Stapleton Elder Law

How Does a Living Trust Work?

Living trusts can achieve different goals, depending upon how they are drafted. Knowing the fundamentals will help you decide how to go forward.

It’s important to know that not all living trusts are the same. However, common reasons for using a living trust are for privacy and avoiding probate. Placing assets in a living trust also provides protection to beneficiaries from divorce, nursing home costs, legal actions and creditors. Should a living trust be part of your estate plan?

The Green Bay Press-Gazette’s recent article, “Common questions about a living trust,” notes that this can be especially important for a beneficiary who may have special needs. A Special Needs Trust can be created so their government program benefits, like Medicaid, won’t be impacted by their inheritance. Let’s look at some specific situations:

Avoiding probate. A living trust can help avoid probate, but a trust only controls assets that are in the trust. You must put assets into the trust to “fund” the trust. A person can have a well-drafted trust, but if it’s not properly funded, they will most likely lose out on some of the trust benefits.

Tax savings. There may be some tax savings, but most folks aren’t worried about estate taxes. An individual can pass up to $5.49 million without any estate taxes in 2017. Anything above that is subject to a 40% estate tax. Note that a living trust can be structured, so a married couple can pass double the exemption amount free of estate tax between the two of them. There’s usually no estate tax due when the first spouse passes away.  However, the surviving spouse, who may inherit from his or her spouse, would be potentially subject to estate tax at his or her death. A living trust can be used to potentially avoid that and pass the maximum assets without any estate taxes.

Assets requirements for a living trust. There’s no specific dollar amount required for a trust. More importantly, it should be a discussion with your estate planning attorney about your goals and how they can best be accomplished.

There is some expense with creating a trust, but most of the time the amount you spend on a living trust is less than what the cost would be for your family and loved ones to administer your estate plan after you pass away.

An experienced estate planning attorney will be able to discuss your concerns and options about creating a living trust, so that you may make an informed decision.

Reference: Green Bay Press-Gazette (June 29, 2017) “Common questions about a living trust”

To learn more about the benefits of living trusts, please visit our website. 

Equal Distributions May Put Support at Risk for Special Needs Children

Your first instinct as a parent may be to divide assets equally among children in your will. However, if your family includes a special needs child, that decision could have a negative impact on your child’s future.

Parents do their best to let their offspring know that they are loved, each in their own unique way. When the family includes a special needs child, their needs are different. However, they are not loved any less than their siblings. The same holds true for estate planning for a special needs family. According to Tickertape, “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”, estate distributions with a special needs child typically need to be different than distributions to their siblings. It’s not about fairness, it’s about good planning.

Children with special needs are typically eligible for state and federal benefits that provide them with assistance for their long-term support. Among the most common are Supplemental Security Income (SSI) and Medicaid. In many states, SSI may qualify children for Medicaid, or Medicaid comes automatically with SSI. These are need-based benefits that are means-tested. SSI recipients have a strict assets threshold of $2,000 for an individual. If a special needs child gets an inheritance, it might push him or her, above that ceiling. This could result in ineligibility for the program benefits that might be used to cover medical, therapeutic, or housing needs.

When money is paid directly to the child as beneficiary, it can cut SSI benefits. The same is true, if the special-needs heir disclaims the inheritance.

Government benefits may be retained, if an inheritance is set up in a Special Needs Trust (SNT), which is designed to help a beneficiary with special needs and preserve government aid while protecting assets. The trust allocates inheritance assets to the child with special needs, but it’s via a third-party.

However, there might be tax implications. While the inheritance itself isn’t taxed, the income that it generates in a special trust is typically taxable at trust tax levels. Creating an SNT can be complicated, and the rules can vary from state to state. Speak to a qualified trust attorney to be sure that all income is reported properly and there are no deductions left on the table.

Be certain to consider the net tax implications and eligibility requirements of any government programs, when you create an estate plan. Talk with your children about your plan and the decisions you are making with regard to the future care for your special needs child. This will help everyone in the family be better prepared and ready to work together to maintain the integrity of the family, which is part of your legacy.

Reference: Tickertape (June 14, 2017) “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”

To learn more about special needs trusts, please visit our website.

 

Must-Do Retirement Planning Principles

 

In the best of all possible worlds, your retirement finances include a nest egg that generates a steady flow of income while your principal assets continue to grow.

There are six key investment points that, if you can meet them, will make retirement finances work in your favor, according to Stock Investor’s recent article, “6 Retirement Estate Planning Criteria You Must Address.”

 

 

1. Minimum required yield. This is the first factor when looking for reliable long term income. It’s calculated based on household income requirements and investable assets—typically IRAs, taxable brokerage accounts and other savings that are planned for retirement income. When the required percent of investment (portfolio yield) increases, so does the income risk. When the yield is too high to be practical, traditional thought is to liquidate some of your principal by gradually drawing down your investment portfolio over the retirement years or by using an insurance product, such as a single premium immediate annuity.
2. Income Reliability. This means the income, just like a paycheck, will be there regularly and will have a limited risk of fluctuation—and an even lower risk of being reduced or eliminated.
3. Income growth that keeps up with inflation. This can come from the investments organically growing their dividends over the years or from the excess income that the actual investments produce which are accumulated and then used to supplement future household income with inflation.
4. Liquidity. This is the ease with which investment securities can be converted into cash. It will be a high priority, if you think a need could arise that would require an unplanned tap into the principal of the investment portfolio.
5. Future capital preservation of the investment principal. Conventional wisdom says that retirement savings will be consumed and the savings will decumulate. Capital preservation is a priority, if you want to maintain the investment capital to meet future possible household major expenses—like assisted living costs or creating a testamentary special needs trust (a trust created at your death in your estate) to provide for a disabled child or grandchild, to provide for a grandchild’s college expenses or to donate to a favorite charity.
6. Surviving spouse’s ability to continue to manage retirement accounts. Usually one member of the family devotes decades to keeping an eye on the portfolio or working with a financial advisor. If both partners are involved in the family’s finances, the surviving spouse will have an easier time becoming the sole owner, when one of the two has passed away.

Reference: Stock Investor (May 24, 2017) “6 Retirement Estate Planning Criteria You Must Address”

To learn more about planning for your retirement, please visit our website. 

 

Before You File Your 2016 Taxes, Review These Tax Breaks for the Disabled

There is some kindness in the tax code, especially when it comes to the disabled and their care givers. There are a few tax breaks that are intended to alleviate some of the financial burden.

Even when a disabled person is able to work, they or their caregivers must incur many additional costs, from transportation needs to medicines and special supplies for care. A study by the Centers for Disease Control and Prevention reported that one out of every five Americans lives with a disability. If this includes you or someone you care for, you’ll want to know about some tax tips that are designed to help. A recent article in Yahoo Finance, “8 Tax Tips for People With Disabilities (and Their Caregivers),” offers some useful details.

ABLE accounts. These accounts are newer savings vehicles for those who become blind or disabled before the age of 26. The accounts are like 529 college savings accounts—the account grows tax-free and can be spent on eligible expenses with no taxes. Contributions to these accounts don’t qualify for a federal tax credit or deduction.  However, Iowa, Michigan, and Nebraska offer state tax benefits for contributing.

Take a higher standard deduction. Many deductions or credits require that you itemize, but if you take the standard deduction, you may qualify for a higher one, if you or your spouse is blind. In the 2016 tax year, the standard deduction for single or married filing separately is $6,300. That amount increases to $7,850 if the filer is blind or over the age of 65 or $9,400 if the filer is both blind and over the age of 65.

Child and dependent care credit. If you pay for day care or other care for a dependent, while you work or are seeking employment for work, this credit can decrease your taxes by up to $3,000 per dependent or a maximum of $6,000 for all dependents. This credit can also be used to pay for adult day care for a spouse or other dependent who is physically or mentally not able to care for themselves, but you must itemize to get this credit.

Disability credit. People who receive stable disability income and are retired on permanent and total disability or who are age 65 or older may qualify for the Credit for the Elderly or the Disabled on their own tax return, which is between $3,750 and $7,500. However, there are income limits based on the filing status and adjusted gross income.

Disabled person as a dependent. Typically, you can’t claim a child as a dependent after age 19, or 24 if the child is a student. But a disabled child or other relative can be claimed as a dependent at any age, if you provide at least half their support.

Deduct medical expenses. If you itemize, and your family's medical and dental expenses in a calendar year are more than 10% of your adjusted gross income (7.5% if you or your spouse is age 65 or older), you can deduct the excess amount. This isn’t just for those with special needs, but parents with special needs children have a lot of out-of-pocket expenses.

Adoption of a child with special needs. Families that adopt a child who is a U.S. resident or citizen and whose state welfare agency deems them to have special needs will usually be eligible for the maximum adoption credit of $13,460 per child in the year the adoption is finalized. Income limits apply, but in adoptions involving a child with special needs, the adoptive parents can claim the maximum credit regardless of whether they had qualified expenses of $13,460.

Declare disability payments. These aren’t always taxable income, since it depends on the situation. Review what type of disability benefits are being received and see if they’re subject to taxes. As an example, the IRS says that Veteran Affairs disability benefits shouldn’t be included in gross income, but if you receive long-term disability benefits from a plan that was paid for by your employer, the IRS says those can be taxable.

Children who get disability benefits. Here’s another spot where things get confusing and you may need help figuring it all out. Some parents whose children receive SSDI (Social Security Disability Insurance) payments, incorrectly report that income on the parent’s tax return. However, they don’t have to: the SSDI payments are reported on the child’s tax return. If the child has no other income, the child may not have a filing requirement, and the benefits are likely not taxable.

These tax breaks are welcome, but they can be confusing. An experienced Special Needs or Elder Law attorney will be able to help your family.

Reference: Yahoo Finance (February 15, 2017) “8 Tax Tips for People With Disabilities (and Their Caregivers)”

To learn more about taxes and your estate plan, please visit our website.

Nevada Kicks Off ABLE Act—A New Program to Help the Disabled

To help people with disabilities, Nevada has launched the ABLE ACT, which will help meet personal expenses.

Passed by Congress in 2014, the ABLE ACT –Achieving a Better Life Experience—was created to help individuals with disabilities have access to funds used for specific expenses without putting their financial support from government programs at risk. The new program allows them to open a special tax-advantage accounts that may be used for personal expenses.

Family and friends can contribute up to $14,000 annually to the accounts, but these accounts don’t count against Supplemental Security Income or other program income limitations, reports The Las Vegas Review-Journal in “Nevadans with disabilities will save money under ABLE Act.”

The program is available to Nevadans on the basis of disability or blindness under the SSI program or under the Social Security disability, retirement and survivors program. In order to be eligible, the individual’s disability must have occurred before age 26.

The funds in an ABLE account can be used for education, housing, transportation, health care, assistive technology, assistance in getting and keeping work and other approved expenses.

The Nevada ABLE Act program is administered by the State Treasurer, and the Nevada Aging and Disability Services Division will provide program education and outreach.

“We are very excited to bring this opportunity to Nevada families,” Nevada State Treasurer Dan Schwartz said in a statement.

The funds in the accounts will be invested and will be exempt from the means-tested Medicaid or Supplemental Security Income program. This allows disabled individuals the opportunity to improve the quality of their lives.

Reference: Las Vegas Review-Journal (January 26, 2017) “Nevadans with disabilities will save money under ABLE act”

Please visit our website to learn about protecting your assets for your special needs loved one.

Special Needs Trusts in Massachusetts May No Longer Be Permitted if New Rules are Adopted

A strategy used by many to protect funds, usually so that services not covered by Medicaid can be paid for out-of-pocket, may become invalid if proposed eligibility changes become law.

Some families and seniors have set up trusts to pay for extra services that are not covered by Medicaid health insurance, but these may soon become problematic, as reported by The Boston Globe in “MassHealth may force seniors to make hard choice.” Massachusetts seniors and other Medicaid recipients may be forced to spend down assets, if they want to continue to qualify.

MassHealth, the state’s Medicaid health insurance program for nearly two million low-income and disabled residents, is contemplating changes to its eligibility requirements that would make it harder for residents over age 65 to establish special-needs trust (SNTs) accounts and still qualify for nursing home care and other health services from state and federal government programs.

Massachusetts officials say the proposed changes are designed to ensure that the state’s Medicaid rules adhere to the 2008 federal Medicaid guidelines, along with reducing the strain on the $15 billion MassHealth budget. These changes would require disabled seniors to spend down their personal financial resources, including money that’s held in a trust, before using MassHealth.

“As part of our regulations review, MassHealth proposed some clarifications to its eligibility regulations to ensure compliance with both federal and state law,” said Sharon Torgerson, a spokeswoman for MassHealth.

Advocates for disabled seniors say the changes will deny some residents small comforts that improve their quality of life. This change, they argue, could wind up costing the state more money by making those who are living independently move into more expensive nursing home care financed by taxpayers.

Individuals must get approval from their trust administrators to spend money, and they typically must submit bills for expenses like dental work not covered under Medicaid, health aides, clothing, and utilities.

The median annual cost for a shared room at a nursing home facility in Massachusetts in 2016 was about $135,000, according to an annual survey conducted by Genworth Financial, Inc.

Trusts have traditionally been a method for disabled seniors and their families to plan for long-term care—particularly if they have complex needs but don’t have children to help with expenses. To qualify for the state program in Massachusetts, an individual’s assets can’t exceed $2,000, and monthly income is limited to $100. Trust money had traditionally been exempt from those eligibility requirements.

However, in 2008, the federal Centers for Medicare & Medicaid Services clarified the rules, telling states that, in general, disabled individuals over 65 couldn’t transfer money into a pooled trust without a penalty. Essentially, that meant they couldn’t go on Medicaid until they had used up their assets.

The process started with a hearing in December on the proposed changes, and public comments are currently being considered. However, this is unlikely to be a straightforward matter. There are many factors considered when Medicaid eligibility is being determined, and trusts, including pooled trusts and asset transfers, are complex issues that do not automatically make someone ineligible. An elder law attorney will be able to help as these changes are being considered and when a final decision has been made by Massachusetts officials.

Reference: Boston Globe (January 3, 2017) “MassHealth may force seniors to make hard choice”

To learn more about special needs trusts, please visit our website. 

Save Yourself and Family Members the Stress and Expense: Plan

It is possible for anyone to become incapacitated or die prematurely. Estate planning in advance can help you and your family.

Live long enough, and you learn that death can strike in a heartbeat. The healthiest person can become incapacitated. It’s not pleasant to think about, but the reality is, having an estate plan in place is the wise way to go, according to The Arizona Jewish Post in “Estate planning and elder law benefit all ages.”

Estate planning and elder law attorneys say that everyone needs these three documents—a will, a health care power of attorney, and a financial power of attorney.

A will. If you die with no will, state law has a pecking order as to who will inherit your assets, starting with your spouse and children. A valid will must be signed by the person who wrote it, witnessed by two non-relatives who saw them sign and notarized as to the identity of the signer and witnesses.

Your will should name a personal representative, otherwise known as an executor. This should be done far ahead of time to be certain that they are willing and able to undertake the task. Let this person know the location of a copy of your will.

A living will details your end-of-life choices. Without authorized directions, your family may not be able to make the decisions you’d want. A living will can also include funeral wishes.

A medical power of attorney gives the individual you select, the authority to make health care decisions for you, if you’re incapacitated.

A financial power of attorney lets your appointed agent make financial decisions, pay your bills, and take charge of your bank accounts if you’re unable to do so.

A revocable living trust is a document that lets you assemble all of your assets in one place. The assets must be retitled to the trust, not to you as an individual. A trust can help with out-of-state real property or leaving money to a child with special needs who is receiving means-tested government benefits. When you die, the assets in the trust aren’t subject to probate, and are distributed as you instructed in the trust.

An experienced estate attorney will take you through all of the steps to analyze your situation, review assets, family relationships and all of the information needed to create an estate plan that will give you peace of mind and protect your family.

Reference: Arizona Jewish Post (December 2, 2016) “Estate planning and elder law benefit all ages”

To learn more about planning before a crisis, please visit our website.

Adopting? Congratulations! First, Your Financial Homework

Financial planning needs to be part of the equation when doing all of the work involved in bringing a new family member into your lives.

The cost of adoption can start at a few hundred dollars or it can easily exceed $40,000, according to the U.S. Department of Health and Human Services. There are many different ways of adopting a child into your home, but however your adoption occurs, you need to do some financial planning.

Biz Times' recent article, "Getting your finances ready for adoption," says that in order to get your finances ready for adoption, you have to do your homework and be certain the cost and processing work of adoption won't wipe out your plans for essential financial goals like retirement, saving for your future child's education, and higher daily living expenses with a new family. Begin with these tips:

Examine your finances first. Work with qualified financial or tax professionals to review if you will be able to manage adoption costs from savings or grants you don't have to pay back. Starting a family is a major overall financial commitment—no matter what strategy you choose to build yours.

Understand the tax benefits of adoption. The federal government has tax breaks for adoption, but make sure you study and follow the rules. The IRS says that tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, so it is limited to one's tax liability for the year. Any credit in excess of tax liability can be carried forward for up to five years, but it cannot result in a cash refund. In addition, adoption of special needs children may qualify for special tax treatment.

Look into workplace benefits. A recent study showed that about 12% of U.S. employers offered a financial adoption benefit in 1990, compared to 52% now. See if your employer offers adoption benefits and factor those benefits into your overall financial plan.

Gauge your legal costs. This is a legal process, and based on the type of adoption process you pursue, you'll need to consult with an attorney to make sure your application is in order and your rights are protected.

Networking and education. A huge leg up on the entire process is getting involved with support and planning groups for parents of adopted kids and those who are planning to adopt.

Get your new family started on the right foot by ensuring that you have a sound financial plan in place. This will give you and your family the ability to focus on all the joys that a new family member can bring into your lives.

Reference: Biz Times (May 3, 2016) "Getting your finances ready for adoption"

Please visit our website to learn how adding to your family and other life events can impact your financial and estate plan. 

 

Estate Planning for a Family with a Special Needs Child

Financial and legal planning for a special needs child can be challenging. To protect the child and the family, advance planning with experienced professionals is necessary.

Learning that your family will include a special needs child dramatically changes the narrative for families and most don't know what to expect, from providing care to financial planning. The New York Daily News explores the financial planning that needs to take place in "How to prepare a financial plan for families with special needs children."

Experts estimate that raising a child to age 18 costs roughly $250,000 and those parents of children with disabilities and special needs will have costs that could be as much as 10 times more. With these types of financial challenges, here are some key areas to focus on to protect and grow your money.

• Assemble a team of experts. That team should include an elder law attorney, doctor, accountant, and government benefits specialist to help you understand Social Security, Medicaid, and other state and federal government programs;
• Draft a letter of intent. This is the child's history, medical needs, doctors, allergies, and likes and dislikes, which can be helpful to guide and direct your child's future trustee and guardian;
• Draft a will. This gives direction to your child's guardian and to the courts as to how assets should be moved and allocated;
• Create a Special Needs Trust (SNT). This will serve as a separate entity for your child to keep money so that he or she isn't disqualified from assistance programs; and
• Create a plan for building assets.

Let's focus on the special needs trust.

Setting up a special needs trust is a fairly straightforward process, but the laws surrounding special needs trusts are very complicated. Don't try this on your own. Hire an experienced elder law and Special Needs Trust attorney.

With a special needs trust in place, you make certain that there's a financial mechanism to continue to provide the child with the highest quality of life possible. Completing a SNT can take a big weight off of parents' shoulders. Many parents wait until it's too late, or they leave money directly to the child. This makes everything much more complicated.

Selecting the future trustee is a matter of determining who will be the right person for the job. It may not be the caregiver. Some special needs trusts use professional trustees or pooled trusts, which are administered and managed by non-profit organizations.

Raising a special needs child in a loving and stable environment poses many challenges to the family. Putting together a team of experts and caring family and friends will help provide the support that parents need. Having a strong network of emotional support—combined with a solid legal and financial plan—will foster a better experience for all members of the family.

Reference: The New York Daily News (April 1, 2016) "How to prepare a financial plan for families with special needs children"

To learn more about estate planning for families with special need children, please visit our website. 

Set It and Forget It Approach to Estate Planning Is Never a Good Idea

Your estate plan needs to be refreshed every so often because life's circumstances are always changing. You might be unaware of how much the changes will impact your estate.

From Forbes, we learn that 51% of Americans age 55 – 64 don't have a Will. That's bad news for their families, who will have to deal with the estate plan default: whatever the rules are for their state. But for those who are smart enough to have an estate plan in place, there are still some maintenance issues that need to be addressed with a review every now and then. Everything changes over time, including your personal and financial situations and tax and estate planning laws.

Even if your estate plan was crafted by a skilled and experienced estate planning attorney, you'll want to talk to him or her if any of these things occur:

Marriage or Re-marriage. This doesn't automatically change the provisions of your will or trust and won't necessarily provide for your new spouse. Talk with your attorney to ensure your plan reflects your new goals, both individually and as a couple.

Divorce. After a divorce your goals will probably change and so should your estate plan. When your divorce is finalized, revise your plan as quickly as possible to reflect your new goals and intentions.

Children. When you have a child or adopt, you'll probably want your son or daughter to be the recipient of your estate, and you need to appoint a legal guardian for your child in the event you and your spouse die or are incapacitated.

Injury or Illness. If you (or one of the members of your family) become seriously ill, you may want to consider changing your estate plan to reflect their increased needs. For example, a special needs trust lets you leave assets in a trust that will not disqualify him or her from receiving government benefits.

Change of Plans. With time your goals and intentions naturally change, and your estate plan should reflect your current intentions, not the goals you had five years ago.

You inherit. If you or your spouse expect to get a sizeable inheritance, there may be new opportunities to reduce taxes or provide creditor protection. The increased value of your estate may also mean you change how your assets will be distributed when you die.

Buy or sell a business. If you purchase a business, you may want to create a succession plan. If you sell your business, the capital you receive may require a different plan for asset distribution and reducing the tax burden for your heirs.

Moving to another state. Estate planning documents are generally legal from one jurisdiction to another, but each state has its own laws. If you move from a separate property state (like Virginia) to a community property state (like California), you might want to convert your separate property to community property to take advantage of favorable income tax treatment.

Your best bet? Review your plan with your estate planning attorney every few years to keep up with changes in federal and state laws. If your life experiences any kind of major change as described above, make that appointment today!

Reference: Forbes (January 28, 2016) "8 Reasons to Revise Your Estate Plan Today"

Please visit our website to learn how life changes can impact your estate plan.