The estate tax is a tax imposed on the transfer of a person’s assets at death, irregardless of whether such property is transferred by will, according to the state’s intestacy rules, through a trust, or by life insurance. A certain amount of each estate is exempted from taxation by the federal government. The exemption amount for 2012 is $$5,120,000 at a 35% tax rate for all amounts above that and in 2013 the exemption amount goes down to $1,000,000 at a 55% tax rate. There have been numerous laws passed which have made only temporary changes to the estate tax exemption amount and estate tax rate, however, Congress has failed to provide for any real permanency with regards to the estate tax.
In this election year, it is clear that both the President and Congress will drag their feet to wait until the last-minute to deal with the expiration of the 2010 Tax Relief Act. Nonetheless there are several directions that Congress could go in after this fall’s elections, which include doing nothing and allow the tax to remain at 55% on anything over $1,000,000, extend the current tax act, compromise, or repeal the estate tax all together. Most estate planning professionals will tell you that it is anyone’s guess what the boys and girls in Washington will do in the Fall Session, while the rest of the country just waits. Politics as usual!
A special needs trust or “supplemental needs trust” is a trust created for the benefit of a physically or mentally disabled individual. The purpose of such a trust is to provide an individual the ability to receive litigation settlement funds or inheritance funds without affecting their government benefits.
This type of estate planning, ensures that the recipient of a settlement award or inheritance has his or her benefit eligibility preserved and is not subject to unnecessary Medicaid payback provisions.
Example: Amber is a 39-year-old women involved in an automobile accident that left her paralyzed and with permanent brain damage. The lawsuit settlement provided that Amber was to receive $600,000.00 for damages. The settlement agreement was structured so that instead of being paid the money directly, it was put into a Special Needs Trust for Amber and allowed her to obtain Medicaid assistance.