Special Needs Estate Planning

Special Needs Estate Planning

Special needs planning involves parents or caregivers who are interested in ensuring quality of life, advocacy and services to a child or individual with special needs. The planning itself is two-fold: First, parents and caregivers will want to be sure that they can use their own assets to provide resources and services and to ensure that such resources are appropriately handled after death. Second, for individuals with special needs, inheritances, like other resources, can have an adverse impact on needs-based or financially-based public benefits. Therefore, special needs planning also incorporates planning for those types of benefits as well.

A properly drafted special needs plan has two primary goals: (1) preservation of resources and (2) ensuring quality of life. The foundation of such planning includes a Will or Revocable Trust, a Special Needs Trust, and in some cases, Guardianship.

If you do not have a Will, Wisconsin Statutes will determine the beneficiaries who receive your property (the Laws of Intestacy). If you have a child with special needs who is receiving public benefits, you may not want that child to receive your property directly. Instead, you can set up a Special Needs Trust in your Will for your child with special needs ensuring that public benefits will remain intact after your death. If you have been court appointed as legal guardian for your adult child, you can also nominate a successor guardian in your Will.

As an alternative to your Will, you can execute a Revocable Trust, which is a trust that provides for distribution of your assets upon death. Unlike a Will, if the Revocable Trust is properly funded, it will allow you to avoid probate procedures. You can also provide for the distribution of assets to a Special Needs Trust within your Revocable Trust.

A Special Needs Trust is a trust arrangement whereby income and assets are preserved and used for the beneficiary without interfering with or jeopardizing the beneficiary’s eligibility for Medicaid, SSI, and other needs-based government benefits. Assets are held and managed by a Trustee, who distributes the assets in accordance with the instructions in the Trust document.

A Special Needs Trust created under a Will or Revocable Trust is called a third-party trust. A third-party trust is one created and funded with assets owned by someone other than the beneficiary. A third-party trust can also be created and funded prior to death and is called a living trust, or inter vivos trust. Under 42 USC 1396p (d)(4)(A), third-party trusts are not subject to a Medicaid lien.

All Special Needs Trusts provide that funds held in the trust are not to be placed under the control of the beneficiary, and most provide specifically that disbursements from the trust are not to be made to the beneficiary but are to be in the form of payments to vendors. The Special Needs Trust must also be irrevocable. The trust also provides what is to be done with any funds remaining after the death of the beneficiary. Unlike Special Needs Trusts established with a disabled individual’s assets (self-settled trusts), a third-party trust contains no requirement to pay back benefits paid to the beneficiary during his or her lifetime. It is important not to commingle the assets of a third-party trust with a self-settled trust because of this distinction.

Special Needs Trusts involve complex estate planning concepts. It is important that you work with someone who is familiar with different types of Special Needs Trusts, the various options for establishing such trusts, and public benefits planning to ensure that your assets are properly managed and that your loved one maintains necessary benefits following your death.

Health Savings Account Account (HSA)

Health Savings Account Account (HSA)

Have a Health Savings Account? Do you know what happens to your HSA when you die?

An HSA account is a tax-exempt, medical savings account that is available to United States taxpayers who are enrolled in a high-deductible health plan. Over the last few years, HSA accounts have become more common. However, many HSA account owners are unaware of the implications of the rules governing HSA accounts in the event of their death.

Death of an HSA Holder

If you die with an HSA account and you have named your spouse as the designated beneficiary of your HSA, then the HSA will continue to be treated as your spouse’s HSA after your death. Your spouse will then be able to use the money tax-free to pay for qualified medical expenses even if your spouse is not enrolled in a high-deductible health plan. Your spouse will also be able to use the account funds to pay for any qualified medical expenses that you incurred prior to your death if your spouse pays those expenses within a year of your date of death. However, if your spouse is younger than 65, takes a distribution of funds, and uses the funds for something other than medical expenses, then your spouse will be required to pay a 20% penalty tax on the amount withdrawn plus income taxes. (This is the same rule that applies to you while you are alive.)

If you named someone other than your spouse as the HSA account beneficiary, then the HSA account stops being an HSA, and the fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. However, the taxable amount can be reduced by any qualified medical expenses that you incurred prior to your death if those expenses are paid by the beneficiary within a year of your date of death.

If no beneficiary is named or, in other words, if your estate is the beneficiary of the account, then the HSA and the account value shall be included on your final income tax return. The amount reported on your return cannot be reduced for the payment of any qualified medical expenses incurred by you and that your estate paid within a year of the date of your death. This is true even if your spouse is the sole beneficiary to your estate.

In conclusion, naming your spouse as the beneficiary of your HSA account carries numerous tax advantages. If you are not married, naming another person as the beneficiary of your HSA account is a good option, depending on the value of the account and the tax implications you might have if you named no beneficiary and had the value reported on your final income tax return.

Beneficiary Designations

Beneficiary Designations

Clients often ask questions about the use of beneficiary designations in their estate planning. Beneficiary designations can be a convenient way to avoid probate in some situations. If an individual is named as a direct beneficiary on an asset, that asset passes automatically to that individual, regardless of the terms of the decedent’s Will, Trust, or other estate planning documents.

Your attorney will often recommend that you coordinate your Payable-on-Death (POD) beneficiary designations or Transfer-on-Death (TOD) beneficiary designations to follow the distribution patterns in your overall estate plan for the purpose of avoiding probate. Despite the convenience, however, there are several good reasons to consider alternatives to direct beneficiary designations.

1. When you name direct beneficiaries using TOD and POD beneficiary designations to transfer all of your assets directly to those named beneficiaries, there is no one in charge of settling your estate. Furthermore, naming direct beneficiaries means there is no funding mechanism so that the person in charge can pay for funeral and burial, medical bills, debts, and administration expenses.

2. If you have relied on TOD and POD beneficiary designations to transfer all of your assets on death, there is no legal method for handling the disposition of tangible personal property, such as household furniture and furnishings, personal effects of sentimental value, motor vehicles, RVs, and watercraft.

3. While using TOD and POD beneficiary designations avoids the need to have an executor or personal representative appointed, this means that there is no one with the legal authority to file final income tax returns for the decedent. A trustee of a revocable trust has this authority, and so does the executor or personal representative named in a Will. The personal representative named in a Will has no legal authority unless there is a probate proceeding which admits the Will to probate.

In addition to the potential complications above, there are unique complications with respect to Transfer on Death (TOD) deeds for the purpose of transferring real estate without probate.

1. A TOD deed designating multiple children will effectively transfer title of the real estate directly to those children without probate proceedings. While the ease of transfer is convenient, none of the children have a greater say in the maintenance and disposition of the real estate. This can leave children in an untenable situation if they disagree about the disposition of the property, such as whether to sell the property or whether to make improvements to the property to prepare it for sale; not to mention the expenses in maintaining the property in the interim. The TOD transfer of title would even make it legal for one of the children to move into the residence and live there, while refusing to sell the residence.

2. A TOD beneficiary designation often does not cover contingencies. What happens if the named beneficiary predeceases the owner? We might expect that a parent will change their TOD beneficiary designations if a child predeceases them; however, what if the parent is mentally incapacitated, or simply does not take care of it? There is no simple procedure for determining who the successor beneficiaries are for purposes of providing clear title to the real estate. In the event a predeceased beneficiary’s minor children become the successor beneficiaries, real estate cannot be transferred to them without cumbersome court proceedings, such as a guardianship. Going forward, the court would be involved in all transactions involving the real estate, including sale. Furthermore, there is no ability to hold assets for the minor beneficiaries once they become the age of 18.

3. If a TOD beneficiary is in a nursing home and receiving Medical Assistance (Medicaid) benefits, the automatic transfer of real estate to them will affect their Medicaid eligibility and, in all likelihood, cause a loss of benefits. Their proceeds from the sale of the property will likely have to be used to pay nursing home expenses.

Consideration of whether or not to use direct beneficiary designations is crucial to your estate plan. While it may work well in some situations, it is important to consider both the advantages and disadvantages and work closely with your estate planning attorney to avoid common pitfalls. When in doubt, seek proper legal advice before completing direct beneficiary forms to make sure your designations are consistent with your overall estate planning goals.

Taking Control of Your Estate Plan

Taking Control of Your Estate Plan

Have you ever considered making a will or a revocable trust? Did you ultimately find a reason not to do so? If so, according to a recent survey by Caring.com, you are not alone. The survey indicates that only 42 percent of U.S. adults have estate planning documents such as a will or revocable trust. When the survey results are divided into age groups, it is apparent that people often delay getting these important documents until later stages in life.

The survey also notes that people have a variety of reasons for not preparing an estate plan. Forty-seven percent of respondents without an estate plan stated that they “just haven’t gotten around to it.” On the other hand, 29 percent of respondents indicated that they “don’t have enough assets to leave anyone.” While these reasons are not surprising, they do overlook the crucial importance of having these documents in place at any stage of life. Thinking about your own mortality is not fun at any age, but there are many reasons why everyone over age 18 should have an estate plan in place.

Be in Control of Who Receives Your Assets

First, preparing a will or revocable trust allows you to control the distribution of your assets upon your death, even if such assets are modest. You are able to name the beneficiaries who inherit your assets. If a person dies without a will or other estate planning, most states, including Wisconsin, have a default statute which controls who then inherits his or her assets. The people named to inherit as heirs under the statute may not be the same people who the decedent would have otherwise chosen if he or she prepared a will or revocable trust.

Be in Control of How your Estate is Handled

Second, if an estate needs to go through probate to be settled, having a will can often make the process simpler and less expensive for your loved ones. Probate is the court process used to settle a person’s estate if they have over $50,000 in solely-titled assets at the time of their death. If a person has a will, their estate is often eligible to be administered informally, which avoids the need for court hearings. Also, you are able to name in a will who you want to be in control of handling your estate. This person is called your “personal representative.” A will allows you to name a person you trust to serve in this role who has the necessary skill and time to do the job well. Finally, when meeting with an attorney to prepare your estate plan, you can also discuss various planning options to avoid probate all together, such as using a revocable trust.

Be in Control of Who Takes Care of Your Children

Third, if you have minor children, having a will is critical. It allows you to name a guardian to take care of your children in the event of your death. You can also incorporate trust planning into your estate plan so that the assets your children inherit are preserved for their benefit until they reach an age at which you feel comfortable having them manage such assets on their own.

Be in Control of Who Takes Care of You

Finally, when people think of putting together an estate plan, they often first think of preparing a will or revocable trust and planning for the event of their death. However, planning for the event of your incapacity through the use of a durable general power of attorney and health care power of attorney is equally important. These documents allow you to control who makes decisions for you if you become incapacitated and can no longer make such decisions on your own.

Despite the perception that only the elderly or the rich need estate plans, having an estate plan in place is crucial at any age to ensure you control important decisions regarding your life and your assets. Such proactive planning also allows you to make the process of settling your estate as simple as possible for your loved ones and ensures that your wishes will be carried out. These important decisions should not be left up to chance.

ABLE Accounts Now Available to Wisconsin Residents

ABLE Accounts Now Available to Wisconsin Residents

The Achieving a Better Life Experience (ABLE) Act, enacted by Congress in late 2014, amended Section 529 of the Internal Revenue Code, permitting states to allow tax-advantaged savings accounts to be established for qualified individuals with disabilities for certain disability-related expenses. Funds held in ABLE Accounts will generally not be considered in determining eligibility for the supplementary security (SSI) program, Medicaid, and certain other federal means-tested benefits.

Unlike a regular savings account, an ABLE Account allows individuals with a disability to save and invest money without losing certain public benefits. Income from an ABLE Account is tax free when used for qualifying expenses, as defined below. (Nonqualified withdrawals will tax gains as ordinary income plus a 10% penalty.) Contributions to the account made by any person (the account beneficiary, family and friends) are not tax deductible.

The U.S. Treasury Department issued preliminary rules in 2015. Wisconsin was one of many states passing ABLE Account legislation, doing so in the 2015-2017 state budget. On February 16, 2016, Wisconsin repealed the legislation, but subsequently extended preferential tax treatment when residents create an ABLE Account out of state with another state’s program.

Who is Eligible to Establish an ABLE Account?

Eligibility is limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. To meet the disability requirement, an individual must be entitled to Supplementary Security Income (SSI), be entitled to Social Security Disability Income (SSDI), or meet the SSI criteria regarding significant functional limitations. In addition, designated beneficiaries can certify, under penalty of perjury, that they meet the qualification standards, including their receipt of a signed physician’s diagnosis, if necessary, and that they will retain that diagnosis and provide it to the program or the IRS upon request.

ABLE Accounts Allow Individuals with Disabilities to Remain Eligible for Public Benefits.

Many individuals with disabilities and their families depend on public benefits, like SSI, FoodShare, Community Care and Medicaid for income, health care and food and housing assistance. Eligibility for these public benefits is for individuals who have less than $2,000 in cash savings, retirement funds and other assets. The ABLE Act recognizes the potential extra and significant costs of living with a disability, or raising a child with a disability for assistance, services and health care not covered by insurance, Medicaid or Medicare.

Limitations on ABLE Accounts.
Contributions by all participating individuals, including family and friends, are limited to a total of $14,000 per year. The amount will be adjusted annually for inflation. The total account maximum limit is the same as 529 college savings, currently $440,300 as of 2016 in Wisconsin. Only one ABLE account is allowed per eligible individual. In addition, if an individual with a disability is a recipient of SSI, the individual would no longer be eligible for SSI if the account exceeds $100,000. Eligibility for Medicaid would not be affected; however, estate recovery from ABLE accounts is allowed for Medicaid recipients upon the death of the beneficiary.

Qualified Disability Expenses.

A “qualified disability expense” is defined as any expense related to the beneficiary as a result of living a life with disabilities. These include education, housing, transportation, employment training and employment support, assistive technology, personal support services, health care expenses, financial management and administrative services. Distributions for certain expenses, (such as housing) may affect SSI benefits.

Opening an ABLE Account.

The U.S. Department of Treasury regulations guide the states in terms of (a) the information required to be presented to open an ABLE account; (b) the documentation needed to meet the requirements of ABLE account eligibility for a person with a disability; and (c) the definition details of “qualified disability expenses” and the documentation that will be needed for tax reporting.

Differences Between Special Needs or Pooled Trust.
While Special Needs Trusts and Pooled Trusts also allow an individual with a disability to maintain eligibility for public benefits, an ABLE Account offers a significant and viable option, in addition to, rather than instead of, a Trust. The cost of establishing an account will be less than establishing a Trust and still offers account owners control over the distribution of funds. An ABLE Account, used in conjunction with a Special Needs Trust or Pooled Income Trust, offers multiple options for an individual to maintain benefits while providing for the significant expenses of a disability to the maximum extent possible.

Changes To Life Estates and Jointly-Held Property – Wisconsin Act 20

Changes To Life Estates and Jointly-Held Property – Wisconsin Act 20

New Wis. Stat. s. 49.849(3)(a), provides that any property of a decedent that is transferred by a person who has possession of the property at the time of the decedent’s death is subject to the right of the DHS to recover the value of the decedent’s interest in the property. The interest in property or value equal to the same is to be transmitted to the DHS. Property of a decedent is defined as:

“all real and personal property to which the recipient had any legal interest in immediately before death, to the extent of that title or interest, including assets transferred to a survivor, heir, or assignee through joint tenancy, tenancy in common, survivorship, life estate, living trust or any other arrangement.”

There is a presumption that all property of a deceased surviving spouse was marital, and therefore, the deceased surviving spouse’s property is also subject to these requirements. The amount that the DHS can recover is based on the fair market value of the decedent’s fractional interest in the property. The burden of proof for establishing value is on the surviving owners or beneficiaries, or their representatives. Fair market value must be established through a credible methodology, which may include appraisal. For life estates, the fractional value will be based on the life estate-remainderman tables used by the DHS to value life estates. The value will be determined as of the Medicaid recipient’s date of death, as though he or she is still alive.

Although the new law provides no method for the timing of the notice, or for assuring that the alleged surviving joint tenant, remainderman or beneficiaries actually receive the notice from the DHS, failure to comply can result in a request for a court order and judgment against the tenant, remainderman or beneficiary without notice. A person who is in possession of property subject to the new law and who has received a notice from the DHS can request a fair hearing within 45 days of the notice. The right to a fair hearing, however, is limited to a determination on the value of the property and the percentage of ownership of the Medicaid recipient in the asset.

The new law applies to all of the enumerated property interests currently in existence, not just to those created after October 1, 2013. The applicable time frame will be for deaths occurring after the effective date of the new law.

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