Do You Have the Correct Type of Special Needs Trust?

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Most of my clients who sit down to discuss estate planning for their special needs child are surprised to hear that there are actually three types of special needs trusts, one of them being much more appealing than the other two. The question of which one you need to use is based on the source of the trust funding.

If the trust is funded by assets that belong to the special needs child (usually by way of a personal injury settlement, or possibly an inheritance from a well-meaning relative) then it's called a "self-settled" or "D4A" trust.  This is not an ideal situation because Federal law requires that the trust include a "pay-back" provision.  Such a provision states that upon the death of the special needs child the remaining trust funds must go to the State, up to the amount that the State has contributed towards the care of your child.  It essentially allows the State to get reimbursed and it's possible that you would not be able to have the money go to family members instead.  It depends on how much the State has assisted your child.

If the money going into the trust comes from a source other than the special needs child (presumably the parents or possibly other relatives), then it's called a "third party" special needs trust.  This type of trust does not require a pay-back provision for the State.  Upon the death of your child, the remaining trust funds can go to family members, charities, churches or anywhere else you would like it to go.

If you have a special needs trust then it's worth taking the time to have your lawyer review it and make sure that it doesn't have that nasty pay-back provision unless it has to.  You'd be surprised by how many special needs trusts I review where the attorney unnecessarily/accidentally included a pay-back provision.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Keeping it Simple with "Small" Probate in Connecticut

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As you take whatever steps that are necessary to avoid probate in Connecticut (which seems to be a mild passion for many of my clients) you should keep in mind that the probate process for "small" probate estates is pretty quick and straightforward.

"Small" is, of course, a relative term.  As far as the State legislature is concerned, your estate is small if your probate assets are under $40,000.  "Probate assets" are assets that are solely in the name of the decedent and do not have a designated beneficiary.  So, joint assets and things like life insurance policies, annuities, 401K's, IRA's, POD (payable-on-death) accounts, etc. are generally not probate assets.

Please note that the threshold amount for "small" probate was $20,000, but that was increased to $40,000 in 2007.

Generally speaking, if it's a small estate you only need to file the following with the probate court: (1) the original will, (2) an affidavit confirming that you are not "probating" the will, (3) an "affidavit in lieu of administration" , (4) an original death certificate, (5) a copy of the paid funeral bill, or a statement of the outstanding balance, and (4)  an estate tax return listing everything that was in the decedent's name (both probate AND non-probate assets) so that the Court can determine if any estate tax is due.

If there is no will then the remaining funds will be distributed in accordance with the laws of intestacy, which is to say that it generally goes to the next-of-kin under Connecticut law.

If there is a will and the distribution instructions are not consistent with the laws of intestacy then you can still keep it simple if all the heirs waive their right to contest the will.  The Court will then simply order distribution pursuant to the will's instructions. 

Of course, if the heirs aren't pleased with the proceedings for some reason, then things will probably get pretty complicated.  In all likelihood, the simple process is out the window and you're unfortunately looking at a full-blown probate process. 

If you have some time on your hands and you're not intimidated by judicial forms and some paper-pushing then you can probably tackle a "small" probate process on your own without legal help.  Otherwise, it probably makes financial sense to simply hire an experienced probate attorney who can wrap up the process as quickly as possible.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

What is "Elder Law"?

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This question is posed to me pretty often at networking events. Unfortunately, as is the case with many queries in the legal profession, the answer is not a simple one, and I'm sure my colleagues in the Elder Law bar would find it difficult to come up with a definition that we all agree on. 

"Elder Law", covers a relatively wide swath of the law because it addresses many different legal issues. Based on 20 years of law practice, my own personal definition of Elder Law is this: addressing legal issues that concern older individuals, the disabled, and their families.  

Assuming my own definition is relatively accurate, right off the bat you can see that "Elder" may not be the best word to describe this area of the law. In my own practice, I would not consider the vast majority of my clients as "elderly". A good percentage of them may qualify as "older". Many are disabled or "special needs", but relatively young. One unique aspect of this type of law practice (particularly in regards to estate planning and Medicaid/nursing home planning) is that the legal services I provide directly involve, or at least have some direct impact on the close family members of my clients. And the spectrum of ages for those individuals is very wide. Suffice it to say that "elder" seems to be an insufficient term to describe my clients. However, I have not come up with a better term thus far.

So, what are the various legal issues that my older and disabled individuals often face? It's a long list: estate planning, Medicaid planning and the Medicaid application process, conservatorships and guardianships in the probate court system, Social Security, Medicare, Veterans Administration benefits, special needs trust planning, addressing inadequate care at a skilled nursing facility, assisted living facility or with home care, working with the State of Connecticut in regards to the administration of benefit programs, decedent's estate administration in probate court, and strategic transfers of real estate. These are the issues that currently come to mind, but the list is by no means exhaustive. 

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

What is the Medicaid "Pick-Up Date"?

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A lot of my Medicaid clients get confused over the date that Medicaid coverage kicks in (also known as the Medicaid "pick up date") once Medicaid eligibility has been determined by the State of Connecticut.

The short answer is that Medicaid can start as early as the first day of the month during which the Medicaid "spend-down" was completed, assuming that there are no issues with periods of ineligibility that have been triggered by gifting during the 5-year look-back period.  So, if an applicant spends his/her assets down below the Medicaid asset limit ($1,600) on November 20th, then Medicaid coverage can begin retroactively on November 1st.

Why would it start later than the first of the month?  Because if the spend-down included private payments to the nursing home which effectively paid for nursing home care past the first of the month, then the nursing home would not need Medicaid coverage until later in the month. 

So, in the above example, let's assume that the Medicaid applicant made a partial payment to the nursing home as part of her spend-down and that payment covered her up until December 10th.  In that case, the Medicaid pick-up date would be December 11th so that the payment for care would be "seamless" for the nursing home.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

What Living Trusts CANNOT Do

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Revocable living trusts are often a very useful tool when it comes to estate planning, and most of my clients opt to set one up. This is particularly true if minimizing probate involvement upon your death is a major planning goal. However, I find that many clients grossly overestimate what can be accomplished with their trust documents.

Here are the most common myths I've run across in regards to living trusts:

"I will avoid probate if I have a living trust."

This is the most popular myth about living trusts. If you take the necessary steps and fully fund your living trust then you will certainly minimize the necessary probate court procedure. However, at least in Connecticut, even if you do everything perfectly and keep all of your assets out of probate, there are still at least a few documents that you will need to file with the local probate court, the most prominent of which is the estate tax return.

"A living trust will protect my assets if I end up in a nursing home."

This would be fantastic if it were true, but it's not. Assets in a typical living trust are not protected from the nursing home or any other creditor. There are other types of trusts that could be used, but they are typically income-only, irrevocable, someone other than yourself needs to be the beneficiary, and you still have the 5-year look-back to worry about. That is a level of trust planning that goes well beyond revocable living trusts.

"A living trust will allow me to avoid estate tax."

A living trust definitely can include special estate tax planning provisions. But you can accomplish the same type of tax planning in a last will & testament. Please note that the current estate tax exemption in Connecticut is $2 million. 

"A living trust will allow me to avoid probate court fees."

This makes absolute sense. If you use your living trust and take other measures to keep all of your assets out of probate when you die, then there would be no probate court fees, right? Unfortunately, that's not correct. Even if absolutely no assets go through probate, the court will still charge a fee based on the overall size of your estate, and that calculation includes  all of your non-probate assets. So it's referred to as a "court fee", but it operates more like a tax. This is how the Connecticut probate court system is funded. 

"I don't need a last will & testament if I have a living trust."

It's true that you don't technically need a will if you have a living trust. "Need" is a strong word. But it's highly advisable to have a will to accompany your living trust. The purpose of the will is to take any assets that end up accidentally going through probate (despite your best planning efforts) and transfer them over into your living trust. Unfortunately, those assets will have to go through a probate process before going into your trust, which was what the living trust was designed to avoid in the first place. So make sure that you do the appropriate planning to keep everything in the "non-probate" category at all times. 

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.