[WSBAPT] [wanaela] Re: 3rd party special needs trust--intentionally defective grantor language

Tue Nov 6 17:56:24 PST 2018

Rhonda:
I am no expert on this, but I posed a similar question about a month ago where I was trying to create a 5 year look back for a transfer to an irrevocable trust with land that my client had inherited from her parents. It has a very low basis. When I said that she would retain a limited power of appointment to be sure that the land would have stepped up basis on her death, most of the comments I got were that DSHS might see this as "too much" control, thus making it an available asset for the Medicaid analysis. It wasn't that the commenters though that this was actually the case or that DSHS would win, but that it would leave an opening for DSHS to question the transfer after 5 years of waiting and that my client would be a "test case" because this had never been litigated. My client (and her children) declined to take the chance that she might turn out to be the "test case" so I am curious about the response you will get to your query.
Jane Bitz.

Jane G Bitz
Of Counsel
Wolff, Hislop & Crockett, PLLC
12209 E Mission, Suite 5
Spokane Valley WA 99206-4824
(509) 927-9700; FAX (509) 777-1800
jbitz at whc-attorneys.com<mailto:jane at jbitzlaw.com>
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From: wanaela at mycommunities.naela.org <wanaela at mycommunities.naela.org> On Behalf Of Ronda Larson
Sent: Tuesday, November 6, 2018 5:11 PM
To: wsbapt List serve <wsbapt at lists.wsbarppt.com>; WANAELA List serve <wanaela at mycommunities.naela.org>; Elder Law Section <elder-law-section at list.wsba.org>
Subject: [wanaela] Re: 3rd party special needs trust--intentionally defective grantor language

I need to revise my previous message. It would not be a IDGT. Rather, what I'm wondering is if anyone has put language in the SNT to allow a step up in basis at death. For example, in Rev. Rul. 2004-64, the IRS said that if the trust instrument requires the trustee to distribute to the grantor income or trust principal in an amount sufficient to satisfy the grantor's income tax liability, the trust assets would be includible in the grantor's estate at death under Internal Revenue Code § 2036(a). Putting such language in the trust seems like an easy way to obtain the basis step-up at death for a 3rd party special needs trust that has a house in it where the grantor is a Medicaid applicant and the beneficiary is his disabled child.

Would any of you agree?

________________________________
From: Ronda Larson Kramer
Sent: Tuesday, November 6, 2018 2:39:54 PM
To: wsbapt List serve; WANAELA List serve; Elder Law Section
Subject: 3rd party special needs trust--intentionally defective grantor language

Has anyone done Medicaid planning to transfer a Medicaid applicant's real estate (e.g., a rental house)  into a 3rd party special needs trust for a disabled child to live in the house (or rent it out), where you put language in the trust to get a step up in basis on the grantor's death (i.e., intentionally defective grantor trust language)? Do you see any traps for the unwary?

Ronda Larson Kramer
J.D., LL.M in Tax Laws, Owner
LARSON LAW, PLLC
Elder Law, Estate Planning
1700 Cooper Point Rd SW, Bldg A3
Olympia WA 98502
Ph: 360-259-3076
ronda at larsonlawpllc.com<mailto:ronda at larsonlawpllc.com>
www.larsonlawpllc.com<http://www.larsonlawpllc.com/>

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