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Special Needs Planning

Share Your Estate Plan Now to Protect Your Family When You Are Gone

If one child will receive more than his siblings, even though his need is obviously greater, will that shared info create fighting between the children? And should children even have advance knowledge that they are going to receive an inheritance? These are some of the questions examined in the article “Disclosing estate plans in advance can save strife later” from The Indiana Lawyer. In most situations, advance discussions between family members are better to ensure family harmony.

Many estate planning attorneys have the “fair does not always mean equal” discussion with their clients. For some families, there is one child who is in dire need, while the others have prospered and don’t really need help. Maybe one child has special needs, or just hasn’t been as successful in life. In other cases, one child has already received substantial property from the parents, so no portion of the estate will be left to them. Regardless of the circumstances, which vary widely, having a frank discussion with all of the children is better than a series of surprises.

Research from the Federal Reserve Board shows that more than half of any given inheritance equals $50,000 or less, and more than 80% of all inheritances are less than $250,000.

With only half of what most people inherit being generally used to invest or pay down debt, most of these inheritances are spent, invested, or donated.

Regardless of the size of the inheritance, most parents expect that the beneficiaries of their estate will protect and preserve their legacy and use the money wisely. That is not always the case. If the parents want heirs to be careful with inheritances, they need to have a plan that will prepare heirs to act as stewards of their inheritances. The plan may be as simple as a series of conversations about saving and investing, or making charitable donations. It might also be complex, like meeting with the parent’s financial advisor and estate planning attorney and discussing wealth transfer and the potential to grow the wealth for another generation.

Families with larger estates often involve their children in annual gifting to get them used to the experience of receiving significant assets and learning how to manage these gifts. This has the added impact of allowing the parents to see how their children will respond to windfalls, which may guide how they distribute wealth in their estate plan. If one child is a repeat spendthrift, for instance, a trust may be a better way to pass the wealth to the child, with a trustee who can determine when they receive assets.

Families who have worked hard to leave their children with an inheritance, regardless of the size, should prepare their children by teaching them, through the parent’s actions, how their values impact their wealth, and how to manage it for themselves and future generations.

Reference: The Indiana Lawyer (October 16, 2019) “Disclosing estate plans in advance can save strife later”

Do You Want to Decide or Do You Want the State to Decide?

A will allows you to direct your assets to the people you want to receive them, rather than the alternative, which is relying on the laws of your state to direct who receives your assets, says the article “Will you plan now or pay later?” from the Chron.com.

A will is also the document used to name an independent executor with successors, in the unlikely chance that the first executor fails, refuses or becomes unable to serve.  A trust is a document that can be used to avoid the probate process, privatize your life and simplify the management of your estate is you become incapacitated, among other things.   Your estate planning attorney can discuss the importance of trusts, such as a revocable family trusts or other special trusts that provide for family members who are disabled, trusts for minors or special needs family members or trusts for tax planning or asset protection.

There are many big considerations that you may not have even considered that would require you to have an estate plan created in recent years to be reviewed or revised. Years ago, the federal tax exemption, which allows a person to leave a certain amount of money to beneficiaries, was much smaller than it is now.

This was a “use it or lose it” exemption. Here’s an example of how things have changed. In 1987, when the exemption was $600,000 per taxpayer, a couple would use a by-pass trust to shelter the first $600,000 upon the first to die to take advantage of the exemption. In 2020, the exemption is $11.58 million. The “use it or lose it” law is different. Therefore, if your will still has a by-pass trust for this reason, it may be best to discuss it with your estate planning attorney. It is likely that you don’t need it anymore.

You also want a will to have some control over what happens to your assets when you die. Let’s say Betty and Bob have three children. Bob dies, leaving his assets to Betty, then Betty dies and leaves all of her assets to her three children. One of the children, Bea, dies shortly after Betty dies. Bea’s will leaves all of her assets to her husband Bruce.

Bruce remarries. When Bruce dies, the share of the family’s assets that Bruce inherited from his wife Bea may be left to Bruce’s second wife or the couple may spend them all during their marriage. If Bruce divorces his second wife, she may win those assets in a divorce settlement. Would Betty and Bob have wanted their assets to go to their grandchildren, instead of their son-in-law’s second wife and children?

An properly drafted estate plan can be created to protect those assets, so they remain within the family, going to grandchildren or to the children of Betty and Bob.

While most people think of an estate plan as a plan for death, it’s also a plan for illness and incapacity. A perfectly healthy person is injured in a car accident or suffers a stroke. Without having documents like a power of attorney, power of attorney for health care, living will and medical privacy documents, the family will spend a great deal of time and money trying to establish legal control over the estate.

Speak with an estate planning attorney today to update your current will or create a will and the necessary documents to protect yourself and your family.

Reference: Chron.com (January 16, 2020) “Will you plan now or pay later?”

What is a Special Needs Trust?

Supplemental Security Income and Medicaid are critical sources of support for those with disabilities, both in benefits and services.

To be eligible, a disabled person must satisfy restrictive income and resource limitations.

That’s why many families ask elder law and estate planning attorneys about the two types of special needs trusts.

Moberly Monitor’s recent article, “Things to know, things to do when considering a special needs trust,” explains that with planning and opening a special needs trust, family members can hold assets for the benefit of a family member, without risking critical benefits and services.

If properly thought out, families can continue to support their loved one with a disability long after they’ve passed away.

After meeting the needs of their disabled family member, the resources are kept for further distribution within the family. Distributions from a special needs trust can be made to help with living and health care needs.

To establish a special needs trust, meet with an attorney with experience in this area of law. They work with clients to set up individualized special needs trusts frequently.

Pooled trust organizations can provide another option, especially in serving lower to more moderate-income families, where assets may be less and yet still affect eligibility for vital governmental benefits and services.

Talk to an elder law attorney to discuss what public benefits are being received, how a special needs trust works and other tax and financial considerations. With your attorney’s counsel, you can make the best decision on whether a special needs trust is needed or if another option is better, based on your family’s circumstances.

Reference: Moberly Monitor (October 27, 2019) “Things to know, things to do when considering a special needs trust”

Disinheriting Loved Ones is A Common Mistake

It happens way more often than you’d ever expect. The account owner dies, the assets go directly to the beneficiaries on the account, and the heirs learn for the first time that whatever is in the will doesn’t override the beneficiary designation. They can argue and even go to court, but it won’t do them much good, says the recent article “Don’t accidentally leave your estate to the wrong person” from The News-Enterprise.

One of many examples, is the widower who remarries after his first wife passes away. He neglects to change his IRA beneficiary form, so when he dies, his second wife does not receive any funds. The case of what happens to the funds has to go to court, because the assets obviously cannot go to his deceased first wife.

Many different kinds of accounts now have beneficiary designations. They include:

  • S. Savings Bonds
  • Bank Accounts
  • Certificates of Deposits
  • Investment Accounts
  • Life Insurance
  • Annuities
  • Retirement Accounts

Some of these accounts can be titled “Payable on Death” or “Transferable on Death,” so that they can more easily be distributed to heirs without going through probate.

If you’ve changed jobs, remember that beneficiary designations do not transfer over, when you roll your 401(k) over to a new plan or IRA.

Here’s another thing most people don’t know about beneficiary designations: they don’t have to be individuals. Beneficiaries can be trusts, charities, organizations, your estate, or, no one at all (although that’s not recommended). Be careful, though, if you are thinking about being creative, like saying “All of my living grandchildren.” What if someone who your family has never met, comes forward and claims to be a grandchild? It’s best to discuss this with an estate planning lawyer.

There are situations where you don’t want to name someone as a beneficiary. You don’t want to leave assets outright to minors, since they cannot inherit property. A court-appointed guardian would have to be named to care for the assets, until the child reaches age 18. Then the 18 year old inherits everything at once and goes on a wild spending spree, and the money is gone. A better approach is to set up a trust, so the trust is the beneficiary of the assets and the trust pays money to heirs over an extended period of time.

Caution must be taken, when considering Special Needs Individuals. If they are receiving government benefits, an inheritance could cause them to lose all benefits. Instead, speak with your estate planning attorney about the use of a Special Needs Trust or Supplemental Needs Trust.

Updating the beneficiary form is simple. Contact the financial company that holds the accounts, ask for a copy of your current beneficiary form, and a blank copy so that you can make changes, if needed. Keep a copy of all current beneficiary forms. You should also speak with your estate planning attorney to make sure that your estate plan and your beneficiary designations work together.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

Do It Yourself Estate Planning Leads to Bad Outcomes

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing after the fact has increased, as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling.

A few clumsy mouse clicks can derail an estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis.

Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error, but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule, and the stock would receive a stepped-up basis at death, leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently, and he’s incapacitated. He planned ahead though, or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance.

Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form, and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not likely to appoint the website as her executor. Her heirs are stuck, unless she corrects this, hoping the court will understand. Hope is a terrible estate plan.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors, providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism, and receives government benefits. There are no special needs provisions in her will, so her son is at risk of losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills, when the estate tax exclusion was $2 million. They created a credit shelter, or bypass, trust to reduce their estate taxes, by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

What Should I Know About a Special Needs Trust?

One of the worse things that can happen to a disabled person is for them to receive an inheritance.  Your disabled family member may be eligible for a number of government programs and benefits, and an inheritance could cause them to become ineligible.  So the question people often ask is the same question a recent article in the Pauls Valley Democrat asked –  “Can your family benefit from a special needs trust?”

The article reminds us that these programs often don’t cover everything. You may need to close the gaps.  A few government programs have eligibility restrictions, based on the level of financial assets that are available to the recipient — which means receipt of an inheritance may do more harm than good – unless you establish a special needs trust.

Under the terms of a properly drafted Special Needs Trust (also called a Supplemental Needs Trust), as the donor, you supply the funds. A trustee then holds and administers them, according to your instructions. The beneficiary typically can’t use the trust for basic support or to receive benefits that can be provided by the government. The special needs trust can be used to provide specialized therapy, special equipment, recreational outings and other expenses.

When considering a special needs trust, you’ll need to look at several issues with your attorney.  However, there are two that are critical. The first is designating a trustee. You could name a family member or close friend as a trustee. While this works well for many, it has the potential to cause family conflicts. You could also name a trust company. This company can provide professional management, expertise and continuity of administration. A third option is to name an individual and a trust company as trustees.

The second critical issue with a special needs trust is funding the trust. You can fund the trust during your lifetime or have it activated when you die.

Note that you don’t have to be the sole donor. A special needs trust can be created so other family members can also contribute to it. The trust can be funded with securities (stocks and bonds), IRA proceeds, insurance death benefits and other assets.

You’ll need to understand the requirements of various federal, state and local benefit programs for people with disabilities, so that your loved one’s benefits are not at risk.

Speak with an experienced elder law or estate planning attorney about how you can to make life better for a disabled child or family member with a special needs trust.

Reference: Pauls Valley (OK) Democrat (August 1, 2019) “Can your family benefit from a special needs trust?”

What Parents Of Children With Disabilities Should Know

What Parents Of Children With Disabilities Should Know

Some major things to know when estate planning with a disabled child…

Do you have a will or living trust? Have you selected a guardian for your minor children? For most Americans the answer to these important questions is “no.” Yet, of all of the reasons why you should have an appropriate estate plan, none is more persuasive than the benefit to your children. Without a proper estate plan, your minor children face an uncertain future. Would their inheritance be prudently managed? Who would the court appoint as their guardian? A proper estate plan can answer these and many other questions. However, if your child is disabled, then it is even more critical that you have a proper estate plan.

While it is a good idea for everyone to have a proper estate plan, there are some major life events which make estate planning even more urgent. These major life events include getting married, the birth of children, moving to another state, getting divorced, and the sale or acquisition of significant property. Of course, the disability of a child is also such a major life event. In general, it is a good idea to have an attorney review your estate plan about once every five years, and more often if you have experienced one of these major life events.

As you consider your estate planning options, it is important that you understand the benefits and programs that your disabled child might be eligible to receive. For example, Supplemental Security Income (SSI) is available to disabled children whose parents have limited income and resources. In most states, eligibility for Medicaid is automatic upon eligibility for SSI. Despite the restrictions placed on the amount of allowable income and resources, many families of modest means may find that their disabled children are eligible for SSI or Medicaid.

Even some disabled children in more affluent families might be eligible for SSI or Medicaid. For instance, while SSI counts step-parent income, Medicaid does not count the income of a step-parent. Thus, a disabled child could be eligible for Medicaid benefits despite a large family income. A disabled child in a high income family could also be eligible for SSI and Medicaid were the child to be in long-term hospitalization. For instance, a premature infant requiring several months of hospitalization might be eligible for SSI and Medicaid. Prematurity is a major cause of blindness and many premature infants could be eligible for SSI and Medicaid.

SSI also does not count some resources used to earn the family income. Farm equipment, for example, might not be counted making some farm families eligible for SSI. Even if your income is currently too high to be eligible for SSI, you should keep in mind the fact that your earnings will cease upon your death at which point your disabled child might then be eligible for SSI.

Should you die while your child (regardless of disability) is still under the age of eighteen, then he or she might be eligible for survivor’s benefits under your Social Security contributions. If a disabled child’s biological or adoptive parent begins to receive Social Security retirement or Social Security Disability Insurance (SSDI), and if the child became disabled prior to the age of twenty-two, then he or she might be eligible for SSDI and, after two years, Medicare.

In addition, your disabled child may also be eligible to receive educational equipment and services through your school district’s special education program. Once your child reaches working age, then he or she might also be eligible for vocational rehabilitation services. Since your disabled child might be eligible to receive vocational rehabilitation services, it may be inappropriate to use a trust to pay for a college education. Instead, you might decide to provide for your disabled child’s other needs, or for the college education of a non-disabled child. However, if you want your disabled child to attend an expensive private college or a university in another state, you might want to use a trust to specify that your child’s inheritance be used to cover the tuition and other costs not covered by your state vocational rehabilitation agency. With cuts in vocational rehabilitation services likely, it is probably prudent to use a trust to plan for the day when vocational rehabilitation services will be less generous. By understanding programs such as SSI, SSDI, Medicaid, special education, and vocational rehabilitation, you will gain a better idea of the future needs of your disabled child. This understanding will help you to plan your estate. For example, you might want to purchase additional life insurance as a method of providing for your disabled child.

The creation of a simple will is usually the first step taken toward acquiring a proper estate plan. You can probably obtain a simple will for less than two hundred dollars. However, the presence of a disabled child might make a simple will inappropriate for your situation and add significantly to the cost of acquiring a proper estate plan. Yet, the additional cost could be more than outweighed by the saving to your surviving family and in the peace of mind gained in knowing that your disabled child will have a more secure future. As you contemplate your estate planning options, you should probably also consider the possible benefits of a living trust. A living trust is a trust which takes effect during the lifetime of the creator of the trust. After you place your property into the trust, the property is then managed for the benefit of the persons named in the trust. The typical living trust is managed by the creator of the trust for his or her own benefit. Upon the death of the creator of the trust, the property contained in the trust automatically transfers to the person named as the successor trustee. The primary advantage of the living trust is that it helps to avoid probate by automatically transferring the property. The main disadvantages of a living trust are that it is initially much more expensive than a will, and all property must be titled in the name of the living trust. In addition, a living trust does not eliminate the need for a will since a will may be needed to transfer property not titled in the name of the trust at your death.

A will may also be needed to appoint a guardian for your minor children. For most young persons who have a small and uncomplicated estate, a simple will is normally going to suffice. Your exact requirements will primarily depend on the age of your disabled child, his or her maturity and independence, his or her health, the ages and needs of your other beneficiaries, your own age and health, your marital status, your family income, and the size of your estate.

It is important that you understand the differences between the major types of trusts. Many people make the mistake of assuming that any trust will protect eligibility for SSI and Medicaid. However, only a special needs trust will preserve SSI and Medicaid eligibility. Most persons are more familiar with testamentary trusts. A testamentary trust is a trust which is normally made at the same time as a will. A special needs trust can also be a testamentary trust. However, a special needs trust does not have to be a testamentary trust. A special needs trust can also be used to protect a gift or legal settlement. If your disabled child was injured in an accident, and if there will be an insurance payment or damages award, then you may need to divert the proceeds into a non-testamentary special needs trust. This must be done prior to receipt of the payment. Failure to have the payment transferred directly into a special needs trust may cause your disabled child to be ineligible for SSI and Medicaid. However, for purposes of this article, the use of the special needs trust is discussed in the context of estate planning.

In order to be a special needs trust, the disabled beneficiary cannot access or control the trust property. The Social Security Administration does not consider trust property to be a “resource” belonging to the trust beneficiary if the beneficiary is unable to revoke the trust and does not have direct access to the property. A special needs trust can pay for items such as college tuition, medical care, home improvements, entertainment, certain types of insurance, transportation, or even vacations. The trustee can also make cash distributions to the trust beneficiary. However, cash which is distributed directly to the beneficiary will be counted as income. Cash received directly from the trust might result in a reduction or elimination of SSI benefits. Payments for items such as food, utilities, and shelter will also be counted as income and could result in a reduction in SSI benefits.

A special needs trust can also be used to qualify for Medicaid. Medicaid can pay for medical expenses which could otherwise rapidly exhaust your estate. In the case of a child with serious medical problems, Medicaid eligibility can save hundreds of thousands of dollars. In order to maintain Medicaid eligibility, the trust must limit the amount that the trustee is allowed to distribute to a level below the maximum income amount allowed by Medicaid.

The trustee must also keep in mind the fact that trust distributions could cause ineligibility for SSI and thereby also cause ineligibility for Medicaid. The trust should state that the purpose of the trust is to supplement state and federal entitlement programs and to pay only for those items or services not paid for by the entitlement programs. Since the trust places complete control in the trustee, you should take great care when deciding whom to name as trustee.

The appropriateness of a special needs trust will primarily depend on your income, your marital status, your child’s age, your child’s health, your child’s maturity and independence, the number of children you have, and the amount to be placed in the trust. A special needs trust will be most appropriate for families who have a financial need for the SSI payment or who need Medicaid to cover medical expenses. A special needs trust is more likely to be suitable if the assets to be placed into the trust are relatively modest, or if your child is an adult receiving SSI benefits. For a disabled child with few medical expenses, the $458 monthly SSI payment might not be worth protecting if your child would otherwise receive a large inheritance. Use of a trust to shelter larger inheritances may be appropriate if your child has a need to qualify for Medicaid, or if your child is unable to spend or otherwise enjoy the inheritance.

Consideration should probably be given to trust alternatives. One possible alternative is to disinherit your disabled child and then increase the share of a trusted family member with the understanding that the family member will use the increase for the benefit of your child. This alternative is risky since the heir receiving the increased inheritance might turn out to be untrustworthy, might lose the inheritance to bankruptcy, or might lose the inheritance to a civil lawsuit. A gift to a trusted family member with the same understanding is a similarly risky alternative. In both cases, the tax consequences must be considered.

Another trust alternative may be the use of an SSI work incentive called the Plan For Achieving Self-Support, or PASS. The PASS can allow income and resources to be exempted in order to achieve the goal of becoming self-supportive. A PASS may enable your child to become or remain eligible for SSI and Medicaid. A PASS can also be used in combination with a special needs trust. A PASS is more flexible than a special needs trust in that the PASS can be funded from assets already in your possession or in your child’s possession. A final alternative to a special needs trust is the purchase of a non-countable resource such as a home. The purchase of non-countable resources can also be used in combination with a special needs trust.

It might be helpful to use a hypothetical situation to illustrate the benefits of a special needs trust. Take, for example, the situation in which a father earned $25,000 a year and the mother remained at home to care for her two children, one of whom was disabled. The father had a $20,000 life insurance policy through his employer and designated a special needs trust as the beneficiary of the policy. The father also purchased additional life and disability insurance to pay off his home in the event of his death. As a result of his diligent estate planning, after his death the family home was paid off, the mother was able to earn a modest salary, the disabled child received SSI and Medicaid, and the $20,000 contained in the special needs trust was saved for emergency and educational purposes. It should also be remembered that the mother and children might also have received Social Security survivor’s benefits, but probably not in an amount which would have precluded the disabled child’s SSI and Medicaid eligibility. If this father was thorough in his planning, then he would also have created a durable power of attorney and living will. The durable power of attorney could authorize his wife to make any necessary medical or financial decision, and the living will could help clarify the father’s medical treatment wishes.

As you develop your estate plan, you should not assume that your attorney has considered the use of a special needs trust. It may even be a good idea to have a second attorney review your estate plan. Your nearest disability advocacy organization, legal aid society, or senior citizen’s law center might be able to provide you with estate planning services or advise you in developing your estate plan. If not, then they might be able to refer you to an attorney familiar with special needs trusts. While everyone hopes for a long life, should death come early, proper estate planning can dramatically improve the future for your surviving disabled child.

Article references:
www.nfb.org

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