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Questions About Special Needs Trust part III

A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments. For the next few weeks we will be addressing common questions. 

My sibling is disabled, can I create one for them?

Yes, But…

The United States Code section that authorizes Special Needs Trusts states that “a parent, grandparent or guardian” is authorized to establish a Special Needs Trust.  Siblings, caregivers or friends are not mentioned at all.  However, the law does not forbid siblings and others from setting up Special Needs Trusts.  The law does not specify whether the “guardian” mentioned must be Court-appointed or can be a “guardian-in-fact,” such as a concerned sibling.   And it does permit an interested third party (such as a sibling) to establish the Trust under certain circumstances.  A well-written Special Needs Trust established by someone other than a parent, grandparent or legal guardian should include a citation to this law for the sake of clarity.

The Courts in most States have recognized the right of a sibling, friend or caregiver to establish a Trust, and case law supports the idea. Call for more information and to speak with a knowledgeable attorney.

What must a Special Needs Trust say?

Special Needs Trusts require special language.  At a bare minimum, the Special Needs Trust should state that it is intended to provide “supplemental and extra care” over and above that which the government provides.  The Trust must state that it is NOT intended to be a basic support Trust.

 Can any lawyer write a Special Needs trust?

Just as most podiatrists aren’t neurosurgeons…

A family or person that wishes to benefit an individual with a disability or chronic illness will be well advised to utilize the services of an attorney that specializes in Special Needs issues.

A Special Needs Trust can very easily be “invaded” by governmental benefit sources, and the Trust can be easily invalidated if the proper language is not utilized throughout the Trust.  A poorly written Trust can cause a loss of benefits, a loss of savings, or other financial and legal hardships for the Beneficiary or the Trustee, some quite severe, including civil litigation or criminal prosecution in some extraordinary circumstances. Make certain that the Attorney you choose is especially familiar with Special Needs Trusts. Not every Estate Planning Attorney knows this area of the law.  Using a law firm that specializes in Special Needs issues assures you that the attorney is familiar with the benefits systems, the proper creation of the Trust, and ultimately the defense of the Trust in the event that it should be challenged by a court, the Social Security Administration, MediCal, or the like.

Questions About Special Needs Trust part II

A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments.

When should I create one?

A Special Needs Trust is a valuable estate planning and investment tool.

It is very common to create a Special Needs Trust early in a child’s life as a long-term means for holding assets to benefit the disabled child. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Special Needs Trust is the estate-planning tool of choice for those parents.

Additionally, the disabled or chronically ill individual may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like. 

If my family is wealthy and not concerned with government benefits, why bother with a supplemental needs trust?

A Special Needs Trust can help protect your disabled family member, and make your wishes known.

Some Trusts aren’t appropriate for Special Needs persons because they don’t address the specific needs of the disabled beneficiary or his future lifestyle. Even in situations where a family may have significant resources to help a disabled family member a Special Needs Trust should be established to address these issues.

Monies placed in the Trust remain non-countable assets and allow the beneficiary to qualify for available benefits and programs. Why sacrifice services that might be available to your relative now and in the future?

If having money in the name of my disabled child causes problems, why can’t I leave the money to a sibling so they can take care of him/her?

Leaving money to others can create serious problems.  A non-disabled sibling holding assets for the benefit of a disabled sibling could have financial issues of their own, and be subject to such liabilities such as judgments from automobile accidents, a bankruptcy, an IRS garnishment or a divorce.

In such circumstances, the assets meant to benefit the disabled or chronically ill person could go to pay the judgment creditors or the estranged spouse of the non-disabled sibling.  Using a Special Needs Trust guarantees that the funds will be held only for the benefit of the person under the disability or chronic illness, and not for any other purpose whatsoever.

Questions About Special Needs Trusts part I

A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments. For the next few weeks we will be addressing common questions.

Why use a Special Needs Trust?

A Special Needs Trust is a specialized legal document designed to benefit an individual who has a disability.  It is often a stand-alone document, but it can also be part of a well-constructed Revocable Living Trust.  Special Needs Trusts have been in use for many years, and were given an “official” legal status by the United States Congress in 1993.

Unlike other types of Trusts, Congress has created a federal law permitting the use of Special Needs Trusts. They are valid throughout the country, and nobody can question the validity as long as it meets the requirements written into the law.

A Special Needs Trust allows a person with a physical or mental disability, or an individual with a chronic or acquired illness, to have an unlimited amount of assets held for his or her benefit without disqualifying the person from certain governmental benefits.  Such benefits may include Supplemental Security Income (SSI), MediCal (Medicaid), vocational rehabilitation, subsidized housing, and other benefits based upon need.  A Special Needs Trust provides for extra care over and above that which the government provides.

What can it be used for?

A Special Needs Trust can help ensure that your disabled family member has every opportunity for a fulfilling and happy life.

According to the law, a Special Needs Trust can be used for “supplemental and extra care over and above what the government provides.” A properly drafted Special Needs Trust will work on a “sliding scale”; that is, in the impossible event that the government provides for 100% of the disabled beneficiary’s needs the Trust will provide 0%.  If there are no governmental benefits available, the Trust can provide 100%.  Most people fall somewhere along the scale, and the Trust supplements governmental coverage.

Although there are MediCal rules that say that the Trust cannot be used for housing or food, these rules have to be interpreted carefully. For example, there is no restriction on purchasing an accessible home or making accessibility adaptations to an existing home and having the Trust own or pay for them.  You should have a detailed discussion with an attorney about these rules and the ways they can be interpreted.

Common Estate Planning Mistakes, Part II

Aside from not preparing any estate planning documents, here are some more common mistakes our office has seen with estate planning documents.

Not leaving instructions on where to find trust and will documents.

Put your originals in a safe place.  We do not recommend a safe deposit box.  Once you are gone your trustee needs authority to get into that safe deposit box and the authority is in the documents locked in the box.  That doesn’t really work.

Make sure you tell your successor trustee where those documents are, or at minimum, give them your attorney’s contact info.  So if something happens, they can call the office.

Sometimes a client calls and says “We have unsigned copies of these documents that they created, but we don’t know if they signed them or where the signed copies would be.” If you are very clear and very specific, people know where to find your important documents. It makes it easier on your loved ones.

For those more tech savvy people, scan and keep digital copies of your documents and tell your successor trustee where those files are and how to access them. You can even give them a thumb drive with the documents.

Not working with an estate planning attorney.

Estate planning is complicated and there are a lot of traps for the unwary, even unwary attorneys. Find someone who is a specialist, who knows how to navigate issues, and who you feel comfortable with.  Do not have your CPA create your estate planning documents, or your financial advisor.  Don’t let your divorce attorney prepare your estate planning documents.  They may be great at dissolution but estate planning may not be their area of expertise.  Find an attorney specializing in estate planning.    

You don’t think through whether the gift you leave someone will actually help them at the time of your passing.

Another mistake that people make is to not carefully considering the consequences of the bequests that they make. Yes, leaving people money is an empowering thing. But sometimes those same bequests can cause a lot of problems for the person receiving the gift.  When leaving money to children, some consideration should be given to the child’s maturity and place in life.  An 18-year-old may be a legal adult, but is probably not in a good place in life to receive an inheritance, even a relatively modest one. Receiving gifts outright might disqualify a college-aged person from financial aid.  

For those beneficiaries in their midlife, some consideration should be given to the risk of divorce, creditors or vices such as substance abuse or gambling addiction.  You should also consider if a beneficiary is receiving benefits like disability.  Receiving an inheritance could disrupt benefits for a special needs relative or loved one.  In each of those cases, the inheritance you may have intended to benefit a friend or family member could wind up in the hands of someone else and/or not help your loved one at all — and maybe even hurt them.

 Gifting an automobile and not leaving instructions where the title is (pink slip).

If you plan to give a family member, or friend a vehicle, make sure you put the pink slip in a place where it can be found.  If a pink slip is lost replacing it could take years.  Depending on the situation, a new pink slip may not be so easy to request through the DMV.  Registration for the vehicle may need to be paid, insurance may need to be updated and if there is a lien on the vehicle, that will need to be paid off.  Once those things happened a new pink slip can be requested through the DMV.  The DMV or the vehicle manufacturer may want copies of death certs, trusts docs, and driver licenses.  Vehicle manufacturers have Probate departments to handle situations like this.  If necessary, give that department a call and ask what documentation they need in order to request a duplicate title from them.

Common Estate Planning Mistakes, Part I

Aside from not preparing any estate planning documents, here are some common mistakes our office has seen with estate planning documents

 Assigning Co-Trustees or Co-Executors.

The best advice is to just have one trustee and one executor. Having one is best, and then list in order who your alternates will be.  Many people think in fairness to all their kids they make them all responsible for administering the trust or estate.  That is a really bad idea.  It leads to a lot of arguments when you need everyone to agree on something.

If you have a house and you want to sell the estate assets, some of your children may say , ‘No, it should remain in the family.’  Or one child might say ‘I don’t want to sell.’  With another child saying, ‘How much should it sell for?’  These little disagreements will inevitably turn into family in-fighting, and there are going to be two sides and two factions. Not everybody gets along, and all those things come out.

If you have co-trustees and they don’t agree, who will get the final say?  Your trustees could end up in court battling out even the simplest decisions.

Also, having two or more trustees means two or more people have to sign checks.  Banks don’t want to monitor that, and if you and the other trustees don’t all live nearby that can get very complicated. 

Believing a Will is all you need to avoid loved ones going to court.

Probate is the legal process of administering a person’s estate both when they die intestate, meaning without a will, and when they die with one.  Probate means “proving the will.”

Although a valid will can ultimately direct where assets are allocated, it will likely not avoid the probate process if there are assets titled solely in your name.  The newest threshold for probate is $184,500.  If your loved one passes with assets valued over that amount then yes, you are going to Probate.  Most people’s houses here in California are valued at more than that.

Being too vague about items with sentimental value.

Generally, people give each of their kids an equal share.  But that doesn’t necessarily leave the option available for kids to say, ‘I want to buy this property’ or ‘I want this specific item.’  People believe their kids will figure things out, they all get along.  When people pass away, relationships change. Money changes people. Your children that got along so well when you were alive may not get along as well when you are gone. 

Being specific about what items should go to who will avoid fighting. 

Forgetting to update documents to reflect life changes.

The biggest mistake people make when it comes to their estate plans is their failure to update their documents.  There are certain life events that require the documents to be updated – marriage, divorce, births of children. It’s typically recommended that your estate plan be revisited every five to seven years. 

Forgetting to update your documents after a life event could mean an ex-wife, who you don’t like, gets a share instead of someone else you care about.  It could mean a new born child is left out.  Then a spouse might need to go to court to have that child added.  After life events, take a look at your documents and see if any updates or changes need to be made. Don’t hesitate or procrastinate.

Celebrity Estate Plans: Lessons We Can Learn From

What happened to Chadwick Boseman’s estate?

Chadwick Boseman passed away in August 2020 at the age of 43.  It came as a surprise to many that the late actor had been diagnosed with stage III colon cancer in 2016.  He battled for four years after it progressed to stage IV.  The Instagram post that discussed his passing stated that he endured countless surgeries and chemotherapy while filming several films.

Boseman died without a will, so his estate went through California’s slow process of court-governed disposition, aka PROBATE — one that involves appraisals, referees, creditor claims, and status reports.  Probate in California can take years. Someone has to be appointed by the court to be an executor or administrator. In this case, Boseman’s wife was appointed.

According to court documents, Boseman’s probate estate was initially valued at $939,000, which likely did not encompass the entirety of his wealth. His non-probate assets, which include assets such as life insurance, 401ks, and other retirement accounts, would not be included in that estimate.  Several uncashed checks, including two from Disney Worldwide Services, Inc., were included in the inventory and appraisal, which means that his estate is worth way more than originally listed on official documents. Over $5,000 is listed as “separate property,” and over $3.3 million is listed for his corporation, Chadwick Boseman, Inc.

The estate was worth exactly $3,577,861.11, according to a final appraisal.

Probate is public process.  All the information regarding his assets became public knowledge.  Every step of the Probate process has court oversite and requires court approval. That can take months or years. If you do not want your assets and liabilities to become public information, a trust is a good way to avoid that.  Otherwise, all your information is public and can be accessed by almost anyone.

The “Get on Up” star’s wife submitted her own creditor’s claim to her husband’s estate, asking the court for reimbursement costs for Chadwick’s funeral. Her claim has been approved for $71,613.74. Some of the costs include $1,275 for flowers and over $21,000 for funeral reception costs.

Chadwick’s wife listed one interesting claim for her late husband’s funeral costs. She spent $33,420 on mausoleum crypts at Forest Lawn Cemetery for Chadwick, but also Chadwick’s parents. His parents were listed as living relatives in the original probate filing, and now they can be laid to rest next to their late son when the time comes.

Lesson to Learn:  MAKE AN ESTATE PLAN.  Dying without an estate plan means the probate court will divide up your estate pursuant to state law and probate is a public process, not private.  This may result in your assets being inherited by estranged family members or, even worse, by family members who you strongly dislike.  Make it a priority to find the time to execute your estate plan.  In the case of Boseman, an estate plan would have provided authority for someone to pay for funeral costs without having to submit creditor’s claims to Probate Court. A breakdown of every cost for the funeral would not have been so readily available to the public.

Updating Trust Information or Servicing Your Trust

In the past we have discussed Servicing your Estate Plan. This topic is so important we are reviewing it again.  After our discussion on Funding Your Trust (June 2021), we thought it would be important to re-iterate that keeping your Trust up-to-date is incredibly important.  We compared it to servicing your car.  We advised that you not wait years to re-evaluate your estate plan.  Preventative measures will ensure that your wishes are carried out correctly and all assets are included.

Like a car, your estate plan needs maintenance.  Maybe you do not need to service it every 3,500 miles like your car, but when situations change or assets increase, reviewing your Trust becomes important.

Questions you need to ask yourself:

  • When was the last time you looked at your Trust?
  • Have you opened bank accounts?
  • Have you moved?
  • Did you have another child? Grandchild?
  • Has your martial situation changed (divorce, marriage)?
  • Did you receive an inheritance, or acquire more assets (homes, rental properties, a boat)?

If you answered yes to any of these questions, you need to service your Estate Plan/Trust.

Our office is here to help, please let us know if you need to update your estate planning documents. Give us a call at 818.887.9401

Where Do Your Debts Go When You Die?

It is no fun discussing death with our loved ones.  But before you take the “ignorance is bliss” route, think about how your debts after death will impact your loved ones.  Ideally, none of your debts pass to your family, but let’s talk about some good ways to ensure that doesn’t happen.  At the very least, we can explain what happens after you pass so you can better prepare for it.

After you have passed your estate typically pays all of your debts.  Should you have enough assets to pay for those debts, your estate Executor is responsible for selling those assets and settling up with your creditors.  Remember your creditors will come before your heirs. 

If your estate does not have the funds to pay off debts, then your debts will typically die with you.

Debts that do not die with you are ones where a loved one acted as a guarantor or co-signer.  Doing this means your loved one will assume the loan if you cannot.  Once you are dead, what can you do about that?

This also applies to married couples that share credit cards or accounts.  If your spouse bought a new boat on your shared credit card, then they passed away, you are still responsible for paying it off.  Even if you had nothing to do with it.   Make sure you are aware of spending habits before you tie your “financial knot.”  Also, be aware that an “authorized user” on a credit card is different than a co-signer.  An authorized user is not required to pay the debts of the deceased cardholder.

A surviving spouse will be able to take over monthly mortgage payments, rather then pay back the full balance to the mortgage company.  If a spouse really wants to remain in their home, he/she can continue to make monthly payments, rather then pay off the entire debt upon her loved ones death.

It is important to talk to your loved ones about your wishes. It may become necessary for the spouse to downsize to a smaller house so they have a more manageable monthly payment or a more manageable size home.

In most cases your 401(k), life insurance policies, IRAs and other brokerage accounts are protected from creditors.  This allows you to list individuals as beneficiaries, and then the money doesn’t go to your estate.  If it did, your estate would use it to pay creditors. Which would mean your beneficiaries get less.

Don’t forget Community Property Laws!  California is a community property state.  These laws require that any debts or assets you’ve incurred after you got married are also the responsibility of your spouse.

Discussing death and your debts after death is not easy, but do yourself and your loved ones a favor by addressing it.  Don’t hesitate to speak with an attorney. Our estate planning attorneys are here to help, call Hornstein Law Offices at 818.887.9401.

Funding Your Trust

In order for a Revocable Trust to work correctly it must be funded.  That means your assets must be put into the name of your trust.   The Trust can only govern what it owns.   By funding your Trust, the Trust governs those assets.  We talk to our clients about the importance of funding their Trust all the time.   Since there are different types of assets, there are different ways to fund them into your trust.  Bank accounts, for example, are funded differently than life insurance.  The rights to royalties or money owed to you are funded in a different manner.  Here are three ways to fund assets into your trust.

Change of Title/Ownership

Changing title or ownership applies to assets such as bank accounts and real property.  These assets are funded into your Trust by changing the owner of the asset from your individual name to the name of the Trust.

Here is an example:

Current name on ABC Bank Checking Account:  John A. Smith

New Title on ABC Bank Checking Account:  John A. Smith as Trustee of the John A. Smith Revocable Trust dated April 1, 2010.

Important Fact:  The date of your Trust is part of the name. 

Assignment of Ownership Rights

These are things such as monies owed to you.   If you loan money to someone and have not been paid back yet, you can assign the debt to your Trust. The same goes for royalties, copyrights and patents.  Even oil and mineral rights are assigned to Trusts.

These are done through an “Assignment of Interest” and require specific language.  Contact your Estate Planning attorney if you need one.  They can draft one with appropriate language depending on your asset.  Different assets will require different language as part of the Assignment. 

Change of Beneficiary

Many people have assets that are beneficiary driven.  Meaning that you can’t change the title, but you can change the beneficiary.  These are assets such as IRAs, 401Ks and Life insurance policies, and many others. 

If you would like to fund these assets into your trust so the money is divided equally, or is used in the manner in which you chose, it is best to name your Trust as the beneficiary. 

It may be best to contact your attorney or Financial advisor to help you change the beneficiary on these accounts/assets.  For many of these you can contact the financial institution that has these assets and ask them for a Change of Beneficiary form and update your beneficiary that way. 

At Hornstein Law we know the value and importance of funding your Trust and we are always available to discuss funding.  Give our office a call, at 818.887.9401, with any questions.  We cannot stress the importance of this enough.

Gender Modifications to an Estate Plan

Depending on when you were born you know Bruce Jenner one of two ways – the Olympian from the 70s, or the underappreciated husband of momager Kris Jenner and father-figure to the Kardashian Klan.  Either way, Bruce is now Caitlyn Jenner, and she is now running of office.  Caitlyn recently released an ad about how she is running for Governor of California.  We thought we would discuss how an estate plan changes when a person goes from being one gender to another. 

Caitlyn Jenner

Here are some things to keep in mind when an estate plan needs gender modification.

First, lets talk about the change in a person’s name.  All estate planning documents were under the Bruce Jenner name.   Although her social security number does not change, Caitlyn will have to file the simple Name Change forms that apply in divorce, marriage or other scenarios, to notify Social Security of her new name.  The Social Security office will in turn notify the IRS.

It is important to note that the Social Security Administration will not revise beneficiary forms on life insurance policies, retirement accounts or anything else.  An advisor or attorney would be the one to help make those changes.

To go along with the name change, all identification will need to be changed – driver’s licenses, passports and any other forms of ID used.

One way to look at this situation is to “bury a client and retire another.”  What we mean by that is it would be smart for Caitlyn’s advisors to recalculate cash flow as though they were burying Bruce Jenner and all his endorsements, appearance fees and any other performance-contingent income – including residual checks for the Kardashian reality show.  Handle it as though Bruce Jenner has passed away and his beneficiary is Caitlyn Jenner.

The liquid assets transfer to Caitlyn, who basically inherits everything except the career.   This includes bank accounts from the Kris Jenner divorce, and the $2.5 million received for giving up stake in the family homestead.  From a planning point-of-view, the old client is dead and the new one is a 65-year-old retired woman.   

People who are deciding to have gender reassignment also have a way to protect themselves during their transition.  There is form called the Certification of Identity.  It states that a person will be known by two different names during this process.   This way Caitlyn does not need to answer to “Bruce” but in an emergency the papers can still be valid across both identities.

Now it is time to update estate planning documents.  There may be several changes necessary, or there may only be a need to change the name on the forms. You never know.  Depending on whether it is an Irrevocable or Revocable Trust will affect what changes need to be made.  A simple amendment may suffice in the case of someone less famous, but due to Caitlyn’s fame and income, changing estate planning documents may become more complex.

Caitlyn may feel strange about using a trust that is under her old name.  If that is the case she may decant (modify) her Trust, or she may revoke her Trust and create a whole new one.

This, like many estate planning issues, can be complicated.  But a knowledgeable attorney can help with all your issues.  For questions about your estate plans give Hornstein Law Offices a call 818.887.9401.