Posted by admin on March 10, 2018 · Leave a Comment
Q. My father loves three things most in life: his antique cars, his dogs, and his guns. The shooting range has been like a second home to him since mom died. It’s the place he gathers with buddies to socialize and let off steam.
Dad is now 73, and is receiving treatment for Parkinson’s disease. His memory is starting to fade, as well, and the doctor recently told us that dad has dementia. With his health concerns, we face a wrenching, emotionally charged question: When is the right time to confront him about giving up his guns?
Up until now, my brother and I have avoided broaching the topic with dad, though it’s only a matter of time until his physical and mental abilities are likely to decline further. How can you tell when the time is right to give up a gun, and what is the best way to have this conversation? Thanks!
A. Many of us already dread “the talk” with our parents or spouse, suggesting that they surrender their car keys. But now, another thorny question must be asked of some seniors — is it time to give up your guns?
Currently, as many as 40% of the country’s older population have firearms in the home, according to the Pew Research Center, and about 11% of people 65 and older have Alzheimer’s. With Alzheimer’s and other forms of dementia comes memory lapses and the kind of confusion that could result in a caregiver being mistaken for a menacing intruder. People with dementia can also become aggressive and hallucinate, lose their peripheral vision, fail to recognize loved ones, and forget the purpose of an object. While those in the early stages may handle a gun responsibly, the risk of trouble obviously grows as the disease progresses.
When Does Gun Ownership Become Too Dangerous?
Cognitive impairment due to Alzheimer’s disease and other forms of dementia and mental health disorders, such as depression, are the biggest red flags for families to look for when deciding if it is still safe for a loved one to own a gun.
In a paper published in the Journal of the American Geriatrics Society, two physicians offer a five-point checklist meant to help caregivers assess whether firearms remain safe in the hands and homes of older Americans, particularly if the gun owners are exhibiting unclear thinking, memory loss, or depression. The paper lists “5 Ls” to ask an older gun owner:
1. Is his or her gun “loaded?”
2. Is it “locked?”
3. Do “little” children visit the home?
4. Is the owner feeling “low?” and
5. Is the owner “learned” about proper use?
In addition to these considerations, keep in mind that confusion, memory issues, inability to recognize or remember who friends and family are, impaired decision-making capabilities, delusions, hallucinations and paranoia can all contribute to a terrible accident and must be taken into consideration.
Don’t Just Take the Gun Away—Start with a Conversation
Experts in public safety and geriatric care say that relatives often don’t know how to navigate these difficult conversations. Instead, in many cases, they are sneaking guns from the homes of loved ones with Alzheimer’s, covertly disabling pistols, and in many cases avoiding the topic altogether.
The best way to handle this situation should depend on your loved one’s level of cognition, physical health, reasons for ownership, and the nature of your relationship with the gun owner. The Alzheimer’s Association offers guidance on how to minimize risks associated with firearms in homes where a loved one has a cognitive impairment:
- Put a plan in place, just as you might plan to remove a driver’s license, car keys, or a checkbook.
- Include your father in the conversation. It could go something like this: “There is going to come a time when you can no longer handle the gun safely. How do you want us to handle this in a way that respects you?”
- Consider having a shooting range buddy be part of the discussion.
- Don’t simply remove bullets or disable the gun. Police officers will not be aware that the firearm is disabled, and they could injure anyone holding it.
- If the relative is too confused for a discussion, it may be time just to confiscate the gun. Do it while the owner is out of the house. Also remove holsters and other reminders of the gun. Ultimately, safety is the number one priority!
If discussing these concerns with your dad directly is not productive, it can be helpful to contact his physician or the local police department for guidance on ensuring the safety and the wellbeing of your dad and those around him. A police officer may be able to help confiscate the weapons. It may be difficult to attempt, but revoking a loved one’s concealed-carry license is also an option. The Alzheimer’s Association also has counselors available 24/7 at 1-800-272-3900.
Ultimately, no family member wants to infringe on a the independence of their loved ones, but at some point, we must take responsibility for their well-being and the well-being of those around them.
Medicaid Planning for Dementia
Have you struggled to discuss firearms with an aging relative? As you can see, these conversations can be challenging, but are very important. Another important conversation should be planning for long-term care. Persons with dementia and their families face special legal and financial needs. At the Farr Law Firm, we are dedicated to easing the financial and emotional burden on those suffering from dementia and their loved ones. We help protect the family’s hard-earned assets while maintaining your loved one’s comfort, dignity, and quality of life by ensuring eligibility for critical government benefits such as Medicaid and Veterans Aid and Attendance. Please call us whenever you are ready to make an appointment for a no-cost consultation:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797
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Posted by admin on March 10, 2018 · Leave a Comment
Dear Bebe,
When my father reached his 75th birthday, he had made quite a few concessions to age. He willingly gave up his guns and hunting, a passion he had since his childhood. He no longer mowed his own yard or cleaned his own gutters. In fact, five years ago, he sold his home to come live with me and my wife. But there is one thing Dad won’t give up, at least not without a struggle—his car keys!
Unfortunately, after driving with him recently and running over a few curbs, I could tell he is not safe on the road. How can I convince him to give up his keys?
Thanks for your help!
Don Triveny-Moore
—
Dear Don,
For most people, driving is a symbol of independence and control. This is why many older adults get offended, defensive, or angry when asked to stop driving. When it comes to your father, there are some actions you can take if you truly feel that he is unsafe on the road. First, it would be wise to look at state laws when it comes to senior driving, as they may indicate that he needs a vision test, medical tests, a road test and more to maintain his license.
State Laws Regarding Senior Drivers- Take these into account
33 States and the District of Columbia currently have special provisions for mature drivers. These include: accelerated renewal frequency; restriction of online or mailed renewals; vision test; road test; or reduced or waived renewal fees.
In Virginia, drivers who are 80 years of age or older at the time their current driver license expires are generally required to renew their license in person at a local DMV office. In addition to taking a vision test every time you renew in person, you may in certain situations be asked to take a written knowledge test as well.
Sometimes, a physical or mental condition can impair a driver’s ability to safely operate a motor vehicle. The most common of these conditions is poor vision, but others which may be age-related include cognitive skills like memory, coordination and flexibility. In some circumstances, older drivers may have a restriction placed on their driver license. The types of restrictions are based on the results of your vision test, driving test, and the driving examiner’s assessment. A restricted driver license may be issued to ensure that you are driving within your abilities.
Maryland does not place any restriction on age, after which drivers are expected to renew license at more frequent intervals. However, drivers who are 70 years of age or older at the time of applying for a license may be denied a license if they have not previously had a Maryland license, or if they cannot prove their medical competence with a report from their physician. Drivers can generally renew their license by mail or in person at a local DMV office. In addition to taking a vision test, you may in certain situations be asked to take a written knowledge test as well.
In DC, if you are 70 years or older you must renew your driver license in person at a DC DMV Service Center, bring the required documentation to the Service Center, have your physician complete the certification on the driver license application, and pass the vision test. Read more on your state’s DMV website.
Having the conversation with your father
If your father is still able to drive, according to the laws in the state where you live, but you fear it isn’t safe, it would be a good time to have a conversation with him. The conversation will be tough and you’ll probably feel like the bad guy at first, but rest assured that you’re doing the right thing. Convincing a senior who should no longer be on the road to stop driving is for their own safety as well as everyone else’s safety. These are some tips for having a successful conversation with your father about cessation of driving:
· Discuss reasons: The first thing to do is make a list of reasons why your father is no longer a safe driver. The signs of unsafe driving that you saw when you were driving with him can become part of the conversation and will help you explain why you’re concerned about his safety.
· Talk about other transportation options: A list of realistic transportation options will assure your father that he’ll still be able to do his normal activities.
Here are some ideas:
- Arrange a ride schedule with family and friends
- Use on-demand ride services such as Uber and Lyft
- Take taxis
- Take public transportation
- Get rides from volunteer drivers from senior centers or religious and community service organizations
- Take advantage of free or low-cost ride programs for seniors
· Approach the Subject Respectfully: When you have the conversation about giving up the keys, the most important thing is to be respectful and acknowledge that this is difficult for your father. Emphasize that you’re not accusing him of being a bad driver. Instead, focus on his health conditions or other aging-related issues that make his driving unsafe.
· Give him time to accept the changes: Because it’s such a big adjustment, it may take more than one conversation before your father is ready to give up the car keys.
Hope this is helpful and that everything goes smoothly!
Bebe
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Posted by admin on March 8, 2018 · Leave a Comment
Joan is tired all the time. It could be because she’s a night owl who reads books and doesn’t like putting them down, or because she watches reruns of the Golden Girls and Frasier late at night. Joan’s daughter began noticing texts and Facebook posts from Joan at 2am. When confronted, Joan didn’t see where there was a problem. In her opinion, she was retired, and could stay up as long as she wanted. Joan’s daughter thought it was a big problem, however. She knows that lack of sleep can have a negative impact on many aspects of your health, and even make Alzheimer’s appear earlier.
Next week beginning on March 11, the National Sleep Foundation sponsors its annual National Sleep Awareness Week. This year’s theme “Begin with Sleep” highlights the importance of good sleep health for individuals to best achieve their personal, family, and professional goals. According to the National Sleep Foundation, studies on the sleep habits of older Americans show an increase in the time it takes to fall asleep (sleep latency), an overall decline in REM sleep, and an increase in sleep fragmentation (waking up during the night) with age. All these things could be having a negative impact on their health.
Researchers are learning more and more about the mysteries of sleep, and have shared intriguing new findings about sleep and healthy aging:
1. Good health and good sleep are connected.
Poor health can keep older adults from getting a good night’s sleep. For instance, painful conditions such as arthritis and osteoporosis, or wakefulness due to anxiety and depression can be what’s keeping us awake. At the same time, poor sleep hastens the progression of chronic health problems, such as heart disease, musculoskeletal disorders, memory loss, Parkinson’s disease, hypertension, diabetes, and even Alzheimer’s. Therefore, while working with your doctor to manage chronic health conditions, be sure to seek treatment for sleep problems, as well. Once diagnosed, insomnia, sleep apnea and other sleep disorders can be treated with lifestyle changes, improved sleep habits, medical devices and in some cases, sleep medications or natural remedies, as described later in this article.
2 Get the sleep you need to live longer!
It’s important to get the amount of sleep that our bodies and minds need to flourish and to thrive. A recent study from the University of Warwick in England found that people who sleep for less than six hours each night are 12% more likely to die prematurely. Sleepiness during the day is the best sign that a person isn’t getting enough sleep and that the problem should be evaluated by a physician.
3. Want to maintain a healthy weight? Get a full night’s sleep
We burn fewer calories while we are asleep, so it would make sense that sleeping less would help us lose weight, right? Although it sounds logical, it’s actually the opposite. Researchers from Uppsala University in Sweden showed that even a single night of sleep loss can both increase the appetite and decrease the amount of energy we use the next day. That combination, over time, can lead to steady weight gain.
4. Do you bring your smart phone or laptop to bed? Bad idea.
Each year during National Sleep Awareness Week, the National Sleep Foundation releases the results of a poll on some aspect of sleep. Last year’s topic was the effect of communications technologies, such as smart phones, on sleep. The Foundation discovered that almost 95% of the 1,508 people polled reported using a computer, watching TV, playing a video game or using their cell phone at least a few nights before going to bed. The researchers say that the light-emitting screens cause artificial light exposure, which ultimately makes it more difficult to go to sleep. Be sure to allow enough time to wind down and relax in a dimly lit area before going to bed. And be sure not to have anything with a blue light in your bedroom or bathroom at night. Blue light has been shown to interfere with sleep. If you need a night light, it should ideally be a red nightlight, as red interferes the least with sleep.
5. New understanding of the relationship between sleep and Alzheimer’s disease
Sleep is necessary for the formation of long-term memories. While we are asleep, our brains are busy creating and consolidating the memories of the day. Neurologists now know that poor sleep also raises the risk of dementia. Washington University in St. Louis researchers discovered that sleep deprivation makes the brain plaques of Alzheimer’s disease appear earlier and more often. This study suggests that treating insomnia and other sleep disorders could delay the onset of Alzheimer’s.
Some researchers also now believe that sleep disorders may even be an early symptom of Alzheimer’s. But, in some cases sleep disorders could lead to a misdiagnosis of dementia. Symptoms such as confusion, disorientation, and the inability to focus that would suggest cognitive impairment may disappear when the patient gets enough good quality sleep. This is yet another reason to bring up sleep problems with your healthcare provider!
Need Help Catching Some ZZZZZ’s?
Having trouble sleeping? In many cases, this can be corrected by improving your sleep hygiene. This includes:
· limiting daytime napping to 30 minutes or less;
· exercising for at least 10 minutes per day;
· avoiding caffeine and other stimulants after 2 pm; and
· avoiding eating anything several hours before bedtime, so your body has a chance to digest all of your food before you hit the sack.
For those who still can’t sleep after taking such measures, research shows that 1 in 25 adults take prescription sleep medicine. But plenty of people use natural solutions, too. There are some drug-free remedies that have been well studied by scientists, as follows:
1. Melatonin Supplements: When we’re exposed to TVs, computers, and phones with backlit displays as mentioned earlier, that tricks the brain into thinking it’s light out and it doesn’t make as much melatonin as it should. Melatonin supplements help get melatonin production back on track, and may be what is needed to help you get a good night sleep.
2. Valerian root: If melatonin doesn’t work or if you don’t want to take it, valerian root might do the job. While the overall evidence remains mixed, the safety of valerian is well-established.
3. Lavender can improve sleep quality, due to it’s relaxing effects on the body. In recent studies, lavender oil also was shown to help with significant decreases in blood pressure, heart rate, and skin temperature.
4. Hops: Hops are used to flavor beverages, such as beer, and as an herbal medicine. Hops have been shown to improve sleep. A study found that university students who drank nonalcoholic beer that contained hops enhanced their quality of sleep. Hops have also been shown to lower cholesterol; relieve irritability; aid in digestive issues; and have antibacterial properties. They are not recommended for those with depression or other hormone-sensitive disorders.
5. Passion Flower is a plant containing chemicals that produce a calming effect. It brings about feelings of relaxation and sleepiness, and is sometimes combined with other plants in an herbal blend. A recent study showed that passion flower alleviated sleep disorders when taken for four weeks. Participants in the study also experienced reduced anxiety levels.
Hope some of the information in this article helps you get a better night’s rest, and that the article itself didn’t put you to sleep :). Remember, as you are finding ways to improve your sleep, one of the greatest ways to rest easy is the peace of mind that comes with planning for your future and for your loved ones. If you haven’t yet done your living trust estate planning, if you don’t have a comprehensive power of attorney with asset protection powers, or if a loved one is nearing the need for nursing home care, please call us at one of the numbers below to make an appointment for an initial no-cost consultation, or to sign up for one of our upcoming seminars:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797
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Posted by admin on March 3, 2018 · Leave a Comment
Tired of candidates discussing issues that are not really important to our day-to-day lives?
What could be more important than making sure there is enough housing for everyone across income levels? Yet the issue of housing affordability has rarely been a key issue in electoral politics in Virginia and elsewhere in the nation. With the exception of the housing and foreclosure crisis of the 2009 – 2012 period, housing doesn’t often find its way above the fold on the front page of most newspapers. VPLC along with several partners is working to change that.
The Campaign for Housing and Civic Engagement (CHACE) seeks to make housing choice and availability a more prominent issue in the statewide races in Virginia this Fall as well as for the House of Delegates where all 100 seats are on the ballot. The efforts of the group will be particularly focused on candidate engagement and education. The campaign will be highlighting a wide range of housing issues including affordable rental housing, homelessness, housing for persons with disabilities, inclusionary zoning, housing rehabilitation, accessibility and homeownership.
CHACE also plans to conduct public opinion polling this summer to assess public awareness of housing issues and the level of support for various initiatives. This polling information will be provided to candidates as part of the effort to educate about the importance of housing choices at varying income levels, to community health and vitality as well as the level of public support for policies that help to ensure that all Virginians have access to good housing at an affordable cost. Public opinion polling will also assess support for residential energy efficiency strategies that can make housing more affordable by lowering the utility bill. CHACE will also engage in voter registration efforts within communities across the state. CHACE is non-partisan and will not be endorsing or supporting any candidates. Rather, the goal of the campaign is to make housing one of the issues that all candidates are talking about this Fall.
To learn more about CHACE, go to https://chaceva.org/
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Posted by admin on March 1, 2018 · Leave a Comment
Jane and Ron are both veterans in their 70’s who live at home, and unfortunately, both are experiencing serious health issues. In addition to their health problems, Jane and Ron are struggling financially and contemplating bankruptcy. To complicate things even further, both of their children live more than six hours away.
Jane and Ron are spending more than $2,500 per month on household expenses, past medical debt, and in-home caregivers, which exceeds their monthly income. To make ends meet, and to get the help they need, something has to change. Unfortunately, Jane and Ron don’t know what options are available for them. And, there are likely more than they think!
Many Veterans Don’t Know About Benefits Available to Them
Currently, there are more than 20 million veterans living in the United States. Many of our nation’s veterans are seniors who are living with illnesses or disabilities that make it difficult to live independently. For these individuals, veteran home care assistance and support can be invaluable, but what options are available?
The Department of Veteran’s Affairs (VA) covers a range of medical and non-medical home services, including veteran home care across four different service levels. Here’s an overview of what these services are, how they work, and who is eligible for each service:
- Skilled Home Health Care Services (SHHC): For veterans who live at a distance from their nearest VA hospital, the SHHC program connects veterans with skilled, locally-based caregivers in the veteran’s community. These caregivers are contracted to provide care by the VA hospital. Depending on the veteran’s care needs, services may be medical or non-medical in nature. Service hours are quite limited, and are typically only sufficient for veterans who just need a small amount of assistance.
- Homemaker and Home Health Aide Services (H/HHA): For veterans who live within the service area of the local VA hospital, the H/HHA program is VA’s Direct Care program. Through this program, a homeowner or home health aide visits the veteran in the comfort of his or her home to provide regular in-home assistance. This can help delay the need for assisted living or nursing home care or can offer respite for family caregivers. Service hours are quite limited, and are typically only sufficient for veterans who just need a small amount of assistance.
- Family Caregiver Program: Under the family caregiver program, persons who provide care for a veteran family member after a medical discharge are eligible for a small stipend and a range of support services. This service is specifically for family caregivers caring for post-9/11 veterans.
- Home Telehealth: Home Telehealth is an alternative to in-person veteran home care. Under this program, special equipment is installed in the veteran’s home to track and report on his or her health status. This information is then sent to a care coordinator, who can respond in case of a health event.
Other Sources of Veteran Home Care
As you can see, VA-supported veteran home care provides several options, but unfortunately it cannot meet the care needs of all veterans. If you or a loved one are ineligible for your desired care program, or if you require more frequent care than these programs provide, there are other options.
Veteran’s Aid and Attendance for Those Who Qualify
For those who need assistance with activities of daily living (ADLs), such as bathing or showering, dressing, eating, toileting, and transferring, Veteran’s Aid and Attendance will help pay for such assistance, for those who are eligible.
The Aid and Attendance benefit helps veterans to offset the high cost of in-home care and assisted living, and access care that they otherwise might not have been able to obtain. If eligible, Aid & Attendance will also pay a tax-free monthly benefit for care expenses that can be used to pay for a home health care provider or assisted living facility. Learn more about Veteran’s Aid and Attendance here.
Are you a Veteran in Need of Assistance?
Here at the Farr Law Firm, we work with veterans and their spouses to evaluate whether they qualify for the Veterans Aid and Attendance Benefit and/or Medicaid, and we deal with all the paperwork. As an Accredited Attorney with the U.S. Dept. of Veterans Affairs and Certified Elder Law Attorney, Evan Farr understands both the Veterans Aid and Attendance Benefit and the Medicaid program and the interaction between both benefit programs. Please make an appointment with us to discuss and apply for Veteran’s Aid and Attendance and/or Medicaid Asset Protection:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797
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Posted by admin on March 1, 2018 · Leave a Comment
This article was written by Special Needs Alliance member Tara Pleat. Tara is a founding partner of the law firm of Wilcenski & Pleat PLLC in Clifton Park, New York. She practices in the areas of Special Needs Planning, Elder Law, and Trust and Estate Planning and Administration. Tara writes and lectures frequently on issues affecting individuals with disabilities and their families.
Filing a Tax Return for a Special Needs Trust: What a Trustee Needs to Know at Tax Time
The primary focus of this article is to introduce the tax form that typically must be filed for Special Needs Trusts (SNTs) which generate income.
Does the trustee of a SNT have to file an income tax return?
First-Party SNTs
First-party SNTs are funded with the assets of an individual with a disability who is typically receiving means-tested government benefits such as Supplemental Security Income (SSI) or Medicaid. A first-party SNT is generally classified as a “grantor trust.” This tax classification means that all of the items of income, deduction and credit generated by the SNT should be reflected on the personal income tax return of the beneficiary with the disability. In first-party SNTs, the grantor for tax purposes is actually the beneficiary because the law requires the SNT to be funded with the beneficiary’s own assets, even though the SNT may be established by a parent, grandparent, legal guardian or a court (or, after December 13, 2016, the beneficiary himself).
Practice varies regarding how to report income generated by a first-party SNT. Some trustees obtain a separate taxpayer identification number (TIN) for the first-party SNT when it is established. As a result, when financial institutions report how much income the SNT has earned, a Form 1099 will be issued to the trustee reflecting the SNT’s separate TIN.
The question then becomes: how does this income, which is reported to the IRS under the SNT’s separate TIN, make its way onto the personal income tax return of the SNT beneficiary? The answer is that the trustee of the first-party SNT files an informational Form 1041 with a “Grantor Trust Information Letter” attached. The mechanics of this informational filing are described in detail below.
Alternatively, in situations where the trustee of a first-party SNT does not obtain a separate TIN for the SNT, the beneficiary’s social security number (SSN) is reflected as the TIN for the SNT. Since the beneficiary’s SSN is reflected on the Form 1099s issued by the financial institutions reporting the income generated by the SNT, a separate informational Form 1041 is generally not filed.
Third-Party SNTs
Third-party SNTs are generally considered either “complex trusts” or “qualified disability trusts” for income tax purposes. The SNT itself is responsible for reporting its own items of income, deduction and credit. This filing is also made on Form 1041 but, as described below, there is significantly more that goes into completing an income tax return for a complex trust or qualified disability trust, than for a grantor trust.
What is a Form 1041?
Form 1041 is the U.S. Income Tax Return for Estates and Trusts. Similar to a Form 1040 on which individuals report their income annually to the federal government, Form 1041 is used by most trustees and other fiduciaries (i.e. executors, personal representatives and administrators of estates) to report income to the federal government.
In states where trusts are also subject to a separate state income tax, there is typically a state form on which estate and trust income needs to be reported. These forms differ from state to state, so if a trustee is unsure about whether a separate state return needs to be filed, and which form is to be used, the trustee should be sure to consult with an attorney or accountant who is familiar with fiduciary income taxation.
When must a Form 1041 be filed?
In the case of a first-party SNT which is a grantor trust for tax purposes and where a separate TIN is obtained for the SNT, the general rule is that if there is at least $1.00 of income, an informational return must be filed in order to provide the IRS with information about the taxpayer to whom that income should be taxed.
In the case of all other SNTs, a Form 1041 generally must be filed if any one of the following three circumstances exists: (1) the SNT had any taxable income for the tax year; (2) the SNT had gross income of $600 or more (regardless of taxable income) for the tax year; or (3) the SNT has a beneficiary who is a non-resident alien.
Since SNTs, regardless of type, must file on a calendar year basis, the Form 1041 return is due at the same time personal income tax returns are due, i.e. April 15th of the year following the year for which the income is being reported. It is possible to request an extension of time to file a Form 1041, but unlike the 6-month extension granted to individuals, only 5-month extensions are granted to SNTs.
How does the Trustee of a SNT complete Form 1041?
Every year, the Internal Revenue Service updates the Form 1041 (as it does for the Form 1040) and issues instructions. The instructions are very detailed and are helpful in navigating the completion of the Form 1041. These forms and instructions are found at www.irs.gov.
First-Party SNTs
As discussed above, even if the trustee of the first-party SNT has obtained a separate TIN for the SNT, this type of SNT is likely classified as a “grantor trust” for income tax purposes. In this circumstance, the Form 1041 is very simple to complete.
The trustee will check the box on Form 1041 indicating that the SNT is a grantor trust and provide some general information about the SNT, including the name and address of the trustee, the TIN of the SNT, and the date the SNT was established. No income is actually reported on this type of return. Typically, a statement will be added after the first page of the return indicating that the SNT is a grantor trust and that the income is taxable to the grantor beneficiary under sections 671-678 of the Internal Revenue Code.
The actual income reporting is completed on an attachment to the Form 1041 that is often referred to as a “Grantor Trust Information Letter.” The attachment must reflect the following: (1) the name, SSN and address of the person to whom the income is taxable (generally the beneficiary with a disability in the context of a first-party SNT); (2) a detailed description of the taxable income; and (3) a detailed description of any applicable deductions or credits. Each of these items is then reflected on the personal income tax return of the grantor beneficiary.
Third-Party SNTs
Under some circumstances, third-party SNTs are characterized as grantor trusts. This occurs when the person creating and funding the SNT reserves certain rights, powers and authorities that trigger grantor trust status. If a third-party SNT is considered a grantor trust, all items of income, deduction and credit are generally taxed to the individual(s) who created and funded the SNT (typically parents or other relatives of the beneficiary with a disability). Whether the grantor for income tax purposes is the beneficiary with a disability (in the case of a first-party SNT), or a relative of the beneficiary (in the case of a third-party SNT), the reporting method described above is the same.
For a third-party SNT which is a non-grantor trust and has a filing requirement, Form 1041 must be thoroughly completed. The trustee will first need to determine the tax classification of the SNT. Typically, this will be either a “complex trust” or a “qualified disability trust.” SNTs classified as qualified disability trusts receive an exemption equivalent to an individual’s personal exemption ($4,050 in 2017), whereas SNTs classified as complex trusts only receive a $100 exemption.
All items of income, deduction and credit are reported on Form 1041. Given the complexity of Form 1041 and the rules that relate to the reporting of SNT income in general, it is strongly recommended that trustees consult a tax preparer or attorney who specializes in fiduciary income taxation and SNTs.
What is a Schedule K-1 and when is it issued?
A Schedule K-1 is a tax form issued by a non-grantor SNT to a beneficiary when the trustee of the SNT makes distributions for the benefit of that beneficiary which “carry out” the income generated by the SNT. By way of a simple example, suppose that a non-grantor SNT had $5,000 of interest income in 2016 and made $6,000 worth of distributions for the benefit of the beneficiary. For income tax purposes, the SNT is deemed to have distributed all of the SNT income to the beneficiary for tax reporting purposes. As a result, when the SNT’s income tax return is prepared for 2016, a Schedule K-1 will be issued to the beneficiary advising him that all $5,000 of the SNT’s interest income must be reported on his personal income tax return. In that case, since $5,000 was all of the income earned by the SNT, the SNT itself will not report any taxable income. Rather, the Schedule K-1 will show that all of the SNT’s income has been “carried out” to the beneficiary.
If the same SNT only made $3,000 worth of distributions for the benefit of the beneficiary, the SNT would still issue a Schedule K-1 to the beneficiary showing that only $3,000 of interest income should be reported on the beneficiary’s personal income tax return. However, $2,000 of interest income would remain taxable to the SNT.
When income tax is due on income generated by a SNT, who is responsible for paying the tax?
If the SNT’s income must be reported by the beneficiary on his own personal return, the SNT document should allow the SNT to pay the beneficiary’s income tax liability from the assets in the SNT. While the actual responsibility for paying the income tax belongs to the beneficiary (i.e. the person by whom the income is reportable), SNT beneficiaries typically do not have their own separate assets to pay their income tax liability. When the SNT income is reportable by the SNT and taxed at the SNT level, the trustee is responsible for paying any income tax liability out of the SNT assets.
Should a Trustee hire an accountant or an attorney to assist with filing Form 1041?
Unless the trustee specializes in the income taxation of SNTs, it is prudent for the trustee to consult with or hire a tax preparer or attorney who specializes in fiduciary income taxation, regardless of whether the SNT is a grantor trust, complex trust, or qualified disability trust. Consulting with or hiring one of these professionals should help ensure that all SNT income is reported properly and that no available deductions are lost or overlooked.
While there are similarities between personal and fiduciary income tax returns, the forms and the available deductions differ significantly. Since the filing of annual fiduciary income tax returns will likely be required for the duration of the SNT term, it is critical that returns are prepared and filed correctly from the inception of the SNT until its termination. A firm with significant experience in preparing fiduciary income tax returns can typically prepare them in a cost-efficient manner.
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Reprinted with permission of the Special Needs Alliance – www.specialneedsalliance.org.
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