The SNT Tax World

1. The SNT Tax World Prepared by: Tina Myers, CPA, MTax CIRCULAR 230 DISCLOSURE NOTICE:Any U.S. federal tax advice included in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding U.S. federal tax-related penalties or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein.

2. Agenda • SNTs and how they are taxed • Gift tax implications of SNTs • Income Tax benefits for families with disabled family members • Special income tax issues for families with disabled members

3. SNTs and How They Are Taxed

4. SNT – Grantor trusts • Self-Settled Trusts • Beneficiary is usually in a lower tax bracket than the trust. • For 2011, trust taxable income over $11,350 is taxed at 35%. • May obtain a new EIN for the trust or use SSN of grantor • Files an “informational return”

5. Non-Grantor Trusts • Virtually all third-party, and some self-settled trust will be non-grantor trusts. • Subject to the compressed tax rates of trusts • Will need its own EIN • Most likely will be classified as “complex” • Files a Form 1041 with a K-1 to the beneficiary for distributions • Cash distributions • Non-cash or in-kind distributions • Can take deductions that would have otherwise been subject to 2% floor (attorney & accountant fees, etc.)

6. Qualified Disability Trust • Optional treatment as a QDisT • Cannot be a grantor trust • Since 2002, trusts qualifying under IRC Sec 642(b)(2)(C) are permitted to claim a personal exemption • Trust must be funded before beneficiary turns age 65 • Beneficiaries must be receiving SSI or SSDI

7. Pooled Trusts • Charities Pooled Trust • Community Fund Management Foundation Pooled Trusts • The Disability Foundation Pooled Trusts • McGivney Pooled Special Needs Trust • Secured Futures Pooled Trust • Securet Trust

8. Gift Tax Implications of SNTs

9. Gift Tax Implications – Self-settled trusts • Generally, no gift. • Amount received from settlement proceeds is in exchange for a release of claim for consideration • Disabled grantor does not intend to make a gift because the trust is intended to be for the sole benefit of the disabled grantor. • No completed gift if grantor retains power over disposition of assets, such as a limited power of appointment at death. • Even if the IRS were to successfully argue that there was a completed gift, the value of the gift would be hard to determine.

10. Gift Tax Implications – Third Party trusts • No gift if trust is revocable or if grantor retains a power of appointment over trust assets • If trust is irrevocable and grantor retains no power of appointment, then it is likely that a completed gift occurred. • No annual gift exclusion is available for gift of future interest. • Would result in use of Lifetime Gift Tax Exemption • For remainder beneficiaries of a lifetime third-party trust, consider using Crummey powers. (Crummey powers given to the disabled beneficiary would be counted as an available resource for public benefit purposes).

11. Income Tax Benefits for Families

12. Income Tax Benefits for Families • Dependency exemption • Medical Expense deduction • Medical Expense alternatives • Impairment-related work expense • Earned Income tax credit • Credit for the Elderly or Disabled • Dependent Care Credit • Special Needs Tax Credit (update) • Ohio tax implications

13. Special Income Tax Issues

14. Special Income Tax Issues • Disability income • Other non-taxable payments • Kiddie tax • Employment of a caregiver • Ability to claim refunds

15. Any Questions? Your Zinner Contacts • Tina Myers tmyers@zinnerco.com • Howard Kass hkass@zinnerco.com • Andrea Sheets asheet@zinnerco.com