Special Needs Tax Credit Act and Guardianship Expenses

Editor's Note: In June 2021, the Special Needs Tax Credit Act, now H.R. 3819, was once again introduced to the House.

After years of behind-the-scenes advocacy by a Florida couple, Congressman Ted Deutch (D-FL) recently introduced a bill in 2011 that would provide a tax credit of up to $5,000 for people who incur legal expenses while pursing a guardianship of an adult with disabilities.

Pursuing a guardianship often involves thousands of dollars in legal fees and many months of hard work. Unfortunately, many people are dissuaded from hiring counsel to assist them with a guardianship because of this cost. The benefits of working with an attorney to pursue a guardianship are clear: experienced special needs planners know the guardianship process inside and out, and will make the often overwhelming and time-consuming pursuit easier for everyone involved. Yet many people choose to proceed without representation, often to the detriment of themselves and their loved ones.

The proposed legislation provides people an added incentive to work with an attorney on a guardianship. If passed, the so-called "special needs tax credit" would give qualified individuals a tax credit (not a deduction) of up to $5,000 for their guardianship-related legal fees. (For an explanation of the difference between a credit and a deduction, see this Kiplinger article.) The amount of the credit is based on the proposed guardian's income, with an income limit of $90,000 for a single person and $165,000 for a married couple filing jointly. Single people with incomes of less than $75,000 and married couples with incomes of less than $150,000 would receive up to the entire $5,000 credit, with the available credit being reduced as incomes go up.

In a press release explaining the benefits of the proposed credit, the Special Needs Tax Credit Alliance, which was established to advocate for the legislation, explains an additional benefit of the tax credit. According to the Alliance, "[t]he Special Needs Tax Credit Bill is designed to make the guardianship process more affordable for more families. If the family can find the funds for legal expenses short-term, knowing it would be refunded, more persons who need a guardian would have one, and consequently less strain on the state court system to appoint a guardian ad litem, or emergency guardian, if none exists. Hence, a savings to the court system."