Tips on Creating an Estate Plan that Benefits a Child with Special Needs

Parents want their children to be taken care of after they die. But children with disabilities have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

Special Needs Trusts
The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.

There are three main types of special needs trusts:

  • A first-party trust is designed to hold a beneficiary’s own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary’s benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.
  • The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary’s access to benefits and the funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the “payback” provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.
  • A pooled trust is an alternative to the first-party special needs trust.  Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.

Life Insurance
Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you’ve established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child’s care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents’ estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies.

ABLE Account
An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.

Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)

Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary’s heirs.

Get Help With Your Plan
However you decide to provide for a child with special needs, proper planning is essential. Talk to Kristen Prull Moonan or Amy Stratton to determine the best plan for your family.

Drafting a Power of Attorney that Lessens the Chances of Abuse

A power of attorney is one of the most important estate planning documents you can create, but it is also one that can be misused.  While it isn’t possible to entirely prevent the possibility of abuse, there are steps you can take in drafting the document to greatly reduce the chances.

A power of attorney allows a person you appoint — your “attorney-in-fact” or “agent” — to act in place of you – the “principal” — for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Unfortunately, if the agent chooses to exploit the principal, a power of attorney in the wrong hands or with too much power can be very bad news. The following are some ways to draft a power of attorney to prevent someone from taking advantage of you.

  • Trustworthy agent. The most important thing you can do is appoint a trustworthy agent. Think carefully about whom you want acting on your behalf. You need to appoint someone you trust to have your best interests in mind. If you do not have any friends or relatives who are appropriate, you could hire a professional fiduciary. A professional fiduciary can be a bank with trust powers, a certified public accountant, or a trust company. Another option is to have multiple agents, which allows more than one person to share the responsibility and permits them to divvy up tasks. Requiring the co-agents to act together provides checks and balances, but it could become very cumbersome if all of your agents have to sign every check or other document.
  • Second signature. If you don’t want to have co-agents, but you want a check on the agent, one option is to require two signatures for large transactions. The power of attorney document can set rules on what transactions would require an additional person to sign off on them.
  • Backup agent. In addition, to having a trustworthy agent, it is a good idea to have a backup agent in case the first agent becomes incapacitated or no longer wants to serve as agent. If you do name alternates, make sure the document is very clear about when the alternate takes over and what evidence he or she will need to present when using the power of attorney.
  • Third-party accounting. One way to prevent an agent under a power of attorney from exploiting the principal is to require the agent to provide an accounting to a third party. The third party could be a family member or a friend. It doesn’t have to be a formal accounting; it can be a summary of the financial transactions. The power of attorney document can provide the details on what information needs to be provided to whom and how often.
  • Limit powers. The power of attorney can provide detailed instructions on the various powers the attorney-in-fact may carry out. You can make it as broad or as limited as you want. For example, you can allow your agent to pay bills, but not to change your will. One of the most important powers in the power of attorney document is the power to gift. One way to prevent abuse is to strictly define when gifting is allowed and how much the agent can give.
  • Review the choice. Every few years, you should review your choices in case something has changed. Don’t be afraid to revoke the power of attorney if you are no longer happy with your choice of an agent.

Because of these drafting choices, it is a good idea to have an attorney draft the document for you.  Contact Kristen Prull Moonan or Amy Stratton to learn how to best protect yourself or a loved one.

What Happens to Your Debts When You Die?

When you die, your debts do not expire with you. Most debt still needs to be paid off, if possible.  However, who is responsible for paying the debt depends on the type of debt, and some assets are protected from being used to satisfy a debt.

Outstanding debt may include mortgages, credit card bills, car loans, personal loans, or condominium fees — even car leases, where death is considered “early termination” of a contract.

Usually your estate is responsible for paying any debts you leave behind. If the estate does not have enough money, the debts will go unpaid. In general, debt collectors may not try to collect payment from your relatives and heirs. However, there are some exceptions. Co-signers and guarantors of a particular debt are responsible for that debt, and someone who held property jointly with you would be responsible for any debts on the joint property. In addition, spouses in “community property” states — states where property acquired during marriage is owned jointly by both spouses — may be responsible for some debt.

Creditors are paid from the part of your estate that passes through probate, which means any property that passes through a will. The person who is appointed personal representative or executor of your estate is responsible for making sure the creditors are paid. The personal representative uses estate assets to pay off the debts before any money passes to heirs. If you have significant debts, it is possible that your entire estate will be used to pay creditors.

Creditors cannot be paid from any assets that pass directly to a beneficiary. For example, a jointly held bank account would pass directly to the joint owner, and the funds in that account could not be used to pay creditors. Similarly, life insurance policies pass directly to the beneficiaries, so creditors do not have access to those funds. Whether or not a creditor can access funds in a trust depends on state law as well as what kind of trust it is. Consult with your attorney to determine if your assets are protected.

Contact Kristen Prull Moonan or Amy Stratton to learn more.

 

 

How to Contest a Will

You had a loving relationship with your mother and she always said she would leave everything to you and your siblings, but after she died, you discover she had recently written a new will, leaving everything to her housekeeper. Is there anything you can do? If you believe a loved one’s will is not valid, you may be able to contest it. But proving a will is invalid is difficult and this process should be undertaken only if you are sure there is something wrong.

Only certain people can contest a will. For example, you can’t contest your friend’s will just because you believe she shouldn’t have left her estate to her niece. You must be an interested party. This means you would have inherited from your loved one if there was no will or you are a beneficiary of the will.

In addition, you cannot contest a will solely because you think the distribution is unfair. A will can be contested only in certain circumstances; there must be evidence that something is wrong with the will. The following are the situations in which a will may be contested:

  • Mental incapacity. You may contest a will if you believe your loved one did not have the mental capacity to write the will. The best way to prove this is with a statement from a doctor who examined your loved one around the time he or she wrote the will. You may also use medical records and other witnesses who were around your loved one at the time.
  • Undue Influence. If you believe another person exerted undue influence over your loved one and induced your loved one to change the distribution under his or her will, you may contest the will based on undue influence. Generally, the person contesting the will is required to prove the person exerted undue influence. However, if the person had a fiduciary relationship with your loved one, that person may have to prove that there was no undue influence. People who might have a fiduciary relationship include a child, a spouse, or someone with a power of attorney.
  • Fraud. Arguing your loved one was fraudulently induced into signing his or her will is another way to contest a will. Fraud occurred if your loved one signed a will without realizing it was a will. It could also happen if someone gave your loved one misinformation that caused him or her to change the distribution in the will.
  • Not Executed Properly. Finally, a will may be invalid if it was not executed properly. Each state has laws dictating what makes a will valid. Usually, the signing of the will must be witnessed by independent witnesses. If the document was not witnessed properly, it may be invalid.

If you want to contest a will, you should contact your attorney immediately because you will need to file a claim with the court. If you are an interested party, you should receive notice from the court that the will is being probated.

If you are successful in invalidating a will, the court may reinstate your loved one’s prior will. If there is no earlier will, the estate may pass under the state’s intestate succession laws. Another alternative is for the court to invalidate just the portion of the will that is invalid, leaving the rest intact.

Contact Kristen Prull Moonan or Amy Stratton to learn more.

How to Fight a Nursing Home Discharge

Once a resident is settled in a nursing home, being told to leave can be very traumatic. Nursing homes are required to follow certain procedures before discharging a resident, but family members often accept the discharge without questioning it. Residents can fight back and challenge an unlawful discharge.

According to federal law, a nursing home can discharge a resident only for the following reasons:

  • The resident’s health has improved
  • The resident’s needs cannot be met by the facility
  • The health and safety of other residents is endangered
  • The resident has not paid after receiving notice
  • The facility stops operating

Unfortunately, sometimes nursing homes want to get rid of a resident for another reason–perhaps the resident is difficult, the resident’s family is difficult, or the resident is a Medicaid recipient. In such cases, the nursing home may not follow the proper procedure or it may attempt to “dump” the resident by transferring the resident to a hospital and then refusing to let the him or her back in.

If the nursing home transfers a resident to a hospital, state law may require that the nursing home hold the resident’s bed for a certain number of days (usually about a week). Before transferring a resident, the facility must inform the resident about its bed-hold policy. If the resident pays privately, he or she may have to pay to hold the bed, but if the resident receives Medicaid, Medicaid will pay for the bed hold. In addition, if the resident is a Medicaid recipient the nursing home has to readmit the resident to the first available bed if the bed-hold period has passed.

In addition, a nursing home cannot discharge a resident without proper notice and planning. In general, the nursing home must provide written notice 30 days before discharge, though shorter notice is allowed in emergency situations. Even if a patient is sent to a hospital, the nursing home may still have to do proper discharge planning if it plans on not readmitting the resident. A discharge plan must ensure the resident has a safe place to go, preferably near family, and outline the care the resident will receive after discharge.

If the nursing home refuses to readmit a patient or insists on discharging a resident, residents can appeal or file a complaint with the state long-term care ombudsman. The resident should appeal as soon as possible after receiving a discharge notice or after being refused readmittance to the nursing home. You can also require the resident’s doctor to sign off on the discharge.

Contact Kristen Prull Moonan or Amy Stratton here to find out the best steps to take.

For more on protecting the rights of nursing home residents, see the guide 20 Common Nursing Home Problems–and How to Resolve Them by Justice in Aging.

 

Medicare Beneficiaries Need to Know the Difference Between a Wellness Visit and a Physical

Medicare covers preventative care services, including an annual wellness visit. But confusing a wellness visit with a physical could be very costly.

As part of the Affordable Care Act, Medicare beneficiaries receive a free annual wellness visit. At this visit, your doctor, nurse practitioner or physician assistant will generally do the following:

  • Ask you to fill out a health risk assessment questionnaire
  • Update your medical history and current prescriptions
  • Measure your height, weight, blood pressure and body mass index
  • Provide personalized health advice
  • Create a screening schedule for the next 5 to 10 years
  • Screen for cognitive issues

You do not have to pay a deductible for this visit. You may also receive other free preventative services, such as a flu shot.

The confusion arises when a Medicare beneficiary requests an “annual physical” instead of an “annual wellness visit.” During a physical, a doctor may do other tests that are outside of an annual wellness visit, such as check vital signs, perform lung or abdominal exams, test your reflexes, or order urine and blood samples. These services are not offered for free and Medicare beneficiaries will have to pay co-pays and deductibles when they receive a physical. Kaiser Health News recently related the story of a Medicare recipient who had what she assumed was a free physical only to get a $400 bill from her doctor’s office.

Adding to the confusion is that when you first enroll, Medicare covers a “welcome to Medicare” visit with your doctor. To avoid co-pays and deductibles, you need to schedule it within the first 12 months of enrolling in Medicare Part B. The visit covers the same things as the annual wellness visit, but it also covers screenings and flu shots, a vision test, review of risk for depression, the option of creating advance directives, and a written plan, letting you know which screenings, shots, and other preventative services you should get.

To avoid receiving a bill for an annual visit, when you contact your doctor’s office to schedule the appointment, be sure to request an “annual wellness visit” instead of asking for a “physical.” The difference in wording can save you hundreds of dollars. In addition, some Medicare Advantage plans offer a free annual physical, so check with your plan if you are enrolled in one before scheduling.

Contact Kristen Prull Moonan or Amy Stratton here to learn more.

 

Maximizing Social Security Survivor’s Benefits

Social Security survivor’s benefits provide a safety net to widows and widowers. But to get the most out of the benefit, you need to know the right time to claim.

While you can claim survivor’s benefits as early as age 60, if you claim benefits before your full retirement age, your benefits will be permanently reduced. If you claim benefits at your full retirement age, you will receive 100 percent of your spouse’s benefit or, if your spouse died before collecting benefits, 100 percent of what your spouse’s benefit would have been at full retirement age. Unlike with retirement benefits, delaying survivor’s benefits longer than your full retirement age will not increase the benefit. If you delay taking retirement benefits past your full retirement age, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay up to age 70, in addition to any cost of living increases.

You cannot take both retirement benefits and survivor’s benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one benefit is clearly much higher than the other. In other situations, the decision can be a little more complicated and you may want to take your survivor’s benefit before switching to your retirement benefit.

To determine the best strategy, you will need to look at your retirement benefit at your full retirement age as well as at age 70 and compare that to your survivor’s benefit. If your retirement benefit at age 70 will be larger than your survivor’s benefit, it may make sense to claim your survivor’s benefit at your full retirement age. You can then let your retirement benefit continue to grow and switch to the retirement benefit at age 70.

Example: A widow has the option of taking full retirement benefits of $2,000/month or survivor’s benefits of $2,100/month. She can take the survivor’s benefits and let her retirement benefits continue to grow. When she reaches age 70, her retirement benefit will be approximately $2,480/month, and she can switch to retirement benefits. Depending on the widow’s life expectancy, this strategy may make sense even if the survivor’s benefit is smaller than the retirement benefit to begin with.

Keep in mind that divorced spouses are also entitled to survivor’s benefits if they were married for at least 10 years. If you remarry before age 60, you are not entitled to survivor’s benefits, but remarriage after age 60 does not affect benefits. In the case of remarriage, you may need to factor in the new spouse’s spousal benefit when figuring out the best way to maximize benefits.

Contact Kristen Prull Moonan or Amy Stratton here to learn more.

Will You Owe a Gift Tax This Year?

The rules surrounding taxes on gifts often create confusion during tax season or any other time. Below are some of the nuts and bolts of the gift tax, including when a gift tax form needs to be filed.

The annual gift tax exclusion for 2018 and 2019 is $15,000. This means that any person who gave away $15,000 or less to any one individual (anyone other than their spouse) does not have to report the gift or gifts to the IRS. Any person who gave away more than $15,000 to any one person, however, is technically required to file a Form 709, the gift tax return. But just because you are required to file a Form 709 doesn’t mean you necessarily have to; this depends on your past gift-giving history.

The IRS allows you to give away a total of $11.4 million (in 2019, up from $11.18 million in 2018) during your lifetime before a gift tax is owed. This $11.4 million exclusion means that even if you are technically required to file a Form 709 because you gave away more than $15,000 to any one person last year, you will owe taxes only if you have given away more than a total of $11.4 million in the past. As a result, the filing of a Form 709 is irrelevent for most people because the vast majority of people do not have $11.4 million to give away.

For those who have the means, there are several ways to give away more than $11.4 million over a lifetime without owing taxes. Keep in mind that Form 709 is only required when you give away more than the annual exclusion. So a married couple with a married child can give away $60,000 in one year without having to report the gift: each parent gives the child and the child’s spouse $15,000 each. If a couple did this for 25 years, they would have given away $1.5 million without even having to report the gifts, much less having them count against their lifetime $11.4 million exclusion. Also it would be possible for the couple to give away $120,000 within a short span of time — $60,000 in December and $60,000 in January of the next calendar year. (Note that if both spouses have made gifts, each must file a separate Form 709.)

Another way for a gift to be exempted from reporting requirements, no matter the gift’s size, is to pay for someone else’s medical care or educational tuition. It is important to note that the money must be paid directly to the school, university, or health care provider to be exempt, and that pre-payments can often be made as soon as the person is admitted to the school (schools include not just colleges but nursery schools, private grade schools, or private high schools). However, if you contribute to someone else’s 529 college savings plan, you are subject to the $15,000 gift exclusion rule. A special regulation in the tax code enables a donor to use up five years’ worth of her exclusions and gift $75,000 (in 2019) to a 529 at one time.

Also note that gifts to a spouse are usually not subject to any federal gift taxes as long as your spouse is a U.S. citizen. If your spouse is not a U.S. citizen, you can give only $155,000 without reporting the gift (in 2019). Anything over that amount has to be reported on Form 709.

If you have given away property other than money, like stock, you have to report that on your gift return, too, if the value is more than $15,000. If the stock had gone up in value since you bought it, you report the value as of the date that you gave it away. You may want to inform the recipient that the basis, or the amount that you bought the stock for, becomes their basis. The basis is used when the property is sold to determine the profit or loss.

Finally, tax deductible gifts made to charities need not be reported on a gift tax return unless the donor retains some interest in the gifted property. Contact Kristen Prull Moonan or Amy Stratton here to learn more.

What’s a Health Care Proxy and Why Do I Need One?

If you become incapacitated, who will make your medical decisions? A health care proxy allows you to appoint someone else to act as your agent for medical decisions. It will ensure that your medical treatment instructions are carried out, and it is especially important to have a health care proxy if you and your family may disagree about treatment. Without a health care proxy, your doctor may be required to provide you with medical treatment that you would have refused if you were able to do so.

In general, a health care proxy takes effect only when you require medical treatment and a physician determines that you are unable to communicate your wishes concerning treatment. How this works exactly can depend on the laws of the particular state and the terms of the health care proxy itself. If you later become able to express your own wishes, you will be listened to and the health care proxy will have no effect.

If you are interested in drawing up a health care proxy document, contact  Kristen Prull Moonan or Amy Stratton here.

 

 

10 Facts Funeral Directors Don’t Want You to Know

Funerals are among the most expensive purchases many consumers will ever make, ranking only behind the purchase of a home and an automobile. A traditional funeral, including a casket and vault, can start at around $7,000, although “extras” like flowers, obituary notices, acknowledgment cards or limousines can add thousands of dollars to the bottom line. Many funerals run well over $10,000.

But it’s possible to spend much less if you don’t let funeral directors pressure you into buying goods or services you don’t want or need. To help consumers resist such pressure and become more informed, Bankrate.com has compiled a list of “10 things funeral directors don’t want you to know.” The list is summarized below:

  1. Shopping around for funeral services can save you thousands of dollars.
  2. Funeral directors are not clergy. Although consumers tend to trust them implicitly and believe everything they say, it is well to remember that funeral homes are in business to make money.
  3. Embalming is rarely required when the person will be buried within 24 to 48 hours.
  4. Seeing your loved one prior to burial without the benefit of embalming will not leave you with unresolved grief issues. “If more people knew what embalming entailed, they would not choose to do it,” says Joshua Slocum, executive director of the Vermont-based Funeral Consumers Alliance, a not-for-profit consumer information and advocacy group.
  5. Sealed caskets, which add considerable cost, cannot preserve a body.
  6. A funeral provider may not refuse or charge a fee to handle a casket you bought elsewhere.
  7. You don’t need to spend more than $400 to $600 for a modest casket.
  8. You do not have to buy the funeral home’s entire package of services. You may pick and choose the services you want.
  9. You can plan and carry out many things on your own to honor your loved one without paying for services from a funeral home.
  10. Local funeral and memorial societies can help consumers find ethical establishments and often negotiate discounts for their members. For example, the Funeral Consumers Alliance has 115 chapters in 46 states around the country.

All funeral homes must comply with the Federal Trade Commission’s Funeral Rule. The Funeral Rule requires all funeral homes to supply customers with a general price list that details prices for all possible goods or services. The rule also stipulates what kinds of misrepresentations are prohibited and explains what items consumers cannot be required to purchase, among other things. For more on the rule, click here.

For the FTC’s series of articles on Shopping for Funeral Services, click here. Contact Kristen Prull Moonan or Amy Stratton here to learn more.