BENEFICIARY DESIGNATIONS

 

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Life insurance policies, employer-sponsored retirement plans, annuities, and retirement accounts.  Odds are, you look at this list and see at least one financial account that you hold.  All of these accounts are generally payable upon the death of the account holder to beneficiaries named via beneficiary designations.  Beneficiaries could also be named on certain brokerage accounts, certificates of deposit, mutual fund account, and bank accounts.

After going through the process of opening the account and making their first beneficiary designations, many forget all about the all important beneficiary form.  Life circumstances can change drastically over the course of the years from the day you open a 401(k) account at age 25 with your first employer and when you start seriously considering your retirement.  While you may have changed the beneficiary designations from your parents to your spouse immediately after your marriage, did you make sure to change the alternate to your children when they were born?

Beneficiary designations are extremely important factor to consider in creating your estate plan.  Take, for instance, a situation where a child stands to inherit qualified plan policies from his recently deceased parents.  This child has a disability and requires governmental assistance to maintain his lifestyle.  His parents knew about the possibility of losing governmental assistance from a windfall of inheritance and smartly informed their estate planning attorney of their son’s disability.  The attorney in turn included a supplemental needs trust in their estate plan to both provide for their child and protect his government benefits.  However, the parents did not follow through on altering the beneficiary designations on the qualified plan that held $200,000 of assets to specifically name the supplemental needs trust for the benefit of their child created in their estate plan.  Instead, the designations listed the child as the beneficiary.  The child then inherited the assets outright in his name, jeopardizing the child’s eligibility for governmental assistance for his disability.

In the event your beneficiary passes away before you and you did not name a secondary beneficiary before the time of your death, the total amount of the account will ordinarily be paid to your estate and the proceeds will need to go through probate.  This means that your estate may be raised to a value where more time, effort, and expenses are required to go through probate, which may lead to a circumstance where the person whom inherits your assets could be receiving the money out of line with your wishes.

A scenario to show how this could take place is where a widowed spouse decides that she will split her assets between her two children or to the child’s own children if the child did not survive her.  She decides to make things equal by bequeathing her $500,000 house to her son and naming her daughter as the beneficiary of her retirement accounts worth $500,000.  The widow informs her lawyer and the lawyer writes her will leaving everything in her estate, which is just her home, to her son.  The beneficiary designations on her retirement accounts indicate her daughter as the primary beneficiary, with no secondary beneficiary.  Unfortunately, the daughter dies suddenly in a freak accident, predeceasing the widow, leaving no beneficiary designated.  With no beneficiary designation, the assets went to the widow’s estate and from there were distributed to her son.  The widow would have preferred that her daughter’s children were provided for but without changing her designations to provide for this, her wishes were not fulfilled.

As you can see, a major part of the process of estate planning is taking your beneficiary designations into account to carry out your estate goals.  To ensure that you reach those goals, make sure your estate planning attorney is fully aware of all of your accounts and assets and work with your financial advisor and attorney to make your estate planning wishes become a reality.

Photo: http://web.douglas.k12.ga.us

 

 

Special Needs Trust: The Basics

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Special needs trusts are essential when a person with disabilities has assets to protect and when that person’s parents are considering their estate plan. Whether the person with the disability has funds, receives funds from a personal injury settlement, or receives funds and property as a gift, the money must be managed carefully. Special needs trusts (or Supplemental Needs Trusts as they can be referred to) are the tool to use for asset protection for those with disabilities. When special needs trusts are created, it is important to know what specific type of trust must be used. There are two primary kinds of special needs trusts: first party and third party trusts. The unique situation of each person will dictate which type of special needs trust to use.

Special needs trusts are used to preserve a disabled person’s access to needs based public benefits. These benefits might otherwise be lost when the individual acquires resources over a given threshold. A person who is disabled may be receiving Supplemental Security Income (SSI) on a monthly basis and may have Medicaid coverage to pay for the costs of healthcare and nursing home care. Medicaid and SSI are means-tested and impose limits on resources, so an influx of money such as from an injury settlement or inheritance could result in a loss of benefit access.

A special needs trust makes it possible to avoid this loss of benefits. When appropriately created in accordance with the law and when properly structured and maintained, special needs trusts allow money to be used for the benefit of someone who is disabled without jeopardizing benefits access. The assets held in the trust are not counted as resources, but can be used to supplement and enrich the quality of life of the person who is disabled, beyond what governmental benefits provide for.

If the money or property being put into the trust comes from the person who is disabled, the trust is a first party trust. This situation can occur if the individual receives a windfall inheritance, receives a personal injury settlement, or if they simply have built up assets based on gifts from family members.  A third party trust can hold assets that come from any third party source, like a grandparent, parent, aunt, uncle, neighbor, etc.

A first party special needs trust can be established only by a grandparent, parent, guardian or court. They also can only be established for someone under aged 65. In some situations, courts monitor these trusts. When the person with special needs dies, the state must be named the primary beneficiary of any trust assets left in the trust, in what is called a “pay back” provision.  This is to allow the state to pursue reimbursement for the costs of care during the individual’s life.

A third party special needs trust can be created by anyone who wants to leave money to someone who is disabled. Third party special needs trusts can be funded up to any amount, and the trust can be a beneficiary of a life insurance policy. The trust can be used for virtually any purposes to benefit the person with special needs, except for that the person’s own money cannot be held in the trust.  Often times, parents of a child with disabilities will set up a third party trust as part of their estate plan, to insure any inheritance meant for the child will not affect their public benefits.

Upon the death of the disabled beneficiary of the third party special needs trust, the money and property can transfer to any other relatives or beneficiaries that the trust creator chooses. Because the money and assets in the trust never belonged to the person who was disabled, the state has no ability to require a pay back provision. This is a big benefit, because someone with disabilities can be provided for during his life and the remaining funds can then go to other relatives or friends of the trust creator’s choosing.

Special needs trusts can provide very important protections for someone with disabilities, as long as you know how these trusts work and follow the rules and processes for trust creation. To discuss the impact a special needs trust could have on you and your family, contact the attorneys at the Wladis Law Firm.

 

Photo Credit: Blackred | Getty Images

Utilizing Testamentary Trusts

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Many clients are concerned about the son-in-law and daughter-in-law divorcing their child and walking away with a big chunk of their estate. And why shouldn’t they worry? The divorce rate in America is unfortunately still at a very high level. Parents also worry that someone will target their kids for get-rich-quick schemes, foolish financial investments, or even some well-planned scam. There is the real prospect that your kids could get sued for any sort of civil action and a judgment creditor could walk off with your estate. There is also the situation where a parent isn’t so sure their child could handle inheriting a large amount of money and be left to their own devices.

When you give the inheritance outright to your children after you’re gone, there is nothing you can do to protect those assets or your children. The assets are fair game once control passes from the parent’s estate into the hands of the children. Yet almost every estate plan drafted the traditional way delivers the assets straight into the hands of the children regardless of whether the child is ready for that wealth or not. This is what is commonly referred to as Divide, Dump, and Dissipate. This may conjure images of little Johnny buying that new Maserati instead of smartly investing his money to save up to buy a house.

How can parents make sure that their children do not foolishly waste their inheritance? One option is to provide for a testamentary trust in their Wills. Trusts may make you think of the Rockefellers of the world, but in fact they are a commonly used planning instrument. Say Jane and Joe have 2 kids, ages 21 and 23. Between them, Jane and John have a $1 million estate, with life insurance and retirement accounts included. Hopefully this will continue to grow, but say Jane and John pass away today. With their current estate plan, their two children will each receive $500,000 directly into their bank accounts. Now the children are free to use their inheritance on anything they so choose. The money will also be subject to any divorce proceeding or creditor judgment that may come up in the future.

If the parents provided for a trust to hold the money until the children reached a certain age, say 35 years old, along with an Independent Trustee to make distributions to the children when prudent, the money would be fully creditor protected, which means it would not be subject to divorce judgments or creditor judgments. The Independent Trustee should be a party that shares the parents’ philosophies concerning money management and should be someone that they trust to do the right thing.

Utilizing testamentary trusts is a simple and worthwhile way to ensure that the money you want your children to use in bettering their lives is actually used for that purpose. To discuss this and your other estate planning goals further, contact the attorneys at The Wladis Law Firm.

ABLE Accounts: Learning about this useful tool

An issue many parents of children with special needs face when determining their estate planning wishes is how to maintain their children’s eligibility if the child was to suddenly inherit a windfall if the parents pass.  Through the use of a Special Needs Trust within their estate plan, parents can ensure that their disabled child will not lose her eligibility for governmental assistance, be it Supplemental Security Income (SSI), SNAP, Medicaid, or the like.  However, a new law passed by Congress and signed by President Obama in December 2014 will allow a fresh opportunity for parents to save money for their child receiving public benefits.  This law is called the Achieving a Better Life Experience Act (ABLE Act for short).  Here are some worthwhile facts to know about this new law:

1.) The ABLE Act Amends the Internal Revenue Code

In passing this law, Congress amended the Internal Revenue Code of 1986 “to provide for the tax treatment of ABLE accounts established under State programs for the care of family members with disabilities.”  What now exists following Section 529 (creator of 529 education savings accounts) is Section 529A, which houses the ABLE Act.

2.) ABLE Accounts Provide Benefits for Individuals With Disabilities

Individuals with disabilities regularly depend on public benefits for income, health care, food, and housing assistance.  The eligibility standards for these benefits have been very stringent in the past, basically requiring that in order for an individual to qualify for benefits, the individual must remain very poor.

ABLE savings accounts allow eligible individuals and families to have savings over the eligibility threshold without jeopardizing their eligibility for public benefits like SSI and Medicaid.  The legislation explains that an ABLE account will, with private savings, “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment, and other sources.”

3.) ABLE Accounts Have Tax Benefits

Eligible ABLE accounts are tax-advantaged savings accounts for individuals with disabilities.  The ABLE account acts much like a Roth IRA in that while contributions to an ABLE account are not tax deductible, all income earned by the ABLE account is tax-free when used for a qualified expense.

4.) A Beneficiary of an ABLE Account Must Meet Eligibility Standards

The ABLE Act limits eligible beneficiaries of ABLE accounts to individuals with significant disabilities that have an age of onset before turning 26 years old and either is already eligible for SSDI and/or SSI or meets the definition of having “marked and severe functional limitations.”   This means that an 18 year old with significant disabilities is immediately eligible for an ABLE account.  A 34 year old with significant disabilities could also be eligible for an ABLE account if the onset of his significant disabilities occurred prior to the time he turned 26 years old.

5.) There Are Limits on Money in an ABLE Account and How the Money Can be Spent

Total annual contributions to an ABLE account will be limited to $14,000, adjusted annually for inflation.  Lifetime total contributions to an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts.  Only the first $100,000 in an ABLE account is exempt from the SSI individual resource limits.

Funds from an ABLE account may only be used for the benefit of the disabled beneficiary of the account for education, housing, transportation, employment training, health, and other expenses that will be further determined once the regulations governing the law are issued, expected this year.

Also, an individual may only have one ABLE account in their name.

6.) There is a “Payback Provision” to Medicaid

An important factor for families thinking about setting up an ABLE account to consider is the requirement that Medicaid be reimbursed for payments made on the account beneficiary’s behalf at the death of the beneficiary.  This means that if the beneficiary passes away with any sum of money left in the ABLE account, some, if not all, of the account will be paid to Medicaid as a reimbursement.  For most families, this is not an ideal scenario.

Overall, this new act could be a great opportunity for parents to save money for their child with a disability during their lifetime without affecting their eligibility for SSI and Medicaid benefits.  We hope to see New York State provide the framework for setting up ABLE Accounts in New York by the year end.

 

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Going Through Probate of a Will

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You have been named Executor under your family member’s will.  Now what?  In order for you to have any authority as an Executor, you will need to obtain official authority from a Court appointing you Executor.  This authority will be granted by what are known as Letters Testamentary.  To get these Letters Testamentary, a petition must be filed with the Surrogate’s Court in the county where your loved one resided when they passed away.  This is ordinarily when you would contact an attorney to help guide you through the process.  Filing a petition for probate usually involves receiving the consent of every beneficiary under the Will and any possible distributee under New York State Law.  After the petition is filed and filing fees are paid, the Surrogate’s Court will ordinarily grant Letters Testamentary, if everything goes smoothly.

Now you have been appointed as the Executor of the estate. Maybe you have hired an attorney to assist with the estate or perhaps you are handling everything on your own. Either way, you will need to sort through the decedent’s affairs in a prompt manner.  Once you receive papers from the court stating you are authorized to act on behalf of the estate, you will be able to talk to many financial institutions and the like to gather information regarding the decedent.

Within six months of your appointment as Executor, an assets inventory must be filed with the Surrogate’s Court.  The inventory lists the date of death values of all probate and non-probate assets. The purpose of the assets inventory is to ensure the appropriate filing fee is paid and ensure that there are no estate taxes due.  If assets are discovered after this inventory is filed, the documents may be amended or supplemented.

How are you going to find this information? If you are not the spouse of the decedent, you may be unfamiliar with the decedent’s financial affairs.  Reviewing bank statements, checkbook registers, tax returns, credit card statements, and/or brokerage account statements that may be in the decedent’s possession will be helpful.  You should also contact the US Postal Service to have the decedent’s mail forwarded directly to you.  This will give you an idea of what accounts may have been in the decedent’s name. Tax forms that are mailed early in the year will also provide insight into where the decedent maintained accounts.

The Executor needs to ensure insurance is maintained for any real property that is in the Estate.  Insurance agents should also be contacted regarding automobile policies to ensure coverage is continued.  If the decedent owned a safe deposit box, the contents should be inventoried.  Finally, you may also search the decedent’s computer, address book, and email contacts.  Each email service provider will have their own process for accessing a deceased account holder’s information.  This will clue you in to any key advisors such as financial planners, accountants, or attorneys who worked with the decedent and might be familiar with existing accounts, insurance policies, tax information, and estate planning documents.

If you need assistance, an experienced attorney who is familiar with estate administration can help guide you through the process.  If you are in need of legal assistance regarding probating a Will and administering an Estate, the attorneys at the Wladis Law Firm are here to help.  Call us at (315) 445-1700 and we will be happy to assist you.

Pet Trusts: Caring for Your Best Friends After You’re Gone

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Couple taking beagle dog for walk

Most people know that part of the process for estate planning is thinking about all of your loved ones and how you would like to provide for them after your death.

You want to be sure that your underage children have an appropriate guardian, that your favorite charity is given a share of your estate, or that your prized coin collection goes to your nephew who has always shown an interest in them.

However, a major part of many people’s lives are their pets, whether dogs, cats, or even a horse. Once you pass away, what will happen to your pet? Who will care for them? Where will the money for their care come from? How can you ensure that your pet is cared for by the veterinarian you trust?

A piece of your overall estate plan can include a trust in your end of life documents to ensure that the most important animal(s) in your life is provided for after your death. For quite a while, the question of the validity of a trust with an animal as the beneficiary was undecided. However, under current New York State law, honorary trusts for the care of a designated domestic or pet animal are now valid.

Veterinarian Care

Veterinarian with puppy and kittenDuring the lifetime of your pet you can specify the veterinarian who you would like to treat your pet and, when naming a trustee, provide who you wish to take care of your pet. You can also direct all remaining funds left in the pet trust to go wherever you may so choose when the trust is no longer needed.

Many of us have gone to a veterinarian and been shocked at the price tag that comes with caring for an important pet member of the family, be it the veterinarian’s costs themselves or the costs of medications for the pet’s ailments. Setting up a properly funded trust for your pet’s benefit can insure that whoever assumes the role of caring for your pet will not have to worry about how to pay for these costs that can become increase with the age of the pet.

Celebrity Pet Trusts

Pet trusts are routinely a subject of celebrities’ estate planning. Consider the following:

  • In 2002, reports said Drew Barrymore put her $1.2 million home into trust for her dog, Flossie. Drew bestowed this remarkable gift on Flossie after the Labrador mix barked and banged on Drew’s bedroom door to alert her of a fire in the house while Drew was sleeping.
  • In one of the more extravagant gifts to a pet on recent record, billionaire Leona Helmsley left $12 million to her Maltese, Trouble. This gift was, of course, challenged by her human heirs, and the Court in that case decided that Trouble would only inherit $2 million. Trouble lived the rest of her life at the Helmsley Sandcastle Hotel in Sarasota, Florida, quite comfortably.
  • A more unique example of a pet trust, that shows the level of detail one can instruct, is that of Dusty Springfield and her beloved cat, Nicholas. Dusty’s instructions for the benefit of Nicholas included that he be fed imported American baby food, live in a 7-foot-high treehouse, and that a bed lined with one of her nightgowns be provided.

Some Things to Consider

So what will you need to think about when considering creating a pet trust? First, you will want to choose the person you want to control the funds you leave to your pet, the trustee of the trust. This person should have the same opinions about caring for your pet as you do, to ensure that the money you have left for your pet is used in the correct way.

The trustee could also serve as the primary care-giver to your pet, who you will name in your estate planning documents. Next, you can place specific directions for the care of your pet in the trust agreement. Does your dog prefer to have organic dog food? Maybe your horse is most comfortable in a certain size of stable. These, and an unlimited amount of other options, may be put in a pet rust agreement.

To learn more about setting up a trust for one of your beloved pets, contact one of the estate planning attorneys at Wladis Law Firm by calling (315) 445-1700 or by visiting our website

Why Do I Need a Living Will AND a Health Care Proxy?

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One of the more common questions we deal with in the initial interview with many estate planning clients is why they need both a living will and a health care proxy. The answer to this question is quite simple; but a bit of background on what each document specifically does may be helpful.

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Your attorney can answer questions about all aspects of estate planning.

Health Care Proxy

The health care proxy is an important document that every person should have as part of their overall estate planning portfolio. Under a health care proxy, the person signing (the “Principal”) designates one Health Care Agent and as many successor Health Care Agent’s as the Principal chooses.

This Health Care Agent will make decisions regarding the Principal’s medical treatment in the event that the Principal is unable to make these decisions on her own, as determined by a physician. The Health Care Agent will not be able to make decisions before this determination by a physician and will not be able to make further decisions if there comes a time when the Principal regains the ability to make decisions.

Appointing the Health Care Agent allows you to control your medical treatment by:

  • allowing the Health Care Agent to make medical decisions as the Principal would have wanted;
  • allowing the Principal to choose a person who the Principal believes would make the right decisions; and
  • allowing the Principal to avoid conflict and/or confusion amongst the Principal’s family members.

This last point raises a significant facet of the Health Care Proxy; only one person may act as a Health Care Agent at a time. The Health Care Agent will likely be an individual that the Principal is very close with. Because of this, making some health care decisions will be a struggle for the Health Care Agent due to the close connection. This leads to the power of a living will and why a living will should always go hand in hand with a Health Care Proxy.

Living Will

The Living Will, when cut to its core purpose, is typically a written statement of the signee’s health care wishes when they are not able to communicate a decision regarding specific medical situations. Often, it is a document used to indicate that the signee either wants to stay on life support or be removed from life support when more than one physician determines the signee is in an incurable or irreversible mental or physical condition with no reasonable expectation of recovery. While New York State does not have a statute that specifically addresses the Living Will, the Court of Appeals (New York’s highest court) has stated that the Living Will is valid as long as is provides clear and convincing evidence of the signees wishes and the signee is 18 years of age or older.

Since the Living Will is an express declaration of the signee’s wishes and intentions regarding end of life medical decisions, it will override all other opinions, including the Health Care Agent under the Health Care Proxy. This can serve to relieve a Health Care Agent of having to make the difficult decision of whether or not someone would want to stay on life support when all signs point to no recovery. The Health Care Agent will simply indicate that the signee has a Living Will and not have to worry about making such an important decision. The signee will also have assurance that her wishes regarding end of life medical treatment will be honored.

The importance of having both a Health Care Proxy and a Living Will is clear. The Health Care Proxy ensures that you have someone to make decisions regarding your ordinary medical care during your lifetime if you are unable to make these decisions. The Living Will ensures that if you are in a terminal condition and are only being kept alive via life support, your personal choice concerning the continuation of life support is made plain..

Have more questions about Living Wills, Health Care Proxies or other estate planning matters? Contact one of the attorneys specializing in Estate Planning at the Wladis Law Firm by calling (315) 445-1700 or by visiting our website,