More Information About Special Needs Trusts

March 31, 2011

In our last blog, we discussed how a special needs trust may be a necessary part of your estate plan if you want to provide for an individual with a disability. A special needs trust, sometimes called a supplemental needs trust is one that must contain specific language and must be tailored to fit the needs of the special needs beneficiary. Since the special needs trust is designed to manage inheritances and other resources of a disabled person while maintaining the individual’s eligibility for public assistance, it should be drafted by an estate planning attorney familiar with special needs trusts.

A third party special needs trust is the type of trust set up by parents, grandparents, or other individuals for the benefit of the disabled beneficiary. The beneficiary must be under the age of 65 and disabled. The persons setting up the trust are the grantors of the trust. The trust is funded with resources other than those of the beneficiary such as a cash inheritance after the death of the grantors or insurance proceeds. The person who will manage the third party special needs trust is the trustee, but cannot be the beneficiary.

The trust gives the trustee or the successor trustee the absolute discretion to make distributions for “special needs” the beneficiary may have such as supplemental medical care, transportaton, education, computers, and other items which may enhance the quality of life of the disabled person. The trust is to supplement, not replace what the public assistance covers. The trustees may be the parents, grandparents, or siblings of the special needs beneficiary or a private professional fiduciary with experience in special needs trust administration.

Special needs trust can also authorize expenditures for final burial or cremation. Upon the death of the special needs beneficiary, the balance of the assets in the trust will pass to whoever the grantor(s) determined should be the beneficiaries. These could be the grantors, siblings of the beneficiary, children of the beneficiary, or even charities.

The estate planning attorneys at Scott C. Soady, A Professional Corporation can assist you with setting up the appropriate special needs trust. To discuss your particular situation and learn more about third party special needs trust, contact us for a complimentary consultation.


April 2 is National Autism Day

March 27, 2011

Coming up next week is National Autism Day which was established to raise awareness about autism. Wear blue to show your support.

The incidence of autism is on the rise with approximately 1 in 110 children in the United States being diagnosed with the disease, according to the Center for Disease Control and Prevention. Autism is a developmental disorder which affects social and communication skills and sometimes motor and language skills.

From an estate planning perspective, here are come things to consider if you have a child with autism. Many people with autism receive government benefits. Failure to have a will or trust that incorporates a special needs trust or a stand alone special needs trust can jeopardize your child’s ability to receive government benefits when you die.

1. A Special Needs Trust. A special needs trust is one that is designed to manage inheritances and other resources while maintaining the child’s eligibility for such public assistance benefits as Medi-Cal and SSI. The trust is usually created by the parent, grandparent, or other person to benefit the beneficiary. If drafted properly, the SNT provides for benefits to the beneficiay without affecting their eligibility. The Trust holds title to the trust property rather than the child so the assets do not belong to the SNT beneficiary and the beneficiary can never be the trustee with any control over the assets. The Trust can provide for such needs as transporation, education, rehabilitation, medical appliances, computer equipment, and a higher degree of medical or dental care than what the beneficiary is getting through public benefits.

2. Be aware of cash bequests to special needs children. If grandparents or other family members want to help while they are still living, they cannot give the child a cash bequest because it might disqualify the child from receiving governmental assistance benefits. Custodian accounts set up in the child’s name can affect their eligibility for public assistance as can 529 Plans for their education. Making a special needs child the beneficiary of a life insurance policy can also affect the child’s eligibility. Therefore parents of special needs children need to alert family members who may be thinking of making gifts or making the child the beneficiary of their trust, IRA, or life insurance policy.

3. A Limited Conservatorship. A limited conservatorship is similar to a regular conservatorship but it is limited to reflect the needs of an individual who has developmental disabilities. California law provides that a limited conservator may be appointed for those individuals with developmental disabilities that prevent them from performing some tasks necessary for their personal needs or management of their finances. Autism is a condition that may make a limited conservatorship appropriate.

Watch for our next blog with more specific information about special needs trusts.

New Tax Relief Act Benefits Charities

March 23, 2011

The new tax relief act signed by President Obama in December (Tax Relief, Umemployment Insurance Reauthorization, and Job Creation Act of 2010) restores a provision that expired in 2009 which allows donors who are at least 70 ½ years old to make a tax free gift to charities from their IRAs. Before this provision was restored, money transferred from a traditional IRA to a charity would be included in the donor’s taxable income for the year. Here is how it works:

1. You must be at least 70 1/2 years old.
2. Your gifts must be made outright from a traditional IRA or a Roth IRA.
3. The amount rolled over from your IRA will be excluded from your gross income.
4. You may distribute any amount up to $100,000 per year per donor. Therefore a husband and wife could each make donations of up to $100,000, so that a couple together could donate a maximum of $200,000.
5. The transfer must go to qualified charities.
6. Your IRA rollover will count toward your minimum distribution requirement.
7. There is no federal income tax deduction for the IRA rollover gift.

One of the advantages is that donors who want to benefit a charity can do this without having to liquidate an asset and without having to recognize the income. The new tax-free rollover option may be especially appealing to:
1. Donors who do not itemize their deductions.
2. Donors required to take minimum withdrawls from their IRAs but don't need the income.
3. Donors already giving their %0% deduction limit.
4. Donors for whom additional income will cause more of their Social Security to be taxed.

There are many ways to become involved in charitable giving. The estate planning lawyers at Scott C. Soady, A Professional Corporation can explain the various types of charitable trusts that you may want to consider. You can also give gifts to charities as part of your own revocable living trust.

A GRAT Can Help Children Pass Money to Their Parents

March 19, 2011

In estate planning, we are usually talking about how an individual can create an estate plan that will pass on their assets to their beneficiaries, usually their children. With seniors living longer, many parents may need help from their children to pay for medical bills, caregivers, mortgage payments, etc. There are ways for a financially secure adult child to give financial aid to a parent free of gift taxes.

A GRAT, or grantor retained annuity trust, allows children to pass investment gains to their parents or grandparents without using their $ 5 million lifetime gift tax exemption. Under current law a child can set up a GRAT with a 2 year term. The trust pays the interest back to the child as if it were an annuity, based on an interest rate set by the IRS. The trust is usually set up with stock or other investment. Any appreciation in the underlying investment above the IRS interest rate passes to the GRAT beneficiary without being considered a gift. If the investment does not do well and returns less than the interest rate set by the IRS for GRATs, the beneficiaries get nothing.

President Obama is recommending imposing a 10 year minimum term on GRATs which would make them less attractive. If that happens, children, even without a GRAT, can still benefit their parents or grandparents in other ways, such as giving them a gift of cash. For example, in 2011, a gift up to $13,000 to any one individual is not taxed and will not dip into an individual’s lifetime gift exemption. Children can also pay their parents’ medical expenses if they pay the health care providers directly.

For more information on GRATs and other types of estate planning, contact us at Law Office of Scott C. Soady, A Professional Corporation for a complimentary consultation.

Tips for the Tax Season

March 15, 2011

Tax time can be a stressful and frustrating time, gathering all the information, doing your taxes yourself or making an appointment with your tax preparer. MSN Money recently had a great article about the tax breaks and credits for the 2010 tax year that can save you money. Here are some highlights:

1. Check on the first time homebuyer’s credit. If you bought a home in 2010 as a first-time home buyer, you may be entitled to $8,000 tax credit. Also, people who lived in their home for 5 years and sold in 2010 may qualify for a credit of $6,500.

2. If you are single, the standard deduction went up for last year to $5,700.

3. Free Parking. If your company paid for parking or transit costs, you don’t have to pay taxes on those costs if the amount was less than $230 per month.

4. College Tuition Tax Credit. We used to have the Hope Credit. Now that has been replaced by the American Opportunity Tax Credit which allows you to get a credit of up to $2,500 per student, depending on your income, for tuition and books. Also you can deduct up to $4,000 for college tuition.

5. If you have 3 or more children, check out the Earned Income Tax Credit which has gone up for 2010 returns to $628.50.

6. Higher annual gift tax exemption. In 2010, you could give anyone up to $13,000 without any gift tax.

7. Credit for money-savings home improvements. If you made energy savings improvement, such as insulation, new heating or air conditioning, or doors and windows, you can get a credit of $30% of the price, up to $15,000.

8. Teachers Deduction. If you are a teacher you can deduct up to $250 for non-reimbursed expenses you incurred for books, supplies, computers or software, or other supplies used in the classroom.

9. IRAs. As a single person if your modified adjusted income is less than $66,000 or $109,000 as a married couple, you can deduct money you contributed to an IRA. Also if you converted a traditional IRA into a Roth IRA, you have to pay the taxes to do the conversion but you can spread it out over 2 years.

Where Do You Open a Probate Estate or Administer a Trust?

March 11, 2011

A family member has died and you have to open a probate estate (if he died with a will or with no estate plan) or administer the decedent’s trust (if he had created a revocable living trust). In what county do you open the estate?

The county where an estate is handled is the county where the decedent was domiciled. Domicile is the permanent residence of an individual. In most cases, it is clear where the decedent was domiciled but in a few instances it may not be so clear.

If a decedent died in a hospital while on vacation, from accident, surgery, or illness, his domicile is still where he lived permanently, so if that is San Diego county, then the San Diego Probate Court would be where the will is admitted to probate or San Diego would be where the trust is administered. On the other hand, what if the decedent decided to move to another county to live with relatives or to live in an assisted living facility? Then domicile has to be determined by looking at such factors as where the decedent owned property; where was the residence of the decedent; where did the decedent receive mail, where was the decedent registered to vote; in what state was the decedent’s driver’s license issued. These factors may lead a court to conclude that the intent of the decedent was to change his domicile to another county.

Another situation in which domicile can be an issue is when the decedent was in the military. People in the military may be stationed or deployed at one location and maintain a residence elsewhere. The general rule is that the county of domicile is where the decedent resided, whether at the time of enlistment or where his family lives and owns the family home at the time he died.

For questions about where to file for probate or administer a living trust, call the estate planning lawyers at Scott C. Soady, A Professional Corporation for a free consultation.

What are Your Duties as the Conservator of an Estate?

March 7, 2011

In the last blog, we discussed the duties of a conservator of the person. As the conservator of the estate of an individual, you also have duties and responsibilities.

Basically the conservator of an estate acts similar to a trustee. The conservatee's "estate" is all the money and property owned by the conservatee. The conservator must inventory all of the assets of the estate and have them appraised. The conservator must file an Inventory and Appraisal describing the property and its value. The conservator must determine what income the conservatee is receiving each month. If the conservatee has some investments, the conservator will have to evaluate each investment and determine if it is a wise investment or whether some other investment would be more advantageous for the conservator. Although you have the obligation to manage the assets, you cannot make risky investments. You also must keep the estate's money and property separate from yours or anyone else's.

The conservator also has to make a decision as to where the conservatee will live. It should be the least restrictive place and should be appropriate, safe, and comfortable. If the conservatee is in a residential care facility, you may have the duty of taking care of the conservatee’s home, and renting it if the conservatee is moved to another place. You also pay all the bills for housing, food, clothes, transportation, and medical care. The conservator of the estate is also the person responsible for filing taxes.

When you have been appointed by the Court to be a conservator of the estate, the Probate Court requires that you keep track of all the income the conservatee is receiving and all of the expenditures made on behalf of the estate. A checking account should be set up in the name of the conservatorship. Detailed records have to be kept, documenting each expense with receipts, and filing an accounting with the court after you have been acting for a year. Thereafter you have to file an accounting every 2 years. You will also have to file a final accounting once the conservatee has passed away or the conservatorship otherwise terminated. If the conservatee dies, you the have the duty of distributing the assets of the estate.

Scott C. Soady, A Professional Corporation can help you petition the court to be a conservator of the person or the estate and help you through the process which often can last years. Contact us with any questions about conservatorships or to schedule a complimentary appointment.

What are Your Duties as the Conservator of the Person?

March 3, 2011

If you have been nominated and approved by the court as the conservator of the person of another individual, you have certain duties and responsibilities.

As the conservator of the person, it will be your responsibility to see to the personal needs of the conservatee. One of these needs is the living arrangements for the conservatee. This may be the conservatee’s own home with caregivers, an assisted living facility, or a locked facility that specializes in patients who have Alzheimers or other memory issues. The conservatee has been adjudged to be incapable of taking care of himself, so it is your duty to select an environment that is safe, physically and emotionally. You also are responsible for seeing that the conservatee has clothing, food, and medical care. This may mean purchasing clothes and hygiene items for the conservatee, grocery shopping if the conservatee is living in his or her own home, and seeing that the conservatee gets to doctors’s appointments. It also can involve transporting the conservatee and seeing that the conservatee has recreational activities. If there is a separate conservator of the estate of the individual, you have to work with the conservator of the estate since that person will be approving the expenses and paying the bills.

You also have ethical obligations to the conservatee. You will have to respect the wishes of the conservatee and realize that even a conservatee has the right to make or change a will, get married, and have a lawyer. If possible, you should consult with the conservatee about decisions you are making and make efforts to promote independence. Medical treatment should be in keeping with the conservatee’s wishes if he or she is able to communicate their preferences. The court will also require that you periodically file a Level of Health Care Plan outlining where the conservatee is living, how the person's needs are being met, and whether the environment in which the conservatee is living is the least restrictive in view of the circumstances.

A great resource for any conservator is the Conservator’s Handbook which you can purchase from the San Diego Probate Court. It is also available online. Every situation that could arise while acting as a conservator is addressed in detail.

If you are contemplating petitioning the court to be someone’s conservator, the estate planning lawyers at Scott C. Soady, A Professional Corporation can assist you and answer any specific questions you may have pertinent to your situation.