Do you have a child with special needs? Avoid these 5 planning mistakes

Mistake #1:  Not preparing a stand-alone special needs trust that is in effect immediately.

Some attorneys incorporate a special needs trust for a disabled child into the parent’s estate plan, to take effect when the surviving parent dies.  This mistake can be costly.  If the child was to receive an inheritance from a relative when the parent is still alive, that gift would go to the child, and would become an asset that might interrupt the child’s receipt of benefits.

Mistake #2:  Naming the child individually instead of his or her trust on retirement and insurance beneficiary designations.

Naming the child individually on your beneficiary designations, instead of the child’s special needs trust, will result in the eventual inheritance going to the child outright instead of the child’s special needs trust.  The inheritance will then become a countable resource that will likely cause the child to lose certain benefits.

Mistake #3: Not telling family and others that a special needs trust exists.

For family (especially well-meaning grandparents) and others  who might include your child in their estate plan, they need to name the child’s trust as the beneficiary, and not the child.  They will not know to do this unless they are informed that a special needs trust exists.  As with Mistakes #s 1 and 2, any inheritance left outright to a child who receives benefits might jeopardize receipt of those benefits.

Mistake #4:  Opening a 529 plan.

Not to pick on grandparents again, but it is common for grandparents to open and fund 529 plans for their grandchildren.  This could be costly for a child with special needs.  If the child  does not go to college, and needs SSI or other benefits at age 18, assets in a 529 plan will likely disqualify the child from receiving benefits, at least until the assets in the plan are spent down.  The child would then have to reapply for benefits.

Mistake #5: Leaving no Letter of Intent.

A Letter of Intent is a comprehensive guide that you prepare for when you are unable to care fr your child, either due to your death or incapacity.  The guide is for the child’s caregivers to ensure a smooth transition in every aspect of their day and life after the surviving parent passes.  Change in routine is very difficult for many kids, particularly those with special needs.  Grieving the loss of a parent makes this transition even more difficult.  The Letter of Intent advises the caregiver of the child’s daily routine, activities, likes and dislikes, among many other things to ease a tough transition.

If you would like to discuss planning for your child with special needs, contact me at julie@juliemillslaw.com.

A *Must* for Kids Going to College

Your child has selected a college.  In no time, your child will be starting classes.  Because he or she will technically be living at home (home over holidays and summers), perhaps still on your insurance, and possibly still driving one of your cars, it doesn’t really feel as if they’re off to adulthood, does it?

At age 18, under the law, they are adults.  (For children with disabilities, the age of majority might differ.)  They are legally no longer under your dominion.  They might even balk at that, since they are driving your car, to your house, covered by your insurance.  Regardless, they are legal adults.  And, as young adults heading off to college, they should have three critical documents: a HIPAA release, a healthcare power of attorney, and a financial power of attorney.  (In Ohio, some of these documents overlap.)

Many parents are genuinely shocked to learn that, when they call the hospital where they learn their daughter has been taken after being hurt, the hospital won’t release much information to the parents.  She might still seem like your young child, but she’s an adult now and the hospital needs a HIPAA release in order to provide you with information.  Or, the bank won’t permit you to access your son’s accounts to break a lease, sign for loan or scholarship documents, etc.  When I state “child” below, I am referring to an 18 year-old.

The Documents:

  1. HIPAA Authorization: most of us have heard of HIPAA.  The Health Insurance Portability and Accountability Act is a federal law that, among other things, protects the medical privacy of patients. If you are 18 or older, medical providers, hospitals, etc. will not provide your private medical information to a third party without a release from you.

Your child would list people he or she wants to be granted access to his or her health information, and your child would sign it.

  1. Healthcare Power of Attorney: a healthcare power of attorney grants the agent your child lists in the document with the power to make healthcare decisions for your child if he or she is unable to make them for yourself.  If your son is in a car accident and the hospital can pursue different courses of treatment, it is the healthcare power of attorney who will make the decision on what to do.  If there is no living will and end-of-life decisions must be made, it is the healthcare power of attorney who will make them.  Additionally, if your child is receiving care you believe to be substandard, or you prefer treatment at a hospital you believe is better equipped to provide, you can choose to change hospitals (or doctors) if you are the agent in charge of your child’s healthcare.

Your child lists one agent and two successors, then signs the document in front of two witnesses or a notary (Ohio requirements).

Note: in Ohio, a HIPAA release is included in the most recent version of Ohio’s Healthcare Power of Attorney.

  1. General Durable Power of Attorney (Finances): a financial power of attorney permits the person the child names as agent to make financial decisions on the child’s behalf.  If your child becomes incapacitated, whether it requires a lengthy hospital stay, or leg casts making it impossible to leave a house, a financial power of attorney permits the agent—likely you, the parent—to pay your child’s bills, enter or break a lease, manage bank accounts, pay taxes.  Likewise, it permits the parents to discuss other housing issues, educational and financial institution matters.

Your child lists an agent and two successors, and signs the document in front of two witnesses and a notary (Ohio requirements).

I recommend these documents for kids going off to college so that a parent can step in when needed.  Most attorneys offer these documents separately; and some attorneys offer them together as “New Adult” packages as I do.

Please contact me at julie@juliemillslaw.com if you want to arrange for these documents before your child goes off to college.

The Poor Man’s Trust

A “Poor Man’s Trust” (I’ve seen it called “Poor Man’s Will” also) is the estate plan you create by naming beneficiaries on accounts, and titling property as transfer-on-death to have it pass to the person you name, all to avoid probate.  Your bank accounts are payable-on-death (POD), your life insurance and retirement policies all have named beneficiaries, and the deed to your house has a transfer-on-death affidavit recorded leaving your home to a named person on your death, resulting in these assets passing to the people you have designated outside of probate.  Why, then, would you need a will, or revocable trust?

This planning method might work for some.  I am in the group of attorneys who believe that access to legal help should be more affordable, and that living trusts are often over-hyped.  So in some limited circumstances, this method of planning might be acceptable.

If you are leaving everything outright to certain people, then designating beneficiaries like this might accomplish your goals.  For example, Joan is an older single woman whose husband died decades ago, she has an adult child or two.  John never married and has no children.  Perhaps beneficiary-planning might work for them.  However, few people have such an uncomplicated situation to make this method of planning workable.  It might not work for “uncomplicated” Joan or John, either.

The Poor Man’s Trust is certainly less expensive short-cut to having a will or trust.  As with most short-cuts, however, there will be a cost:

  • Stories of fraud are common with people convincing elderly people to change beneficiaries on their beneficiary forms
  • If you leave everything to a beneficiary, the administrator of your estate might have to go after the beneficiary to pay back money for your funeral and last expenses
  • If your beneficiary predeceases you, the state laws of descent and distribution decide who gets your assets, not you
  • Your beneficiary’s creditors can go after everything you leave him or her the minute it comes into their possession
  • If you have a surviving spouse, he or she could change the beneficiaries you have named
  • If Joan above left life insurance to her son with wishes that he distribute some to charity, or another relative, there is nothing to ensure that he does so

Having a will ensures that your assets reach their intended destination—your executor and the court will see to that—as well as pay your final expenses so beneficiaries aren’t forced to repay your estate.  A living trust will provide for you during periods of incapacity, unlike beneficiary planning.  If your desire is to avoid probate, a trust does that.  Additionally, a trust would ensure that people are not unintentionally disinherited through fraud, or changing beneficiaries on a form, as well as distribute to beneficiaries at certain times to avoid creditors attaching.

Most importantly, a Poor Man’s Trust is absolutely inadequate if you have minor children.  You need a will to name a guardian, and you need a living trust to provide for their education and future without you (a will distributes everything to a child once they reach 18).

If you still believe beneficiary-planning is for you, I would recommend at least a Last Will and Testament that names an executor to ensure final bills are paid, particularly funeral expenses.

See this article on Poor Man’s Trust method of planning.

Contact me at julie@juliemillslaw.com to discuss this and other methods of estate planning.

Benefits of a Trust

A trust is a contract, or a relationship, between the person who makes the trust (Grantor) and the person who manages the trust (Trustee).  These are often the same person, initially.  I make a trust (Grantor), and I manage the trust while I’m alive and competent (Trustee).  The Trustee manages the assets that are in the trust for the benefit of the beneficiaries, who are people the Grantor chooses to receive assets that are in the trust.  (I, as Trustee, manage assets in the trust such as investments, insurance, real property, etc., for the benefit of my children who are my chosen beneficiaries.)

Why have a trust?

The premier reason for a trust, in my opinion, is to maintain control from the grave.  For example, if you have assets such as a house and retirement plan, and if you have a minor-age child when you die, your child will inherit everything–value of your house, retirement, assets—when he or she turns 18.  It is likely that an 18 year-old person will mismanage (likely deplete) that amount of money.  If you had died with a trust, however, the trust could have reserved money for college, would distribute money at certain staggered intervals (my clients typically choose a portion distributed to the child at 25, then 30 and then 35).

Benefits of a trust

Beyond “control from the grave” for the benefit of children, however, are other important benefits to a trust.

  1. Trusts do not have airtight privacy control but, as private contracts, are typically private.  This is the opposite of probate and guardianship proceedings, which are both public matters.  With a trust, you can avoid both probate and guardianship.
  2. Avoid probate if you own property in other states (ancillary probate). For snowbirds and others who own homes and other property in another state, if the property is held by (deeded or titled to) a trust, then you do not have to have ancillary probate.  If you died owning a condo in Florida, you would have to hire a Florida attorney to probate your Florida property, unless the condo was held by the trust.
  3. A trust can serve as ‘contingent beneficiary.’ If you have a life insurance policy and name the trust as the beneficiary, then at your death the payout is to the trust which then manages that money according to the terms you set.  If the payout goes directly to a child, the money could be depleted, or attached by creditors (your child’s divorcing spouse, or a victim of car accident your child/beneficiary caused, etc.).
  4. Protect assets from surviving spouse. Assets in a trust are not part of a probate estate, which means that they are not subject to a surviving spouse’s right under law to elect against the will.  A trust reduces the chances that a surviving spouse can change the deceased’s estate plan after death, which can be important in blended families.
  5. Protect assets from creditors of Grantor’s estate. Assets in a trust are not part of a probate estate, and creditors generally cannot get to those assets.  If I died with creditors wanting to get to my estate’s assets, the creditors would not be able to get to assets in my trust.  Of course, there are some exceptions to this.
  6. Control the disposition of your assets. This benefit is similar to what I describe in the “Why Have a Trust?” paragraph above, but goes deeper.  You can determine the terms of the trust.  You can decide on whatever terms you want, except those terms that are against public policy (“nothing to my daughter if she marries someone outside of her race,” or “at my death dump the waste from my chemical company into the nearest river”).  Some terms my clients have chosen include distributions to a beneficiary with addiction issues conditioned on passing drug tests, certain incentive distributions for a beneficiary pursuing higher education or receiving certain grades, etc.  You can leave assets to a disabled beneficiary without jeopardizing that beneficiary’s government benefits (typically Medicaid and SSI).  You can provide funds for the down payment of beneficiary’s first house or a car upon graduating from college.  A trust can do most everything for a beneficiary that you would want to do if you were alive.

Trusts do cost substantially more than wills.  The cost of will plans is in the hundreds of dollars, where the cost of trust plans often starts at about $1,200.  However, probating an estate (with only a will) will likely cost more than having a trust plan prepared.

A trust is not for everyone.  I highly recommend trusts for people with minor age children, blended families, and for those who wish to maintain control over the disposition of their assets after they die.

To find out if a trust is for you, email me at julie@juliemillslaw.com.

Estate Planning—Crucial for Business Owners

Do you own your own business?  Are you about to join the world of business owners?  If yes, then this information is crucial for you.

Most people who contact me for estate planning know the basics of what is needed–a last will and testament (“will”), possibly a trust.  Business owners need to engage in similar planning for what happens to their business if they die, yet many clients sit down to discuss post-death planning for everything but their business.  Providing for the future of your business without you is important to your business, and equally important to your family.

Real-Life Scenario.  Jim (not his real name) started a remodeling business.  He fell through the roof of a dilapidated house and died (not really—he is alive but his possible death is a situation we discussed).  Jim did not have a will, or any documents spelling out what happens to his personal or business assets if he died.  As with your personal assets, your business assets are distributed to your heirs at death if you do not have a will.  It is entirely possible that the remodeling business’ assets would be distributed to an heir who is not knowledgeable about, or remotely interested in, remodeling houses or running a business.  If Jim’s business has employees or investors, serious issues with business matters might develop if he died because of the business’ operations being put on hold or left “up in the air” while the probate process proceeds.  It could take months to a year until probate is complete and the business either finds a new owner, is sold, or dissolved.

“What should I do?”

  1. Advice is basic: specify who you want to take control of running the business, and what you want to happen to your interest in the business. The best method to accomplish this planning is, in my opinion, a buy-sell agreement.  This agreement controls everything from who would receive shares of the business, what would happen to the business’ assets, and how ownership would transfer to another person or people.  It is your business’ “last will and testament.”
  2. What if you want your heirs to inherit the value of your interest in the business but not any control in it? Jim, the remodeler, might want to provide his grieving spouse with money from his business but knows she would not want to quit practicing law to remodel houses, or run a business.  In this case, consider purchasing buy-sell insurance. Business partners or investors could purchase Jim’s share of the business’ value which would provide Jim’s wife (or heirs) with money.
  3. Prepare a business succession plan. Designate who will run the business and a couple of alternates.  Detail the business’ assets, liabilities, future ventures, and everything people taking control and ownership of the business should know if you are not there to tell them.

Preparing for the future of your business is as important as preparing for the future of your loved ones should something happen to you.  Business and family assets are often intertwined, requiring plans to determine what will happen to both.

Contact me at julie@juliemillslaw.com to discuss estate and business succession planning.

Study: Parents are not planning for future of child with disabilities

A recent “Disability Scoop” article reported on a study in the upcoming April edition of the journal Intellectual and Developmental Disabilities showing that few parents plan for the future of their children with disabilities.  This is not be surprising considering the complexity of planning involved, and the lack of resources afforded these parents.  However, the end result is still the same as with estate planning in general: the person who knows the child and child’s needs best is leaving the future of their child up to someone who does not know the child.  In other words, future decisions are left to the court.

Deciding on residential placement, guardianship, preparing a special needs trust—parents need help navigating this overwhelming journey.  As a special needs planning attorney who prepares special needs trusts, my focus is on securing the financial future of a loved one with special needs without jeopardizing means-tested benefits, typically, Medicaid and Supplemental Security Income.  Planning is particularly important since many children with special needs are living longer, and outliving their parents.

There is more to planning for your child’s future than securing his or her financial future with trusts, however, if your child has a disability.  Where will your child live?  Who will be his or her caregiver?  There are many options available to explore, but knowing where to start is key.  My recommendation is to start with The Arc: For People with Intellectual and Developmental Disabilities.

To learn more, or if you would like more information on special needs planning, email me at julie@juliemillslaw.com.