Estate Planning Blog

Have You had the Estate Planning Talk with Your Adult Children?

It’s easier to move a difficult matter forward when you have a plan, which is true when talking about estate planning with your family. Getting into the conversation can sometimes feel awkward. However, it’s best for all concerned to have open and honest discussions, according to a recent article, “How to Discuss Estate Planning with Your Family,” from Kiplinger.

If you have an estate plan, including a last will and testament, advanced care directive, living will, HIPAA release forms and other estate planning documents, make sure your family knows what documents you have prepared and where they are. Show them where your legal and financial records are kept, whether on your computer or filing cabinet.

Consider a kind of estate planning “boot camp” with the appropriate family members. They may not understand what a will does, how a trust works, etc. The more information they have about financial and legal matters, the better decisions they can make.

Connect family members with your advisors, including your estate planning attorney, financial advisor and CPA, so that they can work together after your passing.

How well do you expect family members to respond to this conversation? You know your family best, so be prepared—the daughter is prone to tears, and the son makes sarcastic comments—they will not suddenly become different people when the topic is estate planning.

The loss of a parent is a highly emotional time, and grief doesn’t always bring out the best in people. If you left a large inheritance and your children weren’t expecting it, will they know what to do? Or, if they expected a large inheritance and you decided to donate most of your wealth to charity, would they become embroiled in a legal battle with an organization that meant a lot to you? Having these difficult discussions in advance is better than leaving a legacy of surprise for loved ones.

If your children will be receiving different kinds of inheritance from you based on their individual circumstances, it is a great kindness to talk with them in advance about your reasoning. They may understand, or they may not. However, you may be able to prevent resentment and possibly litigation if they have an opportunity to learn about it from you directly while you are still living and when they can still ask questions.

Another topic requiring discussion is who you name to serve as executor. It may not be the oldest sibling, but it shouldn’t be the one who isn’t able to manage money or responsibilities. In some cases, a professional or family friend is better suited to serve as executor. Talk with your children about this decision to prevent any resentment between them.

These are not easy conversations, and they should be presented as ongoing discussions, so siblings or other family members feel they are included and respected. Your legacy and your family deserve as much.

Reference: Kiplinger (March 23, 2024) “How to Discuss Estate Planning with Your Family”

Why Appointing a Guardian for a Minor Child Goes Beyond the Will

Few things are as significant as ensuring your minor child is cared for by someone who loves them in the event of your passing. As you consider who to appoint as a guardian in your will, consider fostering the relationship between your child and chosen guardians now. This article explains how you can ensure your children will be in the right hands, no matter what the future holds.

Who Does Your Child Call Family?

Imagine a scenario in which your child needs to live with someone else. Would they move in with “strangers” or family they know and love? One mother in Ohio ensured that her daughter, Kathryn, would know her designated guardians – an aunt and uncle in Colorado – as family. They intentionally scheduled a series of visits to Colorado so Kathryn could get to know her aunt and uncle. The goal is that by spending time together now, Kathryn will recognize them as part of her circle of love and trust, not just names in a legal document.

What Is a Legal Guardian and How Do You Appoint One for a Minor Child?

A guardian, explains NerdWallet’s article, “Guardianship: What a Legal Guardian Is, How It Works”, makes decisions for a person who cannot act independently, such as a minor child. This role includes overseeing personal care, making medical decisions, and managing the child’s assets until they reach adulthood.

The most straightforward method is to appoint a legal guardian for your minor children and name them in your will. This method legally empowers the guardian you’ve chosen to care for your children if you pass away or become incapacitated before they turn 18. An article from Forbes, “10 Tips For Choosing A Guardian For Your Minor Child,” shares good suggestions for choosing a guardian.

Can You Change Your Mind about a Guardian?

Absolutely. Life changes, and so can your choice of guardian. Initially, you might think someone is a perfect fit, but you might need to reconsider as situations evolve. It’s crucial to remember that your decision isn’t set in stone. Regularly reviewing your choice and considering your child’s relationship with the appointed individuals ensures that your guardian appointment aligns with your family’s evolving needs.

Why Might Grandparents Not Be the Ideal Choice?

Many of us instinctively think of our parents as the go-to guardians for our children. They’ve raised us, so they may seem like ideal candidates, but it’s important to consider their age and health. As they grow older, the responsibilities of raising a child, especially through the teenage years, might be too much. This doesn’t mean they can’t play a significant role in your child’s life; it just means the primary guardianship role might be better suited to someone else.

Is Compromise Necessary?

Sometimes, choosing a guardian can create tension between spouses, each preferring their family members. Compromise is key. Perhaps one family can assume primary guardianship duties while the other handles financial matters. It’s about finding balance and ensuring your child’s well-being.

What about Close Family Friends?

Don’t overlook the potential of close family friends, especially those who share a similar lifestyle or whose children are friends with yours. Such a choice could offer your child stability and continuity in their social and educational life.

How Do You Choose the Right Guardian?

Consider who you’d call in an emergency, who knows your child’s bedtime stories, and who they’re comfortable with. That person might be the ideal guardian. Remember, the perfect guardian is someone your child knows and trusts.

Why You Shouldn’t Leave a Guardianship Decision to the Courts

Leaving such a critical decision in the hands of the court means strangers will determine your child’s future. It’s a situation you want to avoid. By making a choice now, you retain control over your child’s care and future happiness.

Should Your Child have a Say?

If your child is old enough, their opinion matters. They might provide insights that hadn’t occurred to you, ensuring their future guardian is someone with whom they feel safe and loved. Taking the time to develop a relationship between your child and the selected guardian will ensure they are comfortable with each other.

Key Guardian Takeaways

• Foster Relationships Now: Connect your children and potential guardians.
• Consider Age and Health: Consider a grandparent’s ability to care for children into the future.
• Compromise With Family Members: Find a middle ground that ensures the child’s best interests.
• Look Beyond Family: Consider naming a close family friend who shares your values and lifestyle.
• Avoid Court Decisions: Make a clear choice in your will.
• Involve Your Children: Ask an older child. Their preference can help you decide on their guardian.

Conclusion

While many parents understand the importance of appointing a guardian, they may overlook the crucial aspect of fostering relationships between the child and their potential guardians. By taking steps now to foster these relationships, parents can ensure that, in the event of the unthinkable, their child will be left in the hands of people they know and consider family. Contact an estate planning attorney for help appointing a guardian for your minor child.

References: Forbes (Jan 29, 2020) “10 Tips For Choosing A Guardian For Your Minor Child” and NerdWallet (Jan 26, 2024) “Guardianship: What a Legal Guardian Is, How It Works”

Who Can Benefit from a Special Needs Plan: Crafting a Comprehensive Plan for the Future

Whether you’re a parent with a special needs child or an adult caring for an elderly or special needs loved one, understanding the benefits of a comprehensive Special Needs Plan is crucial. Careful planning ensures that the individual with special needs has clear financial security upon your death, as well as specific goals to address the needs of your child or loved one so that they can be successful in the future. From guardianship and living arrangements to managing finances and planning for adulthood, each element of a special needs plan plays a crucial role in ensuring a secure and fulfilling future for your loved one with special needs. Working closely with an attorney experienced in special needs ensures that you will tailor a plan that meets the unique needs of your disabled loved one without jeopardizing their public benefits.

Protecting the Future of a Loved One with Disabilities

Creating a comprehensive Special Needs Plan is more than just legal preparation; it’s about understanding and preparing for the various aspects of your loved one’s life. Before planning for a disabled child, it’s essential to consider both their medical and supplemental needs, explains Special Needs Answers’ article: “What To Know Before Beginning Special Needs Planning.” Leaving money directly to a child receiving means-tested government benefits, like Social Security Supplemental Income (SSI) or Medicaid, could make them ineligible for these programs.

In most states, beneficiaries of either program are only allowed to have a few thousand dollars in assets, with the specific amount varying by state. However, the financial support from government programs only goes so far. Many families opt to have their own family members with special needs live at home, since the benefit amount is rarely enough.

What Is a Special Needs Trust?

At its core, a Special Needs Trust (SNT) is a vessel of hope and security. This trust is not just a legal document; it’s a lifeline, a bridge to a better quality of life for the special needs loved one or child who faces unique challenges. The key is that the SNT owns the assets, not the disabled individual or child who is the trust beneficiary. A SNT protects the individual’s assets and money by preserving eligibility for essential government benefit programs. An SNT navigates the stringent income and asset limits of government benefit programs, while still providing additional life-enhancing needs.

SNTs are managed by a trustee who will make financial distributions from the trust to the loved one with special needs. The funds in the trust can be used to pay for additional medical care or enhance quality of life, such as a cell phone, a vacation, or a private room in a group living facility. The SNT ensures that a vulnerable family member receives the money and other relatives, such as a sibling, don’t have a financial burden.

Third Party Special Needs Trusts (SNTs)

Third Party SNTs are established by someone other than the beneficiary, typically a parent or relative, to benefit an individual with special needs. The key advantage of Third Party SNTs is that there’s no limit on the number of assets they can hold. Notably, upon the beneficiary’s death, the remaining funds in the trust do not have to be used to reimburse the government for benefits received during the beneficiary’s lifetime. Instead, these assets can be distributed to other beneficiaries as specified in the trust. This type of SNT is a popular choice in planning for a family member with a disability and their long-term care, as it allows for greater flexibility and control over the assets and their eventual distribution.

First Party Special Needs Trusts (SNTs)

In contrast, First Party SNTs are created using the assets of the special needs individual themselves. This type of trust is often used when an individual with existing assets becomes disabled and wishes to qualify for government benefits. They can transfer their assets into a First Party SNT in these cases. A critical rule for First Party SNTs is to include a provision to reimburse the government for benefits paid on behalf of the beneficiary after their death. This reimbursement requirement is a trade-off for allowing individuals to retain their assets in the trust while qualifying for government benefits. First Party SNTs must also be established before the beneficiary turns 65. This type of SNT is particularly relevant for individuals who acquire a disability later in life and have accumulated assets that they need to protect, while also accessing government benefits. Because each state has different requirements, families must work with a knowledgeable estate planning attorney to create a Special Needs Trust.

How Do You Choose a Special Needs Trustee?

The SNT will name and provide comprehensive instructions for the trustee who will manage assets in the trust on behalf of the beneficiary. Deciding who should manage the trust’s finances is crucial. While a family member may have emotional ties, a professional fiduciary can offer objective, skilled financial management. This is particularly important in complex situations, such as when the beneficiary has drug dependency or lacks a strong family network. It’s also prudent to name several trustees to ensure continuity.

Who Can Benefit from a Special Needs Plan?

1. Individuals with Permanent Disabilities

Those with conditions like cerebral palsy, chronic mental illness, or severe developmental disabilities often require ongoing support. An SNT for these individuals is like a lighthouse, guiding the way through the fog of financial and care-related challenges.

2. Those with an Uncertain Future

Disabilities aren’t always static. Advances in medicine and technology can shift the landscape. A SNT acts as a flexible safety net for those with uncertain future needs, adapting to whatever the future holds.

3. Future SSI or Medicaid Candidates

Some individuals may not currently need SSI or Medicaid but could in the future due to progressive conditions. A SNT is a forward-thinking vessel charting a course for future stability.

4. Recipients of Medicare or SSDI

Those on Medicare or SSDI may find these benefits insufficient over time. An SNT can supplement these programs, filling gaps to ensure comprehensive care and support.

5. Individuals Unable to Manage Finances

For those who struggle with financial management due to conditions like mild autism or bipolar syndrome, an SNT is a protective barrier, safeguarding them from financial missteps and exploitation.

What Else Should Be Included in a Special Needs Plan?

Creating a comprehensive Special Needs Plan is more than just legal preparation; it’s about understanding and preparing for the various aspects of your loved one’s life. Additional planning considerations include creating a life care plan for the adulthood of a child with disabilities, additional financial considerations and ways to support decision-making, whether that is through guardianship or another less invasive strategy.

Writing a Letter of Intent

A letter of intent is a comprehensive document about a loved one or a child with special needs that parents or guardians write to detail all elements about the individual’s life, medical and disability conditions, preferences, personality and more. A letter of intent creates a smoother transition from the guidance of a parent or family member to a new caregiver or guardian when needed.

Start by Crafting a Personal Biography

Begin by writing a detailed biography of your loved one with special needs. This should include basic information like their name, birth date, age, likes, dislikes, favorite activities and relationships with family and friends. This biography serves as a guide, offering a deep understanding of your loved one to anyone who might be involved in their care in the future.

Envisioning Future Scenarios

Next, envision their future in three scenarios: a good future where you are present to care for them, a not-so-great future where they are well, but you’re not around and a bad future. Being specific in these scenarios helps identify potential pitfalls and aids in planning effectively.

Selecting a Guardian or Decision-Maker

First, it’s pertinent to examine the nature of your loved one’s disability and whether they will need the care of a guardian or simply need help making financial and life decisions. Speak with a special needs attorney to decide if other estate planning documents, like a power of attorney, might provide the necessary oversight for the individual when they can no longer function independently. Determining who will become your loved one’s guardian or future caregiver is critical. List potential guardians in order of preference, understanding that the first choice may not always be available. It’s essential to have conversations with these individuals to ensure that they are willing and able to take on this responsibility.

Living Arrangements: Finding the Right Fit

Living arrangements are another significant aspect of a Special Needs Plan. Assess whether your loved one can live independently, must be close to a guardian, or requires a group care facility. Each option should be evaluated based on their specific needs and abilities. In addition, a financial plan will be required to plan for long-term or facility-based care costs, if needed.

Preparing for Employment and Adult Life

Transitioning Beyond High School

As your child with disabilities approaches adulthood, consider their life post-high school. A comprehensive special needs plan will consider questions like: What educational or vocational training will they need? How can they be supported in finding meaningful employment?

Developing a Plan for Adult Success

Start planning early to help your loved one develop the skills and support network they need for a successful adult life. This might include job coaching, life skills training, or exploring supportive employment opportunities.

Conclusion

Creating an effective Special Needs Plan is not a one-size-fits-all process. It requires a nuanced understanding of your loved one’s current and future needs. Early planning is critical, especially for children with disabilities who are still school-aged and benefiting from educational-based support and care but will eventually need a transition plan for adulthood.

If you’re navigating the complexities of caring for a loved one with special needs, consider the profound impact a Special Needs Plan could have. Consult with an estate planning attorney with experience in special needs planning to explore how to craft a plan that will meet the unique needs of your loved one.

Key Takeaways: Crafting a Comprehensive Special Needs Plan

• Understanding Special Needs Trusts (SNTs):
  • SNTs are designed to hold assets for individuals receiving government benefits without affecting their eligibility.
  • They provide benefits like creditor protection and are managed by a trustee.
• Types of Special Needs Trusts:
  • Third Party SNTs: Created by someone other than the beneficiary, with no asset limit and no requirement to reimburse the government after the beneficiary’s death.
  • First Party SNTs: Established with the beneficiary’s own assets, must include a reimbursement provision to the government and must be formed before the beneficiary turns 65.
• Letter of Intent:
  • Write a letter for the future caregiver or guardian with a detailed biography of the loved one with special needs to guide future caregivers and trustees.
  • Envision future scenarios (good, not-so-great, bad) to prepare for different possibilities.
• Guardianship Considerations:
  • Choose a guardian carefully, with backups in place, and ensure that they are willing and able to take on the responsibility.
• Trustee Selection:
  • Decide between a family member or a professional fiduciary as the trustee, considering the complexity of the estate and the beneficiary’s needs.
  • Ensure that the trustee is responsible, well-organized and skilled in managing money.
• Preparing for Adulthood:
  • Plan the transition beyond high school, focusing on vocational training, employment opportunities and life skills development.
  • Assess the best living arrangement for the loved one, considering options like independent living, living near a guardian, or in a group care facility.
• Comprehensive Approach:
  • A Special Needs Plan should be comprehensive, covering legal, financial and personal care aspects.
  • Work closely with an experienced estate planning attorney to tailor the plan to the unique needs of the loved one.

How Do You Plan a Business Succession?

When business owners die without estate or succession plans, chaos ensues as family members clash over leadership decisions and determining the direction of the business. Even the closest families can quickly descend into a battlefield of hurt feelings, endless arguments and faction-building, according to the article “How to Make Your Business Outlive You” from next avenue.

Family disagreements often escalate into legal disputes. Lacking leadership, businesses spiral downward and often must be liquidated, leaving behind broken families with severely depleted assets.

This scenario occurs in small businesses on a regular basis. Owners with the vision and tenacity to take their ideas and create a successful enterprise are often so passionate that they can’t imagine the business without them.

A well-defined succession plan matters to more than just the family and their customers. According to the Small Business Association, businesses with less than 500 employees account for 99.9% of all firms in the U.S., 43.5% of the country’s total economic output, and just under 66% of new jobs created. A well-designed succession plan contributes to the national economy,

Having a succession plan in place protects the business and the family from unforeseen circumstances and creates a roadmap for the future. What is the best time to start? When all is well, leaders are healthy and there’s no internal drama.

Start by contemplating your legacy. How do you want your family and employees to benefit from the value created by the business? Clarifying this will drive much of what follows.

Seek professional guidance. An estate planning attorney should be one of several professionals to ensure that the plan complies with laws and regulations in your jurisdiction. You also want to be sure your business succession plan aligns with your estate plan. Otherwise, the resulting confusion could lead to prolonged difficulties and even litigation.

You’ll need a power of attorney for someone to be able to make decisions if the business owner becomes incapacitated. A buy-sell agreement establishes a fair market value for the company. Life and disability insurance policies provide financial security for the owner and key personnel.

Put it in legally enforceable documents. Discussions only go so far. Executing a formal series of documents ensures that the plan will be enforceable by a court if needed. Language should be clear, with no ambiguity, to transfer ownership and business shares.

Potential successors need to be identified. Will everyone step up to the next level if the business owner becomes incapacitated or dies? This isn’t always the best solution. Sometimes, skills override structure.

Reviewing and updating the business plan should be done as often as you update an estate plan. Whenever there is a major event in the business, review the plan to see if it is still relevant.

A succession plan is all about legacy, continuity, safeguarding a business, letting employees know they are valued and reducing volatility in the family’s future. It allows the business owner to communicate their values and vision, even if they are not present to be part of the future.

Reference: next avenue (Dec. 12, 2023) “How to Make Your Business Outlive You”

How Do I Use Donor-Advised Funds?

Under current tax laws, if you own an IRA and are 70½ and older, you may directly donate $100,000 to a charity without needing to report the contribution as income. According to the article “Donor-Advised Funds And Tax-Wise Charitable Giving” from Financial Advisor, this is referred to as a QCD or Qualified Charitable Distribution.

A QCD is a great way for people over 70 to support a charity, while saving on taxes. The donor gives pre-tax money to a cause they care about, creating a dollar-for-dollar income tax deduction. It’s beneficial for filing 2024 taxes when the federal standard deduction for those over 70, married, and filing jointly stands at more than $30,000 (including the additional amount for seniors). Also, there are limits on state and local income tax deductions. Because of the high standard deduction and state and local limits, and most seniors are unlikely to have much in the way of deductible interest charges, all or most of a person’s annual donations to charity are not tax deductible. Using the QCD, taxpayers can get deductions in a different way.

People looking for innovative tax strategies face another problem created by the 2019 SECURE Act. If taxpayers inherit money from IRAs or 401(k)s of deceased parents or other relatives, they must add those proceeds to taxable income within ten years. Chances are their inheritance will come during their peak earning years, meaning their taxes will rise much more than if they were retired when income would be lower.

The combination of higher income taxes and less time to grow inherited retirement accounts could easily mean a loss of nearly twice as much as what heirs would have lost before the SECURE Act.

The SECURE Act tax hurdles don’t stop there, making estate planning with taxes in mind an even more critical part of financial plans. Most IRA and 401(k) heirs, especially those with small mortgages, won’t receive a full federal income tax deduction for what they give each year. Some of these deduction issues could be resolved if deduction limits are restored starting January 1, 2026, when the Tax Cuts and Jobs Act might end. However, the SECURE issues remain.

One solution might be for the IRA or 401(k) account owners to create a pool of money, effective upon their deaths, which the children can use later for their annual charitable donations. The pool of money could be created by designating a donor-advised fund (DAF) as a beneficiary of all or a portion of their retirement accounts when they die. Here’s the general concept: if the children are going to be making annual charitable donations during their lifetimes, the owners arrange it so the children don’t use mainly after-tax funds to make their donations. Instead, they can use pre-tax money from the charitable vehicle.

Talk with your estate planning attorney about how making donor-advised funds part of your estate plan could alleviate tax burdens for you, your estate and your heirs.

Reference: Financial Advisor (Dec. 6, 2023) “Donor-Advised Funds And Tax-Wise Charitable Giving”