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The $1.5 trillion tax bill passed last year will likely have far reaching consequences on millions of seniors across the country, some good and some bad. While only time will truly tell how things will shape out, there are a number of areas many tax lawyers and elder law attorneys believe senior citizens and retired persons are likely to see an impact to their finances.

For the most part, the overwhelming majority of elder Americans will not see an increase to their taxes because most senior citizens have incomes that rely on Social Security which for the most part is not taxable at lower levels of income. Furthermore, because most older households do not itemize deductions they are not likely to see an impact because the new tax laws target taxpayer who have major itemized deductions on their taxes, particularly in states where there are high state and local income and property taxes.

The one proposed change to itemized deductions that did not make it into the final draft of the 2017 tax bill was the elimination of deductions for medical bills, a major deduction that would have had far reaching effects on senior citizens. An outcry from AARP, the National Academy of Elder Law Attorneys, the public, and other advocacy groups was successful in preventing any changes to itemizing medical bills and actually expands it for two-years.

In 2015, the U.S. Congress passed S.349 – Special Needs Trust Fairness Act, allowing disabled persons to plan their own estates without the assistance of a family member or other guardian. The Act has resolved some of the complex issues associated with trust formation, and now informs the estate planning process coinciding with execution of trust assets in the interest of disabled beneficiaries. An estate planning attorney will advise a family of the proper legal process for developing an estate plan that includes a disabled beneficiary to ensure that the loved one’s special needs are supported after the decedent has passed. The following are recommended steps to planning an estate for a trust holder or beneficiary with special needs:

The Estate Planning Guide for SNTs

•         Trust Formation. A Supplemental Needs Trust (“SNT”) is a trust designated exclusively for the benefit of a disabled family member or named beneficiary. The SNT allows family members and friends contribute to trust assets through payment for good or services. SNT beneficiaries remain eligibility for government assistance programs as well.  

Legacy ownership of a business interest can continue to have control over an enterprise if that entity becomes part of a probate estate. Stock transfer to a single, or to multiple trusts, in the interest of continued business operations, is not only a plausible, but legitimate estate planning strategy that allows a decedent and named beneficiaries to capitalize on future earnings. Any risk connected to trust transfer of a distressed business shareholder asset at the time of a decedent’s death, is the obligation of the estate in which it is held. Estate executors and trustees have fiduciary duty to a standard of care in oversight of shareholder voting privileges of a trust-owned business interest under New York Consolidated Laws, Business Corporation Law – BSC § 621 (a)(b)(c)(d). Voting trust agreements.

Shareholder Rights, Maximum Value

Executors and Trustees considering whether to continue shareholder interest in a business operation, may find it more appropriate to sell those shares in order to maximize value of the estate or trust for the heirs or beneficiaries. Valuation of shareholder assets may result in a beneficiary’s decision to convert a certificate(s) to a different investment vehicle in exchange for higher earnings, or to cash out at time of contract expiry. Transferred shares can also be surrendered and cancelled for reissue under the name of another trustee or trustees. The statute of limitations for transfer of shareholder interests to other voting trustee shareholders for purposes of conferring voting rights is ten years (BSC § 621 (a)).

High income retirees could see some of their Medicare premiums skyrocket up to 203 percent in 2018 due to shifts in the income brackets that are used to determine how much older Americans will pay for their Medicare Part B and Part D coverage. Those predictions come from an analysis by HealthView Services, a provider of health-care cost projection software used to prepare current and future retirees for the impact of health care costs which includes Medicare costs, long-term care expenses, and Social Security optimization strategies.

The additional surcharges for Medicare Part B, which covers preventive services, and Medicare Part D, which covers doctor visits, could end up diverting larger portions of the income seniors and future retirees expected to put towards their retirements. For example, a 55-year old couple earning a combined $140,000 could anticipate their lifetime Medicare surcharges rise by over $120,000 due to the changes to how the health-care program charges its beneficiaries, according to the Health View Services analysis.

The factors driving up the cost of Medicare for seniors comes from a 2015 bill known as the Medicare Access and CHIP Reauthorization Act or “DocFix” law which adjusted the way premiums are calculated for high-income individuals. The bill also lowered the range for the third, fourth and fifth-income brackets, which moved some retirees into the next higher bracket thus increasing their Medicare costs. Those changes began to take effect in 2108.

Since federal income tax rule changes in 2017, estate planners will find disclaimers to be a better exemption tool than before. A disclaimer allows for adjustment to an estate or trust for purposes of shifting tax liability from high-wealth beneficiaries. U.S. Internal Revenue Service ({“IRS”) guidelines allow for disclaimer by a beneficiary (“disclaimant”) to bypass taxation with a default transfer to a beneficiary eligible for estate or gift tax exempt status. Disclaiming parties may not be enriched by estate assets once disclaimed or entitled to name the beneficiary whom those assets will pass to as result.

Interested estate parties can consult with an attorney about the benefits of disclaimer provisions “qualified” under federal law (Title 26 Revenue Code USC §. 2518).  Disclaimer modification of an estate, trust, or will must be made in writing within nine (9) months from the death of the decedent.

Disclaimer

As more nursing homes and assisted living facilities begin to shift toward a more pet friendly approach to help accommodate the emotional needs of their residents, seniors and their families should begin to examine the pros and cons of living with pets where facility rules permit. In addition to accounting for size and weight restrictions of pets that facilities may impose, individuals need to consider whether or not their age and health allow them to properly care for the animal as well.

For elders who have lost a spouse, living with a pet can provide much needed companionship, emotional support, and to provide the unconditional love and support we all need. However, pets need medical attention of their own which includes trips to the vet for shots, checkups, and medical treatment. Furthermore, animals can suffer from their own health problems like arthritis, pneumonia, and even the flu.

Other issues like the health of the elder can affect whether or not it may be suitable to keep a pet in old age or in an assisted living facility as canes and walkers do not always make for a good mix with certain types of pets. Frail elders with balance issues or those with vision problems may not be safe with even small dogs that run, jump, or are otherwise rambunctious. Additionally, it is not fair to the animal if its owner cannot take it for a walk, necessitating outside care for the animal.

Since congressional ratification of the “Tax Cuts and Jobs Act” of 2017 (“TCJA”), federal Internal Revenue Service (“IRS”) guidelines effective tax year 2017 have proven to be a challenge for estate planners. Reform introduced to “simplify” the tax reporting process for entities, the Act modifies estate income tax guidelines; imposing a new set of rules for transfers and exemptions.

Guidelines to Tax-free Transfers

Specifying rule changes affecting both estate and gift tax exemptions, as well as generation skipping transfer exemptions, the new law increases the amount to $11,180,000 from $5,490,000 per person with inflationary adjustments assigned annually. Portability election rules continue, allowing a deceased spouse’s estate and gift tax exemption to carry over to a surviving spouse for use while living. Effective January 1, 2018 through December 31, 2025, the Act now makes it possible for a married couple to transfer a total of $22,360,000 without tax on gifts or estate transfers to family, heirs, or other beneficiaries.

The U.S. Department of Labor is expected to release new guidelines that will allow small businesses to band together to purchase insurance for their workers with “association health plans” that could end up disrupting healthcare markets. The once common association health plans were attractive to scam artists that took advantage of the states’ inability to regulate these types of health care planes, leaving hundreds of thousands of patients with unpaid medical bills totaling over a quarter of a billion dollars.

Fortunately for patients, the Affordable Care Act (ACA) impose requirements on healthcare companies that effectively prevented association health plans from doing business because of the types of coverage plans needed to offer. For the most part, health insurance plans must offer coverage for the 10 essential health care benefits which include emergency services, habilitative and rehabilitative services, inpatient care, outpatient care, maternity and newborn care, mental health and addiction treatment, laboratory services, prescription drugs, and preventative services and chronic care treatment.

However, the loosening of these regulations could allow association health plans to become big enough that they may be considered “large group” insurance plans, which cover more than 50 individuals. These large group insurance plans are subject to far less state regulation and fewer ACA requirements than small-group or individual plans. In particular, large group insurance plans do not have to offer coverage for mental health services and other vital care mandated by the ACA.

If the interest of a family-owned corporation part of an estate or trust has been violated, a derivative action lawsuit can be filed on behalf of those shareholders alleged to be harmed by improper fiduciary conduct. In probate litigation matters, family-owned corporation interests can complicate execution of an estate or trust. Derivative actions filed on behalf of inheritors of the shares of a family-owned business are subject to what is called “demand futility” analysis in court. This double-bind principle can be frustrating for beneficiaries seeking timely transfer of estate or trust family-owned business shareholder assets.

Demand Futility and Exceptions

The rule of “demand futility” is enforced by a court if it is determined that the plaintiffs who have filed a claim against a party allegedly making an independent and disinterested business judgment of detriment to the other shareholders. Such lawsuits are often dismissed by the courts, however, on a motion of the defense. The reason for dismissal? “Demand futility” – where it is deemed that the corporation suing itself is not in majority interests on basis of no adequately cited exception.  

A will that establishes an estate or trust based on outdated federal or state income tax exemption guidelines can be tied up in probate for an extended period and divest heirs of millions of dollars. With President Trump’s 2017 tax reforms increased exemptions for the ultra-rich have estate and trust planners scrambling. Evidence that the “Tax Cuts and Jobs Act” of 2017 (“TCJA”) will be pivotal to maximizing the high net wealth of some estates in the next eight (8) years. The new tax law has quite literally doubled the total asset amount allowable for transfer to beneficiaries. For dynasty trusts, the enhanced estate and gift tax exemption rules are a major opportunity to transfer wealth to beneficiaries tax-free.

Federal v. State Tax Exemptions

While state tax exemptions will remain at lower levels than the $11 million per person federal rules now provide, the incentive to take advantage of federal Internal Revenue Service (“IRS”) exemptions on transfers right now is significant. New York law allows for exemption of $5.25 million from estate tax. This leaves $5.75 million left open to state taxation. Sheltering assets from taxation, then, will still be relevant for many New York estates and trusts. Spousal and generation-skipping estate and gift transfer exemptions continue, however.