What is a Special Needs Trust? – Annapolis and Towson Estate Planning

Supplemental Security Income and Medicaid are critical sources of support for those with disabilities, both in benefits and services.

To be eligible, a disabled person must satisfy restrictive income and resource limitations.

That’s why many families ask elder law and estate planning attorneys about the two types of special needs trusts.

Moberly Monitor’s recent article, “Things to know, things to do when considering a special needs trust,” explains that with planning and opening a special needs trust, family members can hold assets for the benefit of a family member without risking critical benefits and services.

If properly thought out, families can continue to support their loved one with a disability long after they’ve passed away.

After meeting the needs of their disabled family member, the resources are kept for further distribution within the family. Distributions from a special needs trust can be made to help with living and health care needs.

To establish a special needs trust, meet with an attorney with experience in this area of law. They work with clients to set up individualized special needs trusts frequently.

Pooled trust organizations can provide another option, especially in serving lower to more moderate-income families, where assets may be less and yet still affect eligibility for vital governmental benefits and services.

Talk to an elder law attorney to discuss what public benefits are being received, how a special needs trust works and other tax and financial considerations. With your attorney’s counsel, you can make the best decision on whether a special needs trust is needed or if another option is better based on your family’s circumstances.

Reference: Moberly Monitor (October 27, 2019) “Things to know, things to do when considering a special needs trust”

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Estate Planning, Simplified – Annapolis and Towson Estate Planning

Estate planning attorneys hear it all the time: “My children will have to figure it out,” “Everything will go to my spouse, right?” and “It’s just not a priority right now.” But then we read about famous people who don’t plan and the family court battles that go on for years. Regular families also have this happen. We just don’t read about it.

A useful article from The Mercury titled “Estate planning basics and an estate attorney meeting preparation” reviews the basics of estate planning and explains how following the advice of an experienced estate planning attorney can protect families from the financial and emotional pain of an estate battle.

Estate planning is not just concerned with passing property and assets along to heirs. Estate planning also concerns itself with planning for incapacity, or the inability to act or speak on one’s own behalf. This is what happens when someone becomes too ill or is injured, although we usually think of incapacity as having to do with Alzheimer’s disease or another form of dementia.

Lacking an estate plan, all the assets you have worked to accumulate are subject to being distributed by a court-ordered executor, who likely doesn’t know you or your family. Having an estate plan in place protects you and your family.

Living Will or Advanced Directive. A living will provides directions from a patient to their doctor concerning their wishes regarding life support. This alleviates the family from having to make a painful and permanent decision. They will know what their loved one wanted.

Springing Durable Power of Attorney. This document will allow someone you choose to make financial and legal decisions on your behalf, if you are not able to. Some attorneys prefer to use the Durable Power of Attorney, rather than the Springing POA, since the Springing event may need a physician to state that the individual has become incapacitated and it may require the court becoming involved. Powers of attorney can be drafted to be very limited in nature (i.e., to let one single task be accomplished), or very broad, allowing the POA to handle everything on your behalf.

Durable Power of Attorney for Health Care. This lets a person you name make health care decisions for you if you are not able to do so. The decision-making power is limited to health care only.

Should Your Health Care POA and Your Financial/Legal POA be the Same Person? Deciding who to give these powers to can be difficult. Is the person you are considering equally skilled with health care, as they are with finances? Someone who is very emotional may not be able to make health care decisions, although they may be good with money. Think carefully about your decision. Just remember it’s better that you make this decision rather than leaving it for the court to decide.

Last Will and Testament: This is the document people think of when they think about estate planning. It is a document that allows the person to transfer specific property after they die in the way they want. It also allows the person to name a guardian for any minor children and an executor who will be in charge of administering the estate. It is far better that you name a guardian and an executor than having the court select someone to take on these roles.

The estate planning process will be smoother if you spend some time speaking with your spouse and family members to discuss some of the key decisions discussed above. Talk with your loved ones about your thoughts on death and what you’d like to have happen. Think about what kind of legacy you want to leave.

Estate battles often leave families estranged during a time when they need each other most. Spend the time and resources creating an estate plan with a qualified estate planning attorney. Leaving your family intact and loving may be the best legacy of all.

Reference: The Mercury (Oct. 27, 2019) “Estate planning basics and an estate attorney meeting preparation”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Remaining Even and Fair in Estate Distribution – Annapolis and Towson Estate Planning

Treating everyone equally in estate planning can get complicated, even with the best of intentions.

What if a family wants to leave their home to their daughter, who lives locally, but wants to be sure that their son, who lives far away, receives his fair share of their estate? It takes some planning, says the Davis Enterprise in the article “Keeping things even for the kids.” The most important thing to know is that if the parents want to make their distribution equitable, they can.

If the daughter takes the family home, she’ll need to have an appraisal of the home done by a certified real estate appraiser. Then, she has options. She can either pay her brother his share in cash, or she can obtain a mortgage in order to pay him.

Property taxes are another concern. The taxes vary because the amount of the tax is based on the assessed value of the real property. That is the amount of money that was paid for the property, plus certain improvements. In California, property taxes are paid to the county on one percent of the property’s “assessed value,” also known as the “base year value” along with any additional parcel taxes that have become law. The base year value increases annually by two percent every year. This was created in the 1970s under California’s Proposition 13.

Here’s the issue: the overall increase in the value of real property has outpaced the assessed value of real property. Longtime residents who purchased a home years ago still enjoy low taxes, while newer residents pay more. If the property changes ownership, the purchase could reset the “base year value,” and increase the taxes. However, there is an exception when the property is transferred from a parent to a child. If the child takes over ownership of the home, they will have the same adjusted base year value as their parents.

If the house is going from parents to daughter, it seems like it should be a simple matter. However, it is not. Here’s where you need an experienced estate planning attorney. If the estate planning documents say that each child should receive “equal shares” in the home, each child receives a one-half interest in the home. If the daughter takes the house and equalizes the distribution by buying out the son’s share, she can do that. However, the property tax assessor will see that acquisition of her brother’s half interest in the property as a “sibling to sibling” transfer. There is no exclusion for that. The one-half interest in the property will then be reassessed to the fair market value of the home at the time of the transfer—when the siblings inherit the property. The property tax will go up.

There may be a solution, depending upon the laws of your state. One attorney discovered that the addition of certain language to estate planning documents allowed one sibling to buy out the other sibling and maintain the parent-child exclusion from reassessment. The special language gives the child the option to purchase the property from the other. Make sure your estate planning attorney investigates this thoroughly, since the rules in your jurisdiction may be different.

Reference: Davis Enterprise (Oct. 27, 2019) “Keeping things even for the kids”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do I Need a Beneficiary for my Checking Account? – Annapolis and Towson Estate Planning

When you open up most investment accounts, you’ll be asked to designate a beneficiary. This is an individual who you name to benefit from the account when you pass away. Does this include checking accounts?

Investopedia’s recent article asks “Do Checking Accounts Have Beneficiaries?” The article explains that unlike other accounts, banks don’t require checking account holders to name beneficiaries. However, even though they’re not needed, you should consider naming beneficiaries for your bank accounts if you want to protect your assets.

Banks usually offer their customers payable-on-death (POD) accounts. This type of account directs the bank to transfer the customer’s money to the beneficiary. The money in a POD bank account usually becomes part of a person’s estate when they die but is not included in probate when the account holder dies.

To claim the money, the beneficiary just has to present herself at the bank, prove her identity and show a certified copy of the account holder’s death certificate.

You should note that if you are married and have a checking account converted into a POD-account and live in a community property state, your spouse automatically will be entitled to half the money they contributed during the marriage—despite the fact that another beneficiary is named after the account holder passes away. Spouses in non-community property states have a right to dispute the distribution of the funds in probate court.

If you don’t have the option of a POD account, you could name a joint account holder on your checking account. This could be a spouse or a child. You can simply have your bank add another name on the account. Be sure to take that person with you because they’ll have to sign all their paperwork.

An advantage of having a joint account holder is that there’s no need to name a beneficiary because that person’s name is already on the account. He or she will have access and complete control over the balance. However, a big disadvantage is that you have to share the account with that person, who may be financially irresponsible and leave you in a bind.

Remember, even though you may name a beneficiary or name a joint account holder, you should still draft a will. Speak with a qualified estate planning attorney to make sure about all your affairs, even if your accounts already have beneficiaries.

Reference: Investopedia (August 4, 2019) “Do Checking Accounts Have Beneficiaries?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Why Do Seniors Get Scammed by Family Members? – Annapolis and Towson Estate Planning

The Detroit Free Press’ recent article entitled “Elderly getting scammed by their own family members — and one group wants to stop it” says that the average victim can lose $120,000 to financial exploitation, according to AARP research. Repeated, out-of-the-ordinary cash withdrawals are a big sign of exploitation and scams.

“People are literally being robbed every day through scams or financial exploitation from members of their own family,” said Debra Whitman, executive vice president and chief public policy officer at AARP.

As part of the battle, AARP has launched a new online training module for bank and credit union employees who work with customers on the front lines as a way to prevent financial exploitation.

Instances of elder financial abuse can increase during the holidays because more family members and friends are around.

Financial exploitation has included abusing the relationship with an older relative or friend to force him or her into giving them a big portion of savings that’s in a bank or transferring property to someone else. It may begin with withdrawing just a few hundred dollars from a bank account and then build to repeated requests for more money. This type of exploitation may include misusing a power of attorney by denying an elderly person access to his or her own money and withdrawing money out of a senior’s bank account.

Many perpetrators are known to the victim, such as family members, caregivers, or other workers in the home. In addition to losing a life’s savings, seniors who are victims of scammers or loved ones can have a more rapid decline in health because of the emotional stress from being a victim of financial abuse.

According to a report called “Suspicious Activity Reports on Financial Exploitation: Issues and Trends” released in February by the Consumer Financial Protection Bureau, older adults lost an average of $48,300, when the activity involved a checking or savings account. This type of suspicious activity on average took place over a four-month period. Suspicious activity reports for elder financial exploitation quadrupled from 2013 to 2017. In 2017, this activity totaled 63,500 incidents. These reports may also be only a fraction of actual incidents, which may go unreported by victims.

AARP is promoting an online training effort called BankSafe that trains bank tellers and other front-line staff to take more direct action when they suspect a case of financial exploitation. They are encouraged to ask the customer probing questions when they see a possible red flag and even mention the situation to a supervisor who may be able to intervene.

AARP’s BankSafe pilot program was launched for six months at nearly 500 branches of banks and credit unions in 11 states. Nearly $1 million was protected when front line employees who participated in the pilot program intervened and stopped criminals from stealing money from the accounts of seniors. In some instances, the bank employee who stopped someone from being exploited refused or delayed a suspicious transaction, put a hold on the account, or explained concerns to the customer who was a potential victim.

The average victim was a woman between 70 and 79 with less than $20,000 in her bank account, according to the new AARP research. The estimated cost of financial exploitation varies but may be more than $2.9 billion a year.

Reference: Detroit Free Press (October 16, 2019) “Elderly getting scammed by their own family members — and one group wants to stop it”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

The Downside of an Inheritance – Annapolis and Towson Estate Planning

As many as 1.7 million American households inherit assets every year. However, almost seventy-five percent of those heirs lose their inheritance within a few years. More than a third see no change or even a decline in their economic standing, says Canyon News in the article “Three Setbacks Associated With Receiving An Inheritance.”

Receiving an inheritance should be a positive event, but that’s often not the case. What goes wrong?

Family battles. A survey of lawyers, trust officers, and accountants conducted by TD Wealth found that at 44 percent, family conflicts are the biggest cause for inheritance setbacks. Conflicts often arise when individuals die without a properly executed estate plan. Without a will, asset distributions are left to the law of the state and the probate court.

However, there are also times when even the best of plans are created and problems occur. This can happen when there are issues with trustees. Trusts are commonly used estate planning tools, a legal device that includes directions on how and when assets are to be distributed to beneficiaries. Many people use them to shield assets from estate taxes, which is all well and good. However, if a trustee is named who is adverse to the interests of the family members, or not capable of properly managing the trust, lengthy and expensive estate battles can occur. Filing a claim against an adversarial trustee can lead to divisions among beneficiaries and take a bite out of the inheritance.

Poor tax planning. Depending upon the inheritance and the beneficiaries, there could be tax consequences including:

  • Estate Taxes. This is the tax applied to the value of a decedent’s assets, properties and financial accounts. The federal estate tax exemption as of this writing is very high—$11.4 million per individual—but there are also state estate taxes. Although the executor of the estate and not the beneficiary is typically responsible for the estate taxes, it may also impact the beneficiaries.
  • Inheritance Taxes. Some states have inheritance taxes, which are based upon the kinship between the decedent and the heir, their state of residence and the value of the inheritance. These are paid by the beneficiary and not the estate. Six states collect inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Spouses do not pay inheritance taxes when their spouse’s die. Beneficiaries who are not related to decedents will usually pay higher inheritance taxes.
  • Capital Gains Tax. In certain circumstances, heirs pay capital gains taxes. Recipients may be subject to capital gains taxes, if they make a profit selling the assets that they inherited. For instance, if someone inherits $300,000 in stocks and the beneficiary sells them a few years later for $500,000, the beneficiary may have to pay capital gains taxes on the $200,000 profit.

Impacts on Government Benefits. If an heir is receiving government benefits like Social Security Disability Insurance (SSDI), Supplemental Social Security (SSS) or Medicaid, receiving an inheritance could make them ineligible for the government benefit. These programs are generally needs-based and recipients are bound to strict income and asset levels. An estate planning attorney will usually plan for this with the use of a Special Needs Trust, where the trust inherits the assets, which can then be used by the heir without losing their eligibility. A trustee is in charge of the assets and their distributions.

An estate planning attorney can work with the entire family by planning for the transfer of wealth and helping educate the family so that the efforts of a lifetime of work are not lost in a few years’ time.

Reference: Canyon News (October 15, 2019) “Three Setbacks Associated With Receiving An Inheritance”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Sharing Legal Documents and Passwords – Annapolis and Towson Estate Planning

While parents are alive and well is the time to prepare for the future and when they begin to decline.

An adult child who is a primary agent and also executor has questions about organizing documents and managing storage in a digital format, as well as how to secure their passwords for online websites. The advice from the article “Safe sharing of passwords and legal documents” from my San Antonio is that these two issues are evolving and the best answers today may be different as time passes.

Safe and shareable password storage is a part of today’s online life. However, passwords used to access bank and investment accounts, file storage platforms, emails, online retailers and thousands of other tools used on a desktop are increasingly required to be strong and complex and are difficult to remember. In some cases, facial recognition is used instead of a password.

Many rely on their internet browsers, like Chrome, Safari, etc., to remember passwords. This leaves accounts vulnerable, as many of these and other browsers have been hacked.

The best password solutions are stand-alone password managers. They offer the option of sharing the passwords with others, so parents would provide their executor with access to their list. However, there are also new laws regarding digital assets, so check with your estate planning attorney. You may need to create directives for your accounts that specify who you want to have access to the accounts and the data that they contain.

Storage of legal documents is a separate concern from password-sharing. Shared legal documents need to be private, reasonably priced and secure.

Some password managers include document storage as part of the account. The documents can be uploaded in an encrypted format that can be accessed by a person, who is assigned by the account owner.

Document vault websites are also available. You will have to be extremely careful about selecting which one to use. Some of the websites resell data, which is not why you are storing documents with them. One company claims to offer a “universal advance digital directive,” which they say can provide digital access worldwide to documents, including an emergency, critical and advance care plan.

The problem? This company is located in a state that does not permit the creation of a legally binding advance directive, unless it is in writing, includes state-specific provisions and is signed in front of either two qualified witnesses or a notary.

Talk with your estate planning attorney about securing estate planning documents and how to protect digital assets. Their knowledge of the laws in your state will provide the family with the proper protection now and in the future.

Reference: my San Antonio (October 14, 2019) “Safe sharing of passwords and legal documents”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do Name Changes Need to Be Reflected in Estate Planning Documents? – Annapolis and Towson Estate Planning

When names change, executing documents with the person’s prior name can become problematic.

For example, what about a daughter who was named as a health care representative by her parents several years ago, who marries and changes her name? Then, to make matters more complicated, add the fact that the couple’s daughter-in-law has the same first name, but a different middle name. That’s the situation presented in the article “Estate Planning: Name changes and the estate plan” from nwi.com.

When a person’s name changes, many documents need to be changed, including items like driver’s licenses, passports, insurance policies, etc. The change of a name isn’t just about the person who created the estate plan but also to their executors, heirs, beneficiaries and those who have been named with certain legal powers through power of attorney (POA) and health care power of attorney.

It’s not an unusual situation, but it does have to be addressed. It’s pretty common to include additional identifiers in the documents. For example, let’s say the will says I leave my house to my daughter Samantha Roberts. If Samantha gets married and changes her last name, it can be reasonably assumed that she can be identified. In some cases, the document may be able to stay the same.

In other instances, the difference will be incorporated through the use of the acronym AKA—Also Known As. That is used when a person’s name is different for some reason. If the deed to a home says Mary Green, but the person’s real name is Mary G. Jones, the term used will be Mary Green A/K/A Mary G. Jones.

Sometimes when a person’s name has changed completely, another acronym is use: N/K/A, or Now Known As. For example, if Jessica A. Gordon marries or divorces and changes her name to Jessica A. Jones, the phrase Jessica A. Gordon N/K/A Jessica A. Jones would be used.

However, in the situation noted above, most attorneys to want to have the documents changed to reflect the name change. First, there are two people in the family with similar names. It is possible that someone could claim that the person wished to name the other person. It may not be a strong case, but challenges have been made over smaller matters.

Second is that the document being discussed is a healthcare designation. Usually when a health care power of attorney form is being used, it’s in an emergency. Would a doctor make a daughter prove that she is who she says she is? It seems unlikely, but the risk of something like that happening is too great. It is much easier to simply have the document updated.

In most matters, when there is a name change, it’s not a big deal. However, in estate planning documents, where there are risks about being able to make decisions in a timely manner or to mitigate the possibility of an estate challenge, a name change to update documents is an ounce of prevention worth a pound of trouble in the future.

Reference: nwi.com (October 20, 2019) “Estate Planning: Name changes and the estate plan”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do My Heirs Need to Pay an Inheritance Tax? – Annapolis and Towson Estate Planning

U.S. News & World Report explains in its article, “What Is Inheritance Tax?” that estate taxes and inheritance taxes are often mentioned as if they’re the same thing. However, they’re really very different in concept and practice.

Remember that not every estate is required to pay estate taxes, and not every heir will pay inheritance tax. Let’s discuss how to determine whether these taxes impact you.

Inheritance can be taxable to heirs. However, this is based upon the state in which the deceased lived and the heirs’ relationship to the benefactor.

Inheritance tax is a state tax on a portion of the value of a deceased person’s estate that’s paid by the inheritor of the estate. There’s no federal inheritance tax. Currently, there are only six states that impose an inheritance tax, according to the American College of Trust and Estate Counsel. The states that have an inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Inheritance tax laws and exemption amounts are different in each of these six states. In Pennsylvania, there’s no inheritance tax charged to a surviving spouse, a son or daughter age 21 or younger and certain charitable and exempt organizations. Otherwise, the Keystone State’s inheritance tax is charged on a tiered system. Direct descendants and lineal heirs pay 4.5%, siblings pay 12% and other heirs pay a cool 15%.

Inheritance tax is determined by the state in which the deceased lived. Estate taxes are deducted from the deceased’s estate after death and aren’t the responsibility of the heirs. Some states also charge their own estate taxes on assets more than a certain value. The states that charge their own estate tax are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and Washington, D.C.

Decreasing estate taxes are the responsibility of the deceased prior to his or her death. They should work with an estate planning attorney to map out strategies that can lessen or eliminate estate taxes for certain assets.

Remember that inheritance taxes are state taxes. They are imposed by only six states and are the responsibility of the heirs of the estate, even if they live in another state. In contrast, estate taxes are federal and state taxes. The federal estate tax is a 40% tax on assets more than $11.4 million for 2019 ($22.8 million for married couples). This is charged, regardless of where you live. Some states have additional estate taxes with their own thresholds.

Inheritance taxes are paid by the heirs and estate taxes are paid by the estate. An estate planning attorney can help to find ways to reduce taxes and transfer money efficiently.

Reference: U.S. News & World Report (October 8, 2019) “What Is Inheritance Tax?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Why Should I Pair my Business Succession and Estate Planning? – Annapolis and Towson Estate Planning

A successful business exit plan can accomplish three important objectives for a business owner: (i) financial security because the business sale or transfer provides income that the owner and owner’s family will need after the owner’s exit; (ii) the right person where the business owner names his or her successor; and (iii) income-tax minimization.

Likewise, a successful estate plan achieves three important personal goals: (i) financial security for the decedent’s heirs; (ii) the decedent (not the state) chooses who receives his or her estate assets; and (iii) estate-tax minimization.

Business owners will realize that the two processes have the same goals. Therefore, they can leverage their time and money and develop their exit plans into the design of their estate plans. The Phoenix Business Journal’s recent article “Which comes first for Arizona business owners: estate planning or exit planning?” explains that considering exit and estate planning together, lets a business owner ask questions to bring their entire picture into focus. Here are some questions to consider:

  1. If a business owner doesn’t leave her business on the planned business exit date, how will she provide her family with the same income stream they would’ve enjoyed if she had?
  2. How can a business owner be certain that her business retains its previously determined value?
  3. Regardless of whether an owner’s exit plan involves transferring part of the business to her children, does her estate plan reflect and implement her wishes, if she doesn’t survive?
  4. If an owner dies before leaving the business, can she be certain that her family will still get the full value of the business?

Another goal of the exit planning process is to protect assets from creditors during an owner’s lifetime and to minimize tax consequences upon a transfer of ownership.

Because planning exits from both business and life are based on the same premises, it can be relatively easy to develop a consistent outcome. There isn’t only one correct answer to the “estate or exit planning” question. A business owner must act on both fronts since a failure to act in either case creates ongoing issues for owners and for their businesses and families.

Reference: Phoenix Business Journal (October 8, 2019) “Which comes first for Arizona business owners: estate planning or exit planning?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys