Life is always changing, estate planning has to change with it.  Reaching out to clients periodically is imperative to not only grow your business, but to remind them that what worked for them two years ago might not work for them today.  Estate and tax laws are changing every year.

The Tax Cuts and Jobs Act of 2017 changes the “kiddie tax” that was originally enacted by Congress in 1986. The kiddie tax considers minors as people under age 18, or if 18, until the completion of that school year. People are still considered minors up to age 24 if they are in school. The kiddie tax does not apply if the minor is filing taxes jointly( minor is married or if neither of the child’s parents is alive.)

The “kiddie tax” taxes unearned income from minors differently than other unearned income. Unearned income generally refers to non-wage income, such as income from capital gains, dividends, or assets placed in a trust, including a special needs trust (SNT) for children with disabilities.

Up until now, the Internal Revenue Services (IRS) automatically taxed all unearned income from children above $2,100 in the same tax bracket applicable to their parents’ income. Under the new rules, enacted as part of the Tax Cuts and Jobs Act of 2017, the IRS instead taxes unearned income above this threshold at the greatly compressed tax rates for trusts.

Personal income is not taxed at the highest (37 percent) tax rate until a person’s income exceeds $510,000, but trust income is taxed at the highest tax rate when the trust income exceeds just $12,500.

If the child’s assets are from a personal injury award or settlement, the assets could be funneled to the SNT through a structured settlement. Assets in structured settlements that provide ongoing payments over a contracted-for period of time, rather than as a lump sum, are tax free.

According to Medicaid  Medicaid and SSI law permit “(d)(4)(C)” or “pooled trusts” for beneficiaries with special needs. Such trusts pool the resources of many beneficiaries, and those resources are managed by a non-profit association.

Becoming part of a pooled trust may have advantages, depending on the situation. Pooling trust resources can reduce administrative fees, increase the total funds available for investment, and permit access to better investment opportunities. In addition, unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. But bear in mind that those over age 65 receiving Medicaid or SSI who make transfers to the trust will incur a transfer penalty.

At the beneficiary’s death the state does not have to be repaid for its Medicaid expenses on her behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries. Check with your state whether they require reimbursement.

Next week we will be addresses more changes in how we do business.