Attorney & Mediator
Attorney & Mediator

When you Need a Trust – Minor Children

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when the individuals have minor children and there are substantial assets that will pass to the children upon the death of the parents.

If the couple only have Wills, there is no ability to put strings or conditions on money left to children.  If the children are minors, the Court will appoint a Guardian and Conservator to care for the children and their assets.  When the children attain the age of 18, they will receive whatever principal is left.  There will be no conditions on how the money is to be spent.  The child might decide to use it to further his or her education; however, alternatively, it might be used for a sports car.

A revocable trust enables the grantor to put strings on money given to the children and to hold the money in trust for a longer period of time.   The money remains in trust and might only be available for college costs until the age of 22 or 23.  The distribution of the principal left at that point might staggered so that the child receives lump sums at 22, 25 and 27.

Who needs an Estate Plan?

Who needs an estate plan?  Everyone over the age of 18.

Older Individuals: This is more obvious and more individuals over the age of 55 will actually engage in estate planning.  They feel that they now have the assets accumulated that need direction after their death.  Also, as they are older, they believe that the chances of death are greater.

They are right on both counts.  It is important as we age to look at what we have accumulated in the areas of real estate, cash assets and personal property.  Then it is important to plan for the ultimate distribution of these assets upon our death.  For couples, it is important to plan for the comfortable continuation of life for the survivor.

Individuals with minor children: This group often does not engage in estate planning because they may have more debt than assets.  Since they feel they do not have an “estate” they believe that there is no need to plan.

The only place to designate a guardian for their children if they should pass is a Last Will and Testament.  This is more important that who gets grandma’s hutch. 

When an individual has a child, one of the first considerations should be for that child’s future.  Part of the unknown future is what happens if the parents die.  While it is less likely that both parents will die prior to the child(ren) attaining the age of 18, it happens.  Accidents happen – suddenly.

Who would care for your children?  You must name these individuals.

How would they care for your children?  If you do not have sufficient assets to raise your children, you should consider the purchase of sufficient life insurance to provide for care of your children until they are 18 or 21. 

Individuals over 18: This is a group that understandably do not even think about the estate planning process.  However, there are two vitally important documents that each of them need – Durable Power of Attorney and Durable Power for Health Care or Patient Advocate Designation.

The minute a child turns 18, he or she is considered to be an adult.  While still living at home, on his/her parents’ medical insurance, if he/she were injured in an accident or became acutely ill, the parents would be unable to direct any of their child’s medical care.  They would not be permitted to discuss their child’s medical condition with the medical staff at the hospital and would not be permitted to have any access to the medical records or information. 

It is for this reason that every child turning 18 should execute these documents naming his/her parents as the agents and advocates.  This is not taking adult power away from the child, but providing for his/her care and safety.

So the answer to the question, “Who needs an estate plan?” is everyone.  It will take a different form with different documents, be all need a plan. 

Special Needs Trusts

Needs based government programs, Supplemental Security Income (SSI) and Medicaid, are important programs for people with disabilities.  Because of their needs based requirements, recipients of these benefits cannot have more than $2,000 in assets.  If such a person were to receive more than $2,000, he or she could lose SSI and Medicaid.

These programs, however, provide only for the bare necessities: food, clothing and shelter, and then on a very modest basis.

If you have a family member that you would be leaving a portion of your estate to upon your death, you need to investigate the manner in which you can leave money to the individual without jeopardizing his or her benefits.  If you were to leave a gift of as little as $10,000, he or she could lose these important benefits and actually be worse off after the gift.  Not the intended consequence.

The Special Needs Trust or Supplemental Needs Trust is a vehicle which allows the individual to maintain his or her government eligibility while making assets available for other needs of the person. 

First, the money in such a trust can never be given directly to the individual.  It is instead distributed on his or her behalf for good or services that benefit him or her.

Common uses of assets in a Special Needs Trust can include transportation (automobile, insurance, repairs), appliances (TV, VCR, stereo, microwave, stove, refrigerator, washer/dryer), computers (hardware, software, programs, internet service) funeral expenses, furniture, home furnishings, pet and pet’s supplies, telephone or cell phone service and equipment, vacations.

How should such a trust be set up?  It can be a part of a parent or grandparent’s estate plan if the parent is providing for the disabled child.  It is important that the attorney drafting the estate plan is familiar with such trusts and the requirements.

If the individual is setting up the trust due to money he or she may already have received, a “self-settled” trust, then the trust must be unchangeable, only for the benefit of the disabled individual, and any assets left at the death of the disabled individual must be payable to the government for repayment of government benefits.

A Special Needs Trust is an important tool for improving the life of a disable individual by continuing to provide those extras that he or she received while his or her parents or grandparents were alive. 

When you Need a Trust – Real Property in Multiple States

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when you have a beneficiary that is disabled or is “special needs”.

Needs based government programs such as Medicaid and SSI, provide for an individual’s food and shelter at a very modest level.  The recipient of these benefits may not, with some exceptions, have assets greater than $2,000.

If you leave such an individual a gift through your Will or Trust exceeding this limit, he or she may be disqualified from his or her benefits.  This unintended consequence would create more harm than the potential good of receiving the bequest.

It is important to leave monies to such an individual through a Special Needs Trust which restricts the distribution of funds to third parties for amenities such as transportation, furnishing, and travel for the disabled individual’s benefit.  In this way, you are able to provide for the individual over his or her lifetime, giving an enhanced lifestyle, while not jeopardizing the governmental benefits.