The Connecticut Elder Law Blog

Make Sure You Have the Right Type of Special Needs Trust

Most of my clients who sit down to discuss estate planning for their special needs child are surprised to hear that there are actually two types of special needs trusts, one of them being much more appealing than the other.  Well, there are really three types, but the third type (D4C pooled trusts) rarely comes up. Anyway, the question of which one you need to use is based on the source of the trust funding.

If the trust is funded by assets that belong to the special needs child (usually by way of a personal injury settlement, or possibly an inheritance from a well-meaning relative) then it's called a "self-settled" or "D4A" trust.  This is not an ideal situation because Federal law requires that the trust include a "pay-back" provision.  Such a provision states that upon the death of the special needs child the remaining trust funds must go to the State, up to the amount that the State has contributed towards the care of your child.  It essentially allows the State to get reimbursed and it's possible that you would not be able to have the money go to family members instead.  It depends on how much the State has helped out your child.

If the money going into the trust comes from a source other than the special needs child (presumably the parents and possibly other relatives), then it's called a "third party" special needs trust.  This type of trust does not require a pay-back provision for the State.  Upon the death of your child, the remaining trust funds can go to family members, charities, churches or anywhere else you would like it to go.

So...if you have a special needs trust it's worth taking the time to have your lawyer review it and make sure that it doesn't have that nasty pay-back provision unless it has to.  You'd be surprised by how many special needs trusts I review where the attorney unnecessarily/accidentally included a pay-back provision.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

"Where Do I Keep My Will?!"

This is one of those standard questions that nearly every client asks me after their will or living trust is finally executed, and it is a vitally important question.  I have more than enough stories about the angst and chaos that has ensued when families cannot locate the original will after a loved one passes.

Let me start out by saying that I'm not a fan of keeping your will in a safe deposit box at a bank even though most clients assume that such a box is the top candidate.  Unless you have someone else's name on the list as a signatory, it is very difficult (albeit not impossible) for someone else to gain access to the box.  Also, even if the family knows that you have a safe deposit box, it is sometimes difficult for the family to determine which bank and at which branch the box is located.  Those tiny, little keys don't really tell you anything...other than the fact that it opens a safe deposit box somewhere.

What I usually tell clients is that they should keep their wills wherever they keep their other important documents.  That location is different for every client, but if the family knows that all of the important stuff is in your file cabinet, or a strong box, or your bottom dresser drawer, or the freezer (I did have one client who argued that that was the most fireproof place in his house!) then it shouldn't be a problem for your loved ones to find your will upon your passing. 

Ideally, having your will in a strong box at home (with your other important documents) is the best arrangement since such boxes are usually fireproof.  But don't panic if you don't have one since the chances of a fire that completely destroys your house and everything in it are quite slim. You should also keep the box unlocked for ease of access. Trust me...a third party will have no interest in stealing your will since it has no value on the open market!

However, if you have one of those families in which good chemistry is somewhat lacking and there are some family members who may be motivated to destroy your will, then you may have to be a little more secretive.  In fact, the safe deposit box at the bank with a trusted person as a co-owner would probably be the best way to go in that type of situation.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

The Ever-Evolving Last Will & Testament

Many of my clients tend to procrastinate when it comes to finalizing their estate planning documents.  They struggle over who to appoint as guardians for the kids, or who should be the "back up" executor if the surviving spouse can't act, or who's going to end up with the tool collection.  Sometimes these questions can be tough ones and people "freeze up" and stress out over whether or not they're making the right decision.

As the estate planner I'm always concerned that the famous bus is going to run my clients over while the drafts of the wills sit on my desk unsigned.  So I try to gently nudge my clients along towards finalizing everything. 

One factor that I try to impress upon my clients is the fact that their wills are not set in stone; that my clients should conceptualize their wills as "evolving documents".  In other words, as developments occur in the family (if people pass away, someone becomes disabled, someone gets divorced, there's a "falling out", etc.) it is very easy to tweak the documents in order to address the new family situation.

I also emphasize that tweaking the documents ("amending" the documents, in legalese) is very easy and very inexpensive, assuming that the change is not overly-complicated.  I always keep the documents on my computer, or stored digitally, so re-printing the documents with a new date and a new name here or there is very easy. And there is nothing exotic about my law practice; this is the case with just about any law practice out there. 

So, don't stress out about it too much when you set up your will and other documents.  Make the best decision you can given the current circumstances and facts.  Then schedule a signing date with your attorney knowing that you can easily change things later if you need to. 

And remember that once your documents are signed you will experience a wonderful, liberating "peace-of-mind", and that's what estate planning is all about.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Carry Your Advanced Medical Directives on Your Smart Phone

This may be the best "document maintenance" tip I've ever come across:  Keep a copy of your health care instructions (a.k.a. advanced medical directives) on your smart phone and have your health care agent do the same.

 

The health care document (a standard item in the estate planning "package") is what I would call an "emergency document" meaning that there may be a sudden and immediate need to use the document at any given time.  However, it's hard to have your original health care instructions on-hand at all times.  That's why having a PDF of the document on your smart phone can come in handy!

 

I can't quote a particular study, but I can state with confidence that a steadily growing number of my clients (of ALL ages, by the way!) carry smartphones with them just about everywhere.  This means that they have the ability to carry a copy of their advanced medical directives with them everywhere they go.

 

Please note that it's always better to have an original health care document on-hand.  That's because many doctors and hospitals get nervous when relying on something other than an original document.  But it's certainly better to have a PDF of the document on your phone than nothing at all. 

 

Of course, explaining how to get your health care instructions document onto your smart phone is beyond the scope of this post.  Click here for iPhones, and here for Android.    

 

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

 

 

 

"Should I Gift My House to the Kids?"

Right off the bat, let me give you a warning that you will be disappointed by this post.  You probably Googled the above question and stumbled upon this post with the expectation that you will find a definitive "yes" or "no" answer.  Unfortunately, as simple as the above question sounds, the legal analysis used to come up with an answer to the question is lengthy enough that I would probably be committing legal malpractice by even suggesting that there is a universally applicable answer to the question about whether to gift the house to the kids. 

 

There.  Now that I got that out of the way, here's what you will learn from this post:  as self-serving as this may sound, in order to find a good answer to this question, you need to sit down with an experienced elder law attorney who can walk you through all of the pro's and con's of transferring ownership of the house to the kids (or someone else) in order to avoid the need to sell the house and spend the proceeds down on the nursing home at some point in the future. 

 

And here is a non-exhaustive list of all the issues to consider:

• Gift tax.
• Capital gains tax.
• The dreaded "5-year look-back" period for Medicaid.
• Will the kids turn evil someday (perhaps they already are evil?!) and try to evict you from the house?
• Will this transfer result in an unintended distribution of your estate upon your death?
• Will one of the kids get sued someday, resulting in a lien being slapped on the property?
• Will one of the kids get divorced someday, subjecting the house to a divorce settlement process?
• Are one of the kids getting asset-tested government benefits?
• Should you retain a "life use" (a.k.a. "life estate") in the property?  It could be helpful tax-wise, but it could be problematic for Medicaid eligibility.
• Will you lose a senior or veteran real estate tax credit that you currently enjoy?
• What are the odds that you (based on your health, family medical history, level of local family support) will need permanent nursing home placement in the future?

In short, whether to gift the house to the kids is a short and simple question.  But settling on the answer to that question is a complicated process with a lengthy list of issues to consider.  And since every family is different, there is no one-size-fits all answer to this question.  In other words, just because your neighbor three doors down the road gifted the house to his kids does not necessarily mean that you should too. 

 

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

 

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Shocker: You May NOT Need a Living Trust

Today's take-home lesson:  In Connecticut, the only genuine benefit of a revocable living trust is probate avoidance.

To be fair, I will also mention that there is a privacy benefit as well; living trusts generally do not become public record, in contrast to wills.  However, in my own 16+ years of law practice there have been very few clients who have cared deeply about about the privacy issue.

In any case, it's important to keep in mind that nearly all of the living trust benefits your neighbor has told you about is not true.  More specifically, they do not lower your probate court fees, and any estate tax liabilty you have can be addressed just as easily in wills or by other means.

That's correct.  The probate court fee assessed on your estate is based on the size of your estate, which includes probate AND non-probate assets.  Contrary to common sense, it is not based on how many of your assets go through the probate process.

Additionally, wonderful things like credit shelter trusts, general support trusts for young or problematic beneficiaries (or young AND problematic beneficiaries!), special needs trusts, spendthrift trusts, etc. can all be incorporated into your wills; you don't necessarily need revocable living trusts to include these in your overall estate plan.

Please note that the concept of avoiding probate is nothing to scoff at!  The probate process can be (but isn't always) a lengthy process and an administrative headache.  Particularly if you have real estate located somewhere outside of Connecticut.

However, you should keep in mind that you probably have some assets that are already designed to avoid probate upon your death, regardless of whether you have a living trust or not, such as beneficiary-driven assets (e.g. life insurance, annuities and qualified retirement accounts) and joint assets.

So...before you sign up for a revocable living trust, which is typically double the cost of a simple will package, make sure your attorney walks you through your "probate exposure".

The all-important disclaimer:  This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

 

Gifting with a POA

Not surprisingly, I am not a big fan of fill-in-the-blank estate planning documents that you can get online or from an office store.  There are many reasons for that, but one big reason is that online forms for a durable power of attorney (POA) often do not offer a "gifting" provision.  Or they do offer such a provision but there is no advisor involved to explain the benefits (or occassional pitfalls) ofincluding such a provision in your POA.

The take-home lesson for today is this:  An agent under a POA cannot gift assets on your behalf without express authorization to do so in the POA document.

At first glance, this may not seem like a big deal.  But it certainly becomes a big deal if/when transferring assets out of your name for Medicaid or tax purposes becomes highly advisable.  

In the context of a Medicaid application, the State of Connecticut will most likely pretend that such a gift (made by a POA agent without authorization) didn't happen and treat the gifted asset as an "available asset" for the Medicaid applicant.

For real estate title purposes, if a POA agent transfers property without express authorization in the POA document then title to the property has not been effectively transferred.

These are just two examples of BIG problems that can occer when your POA document does not have adequate gifting language.

Of course, having said all of that, there can be good reasons to NOT include gifting powers in a POA, depending on the circumstances.  The point is that this particular POA issue should be discussed with an experienced estate planning and/or elder law attorney.

The all-important disclaimer:  This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Estate Planning "Portability" Alert:

Although the "portability" option for federal estate tax purposes is now "permanent" (until Congress changes the tax laws, of course) we still have to contend with the Connecticut estate tax and the exemption is $2 million. Therefore, special planning may still need to be incorporated into your documents if your CT estate is over $2M.

New Federal Estate Tax Exemption for 2014:

New year, new estate planning figure!

Federal estate tax exemption has been kicked up from $5.25 million to $5.34 million. Maximum estate tax rate stays at a whopping 40%.

Please note that the annual gift tax exclusion holds steady at $14,000 this year.

How to Include "Scary" Kids in your Estate Planning

It's unfortunate, but clients who meet with me to do their estate planning will sometimes mention that one or more of their children is "scary" for one reason or another.  

And although the clients want to leave something to that child, there's a concern that their hard-earned money will be "wasted" once the child receives his inheritance.

The best approach in such a situation is usually to have that child's inheritance go into what is commonly called a "spendthrift" trust.  I prefer the term "protection" trust just because it sounds kinder.  

In any case, using such a trust as a component of your estate planning is generally a wise approach when a child (or any beneficiary who is not a child) is in one or more of the following cicumstances:

• The child is irresponsible with money management, does not have a history of saving and investing, and there is a concern that your hard-earned estate will be wasted;
• The child has a history of creditor problems, actually hascurrent creditor problems, or you are reasonably certain that creditor issues will arise in the future based on the child's behavior;
• The child is in an unstable marriage where a divorce is more than likely...the trust can prevent the estate from becoming part of a divorce settlement process;
• The child is addicted to drugs, alcohol or gambling;
• The child has a history of being influenced by an overbearing spouse in regards to money management;
• The child belongs to a religious group or some similar organization and you do not want some/all of your estate to ultimately be donated to such a group;
• The child would be prone to "financial predators" and scam artists.

Please note that this is not always the best approach, but those of you with scary kids should discuss this issue with your estate planning attorney.  Otherwise, your child's inheritance may tragically disappear...and perhaps make your child's problem worse.