The Connecticut Estate Planning Blog

Estate Planning When One Spouse is Not a U.S. Citizen

If you or your spouse is not a U.S. citizen then you need to be aware of the fact that you have a completely different set of estate tax rules to contend with.  And if you don't then you may end up sending a lot of your hard-earned dollars to the government unnecessarily.

When you have two spouses who are both U.S. citizens, then upon the death of the first spouse there is never any tax regardless of how large your estate is.  It's upon the death of the second spouse when estate tax can become an issue if the surviving spouse dies with an estate that exceeds the federal exemption amount (currently $2 million).

But...if one spouse is a U.S. citizen and one is not, and the U.S. citizen spouse dies first, then estate tax could become due at that point and the government is not going to wait until the death of the second spouse before collecting a tax.  Why not?  Because the government is worried about that foreign spouse high-tailing it back to his or her home country and dying there, in which case the U.S. government can't collect a single penny of estate tax.  So the government has decided to tax while the taxing is good...while that non U.S. citizen spouse is still here in the country.

So...if one of the spouses is not a U.S. citizen, then there is a unique estate planning issue that must be addressed.  In the next post I will go over the most common approach to this situation; a QDOT trust (yes, another one of those Q-acronyms that come up a lot in estate planning).

Be Careful With Co-Agents

When my clients struggle at picking an executor for their wills, or a health care agent, or an agent under their power of attorney, they sometimes choose two or more children to act as their "co-agents".  This is an arrangement where each child has just as much legal authority as the other.

If you have a similar set-up in your documents then there are a couple of things to take into consideration...

The first, and perhaps most obvious issue is whether the co-agents you have chosen get along well with each other or not.  If they do not see eye-to-eye on most issues then you may be setting the stage for "gridlock" when it comes time for them to share decision-making responsibilities about your finances or personal affairs.  If they cannot resolve any given disagreement then you risk getting the local probate court involved.

The second issue is that even if they get along well they may be geographically distant from one another.  Maybe one child is local while the other is somewhere out on the west coast.  This is not a serious concern if they are co-executors in your will, but a logistical problem may evolve if they are co-health care agents or co-agents under your power of attorney and they need to act quickly to respond to an emergency situation. 

Unless they are co-agents with "several" powers or "joint and several" powers, then whatever hospital or financial institution they are dealing with may require that they both act together and both sign all the relevant documents.  In a practical sense, this may prove to be a difficult requirement to meet if one agent is far away and cannot be reached, or perhaps out of town on business or on vacation.  Then you risk having a situation where nothing can be done for a significant period of time.

So, unless there is an extraordinary situation taking place, if you have co-agents then make sure they have "several" or "joint and several" powers which will allow either of them to act independently in case the other agent cannot act for some reason.  This is usually the most practical and convenient arrangement for co-agents.

Young Families Should Consider "Second-to-Die" Life Insurance Policies

Many of my clients, particularly younger clients, may have very little in the way of liquid assets and precious little equity in their house.  Nonetheless, if you fall into this category and you have young kids then getting an estate plan in place is still essential and you can still leave a significant estate for your children's benefit by using life insurance.

The perfect life insurance product for a young family may be a "second-to-die" policy.  These types of policies do not pay out any proceeds until both spouses die.  And since two deaths must occur before the insurance company is forced to shell out any money, the premiums on such policies are surprisingly low...a nice feature for young parents who are still in the early stages of their careers with relatively low salaries.

But be careful...a second-to-die policy may not be ideal when one of the spouses stays at home with the kids.  In that situation the working spouse should probably look at a single-life policy to create an income stream for the family if that working spouse is suddenly no longer around to generate income.

In any case, every young family should sit down with a trusted insurance agent and look at the different life insurance options to ensure that the kids can maintain their standard of living by having a support trust funded with life insurance proceeds.  And feel free to contact me if you need a life insurance agent referral in the Hartford County area.

But no matter what you do (and I've already written about this) if you have young kids, don't procrastinate with your estate planning.

Estate Planning for the Disabled: Special Needs Trusts (Part II of II)

So...what makes "Special Needs Trusts" so special?  It is, in a way, an opportunity for your disabled child (or non-child beneficiary) to have her cake and eat it too.  This is because the funds held in the name of the trust are there for the benefit of the child, yet it is not a "countable asset" when determining her eligibility for government benefits.  This allows a situation where the government benefits cover her basic needs while the special needs trust can pay for the "luxuries" (things that the government will not pay for), thereby maximizing her quality of life.  This is, of course, the ultimate goal of my special needs clients; making sure that their disabled child has the very best life possible if they are suddenly not there to help her out.

The restrictions are, first, that the child would have absolutely no control over the trust funds; she cannot write checks or make any type of withdrawal, make investment decisions or compel the trustee to make distributions.  The trustee has absolute and full discretion over what happens with the trust funds. 

Second, the trustee is given strict instructions in the trust language that he/she is not to make any distributions that would jeopardize government benefit eligibility.  That is to say that the trustee cannot duplicate any spending that the government is already doing on the disabled child's behalf.  So if the child is receiving Medicaid benefits then the trustee cannot pay for the basic medical costs that Medicaid covers.  If the trustee does so, then the State could say that government benefits are no longer needed since the trust is covering basic medical costs.

These trusts are, obviously, complicated estate planning documents.  My objective in this post and the previous post is to give you a very general overview of what special needs trusts are all about.  But stay tuned for future posts where I will get into the nitty-gritty details of these trusts, such as how to select a trustee, different types of special needs trusts and other important issues.

Estate Planning for the Disabled: Special Needs Trusts (Part I of II)

If you have minor or adult children (or non-child beneficiaries) who are either receiving government benefits currently, or may receive them in the future due to a mental or physical disability, then you need to know about special needs trusts.  These trusts are certainly important enough to spend the next two posts discussing them.

These types of trusts are much more well-known than they were just a few years ago, but I find that too of my clients are not familiar with them.  The most common disabilities among my clients' beneficiaries are conditions like autism, down syndrome, Alzheimer's and mental retardation, but special needs trust planning is usually vital regardless of what the specific disability may be.  If there is a chance that your beneficiary may not be able to support himself/herself if you are suddenly not there to help out, then you need to at least discuss special needs trusts with an estate planning attorney.

When we talk about government benefits for the disabled then we're usually talking about Medicaid (Title 19), which covers basic medical care, and SSI (Supplemental Security Income), which covers basic food, clothing and shelter needs.  These types of benefit programs have asset limitations: $1,600 in Connecticut for Medicaid and $2,000 for SSI.  In other words, anyone with assets that exceed these limits are ineligbile and must spend their assets down on their care until they are under the asset limits, at which point they can apply.

So...this means that if you leave an outright inheritance to a disabled beneficiary then you are likely doing them a disservice.  The inheritance will either render them ineligible for the government benefits they are already receiving or it will make it harder for them to qualify in the future because there are suddenly more assets that need to be spent down.

In tomorrow's post I'll explain how these important trusts operate and why they are usually the best option for disabled beneficiaries.

Living Wills vs. "DNR's"

One thing many of my clients are often confused about is the distinction between "living wills" and "do not resuscitate orders" (DNR's).  Some clients balk at signing a living will because they believe that emergency medical personnel will not try to revive them if they have a heart attack.  So let's clear up the confusion...

Living wills basically say that if you ever find yourself in a permanent coma or vegetative state, and all the doctors agree that it is a truly hopeless situation, then the document indicates that life support systems will be removed, including nutrition and hydration (since they are essetnially life support systems).  Pain management medications would still be administered. 

DNR's are much different.  They essentially say that if you are having any type of a medical emergency (heart attack, stroke, etc.) then medical professionals are not allowed to try to revive you.  This type of order is usually put in place for very elderly and/or frail patients when pounding on their chest in an effort to administer CPR simply wouldn't make any sense.  In Connecticut, if you have a DNR in place then you typically wear a special bracelet so that emergency medical personel are aware of your DNR status. 

So...living wills become relevant in a very narrow set of circumstances (permanent coma) and just about everyone should have one, assuming that the instructions comport with your wishes, of course.  In stark contrast, a DNR becomes relevant in any type of medical emergency, but it is only appropriate for a very small percentage of the population. 

Got Pets? Are They In Your Estate Planning?

Our family has two rabbits and two African albino frogs.  The frogs are very strange creatures...you can practically see right through them!  The rabbits are fluffy and cute, but they don't have particularly engaging personalities.  The frogs are decidedly not cute (in fact, they're downright creepy) and they don't appear to have any personality at all.  Suffice it to say that none of these pets are mentioned in our Wills.

But I have many clients with wonderful cats and dogs that have become an integral part of my clients' day-to-day lives.  These clients consider their pets as full-fledged, card-carrying members of their family.  Yet, most of these clients haven't thought to include provisions about their pets in their Wills.  One possible explanation is that clients know their pets have very short life expectancies and there is no expectation that their pets will outlive them.  Needless to say, this isn't always the case and often the result is that the pets end up in an animal shelter because the family was not given adequate instructions by the owner. 

Addressing your pets in your Will gives you an opportunity to appoint a new owner and a "back-up" new owner, you can leave specific instructions regarding your pet's care, and you can perhaps set up a trust fund in your Will to ensure that all of your pet's future needs will be paid for.

If you own a much-loved pet then you should take a look at a free kit that the Humane Society has created called, "Providing for Your Pet's Future Without You".  Then sit down with an estate planning attorney and make sure that your pet continues to receive tender loving care in case you are suddenly no longer around to provide it yourself.