Durable Power of Attorney – An Important Part of Your Estate Plan

When speaking with clients about their estate plan, the conversation usually turns to deciding on the beneficiaries of the estate and signing a Will. Although a Will is an important part of the estate plan, some overlook how important it is to naming someone to make financial decisions for us if we are unable to. This can be accomplished through a durable power of attorney.

As we get older, physical and mental health may decline making it difficult to make decisions for ourselves. Whether this occurs from something sudden like a car accident or stroke, or progressive like Alzheimer’s, some of us will lose the ability to make decisions for ourselves. If this were to happen to you, would you want to appoint someone to make decisions for you, or leave it to be decided during a Probate Court hearing?

One strategy to allow others to act for us is by signing a durable power of attorney. A durable power of attorney gives authority to a third party to make financial decisions for another individual. Without a durable power of attorney, a third party would have to petition a Probate Court to be appointed in order to make those financial decisions.

Most people have different needs and issues. With a durable power of attorney, varying levels of control can be given to the person you name to act for you. Therefore, careful thought should be given to the drafting of your document.

New ABLE Account Benefits

The Internal Revenue Service (IRS) recently posted to remind those with disabilities that the Tax Cuts and Jobs Act made major changes to Achieving a Better Life Experience Act (ABLE) Accounts. ABLE Accounts are designed to help people with disabilities and their families save and pay for disability related expenses. Expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, personal support services and other disability related expenses.

The new changes within the Tax Cuts and Jobs Act include:

  • Annual Contribution Limit – The annual contribution limit is now $15,000, up from $14,000. This increase is tied to the annual gift tax exclusion rate, which will remain at $15,000 for 2019.
  • ABLE to Work Act –  If the beneficiary works, the beneficiary can contribute part, or all, of their income to their ABLE account. The additional permissible contribution amount equals the lesser of the individual’s gross income or the amount equal to the federal poverty line set for one person, currently $12,060. This additional contribution over $15,000 is only permitted if the beneficiary is not participating in his or her employer’s work retirement plan.
  • ABLE Financial Planning Act – Funds may now be rolled into an ABLE account from the designated beneficiary’s own 529 plan or from the 529 plan of certain family members.
  • Retirement Savings Contributions Tax Credit (Saver’s Credit) – ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions may qualify for this special credit designed to help low- and moderate-income workers. 

Should Your Trust Be Named As Beneficiary of Your IRA?

Qualified accounts, such as IRA’s and 401(k)’s for example, are often a significant part of a family’s estate. How these accounts are passed at death can have a significant impact on not only the manner of distribution to our beneficiaries but the amount of taxes ultimately owed.

One option for distributing your account would be to name the intended recipients as beneficiaries directly on the account beneficiary form at the financial institution that holds the account.  The account or share of the account will then go directly to the named beneficiary without court supervision. Although this may be a simple planning strategy, it may not be the best strategy if asset protection is a concern. Following a recent Supreme Court decision, an inherited IRA may have less creditor and bankruptcy protection depending on which state you live in.

By naming a trust as the beneficiary of your IRA, you can retain some of the control on how the account is distributed after your death. If the trust is carefully drafted to qualify as a designated beneficiary, your beneficiary may be able to “stretch” the IRA payments over a longer period. If the trust is not considered a designated beneficiary, the funds may be required to be withdrawn from the account over a five-year period or over the life expectancy of the account owner depending on whether the account owner died before or after reaching age 70.5.

For the IRS to look through the trust and consider your beneficiaries as designated beneficiaries, your trust must satisfy four elements:

  1. The trust must be a valid trust under state law;
  2. The trust must be irrevocable, or by its terms become irrevocable upon the death of the original IRA owner;
  3. The trust’s underlying beneficiaries must all be identifiable as being eligible to be designated beneficiaries;
  4. A copy of trust document must be provided to the IRA custodian by October 31st of the year following the year of the IRA owner’s death.

If your trust satisfies these elements, your beneficiaries will be considered designated beneficiaries and they will be able to stretch their IRA payments over longer periods.

As this is a complex and highly sophisticated planning strategy, please consult with your estate planning attorney, CPA and/or financial advisor to discuss if this option is right for you.

A Simple Way to Organize your Special Needs Planning Documents

If you are like most people, you didn’t assemble your special needs plan all at once.  You may have created a special needs trust in 2001, purchased life insurance to fund it in 2005, established a guardianship when your child turned 18 in 2008 and drafted a Memorandum of Intent last year.  Now all of the documents that make up your special needs plan reside in various envelopes “strategically” placed in different drawers or folders all over your house.  While this filing system may make perfect sense to you, it could be a nightmare for your loved ones if something happens to you.

It is very important for everyone, but especially for parents of children with special needs, to establish an organized system for conveying information about their special needs plan to the people who will be carrying it out.  The best way to do this is to create a special needs planning binder or file that contains, at the very least, the following key documents:

  • Your special needs trust, will, health care proxy and durable power of attorney, along with any other estate planning documents like irrevocable life insurance trusts or revocable trusts
  • Information about your home, including copies of the deed, mortgage(s), homeowners insurance and statements showing how to pay the utility, tax and mortgage bills
  • Court paperwork for a guardianships or conservatorships, especially your Letters of Appointment, accounts and any bond paperwork
  • A summary of your financial accounts including the bank/financial institution name, account type and account number
  • Copies of your retirement plan and confirmation of retirement plan beneficiaries
  • Life insurance policies and beneficiary designations
  • A Letter of Intent that gives instructions to your child’s caregiver
  • Information about your child’s public benefits, including SSI/SSDI award letters, Medicaid information and Section 8 determinations. just to name a few possibilities
  • A list of your child’s caregivers, their contact information and their roles
  • If your child is still in school, a copy of any Individualized Education Program (IEP)
  • A written medical history for your child and information about his doctors and medications and where to find them

Once you have created this binder, you need to make sure that your relatives or friends can find it easily, so don’t lock it in a safe deposit box that no one can access!

Housing Options for Adults with Special Needs

Fifty years ago, most people with even moderate special needs were institutionalized throughout their adult lives.  Now, thanks in part to societal changes and decades of litigation, most people with special needs, including those with very severe special needs, live in some type of community setting.  In fact, the U.S. Supreme Court has specifically ruled that people with special needs who receive government benefits must be housed in the least restrictive possible setting.  Here are some of the most popular housing options for adults with special needs.

Living with Parents or Other Family Members

Many adults with special needs, especially young adults, may live with their parents or other family members.  People with special needs who live with their parents don’t have to experience the sometimes stressful transition into a different type of housing when they become adults, and they are usually surrounded by caregivers (their family members) who have experience with their specific special needs.  In many cases, Medicaid funds can be used to pay family members who provide care for their children in their own homes.

But as any young adult will probably tell you at one point or another, living with one’s parents is not always a great solution.  In some cases, the child’s special needs will be more difficult than what the parents can handle.  In other cases, a child’s parents may be a bad influence on the child or may even abuse the child or steal his government benefits.  Depending on the person with special needs’ level of social interaction, he may not have the opportunity to meet a lot of other people if he is constantly surrounded by the same family members. Finally, as parents age, it may become impossible for them to care for their child anymore, and the transition from a life-long residence could be more traumatic for the child than if he had moved out when he was younger.

Section 8 Housing

The Section 8 program provides vouchers for people with low incomes to obtain housing in the community.  In general, a Section 8 recipient has to pay approximately one-third of her monthly income towards her rent, and the voucher pays for the rest.  Many people with special needs who receive Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) benefits as their sole source of income will likely qualify for Section 8 as well.  In theory, Section 8 landlords must meet certain standards in order to rent their units to Section 8 tenants, but in reality, whether a unit meets these standards is rarely monitored closely.

Section 8 vouchers can allow people with mild or moderate special needs and low incomes to live on their own in the community.  However, it usually takes years to obtain a Section 8 voucher and, once acquired, there may not be any available Section 8 units for rent in the individual’s community.  Section 8 housing is also not appropriate for people with more complicated special needs who can’t live on their own.

Group Homes / Supportive Housing

Many people with special needs choose to live in supportive group homes with several other people with special needs.  Depending on the program, these homes could be staffed with counselors and other workers who help the residents live on their own, or, in some cases, the residents live without live-in assistance.  Group homes come in many varieties and can be paid for in many ways, including private payment or state programs for people with disabilities.

Group homes are great options for people with special needs who don’t require more advanced care but who cannot live independently.  In many cases, group homes also provide a social setting for the residents that they would not otherwise have if they lived with parents or on their own.

Assisted Living Facilities

Some people with special needs, especially older individuals, live in assisted living facilities.  Although the term “assisted living” has come to mean a lot of things, in general, assisted living facilities house residents in their own apartments within a building or complex of buildings.  The residents can cook in their units or eat in a communal dining hall, and they receive non-skilled care in their units, including assistance with bathing, cleaning and sometimes administration of medicine.  Some assisted living facilities specialize in treating people with dementia or other neurological conditions.

Skilled Nursing Facilities (Nursing Homes)

If a person with special needs requires around-the-clock skilled medical care, he may need to live in a skilled nursing facility if it is impossible to provide that care at home.  Although nursing homes are the last resort for most families, in some cases they can be the most appropriate option for a person with severe special needs because there is constant supervision of care and the person’s family members do not have to spend all of their time caring for their loved one.

Skilled nursing facilities are incredibly expensive, often costing more than $10,000 a month.  In many cases, an individual with severe special needs and minimal assets will qualify for Medicaid coverage that will pay for care in a skilled nursing facility.

Special Needs Trust Ownership of a Home / Payment of Rent

Special needs trusts can own homes for their beneficiaries or pay for a beneficiary’s rent in a private apartment.  In many cases, this is a very flexible option for the beneficiary, since the trust can also pay for services to help the beneficiary live independently.  However, home ownership by a trust comes with a large set of responsibilities.

Make Sure Your Estate Plan Doesn’t Put Your Child at Risk

Most parents of children with special needs are well versed when it comes to the government benefits like Medicaid or Supplemental Security Income (SSI) that their child receives. Most know not to give the child any money outright and to establish a standalone supplemental needs trust to protect their child’s assets, and they usually know all of the ins and outs of the SSI and Medicaid application processes. What many parents don’t often think about is the effect that their own estate plan can have on their child’s benefits.

The first thing for parents to keep in mind is that they must, without a doubt, have an estate plan. Parents who are often so good about getting their child’s plan in order can balk at creating their own estate plan for a variety of reasons. But by failing to put together your own plan, you are placing your child’s benefits at risk. If you pass away without a valid will (known as dying intestate), your assets will be distributed according to state law. These laws will often leave a sizable portion of your estate to your children. In the case of a child with special needs, receipt of these funds could eliminate benefits that the child relies on. Therefore, it is essential that you prepare an estate plan that will take into account your child’s unique circumstances.

The next thing to remember when assembling your estate plan is that, except in very limited circumstances, you should not leave anything directly to your child with special needs. Instead, your estate should flow through your own will into a special needs trust for your child’s benefit. A properly drafted special needs trust will protect your child’s benefits and allow your estate to be utilized as you intended without interference from outside sources. You will also have the opportunity to choose a guardian for your child in your will, another important decision that you should not leave up to chance or state law.

Sometimes parents will leave their entire estate to their children without special needs in the hope that those children will take care of their sibling with special needs. You should avoid the temptation to do this. While your motives and trust in your children are well placed, this arrangement often leads to bitter family disputes and should be avoided if at all possible. Typically, the better option will be a separate trust that can hold your child with special needs’ share of your estate and free up the shares for your other children to be spent as they see fit.

Another potential problem area is when parents name their children as beneficiaries of life insurance policies and retirement plans. These assets, which are not governed by the terms of your will, could easily pass to all of your children in equal shares if you are not careful about naming plan beneficiaries (this is a very common problem when your child develops a special need later in life, after you have had these policies in place for years). As you did in your will, you can place your child’s share of these important assets into a properly configured special needs trust. However, some complicated tax issues may have to be addressed first.

Finally, your estate plan may not be the only issue. Make sure to check with any relatives who may be leaving something for your children and make sure that they also speak with a qualified attorney before including your child with special needs in their estate plan.

If you don’t have an estate plan at all or are worried that your current plan is not appropriate, please call our office at (508) 421-4610 to schedule a complimentary consultation.

Special Needs Planning Is a Marathon, Not a Sprint

Unlike some areas of law like “employment discrimination law” or “patent law,” special needs planning does not focus on one specific legal principle or topic. Instead, it encompasses a broad array of subjects that people with special needs and their families encounter, from estate planning to government benefits to guardianship to advocacy. Attorneys who focus on special needs planning have dedicated their practices to helping families with a wide variety of legal issues, and they must master a vast section of the legal canon in order to properly assist their clients. But all too often, clients arrive at the doorsteps of special needs planners with what they see as specific problems, and they believe that there will be a single, quick solution. Fortunately, good special needs planners don’t operate this way, because unlike some types of law that require a concentrated burst of effort to “solve” a particular problem, special needs planning is a marathon, not a sprint.

Of course, there are some times when clients need immediate solutions to very concrete problems, and special needs planners are happy to help. For instance, if someone is seriously injured in an accident and can no longer make decisions for himself, his family may need to pursue a guardianship right away, and this one step may consume significant time and energy, both by the family and by a special needs planner. That’s a sprint. But what happens once a family obtains guardianship? Do they no longer require special needs planning? Of course not!

  • The guardian will need assistance filing annual reports and accounts with the court, and this could go on for years.
  • If the injury came about because of someone else’s negligence, then the injured party may need a special needs trust to hold a personal injury settlement.
  • If he qualifies, he may need to apply for government disability benefits, including Supplemental Security Income, Social Security Disability Insurance or Medicaid.
  • Family members may have to change their own estate planning documents to make sure that they reflect their relative’s special needs.

No one needs to tell parents of young children with special needs that planning is a marathon (even though daily life may seem like one endless sprint). These families often come to special needs planners because they want to provide for their children if something happens to them, and this often leads to the creation of a special needs trust and a coordinated estate plan for the parents. As the child grows older and reaches the age of majority, he may need a guardianship if he is incapable of managing his own affairs. However, in many cases, the 18-year-old with special needs will be able to sign his own estate planning documents delegating the power to make health care decisions through a health care proxy and naming an attorney-in-fact to assist with financial affairs, and a special needs planner can help him do this. Housing, financial aid for college, and getting ready for independence all take years of planning, and the plans often change over time as an individual grows.

Special needs planners provide all of these services because their focus is on the long-term health and well-being of the client, not just on the immediate issues at hand. That’s why attorneys who focus on this area of law are called “planners.”

It can be frustrating to enter an attorney’s office with one problem only to realize that there is a lot more to think about (and probably worry about, at least initially) than you thought. But a good special needs planner will set your mind at ease and help you approach the future with confidence, and when emergencies strike (as they often do), your planner can jump to the rescue with the added benefit of having already gotten to know your family. If you’ve already started working with a special needs planner, make sure that you stay in touch. And if you’re just starting out, welcome to the marathon — your planner will be there every step of the way.

Say a Little Prayer: Aretha Franklin Had No Will, and a Child With Special Needs

According to court documents, legendary singer Aretha Franklin did not have a will when she died, despite reportedly having a son with special needs. The lack of a will opens up the intensely private singer’s estate to public scrutiny and unnecessary costs, and means that there are no specific provisions to protect her son.

Franklin, who died in Michigan at age 76, left behind four sons, but no guidance on how to distribute her estimated $80 million estate. The eldest son, Clarence, age 63, has unspecified special needs and requires “financial and other forms of support for his entire life,” according to the entertainment news site TMZ.

When someone dies without a will – called dying “intestate” — the estate is divided according to state law. Under Michigan law, an unmarried decedent's estate is distributed to his or her children. (Franklin had been married twice but long since divorced.)

Even if the “Queen of Soul” had wanted her estate to go solely to her children, by not having a will or trust, her estate will have to go through a long public probate process, which will likely cost her estate considerable money. If Franklin had created an estate plan that included a will and a trust, she could have avoided probate and kept the details of her financial circumstances private.

But perhaps even more importantly, that estate plan could have made special provisions to ensure that Clarence would receive proper care for the rest of his life. Franklin could have established a special needs trust to preserve any public benefits Clarence may be receiving, or perhaps allocated him a larger share of her estate. She also could have accompanied a financial plan for him with a Memorandum of Intent (also called a “Letter of Intent”) to serve as the primary source of information about her son’s care, providing a roadmap for the courts, guardians, caregivers and others involved in his life.

Clarence could also be harmed by the absence of a will because it opens up an estate to potential challenges that could drag out the probate process. Without a will to clearly state the decedent's intent, litigation resulting from family conflicts often eats into estates.

Finally, Franklin’s estate will be subject to unnecessary estate taxation, leaving even less for Clarence and her other sons. Although she may not have been able to avoid estate tax entirely, there are steps she could have taken to reduce the amount her estate will have to pay.

“I was after her for a number of years to do a trust,” attorney Don Wilson, who represented Franklin in entertainment matters for the past 28 years, told the Detroit Free Press. “It would have expedited things and kept them out of probate, and kept things private.”

Estate planning is important even if you don't have Aretha Franklin's assets, and it’s doubly crucial if you have a child with special needs as she did. It allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want, and to create special protections for the child with special needs before it’s too late. You don’t want your plan for your loved ones to simply be “I Say a Little Prayer.”

Contact your special needs planner to begin working on your estate plan now.

Don’t Forget Long-Term Care Costs When Planning Your Estate

When discussing estate planning with clients or potential clients, the meeting usually begins with questions about who will receive property, who will make medical and/or financial decisions upon incapacity, and how to minimize taxes  and the costs of estate administration.  Most individuals tend to shy away from discussing how to pay for long-term care or nursing home expenses as it is not easy to talk about the unpleasant thought of needing nursing home care.  No one wants to go into a nursing home. I believe many families are sincere when they say they will not let mom or dad go into a nursing facility or they will care for them at home.  Sometimes, however, it is just not safe for someone to remain at home and skilled nursing care is the only option.

Long-term care expenses can cost six figures annually in some states, and generally speaking are not covered by Medicare or your private health insurance policy. Although there are several strategies to protect your assets in the event you require long-term medical care, we will focus on two of the more common financial and legal strategies for this article.

Long-Term Care Insurance

Long-term care insurance policies should be considered as an option to pay for long-term care in the event care is needed.  There are different options for coverage, so discussing your needs with a qualified insurance representative and elder law attorney is very important to ensure you are protected.

Irrevocable Trust

Asset protection using an irrevocable trust is another option to protecting your assets from estate recovery should you need long-term care. Because of the 5-year look-back period rules involving trusts, this type of planning must be done at least five years before the need for long-term care and the filing of a Medicaid/MassHealth application. A consultation with a qualified estate planning and elder law attorney is highly recommended if considering an irrevocable trust strategy.

As discussed above, we discussed only two strategies for purposes of this article. Each family’s situation should be discussed on a case-by-case basis to determine what strategies are appropriate.  Many different factors such as health, family dynamic, assets/income, and whether we are working with a spousal couple or single/surviving spouse are a few examples of the factors we must evaluate to determine what options our families have.  Please call our office to schedule a consultation to discuss what’s best for your family.

The Estate Planning Discussion We Keep Putting Off

Estate Planning.  Talking about death and dying is not high on the list of conversations we are comfortable having.  If this describes you, you are not alone.  According to AARP, approximately 60% of Americans do not have a Will. Without a Will, your probate property will be distributed according to the laws of the State that you live in. In addition, a Probate Judge will appoint your executor/personal representative and decide who will be the guardian of your minor children.

Essential estate plan documents that everyone should have include a Will, durable power of attorney and health care proxy.  These documents allow you to make critical decisions regarding your property, family and health. These are decisions that we should be making, not a Probate Court Judge.

As important as a Will is, an estate plan is not complete after you sign your Will.  In the event you are unable to make decisions for yourself, consideration should be given as to who will step in to make those decisions for you.  A durable power of attorney addresses any financial decisions that need to be made, and a health care proxy covers medical decisions that need to be made if you are unable to make those decisions yourself. Without these documents, a petition would need to be filed requesting guardianship and/or conservatorship. As with any legal proceeding, this process is usually time consuming, costly and public.

As note above, everyone needs a basic estate plan. Additional questions that should be discussed during the planning process include:

  • Should you avoid the probate process (estate administration)?
  • Do you have family with special needs?
  • Do you have family with addiction, gambling or spendthrift issues?
  • Do you have family that have pending or potential divorce or bankruptcy issues?
  • Are you in a subsequent marriage or have children from a prior marriage?
  • Do you have assets that you would like to preserve for family in the event you require long-term care?

If you answered yes (or don’t know the answer) to the questions above, then additional estate planning strategies should be discussed.  Please call our office to request a free resource to help you begin the planning process.