Recent Law Soon to Allow Disabled Persons to Create Their Own Special Needs Trust

 

What is a Special Needs Trust?

Disabled persons who receive means-tested public benefits like Supplemental Security Income (SSI) and Medicaid must have no more than $2000 in countable assets in order to qualify (among other requirements).  A Special Needs Trust is used to prevent disabled persons from being disqualified from receiving means-tested public benefits if they are to receive the benefits of trust assets or a personal injury award.  

 

Types of Special Needs Trusts

There are three types of Special Needs Trusts – first-party special needs trust, third-party special needs trust, and pooled trust special needs trust.  For this blog, we will only be discussing first-party and third-party special needs trusts. A pooled trust is a group trust that is administered by a nonprofit for many beneficiaries.

The main – and most important difference – between the two types of trusts is that a third-party special needs trust cannot hold funds belonging to the beneficiary (the person with special needs).  So, if a person (under 65) with special needs wins a personal injury award, or inherits money directly, and not thru a bequest directly to a third-party special needs trust, they will need to have a first-part special needs trust established.  Another key difference between a first-party and third-party special needs trust is that because a third-party special needs trust holds assets that never belonged to the beneficiary, the government is not entitled to reimbursement from trust assets after the beneficiary passes unlike a first-party special needs trust.  Thus, a third-party special needs trust can pass assets on to other family members after the beneficiary with special needs passes.  Also, a third-party special needs trust can be established for the benefit of a person with special needs by anybody other than the beneficiary.  A first-party special needs trust must be established by the person’s parent, grandparent, guardian, or the court – but keep reading below for recent changes to this law.

 

Recent changes to Special Needs Trust Law

As it stands this very minute, the law presumes that a person with disabilities lacks the capacity to establish their own first-party special needs trust, and therefore a parent, grandparent, guardian, or the court must establish it for him or her.  This is about to change.  In December of 2016 the house passed H.R. 34, which includes the Special Needs Trust Fairness Act and makes a simple modification to 42 U.S.C. 1396p(d)(4)(A).  The president has promised to sign this into law.  The significant change that this law brings about is that it allows a disabled person with mental capacity to establish his or her own first-party special needs trust.   

 

So, to summarize:

  • A Special Needs Trust is used to prevent disqualifying a person receiving Medicaid and/or Supplemental Security Income (SSI)
  • A first-party special needs trust holds assets that will belong to the beneficiary (such as a direct inheritance, or lawsuit award)
  • A third-party special needs trust holds assets that never belonged to the beneficiary (such as an inheritance that is being given to the special needs trust directly)
  • A first-party special needs trust can soon be established by a disabled person under 65 years old with mental capacity instead of needing a parent, grandparent, guardian, or courts intervention
  • A third-party special needs trust can be established by anybody except the person with special needs
  • The government can seek reimbursement from a first-party special needs trust after the beneficiary dies, whereas this does not happen with a third-party special needs trust

 

If you have any questions, or need to establish a Special Needs Trust, please call me today and let’s start planning.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

 

William Daniel Powell (Dan)

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and on my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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ILIT Trusts – Do I give the Policy Proceeds Outright, or in Trust?

 

So doesn’t a life insurance policy usually just pay a lump sum to the beneficiary?  The answer is yes unless the beneficiary is a minor.  If that is the case, the UTMA (Uniform Transfer to Minors Act) or a guardian will need to be appointed which costs time and money.  The guardian will have to control the assets and administer the proceeds until the minor reaches the age of majority.  A lump sum can also be thought of as an outright gift because there is no control or restrictions.

 

Outright, or in Trust?

Outright gifts can present a variety of problems such as:

  • If the beneficiary receives means tested public benefits such as Medicaid or SSI (Supplemental Security Income), the outright gift may put the receiving of these benefits in jeopardy.
  • If the beneficiary of an outright gift is a minor, a guardian will have to be appointed (if one is not already in place) by a court which takes time and costs money.
  • An outright gift can be dangerous if the beneficiary has a substance abuse problem.
  • A lump sum gift may not be the best to protect the beneficiary from a bad marriage, creditors, or predators.
  • Even one that is good with money may experience problems if given a large sum of money all at once.

 

For these reasons alone a gift given in a Trust is preferable.  A Trust (a Revocable Trust or an Irrevocable Trust) can control or guide the proceeds and provide very little control, to a high level of control. 

 

An ILIT (Irrevocable Life Insurance Trust) can be structured just like a Revocable Living Trust in how the proceeds are to be given to the beneficiaries.  The Trust can provide no guidance or control, or the Trust can provide a lot of guidance and control over the distribution of the proceeds. 

 

Please see my Blog for continued discussion of various aspects of ILIT Trusts.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

Please feel free to give me a call and we can establish your Living Revocable Trust, ILIT, or other Estate Planning goals today.  If you have specific estate planning objectives, I can help create solutions to achieve your specific purpose. 

 

Thanks for reading my blog.

 

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Advanced Estate Planning – An Overview to ILIT Trusts

 

What is a Trust?

As discussed in my other Blog posts, a Trust is a means of passing property to other persons.  A Trust is an advantageous method of passing property for several reasons.  With a Trust, you can help yourself in planning for your potential incapacity.  Also, with a Trust, you can better control how your beneficiaries receive what you leave them and can help protect those you choose as beneficiaries from bad marriages, predators, and the like.  Trusts don’t need to go through Probate and therefore save time and money.  A Trust – be it a Revocable Living Trust, or Irrevocable Trust – is a private document where a Will becomes public record when Probate is opened. 

 

 

What is an ILIT?

 

ILIT stands for Irrevocable Life Insurance Trust.  An Irrevocable Trust is just that – Irrevocable and thus not able to be changed like a Living Revocable Trust can be.  Sounds kind of scary and final doesn’t it?  Well, there are great reasons to use an Irrevocable Trust.  One reason to use an Irrevocable Trust is to create a Special Needs Trust to protect means tested public benefits like Supplemental Security Income (or SSI), or Medicaid and others.  Another great use of an Irrevocable Trust is to create an ILIT or Irrevocable Life Insurance Trust – the subject of this blog. 

 

An ILIT is typically used as an advanced estate planning technique.  When a person wishes to leave money to a person, but is either over the federal estate tax exemption amount (in 2016 it is $5.45 million for an individual, and $10.9 million for a couple), or close to reaching the federal estate tax exemption amount, the use of an ILIT is a great option.  The reason it is a great option is because properly structured, an Irrevocable Life Insurance Trust means that the proceeds of the life insurance are not includable in the insured’s estate for federal estate tax purposes.  Therefore, tax savings are realized.

 

 

How does an ILIT (Irrevocable Life Insurance Trust) work?

 

For the rest of the explanation of ILIT Trusts and how they work, please see Part 2 of this Blog.  Thank you.

 

See lots of estate planning information on my website at: www.myestate-plan.com 

Please feel free to give me a call and we can establish your Living Revocable Trust, ILIT, or other Estate Planning goals today.  If you have specific estate planning objectives, I can help create solutions to achieve your specific purpose. 

 

Thanks for reading my blog.

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Using Life Insurance in Estate Planning for small estates or young couples.

 

Many young people and young couples don’t think much about estate planning because in our early life, we don’t have much property or funds with which to plan!  For those young couples or individuals with children, money is probably even more thin.  These young people and young couples likely need estate planning more than they know.  What happens to your kids or spouse should something happen to you?  Admittedly, it is not fun to think about, but why leave the burden to your loved ones?  So many couples now have both spouses working and removing one of the streams of income can be devastating.  I know I wouldn’t want an unexpected fifty percent reduction in my income – no matter what point I was at in my life.  Not only is an income stream now gone, but there will likely be other short-term expenses such as medical, funeral, living expenses, and other bills. 

 

 

Life Insurance and Estate Planning to the Rescue!

 

Life insurance is a brilliant Estate Planning tool.  For the young person or young couple (or anybody really), life insurance can be utilized to provide funds where none may otherwise exist. 

 

Life insurance can create an estate that was not otherwise present.    

 

Life insurance can “fund” a Living Trust for the benefit of your family and used to help take care of a variety of things including:

  • The creation of the estate itself
  • Payment of taxes
  • Replacement of an income
  • Paying medical and funeral costs
  • Pay for college
  • Or just about anything else that money is used for

 

While you can designate a beneficiary of the life insurance policy without creating an Estate Plan, there are other considerations.  Having the Trust as the beneficiary of the policy proceeds provides all of the normal protections that a Revocable Living Trust provides.  Utilizing a Living Trust (or potentially an Irrevocable Trust) is better than naming a beneficiary for several reasons.  What happens of you and your spouse die simultaneously?  What if your kids are minors?  Without a proper Estate Plan, court proceedings will need to be instigated where there are minor children that are to receive property.  A Living Trust can help protect your beneficiaries from losing half their inheritance due to a bad marriage, or other predators.

 

Please feel free to give me a call and we can establish your Living Revocable Trust or other estate planning objectives today.  If you have specific estate planning goals, I can help create solutions you may not be aware of. 

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

Thanks for reading my blog.

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Wednesday, 04 May 2016 23:35

Advanced Estate Planning Overview

Advanced Estate Planning – An Overview

 

What Do You Think of When I Say Advanced Estate Planning?

 

Some people think advanced estate planning is just for the rich or wealthy.  Well, it’s not quite that easy.  Certainly there are advanced wealth transfer techniques that are available to high net-worth persons.  One of the easiest estate plan situations is a single person, never married, one or two beneficiaries, and a relatively small estate (under the federal estate tax exemption).  Things tend to get a bit more advanced as situations and goals get more complicated.  Planning can get a bit more complicated when a people with children from prior relationships marry and create the so-called “blended family”.  Often in these circumstances, each partner wants to make sure that their kids don’t get cut out of the estate should they be the first to pass away.  Another way things can get complicated is with an intricate and detailed distribution structure.

 

 

Life Insurance for Advanced Estate Planning

 

A wonderful technique for estate planning is the use of life insurance.  On one extreme, life insurance can be used in high net-worth estates to pay estate taxes.  On the other side, life insurance can be used to create the estate itself.  For a young parent or young family, life insurance may be the best way to make sure the kids or family is taken care of in the event that the primary money earner passes away or becomes incapacitated.  In most families today, both spouses work and may be equal money earners.  Even in this situation, the use of life insurance is advisable because maintaining the lifestyle on only one salary can be difficult or impossible.  Aside from lifestyle, there are other expenses life insurance can provide for such as college expenses, weddings, and the like.

 

Advanced techniques will be discussed here in my blog.  These techniques include:

  • The use of life insurance in Estate Planning
  • A/B Trust or Bypass Trust
  • Trusts for couples where one spouse is not a U.S. citizen
  • Using the Unlimited Marital Deduction
  • Using the Federal Estate Tax Exemption
  • Utilizing the yearly gift exclusion amount
  • Plus more

 

Please feel free to give me a call and we can establish your Living Revocable Trust or other estate planning objectives today.  If you have specific estate planning goals, I can help create solutions you may not be aware of. 

 

See lots of estate planning information on my website at: www.myestate-plan.com 

 

Thanks for reading my blog.

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Saturday, 30 April 2016 22:44

What is a Charitable Remainder Trust?

What is a Charitable Remainder Trust?

 

 

One way to think of a Charitable Remainder Trust (or CRT) is like a reverse mortgage that you establish with a participating charity.  You promise certain property to a charity, and in return they pay you a certain sum of money per year.  The amount the charity will give you yearly will depend on the value of the property you promise to give the charity, and your age when the charitable remainder trust is established.  Certain organizations offer charitable remainder trusts, and others do not.  Further certain organizations offer the legal service of drafting the CRT for free.  They usually do this to insure the Trust is drafted in the manner they prefer, and to keep the cost of having to review each charitable remainder trust to a minimum.

 

 

Even without a participating charity, a charitable remainder trust can be set up by an individual under the Internal Revenue Service Code.  This would still be an irrevocable trust like in the previous example.  The person that sets up the Trust called the Settlor or Trustor, establishes the irrevocable trust with him or herself as the beneficiary.  They receive a percentage of income, and the remainder goes to a charity.  This is usually considered an advanced estate planning method, but the classification is really pretty unimportant.  The only reason for the distinction is that it is usually used by persons with larger estates looking to reduce estate tax liability.  However, it can be used by anyone.  Some client’s situation is such that they find this option interesting.  Their situation normally is one where they either have huge charitable intent, or have no living relatives and huge charitable intent.  Whatever your situation, we can always discuss various options.

 

See lots of estate planning information on my website at: www.myestate-plan.com 

 

Give me a call today and see how affordable a quality Estate Plan that is 100% attorney advised, and 100% attorney prepared can be.   Effectuate your intentions, obtain your desired results, provide for those whom you care about.

 

 

Thanks for reading my blog.

 

 

William Daniel Powell

 

619-980-2297

 

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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