Category: Special Needs Trust

Houston Special Needs Lawyer: Basics of a Special Needs Trust

For families that have loved ones with a disability, ensuring the care for their loved one once the caretakers are gone is of the utmost priority. The loss of specialized care and Medicaid or SSI benefits is a very real danger if proper special needs planning is not put in place, which is why Houston special needs lawyers often share the benefits of special needs planning involving Special Needs Trusts.

What is a Special Needs Trust?

Since even a small amount of cash assets can disqualify individuals with a disability from the care and assistance they need, it is important to not let these assets pass directly to them upon your passing. A Special Needs Trusts is the best way to ensure your loved one with disabilities keeps their care and assistance while also benefiting from the legacy you leave behind. Houston special needs lawyers design these Trusts in such a way that the assets in it do not belong to your child; instead, they are owned by the Trust and managed by a Trustee of your choosing who will direct the assets to be used for the benefit of your loved one with a disability. Medicaid and SSI will ignore the assets in the Special Needs Trust as they are not directly owned by your special needs loved one.

How may the assets in a Special Needs Trust be spent?

Assets in a Special Needs Trust can be spent in a number of ways which benefit the individual with a disability. These include education, recreation, vacations, home improvement, and certain out-of-pocket medical expenses. These expenses are considered “non-countable” by Medicaid and SSI since they do not count as the special needs individual’s personal assets. Houston special needs attorneys caution that assets in a Special Needs Trust may not be given directly to the individuals with disabilities, as this will oftentimes disqualify them from receiving state assistance.

What if I do not have a Trustee or I am not leaving behind a large sum of money?

In cases where a suitable Trustee cannot be chosen or a small or moderate sum of money is being left behind, Houston special needs lawyers often direct their clients towards Pooled Trusts. Pooled Trusts are typically run by non-profits. The non-profit will assign a Trustee who is responsible for managing the assets on behalf of the individual with special needs and the benefit of such an arrangement is that the Trustee and the non-profit are both heavily involved in the special needs community and understand the care and compassion needed to look after your loved one. While there are fees and different types of services attached to Pooled Trusts, they are often a good alternative to an individual Special Needs Trust in certain situations.

If you have any questions about how a Special Needs Trust can benefit you and your loved ones, please contact us at (281) 218-0880 to schedule a consultation.

Trusts from A to Z

Many folks assume that trust funds are only for the rich, however, people in all types of economic circumstances may see a benefit from them. A trust fund is a special legal arrangement that lets a benefactor arrange for certain assets to go to someone else. 11-04-16

Motley Fool’s recent article, “Navigating the World of Trust Funds: Your Quick Guide,” explains that there are various types of trust funds that can serve as useful estate-planning tools. Here’s a rundown of revocable or irrevocable trusts, credit shelter trusts, generation-skipping trusts, and qualified personal-residence trusts.

Revocable trusts. Also known as a revocable living trust, this trust lets you manage your trust during your lifetime. In creating the trust, you can name yourself as the trustee in charge of overseeing its assets. This lets you move assets in and out of the trust as you want or even terminate the trust if your circumstances change. There’s a good deal of flexibility, and a major benefit is that they have the ability to bypass probate. Depending on where you live, probate can be lengthy and expensive. A revocable trust can also reduce the estate tax burden on your beneficiaries.

Irrevocable trusts. This is the opposite of a revocable trust. It can't be altered or terminated without the consent of the trustee and the trust's beneficiaries (and perhaps a judge). When you place assets into an irrevocable trust, you may no longer have any rights to them. The big benefit is saving money on estate taxes. When you transfer assets into an irrevocable trust, they're no longer yours and are excluded from your estate's value for tax purposes. Also, trust assets may be more difficult to access by creditors or anyone who initiates a lawsuit against you. And if you hold assets that you think will really appreciate over time, you can transfer those assets into the trust to remove them from your taxable estate and ensure that any future appreciation on them isn't subject to estate taxes. It’s a serious long-term commitment and may be a good option if you have a larger estate.

Credit shelter trusts. This trust can help wealthy married couples lower their estate taxes by maximizing federal and state exemptions. If you set up a credit shelter trust, the assets in that trust will be transferred to your beneficiaries upon your death, but your spouse can keep his or her rights to the assets contained in the trust for the rest of his or her life. Ultimately, however, those assets won't be counted as part of your spouse's estate. This helps your family take advantage of available tax exemptions. With portability, this trust may not be as useful as it once was. Portability lets the first spouse who dies transfer his or her assets along with the "unused" estate tax exclusion amount to the surviving spouse, who can then apply this enhanced exclusion amount in his or her own estate.

Generation-skipping trusts. This trust is established for the benefit of your grandchildren, as opposed to your children. These trusts are used to avoid estate taxes: if your children inherit your estate directly, then the value of your estate is added to the value of their estate and this could potentially trigger estate taxes when they die. By skipping your children’s generation you may be able to transfer more assets to your family than to the IRS over the long term. The generation-skipping trust is subject to taxes, but it can be structured to reduce estate taxes, allowing affluent families to preserve their wealth for future generations. A big advantage of generation-skipping trusts is that they can help avoid generation-skipping transfer tax.

Qualified personal residence trusts. This trust lets you leave your home to your beneficiaries and decrease your estate taxes. You can transfer your property by deed into the trust while retaining the right to live there for a certain period of time. Once that’s over, your beneficiaries can inherit your home, paying taxes on the value of the home at the time of the deed transfer. A qualified personal residence trust can be useful in locking in a lower value for gift tax purposes. And you can claim a lower value of the gift for your beneficiaries based on their delay in actually receiving the property. But if you die while living in your home, it’ll count as part of your estate and be taxed according to its value at that time.

Trust funds can be a big element in your estate-planning strategy, so talk with a qualified trust attorney to see which type of trust is best for you.

Reference: Motley Fool (Sept. 18, 2016) “Navigating the World of Trust Funds: Your Quick Guide”

Is Whole Life Insurance Right for You?

Term life insurance will cover you for a certain period of time. Alternatively, whole life insurance also includes a savings account known as its cash value, which builds over time. You can borrow against the cash value or surrender the policy for the cash.

Huffington Post’s article, “5 Questions to Ask Before You Buy a Whole Life Policy,” sets out things to ask yourself before buying a whole life policy.

  1. Do I really need it? Whole life can be helpful, but it’s not necessary for everyone. If you require just some temporary coverage until you’ve paid off debts or your kids get through college, choose term life insurance. It’s inexpensive if you’re young and healthy. However, whole life can be a good if you: 9-27-2016
  • Have a big estate that’ll be subject to taxes when you die;
  • Want to provide money to heirs for a funeral and final expenses or leave a legacy, even if you spend all of your retirement funds;
  • Are the parent of a lifelong dependent, such a child with special needs—a life insurance payout can fund a special needs trust; or
  • Maxed out contributions to tax-advantaged retirement savings accounts and want a safe place to grow cash long-term as part of your diversified portfolio.
  1. Can I afford it? Whole life costs a lot more than term life because some of the premium goes into the cash value savings account—and the interest rate and death benefit are also guaranteed. Note: it takes years to build up substantial cash value, and if you decide to quit the policy after only a few years, you’ll be out a chunk of change and have little or no cash value to take with you. There’s also a fee to surrender the policy during the early years. If you’re in need of permanent coverage, but can’t afford the premiums, look at a term life insurance policy that can be converted to whole life. Regardless of what type of policy you’re buying, get quotes from several companies and work with a qualified life insurance professional.
  2. How much coverage should I get? This depends on how you want to use the insurance. If you want it for estate planning, the payout needs to cover the estate taxes so that your heirs don’t have to pay them. Note: you will want to create an “irrevocable trust” to own the life insurance and to be the beneficiary on behalf of your loved ones to keep the proceeds from becoming part of your taxable estate. If you want to take care of final expenses, make sure it covers the funeral and any debts you’ll leave behind.
  3. How’s the cash value going to grow? The cash value in a whole life policy has a guaranteed annual return. If the company is a mutual insurer, there might also be annual dividends. This is a share of a company’s surplus, but they’re not guaranteed. Each year, a mutual company makes the decision whether to declare dividends and the amount to give to policyholders. The dividends you get will be based on your policy’s cash value. You’ll be eligible to earn larger dividends as you maintain the policy and let the cash value grow.
  4. How’s the company? Check on the financial strength ratings of the insurance companies you’re comparing. Get ratings online from A.M. Best and select a company with at least a B+ rating.

Talk with your estate planning attorney about your overall finances and how life insurance fits into your comprehensive strategy before making a purchase. He or she can refer you to a qualified life insurance professional to help.

Reference: Huffington Post (August 3, 2016) “5 Questions to Ask Before You Buy a Whole Life Policy”