Using a Special Needs Trust to Ensure Your Settlement Does Not Affect Public Benefits

Using a Special Needs Trust to Ensure Your Settlement Does Not Affect Public Benefits

In Wisconsin, Medicaid (sometimes also called Medical Assistance) covers 1 in 9 adults and 1 in 3 children; in fact, 16% of the Wisconsin population gets its health care coverage through Medicaid.  Unlike the similar sounding Medicare, Medicaid is a means tested, needs-based health care coverage program, which means there are various income and asset limits that determine a person’s, or his/her family’s, eligibility.

By virtue of being a means tested program, Medicaid eligibility can be affected by receipt of funds, such as a personal injury settlement, if proper steps are not taken.  For example, to qualify for Medicaid, a single person can have no more than $2,000 in total countable assets.  If that Medicaid recipient receives a personal injury settlement of $25,000, he or she is going to be above the asset limit and at risk to lose Medicaid coverage.  Considering the exorbitant cost of medical procedures and medications, the loss of Medicaid coverage, or any needs-based benefits, can be devastating.

No injury victim should face the choice of being fully and fairly compensated for his or her injuries versus keeping his or her health care coverage.  Such a harsh outcome can be avoided by transferring the settlement funds to a properly drafted “special needs trust.”  Under normal rules, if a Medicaid recipient gives away or transfers assets to someone else, or to a trust, this results in disqualification from Medicaid (a penalty period).  A special needs trust is a type of trust that is specifically allowed under the Medicaid rules as an exception to the asset transfer rule.  A Medicaid recipient can transfer assets to a special needs trust without disqualification, and the recipient will no longer be over the asset limit.  Although the injury victim no longer has access to the funds, the trustee of the special needs trust can make distributions for his or her benefit, and there will be no loss of public benefits.

For example, our hypothetical accident victim, Courtney, receives a $25,000 settlement but is on Medicaid and Social Security Income (SSI), which are public benefits with asset limits.  Courtney wants to save this money for a car (a non-countable asset) or other items but is not sure what she would like to purchase.  If she is going to stay on public benefits, she only has ten days to report that she has received the money, and then will receive a notice that her benefits will be terminated.  Instead, Courtney’s attorney creates a special needs trust for Courtney, naming her mother as the trustee.  Courtney transfers the $25,000 to the trust without any disqualification for public benefits.  Later, Courtney decides she wants to buy a car with the settlement proceeds.  The car is bought and paid for by the special needs trust; the funds to buy the car come directly from the special needs trust, not Courtney.  Courtney gets her car and continues to receive Medicaid and SSI.

It is important to remember that Medicaid and SSI are just a couple examples of means tested/needs-based public benefits that could be affected by receipt of personal injury settlement funds.  This all serves to highlight the risk of going it alone following an accident or injury, as well as the need to hire a skilled attorney.  To be sure, when the insurance adjuster is pressuring you to settle your claim, the insurance company is not going to care whether the settlement will cause you to lose your public benefits.

 

National Healthcare Decisions Day – April 16, 2019

National Healthcare Decisions Day – April 16, 2019

National Healthcare Decisions Day was founded in 2008 to inspire, educate and empower the public and providers about the importance of advance care planning and encourage individuals to express their wishes regarding their healthcare and end of life decisions. Advance care planning is crucial to ensure that you are able to receive the type of medical care you want if you are unable to speak for yourself due to illness or injury.

A 2018 survey completed by The Conversation Project (a public engagement initiative offering resources to begin communications with loved ones about advanced directives) found that while 92% of Americans say it’s important to discuss their wishes for end-of-life care, only 32% have actually had such a conversation.

In recognition of NHDD , the Wisconsin State Bar is offering a free publication from April 3–19, called A Gift to Your Family: Planning Ahead for Future Health Needs, as a guide to end-of-life decisions, Health Care Powers of Attorney, Living Wills, Declarations to Physicians and Organ Donation.

Contact us for more information regarding the legal documents that are necessary to insure that your loved ones can act on your wishes and make the best decisions possible.

 

We believe that the place for this to begin is at the kitchen table—not in the intensive care unit—with the people we love, before it’s too late.
The Conversation Project

Why Won’t the Bank Honor My Power of Attorney?

Why Won’t the Bank Honor My Power of Attorney?

When you have been appointed as an agent under a Durable General (Financial) Power of Attorney, you presume that financial institutions will honor the document appointing you and provide you with access to funds and financial information on behalf of the person who appointed you as agent. It can be a frustrating experience to be told that you cannot access accounts or get the information you are seeking. To resolve the problem, it is important to ask for a clear explanation for why the document is not acceptable. There are some common reasons for a bank, financial institution or other agency to refuse to acknowledge the power of attorney.

1.) The Power of Attorney Is Not Durable
Read the document carefully. For a power of attorney to be effective after incapacity, it must contain specific language indicating that the power of attorney is “durable,” meaning it continues to be effective after the principal becomes incapacitated. Otherwise, it is only effective while the principal is still of sound mind. Since most individuals want the power of attorney to be effective in the event they are no longer able to handle their financial affairs, they should be sure that the power of attorney contains the appropriate durable language when it is drafted. If there is no such language, the agent has no authority and a bank will not honor the power of attorney. If the principal is already incapacitated, they will not be able to execute a new power of attorney and a guardianship may be necessary to access accounts and financial information.

2.) The Power of Attorney Has Not Been Activated
Most Durable General (Financial) Powers of Attorney contain language about how they become effective, again it is important to read the document very carefully before you need to use it, so you can determine what must occur for it to become activated. Some powers of attorney contain language indicating they are “springing,” meaning they only become effective upon the incapacitation of the principal. Some indicate that the document becomes effective after the principal signs a written statement indicating it is effective and they want the agent to act for them. Other powers of attorney are effective immediately the day they are executed, meaning the principal does not have to be incapacitated for the agent to use the document to act on their behalf.

3.) You Have Not Provided Required Documentation
If the power of attorney requires incapacitation before it is effective, you must provide documentation to the bank or financial institution showing that incapacitation has occurred. You may need medical records or a statement from a physician; or if the document requires it, the signature of two physicians who have examined the principal and determined that he or she is unable to manage their affairs due to mental incapacity. If the document requires a written statement from the principal, you must present that document, along with the power of attorney. If you are a secondary agent, named to act in the event the primary agent is unwilling to act or is unable to act due to death or incapacitation, you must provide documentation as to why the first named agent is not acting (e.g. a written resignation, death certificate or certificate showing the first agent has become incapacitated).

4.) The POA Is “Stale”
The notion of “staleness” implies that if a power of attorney was executed a number of years ago, then there is a chance the principal may have revoked the power or has executed a new one. In Wisconsin, a person may not refuse a power of attorney based on the date it was executed; however, a person may ask for a certification of the power of attorney which provides that the principal is still alive, has not revoked or amended the power of attorney and that the contingency requiring it to be effective has occurred.

5.) Handling Power of Attorney Issues with Banks
Keep in mind that banks and other financial institutions are often trying to prevent fraudulent transactions, giving access to an unauthorized person or granting access to an authorized person under the wrong circumstances. They want to protect their customers and can be held liable for granting unauthorized access. While this can be frustrating for the agent, try to remember that you would want the utmost caution taken if someone were trying to access your personal information or accounts.

Remember, if you have communicated clearly and have provided all documentation without successfully accessing the needed information, your attorney may be helpful in providing the bank or financial institution with the legal authority necessary to access the information.

 

Naming a Trust as the Beneficiary of a Tax-Qualified Retirement Account

Naming a Trust as the Beneficiary of a Tax-Qualified Retirement Account

Many have heard the quote often attributed to Benjamin Franklin, “In this world nothing can be said to be certain, except death and taxes.”  The sentiment behind this quote remains as relevant today as it did then, particularly in the context of modern retirement planning and tax-qualified retirement accounts.  According to the Social Security Administration, tax-qualified retirement accounts are the predominant retirement plan among workers in the early 21st century.  Common examples of tax-qualified retirement accounts include Individual Retirement Accounts (IRAs), 401(k) Plans, 403(b) Plans, etc.  The prevalence and value of these accounts have risen dramatically in the past 20 years.

Given this increased wealth accumulation, tax-qualified retirement accounts are beginning to play a larger role in estate planning.  For many, a trust often serves as the cornerstone of their estate plan.  Trusts offer many advantages including the ability to avoid probate while still (i) managing assets for the benefit of young beneficiaries, (ii) protecting inherited assets from a beneficiary’s creditors or ex-spouse, or (iii) preserving a beneficiary’s eligibility for important public benefits.  Given these advantages, it is often desirable to name a trust as the beneficiary of a tax-qualified retirement account.  However, it is important to understand that these accounts remain subject to a complex set of income tax regulations that can often pose a trap for the unwary, particularly in the context of trust planning.

The major attraction of a tax-qualified retirement account is the ability to accumulate funds inside the account on a tax-deferred basis (or tax-free, in the case of a “Roth” account).  However, IRS regulations dictate when this tax-sheltered accumulation must end.  At a certain point, the account owner and/or beneficiary must begin to withdraw required minimum distributions (“RMDs”) from the account and pay income tax on the funds that are withdrawn. Generally, the best income tax planning strategy with respect to RMDs is to withdraw them over the longest period of time possible.  This offers the advantage of delaying the income tax associated with the withdrawals and allows the funds to grow within the account on a tax-deferred basis as long as possible.  This income tax deferral can have a significant investment and long-term savings impact on the account in question.

When an account owner dies and has named an individual directly as the beneficiary of his or her tax-qualified retirement account, the beneficiary can often easily establish an inherited account that allows him or her to withdraw RMDs over the course of his or her remaining life expectancy.  This is usually the longest distribution period permitted under IRS regulation.  A spousal beneficiary will also have the option of rolling the account over directly into his or her name.

However, when a trust is named as beneficiary, the trust document itself plays a crucial role in determining how quickly RMDs must be withdrawn from the account.  If a trust meets specific requirements and is considered a “see-through trust,” the life expectancy of the oldest trust beneficiary may be used as the measuring life for determining how quickly RMDs must be withdrawn from the account.  Otherwise, if such requirements are not met, the funds must be completely withdrawn from the account over either the remaining life expectancy of the account holder or within a five year period, depending upon the age of the account owner at the time of his or her death.  This often accelerates the timeline for withdrawing the funds from the account, as well as the associated income tax.

For a trust to be considered a “see-through trust,” it must meet the following requirements:

  1. Valid.  The trust must be valid under state law.
  2. Irrevocable.  The trust must either become irrevocable upon the death of the owner or be irrevocable on the date that it is signed.
  3. Identifiable.  The beneficiaries of the trust must be identifiable from the trust instrument.  This is required so that the oldest trust beneficiary can be identified to determine how quickly RMDs must be withdrawn from the account.
  4. Documentation.  Certain documentation must be provided to the plan administrator.  This may often be satisfied by supplying a copy of the trust document.
  5. Individuals.  All beneficiaries of the trust must be individuals.  Estates, charities, non-qualified trusts and other entities do not qualify as individual beneficiaries.

While some of the above requirements are fairly straight forward, it remains easy to run afoul with others in the average trust document.  For example, the simple act of including a charity as a contingent beneficiary may prevent a trust from being considered a see-through trust.  Accordingly, if you plan on naming a trust as the beneficiary of a tax-qualified retirement account, you should speak with your attorney to make sure your trust qualifies as a see-through trust.  In some estate plans, it might even make sense to create a standalone see-through trust depending on the size of the tax-qualified retirement accounts and the account owner’s estate planning goals and family situation.

 

Accounting for Digital Assets in your Estate Plan

Accounting for Digital Assets in your Estate Plan

Like many things rendered obsolete by the progress of technology, older estate plans may not adequately address the realities of the digital age. In the last 15 years, the Internet has become commonplace and many transactions are now recorded electronically or completed entirely online. Most people now manage their finances, business and personal lives through the Internet, and a growing number of organizations are going “paperless.” With this progress came a new form of asset which old laws did not properly address: digital property.

Even those who view themselves as digitally removed probably have some important connection to a digital asset. For example, someone without e-mail, social media accounts and who does not make online purchases, may still store important family photographs or videos on an online or other electronic platform. While of minimal monetary value, such digital assets can be important emotionally. Inversely, some individuals’ lives have become so entwined with their digital presence, making sense of their finances or business dealings would be impossible without full access. Ensuring the ability for loved ones or caretakers to reach such data has become a legitimate part of modern estate planning.

The rise of digital technology developed more quickly than the law, so historically, survivors and caretakers had no clear right to access the digital assets or accounts of a deceased or disabled loved one. Technology company user agreements controlled and were usually designed to provide security and privacy for the company’s living users and often only recognized the rights of the original user. This made accessing vital information a headache at best, and impossible at worst, when the original user was no longer alive or able to manage their own affairs. Adding to this confusion was the fact that few users ever actually read or understood these policies.

In response to the lack of appropriate laws for digital property, the Uniform Law Commission created model guidelines which were presented to the states to pass into law. Wisconsin based its Digital Property Act on these uniform rules but made several changes before passing it into law in 2016.

The Wisconsin Digital Property Act only applies to users who reside in Wisconsin or resided in Wisconsin at the time of their death. Under the Act, digital property means “an electronic record in which a person has a right or interest” but not the underlying non-electronic property. This can be understood as information about you, created by you, or purchased by you that exists digitally. This includes your e-mail, social media, photo and video sharing, gaming, and online information storage accounts. Internet shopping sites like Amazon or eBay may include credit balances in your favor; and accounts like PayPal can hold funds for use in online purchases. Digital media accounts, like iTunes, often store valuable rights to songs, subscriptions, e-books, or other media. Some individuals may even have websites, articles, domain names, online stores or blogs they own or manage which generate revenue. Personal accounts tied to businesses can contain client information, mailing lists and valuable newsletter subscriptions.

The Act automatically provides limited access to digital information to individuals named in estate plans and power of attorney documents upon their written request, but the Act takes an “opt-in” approach for a user to grant rights to the actual content of digital communications. This means the law allows users to decide how their online information will be granted but does not do so automatically. Users can opt-in by either completing an “online tool” or specifically giving the rights to individuals named in an estate planning document, such as a will, trust or power of attorney.

“Online tools” are options built into some websites for opting in, but not all websites contain this feature. As an example, Facebook’s online tool is called a “Legacy Contact” and can be accessed under the security menu on an account. Google’s online tool is called an “Inactive Account Manager” and can be set to notify a designated contact and allow them to download certain types of data.

Wisconsin uses a “tiered approach,” meaning a designation in an online tool takes priority over a conflicting designation in an estate planning document. Because of this priority issue, you may wish to discuss with your estate planning attorney how to coordinate use of these features to reach your desired outcome.

If you opt-in under either method, the law requires the website provider to allow the designated person access and management of the digital property. This allows them to archive important information or photos, maintain & close accounts and transfer any credits or income generating assets. If you do not opt-in, the user agreements govern and usually do not allow such access or management.

In addition to creating the legal authority for someone to manage your digital assets by opting-in, it is important they have the information necessary to fulfill their role. A simple step in organizing your digital estate is making a list of your digital assets and how to access them. This includes login usernames and passwords. However, make sure to also consider access to accounts with additional protections, like two-factor verification or encryption programs. The list should be stored in a secure, but accessible, location, and someone you trust should know where it is kept. Once made, the list should be updated periodically. Also, this list should not be included in your last will and testament, as this will be filed with the court after your death and becomes available to the public.

An estate planning attorney can assist you with understanding and organizing both your digital and non-digital estate. If you already have an estate plan, consider having it reviewed to make sure it covers digital property. Most estate planning completed by a Wisconsin attorney in the last several years will include these digital estate provisions, but older documents are likely silent on the issue or may address it in a way inconsistent with the 2016 law. The digital revolution has changed many things, but for estate planning, the old rule still holds true: a little planning up-front can save a lot of stress and expense for your loved ones down the road.

 

Seven Things You Need When You are Personal Representative of an Estate

Seven Things You Need When You are Personal Representative of an Estate

Being asked to wind up the affairs of a deceased loved one may feel like an honor, but the duties of a Personal Representative, or Executor, as the position is sometimes called, can also be complicated. If you have been named as Personal Representative in the Last Will & Testament of someone who has died, here are some things to keep in mind:

1. You Will Need Patience.
Being appointed takes time. Your nomination as Personal Representative does not give you authority to act on behalf of the estate. Before you can act, you will need to file an application with the probate court to request that you be appointed. You will be required to file a number of documents to open the administration, and will be appointed only after all interested parties, heirs, and beneficiaries have been given notice of the proceedings and any applicable waiting periods have passed. The process and time frame varies depending upon the number of heirs and beneficiaries, and whether any party raises an objection to the Will or to your appointment as Personal Representative. In the meantime, you will not have authority to pay bills, secure property, or handle administrative tasks for the estate.

2. You Will Need Help.
You will often need the assistance of an attorney to prepare the initial required filings and help you through the remaining probate process. The required legal filings can be complicated. In addition, you will need legal advice regarding claims filed against the estate, tax issues, distribution methods, or objections by beneficiaries. Your attorney can coach you through legal questions and situations as they arise. He or she can also conduct research on specific matters and look over or prepare paperwork before filing.

3. You Will Need Information.
Before initiating the probate process, you will need information about the decedent’s assets and the original Last Will & Testament. Not all estates are subject to probate. If the deceased named direct beneficiaries on his or her life insurance, bank accounts or retirement accounts, for example, these assets will not need to go through the probate process. How assets are titled matters in determining what procedures will be necessary to handle the decedent’s affairs. If you don’t have very much information regarding assets and expenses, an attorney will not be able to tell you which procedures can be used until you gather more information. It may be necessary to sort through files and go through all of the decedent’s paperwork before you can begin the process.

4. You Will Need Time.
Administering an estate is very time consuming. It will take several months to administer a basic estate, and much longer for complicated estates. In Wisconsin, there is a three month period after the estate has been opened, during which creditors may file claims in the estate. In addition, the estate will need to remain open until all assets, including real estate, are liquidated and transferred. This may mean waiting several months to a year or more for real estate to be sold. Being a Personal Representative can feel like a “second job” as you spend time making phone calls to obtain information from banks, mortgage servicers, investment firms, and life insurance companies and schedule meetings with financial advisors, realtors, accountants, and attorneys. You may need to sort through and dispose of years of accumulated paperwork and personal property, often while dealing with other grieving family members who also have an interest in personal property and sentimental items.

5. You Will Need Excellent Skills.
You must have good organizational and financial skills. Personal Representatives are required to keep very good records and provide an accounting to the probate court for all expenditures. You will need to keep meticulous records of financial transactions, as well as communications with attorneys, accountants, bankers, and other contacts. If you hate the thought of balancing your own checkbook, and happily relinquish financial tasks in your household to your spouse or partner, you will have difficulty dealing with the tasks of a Personal Representative. In that case, a good Personal Representative will enlist the help of professionals to organize the estate’s finances.

6. You Will Need Money.
As Personal Representative, you will likely incur expenses during the administration of an estate, such as travel, mileage, postage, etc. Fortunately, you are entitled to be compensated for out-of-pocket costs. You are also entitled to compensation in the form of a Personal Representative’s fee, typically 2% of the value of the estate. Be prepared, however, that heirs do not always understand the amount of time involved in administering an estate, and the Personal Representative’s fee may become a source of conflict. While the law allows the fee, many Personal Representatives feel uncomfortable accepting payment.

7. You Will Need to Fulfill Legal Duties.
Personal Representatives have a duty under the law to properly administer the estate. Personal Representatives are required to complete certain duties, such as paying administration and funeral expenses, publishing notices to creditors, filing tax returns, providing notice to heirs, and following the distribution instructions as set forth in the decedent’s Will. The law also provides a time frame in which these tasks must be completed. In addition, you have a legal duty to properly value assets and make sure that heirs receive the inheritance to which they are entitled.

The role of Personal Representative of an estate requires time, patience, and the organizational skills to deal with a somewhat overwhelming amount of legal and financial documents. With this information, we hope that you are more prepared to handle the responsibility of being Personal Representative. Please note that Anderson O’Brien Law can assist you in the process of administering an estate.

 

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