Providing
for the future of your disabled family member.
That
fundamental need is what drives us to take the time, energy, and
money to develop an estate plan in the first place. If we didn't
want to continue to take care of loved ones after we're gone, no
one would bother completing an estate plan.
We
would like to illustrate some ways you can begin to plan an estate
and provide for your loved ones, while you're alive to do something
about it. Advanced estate planning strategies ensure that loved
ones are taken care of, and afford a degree of protection.
But
the question is where do you start? Implementing these strategies
will require the use of an attorney, time, money, and resources.
Probably the toughest part of planning your estate is that it requires
you to think about what things will be like after you're gone. After
all, no one likes to think of their own mortality
The
first step would be to organize financial information. Assemble
deeds, records of insurance policies, investments, personal property
and collections you may have. A form entitled "Estate Analysis"
that is quite detailed is available, upon your request, to assist
you in getting started.
Once
you have a clearer picture of your estate, determine what is at
risk for your disabled loved one, how you would like them to continue
living after you have passed.
Some
of the first questions you may want to answer involve the legal
and financial aspects, such as;
Have
I established a Special Needs Trust for my disabled loved one?
Do
I have a Will in place that provides for my disabled loved one?
Do
I have a Living Trust that provides for my disabled loved one?
Do
I have a Charitable Remainder or Lead Trust established to assure
my disabled loved one is cared for as I wish, and reduce my income
and estate taxes?
Do
I have a Trustee in mind who is willing, informed, and skilled enough
to effectively carry out my intentions?
Whomever
you select will need to have the time to carry out your plan, and
the skills to do so. Select wisely, the Trustee should have a familiarity
with the support network available to disabled persons through non-profit
advocacy groups and service providers. Perhaps most importantly
it requires an empathy and understanding of the unique psychology
of families with special needs children. Discuss in detail your
wishes so that person knows how you want things to be taken care
of.
Do
my family members know how I intend for my disabled son or daughter
to be cared for?
Any
estate plan will effect your family, not you. Discuss the needs
of your disabled loved one with your family. Most likely they will
already realize the needs of a disabled person are not quite equitable
to those without disabilities. An open dialogue will decrease the
chance a family member could contest your wishes later.
Look
to the future and estimate how your estate may grow and factor that
in to any plan.
Speak
with an experienced qualified estate specialist. Speak with friends
and acquaintances to find someone who comes highly recommended.
Again, upon your request, we can provide you with several names
to assist in your search.
What's
important is that you take the initiative to act. An effective estate
plan will preserve your hard earned wealth, providing for the future
for your disabled loved one, and assure that Uncle Sam does not
become your largest beneficiary.
Once
your plan is in place, inform TERI of your intentions. Our ability
to care for your loved one in the manner you prefer is dependant
upon knowing them.
Below
are answers to several frequently asked questions.
What
are Living Trusts?
No
matter how much you want to give, consider setting up a Living Trust.
Living Trusts allow you to avoid probate, maintain privacy, and
facilitate the transferring of assets. Living trusts are simple
to create, usually costing anywhere from $500 to $1,500, depending
on the complexity of the estate. Over the last two decades, with
increased education and exposure, the popularity of Living Trusts
has skyrocketed. No longer just a tool for the rich, Living Trusts
are on of the most common estate planning tools in use.
If
you would answer yes to any of the following questions, establishing
a Living Trust may be a wise decision;
Do
you want to avoid probate?
Do
you wish to avoid conservatorship?
Do
you wish to minimize estate taxes?
Do
you need to provide protection for a disabled child or relative?
This
legal arrangement creates a unique legal entity called a Living
Trust. It is called that simply because it is created while you
are living, as opposed to a testamentary trust created after death.
The document itself names three different parties. The individual
(or couple) that establishes the Trust is called the Grantor or
Trustor, the person named by the Trust as the controller of the
Trust's assets is called the Trustee, and the heirs that will benefit
from the Trust once the Grantor has passed away are called Beneficiaries.
Living
Trusts avoid probate since they are completely private. Probate
is a court directed process of identifying and appraising property,
satisfying debt and taxes, and distributing property to heirs as
a will instructs. This is a costly, time consuming, and completely
public process where the only true winners are lawyers.
Once
established, almost anything can be put in to a Trust; bank accounts,
stock, real estate, personal property, etc.. In funding a
trust you simply change the name or title on assets. Because the
Trust is essentially controlled by one individual, the Trustee,
that person can carry out your wishes when you are unable to, including
providing care to disabled children or other relatives.
What
are Special Needs Trusts?
A
Special Needs Trust is a specific kind of Trust which holds title
to property for the benefit of a child or adult who has a disability.
The Special Needs Trust can be used to provide for the needs of
a disabled person to supplement - not supplant, but supplement,
benefits received from governmental assistance programs including
SSI and Medi-Cal. In 1975 the Social Security Administration established
rules allowing assets to be held in trust for a recipient of SSI
as long as the disabled beneficiary cannot control the amount or
the frequency of trust distributions, and cannot revoke the trust
and use the trust assets for his or her personal benefit. A Trust
can hold cash, personal property, real property, or be the beneficiary
of life insurance proceeds.
Special
needs refers to the requisites for maintaining the comfort and happiness
of a disabled person, when such requisites are not being provided
by any public agency. Special needs may include medical and dental
expenses, annual independent check-ups, equipment, programs of training,
education, rehabilitation, spending money, radios, CD players, computer
equipment, vacations, athletic contests, money to purchase appropriate
gifts for family and friends, and other items to enhance self esteem.
In
addition to the Trustee that is part of any Trust, a Special Needs
Trust should also arrange for someone to act as a "needs monitor"
The role of a needs monitor is to check on the beneficiary regularly,
determine whether public assistance being provided is adequate and
also to judge whether the beneficiary is receiving sufficient distributions
from the Trust to meet supplemental needs. If the beneficiary requires
supplemental distributions for personal care or amenities the needs
monitor will communicate this to the Trustee and be sure the request
is honored promptly.
What
are Charitable Remainder Trusts?
In
1969, Congress created a new type of Trust, called the Charitable
Remainder Trust (CRT), that helped charities generate more revenue
for their causes. This vehicle allows taxpayers to reduce estate
taxes, eliminate capital gains, claim an income tax deduction, and
benefit charities instead of the IRS.
CRT's
are irrevocable trusts that benefit two sets of beneficiaries. The
first set are called income beneficiaries, similar to Grantors of
Living Trusts, and the second set are the charities named by the
Trust. Basically the Trust works like this; Assets are put in to
a CRT that provides a set income to the donor over the course of
his or her lifetime, and upon the donor's passing any remaining
assets are received by the named charity.
Because
their assets are destined for a charity CRT's do not pay any
capital gains taxes. This makes them ideal for selling highly
appreciated assets. When the appreciated asset is placed in Trust
and then sold, the entire gain from the sale is tax free and a donor
then directs the Trust to disburse a steady return of that income
to the donor over the rest of his or her life.
Many
people use CRT's to augment their retirement by setting them up
in peak earning years, letting them grow without income distribution,
and then accessing the earnings later in life. Unlike IRA's and
401(k) plans, there are no limits on the amounts that can be contributed.
A
CRT is considered outside of your estate by the IRS and as such
can save your estate as much as 55 cents on every dollar earned
in avoiding estate taxes. And because they benefit a charity, they
also qualify as an income tax deduction. The amount of the deduction
is the present value of the remainder interest that will flow to
charity.
If
you wish to reverse who receives the income and who receives the
asset, you can create a Charitable Lead Trust (CLT). Like a CRT,
CLT's offer current income tax deductions and reduction of capital
gains taxes. The difference is that charity receives the income
stream, and at the owner's death named beneficiaries receive the
remaining assets.
What
are Private Family Foundations?
Another
vehicle for decreasing estate and income taxes, and benefiting charity
is the Private Family Foundation (PFF). Again as a distinct legal
entity, the PFF contributes to a charitable cause and takes a tax
deduction, minimizes estate tax liability, and avoids capital gain
on the sale of appreciated property. In addition, this entity can
provide continuing employment for family members, and identifies
and preserves your family name along the way.
Any
Private Family Foundation must be created with a charitable intent.
The Foundation is managed by a paid trustee or executive director
that oversees the Foundation's activities. This trustee may be the
original donor or anyone the donor may choose before or after his
death. The Foundation itself is a non profit organization, so any
of its earnings are tax exempt. The Foundation is required by law
to distribute at least 5% of its assets to charity each year.
Private
Family Foundations can also be combined with Charitable Remainder
or Lead Trusts. By doing so, you may be able to draw a significant
income for your lifetime and earn significant tax savings, while
maintaining a large degree of control over your assets.
For
further information regarding the basics of Planned Giving, please
contact Joe Michalowski , Director of Finance at (760) 721-1706.
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