FOR BREAKING NEWS VISIT WWW.QNS.COM JUNE 11, 2020 • QUEENS BUSINESS • THE QUEENS COURIER 37
queens business
Queens electeds fi ght to keep Rockaway Park
businesses open on Beach 116th Street
Elder Law Minute TM
Special Needs Trusts – Be Aware of Tax Considerations
BY RONALD A. FATOULLAH, ESQ.
AND JOSEPH BRENINGSTALL, ESQ.
Special Needs Trusts, also referred to as
Supplemental Needs Trusts (“SNTs”), are
important vehicles that may be used to
ensure that the needs of a special needs
individual are met while not jeopardizing
that individual’s eligibility for government
benefi ts such as Medicaid. Th ere
are primarily two types of SNTs that
are used to accomplish this purpose: a
fi rst-party SNT and a third-party SNT.
In a fi rst-party SNT, the assets of the
special needs individual are used to fund
the SNT. Th is type of trust can only be
created for a benefi ciary who is under the
age of 65. Th e funds in the trust must be
used solely for the benefi t of the benefi -
ciary. Th is type of SNT must also include
a payback provision, which requires the
trustee to reimburse Medicaid for any
benefi ts the special needs benefi ciary
received during his or her lifetime.
Th ere are income, gift and estate tax
consideration that must be taken in
to account when creating an SNT. For
income tax purposes, a fi rst-party SNT
will be considered a grantor trust. Th is
means that all the income from the trust
will be reported on the special needs
benefi ciary’s personal tax return. Since
fi rst-party SNT’s are funded using the
ELDER LAW
benefi ciary’s own assets, there will be no
gift tax assessed on assets that are transferred
to the trust. Assets that are held
by a fi rst-party SNT will be included in
the benefi ciary’s taxable estate at his or
her death. Th is is usually a positive thing
because it will allow the remainder benefi
ciaries of the trust to get a step-up basis
on any assets that are in the trust.
Th ird-party SNTs are funded by another
individual, usually a parent of the benefi
ciary, for the benefi t of a special needs
individual. Th ese trusts are also designed
so that the assets in the trust may be used
for the benefi t of the special needs benefi
ciary without adversely aff ecting their
ability to receive government benefi ts.
Th ere is no payback provision requirement
in third-party SNTs.
Th ird-party SNTs are slightly more
complicated when it comes to taxation.
Th ird-party SNTs can be testamentary
trusts, meaning they are created
under the grantor’s will, or they may be
inter-vivos or living trusts that are created
during the grantor’s lifetime. A testamentary
SNT will always be considered
a non-grantor trust and therefore will be
taxed as a separate entity from the grantor;
an inter-vivos SNT can be either a
grantor or non-grantor trust.
In instances in which a third-party
SNT is a non-grantor trust, the income
will be taxed to the recipient of the
income. So, any trust income that is distributed
to the special needs benefi ciary
will be taxed to the benefi ciary, and
income that remains in the trust will be
taxed to the trust. If the income in the
SNT is fully distributed to the benefi ciary,
there will oft en be a tax benefi t to the
grantor because the benefi ciary will typically
be in a lower tax bracket and income
is only taxed at the higher trust rate if
it remains in the trust. An inter-vivos
non-grantor SNT will not be included in
the grantor’s estate at his or her death, but
there may be a gift tax liability during his
or her lifetime.
A third-party SNT may also be considered
a grantor trust. Th is can be accomplished
by the trust being created as a
revocable trust or by the grantor maintaining
a life estate in a property that is
used to fund the trust. In this case, any
income generated by the trust will be
taxed to the grantor personally, and the
assets in the trust will be considered part
of the grantor’s taxable estate at his or
her death. Creating the trust as a grantor
trust will ensure that assets held by the
trust will get a step up in basis at the time
of the grantor’s death. Since the transfer
of assets to a grantor trust is not considered
a completed gift , there is no gift tax
associated with the transfer.
Th is article has given a brief overview
of the common forms of SNTs and
some of the tax implications of the various
options. As always, it is important for
an individuals who arec onsidering forming
an SNT to consult with a competent
professional to determine which type of
trust will best serve their needs.
Ronald A. Fatoullah, Esq. is the founder
of Ronald Fatoullah & Associates, a law
fi rm that concentrates in elder law, estate
planning, Medicaid planning, guardianships,
estate administration, trusts, wills,
and real estate. Joseph Breningstall, Esq.
is an elder law attorney with the fi rm.
Th e law fi rm can be reached at 718-
261-1700, 516-466-4422, or toll free at
1-877-ELDER-LAW or 1-877-ESTATES.
Mr. Fatoullah is also a partner advisor
with Advice Period, a wealth management
fi rm that provides a continuum of
fi nancial and investment advice for individuals
and businesses, and he can be
reached at 424-256-7273.
RONALD FATOULLAH
ESQ, CELA*
BY BILL PARRY
bparry@schnepsmedia.com
@QNS
Several small businesses at the north
end of the Beach 116th Street business
corridor in Rockaway Park will not
be forced to close down next month.
Assemblywoman Stacey Pheff er Amato
and state Senator Joseph Addabbo
announced they had come to an agreement
with the MTA which would
extend their occupancy until at least
the end of the year.
Aft er negotiating for nearly two years,
the MTA agreed to delay their issuance
of a request for proposal (RFP) for the
commercial spaces due to the COVID-
19 pandemic. Recently, the business
owners were sent letters stating that
they would have to vacate their premises
by June 19.
“I would like to thank the MTA for
being good partners and understanding
that during these times keeping businesses
open benefi ts the entire community,”
Pheff er Amato said. “Th ese businesses
have been a staple in this community,
and it would have been particularly
unfair to make them shut
their doors during a global health pandemic.
I’m glad that Senator Addabbo,
myself and the MTA were able to come
to a reasonable conclusion that gives
the businesses enough time to prepare
for next year’s RFP while keeping their
staff s employed and the space occupied
until the end of the year.”
Th e businesses include Last Stop
Gourmet, Joseph A. Otton Tac and
Accounting and A & J Jewelry. Beach
Cleaners and Tailors closed on its own
last year when the owners decided to
retire.
“Having the MTA allow these local
businesses remain in place, especially
during this health crisis when many
businesses are not allowed to operate, is
a positive step for the Rockaway community,”
Addabbo said. “Our local businesses
are the backbone of our communities,
and I want to thank the MTA
for this decision and for listening to
the concerns Assemblywoman Pheff er
Amato and I expressed for these storefronts.
I support the safe reopening of
these businesses and it will be great to
see them fl ourishing again soon.” Photo via Wikimedia Commons
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