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.

Advertisements

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.

Disabled loved ones? Avoid this inheritance mistake

A real-life fact pattern with a client was that Grandma and Grandpa wanted to provide something in their wills to provide for their two grandsons who are disabled.  They decided they were going to leave them the farm.  The thought was not that their grandsons would live on and run the farm, but that it would be sold after their deaths and the proceeds would go to their grandsons who were both disabled.  Grandma and Grandpa had very good intentions, particularly since just the land alone had a fair market value of close to $10,000 an acre.  Great, right?  No.

This blog post is for families that include a loved one with a disability.  It is for parents, certainly, but also for extended family who choose to provide a bequest (personal property) or devise (real property, such as house and land) for a disabled family member.  The good intentions of family members in leaving money or property to a person with a disability might do more harm than good.

First, it is almost never recommended to leave an inheritance to a person with a disability unless there is a special needs trust for that person in place (I include Ohio’s “wholly discretionary trust” when I use the term “special needs trust”).  People with disabilities often receive benefits such as Medicaid, or Social Security Income, that could be jeopardized.

Second, the need for such a trust to be in place is the subject of this blog post—the critical mistake I’ve encountered with clients is that they have a special needs trust plan, but it has a certain type of special needs trust that only takes effect at death, called a testamentary trust.  There are trusts that are in existence now and are not funded until death, but that is not a testamentary trust.  To the contrary, with a testamentary trust, the trust itself actually comes into existence at death.  (Most of the situations that I have seen involve testamentary “supplemental services” trusts.)  If testamentary special needs trusts are valid and enforceable, what is the problem?  The problem is the real-life scenario in the top paragraph.

The last of the Grandma-Grandpa unit dies and leaves the 10-acre farmhouse and farm to disabled grandsons “Johnny and Joey.”  However, Johnny and Joey’s parents are still alive, and have a testamentary supplemental services trust (special needs trust), where the special needs trust does not come into existence until Johnny and Joey’s parents die.  In this scenario, there is no special needs trust in existence now, when it is needed.

Except in rare circumstances, I prepare stand-alone special needs trusts that are in existence immediately after they are executed (signed and witnessed).  If the boys’ parents or grandparents had a trust prepared that was already in existence, Grandma and Grandpa’s inheritance could have been left to the boys’ trusts, as well as  inheritances from others.  Because parents might not be the only people who choose to leave an inheritance for a person with a disability, their testamentary special needs trust is not the recommended choice in special needs planning.

If you have questions or would like to begin estate planning with a disabled loved-one in mind, email me at julie@juliemillslaw.com.

When should I update my estate plan?

An estate plan consists of a last will and testament, possibly a trust, along with additional documents necessary for situations involving incapacity or death.  Additional documents can include a financial power of attorney, advance directives (living will for end-of-life decision making, and a healthcare power of attorney), and a funeral declaration, among other documents.

You should review your estate plan every five years to see that it still reflects your wishes.  However, if any of the following occur, then you should review your estate plan sooner:

Marriage: if you get married, or particularly if you get re-married, you need to review your estate plan.  If you are married and die without a will, state laws of “intestacy” (dying without a will) might not result in a distribution of your assets as you would want.  Furthermore, divorce and re-marriage do not automatically remove your ex-spouse from existing documents.

Children (birth, adoption or marriage):  the critical reason for reviewing an estate plan after you add a child to the family is to name a guardian who will care for your child should you (and your spouse, if married) die.  This is not a decision that should be left to a judge you do not know.  Another reason is to direct assets to provide for your child if you are gone.

Divorce: many states have laws that treat ex-spouses as having “predeceased” their divorced spouse in certain situations with some estate planning methods.  It is best to not assume that such a law will pertain to your documents. Part of your divorce or dissolution journey should include an estate plan that removes your ex from your documents.

Death of a spouse: if a spouse dies, you want to be certain that you have successors listed in estate planning documents, and you want to update deeds and titles to property.  For example, if you have a financial power of attorney and your spouse is the only person you named to serve as agent, you will need to update this document with the names of others.  If you owned property jointly with your spouse, you will need to remove your spouse’s name if you intend to convey that property (you’ll need to have a new deed prepared to your home).

Change in assets:  when you acquire assets, you should ensure that your estate plan addresses where those assets will go upon your death.  If you have 8 acres that your two children will inherit and plan to divide equally, and then acquire 5 more acres, who will inherit the 5 acres if you do not specify it in your estate plan?

Relocation:  most estate plan documents are valid in other states if you move, as long as the documents were executed properly in the state where you lived when they were prepared.  There are special considerations in some instances, however, when you move.  For example, if you move from a community property state to a common law property state, or vice versa, then you should definitely have your current estate plan reviewed by an attorney in your new state.  Additionally, bond might be required for out of state executors and others, so you might consider choosing in-state people to serve in these fiduciary roles.

Change in status of guardian, trustee or executor:  did the person you named as the guardian of your child die?  Move to Europe?  Become incapacitated?  The same consideration is valid for an executor or trustee.  If yes, consider reviewing your documents to remove them and replace with alternatives.  Perhaps after you named your cousin to serve as the guardian of your three children, she has had four children—would she be able to care for seven children?  After you named your brother to serve as guardian of your child, he started a career where he travels more than he is home—would that be a suitable situation for your child?

Your estate plan reflects your wishes for the way everything will be handled at your death, and designates certain people to carry out those wishes.  Both the plan, and the people designated in the plan, should be current.

Contact me at julie@juliemillslaw.com to discuss reviewing and updating your estate plan.

Happy *World Adoption Day*! #WorldAdoptionDay

Not flesh of my flesh, nor bone of my bone, but miraculously still my own.  Never forget for a single minute, you didn’t grow under my heart but in it. — Fleur Conkling Heyliger
Happy “World Adoption Day“!  One of the best steps to take once you adopt a child is to make sure you have an estate plan in place to secure your child’s future.  You need, at least, a last will and testament naming someone to serve as guardian if something happened to you.  A trust that can provide for your child’s education and well-being should be considered.
Under Ohio law, as with most states, children who were adopted are considered legally no different than children who were born to the parent or parents.  They inherit under the statutes of descent and distribution and other laws without regard to being adopted.  Ohio has a special interest in adoption thanks to Wendy’s founder Dave Thomas and his foundation, the Dave Thomas Foundation for Adoption, which finds adoptive families for children waiting in foster homes.
Congratulations to all families touched by adoption.  #worldadoptionday