Don’t Send Your Student to College Without These 3 Things

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Don’t Send Your Student to College Without These 3 Things

Accidental injury is the leading cause of death for adults between ages 18 to 24 with over a quarter million being hospitalized yearly for non-lethal injuries. Not a statistic that parents – who are busy preparing their young adult heading off to college – want to think about.

However, there is something you can do to help prepare for an unexpected event in your college student’s life. Along with the notebooks and shower slippers, make sure your child is armed with these three critical legal documents.

HIPAA AUTHORIZATION FORM

What is it: The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that protects an adult’s private health information by preventing unauthorized people from accessing it. The HIPAA Authorization Form allows a person to give named recipients the authority to receive his or her healthcare information.

What you should know: In the event your adult child has an accident or serious illness, and you’re seeking information about his or her medical condition, you will not be able to obtain it. Healthcare providers are prohibited by law to disclose an adult’s personal health information to those who are not authorized to receive it. That includes the parents (even if you do pay the insurance bill).

Without a HIPAA Authorization Form in place, medical practitioners are prohibited from revealing any information regarding your child’s health status and treatment – even in the event of incapacitation. The only option to obtain this information is to have a court appoint you as guardian, which can take time.

What you should do: Have your child name you as an authorized party on the HIPAA Authorization Form and sign it. If your child is reluctant to give you permission to see his or her medical history, stipulate in the document any specific information that cannot be disclosed, such as matters concerning sex, drugs or mental health. Make sure everyone has a copy of this form.

POWER OF ATTORNEY FOR HEALTHCARE (ADVANCE DIRECTIVE)

What is it: A legal document that allows you to appoint someone else to act as your agent for healthcare decisions in the event you’re unable to make those decisions yourself due to incapacitation. Medical agents are given specific authority to determine the best healthcare option for those in their care. Take note that this document can go by other names depending on the state.

What you should know: In the event of unconsciousness or incapacitation, you will have no voice in your adult child’s medical care. All healthcare decisions will be made by the healthcare providers unless you get a court-appointed guardianship.

What you should do: In compliance with state law, prepare and sign a healthcare power of attorney form (or similar form) naming a primary agent and a successor agent (for instance, mom as agent, dad as successor agent). Make sure everyone has a copy of this document.

DURABLE POWER OF ATTORNEY FOR FINANCE

What is it: A legal document that allows you to appoint someone else to manage your financial affairs if you become incapacitated. This includes paying bills, managing bank accounts, signing tax returns, and conducting other necessary financial and legal matters.

What you should know: In the event of incapacitation, you will have no authority to manage your child’s bank account, pay bills, file a tax return, or break a lease unless you seek a court appointed conservatorship to do so.

What you should do: In compliance with state law, complete and sign a financial power of attorney form naming a primary agent and a successor agent. (for instance, dad as agent, mom as successor agent). Make sure everyone has a copy of this document.

THE NEXT BIG QUESTION: Which state’s documents should we use if my child is attending an out-of-state school?

Different states may have different requirements for powers of attorney to be valid. Many medical professionals and organizations are also wary about accepting documents with unfamiliar language. To ensure your forms will be readily accepted, it’s best to execute these documents in the state your child is attending school. Either an attorney licensed in that state can assist you, or you can check with the school about forms they recommend for their students.

If most financial affairs are conducted in your child’s home state (holding accounts and filing taxes), then it may be best to keep the durable power of attorney local. However, be aware that many banks may still not accept it – even if it is in state. Liability issues are always a top concern for these firms. It may be better to share a joint account with your child or have a power of attorney on file with the bank so access will not be an issue.

It is possible to execute two sets of powers of attorney – one for each state – depending on the circumstances. If this applies to you, meet with a qualified estate planning attorney who can ensure these documents are prepared correctly.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

Your Living Will: Why You Need One

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Your Living Will: Why You Need One

When medical intervention only prolongs the dying process, a Living Will is needed for your end-of-life care if you become incapacitated. In fact, it’s possible that without one, medical practitioners will continue life-sustaining treatment in order to avoid liability. Learn why this document is essential for both you and your loved ones.

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Should You Create a Do Not Resuscitate Order (DNR)?

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Should You Create a Do Not Resuscitate Order (DNR)?

Why would someone not want to be resuscitated? It’s possible CPR could do more damage than good depending on your current medical condition. Make sure you understand the realities of this life-sustaining procedure so you can make an informed decision with your medical provider.

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Plan Now So Guardianship is not Necessary

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Plan Now So Guardianship is not Necessary

Here’s a scenario that some family members sadly face: They contact their estate planning attorney to explain that an elderly relative is no longer able to care for himself or herself. Perhaps the family members just went to visit the loved one and found filthy living conditions, bills piled up, and little food in the home.

“We want to be able to help,” they tell the attorney. “What can we do?”

The attorney asks: “Do you have a power of attorney so you can handle financial matters or a power of attorney or health care proxy so you can make medical decisions?”

Unfortunately, the elderly relative never got around to executing those documents.

Because no one has a power of attorney or health care proxy, the family can turn to a court to have someone appointed as a guardian. (In some states, guardians are called “guardians of the person” who handle personal issues or “conservators” who handle financial issues.) If desired, there can be more than one person appointed — one to handle financial matters and another to handle health care issues.

But the guardianship process can be time consuming, contentious, and expensive. It should be seen as a last resort after less drastic measures are examined.

Here are the basics of what happens when an individual wants to be appointed a guardian.

Before petitioning the court for guardianship, family members (or in some cases, concerned third parties) need to compile some documentation that shows the individual “lacks capacity” to care for him or herself. The process generally involves an evaluation from one or more physicians and other medical professionals, as well as sworn statements from witnesses and other written documentation. This evidence will be used in an attempt to prove to the court that the person is incapacitated.

Next, a petition is filed with the court. The individual (sometimes called a potential “ward”) and other interested parties will be served with a summons or given notice of the proceeding. An incapacity hearing will be held to present the evidence. The potential ward has the right to an attorney and he or she (as well as other interested parties) can dispute the evidence.

Ultimately, the court will decide:

- - If the individual is incapacitated;
  - Who will serve as guardian; and
  - What the responsibilities of the guardian will be.

The process can take weeks or months. (The family may be able to get an emergency guardian appointed on a temporary basis.) The court costs and legal fees can be expensive.

The court will examine the guardian’s ability to be trusted to make either financial or health care decisions — or both.

In some states, there are requirements to become a guardian. For example, a criminal background check may be required and a guardian may have to take a class after appointment to learn about the responsibilities. The guardian may need to be a state resident or a lineal descendant.

What if more than one person wants to serve as a guardian? In these cases, the court decides who is best suited for the position.

After an appointment is made, the guardian is monitored by the court and generally must file periodic reports. The guardian or guardians must make decisions about where the ward will live, what kind of medical care should be administered, and how finances should be handled.

This is a basic overview of the process. There are different types of guardianship and the exact procedures depend on state law.

Petitioning for guardianship is usually a difficult and painful decision. The elderly loved one may be angry about the decision and the loss of independence. In those cases, the proceedings can become adversarial.

How Can You Avoid this in Your Family?

In order to avoid court intervention, you should have certain legal documents drafted as soon as possible (see right-hand box). Choose the person(s) you want to make financial and health care decisions on your behalf. Having these documents in place is an inexpensive alternative to going to court for guardianship. Once a person is incapacitated and unable to make responsible day-to-day decisions, it is too late to get these routine documents drafted.

A guardian or conservator appointment can cost 10 times as much (or more) as getting the alternative documents executed. This is truly an example of why it is better to plan in advance, rather than waiting until a situation is out of control.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

Stepchildren, Adopted Children and Natural Children: Who Inherits?

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Stepchildren, Adopted Children and Natural Children: Who Inherits?

With the different variations of families in today’s modern world, complications can arise as to who has the legal right to inherit assets. In some cases, an adult child will come to a lawyer’s office after a parent has died to discuss the distribution of the estate — only to find out that he or she is not entitled to anything.

Besides being excluded in someone’s will, two of the reasons why a child possibly could have no right to an inheritance is that the child is not the natural born child of the parent or the child was not legally adopted. In general, if there is no will, people who are stepchildren cannot inherit from the stepparents. This is also true of people who were raised by an extended family member or close friend without a legal adoption, even with a legal guardianship,

So what are some of the inheritance rules regarding adopted children and stepchildren? The law varies from state to state. Generally though, natural born children and adopted children are provided the same rights to inherit assets if there is no will. However, a stepchild typically does not have a right to inherit assets from a stepparent if the stepparent dies without a will — or the will specifically does not designate the stepchild as a beneficiary.

On the other hand, the law in most states provides that an adopted child has the same rights as a natural child if legally adopted. It should also be noted that when a child is adopted, the adopted child generally loses the right to inherit from his or her natural parents, although the child gains the right to inherit from the adopting parents.

An exception is when one spouse adopts a child of the other spouse. In that situation, the adopted child does not give up inheritance rights from the natural parent.

Important: A parent of a stepchild who wants the individual to inherit assets must specifically state so in a will. The phrasing in a will is critical for the parent’s wishes to be carried out. Phrases that leave assets to “my children,” or to “my brothers and sisters,” will not include stepchildren and stepsiblings.

The same is true if you are a stepchild and want your parents or siblings to share in your estate. You must specifically name the individuals. Otherwise, by law, if you generally list “parents” or “siblings” without the specifics, the bequest may not go to the people who you want.

There is a way in which a stepchild could challenge the lack of inheritance. That would be when the child is financially dependent on the stepparent. If a stepchild was treated as a child of the family by a married stepparent or was financially dependent on a stepparent who has died, and there is either no or inadequate provision on the death of the stepparent, he or she might be able to make an application to the court for part of the inheritance.

The rights of inheritance for family members hinge on the laws in your state. Because these issues can be complicated, it is important for you to consult with an attorney to help fulfill your estate planning wishes.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

What to Do if a Sibling Keeps You Away from Your Elderly Parents

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What to Do if a Sibling Keeps You Away from Your Elderly Parents

Consider this scenario: Your elderly father begins to lose his mental capacity. He lives in his own home and is relatively well-off financially. Your sister is unemployed and moves in with your father. She pays no rent and may even be taking money from Dad. You live in another city across the country, which was what your father always encouraged you to do … to fly the nest and live your own life.

Suddenly your sister seems to have absolute control of your elderly father. You attempt to contact your dad on the phone but no one answers. Or you attempt to visit your father and your sister refuses to let you into the home.

Your sister claims that she is the one taking care of your father and accuses you of abandoning him.

What Could Happen?

In these situations, some people find out after a parent dies that a new will was drafted during the time when a sibling was shut out. The new will leaves everything to the person living with the elderly parent. That sibling may convince the parent not to tell his or her other children about the change in a will.

The parent may be told the other children never call, never visit and perhaps don’t even love the parent — all the while leaving out the fact that the other siblings are being prevented access. This may sound a bit unbelievable but it happens in many circumstances.

The dynamics of families often continue as parents become elderly and more vulnerable. That means that heated rivalries may occur — and adult children who have freeloaded off their parents for years may latch onto them even more.

Note: The person controlling an elderly parent doesn’t have to be part of the family. In some cases, it can be a housekeeper, neighbor or a stranger. The motives are the same — to make the elderly parent believe that the controlling individual is the only one who cares enough to help.

What to Do

If you believe a sibling is keeping you from your parent, your instincts may be correct. Instincts are often based on facts. If you cannot get in touch with your parent and are prevented from seeing him or her, it is a form of elder abuse. Someone who is exerting complete control over an elderly person is evidence of elder abuse. You can contact the adult protective services governmental agency in your area, explain the situation and inquire about an investigation.

Usually, government agencies will send someone to a parent’s home to interview him or her. If possible, ask to go along with them. If the agency says “no,” because it wants an objective opinion, make sure that the controlling sibling is not present when they are interviewing your parent. Ask the investigator to tell your parent that you have been trying to get in touch with him or her.

If you cannot get an investigator to make a visit, or if the investigator decides that your parent has his or her full capacity and is free to come and go, then you may want to seek court intervention if you believe your parent does not have the ability to make decisions.

You can also bypass the step of contacting the governmental agency, and file a petition in court for a guardianship if you believe your parent does not have the capacity to make decisions or if the situation seems urgent.

How to Prevent this from Happening

If you remain in contact with your parent and believe that a controlling sibling (or even an outsider such as a housekeeper or neighbor) is taking advantage of your parent, suggest to your parent to get the proper estate planning documents in place. This can help your family from being blindsided by issues later on. Speak with your attorney about these issues.

When Caregiving is Done by One Sibling in an Inequitable Way

This article focuses on situations in which one sibling keeps other family members away from an elderly parent with the intent to defraud the individual. But there are also families in which one sibling does the bulk of the caregiving — either out of choice or necessity — because the individual lives nearby, doesn’t work full time, or is just more compassionate than other siblings.

Even worse, the family members who are not bearing the brunt of the responsibility sometimes criticize or second-guess the decisions the caregiver makes.

In these cases, resentment and anger build up. It is best if caregiving chores are spread out among siblings as much as possible. Unfortunately, that’s not always feasible. If you are unable to provide the physical assistance on a regular basis, here are some ideas:

- - Pitch in temporarily so the caregiver can take a break.
  - Pay for a housecleaner, a home health aide or other service that can make the life of the caregiver easier.
  - Buy groceries or pick up medications.
  - Provide regular emotional support to a sibling who has disrupted his or her life to care for a parent.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

ESTATE PLAN RESOURCE

Estate Planning Advice
for Every Stage of Life.

What to Do if a Sibling Keeps You Away from Your Elderly Parents

Your sister claims that she is the one taking care of your father and accuses you of abandoning him.

What Could Happen?

What to Do

How to Prevent this from Happening

When Caregiving is Done by One Sibling in an Inequitable Way

Even worse, the family members who are not bearing the brunt of the responsibility sometimes criticize or second-guess the decisions the caregiver makes.

Pitch in temporarily so the caregiver can take a break.
Pay for a housecleaner, a home health aide or other service that can make the life of the caregiver easier.
Buy groceries or pick up medications.
Provide regular emotional support to a sibling who has disrupted his or her life to care for a parent.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a free consultation.

PERKINS & ZAYED, P.C.
1745 South Naperville Road, Suite 100, Wheaton, IL 60189

Phone: 630-665-2300 | Toll Free: 877-TRUST-50
Fax: 630-665-4343
Email: admin@trust-lawgroup.com

August 2, 2021August 2, 2021

Saving for Your Child’s Education with a Section 529 Plan

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Saving for Your Child’s Education with a Section 529 Plan

Q. It’s time for us to begin saving for our child’s education. We’ve heard a great deal about Section 529 plans. What are the advantages?

A. The advantages can be significant. Section 529 plans include both prepaid tuition programs and college savings plans. While prepaid tuition programs have been around longer, it is the college savings plan that is garnering most of the attention these days. Changes enacted by the Economic Growth and Tax Relief Reconciliation Act made these college savings plans more attractive from a tax-strategy standpoint.

Basically, a college savings plan allows you to place money in a state plan to be used for the beneficiary’s higher-education expenses at any college or university. These expenses include tuition, fees, books, supplies, and certain room-and-board costs. There is no tax deduction for contributions made to the plan, but the money is allowed to grow tax-free until the funds are withdrawn to pay for qualified education expenses. Your money is invested in stocks, bonds, or mutual fund options offered by the plan, with no guarantee as to how much will be available when the beneficiary enters college.

Here are some of the more significant benefits of these plans:

- - You are the owner of the account and can change the beneficiary or even take the money back, if permitted by the plan. This is helpful in the event that your original beneficiary decides not to go to college. If you take the money back, you will owe income taxes on the earnings and a 10% federal tax penalty as well. The money can be withdrawn without penalty if the beneficiary dies or becomes disabled.
  - In 2018, you or other family members can contribute up to $75,000 to a qualified plan in one year and count it as your annual $15,000 tax-free gift for five years (up from $14,000 in 2017). If the gift is split with your spouse, you can contribute up to $150,000, also for five years. However, if you die within the five-year period, a pro-rata share of the $75,000 returns to your estate. Grandparents can set up accounts for grandchildren, transferring large sums from their estates while providing for their grandchildren’s education.
  - There are no income limitations for contributions. Thus, these plans may be of particular interest to higher-income individuals who may not qualify for other college savings tax breaks.
  - The assets in the plan are considered the account owner’s assets, not the beneficiary’s assets. For financial aid purposes, 5.6% of the parents’ assets and 35% of the child’s assets are to be used for college costs. If the grandparents are the owners, the assets may not even be considered for financial aid purposes. Even though distributions are income tax free, their status for financial aid purposes is not clear. It may come down to a college-by-college decision whether the income will be considered the child’s income.
  - You can now make tax-free transfers of funds from one plan to another or from one investment option to another for the same beneficiary once every 12 months. In the past, the beneficiary had to be changed to make a tax-free transfer.

Private colleges and universities can now set up their own prepaid Section 529 plans. Distributions from these plans are eligible for the same federal income tax advantages as distributions from state-operated plans.

Most states now offer college savings plans, with the plans administered by the state or financial institutions. Certain state programs only accept residents, but most plans allow participants from any state. Before contributing to a plan, consider these tips:

- - Check out your own state’s plan first. Many states offer state income tax benefits to residents who contribute to their in-state plans.
  - Review investment options carefully.You can’t actively control the investments in your account, so you have to select from the plan’s options. Some offer a couple of choices, while others feature a more diverse selection. Recently, several plans added a principal-protected or guaranteed-return option to counter concerns about stock market volatility.
  - Examine fees. The management fees charged by plans vary widely and can significantly impact the performance of your fund. Some also charge an enrollment fee, an annual maintenance fee, and other annual expenses.

College savings plans offered by each state differ significantly in features and benefits. The optimal choice for an individual investor depends on his/her objectives and circumstances. In comparing plans, an investor should consider each in terms of investment options, fees, and state tax implications.

Update: Beginning in 2018, a new law, the Tax Cuts and Jobs Act (TCJA) makes it possible to use 529 accounts to pay for tuition not just at college, but also at public, private, or religious elementary or secondary schools. The TCJA also allows you to take tax-free distributions of up to $10,000 per year to pay for these education costs.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

Want to Avoid Probate? Here Are 6 Ways to Do It

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Want to Avoid Probate? Here Are 6 Ways to Do It

Life is busy. If you’re like most people, you have a long list of things to do. However, it’s critical to make time regularly to consider whether you’ve set up your estate in a way that will result in your wishes being eventually fulfilled.

You may have heard people say you should “avoid probate” in your estate and wondered: What does that mean? How can I go about accomplishing it? This article will discuss some of the issues and show you six ways you may be able to avoid probate.

Probate is when the executor named in the will petitions the court to accept the will as valid. In the probate proceeding, the executor collects the assets of the deceased, pays the debts, pays estate or income taxes if owed, pays administrative expenses such as funeral bills and attorneys fees, and distributes the remaining assets among the beneficiaries named in the will.

The whole process is a matter of public record. The will is public as well as the accounting of what the executor does if filed. The process can take up to two years or more depending on the complexity of the estate. The more complicated, the more expensive and time consuming. Further, if the will is contested or the accounting is contested, there could be expensive litigation.

Some people want to avoid probate for two reasons:

They want the distribution of their assets to be as private as possible; and
They want to lessen the time and cost of distributing their assets.

Ways to Avoid Probate

There are various estate planning tools that you can use to avoid the probate process. You may not be able to completely avoid the process, but you may be able to limit the amount of assets that are necessary to go through probate. How? By having “non probate” assets in your estate or by removing assets from your estate while you are alive.

Here is a list of six ways to accomplish these goals:

1. Form a living trust.

Living trusts allow you to avoid probate by listing the trustee as the owner of the assets. With a revocable living trust, you remain in control of the assets, but upon death instead of the assets going through probate, your successor trustee can distribute them pursuant to your wishes set forth in the terms of the trust. This allows for privacy because a living trust is not a public record in the majority of cases. And the whole process is generally less expensive.

You can hold various assets in a trust such as real estate and bank accounts. It is important that you have a professional draft the trust for you and help you transfer the assets to the name of the trustee.

2. Jointly own real estate or bank accounts.

Putting another name on your assets so you own them jointly is also a way to avoid probate. You can form bank accounts with a joint holder or even real estate with rights of survivorship. Upon either of your deaths, the assets transfer directly to the survivor without the need for probate.

3. Have bank accounts with “payable on death” designated beneficiaries.

There are some bank accounts that allow you to list a beneficiary. Upon your death, the beneficiary will simply receive the assets.

4. Own securities that are transferable upon death to designated beneficiaries.

Similarly, it may be possible to list a beneficiary for your stocks and bonds accounts.

5. List beneficiaries for your IRAs, 401(k)s, or pension plans.

By listing beneficiaries for your IRAs, 401ks and pension plans, you can keep those assets from going into probate. Once you designate a beneficiary (or beneficiaries), it is important to keep the designations up-to-date. There have been many cases in which a person names his or her spouse as a beneficiary and then gets divorced. If he or she dies without updating the IRA, 401(k) or pension plan, the ex-spouse may get the money — regardless of what the will states.

6. Engage in gift giving using trusts and/or a limited partnership.

For more complicated estates, you can create various gift giving trusts that allow for you to gift assets at a discounted value. That way, you can remove more assets from your estate in order to avoid estate taxes. Similarly, a larger estate may use techniques such as a limited partnership to remove assets from the estate — not only to limit estate taxes, but to lessen probate assets. For the basic tax rules involved in gift giving, see the right-hand box.

If you are interested in any of these options or have questions about probate, consult with your estate planning advisor.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

How to Use a Prenuptial Agreement as an Estate Planning

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How to Use a Prenuptial Agreement as an Estate Planning

Prenuptial agreements and domestic law vary from one state to another but nearly every state has laws that prevent one spouse from entirely disinheriting the other. However, with a prenuptial agreement, one spouse can waive his or her right to the other’s estate.

Let’s say you are getting married and have children from a previous marriage. Your spouse-to-be also has children and is financially secure. You may want to change your will to leave the bulk of your estate to your children and perhaps a small amount to your new spouse.

However, the change in your will may not completely disinherit your spouse because of most states’ laws.

A properly drafted prenuptial agreement, along with a change in your will, may help to fulfill your wishes.

Without proper planning, it is possible that say, a family home or family business, could pass to your new spouse and eventually to his or her children, rather than your own.

In some cases, agreements segregate property owned before the marriage from property acquired during the marriage.

Here are some factors necessary to ensure that a prenuptial agreement is valid and enforceable:

1. It must be in writing and signed by both parties.

2. There should be no pressure. The prenuptial agreement should be given to the other party well in advance of the wedding.

3. There must be full disclosure. A pre-nup should generally list both parties’ assets, as of the date of the marriage. If one party doesn’t make an adequate disclosure, the agreement is likely to be disregarded.

4. Both parties should be represented by their own attorneys.

So in the case of a second or third marriage, you can ensure your children will receive the assets you desire by having a valid prenuptial agreement, as well as having a properly drafted will — and keeping the will current as you acquire assets during the marriage. You may also want to set up a trust.

Important: Just because you have a prenuptial agreement doesn’t mean you can’t name your spouse in your will. You may want to leave your spouse some money or assets to ensure his or her future security.

Consult with your attorney. The requirements of prenuptial agreements and estate planning are complex and vary from state to state.

What if you are already re-married and didn’t sign a prenuptial agreement? You may be able to sign a post-nuptial agreement to accomplish the same goals. Consult with your attorney.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

Special Needs Trust: What Expenses Can It Pay For?

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Special Needs Trust: What Expenses Can It Pay For?

A special needs trust or a supplemental needs trust can be established to help a disabled individual who is receiving assistance from the government — or is eligible to receive it. Disabled people, who cannot support themselves and rely on government assistance, are not allowed to have more than a certain amount of personal assets, so family members can’t just give them money to pay for just any expenses. The use of a trust can pay for some expenses and keep the disabled person from being disqualified from receiving public assistance, including Medicaid or Supplemental Social Security, because he or she has acquired too much money.

Let’s say you are appointed to be a trustee of a special needs trust or supplemental needs trust. Or perhaps you are a beneficiary of such a trust or you want to set one up for a loved one. In these cases, you want to know what permissible expenses the trust can pay for without losing governmental support. This article will address the products, services and debts that a trustee can pay for a beneficiary — and which expenses are not permissible.

Quick Overview of Special Needs Trusts

If someone is deemed incapacitated or disabled, and is receiving governmental assistance such as Medicaid or SSI, the law allows for the creation of an irrevocable trust. This is also true if an individual is disabled and eligible for public assistance but has not yet applied for it. A special needs trust is funded by either a third party (such as a parent) or from the applicant under certain circumstances so that a designated trustee can pay for some expenses of the applicant without him or her losing the governmental assistance.

Assets can be held in the trust and used to pay for the beneficiary’s special or supplemental needs, which the government does not provide. Meanwhile, Medicaid could be paying the significant medical bills for the individual and SSI could be used to pay for food and shelter. If the medical assistance provided during the individual’s lifetime does not turn out to be costly, then upon the death of the beneficiary there is a chance that assets may be preserved in the trust and pass to loved ones. It is important to plan carefully with your estate planning attorney because in some cases the remaining assets could revert to the government under a “payback clause.”

Families can also use special needs trusts to shield excess income for Medicaid purposes. By using a trust in this way, a disabled Medicaid recipient can actually keep the benefit of almost all of his or her income under certain circumstances, rather than having to pay a portion of it towards the cost of his or her care.

Types of Expenses Allowed to Be Funded

Generally, a trustee of a special needs trust could use the money without penalty to pay for:

- - Medical and dental care not paid by other sources;
  - Private rehabilitation training, services or devices;
  - Supplementary education assistance;
  - Entertainment, hobbies;
  - Transportation;
  - Personal property and services.

In-Kind Support and In-Kind Maintenance

In-kind support and maintenance means that someone else, including a trustee, is helping an individual with his or her food and shelter expenses. Receiving In-kind support and maintenance that contributes to some or all of an individual’s food and shelter expenses could penalize the recipient or prevent him or her from receiving governmental support. This applies if the support is given in the form of gifts or payment of money or items that an individual could sell to pay for food or shelter. For Social Security Disability purposes, food and shelter includes the following expenses:

- - Room and board;
  - Rent;
  - Garbage collection and sewer;
  - Water;
  - Electricity, gas and heating fuel.

If a trustee provides in-kind support and maintenance to the beneficiary for the above services, the SSI benefits will be reduced up to a certain point. The amount by which the Social Security Administration will reduce a beneficiary’s payments is determined using certain models. It’s important to know how much SSI a beneficiary is receiving and what payments would need to be made from a trust that could be considered in-kind support and maintenance. A cost-benefit analysis would be necessary to determine if it is worth a trustee making in-kind support and maintenance payments that will cause a reduction in SSI benefits.

Special needs trusts or supplemental needs trusts are complex and there are serious implications for incorrectly paying certain expenses with them. Consult with your attorney about these issues if you want to set up a trust — or you are the beneficiary of one.

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