Annapolis, Maryland Wills, Trusts & Estate Planning

Special Needs Planning – Annapolis Estate Planning

It is important to understand the basics of special needs planning, so that you can plan for your child’s future. There are many issues to address, but experienced professionals will be able to help.

Special needs planning is challenging. It’s important to have a strong team to work with. An estate planning attorney with experience in helping special needs families will be able to guide you through the process. They will also likely have access to other professionals to help.

A recent Forbes article, “Special Needs Kids Require Specialized Estate Planning,” says that if you have a child with special needs, it’s critical that you look at your planning options with your estate planning attorney and discuss your child’s health, capabilities and prognosis. You can then customize a plan that works for your child, with as much flexibility as possible.

Those with enough assets often would rather not have their child get any government benefits and will set aside an amount to cover all the child’s living expenses in trust. Since the parents aren’t concerned with government benefits, the trust can be a discretionary trust that will distribute income and principal at the trustee’s discretion for the benefit of the child throughout the child’s life.

If there is a good chance the child will receive government benefits, many parents create special needs trust to supplement (not replace) the government benefits that the child will receive. The trust must be drafted so the child doesn’t become ineligible for the government benefits. These benefits provide for the child’s basic needs like a place to live, so the special needs trust will defray the cost of extras such as trips and entertainment.

If the parents can’t determine if their child will be eligible for government benefits, another option is for the parents to give their current trustees the authority to create a separate special needs trust at the time of the surviving parent’s death. Therefore, if the child is receiving benefits, the trustee can create the trust at that time with the goal of preserving the child’s benefits.

All these trusts can be funded now. The parents can establish the trust and transfer cash or other assets to it, or the trust can be created now and left empty until a parent passes away. At that point, money can move into the trust from the parent’s estate, another trust, or from a life insurance policy.

Some parents elect not to create a trust for their child and to disinherit him completely. The thinking is that the child can be supported solely by government benefits. Others go with a combination approach. They disinherit the special needs child and leave more assets to their other children with the understanding that the other children will care for the special needs child. However, this isn’t a great idea. The siblings have no legal obligation to care for his or her sibling with special needs, just a moral one. If the child who inherited the bulk of the estate gets divorced, the assets are also susceptible to division upon divorce. Finally, the assets are liable to a creditor’s claim if the child is sued.

Give yourself the peace of mind that comes from knowing you have done everything possible to ensure that your special needs child will have what he or she needs when you are no longer here to protect them.

Reference: Forbes (March 27, 2019) “Special Needs Kids Require Specialized Estate Planning”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Paying for Special Needs Care Under the New Tax Laws – Annapolis Estate Planning

The cost of paying for special needs care depends on the type and intensity of each individual’s condition. Planning for care, including the use of Special Needs Trusts, can help families manage costs and plan for the future.

The financial needs of a loved one with special needs can be staggering for a family. According to the organization Autism Speaks, a lifetime of support for an autistic child can reach more than $2.3 million.

If you have a family member affected by a disability, what is your plan to pay for this care? This was the issue explored in a recent Financial Planning article, “A new special needs planning approach under the tax overhaul.”

Families usually want to plan for disabled relatives, but can be wary of losing access to savings, fearing that they may need the money themselves. A caretaker must also weigh the individual’s needs against the family’s other financial goals and obligations.

Planning for people with special needs often involved irrevocable trust strategies in the past. Trusts can benefit the person with special needs, but other family members had limited access to the investments. The lifetime estate tax exemption is doubled under the tax overhaul, so most Americans do not face a federal estate tax. The change in the tax law and higher exemptions have made it possible for people to plan for the loved one’s care, while ensuring protection for the family.

1. Estimate the cost of caring for a family member with special needs. A good plan should preserve eligibility for government benefits, such as Medicaid and SSI. However, it is important to note that many expenses are not covered. This plan must also state who will care for the disabled person, if the primary caregiver dies or is incapacitated.

2. Decide how to fund the plan. Families frequently use a permanent life insurance policy to help cover any gaps left by limited government aid. The death benefit, which is generally income tax-free, provides money to help replace caregiver services, add to benefits provided under government programs and provide a liquidity source to help equalize the inheritance for other family members.

When the federal estate tax exemption was lower, a parent or caregiver usually would create an irrevocable third-party special needs trust during their lifetime. The trust assets would be used to purchase a life insurance policy, with the trust made owner and beneficiary. At the insured’s death, the death benefit received by the trust would be excluded from the grantor’s estate for estate taxes. The policy distributions would provide ongoing care for the relative, while allowing for access to government benefits.

However, the new higher exemptions have made it possible to plan for a loved one with special needs and also protect the entire family. This can be done by a caretaker personally owning a life insurance policy on his/her life that names a special needs trust as the beneficiary.

3. Work with an attorney experienced in Special Needs planning. This type of planning really does require a professional team, including a Special Needs attorney who understands the interplay between government programs and family asset ownership.

Reference: Financial Planning (January 15, 2019) “A new special needs planning approach under the tax overhaul”

Holden & Campbell, LLC – Annapolis Estate Planning

Need a Will? Talk with a Living, Breathing Estate Planning Attorney - Annapolis Estate Planning

On the short list of why you need a will: your family won’t know how you wanted to distribute your possessions or what kind of funeral you wanted. They may also fight over the distribution. The cost in legal fees and taxes will also take a big bite out of any remaining assets.

Writing down a list of your assets and thinking about how you want them distributed among your heirs is the first step in having an estate plan prepared. Everyone should have a will, regardless of whether their estate is big or small, or if they are in their twenties or seventies.

A U.S. News & World Report’s article asks “Should You Make a Free Will Online?” According to the article, before writing your will or using an online service, you need to know the legal requirements in your area. In many instances, this is best left to a legal professional in your state.

There are plenty of online tools that will help you create a will. However, before clicking on a website’s promise, you need to evaluate the available options. There are three main ways to write a will:

1. Do it yourself;
2. Use a do-it-yourself program; or
3. Get help from a qualified estate planning attorney.

If you draft a will on your own, you’ll need to be absolutely certain you understand all of the applicable probate, tax and property laws. People who’ve written their own wills are usually those with very basic estates, like a person with a single piece of real estate and a small amount in investments.

If you use an online service, you’ll have access to software that walks you through the process. In this case, you’ll need to be sure that the software company has all the applicable laws covered, as required for your state. You also want a program that lets you make updates later, if your situation changes.

However, if you engage the assistance of an experienced estate planning attorney, you’ll have the opportunity to have an expert help you think through the details. This result will be a well-drafted will. Yes, it will cost a bit more, but for many situations—like those with blended families, complex investments, or property in several states—it’s worth it.

Remember that the probate laws can vary widely from state to state. For example, the basic form requirements may allow a handwritten will in some states, but in other states the will must be typewritten. Some states require only two witnesses, and others require that the will be witnessed, notarized and typed.

If you have a larger estate or heirs with medical conditions, it may be wise to work with an attorney who can counsel you on the best solutions for your situation. For example, if you have a child with special needs receiving government benefits, you should have an attorney create a trust so their inheritance doesn’t negatively impact their benefits.

You should also use an attorney if you want to reduce your exposure to probate fees. Some people transfer their assets into a revocable living trust, so they are not subject to probate fees. An online service can’t give you this type of attention or personalized service.

The problem with online will services is that families are complex, and estate plans require more than a simple will. An estate plan includes a plan for your entire estate and often, tax planning. You’ll also need to have Power of Attorney, Health Care Power of Attorney and other important documents created. An experienced estate planning attorney will look at the larger picture and talk with you about your concerns and what kind of a legacy you want to leave behind. If you have minor children, you’ll need to name guardians for them and identify someone who will be in charge of the resources that are left for their care. You’ll also need to be sure that your assets are titled properly and that any trusts that may be created are funded. What if there are questions about eligibility for Medicaid?

A face-to-face meeting with an estate planning attorney addresses your family and your entire life. That may be something that an online service will provide in the future, but for right now, stick with a live lawyer.

Reference: U.S. News & World Report (January 9, 2019) “Should You Make a Free Will Online?”

Holden & Campbell, LLC – Annapolis Estate Planning

Is Your Estate Plan Working for You? – Annapolis Estate Planning

Remember that estate planning is not just for the wealthy, and now that the federal exemption is so high, not just for the billionaires either. Estate planning is also much more than a will.

Your estate plan has a lot of work to do for you, both while you are alive and for your family when you have passed. A good article that explains it all comes from Investopedia, “How to Get Your Estate Plan on Track.” There are three key objectives that your estate plan needs to do:

 

• End-of-life health care decisions are documented in a legally binding document;
• Assets will be distributed according to your instructions, rather than state law; and
• Loved ones avoid the time, expense and stress of the probate process.

A basic estate plan should include advanced directives, such as a health care proxy and power of attorney, will (perhaps a “pour-over” will and a revocable living trust). If you want to ensure that you have a valid will that follows the laws of your state, avoid pitfalls and best protect your family, hire an experienced estate planning attorney to make certain you have professional legal knowledge, when considering the nuances of trusts and estate law.

A health care proxy, also called a health care power of attorney, accomplishes two goals. First, it authorizes a designated individual to make health care decisions on your behalf, if you are ill or otherwise can’t make these decisions on your own. Without this, a judge would decide who has this authority in those circumstances. A health care proxy also allows you to document specific decisions for your health care, such as end-of-life decisions.

Your estate plan should also include a power of attorney, which allows you to authorize a person to make financial decisions in your stead. It’s used if you’re not in a position to handle such affairs on your own (like a health care proxy).

Probate is the legal process where the court approves the distribution of your assets and gives creditors an opportunity to collect your debts. Going through probate can be stressful for your heirs. There are costs incurred and procedures that must be followed before assets are distributed. The probate process can take months and can be dragged out for more than a year in some situations.

Probate can be avoided with the right planning. For example, you can title certain assets like bank accounts, brokerage accounts, and property, so they pass directly by operation of law to your heirs, and bypass probate. Retirement assets are required to have beneficiaries and likewise will bypass probate. Make sure to have contingent beneficiaries, so these assets continue to bypass probate, if your beneficiaries predecease you.

For people with minor children, designating their potential guardian is one of the most critical elements of an estate plan. It is part of your will in most states. Remember, if you don’t name guardians in your will, and both you and your spouse pass away, the court will appoint a guardian, which may not be ideal for your children.

There are other unique situations that may warrant creating additional documentation and planning. These include having a business, adult children from a previous marriage, a potential liability against your estate or a child with special needs. In any of these situations, you’ll definitely need to review your circumstances with an attorney.

Those assets held jointly (your home perhaps) and assets that have a beneficiary (life insurance) aren’t included in the will. Each state has its own rules about where the property goes, when a person dies without a will.

Finally, remember that estate plans are not “one and done” documents. Just as your life changes, your estate plan needs to change. Tax laws also change, and anytime there is a big tax law change, you’ll need to be sure that your estate plan still achieves your desired goals. You might not need a revision, but you should have a review every few years.

An estate planning attorney in your state will be able to point you and your estate plan in the right direction.

Reference: Investopedia (October 17, 2018) “How to Get Your Estate Plan on Track”

Holden & Campbell, LLC – Annapolis Estate Planning

How Do Trust Funds Work? - Annapolis Estate Planning

Trusts serve a variety of functions in estate planning, and they aren’t just for wealthy people.

Trusts can be simple or they can be complex, depending on what type of trust is being considered and how they are structured. Trusts should be set up by an estate planning attorney, who is familiar with asset ownership and how trusts impact inheritances and taxes.

U.S. News & World Report’s recent article, “Setting Up a Trust Fund,” explains that a trust fund refers to a fund made up of assets, like stocks, cash, real estate, mutual bonds, collectibles, or even a business, that are distributed after a death. The person setting up a trust fund is called the grantor, and the person, people or organization(s) receiving the assets are known as the beneficiaries. The person the grantor names to ensure that his or her wishes are carried out is the trustee.

While this may sound a lot like drawing up a will, they're two different legal vehicles.

Trust funds have several benefits. A trust can reduce estate and gift taxes and keep assets safe. With a trust fund, you can establish rules on how beneficiaries spend the money and assets are allocated through provisions in the trust document. For example, a trust can be created to guarantee that your money will only be used for a specific purpose, like for college or starting a business.

A trust fund can also be set up for minor children to distribute assets over time, such as when they reach ages 25, 35 and 45. A special needs trust can be used for children with special needs to protect their eligibility for government benefits.

At the outset, you need to determine the purpose of the trust because there are many types of trusts. To choose the best option, talk to an experienced estate planning attorney, who will understand the steps you'll need to take, like registering the trust with the IRS, transferring assets to the trust fund and ensuring that all paperwork is correct. Trust law varies according to state, so that’s another reason to engage a local legal expert.

Next, you'll need to name a trustee. Choose someone who’s reliable and level-headed. You can also go with a bank or trust company to be your trust fund's trustee, but they may charge around 1% of the trust's assets a year to manage the funds. If you go with a family member or friend, also choose a successor in case something happens to your primary trustee.

It’s not uncommon for people to have a trust written and then forget to add their assets to the fund. If that happens, the estate may still have to go through probate.

It’s better to create some general guidelines and have confidence in the trustee to carry out your wishes. Placing too many restrictions on a trustee will inhibit their ability to be effective on your behalf.

Reference: U.S. News & World Report (November 8, 2018) “Setting Up a Trust Fund”

Holden & Campbell, LLC – Annapolis Estate Planning

Special Needs Families Need Strong Financial Planning - Annapolis Estate Planning

The cost of raising a child with special needs is easily twice that of an average child, and college costs are higher as well.

Families with special needs children need to plan their child’s future carefully in many regards, and financial concerns are, by necessity, a big part of planning. While the average cost of raising a child from birth to 18 is about $250,000, according to The American College of Financial Services, the cost to raise a child with special needs can easily be twice that amount. One of the challenges is preparing for the special needs child when its time to attend college.

WTNH’s recent article, “Financial planning for families with children with special needs,” advises that working with a team of different professionals can help parents manage both the financial and non-financial aspects of providing care. Here are some of the key roles:

Caregiver. Working with a caregiver can help manage the challenges of providing care and addressing everyday responsibilities. The cost will be commensurate with the level of care required, so determining the need will be important to creating a budget.

Estate Planning Attorney. A lawyer who specializes in estate planning can help create a special needs trust to shield assets for a beneficiary with special needs, while preserving her ability to qualify for government programs. An updated will and living will with the names of a guardian and trustee will also be crucial to be sure that care is provided for in accordance with your wishes. A letter of intent can also be a helpful document for caregivers. It’s not a legally binding document, but it can provide important information like medical history, family history, information about your child’s preferences, and your wishes for the type of care they should receive.

Accountant. As a provider of care to a child or dependent with special needs, you may qualify for tax deductions for medical expenses, tax credits and tax-advantaged accounts. For individuals disabled before the age of 26, a 529A account can provide tax-free growth and use of the money to improve health and quality of life.

Financial Advisor. A financial advisor, who specializes in working with families that have special needs children or dependents, can provide specific recommendations on how to fund and protect accounts for disabled dependents.

Parents are advised to investigate any kind of benefits and support offered by the federal government, like Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). Depending on their employer, they may have access to flextime or child care cost reimbursement, as well as disability and life insurance. Don’t overlook local resources, since some counties and states have a host of programs available.

Reference: WTNH (August 7, 2018) “Financial planning for families with children with special needs”

Holden & Campbell, LLC – Annapolis Estate Planning

When Special Needs Children Become Legal Adults – Annapolis Estate Planning

The saying “little children, little problems, big children, big problems,” is particularly appropriate for parents of special needs children. Preparing for the next phase takes time, so it’s best to begin the process, once they celebrate their 17^th birthday.

One of the many decisions that parents need to make before a special needs child becomes a legal adult, is whether or not the child needs a guardian, or if the parents need a power of attorney, as detailed in a helpful article from Effingham (IL) Daily News, “Teaching parents about guardianship of disabled children.”

Once a child is age 18, the parent is no longer the child's legal guardian.

You should identify the support required for your child and ask what other support they need, while they’re transitioning. Work with a special needs attorney and ask about guardianship. Guardianship is a way to protect an individual who can’t take care of herself, make informed decisions or handle financial assets. An experienced attorney will explain guardianship and alternatives that may be chosen, if the child is capable of making some, but not all, decisions on her own. There are different kinds of guardianships and different kinds of powers of attorney (POA) for estate and health care requirements.

A person can be disabled in some ways, but still be competent to execute the powers of attorney. If the person understands who their family is, who she is, if she’s oriented to time, and she knows who they trust to handle their business or health care decisions, then she can probably sign powers of attorney.

A POA is written authorization to represent a person and make specific decisions on her behalf. The child may have a POA over her health care or estate management. A guardianship of the child’s health care or estate management is appointed by a judge, after reviewing physician statements about the disabled person's needs.

Remember that having power of attorney over their child's financial matters, doesn't give parents power over everything. Things not covered in the POA document are things over which the agent doesn't have the authority. A POA can be revoked, when the person assigning it is competent. However, in a guardianship appointed by the court, you have a duty to act, until the court determines otherwise.

You’ll need a physician’s report that clearly states that the allegedly disabled person needs to have a guardian, and the report should include very specific reasons. Guardianship needs to be as narrow as possible. A special needs attorney can guide you through this process to protect your loved one.

Reference: Effingham (IL) Daily News (April 15, 2018) “Teaching parents about guardianship of disabled children”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Consider an Integrity Monitor for Your Special Needs Trust - Annapolis Estate Planning

An “Integrity Monitor” or independent fiduciary can oversee the investment program and the service providers retained to implement the program on behalf of the trust. It’s a good idea for the trust itself and for the trust beneficiaries.

A cautionary article in Forbes, “Trusts, Special Needs Trusts, Family Offices All Need Integrity Monitors But Don't Know It,” examines the value of having an “Integrity Monitor,” an individual with the knowledge and skills needed to add a layer of fiduciary protection for the trust and its beneficiaries. An Integrity Monitor should have the investment management industry and forensic expertise needed to  prevent any wrongdoing with the administration of the trust.

If you don’t have an expert in money management malfeasance dedicated to overseeing the investment program of your trust, you may be taken advantage of daily throughout the lifetime of the trust.

It’s common practice for major companies, agencies, and governments to hire “inspector generals” to oversee their operations and prevent the occurrence or reoccurrence of illegal or unethical business practices, as well as to detect fraud.

Courts and regulators also often require that such a monitor be placed within a company to prevent future abuses as part of a legal settlement, when the company has engaged in past wrongdoing.

This should be a no-brainer decision to make. There’s no reason to wait until something goes wrong. Adding another layer of independent protection is relatively inexpensive to do and the potential to prevent or head off financial harm will be more than worth the cost.

Reference: Forbes (January 30, 2018) “Trusts, Special Needs Trusts, Family Offices All Need Integrity Monitors But Don't Know It”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Special Needs Families Require Careful Financial and Estate Planning - Annapolis Estate Planning

Government benefits for special needs individuals are needs-based, so any change in their financial situation could make them ineligible for benefits.

Grandparents who want to be generous to their special needs grandchildren, are often surprised when the child’s parents tell them not to. With number of disabled individuals five years and older numbering nearly 58 million, that’s a lot of disappointed grandparents. But it’s important to respect their parent’s wishes. Here’s why.

Giving money directly to a special needs child or adult—especially if they're already receiving government benefits—can create big problems, as CBS News reports in “’Special needs’ people need special financial planning.”

If a person with special needs has more than $2,000 in their own name, he or she risks the loss of the government benefits that he or she already receives. It’s a major headache to get them back.  Instead of giving a lump sum of cash to a special needs person, the money should be structured in a way that doesn't violate government benefit requirements.

This is important because children with disabilities, like Down syndrome, now have a much longer life expectancy. As a result, the dependent person will probably outlive the parents.  However, they will still require care throughout their life. Now, many special needs adults live independently or in homes with little assistance. However, this doesn't mean that their government program benefits can cover their everyday needs. Therefore, it’s crucial to plan ahead.

There are several ways to have your money benefit people with special needs throughout their lives, without the loss of their federal benefits. One way is to create a special needs trust. This is a trust with the explicit purpose to "supplement, not supplant" federal and state assistance programs and to create a better quality of life for this person. A special needs trust can provide for special medical equipment, eyeglasses, and vacations.

Work with an experienced estate planning attorney to create a special needs trust, because there are  many rules and regulations involved. For example, the beneficiary (the individual with special needs) can't own the trust—there must be a designated trustee or "third-party provider" who dispenses the money.

Another important part of an estate plan for the future of a dependent with special needs is a "letter of intent." These are instructions that state what the guardian wants to happen in the future. It sets out everything a person with special needs requires, their history and what you and the person want in the future.

Another alternative is an ABLE (Achieving Better Life Experience) account. This allows contributions to a maximum of $15,000 annually, provided the person is diagnosed as disabled prior to age 26. There is a maximum of $100,000 that can be in this account, before the disabled person loses his or her government benefits. An ABLE account can be used for expenses like education, employment training, health, legal fees and funeral expenses.

Avoid these common mistakes that parents and caregivers make when planning:

• Disinheriting the child with special needs. Government benefits help provide food, shelter, and medical care, but remember it’s no more than bare bones necessities.
• Placing assets in your child's name. To qualify for government benefits like SSI or Medicaid, a person can’t have more than $2,000 in assets. If you leave funds or convertible assets directly to your child with special needs, they’ll need to be "spent down" to qualify for benefits.
• Relying on your other children to take care of their special needs sibling. This is a lot to ask of a brother or a sister, and it can cause resentment.
• Leaving money to your other children to support their sibling with special needs. This isn’t a good idea because the funds could be lost if the caregiving sibling dies, gets divorced or is sued, goes bankrupt, or just spends the funds. There's also no accountability.
• Savings bonds or 529 College Savings accounts in the child’s name. These are treated like any other asset: if the value is more than $2,000, a special needs individual could lose government benefits.

Reference: CBS News (December 25, 2017) “’Special needs’ people need special financial planning”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Maryland ABLE is open for enrollment - Annapolis Estate Planning

More independence, greater financial security and a better quality of life – that’s the future Maryland ABLE wants to help build. Maryland ABLE accounts are a new way to help individuals with disabilities save money and pay for qualified disability-related expenses without jeopardizing state or federal means-tested benefits such as SSI or Medicaid. Learn more and enroll at www.marylandable.org.