Month: January 2017

Estate Planning Documents for Adults with Special Needs

Thanks to technology and medical research, more and more children with special needs are living productive lives well into adulthood, making it more and more likely that they will outlive their parents. As a result, parents must plan for their adult children with special needs.

A significant number of these adult children with special needs will require government programs such as Medicaid and SSI as well as other programs. The problem lies in the fact that the resources considered to be available to a special needs adult can reduce, or totally eliminate, that person’s eligibility for such programs.

A carefully-crafted special needs trust can preserve the eligibility for government benefits while providing additional financial resources for the special needs adult.

Self-Settled Special Needs Trust

While a special needs trust is considered the “centerpiece” of any estate plan intended to benefit a special needs adult, there are other pertinent documents as well.

One of these is a self-settled special needs trust, which is funded with the child’s own assets, such as an inheritance, accumulated wealth or a personal injury settlement.

Any type of asset which the disabled adult has the legal right to use without restriction can be placed into a self-settled special needs trust. There are downsides to this type of special needs trust, however, so it is important to consider the following:

  • Medicaid must be reimbursed from the self-settled trust for benefits received by the beneficiary, upon the beneficiary’s death;
  • A self-settled special needs trust can limit the types of payments made by the trustee;
  • A self-settled special needs trust may, in some instances, require an annual payment be made to Medicaid;
  • The assets in a self-settled special needs trust will be taxed as though the assets still belong to the beneficiary;
  • The beneficiary must be under the age of 65 for a self-settled special needs trust to be established, and
  • If the rules of a self-settled special needs trust are not followed to the letter, the beneficiary’s eligibility for SSI or Medicaid could be compromised.

Other aspects of an estate plan which must be contemplated when considering the future of a special needs adult include the following:

  • When you are planning for the future of your child as a special needs adult, you may not want to name that child as beneficiary of your retirement plan or retirement account, as this could make them ineligible for government assistance programs. A better choice might be to leave your retirement plan or individual retirement account to another beneficiary, then make an equalizing gift of other assets to the special needs trust.
  • If you currently have term life insurance, you might want to purchase a permanent life insurance policy. While this type of policy is more expensive, you can expect this type of policy to more fully provide for your special needs adult child, no matter your age at death. Permanent life insurance does not require you to re-qualify for life insurance once the policy is in force. If you are in deteriorating health, it can become difficult to continue to qualify for a term life policy.
  • If your adult child with special needs will require some level of caregiving, you will want to make sure to have a will which has a provision appointing a guardian, as well as a successor guardian in the event of the original guardian’s incapacity or death.
  • Many estate planning attorneys will advise clients seeking to ensure the future of an adult child with special needs to have a nonbinding letter or statement of wishes regarding care and custody of the adult child during the interim, before the guardian has taken over the duties. There is usually a period of time before the payment of life insurance proceeds and the appointment of a successor guardian when everything is somewhat “up in the air.” Thus, a nonbinding letter can advise those taking care of the adult with special needs about medications, dietary restrictions, housing arrangements, and any other pertinent details.

While taking care of all of the above issues is important, as noted, a special needs trust is the backbone of any estate plan for parents of an adult child with special needs. Your Virginia estate planning attorney can offer practical short and long-term considerations tailored to your unique situation, and the nature of your adult child’s disability.

There may be others in the family, such as siblings, grandparents, aunts or uncles who want to help provide for the adult special needs child in their own estate plans, therefore the special needs trust could apply to others, in addition to the parents.

The experienced Virginia estate planning attorneys at Melone Hatley. can help parents and relatives of an adult with special needs to ensure that assets will pass to the child, but will not be considered available assets for the purpose of governmental assistance. Contact us today for a consultation.

Estate Planning Myths in Virginia & How To Avoid Mistakes

According to a Forbes article, at least 51 percent of Americans between the ages of 55 and 64 don’t have a will. That number is even higher among those between the ages of 45 and 54, at 62 percent. Perhaps one reason these numbers are so high is due to the number of myths and misunderstandings associated with estate planning. Whether due to inaccurate information from friends and family members or incomplete reports by the media, these myths can sometimes stop those who were intending to engage in estate planning from doing so. If you have any assets at all—and most everyone does—and you want to ensure you leave those assets to loved ones you choose, then it’s essential that you have an estate plan. You may have heard one or more of the following estate planning myths:

Probate is expensive and difficult. 

If your estate goes through probate, that probate could cost your heirs a considerable amount of money and can cause the process to drag on for months and months, or even years. There are certain costs associated with probate, such as court filing fees, attorney’s fees and certain miscellaneous costs, however attempting to avoid probate can also result in costs. Your Virginia estate planning attorney can tell you the pros and cons of probate as opposed to other possible options that avoid probate. Generally speaking, a simple probate can last from six to 18 months. The costs associated with the probate process are typically about 2-5 percent of the value of the estate, although this can vary significantly. For those with an estate valued under $50,000, the probate process is simple and cost-effective. Proper use of beneficiary designations can reduce or eliminate the need for any assets to pass through probate.

The government will seize all your assets if you die without a will.

This is absolutely not true. State law will dictate how your assets are divided among your heirs. Should you have absolutely no living relatives—even a third cousin twice removed—then your assets will go to the state of Virginia. You can avoid this scenario by ensuring you have a comprehensive Virginia estate plan in place.

I don’t need a Will if I have a power of attorney. 

A power of attorney loses its authority when the individual dies. Without a designated agent named as executor or personal representative, the court will need to appoint an administrator to pay your final expenses and manage distribution of the estate.

I’m married, so I don’t need a Will. 

You may not want your spouse to inherit your entire estate. Consider the possibility that your spouse may find a new partner, or have extended family, that you may not want to receive the benefit of your estate. A proper plan allows you to preserve a benefit for both your spouse as well as for children, grandchildren, or others.

A trust will significantly reduce the costs associated with probate.

While a trust does not require probate, therefore there are no direct probate costs, a trust can have a higher upfront and maintenance cost. When set up to provide financial distributions over a period of time, there will be additional tax preparation fees, and probably additional attorney’s fees as well. probate

I have a trust, so my assets are protected. 

A revocable living trust does not shield all assets from business risks, creditors, or lawsuits. Since the trust can be amended or revoked at any time, any assets held in trust are open to claims from third parties. In certain situations, an irrevocable trust can provide protection for certain assets, but several criteria must be met.

Estate taxesalso known as “death taxes”—are unfair.

You may have heard that when you die, the government will tax money you’ve already paid taxes on. While this could be true in certain instances, more often it is not. Most estate taxes are imposed on income on which you have not previously paid taxes.

By engaging in estate planning, you have protected your assets.

It is important to understand that estate planning is not asset protection, and even a family trust will not protect your assets from business risks and lawsuits.

Only the very wealthy need an estate plan.

Absolutely not true! If you have any assets at all, you could benefit from an estate plan. Furthermore, an estate plan is not only for leaving your assets to those you choose. Estate plans also ensure your finances and health care decisions will be taken care of as you would wish in the event you become incapacitated, and that your children will have a guardian of your choice in the event of your death.

You think you are too young for an estate plan.

Of course, no one ever wants to think about a tragedy happening to a relatively young person, but, unfortunately, they do occur. By the time you actually need an estate plan, it could be too late, no matter your age. Take the time now to speak with an experienced Virginia estate planning attorney at Melone Hatley to ensure those you love will be well-taken care of in the event of your death or incapacity. Contact us today to learn more.
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