Dividing Assets – And Tax Bills – in Divorce

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Dividing Assets – And Tax Bills – in Divorce

How assets are split up in a divorce depends largely on where the divorcing couple lives. The following nine states are community property states: California, Texas, Washington, Wisconsin, Arizona, Nevada, New Mexico, Louisiana, and Idaho. In these states, the general rule is that community property assets (i.e, assets accumulated by the couple during their marriage) are considered to be owned 50/50. Assets that were owned by one spouse before the marriage, or that were received by one spouse as a gift or bequest during the marriage, are generally considered to belong solely to that person.

All the other states except Mississippi are so-called equitable distribution states. In these states, the general rule is that the divorcing couple’s assets are divided according to “whatever is fair” in the opinion of the divorce court. As a practical matter, this often works out to be a 50/50 split. However, a 50/50 split is not mandated by law in these states. (In contrast, a 50/50 split generally is mandated by law in the nine community property states.) Of course, a divorcing couple can also agree out of court on their own version of “what is fair.”

In Mississippi, the general rule is that each spouse walks away with the assets that are titled in his or her own name.

Divorce Tax Basics

Now let’s talk about the federal tax aspects of divorce. The general rule is that the division of property, including cash, between divorcing spouses has no immediate federal income tax or federal gift tax consequences. Why? Because Section 1041(a) of the Internal Revenue Code generally mandates tax-free treatment for transfers between spouses of real estate, personal property, investments held in taxable accounts, business ownership interests, and similar assets both before the divorce and at the time the divorce becomes final. Such transfers are considered gifts between spouses. As such, no federal income tax or federal gift tax is due.

This same tax-free treatment also applies to post-divorce transfers between ex-spouses if they are made incident to divorce. Transfers incident to divorce mean those occurring within:

1. One year after the date the marriage ends, or
2. Six years after that date as long as the transfers are made pursuant to a divorce or separation agreement.

When a transfer falls under the tax-free transfer rule, the spouse (or ex-spouse) who receives the asset takes over the existing tax basis in the asset (so a carryover basis rule applies). The spouse who receives the asset also takes over the existing holding period for the asset (in other words, a carryover holding period rule applies).

Important: The tax-free transfer rule doesn’t automatically apply to tax-advantaged retirement accounts (you must jump through some hoops to get tax-free treatment). Also, the tax-free transfer rule is inapplicable to taxable investments to the extent of accrued ordinary income (more on that later). Finally, the tax-free transfer rule doesn’t apply when the spouse who receives the asset is a nonresident alien.

Although the tax-free transfer rule applies to most divorce-related asset transfers, the federal income tax implications are still extremely important. Why? Because the spouse who winds up owning appreciated assets (fair market value in excess of tax basis) under the tax-free transfer rule must recognize taxable income or gain when those appreciated assets are sold (unless some exception applies, such as the exclusion for gain on sale of a principal residence).

Key Point: When one spouse ends up with 50% of the couple’s assets in the form of cash while the other person ends up with 50% in the form of appreciated assets, guess who got the short end of the stick? The person who received the appreciated assets, that’s who. For this reason, divorce property settlements should be based on net-of-tax values (fair market value of assets reduced by any built-in tax liabilities). That way, the agreed-upon split (50/50 based on net-of-tax values, or 60/40 based on net-of-tax values, or whatever) won’t create any unexpected or unfair tax outcomes for either party.

Splitting Up Investments Held In Taxable Accounts

Under the tax-free transfer rule, divorcing spouses can usually make tax-free transfers of investments held in taxable accounts (or in a safe deposit box or under a mattress for that matter) while they are still married or when the divorce becomes final. The same is true for post-divorce transfers between the parties, provided they are made incident to divorce, as explained in more detail in the right-hand box.

Remember: After a tax-free transfer, the recipient spouse’s tax basis in the investment is the same as before and so is the holding period.

Example: Let’s say your divorce property settlement calls for your soon-to-be-ex-spouse to receive all of your long-held stock shares. Assume the tax-free transfer rule applies. Accordingly, there’s no immediate tax impact on either you or your spouse when the shares are transferred. Instead, your spouse just keeps on rolling under the same tax rules that would have applied had you continued to own the shares (i.e., carryover basis and carryover holding period).

The same results would apply if the stock shares were:

- - Held as community property.
  - Jointly owned by both you and your spouse.
  - Owned solely by your spouse. In any of these cases, when your spouse ultimately sells the stock shares, he or she (not you) will owe any resulting federal capital gains tax.

That’s the catch. When you are the one who winds up owning appreciated investment assets, you will ultimately owe the built-in tax liability that comes attached to those investments. The bigger the appreciation, the bigger the tax bill. So from a net-of-tax point of view, appreciated investments are worth less than an equal amount of cash or other assets that have not appreciated.

Key Point: You and your soon-to-be ex-spouse should use net-of-tax figures to arrive at an equitable property settlement. For instance, let’s assume the objective in this example is to divide everything 60/40 in favor of your spouse. In arriving at the 60/40 split, the value of any appreciated investments held in taxable accounts should be reduced by the applicable built-in tax liabilities.

Beware Of Investments With Accrued Ordinary Income

According to the IRS, the tax-free transfer rule generally applies only to what might be termed “capital-gain assets.”

In contrast, when you transfer investments with accrued ordinary income (for example, taxable bonds between interest payment dates, stock shares after the ex-dividend date but before the dividend payment date, U.S. Savings Bonds with accrued interest, and the like), you are taxed on the accrued ordinary income as of the date of the divorce-related transfer.

Conclusion: Like any other major transaction, a divorce can have tax implications so it’s important to consult with your tax advisor before making any related agreements.

After Divorce: Only Certain Transfers are Tax Free

Special care is required for post-divorce transfers of appreciated assets to an ex-spouse. Such transfers are tax-free only if they are considered incident to divorce.

Within one year after the divorce, transfers automatically pass this test. For a later transfer to be considered incident to divorce, it must be shown that the transfer is related to the cessation of the marriage. This generally means the transfer must:

1. Occur within six years of the divorce.
2. Be required under the divorce property settlement agreement (including any post- divorce amendments to said agreement).

If you plan to transfer appreciated assets to your ex-spouse more than one year after the divorce, the divorce papers should clearly identify such transactions as being part of the property settlement. Otherwise, you could be treated as making a taxable sale or a gift to your ex-spouse. This could result in a tax bill or it could diminish your $11.18 million federal gift tax exemption and your $11.18 million federal estate tax exemption for 2018 (both up from $5.49 million in 2017).

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.

When Divorced Empty Nesters Remarry

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When Divorced Empty Nesters Remarry

Later-life remarriages differ from earlier-life remarriages — especially when adult children factor into the equation. If you or your parents plan to tie the knot again, here are some roadblocks that might stand in the way of your family’s happily-ever-after.

Emotional Issues

Marriage is a life-altering commitment. You’re not just merging lives with your spouse — but also his or her entire family. Older folks tend to bring more “baggage” to relationships than younger people. Examples of potential stumbling blocks include ex-spouses, complicated estate plans, legal obligations, long-standing traditions that have to change, friends that don’t embrace a new relationship and, of course, grown children.

To illustrate the potential complexities, consider this hypothetical remarriage scenario, retold from three different perspectives:

“How dare that gold digger steal our dad — and his nest egg!” When Dad (Mike) invites his “lady friend” to meet the family, his adult daughters are naturally skeptical. Then, the couple announces they are getting married. The daughters worry that Dad’s new fiancée is a “gold digger” who will deplete his savings and leave the daughters to pay for his long-term care.

They are also concerned about his recent adventures, which include hiking, flying to Paris and relocating to Palm Springs. They wonder if Dad could be experiencing the early stages of dementia or being taken advantage of by his fiancée

“Who do those spoiled brats think they’re kidding?” The fiancée (Brenda) is a former physical rehab nurse who helped Mike recover from two strokes. Mike’s daughters live more than 2,000 miles away.

Brenda expected to receive the cold shoulder but for awhile, her fiancée’s adult children seem to warm up to her. So she is shocked when they suggest over Thanksgiving dinner that Mike sign a prenuptial agreement. All his daughters seem to care about is Mike’s money, not his happiness. After all, Brenda promised to love Mike in sickness and in health, taking the burden of Mike’s long-term care off the daughters’ shoulders.

“It’s my life — and my money!” Mike is ashamed of how his adult daughters reacted to the news of his engagement. They treated his fiancée like a money-grubbing outsider, even though she’s been living with — and taking care of — him for three years. Mike believes Brenda deserves a portion of his assets when he dies. She breathed new life into his tired routine, introducing him to new hobbies and interests.

At last, Mike found his soul mate, but his kids are questioning his judgment and spending habits. Mike worked hard all his life. He feels that if he wants to spend his retirement, or share it with Brenda, rather than leave it to the girls, it is his right.

These three reactions may be stereotypical, but they represent the full range of emotions people experience when they — or their parents — remarry later in life. Adult children may experience happiness, jealousy, abandonment, fear, disapproval, entitlement or relief. If a parent remarries after the death of a spouse, adult children also may experience feelings of disloyalty and guilt.

Working through these issues requires openness and an ongoing line of communication between family members. Too often, adult children fade into the background and spend less time when their parents remarry. When the parties acknowledge and discuss their fears rationally — and attempt to understand one another’s points-of-view — post-nuptial life can be easier and more rewarding.

However, the wedding toast or reception line may not be the opportune time to express your concerns. Proactive attention to these concerns before the spouses say, “I do,” can mitigate problems down the road, when the parent dies or if he or she becomes incapacitated.

Financial and Legal Concerns

Remarriages also have financial and legal implications. One of the top issues couples fight about is money. So, engaged couples can take these steps so they’re on the same page from the get-go:

Inventory personal finances. Write down a list of personal assets, liabilities, income and expenses that each spouse will bring to the marriage. Include an estimate of each asset’s fair market value. Unless you have a prenuptial agreement, many of these items will become joint property (or obligations) over time.

Also consider how a change in marital status affects existing or prospective financial arrangements. For example, a former spouse may no longer provide alimony or health insurance coverage once you remarry or cohabitate. Or your new spouse’s college-age children might be disqualified from receiving financial aid, because the financial aid forms require disclosure of the parents’ combined net worth after marriage. Remarriage also affects whether you are eligible to receive Social Security from a previous marriage.

Establish your priorities and guidelines. Look at the inventory listing and decide who gets what now (and later). Some later-life couples refrain from co-mingling balance sheets to pass their separate property to their biological children after death. They might also maintain separate bank and investment accounts and take turns paying monthly bills.

To minimize post-nuptial surprises, consider establishing short and long-term budgets that include anticipated timelines for major purchases, such as new vehicles, vacations and loans to family members. Consult with your attorney if you are interested in drafting a pre- or post-nuptial agreement to protect certain assets from a spouse’s lavish spending habits — or from opportunistic family members.

Revise (or create) an estate plan. Before a parent remarries, he or she might not feel compelled to create an estate plan, especially if the estate falls below the amounts affected by federal or state estate tax. But estate planning is imperative when blending families. In many states, surviving spouses may be entitled to a sizable share of the marital estate, unless the parties have signed an explicit waiver, even if others are listed beneficiaries in a will or other legal document.

Various types of trusts can be created to provide for the lifetime needs of the surviving spouse. When the survivor dies, the trust’s assets revert to the spouses’ respective adult children. But beware: Certain setups may limit the family’s right to sell property if the surviving spouse remarries — or require a spouse to rent the property and use the proceeds to pay for the surviving step-parent’s nursing home expenses, for example. An attorney can help avoid these pitfalls.

Revise beneficiaries and assign legal directives. Divorcees sometimes forget about beneficiary designations for their retirement accounts, investment accounts and life insurance policies — providing their ex-spouses with windfalls when they die. So check your beneficiary designations and check with your divorce attorney about any related provisions in your divorce decree.

Also, decide who you want to name as durable power of attorney and healthcare proxy, as well as the executor of your will. These can be tough decisions, especially if you’re opting to take rights away from an adult child and give them to your new spouse. But the rights to make healthcare decisions and to be informed about the partner’s health conditions are major reasons older people choose to tie the knot, rather than simply live together. Also discuss your preferences about life support, resuscitation and hospice to minimize strife among family members if you should become incapacitated.

Consider long-term care insurance. Sure, long-term care insurance products can be expensive. But it can allow older married couples to receive the care they need without impoverishing the healthier spouse.

Before walking down the aisle, many soon-to-be-blended families visit their financial and legal advisers to ensure all the bases are covered. Objective outsiders also keep everyone focused on financial and legal matters, rather than emotional ones.

Increasingly, adult children participate in these discussions to protect their parent’s financial interests and to help splintered families bridge their differences. Blended families can be a blessing in disguise — if the parties work together to resolve their emotional, financial and legal concerns.

If All Else Fails … Some Adult Children Go Further

Without an explicit waiver, a remarried person’s health care, financial and legal decisions typically default to their spouse, if he or she becomes incapacitated. Adult children may feel out-of-the-loop or disagree with the decisions their parents make. In some cases, the adult children turn to guardianships. If successful, adult children can regain control over a parent’s healthcare, financial and legal matters with a guardianship. But process can be costly and time-consuming — and spouses often prevail over adult children, especially if power of attorney has been assigned to the step-parent.

The requirements for applying for guardianship vary from state to state. But generally, a family member petitions the court for authority over some or all of the personal or financial affairs of an incapacitated person. This can be humiliating because the family must prove that the individual cannot handle his or her own affairs anymore. If an adult child is trying to take control away from a spouse, he or she also needs to prove that the step-parent is abusing the incapacitated person physically, mentally and/or financially — or abusing his or her power of attorney authority. Or the adult child might allege that the step-parent has also become incapacitated.

Proving these allegations requires evidence gleaned from intimate details of the couple’s personal life. The process generally involves an evaluation from one or more physicians or other medical professionals, as well as sworn statements from witnesses and other written documentation. Also, a hearing is necessary. The parent and step-parent must receive notice and have the right to appear and challenge the petition. A parent may be angry that adult children are usurping a step-parent’s authority or may be resentful about the loss of independence.

If an adult child successfully proves these allegations, the court will appoint the individual as guardian. A guardian can either handle an individual’s healthcare or finances (or both). Consult with an attorney for more information on guardianships.

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 Planning After a Divorce

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Estate Planning After a Divorce

During a divorce proceeding, a couple or the court decides how to divide their assets and pay off their debts. The parties or the court also determines custody and child support issues if there are children. When the divorce is finalized, an individual acting prudently should review his or her estate plan to update documents to reflect a new life situation.

Estate planning documents that generally need review after a divorce are:

- - Last will and testament;
  - Living trusts;
  - Power of attorney;
  - Health care proxy (sometimes called a health care power of attorney);
  - Life insurance policies; and
  - Retirement accounts

When you review your will, you need to revise it to change beneficiaries (such as your ex-spouse, if you so desire) as well as review specific bequests of property that you may no longer own due to your divorce. You will have to review who is the designated executor of your will and determine whether to change the designation (the executor could be your ex-spouse and you may not want that).

You need to review any designated trustee for testamentary trust that you previously stated in your will. Also, you may want to change how you distribute assets to your children, if any.

For example, you may believe that your ex-spouse would not properly manage monies you would leave to your children. In that case, as part of your will, you may want to set up a trust which the money will go into, and designate a trustee to manage that money. Perhaps the trustee could be a sibling of yours.

More Points to Consider

Who have you designated as guardian for your children? Generally, if someone who had minor children dies, the other spouse would be the first in line to be the legal guardian, if not already awarded custody of the children. In any event, it would be good to name a guardian for the children in the scenario where your ex-spouse is incapable, unwilling or unable to care for the children. The court would not automatically designate a guardian based on the wishes stated in your will, but will look to your designation as an indication of your intent.

The same is true when you review your “living” trusts. These are trusts wherein you currently have control. Possibly, you had a trust with your ex-spouse. If revocable, in the divorce proceeding, you and your ex-spouse would have revoked a joint trust. If you have a trust in your name or have to create a new one, you may have to change the trustee’s name and revise the assets in the trust due to your divorce.

If you previously had a power of attorney (which designates who handles your finances in the event you become incapacitated or need help in the future), you most likely will have to change the designated attorney in fact. You would also have to change the name of your spouse if you named her or him as your designation to make health care decisions for you in a health care proxy.

Further, you need to review your insurance policies, pension plans, and retirement accounts to make sure that the designated beneficiaries meet the requirements of the divorce settlement or judgment, and meet your current desires.

Consult with your your attorney if you have questions about these issues and you are contemplating, in the middle of, or have completed a divorce.

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.

Here’s Why You Should Keep Track of Your Subscription-Based Services

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Here’s Why You Should Keep Track of Your Subscription-Based Services

It’s easy to overlook the need to keep track of monthly services or subscriptions. Especially when you’re not consciously making payments since automatic billing is doing that for you.

When payments are out of sight, they’re often out of mind.

Unfortunately, this could pose a problem for those handling your estate if something should happen to you. Those services will auto-renew if no action is taken. The result? Money is unnecessarily depleted from your estate for a period of time.

Many of these subscription accounts are often tied to a credit card. Cancel the credit card, cancel the service. But if these services are tied to another account, it’s helpful to maintain an updated record of your current subscription-based services and even online payment services such as Paypal. This way nothing gets overlooked and little money is lost for something not being used.

Plus, keeping up-to-date records will benefit you now since it forces you to consider which products or services you really want or need based on the amount of money you’re spending. Call it a subscription audit. It’s easy to pile up on new subscriptions when a convenient payment plan helps you disregard the fact that those small amounts are collectively draining your bank account.

For online services, it’s helpful to go through your subscriptions and set up an “opt-in” agreement whenever possible so that a renewal cannot take place unless you specifically approve it. If there are any contracts or term language associated with your accounts, include copies of those as well.

Following is a list of online and offline subscriptions to consider:

Subscription-Based Services and Products

Wireless plans: cell phone, wi-fi

Movie/TV services: cable, satellite, Netflix, Hulu, Xbox, Playstation

Gaming services: Xbox, Playstation

Subscription delivery services: health / food / beauty / household products (ie. Fitbit, Ipsy, Birchbox, Dollar Shave, etc.)

Cloud Storage

Online accounts: Amazon Prime, digital app subscriptions, magazine/newspaper

Club memberships: health club, warehouse club (Sam’s or Costco)

Security services: home protection, identity protection, malware security

Other: mail order medications, IPass / highway transponder

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 Set Up a Special Needs Trust

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How to Set Up a Special Needs Trust

Medical advances, an aging population, a changing political scene and the increase of conditions such as autism are combining to produce a growing need for a particular type of estate planning tool — the special needs trust.

Many people depend on government benefits, such as Social Security, Medicaid, rehabilitative care and transportation assistance, which are available for children and adults with special needs. However, these benefits can be slashed if an individual’s assets exceed a certain level. This can be an amount that is so low that the disabled person cannot live a comfortable existence without additional assistance. If loved ones give the individual too much money, or provide assistance in a way that breaks the rules, the person could lose benefits. This is a trap many families fall into because they view financial planning as too time-consuming and taxing — considering they’re already stressed taking care of loved ones with special needs. For example, an aging couple whose adult son has severe autism might want a special needs trust because they are worried about how the child will survive after the parents’ deaths. Or a group of siblings may want to set up a special needs trust for their young sister, who is a teenager, but expected to need supervision for the rest of her life.

A special needs trust allows parents (and others who care about someone with a disability) to comply with government regulations, yet invest and save money to meet a disabled individual’s financial needs.

In most cases, a special needs trust is a “stand alone” document, but it can be part of a Will. Assets in a special needs trust aren’t considered countable assets for purposes of qualification for certain governmental benefits based on need. (Disqualification from government benefits could occur if an individual’s assets hit just $2,000 and their annual income reaches $10,000.) Parents and others can also bequeath assets to the trust, rather than directly to the individual.

Funds in a special needs trust provide for supplemental care beyond what the government provides, including expenses such as utilities, medical care, special equipment, education, job training and entertainment. A special needs trust does not belong to the person with a disability, but is established and administered by someone else. The person with the disability is simply nominated as a beneficiary and is usually the only one who receives the benefits. The trustee is given discretion to determine when and how much the person should receive.

Many factors must be taken into consideration including assets and debts; estimated spending; life expectancies of the parents and children; and costs of care. In estimating the necessary size of a trust, one popular method is to estimate an individual’s yearly budget and divide by the Consumer Price Index. Planners then determine additional funds that are needed by taking into account the current medical diagnosis and other factors.

The trust must be carefully worded and show clearly that it:

- - Is established by the family (persons other than the individual with the disability).
  - Is managed by a trustee (and successor trustees other than the person with the disability).
  - Gives the trustee the absolute discretion to provide the assistance required.
  - Never gives the person with the disability more income or resources than permitted by the government.

The trust wording should also define what is meant by “special needs.” It should spell terms related to the unique needs of the disabled person; provide instructions for the individual’s final arrangements; determine who should receive the remainder of the trust after the person dies; provide choices for successor trustees; and protect the trust against creditors or government agencies.

Overall responsibilities of trusteeship include:

- - Understanding the beneficiary’s situation and needs, doing inventory of trust assets, maintaining records for income and principal transactions, and preparing periodic accounting.
  - Filing federal and state fiduciary income tax returns, obtaining IRS tax registration for the trust, and establishing accounts for the management of trust assets.
  - Monitoring disbursements, hiring and regularly monitoring agents and service providers, communicating with the beneficiary and service providers, and assisting in emergency situations to preserve the beneficiary’s lifestyle.

Other Issues to Consider:

When planning, take into account the parents’ ages. For example, parents in their thirties with an special-needs newborn, may turn to a special needs trust, while older parents and guardians may instead use life insurance, such as second-to-die policies.

A letter of intent should be prepared detailing the special needs of the individual including the past and present situation, relevant information about hospitalizations, medical history and medication. Include all pertinent information needed to enable future care to be effective.

Parents should pick a back-up guardian in their Wills. Other positions to fill may include limited guardianship and powers of attorney.

Consider making two family members joint trustees — rather than naming one sibling. Have trustees meet periodically to alter plans as available assets, benefits, and other needs change. Professional trustees, such as accountants, attorneys or investment advisors, may be the best answer.

Consult with your estate planning attorney about a special needs trust. Knowledgeable advisors are vital in making sure a trust complies with all regulations. Your attorney can also facilitate communication among family members in emotionally-charged situations.

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 You Should Know About Special Needs Trusts

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What You Should Know About Special Needs Trusts

Bequeathing assets to a loved one with special needs is a benevolent gesture, but in some cases, it can cause problems that were never intended.

An inheritance can disqualify the disabled person from government needs-based aid programs including:

Supplemental Security Income (SSI), a Social Security Administration program that pays extra cash to people with limited assets and income.

Medicaid, which provides far-ranging medical assistance including doctors’ visits, home health care services and nursing homes.

Some assistance plans for the disabled require enrollment in SSI, Medicaid or similar programs. Losing those benefits can mean the loss of other essential help.

But there’s a solution to the dilemma: Create a “special needs” or “supplemental needs” trust. This can protect the benefits and provide other amenities for a child or adult with a disability who receives an inheritance or proceeds from a personal injury settlement or suit.

A special needs trust can supplement government benefits by providing, among other needs, amenities such as:

– Entertainment;

– Electronic equipment;

– Trips and vacations;

– Computer equipment;

– Athletic training;

– Companion services;

– Home health aides; and

– Transportation, including the purchase of a vehicle

The trust can hold cash, stocks, investments, and personal and real property. It can own life insurance and be used to hold money from personal injury settlements or judgments.

One way to establish a special needs trust is to set up a charitable remainder unitrust (CRUT), which can provide a lifetime income to the beneficiary, and eventually distribute the remaining assets to a charity or charities chosen by the trust creator.

A CRUT also offers upfront income tax deductions, estate tax advantages, and deferral of capital gains if appreciated assets are contributed.

IRS Revenue Ruling 2002-20 allows a special needs trust to be the beneficiary of a CRUT if it meets four criteria:

1. 1. The trust is solely devoted to caring for a beneficiary with special needs.
  2. The beneficiary has a physical or mental impairment a doctor can describe.
  3. The condition is expected to last for at least a year.
  4. No one else manages the individual’s financial affairs.

Typically, the CRUT makes payouts to the special needs trust at a fixed percentage of the assets, with a 5 percent annual minimum. The trustee then makes distributions for the benefit of the beneficiary with special needs.

Done with care, these distributions can provide a desirable lifestyle without jeopardizing government benefits.

Caution: Trusts are governed by state laws and should be drafted by an attorney who specializes in this area. In addition to professional fees, there may be costs associated with transferring assets to the trust and administering the trust.

How it Can Work

Suppose you have a permanently disabled 10-year-old child who is receiving SSI and Medicaid benefits because the family has limited assets and income and cannot afford the child’s monthly medications and therapy.

A relative wants to leave the child a $150,000 inheritance. Without planning, the child’s government benefits will be stopped and the inheritance must be used to pay the medical expenses for the next five years. After that time, the benefits will resume, but the inheritance will be gone. A special needs trust could preserve the inheritance for the child’s benefit.

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.

Dividing Assets – And Tax Bills – in Divorce

After Divorce: Only Certain Transfers are Tax Free

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When Divorced Empty Nesters Remarry

If All Else Fails … Some Adult Children Go Further

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Estate Planning After a Divorce

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Here’s Why You Should Keep Track of Your Subscription-Based Services

Following is a list of online and offline subscriptions to consider:

Subscription-Based Services and Products

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How to Set Up a Special Needs Trust

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What You Should Know About Special Needs Trusts

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