Special Needs Trust: What Expenses Can It Pay For?

Estate Planning Advice
for Every Stage of Life.

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.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Should You Name Your Trust as Beneficiary of Retirement Plan Assets?

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for Every Stage of Life.

Should You Name Your Trust as Beneficiary of Retirement Plan Assets?

As you may know, the person (or persons) designated as the beneficiary of your tax-deferred 401(k) plan, 403(b) plan traditional IRA, Roth IRA and other retirement plans will receive that money when you die. These retirement plan assets are transferred by “operation of law,” which means that your will has no effect on them.

In other words, they pass outside of your will and are considered non-probate assets.

In general, married retirement account owners name their spouses or children as beneficiaries (it may even be required to name a spouse).

But in some situations, you may not want to name a person (or persons) as the beneficiary of your retirement plan. You may want to name a trust.

Here are some examples:

      • You may not want the beneficiary to receive all the money in the retirement account at once. A trust will allow they money to be distributed over time.
      • An individual may want to name his or her siblings as beneficiaries of a retirement account. But in the event one of the siblings dies, the account holder wants the children of the sibling to receive the money. A trust would allow this type of flexibility.
      • You may want to restrict the use of the money by a beneficiary (for example, to pay for college) or to care for a special needs child. Again, a trust would allow this while simply designating the beneficiary on your account would not.
      • The bulk of your money is held in retirement accounts and you want to set up a marital bypass trust to be the beneficiary in order to decrease estate tax.
      • An individual is remarrying and wants to set up a trust to ensure his new spouse and his children from a previous marriage receive a certain amount of money from the retirement accounts.

In these cases, as well as in other situations, you may be able to meet your goals by designating a trust as the beneficiary of your retirement account(s).

Tax Implications

However, naming a trust as the beneficiary of your retirement plan has tax implications.

In general, when a distribution is made from a tax-deferred retirement plan, the amount is taxable in the year it is received.

When a trust is named as the beneficiary of the retirement plan, the plan itself is not transferred. The assets are eventually distributed from the plan to the trust after the account holder’s death, and distributions are taxable at that time.

Therefore, if you are setting up a trust and funding it with retirement plan assets, you need to look at the tax costs and benefits. For example, if you want to leave retirement assets to your spouse and you want to defer taxes for years into the future, it is generally better to name the spouse outright as a beneficiary of the account rather than name a trust as the beneficiary. With a trust, a federal (and possibly state) income tax bill would be due in the year of the retirement plan distribution to the trust while as an outright beneficiary, your spouse has the ability to take a distribution or allow the tax deferral to continue for years.

Naming a trust as a beneficiary of your retirement plan can be a complex transaction. You need to first find out if the plan administrator allows a trust to be a beneficiary. You should also consider alternatives. For example, more emphasis on a properly prepared look-through trust can avoid negative income tax consequences and allow the trust beneficiary to take distribution over years. Consult with your estate attorney or a qualified adviser before finalizing any decisions.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

How to Make Sure Your Estate Plan Doesn’t Fail

Estate Planning Advice
for Every Stage of Life.

How to Make Sure Your Estate Plan Doesn’t Fail

You may be familiar with the saying, “Failing to plan is planning to fail.” It’s a significant reason why people set up an estate plan – to be prepared for the unexpected. And, of course, the inevitable.

But estate planning doesn’t end when legal documents are drawn up, executed and placed in a book for another day.  Organization and communication are also crucial steps in this process. Without them, a relatively straight-forward process gets sideswiped by confusion, frustration and uncertainty. Ultimately, this costs time and money.

The Rainy Day

It’s common human behavior to think you’ll get around to it when things slow down – our “save-it-for-a-rainy-day” mentality. But what could inevitably happen to that good intention to do it later?

Absolutely nothing if the unexpected happens first.

It could be a tragic accident, a stroke, an emergency surgery, or a life-threatening illness that shuts you down. It’s possible you could end up in critical condition, completely impaired, or hooked up to life-sustaining machinery.

What becomes of that living will or advance health care directive you created for a time such as this? If no one knows this document exists or can’t find it, absolutely nothing.

It’s as if you never had a plan in the first place. Those lost documents hold no power to help you direct the decision-making process when you finally need them to.

This holds true for any of your estate planning documents.

If you become incapacitated or incompetent and your named agent doesn’t have your financial power of attorney or living trust, accounts can’t be accessed and bills can’t be paid. Without a concrete will or living trust in hand, it’s not possible to execute your estate according to your wishes. In fact, if your home has been placed in a trust and no trust can be found, your beneficiaries will have to go through hoops if they choose to sell it.

The Hunt

We’ve received plenty of calls from clients and their family members who had no idea where the original documents were placed. Often, it was at a time when specific documents were urgently needed.

They spent hours digging through rooms, boxes and papers. They tried to pry open a safe or gain access to a bank deposit box. They even located others who might possibly have them in possession. And, of course, they gave our office a call in hopes of obtaining a copy. Yes, we do keep digital copies of the originals in our files. But the original always beats a copy.

The Proactive Plan

However, advanced planning by organizing your documents and communicating what is in them will ensure situations will be handled how you want them to be handled when that time comes.

Organize a secure, permanent location for your originals. Communicate to those responsible where they are and how to access them. Give copies to your agents, your medical practitioners, and financial institutions so they have them when they need them. And even communicate your expectations to your loved ones so they can better handle that burden should the time arrive.

Organization and communication most likely won’t end with your own personal estate plan. It’s a vital part of any estate plan you are party to – whether parents, children, family members, and friends. What holds true for you holds true for them when it comes to making financial and health decisions.

If you’re an agent for power of attorney, get a copy of the document. If you’re an executor or trustee, make sure you know where the document is and how to easily access it. In fact, take it a step further and know what you’re expected to do as an agent, executor or trustee so you’re better equipped when that time arrives.

We know that part of your intention for an estate plan is to ease the burden on your loved ones. But if documents can’t be found after your death, the court will have no choice but to proceed as though you died intestate. That is, you died without an estate plan. Your estate will go through probate where the court will decide who gets your assets rather than you making that final decision.

But you can prevent this from happening. It starts today.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Avoid These 8 Common Mistakes in Your Revocable Living Trust

Estate Planning Advice
for Every Stage of Life.

Avoid These 8 Common Mistakes in Your Revocable Living Trust

A revocable living trust has long been an important part of estate planning. Done correctly, a living trust can help protect your heirs from creditors and probate and supply them with any funding you’d like them to have.

However, a revocable living trust might not meet your goals if it isn’t arranged properly and periodically reviewed for any changes to your circumstances that would make a revision necessary. As you make a living trust part of your estate plan, you want to ensure that you avoid the following eight most common mistakes:

1. Leaving out assets. 

Assets that are titled in your name will go through probate after you die. Aside from certain annuities and qualified retirement funds, make sure that you’ve included all of your assets in your trust while you’re still alive. Possibly, you can designate your trust as a beneficiary of your accounts.

2. Drafting the living trust on your own. 

There are an abundance of DIY software packages and Internet sites that offer living trust forms. These might be cheaper than hiring an attorney to help you, but cheaper isn’t always the best option. This is especially true for those with estates that aren’t plain and simple.

3. Picking the wrong person to act as successor trustee. 

Make sure that the trustee you pick is the best and most capable person to manage your assets, not the person you feel obligated to pick. You might consider multiple co-trustees to manage your assets after your death or during any period of disability, or you could even name a trust company or bank as a co-trustee or trustee. In any case, pick the trustee(s) that you feel would best act in your stead.

4. Assuming trust assets aren’t subject to estate taxation. 

Keep in mind that all assets in a revocable trust will be considered when calculating your gross estate for estate tax purposes once you’ve passed away.

5. Thinking that a trust protects you from creditors. 

Even though your assets are in a trust, the majority of living trusts are composed in a manner that still gives you full access to the assets. As such, those assets will still be legally available to your creditors as well. That said, a correctly drawn trust can offer your children and spouse protection from their own creditors.

6. Assuming trust assets will not be counted for Medicaid eligibility determination. 

Assets in a trust are counted during the Medicaid eligibility determination process.

7. Forgetting to name your charities as beneficiaries. 

If you would like to continue any regular donations to a charity, school, or church after you pass away, then you might want to include them as you arrange your living trust.

8. Not periodically reviewing your trust. 

Life goes on after your trust is drafted. Of course, this means possible births, marriages, divorces, deaths, disasters, changes to your retirement plan or employment, and so forth. These types of changes often make it necessary to update your living trust.

Consult with your attorney to discuss whether a living trust would be beneficial in your situation.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Charitable Remainder Trust: Save on Taxes While Doing Good

Estate Planning Advice
for Every Stage of Life.

Charitable Remainder Trust: Save on Taxes While Doing Good

If you own assets that have appreciated significantly over the years, you may be able to profit more by giving them away than by selling them.

By setting up a charitable remainder trust (CRT), you can transform a future tax liability into a current tax break, receive a steady source of income for the rest of your life and leave a gift to your favorite charity.

Here’s how it works. Let’s say you invested $50,000 years ago in a stock now worth $350,000. One option is to sell the stock now and use the proceeds to help finance your retirement. But you’ll owe capital gains taxes on your profit and you may owe state taxes too.

Instead, you set up a CRT to benefit one or more charities and transfer the stock to the trust. Because the trust is tax-exempt, it can sell the shares and reinvest the entire $350,000 in a portfolio that you administer.

You receive income generated by the trust assets for the rest of your life. The assets are no longer in your taxable estate because when you die, the charity or charities get the remainder of the trust. In exchange for your future gift, you escape capital gains tax and get an immediate tax deduction for a portion of the value of the assets transferred to the trust.

Despite the advantages, CRTs aren’t for everyone. For one thing, if you give away assets, your heirs won’t receive them. Some people handle that by buying life insurance or setting up a Wealth Replacement Trust so their children still receive an inheritance (see the right-hand box).

Here are seven basic steps involved in a CRT:

Step 1. When you establish the trust, you become the trustee. You can name a successor to act as trustee if you later become incapacitated.

Step 2. You designate a charity or non-profit organization to receive the remainder of the CRT after you die.

Step 3. You donate appreciated assets, such as stock, real estate or a business, to the CRT. There is no limit on the amount. The CRT generally sells the assets and buys income-producing investments, such as dividend-paying stocks.

Step 4. You get a tax deduction for the charitable gift. The exact write-off depends on your age and the income payments you receive. Part of your deduction may be delayed, but unused deductions can be carried forward for five years.

Step 5. As trustee, you invest the proceeds from the CRT’s sale of the assets. Any gains are tax-free because the CRT is tax exempt.

Step 6. The trust pays you income for life or for the trust term. The payments depend on the type of CRT you set up. There are two basic types:

          • An annuity trust, which pays out a fixed amount each year.
          • A unitrust, which pays out a fixed percentage each year based on the value of the assets in the trust. If the trust assets increase in value, so does your income.

Step 7. When the last beneficiary dies, or at the end of the trust term, the assets are distributed to the charity or charities that you have designated.

A charitable remainder trust may be a good vehicle for you to reduce taxes and benefit a worthy cause while preserving your financial stability. Consult with your estate planning advisor to see if it’s right for you.

What About the Kids?

With a charitable remainder trust, you may be worried about giving away a large share of the inheritance given to your children.

You may want to consider buying life insurance or setting up a “Wealth Replacement Trust” to make up the difference for your children.

This trust owns, pays premiums on, and is the beneficiary of a second-to-die life insurance policy. The idea is the policy replaces the lost inheritance.

You give money to the trust every year to finance the policy. The premium, once established, remains stable for life. Upon the death of the second spouse, your children receive the life insurance proceeds from the trust. The proceeds are tax-free.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

7 Reasons to Update a Will

Estate Planning Advice
for Every Stage of Life.

7 Reasons to Update a Will

Once you or your loved ones have a will drawn up, don’t just put it away for safekeeping and forget about it. If your will doesn’t keep pace with changes in a person’s life, it could cause chaos later. Following are seven major life events that could make you rethink the contents of your current will.

1. Deaths.  If individuals named (as heirs or executors) have died or they become incapacitated, a will should be changed.

2. Assets. Revisions may be needed if the value of assets has increased or decreased significantly, or they are no longer owned. For example, if you specifically leave your home to one of your children, and later sell it, you may want to change the distribution of your other assets.

3. Marriage.  Wedding bells usually signal the need to review a will. Which assets should pass to your spouse? Are step-children involved? If this is not spelled out in a will, the state will decide. In a community property state, a spouse automatically inherits half of all community property. In most other states, a spouse may receive one‑third to one‑half of the estate, absent any other directions.

Also, keep in mind that an unmarried couple living together may want to leave assets to each other but in order to make an inheritance happen, it must generally be spelled out in a will.

4. Divorce. In many states, a divorce automatically revokes a will or those provisions concerning an ex‑spouse. As a result, if you get divorced, it’s best to have a new will drafted. For instance, you might have your former spouse removed as a primary beneficiary. In addition, you may want to change the beneficiary of your life insurance, pension or any existing IRAs. Consider the use of a trust if children from a previous marriage are involved.

You may also want to change your will if one of your children gets divorced.

5. Births.  Once parents have children, their wills should be amended immediately to include the names of guardians to care for the children in the event the parents die prematurely. Also, parents or grandparents might wish to restructure their wills concerning distribution of assets after children are born. Again, the use of a trust may be recommended.

6. Retirement.  This event may also trigger the need to make changes to an existing will. For example, many retirees sell their homes and move to other states. But state laws can vary widely. Furthermore, individuals may consider a power of attorney that enables someone else to act on their behalf in the event of certain illnesses.

7. Tax law revisions. The Internal Revenue Code is regularly changed. In fact, many aspects of estate tax planning are in flux right now. A will should be designed to take advantage of maximum tax benefits that exist today so it may have to be updated as tax laws change.

You don’t have to tackle this problem on your own. If you need to update a will, contact us so we can help you.

WHERE IS IT?

Before it’s too late, people should let someone know where their original will is stored. If one can’t be found after a person dies, a court may decide it was destroyed. It’s a good idea to keep a copy in a safe deposit box, but don’t put the original there without checking state law. Some states require that safe deposit boxes be sealed after the renter dies.

Other options include:

      • Store an original will in the office of the county Clerk of the Superior Court. (It must be retrieved if the person moves.)
      • Have your attorney and/or your accountant retain the original will. Ask them what will happen to the document if they die, move, or quit practicing.
      • Store the will at home. Of course, it could be lost, inadvertently destroyed or discovered by an interested party who could deliberately destroy, conceal, or alter it.
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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

3 Ways a Revocable Trust Can Benefit You and Your Family

Estate Planning Advice
for Every Stage of Life.

3 Ways a Revocable Trust Can Benefit You and Your Family

When developing an estate plan, a revocable trust can provide many benefits that, in most cases, significantly outweigh the cost of setting one up.

Here are three of the benefits of setting up a revocable trust.

Benefit #1: You gain more flexibility when you plan for your estate. The trust allows you the flexibility to add or remove assets during your lifetime. You can also make changes to income beneficiaries and remainder beneficiaries or cancel the trust altogether. Nevertheless, extreme care should be taken before creating, amending or canceling a trust to ensure it is handled properly. Discuss it with your attorney.

Benefit #2: A revocable trust avoids probate and limits the costs that your estate and heirs will generally have to pay.

Probate is the court proceeding in which the executor named in the last will and testament petitions the court to declare the document as valid and allows the executor to collect and distribute assets according to the terms set out in the will.

This process can be very time consuming. If an estate winds up in probate, many months or even years may pass before the assets are fully dispersed. In addition, the court can place restrictions on how the executor can distribute assets. For example, if the estate contains real property, such as a home, the executor may have to obtain court permission to sell it.

With a revocable trust, the trustee can more efficiently distribute the assets. Moreover, the cost savings can be significant because the trust avoids all the paperwork, court intervention, hearings and legal filings that make up the probate process. These savings typically offset the initial costs of setting up the trust.

In addition, because probate of a revocable trust is generally unnecessary, the trustee can keep the terms of the trust private rather than having it become a part of the public court record. In other words, there will be no public disclosure of the trust assets and what your heirs will receive. However, if you name the revocable trust in your will — known as a “pour over will” — the court many require a copy of the trust for the court file.

Benefit #3: The trust can be used as a beneficiary for certain assets that are distributed outside of a will. These are assets that do not require probate, such as retirement accounts, life insurance and certain brokerage accounts with a payment upon death beneficiary (along with joint accounts). With care and proper advice, an individual can name the trust the beneficiary for some of these assets. When the assets are distributed to the trust, the trustee then disperses them according to the terms of the trust. Note: There may be tax consequences at the time of the transfer of some assets.

Discuss with your attorney whether a revocable trust would be beneficial in your estate plan. Using one can streamline the estate process and make it less expensive to collect and distribute assets.

TRUST BASICS

A trust is an written arrangement under which one person, called a trustee, holds legal title to property for a beneficiary. You can be the trustee of your own living trust and keep total control over the assets in the trust.

Trusts generally fall within two categories:

1. Living trusts created during the lifetime of individuals. Living trusts, also know as “inter vivos trusts,” include:

        • Revocable Trusts that you (the grantor or settlor) create and control during your lifetime. You can revoke or amend the trust as long as you live.
        • Irrevocable Trusts, in which the grantor relinquishes the right to amend or cancel the trust at a later date.

2. Testamentary trusts created upon the death of an individual through an instrument such as a will.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Who Has Access to Estate Assets Right After Someone Dies?

Estate Planning Advice
for Every Stage of Life.

Who Has Access to Estate Assets Right After Someone Dies?

Immediately after a loved one dies, the nearest family members — or sometimes close friends if no relatives are nearby — wonder what to do about the assets of the decedent.

An individual’s assets can fall into certain categories including:

      • Household items
      • Jewelry and other valuables
      • Cash
      • Belongings in a safe deposit box
      • Bank Accounts
      • Brokerage Accounts
      • Pensions
      • IRAs
      • 401(k) plans
      • Real estate
      • Insurance.

Here are some basic considerations about these assets.

Household Items

If the decedent was married and living with a spouse, the household items would effectively be the property of the spouse. These items may include furniture, clothing, china, silver, appliances, linens, electronics and other contents of the decedent’s home.

So, unless the decedent specifically designated certain items to beneficiaries in a will, the surviving spouse would receive the household items. If there is no surviving spouse and no instructions in the will, the executor or personal representative must decide how to divide household items — or perhaps, allow the beneficiaries to decide what they want fairly. Alternatively, the executor may sell the items (sometimes in an auction) and if no one wants them, they may be donated to charity or discarded.

Jewelry and Other Valuables

If there are some personal items such as jewelry, antiques or artwork of high value that have not been designated to a beneficiary in a will — or if the value is exceedingly high — a closer look at the estate plan of the decedent is necessary to determine who and how to distribute the valuables. In these cases, the executor or personal representative may have authority to determine the best way to distribute the items if not specifically designated in a will. The same would be true for cash found in the household.

Safe Deposit Box

Sometimes, valuable and important documents are kept in a safe deposit box. In some cases, the safe deposit box is only in the decedent’s name — or perhaps there is another person who also has access to it. When an individual dies, someone may need to get a court order to open the box. If the joint owner can open it, then an inventory should be taken, preferably with a witness.

Bank Accounts

If a bank account is in the name of the decedent only, then the money in it is effectively frozen until the executor or personal representative opens an estate account. At that point, the money in the personal account is transferred into the estate account.

If the account is a joint bank account, in most cases, the money in the account is a non-probate asset and would belong to the surviving owner of the bank account. One exception is if he decedent opened the account and added the name of the second owner “for convenience only,” wherein the account would be subject to probate and the second owner would not have ownership of the assets in the account.

There also could be bank accounts that have a designated beneficiary or beneficiaries. In those instances, the beneficiary or beneficiaries would inherit the money in the account without going through probate.

Brokerage Accounts

Brokerage accounts, in most cases, are similarly treated as bank accounts. However, there could be stocks or bonds held in the name of the decedent with a designated beneficiary, or jointly owned, or there is a transfer upon death provision naming beneficiaries. Depending on how the stocks, bonds or funds are held, they can either be part of the probate process, or go directly to named beneficiary or joint holder.

Pension, IRAs, 401(k)s

If there is a named beneficiary of the accounts, then the named beneficiary obtains the funds without going through probate. If there is a named beneficiary other than the spouse, the surviving spouse may be able to challenge the named beneficiary of certain accounts.

If there is no named beneficiary, then the asset would flow to the estate for probate or administration.

Real Estate

Real estate could be a non probate asset if it is jointly held or if the persons inheriting it receive it by “operation of law.” It is a good idea to check with a title insurance company to make sure that a transfer of the property without probate is considered proper from the title company’s point of view — in case the person receiving it wants to sell at a later date.

Insurance

Similar to designated accounts, if an insurance policy names a beneficiary, then the beneficiary would receive the funds without the need to go through probate. If there is no named beneficiary, then the proceeds would flow to the estate.

These are only some of the assets that may be involved in an estate. Speak to your attorney about these issues, so you are aware of what could happen if a family member dies — or for you to develop a proper estate plan so your heirs will receive your assets according to your wishes.

Who Is in Charge?

Power of Attorney. After someone dies, the person who was named in a Power of Attorney no longer has the authority to conduct the affairs of the decedent. This is the person (sometimes called the attorney-in-fact) who handled the affairs of the decedent prior to his or her death.

The reason: The Power of Attorney is a legal document only effective during the life of someone. It immediately becomes invalid upon death.

This can lead to confusion if the attorney-in-fact is not the same person named in a will as the executor (or is not a nominated administrator if the decedent died without a will). The attorney-in-fact must cease taking action with regard to the estate. Also, the attorney-in-fact should maintain proper records of the transfer of assets immediately preceding the death of the decedent in case there is a need for the executor to look at such documents.

Court Appointed Guardian/Conservator. If the decedent was considered incapacitated, the court may have appointed a guardian/conservator to be in charge of the person and his or her property. (The guardian of property is sometimes called a conservator. )

After the decedent dies, the guardian/conservator is no longer necessary and any powers are no longer in effect. The court will generally require the guardian to provide a final accounting. The individual most likely has been required to keep an accounting on an annual basis. A final accounting is necessary to release the guardian/conservator of liability. Sometimes, there are issues with the guardian’s/conservator’s accounting that will need to be addressed during the estate administration. It is advisable for guardians to keep good records.

The Proposed Executor or Nominated Administrator Should Be Proactive. If the decedent had a will, the proposed executor should begin taking steps to probate the will. It’s important to take the steps in a timely manner.

Even before the probate of the will, the proposed executor should take action to protect the assets of the estate and to notify all creditors of the death and notify banks where the decedent had accounts.

Further, if there is a need to search a safe deposit box, the executor should immediately get an order to open the safe deposit box if the executor isn’t already named on the box. When opening it, the executor should have a bank representative there and take an inventory of the box.

If there is a need to protect personal belongings in the home of the decedent, the executor can request the court issue a notice that no one is permitted to enter the premises (although if the decedent shared a home with someone, it could be limited to the decedent’s private quarters).

If there is no will, family members generally determine who will be the estate administrator. Hopefully, family members can agree on this.

Complications can arise with these issues. Talk to your attorney prior to taking any action after someone dies to make sure you are the following proper procedures.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Protect Estate Assets from Creditors with a DAPT Trust

Estate Planning Advice
for Every Stage of Life.

Protect Estate Assets from Creditors with a DAPT Trust

When developing an estate plan, you may want to consider setting up trusts for various reasons, including protecting your assets from potential creditors.

One way to accomplish this, depending on where you live, may be to set up a domestic asset protection trust (DAPT), which are also called self-settled trusts. With these trusts, you transfer estate assets into an irrevocable trust, naming yourself as the beneficiary. The trust assigns an independent trustee who has absolute discretion over how funds will be spent. Because you don’t control the funds in the trust, creditors cannot reach them.

The trust should contain a spendthrift provision, which essentially states you intend the trust to qualify for that designation. The clause restricts your ability to transfer to a third party the rights to payments of income or capital. Typically, a DAPT must:

      • Be irrevocable and spendthrift
      • Appoint at least one resident trustee
      • Conduct some administration activities in the state where it is established
      • Not include you as a trustee.

States that have DAPT statutes include:

  • Alaska
  • Colorado
  • Delaware
  • Hawaii
  • Missouri
  • New Hampshire
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • Wyoming

Nevada also allows DAPTs with restrictions as to when creditors can attempt to attach the funds in the trust. Most states do not allow you to set up a DAPT specifically to avoid payment to creditors. It is also unclear whether those states will recognize a DAPT created for that purpose.

Generally, trusts are controlled by the laws of the state named as the governing jurisdiction. Problems may arise if you live in one state and form the trust in another state or when real property in the trust is in a state that doesn’t allow DAPTs.

To take advantage of a DAPT, you don’t necessarily have to live in one of those states. But, as a general rule, to set up a trust in another state, you’ll need to locate some or all of the trust assets there and engage a bank or trust company in the state to administer the trust.

DAPT protection varies from state to state. For example, different jurisdictions have different statute-of-limitation periods, which determine how long you’ll have to wait until full asset protection kicks in. (During the limitations period, creditors may challenge transfers to the trust.) Also, most DAPT laws contain exceptions for certain types of creditors, such as divorcing spouses, child support creditors and pre-existing tort creditors.

Typically, DAPTs are incomplete gift trusts, which give you some flexibility to change beneficiaries or otherwise control the disposition of the assets. But it’s also possible to structure a DAPT as a completed gift trust, thereby removing the assets (and any future appreciation of those assets) from your taxable estate.

If a court refuses to recognize the protection of a DAPT in another state and enters a judgment for a creditor, the creditor may be able to enforce that judgment even if the trustee is located in the DAPT jurisdiction. However, there would still be a procedural hurdle to enforce the judgment in the DAPT state.

Offshore Trusts

Some foreign jurisdictions allow DAPTs, but their use is sometimes controversial because the person may be considered to have set up the trust merely to avoid creditor claims. These foreign jurisdictions make it difficult to collect on the trusts by passing statutes that:

      1. State that the jurisdiction doesn’t recognize foreign judgments regarding the trusts;
      2. Create a very short statute of limitation on fraudulent transfers;
      3. Require creditors to show that debtors are insolvent and to show beyond a reasonable doubt that the intent of the trust was to “hinder, delay or defraud;”
      4. Incorporate anti-duress provisions that bar the trustee from making a distribution when there is an alleged creditor claim; and
      5. Extend spendthrift protection to DAPTs.

Nevertheless, there have been some cases where the offshore trusts were subject to creditors’ claims.

The body of law governing the use of DAPTs is evolving and complex. Consult with your attorney if you want to use a trust to protect assets from future unknown creditor claims.

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group. 

Would a Revocable Trust Be Beneficial for You?

Estate Planning Advice
for Every Stage of Life.

Would a Revocable Trust Be Beneficial for You?

When developing an estate plan, a revocable trust can provide many benefits that, in most cases, significantly outweigh the cost of setting one up.

Here are three of the benefits of setting up a revocable trust.

Benefit #1: You gain more flexibility when you plan for your estate. The trust allows you the flexibility to add or remove assets during your lifetime. You can also make changes to income beneficiaries and remainder beneficiaries or cancel the trust altogether. Nevertheless, extreme care should be taken before creating, amending or canceling a trust to ensure it is handled properly. Discuss it with your attorney.

Benefit #2: A revocable trust avoids probate and limits the costs that your estate and heirs will generally have to pay.

Probate is the court proceeding in which the executor named in the last will and testament petitions the court to declare the document as valid and allows the executor to collect and distribute assets according to the terms set out in the will.

This process can be very time consuming. If an estate winds up in probate, many months or even years may pass before the assets are fully dispersed. In addition, the court can place restrictions on how the executor can distribute assets. For example, if the estate contains real property, such as a home, the executor may have to obtain court permission to sell it.

With a revocable trust, the trustee can more efficiently distribute the assets. Moreover, the cost savings can be significant because the trust avoids all the paperwork, court intervention, hearings and legal filings that make up the probate process. These savings typically offset the initial costs of setting up the trust.

In addition, because probate of a revocable trust is generally unnecessary, the trustee can keep the terms of the trust private rather than having it become a part of the public court record. In other words, there will be no public disclosure of the trust assets and what your heirs will receive. However, if you name the revocable trust in your will — known as a “pour over will” — the court many require a copy of the trust for the court file.

Benefit #3: The trust can be used as a beneficiary for certain assets that are distributed outside of a will. These are assets that do not require probate, such as retirement accounts, life insurance and certain brokerage accounts with a payment upon death beneficiary (along with joint accounts). With care and proper advice, an individual can name the trust the beneficiary for some of these assets. When the assets are distributed to the trust, the trustee then disperses them according to the terms of the trust. Note: There may be tax consequences at the time of the transfer of some assets.

Discuss with your attorney whether a revocable trust would be beneficial in your estate plan. Using one can streamline the estate process and make it less expensive to collect and distribute assets.

TRUST BASICS

A trust is an written arrangement under which one person, called a trustee, holds legal title to property for a beneficiary. You can be the trustee of your own living trust and keep total control over the assets in the trust.

Trusts generally fall within two categories:

1. Living trusts created during the lifetime of individuals. Living trusts, also know as “inter vivos trusts,” include:

       Revocable Trusts that you (the grantor or settlor) create and control during your lifetime. You can revoke or amend the trust as long as you live.

       Irrevocable Trusts, in which the grantor relinquishes the right to amend or cancel the trust at a later date.

2. Testamentary trusts created upon the death of an individual through an instrument such as a will.   

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
The information contained on this website is for informational and educational purposes only and is not legal, tax or financial advice. Always consult a qualified licensed attorney and/or appropriate professional to provide advice for your individual needs and circumstances. Use of this website does not create or constitute an attorney-client relationship. This website may include advertising material for Perkins & Zayed, P.C., The Estate and Trust Law Group.