of tennis, badminton and
table tennis, it now claims the title of
the “fastest growing sport in North
America.” Suitable for all ages and
skill levels, the sport is a game of shot
placement rather than strength and
may be played at a leisurely pace or
highly competitive tournament level.
“We’re looking forward to bringing a
quality, state-of-the-art pickleball facility
to Southwest Florida” said Phillip
Starling, Sundial’s general manager.
“Not only will Sundial be the first area
resort to offer onsite, stand-alone courts
to guests, we’ll also be providing a
resource for local and tournament play
in our region.”
Erica Cossairt, Director of Tennis,
will oversee Sundial’s pickleball
program and league play. Lessons,
round robins and clinics for all ages
will be available to both resort guests,
residents and visitors.
Introductory pickleball memberships
will be offered to the public at $250
annually or a $5 guest fee per person
per hour. Guests of the resort will
enjoy complimentary access as part of
Sundial’s activity package.
In addition, the resort plans to host
USA Pickleball Association Tournament
play including competition for all levels
and ages with its inaugural tournament
planned for later in the year.
For information on memberships
and pickleball, email pickleball@
sundialresort.com or call 395-6037.
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