Posts Tagged ‘special needs trusts’

Tying the Knot? Or Just Moving In?

Considering a second marriage? For terribly unromantic reasons (I guess I’m the anti-cupid . . . darn lawyer!) you should plan carefully – very carefully – before going into a later-in-life second marriage. The religious prescription not to enter a marriage “unadvisedly or lightly” applies in spades to a later marriage.

“Bob,” you may ask, “are you suggesting we see an attorney before the preacher?” And I would answer: “Yes.”

Here’s why.

Some of the biggest and most expensive messes (I like the term “elder law train wreck”) I have had to clean up have been after the death of a second spouse when there had been little or no advance planning. Adult step-siblings (who may not even know or like each other) can be counted on to be looking out for whatever it is that they believe their natural parents accumulated for them.

Most “planning” I have seen is a simple verbal agreement that “what is yours is yours, and what is mine is mine.” That won’t cut it. All couples are different, but here is a partial list of issues that may be important.

Estate Plans.

The worst plan might be simple “I love you wills” that leave everything to the surviving spouse with the understanding that she will “do right the right thing.” Even with wills that leave everything to the children of the deceased spouse, there may be problems with an “elective share” statute.

North Carolina has a mean “elective share” statute. The elective share statute enables a surviving spouse to “elect” a share of around 1/3 of the deceased spouse’s estate if he or she does not like what was left in a will.

In fact, one South Carolina case has been making waves. The deceased founder of Hooters (you know . . . the restaurant famous for . . . large burgers and chicken wings) left $1 million a year for 20 years to his fairly younger surviving spouse. She felt $20 mil wasn’t enough, so she elected for 1/3 of Mr. Hooter’s estate. Mr. Hooter’s son (not the widow Hooter’s son, by the way) objected and claimed the South Carolina elective share statute (which is very similar to North Carolina’s) is unconstitutional. Yours truly believes that argument had as much chance as a Hoot Owl in, well, Horry County. Hooter, Jr. and the widow Hooter settled for an undisclosed sum.

Get a prenuptial (or premarital) agreement. Those sorts of difficulties can be addressed in such an agreement.

The Family Home.

Naturally the newlyweds do not want to see the bride or groom evicted upon the death of the other. On the other hand, children can become quite emotional over what may be perceived as “their home.” Chances are putting the house in both spouse’s names is not a good idea. Try a life estate, or maybe a trust.

Social Security Benefits.

Remarriage can affect the Social Security benefits a newlywed had been receiving under a deceased or divorced spouse’s account. If you divorce after 10 years or more of marriage, you can collect retirement benefits on your former spouse’s Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry before age 60, however, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment).

Annuities and Survivors Pension Payments.

You might be kissing a hefty survivor’s pension (corporate or military) goodbye when you kiss your new spouse. Check them all out before heading to the altar.

Income Taxes.

There may be some tax planning advantages to marrying if estate taxes are a concern because many planning techniques are available to married couples only. Income taxes might also drop if one spouse is earning significantly more than his or her new spouse. On the other hand, many income tax breaks phase out for couples at less than twice the phase-out level for a single person.

Long Term Care (Nursing Home) or Medicaid Planning.

A big consideration for older people considering remarriage. Medicaid rules and regulations do not care at all what sorts of plans or promises a couple has made when it comes to Medicaid and nursing home benefits. A carefully drafted prenuptial agreement is worthless. All Medicaid programs consider the assets of the couple. While rare, some couples have divorced within a few years of marriage when one spouse in declining health (usually the “poorer” spouse) has entered a nursing home.

It may be sad to see, but some couples are electing to do exactly what they would have DIED seeing their children do 30 years ago . . . moving in with a boyfriend or girlfriend!

Bob Spreads the Love

As an elder law and special needs attorney I get a track-side seat for a pile of planning train wrecks: Here are the best ones . . .

This is a column for the contrarians among us who will insist, against mounds of advice, on creating maximum legal havoc. Here are ten great ways to insure a successful train wreck!

Great Idea One: Do not have a will. Let state law determine how assets will be divided (they won’t all go to a spouse if there are any children). Without a will many valuable planning opportunities are missed, thus insuring maximum havoc.

Great Idea Two: Do not have an effective power of attorney. Without a power of attorney, a guardianship may be the only option, which will be expensive and subject the guardian to court supervision and bonding.

Great Idea Three: Sign over all property to the kids if bad results are the goal. Mom may believe she is protecting her property, but she is subjecting the property to the liabilities and risks of the kids (divorce, anyone?), not to mention that some of the kids may be thinking of moving to Rio. Giving the property to the kids can also insure they pay maximum capital gains taxes when they sell the property. Certain types of trusts are a much better alternative, but not as much fun if creating maximum damage is the goal!

Great Idea Four: Skip the health care advance directives. Let everyone argue among themselves to decide who gets to make health care decisions.

Great Idea Five: Do not do any long term care planning. Buying long term care insurance is way too responsible. Also, it is better to wait until there is a crisis (Dad has gone into the nursing home) because at that time there are fewer options and any course of action will likely be more expensive.

Great Idea Six: If there is a disabled child, duck parental responsibilities and avoid taking advantage of the many planning opportunities available for a special needs child. Disinherit the child and leave everything to the siblings. Maybe “they’ll do the right thing.”

Great Idea Seven: Carry inadequate insurance. This is a real winner! Do not carry a good Medicare supplemental policy so that there will be maximum exposure to whatever Medicare does not cover (which is plenty).

Great Idea Eight: Do not do any planning after a “late” second marriage, especially if there are children from the previous marriages. In this manner a perfect storm of battling families can be hoped for. Also, treasured family assets can be used to pay for the nursing home expenses of old Whatsisname instead of going to the kids.

Great Idea Nine: Do not, under any circumstances, update an old estate plan. Laws may change, but the dedicated Train Wrecker knows that he need never change!

Great Idea Ten: Never, ever seek good professional advice. With good professional assistance things may go too smoothly. If you absolutely must have some help, limit expenses to less than $100 and buy something online. Or better yet, seek the advice of a neighbor.

Bonus: Do not do anything.

Someone told me not to write this because it would be bad for business (because guess who gets to clean up the wreck?).  “Nope,” I said, “people will do it anyway!”

Coastal Senior is a monthly periodical covering the South Carolina and Georgia low country.  Bob Mason is its legal columnist.

Last month Legal Lines looked at the best way to leave assets to a disabled child. In that case, someone other than the disabled child is setting up a trust and funding it with assets that are not those of the disabled child. The typical situation is a parent setting up a trust under a will or perhaps immediately while the parent is alive.

What if a disabled person already has assets? Perhaps the disabled person has inherited property. Or maybe a settlement of a personal injury case has left the disabled person (temporarily) flush.

This could be a real problem. Such a person may have huge medical expenses. If a disabled individual on Medicaid comes into a “windfall”, such as a personal injury settlement or an inheritance, those assets will quickly disappear after the person has online acomplia been tossed of Medicaid for having too many assets.

In many cases access to government entitlement benefits — whether Supplemental Security Income, state supplemental assistance programs, or Medicaid – is critical. How does one remain eligible for these valuable resources without first becoming impoverished?

The answer: By placing his or her property in another kind of special needs trust, a so-called “OBRA ’93 Trust” or “payback” trust, the individual will remain eligible for many important benefits, including Medicaid. The catch is that upon the beneficiary’s death, the Medicaid benefits must be repaid, with only the balance passing to other family members.

During the individual’s lifetime, however, the difference between an OBRA ’93 Trust and no trust can be the difference between having training and educational opportunities, a computer, music, regular outings and a vacation, and living a life of poverty or dependency.

The requirements of an OBRA ’93 Trust are simple. It must be established for the lifetime benefit of someone under age 65 who is disabled or blind. It must also provide for pay-back of Medicaid benefits paid by the state. In addition, only parents, grandparents, courts, or “guardians”, not the disabled individual directly, may establish a pay-back trust.

When deciding to establish an OBRA ’93 trust, the disabled beneficiary’s specific needs and the effect of the trust on the individual’s benefits must be taken into account. Also, in the context of a personal injury settlement, many common settlement options (such as annuities) may render an OBRA ’93 trust impossible. Because of this, early planning is a must when damages for a personal injury are involved.

Administration can be difficult. Also, for people with no parents, grandparents, or guardians available to establish a trust, these trusts may be unavailable. In that case, a community or pooled trust may be the answer. They work very much like pay-back trusts, but are administered by non-profit community-based trustees and are “pooled” with the trusts of other disabled beneficiaries. When the beneficiary dies, the assets either “pay-back” Medicaid or can be retained in the trust to provide for other beneficiaries in the community.

This is an exceedingly complex area of the law. I’ve tried to simplify it. Whatever you do, get good advice!