Estate Planning

Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you pass away. A will must be validated by the probate court before it can be enforced.
 
Also, because a will can only go into effect after you pass away, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets before you die—a concern for millions of older Ameri­cans and their families.
 
Fortunately, there is a simple and proven alternative to a will–a revocable living trust. It avoids probate and lets you keep control of your assets while you are living—even if you become incapacitated—and after you pass away.

• Avoids probate at death, including multiple probates if you own property in other states
• Prevents court control of assets at incapacity
• Brings all of your assets together under one plan
• Provides maximum privacy
• Quicker distribution of assets to beneficiaries
• Assets can remain in trust until you want beneficiaries to inherit
• Can reduce or eliminate estate taxes
• Inexpensive, easy to set up and maintain
• Can be changed or cancelled at any time
• Difficult to contest
• Prevents court control of minors’ inheritances
• Can protect dependents with special needs
• Prevents unintentional disinheriting and other problems of joint ownership
• Professional management with corporate trustee
• Peace of mind

On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE Act) into law. The ABLE Act will allow certain individuals with disabilities to establish tax-free savings accounts that can be used to cover expenses not otherwise covered by government sponsored programs. These accounts can be a great alternative or supplement to special needs or supplemental needs trusts.
 
Here are five important things you need to know about the ABLE Act.

1. What is an ABLE account? An ABLE account is similar to a 529 education savings account that helps families save for college. It is a tax-free, state-based private savings account that can be used to pay for the care of people with disabilities. Although income earned in the account will not be taxed, contributions to the account will not be tax deductible.
2. Who is eligible for an ABLE account? Eligibility will be limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If an individual meets these criteria and is also receiving benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account. If the individual is not a recipient of SSI and/or SSDI but still meets the age of onset disability requirement, they will still be eligible to open an ABLE account if the SSI criteria regarding significant functional limitations are met. In addition, the disabled individual may be over the age of 26 and establish an account if the individual has documentation of their disability that shows the age of onset occurred before the age of 26.
3. What are the limits for contributions to an ABLE account? Each individual state will determine the total limit that can be contributed to an ABLE account over time. Although we’ll need to wait for regulations to know the exact amount that can be contributed, the Act states that any individual can make annual contributions to an ABLE account up to the gift tax exemption limit (which is $14,000 in 2015). If the disabled individual is receiving SSI and Medicaid, the first $100,000 held in an ABLE account will be exempted from the SSI $2,000 individual resource limit. If an ABLE account exceeds $100,000, the account beneficiary will be suspended from eligibility for SSI benefits but will continue to be eligible for Medicaid. Upon the death of the account beneficiary, assets remaining in the ABLE account will be reimbursed to any state Medicaid plan that provided assistance from the day the ABLE account was established.
4. What types of expenses can be paid from an ABLE account? An ABLE account may be used to pay for a “qualified disability expense,” which means any expense related to the beneficiary as a result of living with their disability. These expenses may include medical and dental care, education, employment training, housing, assistive technology, personal support services, health care expenses, financial management, and administrative services.
5. When will able accounts be available? Although the ABLE Act was signed into law in December 2014, regulations will need to be established by the Department of Treasury before states can begin to set up procedures for managing ABLE accounts. Once these regulations are issued (which is anticipated to occur later in 2015), each state will be responsible for establishing and operating their own ABLE program.

Since the money in an ABLE account can grow tax free and be accessed on a tax-free basis for qualifying expenses, these accounts could be a valuable resource for certain disabled individuals and their families. Although we’re waiting on regulations to be adopted, now is the time to begin thinking about whether an ABLE account is a good fit for your family’s circumstances. Please contact us today to learn more about ABLE accounts and disability planning.

Today many estate plans contain irrevocable trusts that will continue for the benefit of a surviving spouse’s lifetime and then for the benefit of several generations. Since these trusts are designed to span multiple decades, it is crucial to choose the right succession of trustees.
 
Should You Name Family Members as Your Successor Trustees?
 
Choosing the right succession of trustees for your irrevocable trust that is intended to continue for years is critical to its longevity and ultimate success.
 
Initially you may think that a family member, such as your spouse, a sibling, or an adult child, will be the best person to serve as your successor trustee. You may think family members will better understand the varying needs of your beneficiaries and keep the costs of administering the trust down.
 
In reality family members will not be able to fulfill all of their fiduciary obligations without hiring legal, investment, and tax advisors. The expense of all these outside advisors will add up and can ultimately cost more than a corporate trustee, such as a bank or trust company. One advantage of a bank or trust company is that they can often meet all fiduciary obligations under one roof for one fee. In addition, a corporate trustee will act in an unbiased manner in making distributions and investments which will benefit both the current and remainder beneficiaries, and a corporate trustee will not get sick or too busy to oversee the day-to-day administration of the trust.
 
Should You Give Your Beneficiaries the Power to Remove and Replace Trustees?
 
Forcing your trust beneficiaries to be stuck with the wrong trustee without a reasonable means for removing and replacing the trustees may cause an expensive visit to the courthouse.
 
It is necessary to build provisions into your trust agreement which will allow your beneficiaries or an independent third party, such as a trusted advisor or a trust protector, to remove and replace the trustees without court intervention. The fact that the trustee can be removed and replaced without going to court is often an incentive for the trustee to work out any differences with the beneficiaries.
 
Summary
 
Selecting a successor trustee is one of the most important decisions you will make when creating an irrevocable trust or a dynasty trust. While family members may be your initial choice, you should give serious consideration to designating a corporate trustee, either alone or as a co-trustee with a family member or trusted advisor. To create flexibility, specific beneficiaries (such as current income beneficiaries) or a trust protector should be given the right to remove the corporate trustee and replace it with another corporate trustee.
 
If you have family members named as your successor trustees, please contact our office so that we can discuss all of your trustee options.

Today many estate plans contain irrevocable dynasty trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations. Since these trusts are designed to span multiple decades, it is important that they clearly define who will be included as trust beneficiaries at each generation.
 
Who Are Your Descendants?
 
In the past the definition of “descendant” was straightforward: A person who can be traced back to a specific ancestor through the same blood lines. But the modern family now encompasses much more than just blood heirs:
 
• Adopted beneficiaries. In your trust, should the definition of “descendant” include a minor child who is legally adopted by your child, grandchild, or great grandchild? What about an adult who is legally adopted by your child, grandchild, or great grandchild? What happens if your child, grandchild or great grandchild gives up their naturally born child for adoption, should your blood heir who has been adopted away from your family be included as your descendant? You should consider specifically including or excluding adopted minor and adult beneficiaries in the definition of “descendant” used in your trust agreement.
 
• Stepchildren. In your trust, should the definition of “descendant” include a stepchild of your child, grandchild, or great grandchild who is never legally adopted by your heir but otherwise treated like one of their own? While you may have the opportunity to get to know your stepchildren (and even your step grandchildren) and choose to specifically include them or exclude them in the definition of your descendants (in fact, you may want to include some and exclude others), it will be important to decide and communicate whether stepchildren in later generations should be included or excluded as beneficiaries of your trust.
 
• Beneficiaries conceived using “assisted reproductive technology.” In your trust, should the definition of “descendant” include a child, grandchild or great grandchild conceived using artificial insemination? What about a child, grandchild or great grandchild conceived using a surrogate mother? What about a child, grandchild or great grandchild conceived using an anonymous sperm or egg donor? While no one knows what the future definition of “assisted reproductive technology” will encompass, the definition of “descendant” in your trust agreement should specifically include or exclude heirs conceived using assisted reproductive technology.
 
Carefully Defining Your Trust Beneficiaries Will Keep Your Heirs Out of Court
 
Who may be your “descendant” twenty, thirty, or even fifty years into the future should be carefully considered when creating a trust that is intended to last for multiple generations. Clearly defining the class of beneficiaries who will be entitled to receive distributions from your trust will allow for a smooth transition between generations and keep your heirs and trustees out of court.
 
If you would like to discuss how you can clearly define your trust beneficiaries, please call our office.

Today many estate plans contain trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations. Since these trusts are designed to span multiple decades, it is important for the trust creator to consider including powers of appointment in the trust agreement to allow trust beneficiaries to be added or excluded at each generation.
 
What is a Power of Appointment?
 
In broad terms a power of appointment is the right granted to an individual under the terms of a trust to change the provisions of that trust.
 
Powers of appointment can be given to the current beneficiaries or trustees of a trust or to an outside third party such as a trust protector. They also come in many different forms and include powers that can be exercised while the individual is living (a “lifetime” power of appointment), or after the individual dies (such as a power of appointment exercised in the individual’s own will or trust, which is a “testamentary” power of appointment).
 
Powers of appointment can be as broad or limited as the trust creator desires. In other words, the trust creator can give the power holder the ability to make broad changes to the trust or to make very limited changes under limited circumstances.
 
Examples of Powers of Appointment in Action
 
• The trust creator’s spouse can be given the power to include or exclude children, grandchildren, and other heirs as trust beneficiaries after the spouse dies.
 
• The trust creator’s child can be given the power to include or exclude the child’s own heirs or the child’s spouse, siblings (brothers and sisters), or heirs of the child’s siblings (nieces and nephews) as trust beneficiaries after the child dies.
 
• If the trust creator is married but doesn’t have any children, the trust creator’s spouse can be given the power to include or exclude the trust creator’s extended family members and one or more charities as trust beneficiaries after the spouse dies.
 
Powers of appointment should only be drafted or included in a trust with the assistance of an experienced estate planning attorney. If you would like to discuss how to incorporate powers of appointment into your trust, please call our office.