Category: Special Needs

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.

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”

An IRA Trust Might Be Preferred Over Naming Individuals or a Revocable Living Trusts as the IRAs Beneficiaries

If you maxed out your work 401(k) by taking advantage of matching funds and rolled this to an IRA when you retired, you might not need all of that money—especially if you are a spouse with a pension and Social Security. One thought is to designate children or grandchildren as primary beneficiaries of the IRA. However, you don’t want them to be able to withdraw more than the required distribution based on their life expectancy. 9-20-2016

The Charlotte News-Observer’s article, “To ‘rule from the grave,’ establish an IRA trust,” suggests that you speak with a qualified estate planning attorney and explore the benefits of establishing an IRA standalone trust—which is also known as an "IRA trust,” an “IRA stretch trust” or an “IRA protection trust.”

This type of trust is approved by the IRS and may be more advantageous than designating individual children or grandchildren—or naming revocable living trusts as beneficiaries of IRAs. If you name your revocable living trust as a beneficiary, you must be certain that it has the appropriate conduit-trust language and that the wording of the beneficiary designation is correct to take advantage of the stretch-out of the required minimum distributions (RMDs).

Remember that if you go ahead and designate individuals as beneficiaries, you may create some headaches for them—including requiring a guardian to request permission from the courts to make distributions if the beneficiary is a minor. Also, the beneficiary may take higher distributions than necessary—often leading to increased taxation, eliminating the value of tax-free compounding and possibly running out of money. If the beneficiary is disabled, there is a risk of potentially losing needs-based government benefits. Other potential issues include the loss of control as to who will ultimately inherit the IRA after the death of the primary beneficiary and—if the beneficiary is not the spouse—the IRA being fair game for creditors.

Typically, a surviving spouse beneficiary can make the IRA his or her own and take RMD based on his or her life expectancy. The RMD doesn’t need to begin until the spouse reaches age 70 ½ or April 1 of the following year. An IRA inherited by a spouse and converted to his or her own IRA will still be protected from creditors from personal injury lawsuits, bankruptcy and the like. Distributions from an IRA inherited by a non-spouse are required to commence the year after the death of the IRA owner. The RMD is based on the beneficiary’s life expectancy.

A non-spouse inherited IRA isn’t protected in bankruptcy and may be hit with the claims of the beneficiary’s creditors. But the assets in a standalone IRA trust are protected by trust law, and they’re also protected from creditors. The trust can also control distributions so that they’re limited to the RMD based on the beneficiary’s life expectancy. That will defer the payment of income tax within the IRA, providing the greatest “stretch-out” of benefits to the beneficiary.

Your estate planning attorney can help you decide if the trust should be a conduit or an accumulation trust. The RMDs have to be distributed to the beneficiary in a conduit trust, but with an accumulation trust, RMDs may be accumulated in the trust. The accumulation trust is better if you require additional protection for the beneficiary who’s in a bad marriage, a high-risk profession, has addictions or has special needs.

It's a very complex issue. Again, work with a qualified estate attorney to create a sound action plan based on your personal situation and objectives.

Reference: Charlotte News-Observer (July 30, 2016) “To ‘rule from the grave,’ establish an IRA trust”

Create a Road Map for the Care of Your Special Needs Child

Bigstock-Vintage-brass-telescope-on-ant-44347372Many families want to set aside something to ease their children's way in the world when they pass away. However, parents of an adult child with disabilities need to be especially vigilant with their estate planning to guarantee their child's secure financial future. Adults with severe disabilities are living longer than ever, so it's critical to create a financial plan that will protect your retirement and your child's needs after you're gone.

Kiplinger's recent article, "Create a Plan for an Adult Child with Disabilities," advises parents to write a "letter of intent." This is a road map for future caregivers and trustees on how best to care for your child. The letter should detail every facet of your child's life, such as favorite foods and activities, relatives and friends he or she should continue to see, and medical and therapy regimens. Make sure that you select an attorney who specializes in special needs planning to draw up your estate plan. This expert will help you with all of the rules for public benefits that provide income, health care, and community services to persons with disabilities.

For example, an adult child receiving Supplemental Security Income is eligible for Medicaid-based services, such as vocational training, unless her income and assets exceed certain limits. When her parent dies or retires, the child may be switched to a higher benefit based on the parent's Social Security earnings record. Be aware that government caseworkers may mistakenly suspend the beneficiary's Medicaid eligibility. That's why you should have an experienced special needs attorney make sure the caseworkers understand that they can't count this additional income from Social Security.

Parents with some wealth also need to preserve their child's eligibility for these benefits. It's important that your child not own assets outright that could exceed the legal limits—especially after you die. Your attorney may advise you to create a Special Needs Trust, which will protect benefit eligibility. When you die, you leave your assets to the trust instead of giving them directly to your child. Ask relatives who want to help your child to do the same thing.

A child's benefits pay for basic needs and a special needs trust could pay for extra things such as music therapy or a portable wheelchair and other quality-of-life expenses—like a TV or a special outing to a baseball game or a play.

You also want to select a trustee with care, as he or she will invest the funds and pay the bills, and find experts to keep tabs on caregivers and public benefits. Many special needs lawyers will take on this role and disability-related advocacy groups often serve as trustees.

Some parents do not set up a trust and leave the entire estate to their other children with the expectation that they will care for their sibling with special needs. However, the other children could run into financial trouble of their own or may have a change of heart about helping. There's also the scenario in which the other sibling providing for her sister could die, and the money will go into her estate for her husband and her children.

In addition to legal help, contact associations that advocate for your child's disability, like United Cerebral Palsy and Autism Speaks. Local chapters offer family support groups, where you can learn about community resources.

Reference: Kiplinger's (December 2015) "Create a Plan for an Adult Child with Disabilities"