If you care for a child or other loved one with a disability, you’ve no doubt thought about what will happen when you’re no longer able to give that care. There is a solution. You can leave property and funds to your disabled loved one in a special needs trust without jeopardizing their government benefits.
Problems can arise when disabled individuals inherit an estate. Their assets usually rise above the “limits” and benefits will cease until the inheritance is sold, spent and used up. The special needs trust allows you to protect your loved one’s benefits while supplementing their needs. The trust is merely a container used to hold property and money that will supplement your loved one’s government benefits-whether they are Supplemental Security Income, Medicaid or another program.
These programs have limits to what a disabled person’s income and total assets must be. A person must have less than $600-$800 of monthly income and less than $2,000 worth of total liquid assets. If a disabled person’s income or assets rises above those limits then their income and health care they receive from those government programs will cease. Fortunately, special needs trusts are a widely accepted and legal estate planning tool that will allow a disabled person to use their inheritance as a supplement for their special needs. The disabled person cannot be the trustee of the trust. I usually recommend a corporate trustee as following special needs trusts can be complicated. There are many rules to follow to ensure the trust operates properly and benefits are not lost.
Special needs trusts are very complicated to draft. It is a good idea to use your entire team of estate planning professionals (life insurance agents, financial planners, accountants, corporate trustees and attorneys) to ensure you are making the right decision. As always, please do not ever hesitate to contact me to discuss this and any other estate planning need or goal.
Kris Boyd; (501) 372-1616; kris@krismboyd.com
Here is a great article in The Dallas Morning News from Pamela Yip about not waiting to set up your estate plan.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/080710dnbusperfi.282fbde.html
1! Ha, ha, ha...
I give out a lot of advice and pointers on what to plan for and what to include in your estate plan. I wanted to change it up a little and help families avoid the mistakes that can lead to disasters in the future. There is nothing worse than thinking you have your planning in place which takes care of everyone you love and then realizing it is worthless.
#1. The Total Package
The number one mistake planners make is having a will only and thinking that is all they need. A will is only one part of a complete estate plan. Trusts, power of attorneys, living wills and memorial plans round out a complete estate plan.
#2. The Do-It-Yourself Kit
I have re-written numerous estate plans for families after they paid money for a do-it-yourself kit bought off of the internet or at a bookstore only to realize it did not take care of their needs. Every state has different laws and these kits will not always create documents that will stand up to attack in your state. Furthermore, they are designed only to handle the simplest of estates. I have yet to see one take care of a situation in a blended family where both parents are divorced, have children together and children from a previous marriage.
#3. Hiring The Wrong Professional
You would not hire an electrician to handle your plumbing problems. Be sure you do your research and hire an attorney who focuses in estate planning. Estate planning laws are fluid. Bankruptcy laws are as well. You would NOT want to hire me as your bankruptcy attorney.
#4. One Trust Fits All
Trusts are very important estate planning tools. However, trusts are not appropriate for all families and situations. Avoid the estate planner who suggests a trust every time. Also, avoid the estate planner who charges a flat rate for trusts. Some trusts take an hour to create while others can take many, many hours.
#5. Trusts for Minor Children
Trusts are very appropriate for families with minor children and minor grandchildren. Minors cannot legally own anything. The guardian of the minor ends up “owning” the property and money. This can lead to problems in and of itself. Also, most families do not want to ”dump” a large amount of money on an 18 year old. I know I probably would not have saved much of it when I was 18 if several hundred thousand dollars fell into my lap. I would have driven a really cool Lamborgini, though.
#6. Not Declaring Guardians for Your Children
Most families do not realize that you can declare who you want to take care of your chidren if something were to happen to both parents. This is one of the most important decisions you will ever make. Do not exclude it from your planning.
#7. Designate Your Beneficiaries
All of your accounts (banking, investment, retirement and life insurance) have beneficiary designations that you need to complete. You state where you want your money to go to. These accounts will avoid probate if you take care of the beneficiary designations. You can even designate the money to go to your trust if you are leaving it to a minor child or grandchild.
This list could have been entitled “100 Estate Planning Mistakes You Do Not Want To Make”. That would have been a tough read, but it hammers the point home that you need to meet with the proper estate planning attorney to ensure that your plan is exactly what you need.
In December of 2009, the House passed an estate tax bill that continued the estate exemption at $3.5 million per person ($7.0 million for a couple). However, the Senate could not agree and the estate tax was repealed on January 1, 2010.
Sen. John Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) claim they are close to an agreement for an estate tax compromise. Both advocate increasing the exemption to $5 million and reducing the rate to 35%. They believe that they are near the 60 votes needed for a 10-year phased-in plan.
While it has not been publicly released, one version of the proposed Kyl-Lincoln compromise starts with an exemption of $3.5 million and an estate tax rate of 44%. Over a term of 10 years, the amounts are adjusted to a $5 million estate exemption and an estate tax rate of 35%. However, Sen. Max Baucus (D-MT) is not willing to bring the proposed compromise before the Senate Finance Committee for a formal vote.
Sen. Bernard Sanders (I-VT) is an Independent but participates in the Democratic caucus. He has been joined by Sen. Tom Harkin (D-IA) and Sen. Sheldon Whitehouse (D-RI) in introducing a new estate tax bill.
The three senators sent a letter to their colleagues and outlined the reasons for enacting an estate tax increase for Americans with larger estates. Sen. Sanders notes that a wealthy Houston resident named Dan Duncan passed away early in 2010 with an estimated $9 billion estate. If the Senate does not take action, this estate could be transferred to family with a savings of several billion in estate tax.
Total estate tax savings in 2010 for heirs of Duncan and others with large estates are estimated to be $14.8 billion. This amount is lost revenue to the federal government in a time when all possible avenues for raising revenue are being explored.
Sen. Sanders proposes the “Responsible Estate Tax Act of 2010.” This act would tax the first $3.5 million of an estate at 45%. Estates over $10 million would be taxed at 50%, with estates over $50 million paying tax at a rate of 55%.
In addition, there would be a “billionaire” surtax of 10%. Sen. Sanders would “protect family farmers” by allowing a Sec. 2032A reduction in farm land for heirs who are actively farming of up to $3 million, an increase over the current $1 million limit. Finally, for estate conservation easements, the exclusion would be increased to $2 million and the base percentage to 60%.
This proposal would also incorporate the Obama Administration’s recommendation to set a minimum term for the GRAT of 10 years and also to modify the rules to reduce minority and lack of marketability discounts for family limited partnerships.
Sen. Charles Grassley (R-IA) did not support the Sanders bill but suggested that it may have been useful for Sen. Sanders and his supporters to place a plan on the table. He indicated that there are “quiet supporters of the junior senator from Vermont” and they will be influencing the overall result.
Thanks to Jon Rich of Ducks Unlimited for this information.
A common question that I receive from clients is “I was told I need to get a guardianship. What is that?”
Senate Charles Grassley (R-IA) is the ranking Republican on the Senate Finance Committee. In a conference call with several reporters on June 2, 2010, he discussed the uncertain future of the estate tax.
Sen. Grassley noted that Sen. Jon Kyle (R-AZ) and Sen. Blanche Lincoln (D-AR) have proposed that the Senate Finance Committee pass an estate tax bill with a $5 million per person exemption and a 35% top estate tax rate. However, Grassley expressed the opinion that “the Finance Committee would like to take up consideration of legislation, but we aren’t assured by the majority leader that the bill passed out of committee will be taken up on the floor.”
Under the Senate rules, even if the Finance Committee were to pass the Kyle-Lincoln estate tax compromise, Majority Leader Harry Reid (D-NV) is not obligated to schedule a floor vote and could simply stall the legislation.
In December of 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009. This makes permanent the 2009 estate exemption of $3.5 million and top estate tax rate of 45%. If the House and Senate are not able to take action on estate taxes by the end of 2010 then on January 1, 2011 the estate tax returns with a 55% top rate and an exemption of $1 million (plus indexed increases). If this were to happen, Sen. Grassley stated that there will be a “tremendous upheaval at the grassroots of America.”
Thanks to Jon Rich of Ducks Unlimited for this article.
Parents with minor children MUST have the proper planning in place. I have heard and had to deal with a number of nightmare situations where the proper planning was not in place. Here are a few important items to take care of and why. Thanks to estate planning specialist Michael Lichterman for the idea and information.
Here is a great article from Larry Deason about ensuring that your baby is taken care if something were to happen to you.
A qualified estate planning attorney, who focuses his or her practice in estate planning, can help you put together a comprehensive plan that will care for you and your child in the event of your incapacity or even your death. Protect yourself and your baby from the unexpected. Call and schedule an appointment with an estate planning attorney today. You’ll sleep better once you do … at least when the baby lets you!
http://www.yumasun.com/articles/child-61399-health-guardian.html
Here is a great article from ABC news. It is about heirs who wished their relatives had planned better.
Senate Finance Chair Max Baucus (D-MT) has been in intensive negotiations with Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) over the estate tax. Sen. Kyl and Sen. Lincoln have proposed increasing the $3.5 million exemption that was applicable in 2009 to $5 million per person. In addition, the previous estate tax rate of 45% would be reduced to 35%.
Negotiations have been ongoing for several weeks. On May 11, 2010, Sen. Kyl reported, “We have an agreement about how we would like to move forward and an agreement on many of the offsets.” He continued by observing that the offsets are still subject to discussion. It is estimated that the offsets will be from $60 billion to $80 billion.
While the details of the proposed compromise have not been released, several aides suggested that it may include an estate tax option in 2010. If the option is enacted, estate planners could choose either the repeal of estate tax and lose part of the step-up in basis under the 2010 rules or select the new compromise estate exemption and estate tax rate.
It may occur that the tax extenders and the estate tax are combined in one legislative bill. Senate Budget Chair Kent Conrad (D-ND) observed this week, “You have got 13 legislative weeks. It seems to me it would be wise to put all the tax measures together.”
The House proposal for the offsets for the tax extenders (including the IRA charitable rollover) is to change the “carried interests” of hedge fund managers from being taxed at capital gain rates to ordinary rates. It now is possible that the change in the law will occur, but it may be phased in over a number of years.
Special thanks to Jon Rich at Ducks Unlimited Gift Planning for this article.
