“Just-in-case” planning means more than packing a rain jacket for your weeklong vacation in the sun . . . Just in case planning includes considering what will happen if one of your loved ones becomes disabled after you completed your estate plan. At the time you completed your estate plan your loved one was not disabled, but after you have completed your estate plan life happens and your loved one is now disabled. We want to think – for better or worst – that disability affects other people. Facts, however, prove otherwise:
Without a crystal ball to see into the future we, of course, do not know of our own demise nor the wellbeing of our loved ones at the time of our demise. Consequently, the future welfare of your loved ones may depend on whether you have considered the critical question of what will happen if your loved one becomes disabled at a future time. Things to Know about Disability BenefitsThe welfare of a disabled loved one depends on them qualifying for government benefits. More than financial assistance, disability benefits include an array of services available to disabled persons, who are deemed economically eligible. Unfortunately, a monetary gift or inheritance from you may disqualify this loved one from being economically eligible. While the inheritance may replace lost economic assistance, the loss of access to daily services will disrupt their lives in unimaginable ways. If this disruption happens, your well-meaning gift could become more of a curse than a blessing. Standby Supplemental Needs TrustTo avoid the possibility that a disabled loved one will lose access to the array of disability services because he or she has too much money, you will want to set up a standby supplemental needs trust as part of your estate plan.
A “standby” supplemental needs trust does just what its name implies: the supplemental needs trust is not funded automatically but is on standby. The trust comes into existence (i.e., is funded) only if a beneficiary is disabled at the time of your death or even later. (Some states’ disability eligibility rules permit the trust to spring to life if your loved one becomes disabled later after your death but before the inheritance has been fully distributed.) If at the time of your demise your loved one is disabled and is receiving disability benefits, the inheritance he or she will receive from you will be adjusted to a distribution in a supplemental needs trust, which will not disqualify your loved one from continued receipt of disability benefits and services. At this point the inheritance now in the supplemental needs trust can be spent on any expense not covered by disability benefits paid for by the government. Thus, the inheritance will supplement the disability benefits, and truly enhance your loved one’s life without disrupting the benefits and services they already receive. Final Thought. Since you do not know whether the loved one whom you are leaving an inheritance will become disabled, then your estate plan should include supplemental needs trust provisions. If you do have these standby supplemental needs trust provisions in your estate plan – and you need them – then it will take more time and even more money to correct the problem. However, if it the standby supplemental needs trust is not ever needed (i.e., no one actually becomes disabled), then this trust will never be funded. So you should be sure to include the standby supplemental needs trust provisions in your estate plan—just in case. How Including a Pour-Over Trust Can Simplify Your Planning Some couples, married and unmarried, think about their accounts and property as “yours, mine, and ours,” especially if one or both of them have been (or will remarry), are coupling late in life, or have brought (or will bring) significant amounts of money and property into the relationship. Deciding what should happen to this joint property at death can be an uncomfortable challenge. To alleviate some of the stress that comes from making such decisions, we can make use of an estate planning tool called the pour-over trust. What is a joint pour-over trust?A joint pour-over trust holds the joint property belonging to the two of you such as your home. You can create the joint trust together and name yourselves as the current trustees. When the first of you passes away, half of the joint trust’s accounts and property is distributed (pours over) to the deceased spouse’s separate trust, and the other half is distributed to the survivor’s separate trust. Does this mean that we will need three trusts?For the estate plan to work as intended, you may indeed need three (3) trusts.
What are some other benefits of a joint pour-over trust Ease in funding the trust. A joint pour-over trust readily reflects the underlying economics of joint accounts and property because both of you own and control it. While two people as individuals can jointly own an account, some financial institutions may NOT allow those same two people to own the account by means of their separate trusts. This institutional resistance to two-separate-trusts ownership can derail your planning and leave the survivor of you with all the wealth - which neither of you intended. Ease of administration. The joint trust allows for ease of lifetime administration because both of you retain control over your joint property. Probate avoidance. Avoiding the unnecessary expense and interference of probate courts has fueled the popularity of trust-based planning. If your joint accounts and property are in the joint trust, probate will absolutely be avoided because the trust instructions will dictate what happens to the accounts and property. Your chosen backup trustee will carry out the instructions without the delay and expense of court supervision. Keeping things separate. Allocating your joint property to the joint pour-over trust will serve you well if your priority is to keep your separate accounts and property forever separate. If your separate accounts and property are titled in your separate individual trust then this framework will increase the likelihood of your trust being administered as you wish after you are gone. For example, if one of you have children from a prior relationship or are caring for family members on "your side" then this planning can be vital to ensure your money is there to support them after you are gone. All too often these accounts are titled jointly for "convenience sake" and result in either disinheriting your children (or dependent family members) or embroiling the survivor of you in protracted disputes and even litigation with the adult children. Therefore, in these circumstances, you absolutely want to make sure your separate property is titled in your separate individual trust and having your joint property in the joint pour-over trust establishes a consistency that enables keeping your separate property separate. Final thoughtIf your situation resembles "yours, mine and ours" then the tools of your estate plan should reflect that to ensure that your estate planning goals are achieved. Working together, we can assess what you own and how you own it and discuss your wishes about what should happen to those accounts and property at your death. Call us today so we can craft a plan that works best for you, your spouse, and the rest of your loved ones.
President Biden’s priority list may make it appear that no real changes directly related to estate planning is coming down the pipeline. But if recent history is any guide, we cannot count on the estate planning landscape remaining settled and predictable. Here’s what we know so far with regard to proposals coming from the White House. Action from the First One Hundred Days That Could Affect Your EstateWhile some of the White House 100 Day priorities have been started, most of President Biden’s priorities are still in their infancy. The details of how these latter priorities will be implemented and funded remain undetermined. The following steps have already been implemented or proposed in Biden’s plan: The American Rescue Plan. In early March, President Biden signed this $1.9 trillion COVID-19 relief bill, providing
The American Jobs Plan.At the end of March, President Biden outlined a nearly $2 trillion infrastructure and jobs plan that would be funded primarily through a corporate tax hike and additional measures designed to discourage U.S. corporations from moving their operations overseas to reduce or eliminate U.S. taxation (i.e., “offshoring”). The American Families Plan.In late April, the White House also announced this proposal designed to help families cover basic expenses, gain greater access to health care insurance, and reduce child poverty through the use of child tax credits and similar measures. PAYING FOR THESE PROPOSALSPaying for the approved spending and future benefits will require some changes to the tax law that would likely affect estate planning. Some of the proposed changes most frequently discussed include: 1. Elimination of the rule of step-up in basis at death.Under current law inherited property receives a “step-up” in basis to the fair market value of the property at the time of the property owner’s death. This step-up in basis results in wiping out any capital gains that could have accrued during the owner’s life. The proposed change to the step-up basis rule could limit the availability of the step-up in basis to only those gain which would be less than $1 million and any gain greater than $1 million would no longer enjoy the benefit of being completely wiped out as current law provides. So, if the sale of inherited property results in a capital gain greater than $1 million, the gain could be subject to a capital gains tax. The proposal currently envisions treating certain inherited property such as businesses and farms differently and this kind of property may continue to enjoy the benefits provided under current law. 2. Increases in top income tax rate and elimination of capital gain rates for high income earners.Certain changes may be made to income tax rates and capital gains rates affecting high income earners. Specifically, the current top individual income tax rate could be increased from 37% to 39.6%. Furthermore, individuals earning more than $1 million a year would no longer be able to pay certain earnings at the lower capital gains tax rates but instead pay these earnings as ordinary income. 3. Reducing potential benefits of 1031 exchanges.Under current law investors can defer the recognition of capital gains on the sale of property if they make a 1031 exchange, which involves purchasing a similar property with the proceeds from the sale. The proposal would reduce the benefits available when investors would otherwise make a 1031 exchange when selling and buying another similar property. 4. Increase IRS enforcement efforts of wealthy taxpayers.The IRS has had staffing problems for multiple years with Congress refusing to increase the size of it workforce. Some observers believe that the lack of staff has led to lax enforcement of current tax laws. The White House has proposed increased funding for enforcement to combat tax avoidance abuses and increase audits to ensure taxes that are in fact owed are being assessed and collected. Flexibility Is Key in These Uncertain TimesIn light of these possible changes and changes certain to come, your estate plan should be designed in a way that enables you to move quickly and take advantage of estate and tax planning opportunities that arise. Trust Protector.Including a role for a trust protector may be the easiest tool to include in your estate plan to keep the plan flexible and relevant in the event that you do not amend your trust before your demise. A trust protector can hold many different powers, including administrative powers traditionally held by a trustee, such as the power to make distributions, and judicial powers traditionally held by a court, such as the power to alter provisions to increase tax savings. Additionally, there remain many non-tax-related reasons to keep your estate plan up-to-date and relevant to your circumstances: ● Protecting your property for the benefit of your loved ones.Careful estate planning can do more than just avoid taxes. You can also ensure that your loved ones are the only people to benefit from your wealth by protecting their inheritance from threats such as lawsuits, bankruptcy, divorcing spouses, and poor management and spending habits. By using various estate planning techniques such as trusts, LLCs and family limited partnerships, and exempt property planning, significant protections can be created for your loved ones. ● Staying out of court (probate).Quality estate planning frequently incorporates a variety of probate avoidance techniques, such as using fully funded trusts, proper beneficiary designations, and lifetime transfers to beneficiaries. By avoiding probate and staying out of court, you can ensure your privacy and prevent challenges to your estate planning that probate proceedings encourage. ● Planning for incapacity and your long-term care.If you become incapacitated, you can ensure that only those whom you trust manage your healthcare decisions and finances by
○ using a fully funded revocable trust and ○ keeping current your powers of attorney for financial and healthcare matters. If you want to review your plan in light of the above please let us know. Together, we can make sure you are prepared for whatever may come. |
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