Texas Estate Planning

What Does Autism Awareness Month Have to Do With Inheritance?

April is Autism Awareness Month (also called Autism Acceptance Month) and we want to make sure that you’re aware of what can happen if you neglect to consider your autistic or disabled descendants and heirs when creating your estate plan. You might have heard of a Supplemental Needs Trust (SNT). Formerly called “Special Needs Trust,” SNT’s are helpful tools in the Estate Planning process if you have a loved one currently receiving (or in the future could receive) means-tested government benefits like SSDI. 

Many folks are familiar with Autism Awareness Month, but in recent years, the autistic community has urged for people to focus on “acceptance,” more than just simply “awareness.” It is important that we accept the needs and perspectives of autistic people especially in regards to the issues that directly affect them and their experience of the world. 

Not every person with autism or other disabilities will qualify for SSDI. And similarly, not every able bodied person will remain that way throughout the entirety of their lives. Our needs and capabilities can change for many different reasons, most of which are difficult to predict, but if you have anyone in your life with a family history of chronic medical conditions (physical, developmental, or mental) you might want to look into setting up a Supplemental Needs Trust as part of a comprehensive estate plan that addresses all of the likeliest outcomes, and then some.

 

Here’s how an SNT works: 

If someone is receiving means-tested benefits, such as Social Security Disability Insurance (SSDI), their income must remain under a certain limit set by the government in order to qualify for those benefits. This income is checked every month and even one month in which a person receives a large sum of money (like an inheritance after someone passes away) could kick them off of their benefits program, forcing them to re-apply next month. The application process for SSDI is generally lengthy, difficult, and something that folks don’t want to go through multiple times. 

Even an inheritance of $1,000 could be enough to put your loved one over the SSDI income limit. Since a trust keeps assets outside of someone’s ownership, your loved one receiving benefits can access those funds in very limited, but incredibly helpful ways. The laws surrounding SNTs are very exacting and specific; unless you take time to work with an attorney experienced in this field, your efforts may end up putting your loved one in jeopardy of losing their benefits.

Trusts are legal documents dictating how, when, and where you’d like your assets to be distributed and/or used. A Supplemental Needs Trust can be set up at any time and can be designed to only go into effect under the specific circumstances you name in the trust. To make sure your trust documents work in your intended way, please seek the counsel of a licensed attorney in your area with experience in Supplemental/Special Needs Trusts. Supplemental Needs Trusts are often drafted alongside Wills, and other estate planning documents, to make sure they are designed to work together.

 

Types of SNTs 

There are two main types of SNTs. First Party SNTs are established with money that originally belonged to the person receiving benefits, while Third Party SNTs are established with money from someone else, often parents or siblings.

Both types of SNT are limited in the kind of expenses that they are allowed to pay for, but First Party SNTs have an extra limitation that Third Party SNTs do not. First Party SNTs are required to include a clause that causes the assets in a First Party SNT to go to the state where the beneficiary is living, and the State will use those funds to add to their benefits program. Third Party SNTs can name a beneficiary to receive the assets held by the trust after the first beneficiary passes away.

Although SNTs have limitations placed on them regarding what the assets inside the Trust can be used to pay for,  they can improve the services and equipment accessible to your loved ones. Ask about state-specific ABLE accounts too, these are new tools that are designed to be used with SNTs to increase your loved ones quality of life across the board!  

It is important to correctly identify the type of SNT that fits your situation, otherwise you run the risk of having the SNT invalidated, which could cause many other problems down the line. Meet with an experienced attorney in your area. 

 

April is Autism Awareness Month

Autism Acceptance/Awareness Month, also celebrated as “World Autism Awareness Day” (April 2) is observed worldwide as a time to learn more about Autism Spectrum Disorder (ASD) and ways in which you can support autistic people. According to an article on Healthline, “Autism is considered a disability from a medical and legal standpoint. But according to mental health professionals, not everyone with autism identifies as being disabled.” 

Just like with any other disability, the autistic community is not a monolith. Each person receiving SSDI has their own specific needs, goals, interests, and desires. It is important to consult your disabled loved one and/or the caregiver(s) most knowledgeable about their daily care needs before making the financial decision to set up a Supplemental Needs Trust for them. 

In most cases, it is harmless to create an SNT for someone who might not end up receiving means-tested government benefits, but it is even better to respect the autonomy of the disabled people in your life and discuss the pros and cons of setting up a Supplemental Needs Trust for them to use if/when the time comes. 

By placing money and assets into a trust, you protect yourself, your trustees, beneficiaries, and your assets themselves. It is better to have a plan and not need it than to need a plan but not have one.

How to Plan for a ‘Fragile’ Beneficiary

Frequently, estate plans will include an inheritance for a minor beneficiary. If you have minor children, you should spell out exactly what you want as far as who will care for your children and how your children’s financial needs will be met.
Wealth Advisor’s recent article entitled “Handle with care: Tips on planning for the fragile beneficiary” explains that if a minor child inherits property outright, the court will usually appoint a conservator to handle the property until the minor reaches 18. Because of this, some parents make use of a trust, which lets the assets be available for a minor’s benefit but held under terms you set, when establishing the trust. A trustee oversees this.
A beneficiary with a disability. In some cases, a loved one with a disability may be receiving needs-based government benefits. To make certain that an inheritance doesn’t disrupt those benefits, many parents or guardians ask an experienced estate planning or elder law attorney to create a special needs trust (SNT). This is an irrevocable discretionary trust created by the parent in many cases for the benefit of a child with special needs. When set up correctly, the special needs trust won’t be considered an available resource for the purpose of determining eligibility for needs-based government benefits.
Incentive planning. Another aspect of estate planning is to use your assets to influence your loved one’s values and future behavior. A trust with incentive or disincentive provisions may help guide the choices and actions of your family, even after you have died.
Advanced planning for successful beneficiaries. If you plan to leave assets to a beneficiary who has the potential to incur significant personal liability due to his or her profession, ask your estate planning attorney about an irrevocable discretionary lifetime trust. If an inheritance is left to such a person without any protections, it may be attached by a judgment creditor upon distribution. A successful beneficiary may also need tax planning. If the beneficiary’s inheritance is properly left in a lifetime trust with the help of an experienced estate planning attorney, it may be removed from his or her taxable estate for federal estate tax purposes.
Although estate planning may be thought of as a way to transfer your assets to your family in a tax-efficient manner, it is also a way in which you can motivate, and at times protect, your loved ones.
Reference: Wealth Advisor (Dec. 22, 2020) “Handle with care: Tips on planning for the fragile beneficiary”

Aretha Franklin’s Niece Resign as Executor

Sabrina Owens, the niece of soul singer Aretha Franklin, recently announced her resignation as executor in court filings, stating: “Given my aunt’s love of family and desire for privacy, this is not what she would have wanted for us, nor is it what I want … I hope that my departure will allow the business of the estate to continue, calm the rift in my family and allow me to return to my personal life.” 

Rolling Stone’s recent article entitled “Aretha Franklin’s Niece Resigns as Estate Executor” reminds us that Franklin died in August of 2018, and, because she reportedly was intestate, Michigan law states that her assets are to be distributed equally among her four sons. Her sons agreed upon Owens as executor, but new family politics came up last May after three wills allegedly authored by Franklin were discovered in a notebook under some couch cushions. 

“That is when relationships began to deteriorate with the heirs,” Owens wrote of the discovery of the wills. She added that she accepted the executor role on the condition that “no fractured relationships develop within the family” and that the family “did not end up in court disputes over disagreements with the Estate.” Both, Owens wrote, have happened. 

Owens’ resignation, however, will not become effective immediately. Instead, she will keep serving as executor for the immediate future. It’s also unknown who will be appointed executor after she does leave. 

Franklin’s youngest son, Kecalf, has attempted to gain control, since one of the documents from 2014 appears to state that Franklin wanted him to take on that role (in August, a probate judge approved Kecalf’s request to have a handwriting expert analyze the documents that were found). 

Although Kecalf has the support of his brother Edward, his plan is opposed by Franklin’s third son, Ted White, as well as the guardian for her eldest son, Clarence, who has special needs. 

A hearing on the future of the estate is scheduled for early this spring. 

The ongoing battles surrounding Franklin’s estate continue, as it gets ready for two significant posthumous projects: one is a biopic movie starring Jennifer Hudson, “Respect.” The other is an installment in the biographical anthology series, “Genius,” with Cynthia Erivo playing Franklin (both are currently in production). 

In the last year, Owens, as executor, oversaw the release of the documentary, ‘Amazing Grace,” while at the same time managing the estate’s complicated finances, including $6.3 million owed to the IRS in back taxes. 

Reference: Rolling Stone (Feb. 3, 2020) “Aretha Franklin’s Niece Resigns as Estate Executor” 

Professionals Back Away From Special Needs Trust Management

Special needs trusts are an essential estate planning tool for parents of children with special needs. If set up and managed properly, the trusts allow the person with special needs to inherit assets from their parents without putting their eligibility for federal benefits in jeopardy. However, these trusts need to be managed properly to receive the benefits so normally professional trustees are hired for the job.

Unfortunately, professionals are increasingly unwilling to do so as Wealth Management reports in "Corporate Fiduciaries Are Shying Away From Special Needs Trusts."

The reasons for this are:

• Special needs trusts have been increasingly subject to more regulations and litigation. That makes it more difficult to manage the trusts and more likely that the trustees will be held liable for mismanagement.
• Special needs trusts are often seen as time-consuming to manage, which makes it more difficult for professionals to profit from them.
• Many professionals do not have the expertise to properly manage the trusts and they would prefer not to learn on the job. They decline the assignments.
• Many professionals just do not have the time or resources to take on special needs trusts. They are too busy with other trusts that are easier to handle.

If you are considering a special needs trust, make sure you ask your attorney about professionals in your area who will handle the trustee duties and who have the expertise to do so.

Reference: Wealth Management (Nov. 15, 2016) "CNN's Anderson Cooper Disinherited from $200 Million Vanderbilt Estate."

Planning for a Child with Special Needs

When parents of children with special needs start planning for their own retirements they also have to plan for how their children will be taken care of after they pass away. Most understand intuitively that they will need to save more money than their peers because they need to ensure sufficient assets are left to take care of their children.

What many do not know is that they need to be careful about how those assets are going to be left for their child with special needs. This topic was the subject of a recent Market Watch article entitled “Parents of special needs children plan for two futures.”

There are two major legal vehicles parents will want to know about and consider taking advantage of:

• Special Needs Trusts – People with disabilities should not inherit assets outright as it could jeopardize their eligibility for government benefits. Instead a special needs trust should be created to hold assets for the benefit of the person with disabilities. These trusts must be created in a specific way, so the assistance of an estate planning attorney is necessary.
• ABLE Accounts – These accounts are not yet available, with the exception of in Ohio, but they will be very soon. These accounts will allow some people with disabilities to have assets in their own name and under their own control, with some restrictions. Parents should be able to set up these accounts for their children and take advantage of the annual gift tax exemption to fund the accounts. Different states will have different ABLE account systems, so parents should shop around and consult experts.

Reference: Market Watch (July 7, 2016) “Parents of special needs children plan for two futures.”

Special Needs Estate Planning

When an adult child has special needs that require the help and support of parents it is important to create an estate plan that makes sure that support is provided after the parents pass away. This requires an estate plan that provides for the child's monetary needs in a way that does not disqualify the child from receiving government benefits. It also often requires creating an estate plan that provides those funds in a way that is fair to other children.

Recently, the Wall Street Journal discussed a couple of tools to accomplish these goals in "Estate Planning When You Have a Special-Needs Child."

The tools include:

• Supplemental Needs Trust – These trusts allow parents to leave assets for the care of a child with special needs, but leave those assets under the control of a trusted third-party who can make sure the assets are used appropriately and invested wisely. They also help prevent disqualification from receiving government benefits, which is often the result if a child with special needs is left a large inheritance in one lump-sum.
• Life Insurance – To fund a trust for a child with special needs, parents can take out life insurance policies and make the trust the beneficiaries of the policies. This allows the parents to divide their assets between all of their children equally while providing the extra funds for the child with special needs in a way that other children will not view as unfair.

These are only two of several options for providing for child with special needs in an estate plan.

Speak with an estate planning attorney about the other options and what might be best for your family.

Reference:  Wall Street Journal (March 27, 2016) "Estate Planning When You Have a Special-Needs Child."

ABLE Act Basics

Everyone who has a child with special needs knows that it takes a lot more money to care for the child. And it certainly takes much more than is covered by monthly Supplemental Security Insurance payments. 

This has long created an issue for these parents as they worry about what will happen to their child if the parents pass away. 

Parents could not just leave money to the child in their estate plans because that could make the child ineligible to receive SSI. Instead, special needs trusts had to be created by the parents. These were often less than ideal as they could only be created by a parent and required a trustee other than the disabled person to handle the money. 

The Achieving a Better Life Experience Act seeks to make things easier. 

Recently, the Centre Daily Times reviewed the basics of the Act in "Elder law: Understanding the ABLE Act." 

These specifics include:

• A person who became disabled prior to the age of 26 can create and maintain the account for him or herself.
• Funds in the account are not used to determine SSI eligibility as long as they are less than $100,000.
• Account income is not subject to income tax.
• Funds must be used for qualified disability expenses.
• When the account holder passes away, account assets must be used to pay back the government for benefits received unless they are rolled over into the account of a family member who is also disabled.

It is advisable that families still consult with an estate planning attorney to learn about the restrictions on ABLE accounts and whether a special needs trust would still be better for their family situations.

Reference: Centre Daily Times (Jan. 9, 2016) "Elder law: Understanding the ABLE Act."

 

Special Needs Attorney Testifies Before Congress

Richard Courtney told the Subcommittee members that the legislation that originally created Special Needs Trusts (SNTs), the Omnibus Budget Reconciliation Act of 1993, "included a drafting oversight that seems to assume that a person with disabilities lacks the requisite mental capacity to enter into a contract… We believe it was … not the intent of Congress to deny a basic right to individuals with disabilities."

In its report on the testimony, The (Jackson, MS) Clarion-Ledger's "Courtney testifies before Congress on behalf of persons with disabilities," said that, at present, special needs trusts funded with assets of an individual with disabilities must be created for that individual by his or her parent, grandparent, legal guardian or a court. Because of this requirement, adults with no living parents or grandparents and no guardian are forced to petition the court to create a special needs trust.

Courtney based his remarks on both his professional experience as a special needs and elder law attorney, as well as his experience as the father of a daughter with cerebral palsy and learning disabilities. Speaking of daughter Melanie, he noted that she needs and is receiving attendant care under a Medicaid waiver program. Because the cost of her care and services is expensive, she must rely on programs such as Medicaid, as do many persons with disabilities.

Right now the law says that she can't create her own trust if she were to receive an inheritance or settlement—so she could forfeit her Medicaid waiver benefits that pay her attendant to her each day for a few hours. 

An SNT would allow Melanie to pay for additional health care that's not covered by Medicaid, in addition to basics like clothing, transportation, and furniture.

Talk with an elder law and special needs attorney if you have questions about SNTs.

Reference: The (Jackson, MS) Clarion-Ledger (October 18, 2015) "Courtney testifies before Congress on behalf of persons with disabilities"

 

Know When to Update Your Estate Plan

The Huffington Postrecently posted an article titled “9 Life Changes That Require An Estate Plan Review.” These life changes, if nothing else, signal when you should update your estate plan.

Marriage. Did you know that your spouse may not be the sole beneficiary or heir of your estate?Depending on where you live at the time of your death, this may be unknown without a solid estate plan. To ensure your spouse, or anyone else gets certain belongings from your estate, you need to detail this in your plan. When you wed, you should review your estate plan and make any necessary adjustments.

Remarriage. A marriage license typically doesn’t set up your new spouse to receive your entire estate after your pass away. The laws of most states say that your new spouse will share in your estate assets along with your children from your first (or previous) marriage unless you change this in your will, living trust, or other estate planning document. If you get remarried, it's critical that you update your estate plan to add your new spouse and any of his or her stepchildren should you want them to inherit from you.

Divorce. Typically when a divorce decree is entered, the laws automatically disinherit a former spouse. Nonetheless, if you included provisions in your estate plan that give specific property to your former spouse by name, make sure to change this to disinherit him or her.

Birth of a Child. This big change definitely qualifies for an update of your estate plan to protect your child or children. You need to nominate guardians to care for your children in case something happens to you. If not, your children will be cared for by guardians appointed by the court. That could be anyone. Same thing applies if you adopted a child. Designate a guardian to care for your child in your will.

Death of a Beneficiary. Updating your estate plan may be the furthest thing from your mind if this should occur. However, it's important. If your beneficiary dies, you will need to ensure your estate plan still does what you want, such as if the beneficiary had children and you want his or her portion to go to them. You’ll typically need to talk to your estate planning attorney to make sure that happens. 

Illness or Disability. One often overlooked aspect of estate planning is illness or disability. There are lots of things to consider regarding your care, and you need to articulate your desires before you become ill, disabled, or incapacitated. This can save your loved ones heartache. In addition, you need to think about the situation if you passed away and one of your beneficiaries became incapacitated. Money from your estate could actually harm them by causing him or her to be ineligible for needs-based government care programs. You need to look at a special needs trust. Plan for both of these scenarios by updating your estate plan before anything happens.

A Substantial Increase in Assets or Income. If you have more money or assets now than when you first created your estate plan, then that is a good thing up to a point. That point is when you and your beneficiaries are subject to federal or state estate taxes. Your estate planning attorney can structure your estate to minimize these taxes and keep more money for your estate.

Moving to Another State. Every state has its own unique set of estate laws, so you should talk to your estate planning attorney. 

Changes in the Law. State and federal tax and estate laws are always changing. When this occurs, your estate plan may be at risk. 

Review your plan with your attorney to make sure everything is OK. 

Reference: The Huffington Post (August 17, 2015) “9 Life Changes That Require An Estate Plan Review”

 

Are Trusts a Good Idea?

The website financialplanning.com posted a recent article, titled “Should Estate Plans Rely on Trusts?”,which explains that some folks use a living trust as a contingent beneficiary, typically when there are minor children. The trust will assign a guardian for the children until they are older. There are several reasons for using a trust as an estate planning tool, rather just using a will. Assets held in trust avoid probate at death, which is important in situations with property in multiple states. If a person passes away with property in a few states, probate in each state might be mandated.

Implementing a trust provides control for assets in the event of incapacity. A co-trustee or successor trustee will take over the management of the trust assets. Another nice thing about a trust is that it gives you maximum privacy, where a will is public record and open to all.

Trust language can be drafted to reduce or eliminate estate taxes, as well as to protect from divorce settlements and creditors. In addition, a trust can protect dependents with special needs. Ask your estate planning attorney about a special needs trust for your child with special needs—or about the other types of trusts that might benefit your circumstances.

An individual can use trusts in one of two ways. Some people will grant title assets to a trust while alive, and then the living trust terms will stipulate the distribution of trust assets at the grantor’s death. Other folks don’t have a standalone living trust; instead, they use a testamentary trust which is funded through a will.

Contact a qualified estate planning attorney to help you decide which way to go.

Reference: financialplanning.com (August 13, 2015)“Should Estate Plans Rely on Trusts?”