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” 

Forgot to Update Your Beneficiary Designations? Your Ex Will be Delighted

Your will does not control who inherits all your assets when you die. This is something that many people do not know. Instead, many of your assets will pass by beneficiary designations, says Kiplinger in the article “Beneficiary Designations: 5 Critical Mistakes to Avoid.”

The beneficiary designation is the form that you fill out, when opening many different types of financial accounts. You select a primary beneficiary and, in most cases, a contingency beneficiary, who will inherit the asset when you die.

Typical accounts with beneficiary designations are retirement accounts, including 401(k)s, 403(b)s, IRAs, SEPs, life insurance, annuities and investment accounts. Many financial institutions allow beneficiaries to be named on non-retirement accounts, which are most commonly set up as Transfer on Death (TOD) or Pay on Death (POD) accounts.

It’s easy to name a beneficiary and be confident that your loved one will receive the asset, without having to wait for probate or estate administration to be completed. However, there are some problems that occur and mistakes get expensive.

Here are mistakes you don’t want to make:

Failing to name a beneficiary. It’s hard to say whether people just forget to fill out the forms or they don’t know that they have the option to name a beneficiary. However, either way, not naming a beneficiary becomes a problem for your survivors. Each company will have its own rules about what happens to the assets when you die. Life insurance proceeds are typically paid to your probate estate, if there is no named beneficiary. Your family will need to go to court and probate your estate.

When it comes to retirement benefits, your spouse will most likely receive the assets. However, if you are not married, the retirement account will be paid to your probate estate. Not only does that mean your family will need to go to court to probate your estate, but taxes will be levied on the asset. When an estate is the beneficiary of a retirement account, all the assets must be paid out of the account within five years from the date of death. This acceleration of what would otherwise be a deferred income tax, must be paid much sooner.

Neglecting special family considerations. There may be members of your family who are not well-equipped to receive or manage an inheritance. A family member with special needs who receives an inheritance, is likely to lose government benefits. Therefore, your planning needs to include a SNT — Special Needs Trust. Minors may not legally claim an inheritance, so a court-appointed person will claim and manage their money until they turn 18. This is known as a conservatorship. Conservatorships are costly to set up. They must also make an annual accounting to the court. Conservators may need to file a bond with the court, which is usually bought from an insurance company. This is another expensive cost.

If you follow this course of action, at age 18 your heir may have access to a large sum of money. That may not be a good idea, regardless of how responsible they might be. A better way to prepare for this situation is to have a trust created.  The trustee would be in charge of the money for a period of time that is determined by the personality and situation of your heirs.

Using an incorrect beneficiary name. This happens quite frequently. There may be several people in a family with the same name. However, one is Senior and another is Junior. The person might also change their name through marriage, divorce, etc. Not only can using the wrong name cause delays, but it could lead to litigation, especially if both people believe they were the intended recipient.

Failing to update beneficiaries. Just as your will must change when life changes occur, so must your beneficiaries. It’s that simple, unless you really wanted to give your ex a windfall.

Failing to review beneficiaries with your estate planning attorney. Beneficiary designations are part of your overall estate plan and financial plan. For instance, if you are leaving a large insurance policy to one family member, it may impact how the rest of your assets are distributed.

Take the time to review your beneficiary designations, just as you review your estate plan. You have the power to determine how your assets are distributed, so don’t leave that to someone else.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

People with Special Needs Get Big Victory

Many people with special needs rely on government benefits for their day-to-day care. Without those benefits, they could not survive for long. However, having access to property and other assets can make one ineligible for many government benefits, which at one time meant that people with special needs had to be paupers and not own property.

To address that problem, special needs trusts were created.

A parent, grandparent, guardian or a court could create a trust for the person with special needs. If done properly, that would not make them ineligible for government benefits. However, people with special needs were not allowed to create the trusts for themselves. The law assumed that everyone with special needs lacked the mental capacity to create a trust.

This was the subject of a recent article in the Wills, Trusts & Estates Prof Blog titled "The Special Needs Trust Fairness Act Has Passed."

Both the House and the Senate voted to pass the Special Needs Fairness Act, which gives the ability for people with special needs to create their own trusts for themselves. On Dec. 13, 2016, President Obama signed this into law when he signed a larger piece of health care legislation.

Special needs trusts still need to be set up carefully, so people with special needs should seek expert assistance to set up their own.

Reference: Wills, Trusts & Estates Prof Blog (Dec. 7, 2016) "The Special Needs Trust Fairness Act Has Passed."

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.”

Attorney Indicted for Social Security Disability Fraud

Kentucky attorney Eric Conn built one of the largest Social Security Disability law practices in the country and marketed himself as "Mr. Social Security." After a thorough investigation by the FBI, however, it appears Conn's practice was built on fraud.

He worked with a team of doctors to falsify his clients' medical records. If one of his client's was denied benefits, he is charged with then bribing an administrative law judge to approve the claim. The FBI investigation has resulted in an indictment.

Conn will face charges for defrauding the government of $600 million as Special Needs Answers reports in "'Mr. Social Security' Indicted for Defrauding Government Out of $600M in Disability Benefits."

This is extremely good news for people with special needs and their families.

The Social Security Disability trust fund is in dire straits and would have run out in 2016 had Congress not acted to save it in late 2015 by reallocating some funds from the Social Security Retirement Trust. Eliminating a large scale fraud helps preserve funds for those who need them.

Reallocating money from the retirement trust fund, which is only slightly better off in the long term, is not optimal. Seniors will benefit from the resulting preservation.

Reference: Special Needs Answers (April 28, 2016) "'Mr. Social Security' Indicted for Defrauding Government Out of $600M in Disability Benefits."

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."

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"