Author: heschlawadmin

SECURE Act changes to IRA’s

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Do you have an Individual Retirement Account (IRA)?  Are you 70 years or older?  If so, congress passed tax legislation late last year in the Setting Everyone Up for Retirement Enhancement Act of 2019 (SECURE Act) with changes that will benefit you in 2020.

Before December 31, 2019, you were not able to make traditional IRA contributions after you turned 70½.  Now the SECURE Act allows you to continue to contribute to your IRA as long as you have earned income. This is a benefit but there are complications if you make qualified charitable distributions from your IRA after 2019.

Another change is related to the IRA distributions.  Prior to December 31, 2019, you had to take required minimum distributions (RMDs) from your IRA or qualified retirement plan in the year you turned 70 ½.  Starting in 2020, you can put off taking the RMDs until you reach 72.  This change is only available to individuals who turn 70 ½ in 2020 or later.  If you turned 70 ½ prior to 2020, you are still required to take the RMDs or be subject to a penalty.

There was also a change to the Required Minimum Distribution on inherited IRA’s.  In the past, the RMDs could be extended out over several years depending on the beneficiary of the IRA.  The Secure Act has eliminated the RMD each year but the IRA must be fully distributed by the end of the 10th calendar year following the year of death.  There are some exceptions to this rule including distributions to the surviving spouse and minor children but for others, there is the 10 year distribution limit.

If you are near 70 years old or older and have an IRA, give us a call.  Let us help to ensure you are getting the best tax benefits from your IRA.

HOW TO DEDUCT ASSISTED LIVING AND NURSING HOME BILLS

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Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care.

If you could deduct these expenses, you’d substantially reduce your income tax liability—possibility down to $0—and dramatically reduce your financial burden from these costs.

As you might expect, the rules are complicated as to when you can deduct these expenses. But I’m going to give you some tips to help you understand the rules.

Medical Expenses in General

On your IRS Form 1040, you can deduct expenses paid for the medical care of yourself, your spouse, and your dependents, but only to the extent the total expenses exceed 7.5 percent of your adjusted gross income.  In December 2019, Congress retroactively reduced the 10% adjusted gross income limitation to 7.5% in 2018.  Therefore, taxpayers can file amended personal income tax returns for 2018 and 2019 as a result of that retroactive tax law change.

Medical care includes qualified long-term care services.

Assisted living and nursing home expenses can be qualified long-term care expenses depending on the health status of the person living in the facility.

If you operate a business, your business could establish a medical plan strategy that could make the medical expenses business deductions for your business.

Qualified Long-Term Care Services

The term “qualified long-term care services” means necessary diagnostic,preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which

  • are required by a chronically ill individual, and
  • are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Chronically Ill Individual

A chronically ill individual is someone certified within the previous 12 months by a licensed health care practitioner as

  1. being unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity;
  2. having a similar level of disability (as determined under IRS regulations prescribed in consultation with the Department of Health and Human Services) to the level of disability described in the first test; or
  3. requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

A licensed health care provider is a doctor, a registered professional nurse, a licensed social worker, or another individual who meets IRS requirements.

Activities of Daily Living Test

For someone to be a chronically ill individual, at least two of the following activities of daily living must require substantial assistance from another individual:

  • Eating
  • Toileting
  • Transferring
  • Bathing
  • Dressing
  • Continence

Substantial assistance is both hands-on assistance and standby assistance:

  • Hands-on assistance is the physical assistance of another person without which the individual would be unable to perform the activity of daily living.
  • Standby assistance is the presence of another person within arm’s reach of the individual that’s necessary to prevent, by physical intervention, injury to the individual while the individual is performing the activity of daily living.

Examples of standby assistance include being ready to

  • catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or
  • remove food from the individual’s throat if the individual chokes while eating.

Cognitive Impairment Test

Severe cognitive impairment is a loss or deterioration in intellectual capacity that is comparable to, and includes, Alzheimer’s disease and similar forms of irreversible dementia, and measured by clinical evidence and standardized tests that reliably measure impairment in the individual’s short- or long-term memory; orientation as to people, places, or time; and deductive or abstract reasoning.

Substantial supervision is continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).

You have much to consider if you face the medical issues above. I’m happy to help you understand if your medical expenses can qualify for the medical deductions and what this means taxwise.

 

William E Hesch

William E. Hesch Law Firm, LLC

William E. Hesch CPAs, LLC

3047 Madison Road, Suite 201

Cincinnati, Ohio  45209

Office:  513-731-6601

Direct:  513-509-7829

bill.hesch@williamhesch.com

www.heschlaw.com

www.heschcpa.com

WINNING TAX STRATEGIES FOR THE SMALL BUSINESS

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Will the Newly Released Section 199A Rental Safe Harbor Work for You?
In January, an IRS Notice gave you a Section 199A safe-harbor option for your rental properties, possibly making it easier for you to qualify for this new tax deduction. Now, the IRS has made a number of changes to its original notice and finalized the safe harbor in a Revenue Procedure. We’ll tell you all you need to know about the final version. Then you can decide if you want to use the safe harbor or find other ways to qualify your rentals for the Section 199A deduction.

9 Insights on the New Individual Coverage HRA for Small Business
The new individual coverage HRA (ICHRA) has much to offer a small business (businesses with fewer than 50 employees). Last month we introduced the ICHRA. In this article, we expand on the abilities of the ICHRA to get a smile from the small-business owner who wants to offer health benefits to his or her employees.

2019 Last-Minute Year-End General Business Income Tax Deductions
Your year-end tax planning doesn’t have to be hard. This article takes your daily business activities and identifies easy year-end tax-planning moves you can make today. Our five strategies will increase your tax deductions or reduce your taxable income so that Uncle Sam gets less of your 2019 cash.

2019 Last-Minute Section 199A Strategies That Reduce Taxes, Too
Remember to consider your Section 199A deduction in your year-end tax planning. If you don’t, you could end up with a big fat $0 for your deduction amount. We’ll review four year-end moves that (a) reduce your income taxes and (b) boost your Section 199A deduction at the same time.

2019 Last-Minute Year-End Tax Deductions for Existing Vehicles
Yes, December 31 is just around the corner. That’s your last day to find tax deductions available from your existing business and personal (yes, personal) vehicles that you can use to cut your 2019 taxes. In this article, you will learn how to find and release tax deductions that the tax code trapped inside your existing business cars, SUVs, trucks, and vans. And you will learn how the Tax Cuts and Jobs Act makes it possible for you to find a big deduction from your existing personal vehicle.

2019 Last-Minute Vehicle Purchases to Save on Taxes
Here’s an easy question: Do you need more 2019 tax deductions? If yes, continue on. Next easy question: Do you need a replacement business vehicle? If yes, you can simultaneously solve or mitigate both the first problem (needing more deductions) and the second problem (needing a replacement vehicle), but you need to get your vehicle in service on or before December 31, 2019. This article helps you find the right vehicle for the deduction you desire.

2019 Last-Minute Year-End Tax Strategies for Your Stock Portfolio
When you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2019 income taxes. The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies. In addition to saving taxes with the game of offset, you can also avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children who are not subject to the kiddie tax.

2019 Last-Minute Year-End Tax Strategies for Marriage, Kids, and Family
If you are thinking of getting married or divorced, you need to consider December 31, 2019, in your tax planning. Here’s another planning question: Do you give money to family or friends (other than your children who are subject to the kiddie tax)? If so, you need to consider the zero-taxes planning strategy. And now, consider your children who are under age 18. Have you paid them for work they’ve done for your business? Have you paid them the right way? You’ll find the answers here.

2019 Last-Minute Year-End Medical and Retirement Deductions
When you get busy with your business, it’s easy to forget about your retirement accounts and medical coverages and plans. But year-end is approaching, and now’s the time to take action. This article gives you six action steps for 2019 that can help you reduce your taxes and pocket extra money.

 

If you are not yet a subscriber, CLICK HERE. You’ll get a no-obligation 7-day FREE trial during which you can read, not only the November articles, but all of our helpful tax-saving tips. This trial is absolutely free and there are no strings attached. That’s a personal promise.

 

If you’re already a subscriber to the Tax Reduction Letter you’ll be prompted to log in when you CLICK HERE.
Sincerely,

 

Murray Bradford, CPA

Publisher

Tax Reduction Letter

 

www.bradfordtaxinstitute.com

 

November 4, 2019

2018 Tax Reform for Meals and Entertainment

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The 2018 Tax Reform made a lot of changes to the meals and entertainment deductions. Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:

  • Entertainment and meals while entertaining included in the cost of the event are not deductible
  • Golf
  • Skiing
  • Tickets to football, baseball, basketball, soccer, etc. games
  • Disneyland

Meals during the course of entertainment will be deductible if purchased separately from the entertainment event.

Employers who for their convenience provided business meals for their employees that were 100 percent deductible but are now 50 percent deductible beginning January 1, 2018, include:

  • Meals served at required business meetings on your business premises
  • Meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office
  • Meals served to employees who are required to staff their positions during breakfast, lunch, and or dinner times
  • Meals served to employees at in-office cafeterias
  • Food and meal costs for employees who are required to live on premises for the convenience of the employer

For 2018, you need to create accounts in your chart of accounts that separate non-deductible meals and entertainment, meals subject to 50% deduction, and entertainment expenses that are 100% deductible.

As you may know, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.

The good news is that tax code Section 274(e) pretty much survived. Under this section, you can deduct:

  • Entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes
  • Expenses for recreational, social, or similar activities (including facilities therefor)primarily for the benefit of employees (other than employees who are highly compensated employees)
  • Expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent)
  • Expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law limits expenses for food and beverage to 50 percent)
  • Expenses for goods, services, and facilities you or your business makes available to the general public
  • Expenses for entertainment goods, services, and facilities that you sell to customers
  • Expenses paid on behalf of nonemployees that are includible in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award

When you are considering the above survivors of the tax reform’s entertainment cuts, you will find good strategies in the following:

  • Renting your home to your corporation
  • Taking your employees on an employee party trip
  • Partying with your employees
  • Making your vacation home a deductible entertainment facility
  • Creating an employee entertainment facility
  • Deducting the entertainment facility, because the facility use creates compensation to users

If you would like help implementing any of the strategies above, please don’t hesitate to call me on my direct line at (513)509-7829.

Two women sitting on steps and talking

Estate Planning Lessons to Be Learned From the Passing of Aretha Franklin

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Aretha Franklin, a.k.a. the Queen of Soul, died August 16, 2018. She influenced millions through her music and civic actions. She was a longtime resident of Michigan, where she lived until her death. Aretha Franklin left behind four adult sons, and unfortunately for them, she did not have a will or trust. Her estate has been widely estimated to be worth currently about $80 million, and under Michigan law, her four sons will divide the estate equally among themselves.

One of the biggest reasons a person, especially someone in a financial position like
Aretha, should have a trust is for the added privacy it provides. If a person has only a will or nothing at all in place, the estate would go through probate. One of the worst things about the probate process is that it is all public record, and available to anyone’s eyes. A trust would have ensured that the nature of her assets be kept private because it avoids probate, and not put on public display.

Unfortunately for her family, Aretha Franklin never had a will or trust drafted, which will result in her entire estate going through probate. Probate is notoriously time consuming and expensive to navigate, especially for an estate worth an estimated $80 million. For Aretha Franklin’s Estate, dividing her assets equitably among her four sons will be very time consuming and costly because of its valuable assets, and the complexity of the rights to her music, royalties, real estate, and many other avenues of income. A validly executed estate plan, using a trust properly, could have saved years and countless dollars by avoiding probate for the administration of her large estate.

While it is still early, and no one knows for sure how long it will take for Aretha’s estate to get settled, there are lessons to be learned. First, at the very top of your list should be not putting your estate planning on the back burner. Aretha’s attorney has said that he repeatedly suggested that she have a trust and a will, but she just never got around to it.

Another sad lesson is that Aretha could have better provided for friends and family if she had a will or trust. It is possible that she was happy with only her sons getting her assets, but had she drafted a will or trust, she could have included other close friends and family, or even charities. However, because she did not have a will or trust, the State of Michigan will now decide who gets what. Unless you want to have your state of residency decide who gets what, make sure you have a will or trust drafted that accurately reflects your wishes.

While Aretha Franklin was loved by many, and her music will live on, she did not do her family any favors by neglecting her estate planning. Had she done so, she may have wanted to include friends and family in her estate plan, saved the estate the costly time and money associated with probate, and decreased the chance that her sons may damage their relationships over what assets each son gets. If you want to make sure that your estate is properly planned, your assets are accounted for, and your loved ones will not have to endure the stress of probating your estate, call Bill Hesch, attorney, CPA, and financial planner today.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Man writing taxes on a checkbook

Tax-Saving Tips

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New IRS 199A Regulations Benefit Out-of-Favor Service Businesses

If you operate an out-of-favor business (known in the law as a “specified service trade or business”) and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your Section 199A deduction is easy to compute. It’s zero.

This out-of-favor specified service trade or business group includes any trade or business

  • involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or
  • where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or
  • that involves the performance of services that consist of investing and investment management trading or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities [Internal Revenue Code Sections 475(c)(2) and 475(e)(2), respectively].

If you were not in one of the named groups above, you likely worried about being in a reputation or skill out-of-favor specified service business. If you were worried, you joined a large group of worried businesses, because many businesses depend on reputation and/or skill for success.

For example, the National Association of Realtors believed real estate agents fell into this out-of-favor category.

But don’t worry, be happy. The IRS has come to the rescue by regulating the draconian reputation and/or skill provision down to almost nothing. The reputation and/or skill out-of-favor specified service business includes you if you

  • receive fees, compensation, or other income for endorsing products or services;
  • license or receive fees, compensation, or other income for the use of your image, likeness, name, signature, voice, trademark, or any other symbols associated with your identity; or
  • receive fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

Example. Harry is a well-known chef and the sole owner of multiple restaurants, each of which is a single-member LLC—disregarded tax entities that are taxed as proprietorships. Due to Harry’s skill and reputation as a chef, he receives an endorsement fee of $500,000 for the use of his name on a line of cooking utensils and cookware.

Results. Harry’s restaurant business is not an out-of-favor business, but his endorsement fee is an out-of-favor specified service business.

If you have questions about how the law will treat your business income for the new Section 199A 20 percent tax deduction, please give us a call, and we’ll examine your situation.

Does Your Rental Qualify for a 199A Deduction?

The IRS, in its new proposed Section 199A regulations, defines when a rental property qualifies for the 20 percent tax deduction under new tax code Section 199A.

One part of the good news on this clarification is that it does not require that we learn any new regulations or rules. Existing rules govern. The existing rules require that you know when your rental is a tax law–defined rental business and when it is not. For the new 20 percent tax deduction under Section 199A, you want rentals that the tax law deems businesses.

You may find the idea of a rental property as a business strange because you report the rental on Schedule E of your Form 1040. But you will be happy to know that Schedule E rentals are often businesses for purposes of not only the Section 199A tax deduction but also additional tax code sections, giving you even juicier tax benefits.

Under the proposed regulations, you have two ways for the IRS to treat your rental activity as a business for the Section 199A deduction:

  1. The rental property qualifies as a trade or business under tax code Section 162.
  2. You rent the property to a “commonly controlled” trade or business.

Your rental qualifying as a Section 162 trade or business gets you other important tax benefits:

  • Tax-favored Section 1231 treatment
  • Business use of an office in your home (and, if it’s treated as a principal office, related business deductions for traveling to and from your rental properties)
  • Business (versus investment) treatment of meetings, seminars, and conventions

If your rental activity doesn’t qualify as a Section 162 trade or business, it will qualify for the 20 percent Section 199A tax deduction if you rent it to a commonly controlled trade or business.

How to Find Your Section 199A Deduction with Multiple Businesses

If at all possible, you want to qualify for the 20 percent tax deduction offered by new tax code Section 199A to proprietorships, partnerships, and S corporations (pass-through entities).

Basic Rules—Below the Threshold

If your taxable income is equal to or below the threshold of $315,000 (married, filing jointly) or $157,500 (single), follow the three steps below to determine your Section 199A tax deduction with multiple businesses or activities.

Step 1. Determine your qualified business income 20 percent deduction amount for each trade or business separately.

Step 2. Add together the amounts from Step 1, and also add 20 percent of

  • real estate investment trust (REIT) dividends and
  • qualified publicly traded partnership income.

This is your “combined qualified business income amount.”

Step 3. Your Section 199A deduction is the lesser of

  • your combined qualified business income amount or
  • 20 percent of your taxable income (after subtracting net capital gains).

Above the Threshold—Aggregation Not Elected

If you do not elect aggregation and you have taxable income above $207,500 (or $415,000 on a joint return), you apply the following additions to the above rules:

  • If you have an out-of-favor specified service business, its qualified business income amount is $0 because you are above the taxable income threshold.
  • For your in-favor businesses, you apply the wage and qualified property limitation on a business-by-business basis to determine your qualified business income amount.

The wage and property limitations work like this: for each business, you find the lesser of

  1. 20 percent of the qualified business income for that business, or
  2. the greater of (a) 50 percent of the W-2 wages with respect to that business or (b) the sum of 25 percent of W-2 wages with respect to that business plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property with respect to that business.

If You Are in the Phase-In/Phase-Out Zone

If you have taxable income between $157,500 and $207,500 (or $315,000 and $415,000 joint), then apply the phase-in protocol.

If You Have Losses

If one of your businesses has negative qualified business income (a loss) in a tax year, then you allocate that negative qualified business income pro rata to the other businesses with positive qualified business income. You allocate the loss only. You do not allocate wages and property amounts from the business with the loss to the other trades or businesses.

If your overall qualified business income for the tax year is negative, your Section 199A deduction is zero for the year. In this situation, you carry forward the negative amount to the next tax year.

Aggregation of Businesses—Qualification

The Section 199A regulations allow you to aggregate businesses so that you have only one Section 199A calculation using the combined qualified business income, wage, and qualified property amounts.

To aggregate businesses for Section 199A purposes, you must show that

  • you or a group of people, directly or indirectly, owns 50 percent or more of each business for a majority of the taxable year;
  • you report all items attributable to each business on returns with the same taxable year, not considering short taxable years;
  • none of the businesses to be aggregated is an out-of-favor, specified service business; and
  • your businesses satisfy at least two of the following three factors based on the facts and circumstances:
  1. The businesses provide products and services that are the same or are customarily offered together.
  2. The businesses share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources.
  3. The businesses operate in coordination with or in reliance upon one or more of the businesses in the aggregated group (for example, supply chain interdependencies).

Help Employees Cover Medical Expenses with a QSEHRA

If you are a small employer (fewer than 50 employees), you should consider the qualified small-employer health reimbursement account (QSEHRA) as a good way to help your employees with their medical expenses.

If the QSEHRA is indeed going to be your plan of choice, then you have three good reasons to get that QSEHRA plan in place on or before October 2, 2018. First, this avoids penalties. Second, your employees will have the time they need to select health insurance. Third, you will have your plan in place on January 1, 2019, when you need it.

One very attractive aspect of the QSEHRA is that it can reimburse individually purchased insurance without your suffering the $100-a-day per-employee penalty. The second and perhaps most attractive aspect of the QSEHRA is that you know your costs per employee. The costs are fixed—by you.

Eligible employer. To be an eligible employer, you must have fewer than 50 eligible employees and not offer group health or a flexible spending arrangement to any employee. For the QSEHRA, group health includes excepted benefit plans such as vision and dental, so don’t offer them either.

Eligible employees. All employees are eligible employees, but the QSEHRA may exclude

  • employees who have not completed 90 days of service with you,
  • employees who have not attained age 25 before the beginning of the plan year,
  • part-time or seasonal employees,
  • employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and
  • employees who are non-resident aliens with no earned income from sources within the United States.

Dollar limits. Tax law indexes the dollar limits for inflation. The 2018 limits are $5,050 for self-only coverage and $10,250 for family coverage. For part-year coverage, you prorate the limit to reflect the number of months the QSEHRA covers the individual 

SPECIAL NEEDS TRUSTS: Pt. 3 – Pooled Trust Mistakes

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Aside from the individually structured first and third party special needs trusts, a pooled SNT is a trust that is for multiple individuals with special needs. A pooled SNT is a trust that is established and managed by a non-profit organization. It is a trust that pools together all of the assets of the disabled individuals that have accounts through the trust, as well as assets acquired through outside donations, and makes distributions to the beneficiaries based on their individual shares of the trust’s assets. Pooled SNTs are a way to relieve family members of the job of being the trustee and allows professionals to handle the tedious responsibilities of being the trustee. Some important aspects that set apart pooled SNTs from first and third party SNTs are:

  • Pooled SNTs do not have any age limits;
  • The disabled person is able to be one of the grantors of the trust; and
  • Any excess funds at death are generally kept by the non-profit.

While there are many benefits of being a part of a pooled SNT, there are many mistakes to avoid when planning to join a pooled SNT. One of the first mistakes that people make when pursuing admission to a pooled SNT is not seeking legal advice on the issue. There are many different types of pooled SNT, and all vary from the type of care they give, to the ways they handle the trust’s assets. It is vital to have an experienced legal professional help plan which trust is best for the unique needs of the disabled person. Another mistake that family members of the disabled person’s family must avoid is failing to update their own estate planning documents. Failing to update your own estate plan to make the disabled person’s pooled SNT one of the beneficiaries of your will, trust, life insurance, or retirement accounts will cause an unnecessary delay in the beneficiary receiving the money.

One of the biggest mistakes that people in this situation make is failing to plan at all. While you are alive, you may be the primary caregiver as well as the trustee of a disabled person’s SNT, whether a first party SNT or a third party SNT. But, what will happen to their care and financial security after you pass? It is essential to have a seamless plan in place to allow the disabled person to continue receiving the necessary funds and care they need to live a comfortable life. A pooled trust may be the best tool for that plan, and may be worth pursuing.

A pooled SNT may be the best plan for preserving a disabled person’s assets and ensuring quality care. If a member of your family is disabled, and has not already set up an SNT, call Bill Hesch, attorney, CPA, and financial planner, to find out if a pooled SNT would be in their best interest, or to receive a second opinion on your existing SNT plan.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

SPECIAL NEEDS TRUST MISTAKES: Pt. 2 – Third Party Trust Mistakes

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A Third Party Special Needs Trust is created for the benefit of a disabled person, which ensures that the disabled person will have proper care. The Third Party SNT is funded with assets typically by family and friends of the disabled person. Unlike the First Party SNT, the property is never owned by the disabled person, and there is also no payback of Medicaid or any other government benefits. When properly planned, a Third Party SNT can provide greater flexibility than a First Party SNT, and can be a very useful mechanism for providing proper care for a person with special needs.

While every state has its own requirements for Special Needs Trusts, generally, Third Party SNTs are more flexible because there are no age requirements. They also do not have to be monitored by the Probate Court in the county of their residence, and may be either revocable or irrevocable. As long as there is careful planning and proper management, there is no repayment of any governmental funds, like Medicaid.

There are common mistakes that must be avoided to ensure that the Third Party SNT works properly and will not have adverse effects on the disabled person or trustee. One of the first mistakes is improperly transferring property into the trust that may disqualify government benefits or require the trust to payback the state funds. It is essential that the property in the trust is never owned by the disabled person, and he or she have no legal right to the property. Transferring property, including money, that can be traced back to the disabled person can be considered a “step-transfer,” and would result in Medicaid and other state funds to be repaid, which could cost thousands of dollars.

Another common mistake is making the primary caregiver the trustee. The trustee position for any SNT is a demanding job, and mistakes must be avoided. Caregivers already have plenty of responsibility looking after the person with special needs. Adding to the stressful job of being primary caregiver to the trustee of the SNT, may result in careless mistakes with the transfer of money to the disabled person. For example, a disabled person on SSI cannot receive money for rent, food, and clothing. Thus, the trustee must keep accurate records to document the purpose for each distribution to the disabled person, and avoid having to repay the government for an improper SSI distribution. Also, by having the trustee and caregiver roles assumed by different people, an important check and balance is put on the primary caregiver and trustee.

A third common mistake is having a disabled person as a beneficiary of a Crummey Trust. In a Crummey Trust, the beneficiary has Crummey Powers, which allow for a Grantor to gift property under the annual gift tax exclusion, and the beneficiary is given the right to withdraw the gift for 30 days. However, the beneficiary of a Third Party SNT should not be given such right since a disabled beneficiary of a Third Party SNT would possibly be required to repay the government benefits received by them, to the extent of the withdrawal power.

Third Party SNTs are very useful vehicles to help fund the care that a disabled person desperately needs. They are a flexible and efficient way to help the disabled person financially and keep their government benefits if drafted and managed properly. If you have a member of your family who has special needs, and want the ability to provide them with financial assistance without adversely affecting their governmental benefits, please contact Bill Hesch, attorney, CPA, and financial planner to get started, or for a second opinion.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

 

SPECIAL NEEDS TRUST MISTAKES: Pt. 1 – First Party Mistakes

Posted by heschlawadmin on

A First Party Special Needs Trust is set up for the benefit of a person with special needs, and is funded with the disabled person’s own property. Different rules apply when a Third Party SNT that is set up by family members for the benefit of the disabled person. Typically, a First Party SNT is used in two common scenarios: the disabled person receives a lawsuit settlement for damages, or when the disabled person inherits money or property from family, who did not set up a Third Party SNT.

When a disabled person owns property outright, the person may face difficulty receiving government benefits. This is where a First Party SNT comes in; it allows the disabled person to have access to their property, while the trust retains ownership of it, which improves the disabled person’s ability to receive government funding. When formed properly, the First Party SNT is a useful vehicle for ensuring proper care for a person with special needs.

Although every state has different rules that must be met when forming a First Party SNT, the requirements are generally:

  • The trust is irrevocable
  • The trust is set up by a parent or guardian in court
  • The beneficiary of the trust is under the age of 65
  • The assets in the trust must have been owned by the beneficiary
  • Benefits received through Medicaid must be repaid after the beneficiary passes away

Proper planning is essential to ensure that all of these requirements are met and that the First Party SNT operates effectively. If the First Party SNT is not formed properly, there may be several problematic issues that arise. One of the worst problems is the disabled person losing their governmental benefits, like SSI or Medicaid. This can result as a flaw in formation or in improper management by the trustee of the SNT. Proper planning is also essential to avoid issues with Medicaid repayment after the death of the beneficiary. When formed correctly, the assets of the trust will be used to repay the costs of Medicaid. However, if the trust is not formed or managed correctly, repayment can be an unnecessary burden on the beneficiary’s estate. Likewise, the trustee of the First Party SNT may face personal liability if the funds were not managed or accounted for properly. All of these consequences can be mistakes of poor planning and management of the First Party SNT.

If you or a member of your family has special needs and will be receiving money from a lawsuit for damages, or inheriting money from your family, who have not set up a Third Party SNT, please contact Bill Hesch, attorney, CPA and financial planner for a second opinion to avoid the common mistakes that are typically made, due to lack of proper planning.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

New End of Life Law

Posted by heschlawadmin on

Medical/Physician’s Orders for Scope of Treatment

Kentucky and Indiana (Ohio Pending)

Did you know that in the last month of life over 50% of Americans go to the emergency room and that 50% to 75% of them get admitted? However, some people might not want to spend the last month of their lives in a hospital. Hospitalization is expensive and usually not considered an ideal place to die. You can avoid these unwanted end of life experiences through proper advance care planning.

The newest tool for advance care planning is medical or physician’s orders for scope of treatment. Nationally this new tool is being referred to as a POLST, which stands for Physician’s Orders for Life-Sustaining Treatment.  The National POLST Paradigm is an organization started in Oregon that helps push for the adoption of medical order documents across the country. Over 22 states have endorsed the POLST program, and 25 others are developing similar programs. Kentucky and Indiana are two such states. In Kentucky, these documents are known as MOST or Medical Orders for Scope of Treatment. In Indiana, they are known as POST or Physician Orders for Scope of Treatment. However, Ohio has not been successful in passing a POLST initiative. Ohio’s MOLST (Medical Orders for Life-Sustaining Treatment) bill has passed the Ohio Senate and has been referred to committee in the House. These documents go by a few different names depending on the state, but generally, they do the same thing.

POLST type documents are meant to encourage patients and their health care professionals to talk about what a patient wants at the end of life. The MOST document, unlike a living will, is a doctor’s orders. The fact that they are orders instead of a legal document leads to increased compliance by emergency medical personnel and hospital staff. Unlike a living will, MOST documents are filled out jointly by the patient and their physician. The purpose of this joint involvement is informed, shared decision-making between patients and healthcare professionals. The conversation involves the patient discussing his/her values, beliefs and goals for care, and the healthcare professional presents the patient’s diagnosis, prognosis, and treatment alternatives, including the benefits and burdens of life-sustaining treatment. Together they reach an informed decision about desired treatment, based on the patient’s values, beliefs, and goals for care.

However, MOST documents are not recommended for everyone. They are highly recommended for patients for whom their health care professionals would not be surprised if they were no longer living within a year. Patients should, however, have in place a living will and possibly a MOST document. The MOST document allows for a patient to dictate how they will spend their final days. The MOST document makes sure that everyone in the healthcare field knows exactly what the patient’s wishes are and that they follow those wishes.

Conversations about end of life planning are difficult. However, if you don’t have them it can be even more difficult for your family to figure out your wishes. Have these conversations with your family members and consider putting in place a living will and if necessary a medical order for treatment document. If you need help putting these documents into place or have any questions feel free to reach out to our office.

 

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

For more information on POLST visit:

http://polst.org/