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Get Your Estate Plan Right

A column I came across in the Wall Street Journal the other day got right to the point when it comes to estate planning.

Last Will And Testament (Photo credit: Ken_Mayer)

Start out by making a will.

The column quotes a financial advisor from Illinois who says he has clients in their 40s and 50s who have never done a will.

But it says there is now a “growing urgency” among Baby Boomers to get their estate plans in order. And this is especially important for those who have children with disabilities.

The will, the column says, is the foundation of any estate plan. It says who gets what and appoints guardians for children or adult children with disabilities.

Without a will, the state will decide these things for you.

Estate plans may also include trusts in the will to take care of children and name trustees to oversee those trusts. Without a trust, the children would get their inheritance right away once they are of age.

A special needs trust is a must if you have a child with a disability who is unlikely to be able to support himself or herself, the column points out. If your assets were to go right to the child, he or she might be disqualified from government benefits. The trust gets around that.

One reason many parents delay setting up trusts is that they don’t know whom to name as the trustee. The column’s advice for these people: name someone and you can revisit it later if you want.

If the child is one with disabilities, you may want to consider naming more than one person to handle different duties for the child.

There are many things to think about. The message of the column — and of this blog post — is that you need to get on this if you haven’t already.

You never know what is going to happen in life. Better to be prepared.

Actor Hoffman Made Mistakes With His Will

I came across an interesting article recently about the actor Phillip Seymour Hoffman and how he made numerous mistakes in his estate planning that are going to impact his partner and kids.

I thought his story could serve as a cautionary tale.

Hoffman, who died of a drug overdose earlier this year, supposedly did not want to make “trust fund kids” out of his three children. That may be admirable, but the way he went about it will actually do harm to his long-time partner and kids.

According to the story on marketwatch.com, probate court documents reveal that Hoffman’s wishes were that his kids get no part of his $35 million estate and that all of it go to his long-time partner Mimi O’Donnell, the mother of his kids but to whom he was not married.

When a wealthy person dies, he or she can do one of three things: leave the money to their family; leave it to charity; or leave it to the IRS in the form of estate taxes.

Hoffman’s lack of planning maximized the IRS’s take with no benefit to his family or to charities.

While I understand the desire not to create “trust fund kids,” there are ways to do it so they do not become spoiled layabouts.

Now, about 40 percent of Hoffman’s estate over the first $5.4 million will go to the IRS because he and O’Donnell were not married. That’s $12 million.

Much of that could have gone to charities he cared about.

And the matter of no trusts for his kids? What about their education? He could have set up trusts to fund just that. Or trusts to fund medical costs if ever necessary. Or he could have set up trusts that kick in only if the kids accomplish certain goals or earn a certain amount of money on their own. Apparently, he did include his first child in his will, but not the second and third since they had not yet been born when he made out the will.

Another reason why updating wills periodically is important.

The Dangers Of Using Cookie-Cutter, Downloadable Legal Forms

When people learn that I am an estate planning and elder law attorney, some of them ask what I think about “do it yourself” wills, trusts, and other estate planning forms that can be found online. Of course, when I tell them that it is advisable to hire an attorney, it sounds rather self-serving.

Last Will And Testament (Photo credit: Ken_Mayer)

A recent article in the ABA Journal speaks to my concerns about the potential pitfalls and unwanted consequences of using downloadable forms. It discusses the case of a Florida woman, Ann Aldrich, who used an “E-Z Legal Form” to create her will in 2004. In the will, she left all of her assets to her sister, with the caveat that if Aldrich’s sister predeceased her, the assets would go to her brother.

Sounds simple enough, right? So why, then, did the Florida Supreme Court rule that Aldrich’s two nieces were entitled to part of her estate? Because the E-Z Legal Form failed to include what is known as a residuary clause providing for property not listed in the will. That is, assets acquired by Aldrich after 2004, when she made her will, were distributed according to the laws if intestacy. With regard to these assets, it was as if the will had never been created in the first place! Florida intestacy laws mandated that the nieces inherit these assets, not Aldrich’s brother.

One of the concurring justices in the case, Barbara Pariente, said: “While I appreciate that there are many individuals in this state who might have difficulty affording a lawyer, this case does remind me of the old adage ‘penny-wise and pound-foolish.’ I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees—the precise results the testator sought to avoid in the first place.”

Thank you, Justice Pariente. I couldn’t have said it better myself.

Income Tax Benefits Available To Families With Special Needs Children

As the cost to care for children with special needs continues to rise, parents need all the help they can get. Unfortunately, as many as 15% to 30% of parents with a special needs child are not taking full advantage of tax benefits available to them, according to a recent article in the Journal of Accountancy. Hundreds, perhaps thousands, of dollars in tax benefits and deductions are going unclaimed by some families. Let’s take a look at some of the benefits available.

Cropped version of Image:Child piggyback.jpg. ...

(Photo credit: Wikipedia)

The Dependency Exemption
This exemption can be taken for a “qualifying child” or “qualifying relative.” In 2013, the exemption amount was $3,900. In addition, if the loved one with special needs is permanently or totally disabled, the exemption may be available regardless of his or her age.

Special School Instruction
Certain expenses associated with attending a special school can be deducted as medical expenses. These include lodging, transportation, and meals. Costs incurred for treatment, care, supervision, training, and more can also be deducted if the special school provides them.

Capital Expenditures
Capital expenditures to a residence that are undertaken to provide for medical care or assistance with physical limitations (such as an entrance ramp, railings, custom bathing facilities, etc.) may be deductible as medical expenses.

Conferences and Seminars
Registration fees and travel expenses to attend conferences and seminars dedicated to issues essential to the care of a special needs child may be deductible.

Impairment-Related Work Expenditures
If a special needs child gets a job later in life, some expenses related to maintaining his or her employment may be deductible.

These are just some of the income tax benefits available to families with special needs children. It is important to note that the rules governing eligibility for these tax deductions are extremely complicated and change over time. You can learn about them by reading the entire Journal of Accountancy article at http://www.journalofaccountancy.com/Issues/2013/Jun/20137378.htm.

If you are caring for a child with special needs, you are not alone. I am always available to discuss special needs planning tools and strategies, including special needs trusts. Give me a call at your earliest convenience.

Why Create a Trust?

Due to changes that limited federal estate tax to only high valued estates, many people believe there is no reason to set up a trust to guard their assets. However, a recent article outlines five reasons that trusts might be the right choice even for smaller estates:

2. A trust will avoid the often long and costly, and always public, probate process, where the will, the accounting of the estate disbursements and revenue, and the probate asset inventory will all be available to the public.

3. Allowing assets to be distributed through a trust will give parents the ability to moderate how much access a young child has to a house, life insurance, retirement assets, or cash, so that the children are not put in a position to misuse estate assets. It may also help where there is concern over poor money management skills, business liability, or creditor problems.

(Photo credit: MyTudut)

4. A child’s eligibility for public benefits can be affected if the child receives an inheritance. Whereas, holding assets in trust for the benefit of the child will help ensure that the child remains eligible and that resources are there to provide care over the long term.

5. A revocable trust also gives a person the ability to determine how he or she will be cared for and how decision will be made in the case of incapacitation.

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