By Attorney Maria C. Baler
Although it is important for every person over the age of 18 to create estate plan documents, there are some family situations that make it especially important to plan. In these situations, proper planning is crucial to protect your family, achieve your goals and prevent unintended consequences. Here are five family situations where planning is crucial.
1. Disabled or Special Needs Beneficiary
If you have a child, grandchild or other beneficiary of your estate who is disabled or has special needs, that person may now or in the future be eligible to receive public benefits due to their disability. If that person receives an inheritance directly, receipt of those assets will likely make them ineligible to receive those public benefits, which may provide a monthly income, affordable health care, prescription drugs, medical equipment, and needed care. Many public benefit programs have an asset limit of $2,000 for eligibility. If someone who receives Supplemental Security Income (SSI), for example, were to receive an inheritance of more than $2,000, they would lose the SSI benefit until the amount in excess of $2,000 is spent down in an allowable manner. This problem is easily avoided by thoughtful planning – usually by creating a so-called Supplemental Needs Trust for the benefit of the beneficiary, commonly used to preserve needs-based governmental benefits for a person with disabilities. For example, parents of a child with disabilities, can create a third-party trust for the benefit of their child into which the child’s inheritance would be paid at the parents’ deaths. This type of Trust does not need to include a payback provision for benefits the child may have received during life, and assets in the Trust will not cause the beneficiary to lose needs-based governmental benefits. Instead, those assets can be used during the lifetime of the beneficiary to provide the beneficiary with services or experiences that enhance their quality of life and that are not otherwise covered by the benefits they receive. Assets remaining in the trust at the death of the disabled beneficiary may be distributed to other family members
2. Beneficiary with Substance Abuse Disorder or Spendthrift Tendencies
If you would like to benefit a particular person at your death, but are concerned about that person’s ability to manage any assets they receive, you may benefit that person while controlling their access to the inherited assets by directing their inheritance into a discretionary Trust for their benefit, managed by a third-party Trustee. The Trustee you choose will receive the inherited assets after your death and manage those assets for the benefit of the beneficiary. It will be up to the Trustee if and when money is distributed from the Trust to or for the benefit of the beneficiary, based on parameters you create. For example, if a beneficiary has substance abuse disorder, the Trustee could be directed to pay the beneficiary’s rent, health insurance premiums and uninsured medical expenses directly, keeping assets out of the hands of the beneficiary where it may be spent inappropriately. For a beneficiary who is on a path to recovery, the Trust terms could require that the beneficiary undergo drug testing before receiving a distribution to incentivize them to stay clean.
A beneficiary who has spendthrift issues may spend money in ways you do not find reasonable. Sometimes, this is a minor issue (like spending too much money on expensive shoes), or the person may have serious spending issues and have creditors chasing them or a bankruptcy in their past (or future!). If you would like to leave money to such a person in your estate plan, but would like to make sure the inheritance you leave them is not blown on fast cars, fancy handbags or $500 shoes, and/or is protected from current or future creditors, a Trust is the answer. The Trustee will have discretion to use the money for the beneficiary’s benefit, but the beneficiary will not have control over how the money is spent. You may grant the beneficiary the right to request money from the Trust, but the Trustee will judge whether the purpose for which the money is requested is reasonable. Alternatively, the beneficiary’s access could be limited by giving the beneficiary the income from the Trust for life, but no or limited access to principal. This type of Trust can also work well if a beneficiary you wish to benefit is married to a spendthrift, and you are concerned that the spouse of the beneficiary may influence them to spend money inappropriately, or will end up in the spouse’s hands in the event of a divorce or the beneficiary’s death. This type of Trust will also protect the money from a beneficiary’s creditors to the extent it is not distributed to the beneficiary. In this way, the spendthrift beneficiary (or their spendthrift spouse) may spend their own money on expensive shoes, but be assured of having other needs met, if necessary, from the assets you leave in trust for their benefit.
3. Parents in Need of Support
We often see clients who are providing support to aging parents. As parents live longer, some can no longer afford to cover all of their own living expenses, or cover costly care expenses. If they are lucky, their children may be in a position to help them with these expenses. However, a child in this situation needs to consider what would happen if the child predeceased the parent. Without a thoughtful plan, the monetary support the child is providing to the parent could end abruptly, creating unintended consequences. In this situation you would hope that the deceased child’s siblings would step up to the plate and provide needed assistance, however this is often not possible and may be why the deceased child was providing so much assistance in the first place. You would also hope the deceased child’s spouse or children would continue to provide that assistance, however that may also not be possible depending on the extent of the inheritance or how it is left to them, especially if the child was providing support due to a sizeable employment income that ended with the child’s death. Careful planning can ensure that parents who rely on a child’s support will be protected in the event of a child’s death. Using a trust to benefit the parents is an important part of that plan, to ensure assets left directly to parents will not disqualify them from receiving public benefits for which they may otherwise be eligible.
4. Troublesome In-Laws
We all hope the people our children choose to marry are mature, responsible and treat our children well. Unfortunately, this is not always the case. We have all heard statistics about the large percentage of marriages that end in divorce. If you are leaving assets to a child or other beneficiary at death and you have concerns about the stability of the beneficiary’s marriage, or are just not very fond of the person they chose to marry, a Trust can be used to benefit the beneficiary while keeping the inherited assets out of the hands of their spouse, and protecting those assets to a greater extent in the event of a divorce. If assets are not inherited directly by a beneficiary, they cannot give those assets to a spouse, or deposit them into a joint bank account where their spouse has access and ownership. In many cases, assets that are not inherited directly will not be subject to division in a divorce proceeding. To avoid leaving assets directly to a beneficiary with a troublesome spouse, leave those assets in trust for the beneficiary. Establish parameters in the Trust as to how the assets may be applied for the beneficiary. Prevent the Trustee from distributing assets directly to the beneficiary, and instead allow the Trustee to use those assets for the benefit of the beneficiary. Perhaps include the beneficiary’s children or siblings as beneficiaries of the Trust in addition to the beneficiary. Name a Trustee who is not a family member to provide greater protection in the event the beneficiary finds herself in the midst of a divorce proceeding. Although the extent to which a trust offers protection in the divorce context varies depending on the circumstances and the state in which the beneficiary resides at the time of the divorce, trusts offer significantly more protection for inherited assets than an outright distribution to the beneficiary.
5. Blended Families
Although marriages end in divorce, there are many instances of divorced or widowed individuals finding love with a new partner. When one or both partners have children, this can create a situation of competing planning goals – making sure that when they die their partner is taken care of, but also wanting to make sure their children are provided for, and that their money is not directed by their partner away from their children should their partner re-marry or leave assets to their own children. These goals can be achieved with careful planning by thoughtfully deciding which assets are best to leave to a partner vs. children at death. Alternatively, creating a Trust that will benefit the surviving partner during their lifetime, while ensuring that assets remaining in that Trust after the partner’s lifetime will be left to children is a common arrangement. This type of planning is important for people with young children, who may rely on their parent for support and education expenses, and also for those with adult children, who may be devastated when their deceased parent’s assets, particularly assets such as a beloved family home or vacation home, are left to a surviving partner and sold or pass to others at the partner’s death.
People with non-typical situations often delay planning because they fear that there is no good way to achieve their complicated or competing planning goals, or address concerns (sometimes unacknowledged) about the beneficiaries they hope to benefit. Taking the time to talk through your situation with an experienced estate planning attorney will provide you with options and strategies to achieve your goals, and will result in a plan that addresses your special family situation in the best way possible. If you have one of these situations in your family, don’t delay – speak with an experienced estate planning attorney today!
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the immediate past President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
October 2022
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