Posts Tagged ‘adult children with disabilities’

Tax Tips for Those Caring for a Child with Special Needs

MARCH 17, 2014 VOLUME 21 NUMBER 11

We last wrote about income tax issues associated with providing care and support for relatives two years ago — just before tax filing time. Since we’re just a month away from tax time 2014, it’s a good time to review and update.

What’s changed since our 2012 newsletter article on income tax issues? A couple things. But first, let’s take another look at the structure of the personal exemption and medical deductions.

You, as an individual taxpayer, get to claim a personal exemption of $3,900 for 2013 (the tax year you’ll be filing for next month). That means that, in addition to other deductions and tax rate calculations, the first $3,900 of income is tax-exempt. If you are married and filing as a couple, each spouse gets a single exemption.

You get another exemption for each person you can claim as a dependent. The easy ones: your minor children who live with you. In fact, you get to claim an exemption for your children until age 19 or (if they are in school) age 24. There are also rules governing when you claim an exemption for your minor (or student) children who do not live with you, but who depend on you for at least half of their support.

What if your child is over age 24 and still living with you? If they live with you at least half of the time, and you provide at least half of their support, you may still be able to claim an adult child as a dependent. In fact, that will be available for a parent, a sibling, a stepchild or foster child, or any descendant of any of those relatives.

There are actually two completely separate sets of rules about when you can claim a child or other relative as a dependent. The two categories are confusing because of their names: “qualifying child” and “qualifying relative.” A “child” for these purposes could be a parent or other relative (why would they make the terms easy to understand?), and a qualifying “relative” can be a child. So it’s hard to figure out exactly which category your child-or-other-relative fits into, but bear with us — there are some simple rules that will cover most of the situations.

Did your child (or other relative) live with you for at least half of 2013? Did you provide at least half of his or her support? If either of those questions can be answered “yes,” then you might well be able to claim them as a dependent and get that extra personal exemption on your tax return. Is your relative permanently and totally disabled? If so, then the exemption is probably available. The central question in most cases: did you provide at least half of your relative’s support?

A couple rules are still important to understand: your dependent can not also be someone else’s dependent — even their own. If they claim a personal exemption on their own tax return, you can not claim another one. You (and they) should figure out which exemption is more valuable as part of your analysis of whether you provide half of their support.

Note that for income tax purposes all sorts of relatives can be a “child.” Illogically, even your parents can qualify under the “qualifying child” exemption. While you’re reading about the tax terms, keep in mind that they might not make plain English-language sense.

In addition to the personal exemption, there are other tax benefits available to someone who is providing support and assistance for a family member with special needs or high medical costs. If you itemize your deductions, you can claim expenses for medical costs. Once again, be careful about assuming the tax code is using plain language — all sorts of things are possibly included as medical expenses.

For instance, if a doctor tells you that you should modify your home by, say, building a therapy pool or installing air conditioning, you might be able to deduct those costs. It may be necessary to figure out how much the improvements increase the value of your home and make appropriate adjustments — though that is not always required. Improvements to enhance accessibility, for instance, do not need to have an enhanced value calculation. This area is tricky: be sure you consult with your attorney or accountant before claiming a deduction for home improvement or modification.

Another medical deduction that is often overlooked: seminars and conventions where you learn more about care of your child with special needs. Do you go to the annual meeting of advocates for your child’s particular disability? If his or her doctor writes a letter indicating that you can learn better caretaking measures there, you may be able to deduct the cost of travel, registration and incidentals incurred at the seminar (but not food and hotel costs). Check with your tax preparer for details applicable to your particular situation.

Does your child benefit from acupuncture, chiropractic treatment or recognized religious healing? The costs may be deductible. Does your child have a guide dog or other assistance animal? Those costs are deductible — including procuring, training, veterinary bills, even food. How about legal bills for your child’s guardianship or other expenses? Sorry, probably not — unless they are necessary to authorize mental health care.

Back to our beginning question: what has changed since our 2012 article? Two important things, at least:

  1. The personal exemption, $3,700 in 2011 (that was the important figure in our 2012 article), is $3,900 for 2013. It will almost certainly go up again for 2014, which will mean a new number if we repeat this information next Spring.
  2. The deduction for medical expenses required your total deductions to be more than 7.5% of your income two years ago. That figure increased for current tax returns (for 2013): you now have to have deductions for more than 10% of your income in order to itemize at all.

What other income tax advice can we offer for taxpayers who take care of a child or other family member with special needs? There are a few things to look out for:

  • Supplemental Security Income (SSI) and VA Disability payments are not treated as income at all. That simplifies tax filing (and reduces taxes) for some special needs trust beneficiaries with income from their trusts that might otherwise be taxable.
  • You may be able to claim a credit for the cost of caretakers for your spouse or dependent if the expenses are necessary to allow you to work. Look at IRS form 2441 and ask your tax preparer for more details. Note that this is not a deduction subject to the 10% threshold — this is a tax credit.
  • If you do claim your child with special needs as a dependent in 2014 (that is, on the return you file next year), you will need to be sure to have him or her covered by health insurance — although Medicare or Medicaid will satisfy this requirement if he or she is on either program.
  • Is there a special needs trust in place? It will have specific tax consequences that you need to discuss with your tax preparer and/or your attorney.

Disinheritance of Adult Child With Disabilities Leads to Lawsuit

OCTOBER 21, 2013 VOLUME 20 NUMBER 40

Suppose you have two children. Your daughter is very capable, very mature, very responsible. Your son has a developmental disability, or a drinking problem, or just problems handling money. What should you do with any inheritance you leave to your son? Put it in a trust? Make your daughter trustee?

Again and again clients tell us that they don’t want to do that. It seems like a lot of fuss, and probably the son whose inheritance goes into a trust will feel injured, like maybe his parents have said they don’t trust him, or don’t value him. Can’t you just leave everything to your daughter, and tell her to be sure to take care of her brother? Won’t that work?

No.

That’s essentially what Howard Kaufman (not his real name) decided to do. By all reports Howard was very strong-willed and domineering. He had a living trust, written in 2002, which divided most of his estate equally between his two daughters. He named his daughters as successor co-trustees.

Howard’s older daughter, Diane, was blind, diabetic and receiving Social Security Disability benefits. His younger daughter, Jackie, was a successful business woman.

In 2009, Howard decided to change his trust’s terms. He called a meeting with Jackie and his long-time girlfriend (Diane was not included); he arranged for a notary to be present. He told the three of them that he had changed his mind, and that he was going to disinherit Diane. He told Jackie that it would be her duty to see that Diane was “taken care of” with the inheritance she was to receive. Then he had the notary prepare amendments to his trust removing Diane as a beneficiary.

When Howard died, Diane was surprised to learn that she had been left out of his estate plan. Nonetheless, she turned to her sister to continue the pattern Howard had set of helping out so that she could live on her Social Security and disability insurance payments. Jackie declined to continue his pattern of gifts; she insisted that her father had left her his estate (of approximately $4 million) to “do with as I will.”

Diane ended up suing her sister. The theory of her lawsuit, though, was unusual. Rather than arguing that the trust change was invalid, or that Jackie had unduly influenced their father, she sued for a breach of contract. Her theory: Jackie had promised to take care of her, and it would take about $2 million over her lifetime to do that. She also claimed that Jackie had taken advantage of both their father (a vulnerable adult) and Diane (a dependent adult).

The jury in Diane’s case found that Jackie had broken her promise, and had taken advantage of Diane. The jury awarded actual damages of $1.4 million, plus punitive damages of $260,000 and attorneys fees of another $700,000. The jury also ruled against Diane with regard to the vulnerable adult claim — it found that Jackie had not taken advantage of their father. Jackie appealed the judgments against her.

The California Court of Appeals upheld the verdict. It ruled that Diane’s lawsuit was not a disguised trust contest, and that it was not inconsistent that they found Jackie had exploited Diane but not their father. One of the main issues: whether Diane was entitled to a jury trial on her claim. The appellate court ruled that she had, and that Jackie’s promise to take care of her sister was an enforceable contract. Kalfin v. Kalfin, October 15, 2013.

What is the lesson to be learned from Howard’s trust case and his daughter’s lawsuit? There are several, but two key ones jump out:

  1. Disinheriting your child with disabilities and relying on another child to “take care of” them is not a reliable way to handle division of your estate. It might work, but there are real risks — and the cost and family disharmony resulting from litigation is almost certainly worse than what would be involved in simply setting up a trust for te child with a disability.
  2. Do you have a child with a disability? A complicated estate? Uncommon wishes? Talk to a lawyer. A notary public is not going to be the best choice for drafting your estate plan. The cost of doing it right will be way, way less than the cost of dealing with the aftermath.

 

Divorce Case Includes Useful Pointers for Elder Law Attorneys

JANUARY 28, 2013 VOLUME 20 NUMBER 4
At Fleming & Curti, PLC, we don’t spend much time reading appellate decisions about divorce, property division and child support. That’s because we don’t practice family law, and there’s plenty to keep up with in our chosen realms of law. But a recent decision from the Arizona Court of Appeals caught our attention. Although it arises from a divorce case, it involves a number of issues we frequently deal with.

Carl Gregor filed for divorce from his wife Evelyn Gregor (not their real names) in 2005 in Phoenix. Carl had been disabled while working for the federal government, and received a monthly payment from the Federal Employees’ Compensation Act. Evelyn, a retired teacher, received a monthly state retirement check. The couple had an adult son, Aaron, who was disabled. The divorce proceeded through a trial and an appeal in 2009; the appellate court sent the matter back for further proceedings, and another set of hearings was held.

After the new trial and entry of an modified Decree of Dissolution, both Carl and Evelyn appealed. For good measure, Aaron appealed as well — he argued that his mother should have been ordered to pay support for him because he was disabled. The Court of Appeals reviewed the competing arguments and addressed three items of interest to elder law and estate planning lawyers:

Evelyn’s “buy-out” annuity was community property. In her last year of teaching, and just before the first divorce decree was entered, Evelyn’s school district had offered long-time teachers a “buy-out” arrangement. It’s purpose was to get teachers to retire early, and it amounted to a one-year annuity, at the teacher’s current salary, if Evelyn would agree to leave her post before she was required to retire. She took the deal.

But was her one-year annuity community property? If so, then Carl would be entitled to receive some portion of her payments, or some property of roughly equivalent value. If not, then she could keep those monthly payments without having to share.

The trial court determined that the buy-out arrangement was akin to a severance package, intended to compensate her for future earning. Consequently, the annuity was not divided in the divorce decree. The Court of Appeals disagreed, finding that the annuity was more like retirement benefits, albeit not from the state retirement system.

The fact that the buy-out payments were not to be made until after the divorce was immaterial, ruled the appellate court. Carl was entitled to a credit in the divorce calculations for the payments Evelyn received. The precise calculation would need to be made by the trial judge, and so the Court of Appeals returned the matter for yet another evidentiary hearing to determine how to divide the payments.

Carl’s life insurance policies were at least partly community property. Carl held two whole-life insurance policies, on his own life. He testified that he had paid $40,000 in an initial payment on the policies, using an inheritance received from his mother’s estate (and, incidentally, that he had never told Evelyn about the inheritance or the policies while they were married). But he had made monthly premium payments of about $255 on the policies while the couple was married.

The trial judge ruled that Carl had produced enough evidence about the life insurance policies to overcome the presumption that they were community property, and awarded them to Carl alone. The Court of Appeals disagreed, and remanded this issue to the trial judge for another determination of the nature of the policies. Though they might not be entirely community property, ruled the appellate judges, some portion of the value of the policies belonged to the community and an equitable division needed to be made.

Aaron was not entitled to child support. Arizona law permits a divorce court to award support for an adult child if that child was severely disabled before reaching age 18. Carl sought an award of child support for the couple’s son Aaron, who lived with Carl. The trial judge denied the claim, finding that Aaron was currently disabled, but that there was insufficient evidence that he was severely disabled before his majority.

The Court of Appeals agreed with the trial judge on this one. Arizona law is clear, even though there is room for interpretation. The disability must be “severe,” and it must exist before the child reaches majority.

The evidence of disability produced for the trial court was really just a single letter from a doctor who had treated Aaron when he was 21. That letter said that his disability started when Aaron was 16, but it did not describe the severity of the disability during that time period.

There was also evidence that Aaron had gone to college, and lived on his own for at least some time. He had not applied for Social Security payments based on his alleged disability until after he turned 18. He lived with his father at the time of the divorce trial, but the appellate court noted that he was serving as his father’s caregiver. He had a driver’s license and took his father to appointments. He even drafted the pleadings in the divorce case for his father. Based on all the evidence before the trial court, the Court of Appeals agreed that no child support should be ordered. Gersten and Gersten v. Gersten, January 24, 2013.

Why are these divorce issues important to Arizona elder law attorneys? The characterization of life insurance and other less-common assets as community property or separate property can be important in estate planning as well as planning for long-term care needs. And we see a lot of adult children with disabilities — it’s important to understand what might be required of the parents of a disabled adult child when they contemplate divorce.

Divorce Court Orders Support For Adult Child With Disability

DECEMBER 29, 2003 VOLUME 11, NUMBER 26

Laura F. is a 28-year-old autistic woman. She has always lived with her parents, and they have provided for her care. In the past decade she has worked several part-time jobs at sheltered workshops, but she has never held a full-time job, never even earned minimum wage, and never been able to work without a job coach. Now her parents are getting divorced, and questions arise about who will be responsible to support her.

Joanne F. and Eugene F., Laura’s parents, have been married for 31 years, and now live in California. They have substantial wealth and have lived an affluent lifestyle. Joanne has now filed for divorce and asked the courts to award her both child support and spousal support payments. She asked for the support payments to start immediately, and to continue while the divorce itself is resolved.

The divorce court heard testimony from both parents, from an accountant and from Laura’s psychologist. At the end of the hearing Eugene was ordered to pay $3,750 per month in support for Laura, and an additional $3,070 to Joanne as spousal support.

California’s statutes make provisions for child support awards for adult children with disabilities. The law allows an award of support if the child “is incapacitated from earning a living and without sufficient means” to provide for his or her own support.

The California Court of Appeals ruled that the law does not require someone in Laura’s position to be completely destitute and living on the streets before qualifying for a support award. The fact that she had worked for several brief periods in sheltered workshops did not show that she could support herself, and the child support award was upheld. The spousal support award was also approved, with the court noting that both assessments should be based on Eugene’s ability to earn a good living rather than just his actual employment income. Marriage of Falk, December 15, 2003.

Arizona’s law governing support of adult disabled children is similar, but not identical. It is likely that Laura F. would have been awarded at least some support if the case had been brought in Arizona.

Under our state statute the divorce court may order support payments for a mentally or physically disabled child to continue past the age of majority. The court may, as in Laura F.’s case in California, order payments to begin even if the child has already reached the age of majority. As was true in California, the Arizona courts will consider the standard of living the child would have had if the marriage was not being dissolved.


Just one day after Elder Law Issues wrote about the Laura F. case, the Maryland Court of Special Appeals released its opinion in a similar case involving court-ordered support for an adult child with disabilities. Kelly M. is 23 years old, and has been identified as “mildly mentally retarded.” According to earlier court testimony, she functions at about a 4th or 5th grade level, and she has worked part-time at the Department of Veterans Affairs, earning about $400 every two weeks.

Kelly M.’s mother (Bonnie) and father (Daniel) divorced when she was two years old, and her father was ordered to pay child support at the time of the divorce. When Kelly turned 18, Bonnie requested that the child support order be extended. Over Daniel’s objection he was ordered to pay $634 each month in support for Kelly.

A few months later Bonnie sought to increase the child support figure, arguing that she was no longer able to contribute to Kelly’s support because she had become disabled herself. Bonnie also noted that Daniel could better afford to support her–his income was then in excess of $60,000 per year.

In return, Daniel argued that the child support should be ended altogether. He pointed out that in the intervening time, Kelly had obtained full-time employment with the Department of Veteran’s Affairs, and her income had risen to $16,600 per year.

Although Kelly’s income had increased, she had lost her eligibility for Supplemental Security Income (SSI) and Medicaid coverage for her medical needs. Based on the totality of those circumstances the trial judge, ruling in 2000, determined that Daniel should still have to pay child support, but at the much lower figure of $100 per month.

Both Bonnie and Daniel appealed. Bonnie argued that the child support should have remained at the $634 figure or even increased, according to Maryland child support tables, to $681 per month. Daniel argued that he should not have to pay any child support, because Maryland law imposes an obligation of support for adult children only if they are “destitute.” Kelly’s full-time employment, argued Daniel, made it impossible to call her destitute. The result of that appeal was that Daniel was ordered to pay support at the rate calculated by the child support tables, as if Kelly was still a minor child. His support order was increased to $702 per month beginning in 2002.

Almost immediately, Daniel once again sought review of the child support award. In the third trip through the lower court process, his child support was reduced to $150 per month. This was based, according to the trial judge, on the notion that Kelly’s support should be based on what would be reasonably necessary to supplement her inadequate income, not based on the child support guidelines used by Maryland for minor children.

The Maryland Court of Special Appeals considered how to set support for adult children with disabilities for a second time in Kelly’s case. Its ruling: the child support guidelines should be the starting point for setting the amount of parental support. The case was returned to the trial court for another calculation of the amount to be awarded in support, with the clear instruction to reduce the level of support from the guideline amount only if the facts warranted deviation from that figure. The final outcome is not yet known, but it is likely that Daniel will be ordered to pay substantially more than the current $150 per month. Corby v. McCarthy, December 30, 2003.

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