California Probate - Law Offices of Janet Brewer Blog

When Should I Update My Estate Plan?

“Has it been a while since you reviewed your estate planning strategy? If so, it may require some updating, based on recent changes to laws impacting your tax and retirement planning.”

Forbes’ recent article entitled “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve” discusses eight ways a trust can help you achieve specific legacy planning goals. The first step is to meet with an experienced estate planning attorney.

Everybody needs a will, but not everyone requires a trust. A trust provides greater flexibility and control over how your property and assets are distributed. Many people create a trust to avoid probate. As a result, it’s faster and easier for your named trustee(s) to distribute your assets to your heirs. There are a many different types of trusts with advantages and disadvantages. Talk about what will be best for you with your estate planning attorney.

1. No probate. This process can take months or more to complete, and it can be very expensive. A trust is designed to settle your estate in a timely and relatively inexpensive manner.

2. Privacy and confidentiality. Probate is public, so your will and other private financial and business info is available to everyone. However, a trust maintains privacy and confidentiality.

3. Protection for beneficiaries. A trust can shield beneficiaries from lawsuits, creditors, or divorce.  A trust can also protect the interests of a minor, by including direction for when distributions are made.

4. Provide for children with special needs. This type of trust provides for the health care and personal needs of a minor child or adult who has special needs and won’t impact their eligibility for Medicaid benefits.

5. Flexibility. As the creator of the trust, you determine the terms of the trust, and can put restrictions on how trust assets are managed. For instance, the trust could state that assets may only be used by the beneficiary to purchase a home or to pay medical bills but may not be distributed directly to the beneficiary.

6. Preserve family wealth. Divorce and remarriage can result in assets that were supposed to stay in the family wind up leaving with the ex-spouse. A trust can make certain that your estate is preserved for grandchildren.

7. Family values. A trust can be a wonderful way to pass down family values concerning education, homeownership, land conservation, community service, religious beliefs, and other topics.

8. Lessening family conflict. Challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your family, reduces the potential for misunderstanding.

Whether you have a trust in place or are thinking about creating one, it’s important to meet regularly with your estate planning attorney to be certain your strategy and estate planning documents reflect any new state and federal tax laws, as well as any changes in your goals and circumstances.

Reference: Forbes (Feb. 24, 2020) “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve”

Special Needs Guardianship Can Be a Challenge

“Guardianship can be a challenging topic for many families. Guardianship needs to be separated into two distinct time periods: while parents are still alive and after parents die.”

A person who’s diagnosed with autism should have a named guardian before turning 18. At that point, the person can sign binding contracts, make health care decisions and sign IEPs (Individualized Education Plan) without parental involvement.

Autism Parenting’s recent article entitled “A Brief Overview of Special Needs Guardianship” explains that guardianship is a legal process in which a responsible person is named as the final decision maker for another. When it’s the parent and their child with autism, the parent can become the guardian of the 18-year-old with autism in a specific legal process. Guardianship gives the parent the final say, on all decisions regarding the child.

It’s not uncommon for a parent to be hesitant about becoming the guardian, especially if the child is developing well and has several abilities. One question to ask in this situation concerns the intellectual or developmental age of my child. If the honest answer is below the age 18 (like 14 or 12 years old), then you’ll want to ask yourself if you’d allow your 14-year-old child to make all healthcare, education, housing, and financial decisions and have those decisions be legally binding. Probably not. In that case, you should look into guardianship even if it feels hard.

If your adult child continues to develop and at some point down the road can make decisions on her own, the guardian can petition the court to have the relationship revoked.

Another important time period that guardianship needs to be considered is when the parents die. The appointed guardian then will be responsible for day-to-day care or decisions on that care. The selection of a guardian for this situation is often a large roadblock to finishing up a family’s plan.

Parents must make this decision before completing their will. If parents have trouble with choosing a potential guardian, consider these criteria when considering each person: location, family circumstances, their personality qualities and demeanor, their age, their experience with special needs individuals, the fact that the person knows your family member, your parent or your loved one knows the individual, their financial position, marital status, and work schedule.

By the following factors, parents can rank each possible future guardian and settle on the best possible choice.

Although the guardian might never be as committed as a parent, if you use a more objective process (like the criteria above), parents will be better able to find a qualified future guardian.

Reference: Autism Parenting (undated) “A Brief Overview of Special Needs Guardianship”

Types of Distributions from Trusts in California

In California, beneficiaries can receive one of several different kinds of distributions from trusts. The type of distribution that a beneficiary will receive depends on the specific language of the trust.

Discretionary Distribution

A trustee can make a discretionary distribution at any time, based on the trustee’s good judgment about when to make it. The trustee should treat all beneficiaries similarly when deciding whether to make  distributions. But that does not mean that all distributions must be exactly equal. One beneficiary could receive more discretionary distributions than the other if the trustee has a sound basis for making this decision. No beneficiary has the right to any distribution (unless the trust specifies a minimum distribution). 

Support Distribution

A support distribution clause in a trust requires a trustee to pay for the support of a beneficiary. The trust usually uses the word “support”, and may also say “maintenance”, “education”, or “health care”. Often support trusts have children as beneficiaries. People also make support trusts for adults who do not have disabilities but who cannot take care of all their needs themselves.

Discretionary Support Distribution

A discretionary support trust combines aspects of discretionary and support distributions. The trustee can make discretionary distributions to the beneficiaries to use for their support. Again, this type of trust can be used for a child or adult in need.

Special Needs Distribution

Finally, some trusts permit the trustees to make distributions because of the special needs of the beneficiaries. These special needs trust distributions can pay for expenses beyond what government benefits cover. To avoid losing eligibility for those government benefits, the trustee cannot have absolute discretion to make distributions. Instead, the trust language must be narrowly tailored so that money distributed to the beneficiary does not count against his or her income or resource limits for benefits such as Social Security and Medicaid.

Because each trust’s specific language may vary, you should speak to an attorney if you have any questions about what kind of trust distributions you can receive. If you are a trustee, you should make sure you understand exactly when you can make a distribution by asking a lawyer for advice.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Special Planning Needed, If You Have Special Needs Child

It is best to expand from daily considerations to the future as well.

Parenting and planning is difficult enough. However, if a special needs child is involved, then planning needs to include what will happen when the parents are no longer available, according to Newsday in “Be ‘biggest advocate’: Parents plan future for adult children with special needs.”

As an adult child with disabilities ages, eventually there will be medical issues. If the parents are gone, who will be able to make medical decisions? Where they live, who will oversee their finances and who will be there for them to rely on in a parenting role? There are many questions and they all need answering.

For one family, raising their special needs daughter was a full-time challenge. Their daughter, now 24, has autism. The couple sought out others in their same situation, noting that often even their own family members could not relate to their daily experiences.

It takes a village for special needs families to do more than survive. That includes estate planning and elder law attorneys with deep experience in special needs planning, social workers, therapists and medical professionals. Here’s what needs to be top-of-mind:

Don’t wait to plan. Families often think they have time, but you never know when unexpected events occur. Have a plan in place for legal guardianship, finances and health care.

Work with experienced legal help. You want to work with an attorney who has a great deal of experience and knowledge in special needs law and estate planning. Someone who dabbles on the side of a real estate practice is not the right professional for the task.

Stay in control. When children turn 18, they are adults. Parents and guardians will need to go through Surrogate’s Court to become the child’s guardian. Unless that is done, the parents and guardians will have no legal rights about the child’s medical, financial or other affairs. A successor guardian also needs to be named, so that when the parents are no longer able to serve, someone is in place to care for the child.

Create a Special Needs Trust. A trusts attorney with experience in Special Needs planning will be able to work with the family to create and structure a Special Needs Trust (SNT). A disabled person usually cannot earn enough to support himself, or the caregiver who remains at home to care for them and care-related expenses. The SNT helps to meet current needs and plan for future needs. The trust is used to preserve eligibility for any means-tested state and federal benefits. It allows the individual to have a better quality of life, by providing for expenses that are not covered by their benefits.

It’s very important that no assets be left to the child in an inheritance. Any assets must be placed in the trust. A well-meaning relative could put their eligibility for aid in jeopardy.

Parents and guardians also need to name a trustee and a successor trustee. The person needs to be competent, good with money management, organized and focused on caring for the loved one. It cannot be an emotional decision.

Parents of special needs children are advised to create a Letter of Intent, a narrative that outlines their child’s likes and dislikes, strengths and weaknesses, activities and friends they enjoy and other details that will help them to continue an enjoyable life, when their parents are gone.

Parent’s own estate planning must be done with an eye to maintaining the SNT and caring for their other children. This is a case when assets need to be distributed in a realistic and fair manner. If one sibling is the successor trustee, for example, they may need a larger portion of an estate to help care for their sibling.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include special needs.

Reference: Newsday (May 9, 2019) “Be ‘biggest advocate’: Parents plan future for adult children with special needs.”

Types of Special Needs Trusts for Your Family

If your family includes a member with special needs or disabilities, you may want to set up a special needs trust for him or her. There are two main types of special needs trusts, depending on whose property will be contributed to the trust.

Third Party Special Needs Trusts

Family members who want to contribute their own money or property for the support of a relative with special needs should set up a special needs trust to accept the funds. Well-meaning people often want to give directly to someone with special needs, but generally, this is not recommended.

Many people with special needs receive government benefits, including Social Security and Medicare. These programs have strict income and/or assets limits for recipients. If someone has too much income or too many assets, he or she risks losing the benefits. Outright gifts of money and property from relatives count against the income and assets limits.

Instead, you can create a third-party special needs trust with the person with special needs as the sole beneficiary. Special needs trust documents must contain particular language to meet requirements of federal law. A regular revocable or irrevocable trust is not the same thing as a special needs trust. If you properly create a third party SNT, your relative will receive support from the trust on an as-needed basis, while his or her benefits eligibility is protected.

First Party or Self-Settled Special Needs Trusts

In some cases, people with special needs require first-party (also called self-settled) special needs trusts. Usually, the need arises when a person with special needs receives a settlement or outright inheritance of money or property. In addition, someone with significant assets who then becomes disabled can place his or her assets in a first party special needs trust in order to qualify for government benefits.

Unlike third-party special needs trusts, which may be created by any family members or friends for the benefit of a person with special needs, first-party SNTs may be created by the person with special needs or someone close to him or her. These people include a parent, guardian, grandparent, or the court.

To receive the benefit of a first party SNT, the beneficiary should meet the government definition of “disabled” and be under age 65 when the trust is created and funded.

Planning your estate and need to set up a special needs trust in California? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

What Is a Spendthrift Trust in California?

If you want to support a relative who is bad with money or has creditors, then you should consider forming a spendthrift trust. This type of trust provides income for a beneficiary within limits while protecting the trust assets from creditors.

What Is a Spendthrift Trust?

In a spendthrift trust, a trustee has nearly full control over when to give a beneficiary money from the trust and how much to give him. Often people form spendthrift trusts when they have relatives who spend all their money when they have it but cannot hold down a job, or they otherwise need support.

The trustee of a spendthrift trust has broad discretion to make distributions to the beneficiary when, in the trustee’s view, the distributions are necessary for the beneficiary’s support or basic needs. The beneficiary has no ability to access the trust’s principal (the original money or assets that the creator placed in trust). Usually payments come from income or interest earned on the principal.

How Do Spendthrift Trusts Provide Protection from Creditors?

Because beneficiaries cannot reach trust principal and have no decision-making power about when to make distributions from the income or interest, creditors usually cannot reach trust assets to satisfy a beneficiary’s debts. This creditor protection is one of the primary reasons that people create spendthrift trusts, because people who are bad with money usually have creditors. The protection is not infallible. In some limited circumstances, creditors could access trust money – as if a creditor is pursuing a debt for basics such as food or shelter.

Many spendthrift trusts are irrevocable – the trust creator cannot change the trust terms after it begins operating. Assets held in irrevocable trusts are usually not part of the trust creators’ estates, so creditors of a trust creator cannot access the funds after the creator passes away.

Are There Alternatives to Spendthrift Trusts Available?

If you want to give money to a relative with poor saving habits, you may have other options. Some families opt to form “special needs trusts” (SNTs) for relatives with special needs or disabilities who receive government benefits. Being a beneficiary of an SNT does not count against asset and income limits that are required for government benefits recipients.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Support Trust vs. Special Needs Trust: Which Is Best?

Families that include relatives or children with difficulties or special needs must consider care and support for them in the future. You have a few options for estate planning that take into account your family’s particular situation and which needs you aim to meet.

Is a Support Trust Right for You?

A support trust contains a section in the trust document that directs the trustee to pay the beneficiary money from the trust for support. The section usually says that the trustee should pay as much money from both the income and “principal” (original trust assets) as the beneficiary needs for education and personal support.

Support trusts are great for some family situations, such as:

• Financially irresponsible relatives;
• Relatives who cannot hold down a regular job but do not qualify for disability; or
• Relatives with significant debt.

Assets placed in a support trust are protected from creditors to the extent that the assets are needed for support of the beneficiary. Moreover, the beneficiary cannot access the assets unless the trustee deems it appropriate to make a distribution. For these reasons, a support trust could be well-suited for your relative.

Is a Special Needs Trust Right for You?

If your relative or child has special needs beyond financial issues or manageable health problems, then a special needs trust may be a better choice than a support trust. Special needs trusts (SNTs) allow people receiving government benefits to also receive support from relatives or their own assets.

Government benefits programs often have strict asset and income limits, but people with special needs may require funds beyond the benefits amounts to live comfortably. Funds from special needs trusts can pay for education, in-home nursing care, and other items not always paid for by benefits.

Unfortunately, receiving money from a support trust or gifts of cash from relatives can disqualify your child or relative from government benefits. Setting up a special needs trust can help you provide for their support while keeping the needed benefits.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

How a Special Needs Trust Can Help Your Family

When your family includes a child with special needs, you may not be aware of the estate planning tools available to help you. A special needs trust can provide peace of mind that your child will not be disqualified from receiving government benefits because he or she receives income.

What Is a Special Needs Trust?

A special needs trust is set up to provide support for a child or adult with special needs or disabilities. The IRS recognizes special needs trusts (SNTs) as long as they meet certain requirements, allowing SNT beneficiaries to receive income from the trusts while retaining income eligibility for government benefits. An SNT can provide a child with special needs money to pay for certain expenses, such as some types of medical care, educational costs, and more.

Why Is Government Benefits Eligibility Important?

Even if your family is wealthy, having a child with special needs can create significant financial strain. You may think that your family can pay for your child’s care out of pocket without resorting to government aid. Ultimately, however, this may not be financially feasible – especially when you factor in the cost of long-term care or skilled nursing.

Government benefits, such as Social Security and Medicaid, provide the extra help that your family needs for your child. These programs have strict income and/or assets limits for people who use them. Your child cannot receive significant gifts from family members or income from working without risking the loss of the government benefits he or she needs. An SNT allows family members to contribute toward your child’s care without losing eligibility for the benefits.

Why Can’t You Just Make Your Child a Beneficiary of the Family Trust?

Making your child with special needs a beneficiary of the family trust is a good way to jeopardize his or her eligibility for government benefits. Any income that he or she receives from the trust (and in some cases, expected income in the future) may count against the strict government limits.

Well-meaning relatives often make gifts of money to children, or make them the beneficiaries of trusts or life insurance policies. You need to speak to your family members about why your child with special needs should not receive this kind of gift. As an alternative, your relatives can contribute to a special needs trust for the child’s benefit in the future.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

New Gifting Limits Won’t Last Forever

There are a lot of options when it comes to gifting.  However, there is a deadline that is a few years away.

Now may be the best time to consider taking advantage of the lifetime gift tax exception recently passed in the tax reform law. The lifetime gift tax exemption was doubled.  However, it is scheduled to revert to the previous level in a few years.

If you want to benefit from the increased limit, you need to act quickly.  However, it is a good idea to consider that large amounts of cash that can potentially be wasted. There are many other options, according to News Max in "Gifting Wealth and the Estate Tax Law Under Trump."

The tips include:

• You can create an LLC that holds stock or other investments and gift your family members’ interests in the LLC. That allows you to control the investments, while still gifting to your family for their use later.
• If you own a company, you can create a trust and gift stock in the company to that trust for your family's benefit.
• It is a great time to fully fund any special needs trusts your relatives have.
• Now is a great time to create and fund trusts that your family can benefit from later. If you have enough money, you can even create a dynasty trust that will supplement your family for generations to come. An estate attorney can help you determine the best trust for your family.
• You can help younger family members purchase their first homes.
• Consider funding retirement options for younger family members, such as by purchasing annuities for them.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include gifting.

Reference: News Max (June 20, 2018) "Gifting Wealth and the Estate Tax Law Under Trump."

Special Needs People May Not Lose Benefits

ABLE accounts can help special needs people receive government support, even if they have money.

Traditionally, it has been difficult for families to leave money to members of the family who have special needs, but ABLE accounts have been created to solve the problem. These special accounts allow people who developed certain disabilities before the age of 26 to save and invest their own money or money that family members give them, according to the Wills, Trusts & Estates Prof Blog in "ABLE Accounts Give Disabled More Financial Freedom."

ABLE accounts are somewhat flexible. They allow the disabled to have up to $100,000 to use to supplement their benefits and still stay eligible for those benefits. It is not too difficult to get money into the accounts. A 529 educational savings account can be rolled into ABLE accounts. Some states even offer tax credits for putting money in an ABLE account.

One of the drawbacks to ABLE accounts, however, is that they can be tricky to set up properly to qualify under the law.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include leaving assets to a child with special needs. 

Reference: Wills, Trusts & Estates Prof Blog (June 8, 2018) "ABLE Accounts Give Disabled More Financial Freedom."