What is a Special Needs Trust?

Under the current Social Security public benefits system, a disabled individual is eligible to receive government assistance to provide for basic needs such as food, clothing, health care, and shelter.  To receive assistance, a recipient cannot have more than $2,000 in cash and assets in their name.  A Special Needs Trust is a legal document that allows a person with a physical or mental disability to have, held in trust for his or her benefit, an unlimited amount of assets without jeopardizing state or federal benefits. If monies are placed in a Special Needs Trust they are not considered part of your child’s assets and your child can still qualify for all benefits and programs.

Why Alternatives to a “Special Needs Trust” May Lead to Catastrophe for Your Child

Regardless of the size of your estate, leaving all of your money to a relative to care for a disabled child is risky.  When an individual holds those assets, they may be spent, ill-managed, or attached by judgment creditors.  But a Special Needs Trust guarantees that the funds will be held only for the benefit of your disabled child.  Judgment creditors of the disabled child or of a caretaker cannot attach money in a Special Needs Trust.

How Your Child Can Benefit from the Funds in the Trust

The money in the Special Needs Trust can be used to pay for a number of things, including vacations, care-giving services, and even a home for your child. Plus, it will provide you with the peace of mind that your child’s access to vital government services and benefits is not threatened.

Contact San Diego Law Firm to Set Up a Special Needs Trust for Your Child

A Special Needs Trust, like all trust and estate planning documents, must be drafted precisely to be valid.  In an age when technology makes us feel empowered to take matters into our own hands, legal planning for the future of a disabled child is not something you should try to accomplish on your own.  A Special Needs Trust requires specific language, and if it is poorly crafted it can cause your child to lose benefits and health care he or she would otherwise be entitled to.  Our estate planning attorneys at San Diego Law Firm are familiar with the public benefits system, and can prepare a Special Needs Trust that will accomplish the purposes you intend.  They can also integrate it with your will, living trust, and other estate-planning documents, so that it operates exactly as you intent.  For more information or an appointment, please call us at 619-794-0243.

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Knowing loved ones will be financially cared for in the event of death can give a family breadwinner great peace of mind.  Life insurance is a valuable tool in any estate plan because of the benefits it provides. 

First, life insurance can help family members bare the financial consequences of an unexpected death.  The National Funeral Directors Association approximates the average expense of a funeral to be upwards of $6500.00. This is a cost that may be prohibitive unless there is a reliable and immediate source of funds which can be used to pay for high funeral expenses.

Second, a life insurance policy ensures the loved ones’ future financial security. For example, if the family’s primary income earner passes away, a well funded life insurance policy will provide money to meet current and future household expenses such as mortgage and education costs. If you want to ensure that all of your life insurance proceeds are used for the purposes which you intend, you may want to consider having your attorney prepare an Irrevocable Life Insurance Trust for you.

Life Insurance and Estate Tax

What you may not know is that the proceeds paid on a life insurance policy are included in an estate (everything you own when you die) for estate tax purposes.  This means the size of the estate is actually inflated by the face value of the policy.  For example, if you have real estate, bank accounts, and stocks that add up to $2,000,000 you may think that only $2,000,000 of the estate will be subject to the federal estate tax rate. However, if you have $500,000 worth of life insurance it is considered part of your estate, and estate taxes will be due on $2,500,000!  The underlying reason life insurance benefits are included in an estate is because the policy holder is deemed to “own” the proceeds so that the IRS can fully tax those proceeds as part the deceased persons estate at death.  

Reduce Estate Tax With a Life Insurance Trust

One way to avoid tax on life insurance proceeds is to establish an Irrevocable Life Insurance Trust, or ILIT.   Under an ILIT, the life insurance policy is not “owned” by the decedent or his or her spouse.  Therefore, the proceeds are not considered part of the decedent’s estate. This is done by transferring ownership of a life insurance policy to the trustee of an ILIT.  After ownership interest of the life insurance policy is transferred to the trustee, you’ll no longer “own” the policy and the proceeds can’t be taxed as being part of your estate when you die.

Advantages and Disadvantages

However, there are a few drawbacks to consider in setting up an ILIT. For example:

• You can’t change the beneficiary of the policy:  If you as an insured want the flexibility to deal with changed family circumstances, an ILIT may not be the right choice for you because after the ILIT is created, the insured gives up the right to change the beneficiary of the policy.
• You can’t borrow from the policy:  If your policy normally allows you to borrow against the policy or make cash withdrawals from it, under an ILIT you will no longer be able to do this.
• Transferring an existing policy to the trust could be complicated:  If you already have a life insurance policy, ownership can be transferred. But, if the insured dies within 3 years of the date from which the policy was transferred, the life insurance policy will be included in the estate for tax purposes anyway!  However, depending on a number of factors, your attorney may be able to avoid this problem with a “fail-safe” clause that ensures that the proceeds of a transferred policy are held separately under an ILIT. 

Our estate planning attorneys at San Diego Law Firm know the complexities involved in making sure loved ones and assets will be cared for and protected in the worst-case scenario for a family. We can answer your questions about life insurance trusts and other estate planning tools that you can use to ensure that 100% of life insurance proceeds go to the beneficiaries instead of to paying estate taxes.  Also, we can look over your existing estate plan to make sure that all potential “fail-safe” mechanisms are in place.  Call us at 619-794-0243 for advice and a consultation on ILIT issues.

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Dying Without a Valid Will (Intestacy)                                 

If you don’t leave behind any instructions for how you want your property divided (such as with a valid will or living trust), then California law steps in so that the probate court can distribute your property to your heirs.  A person who dies without a valid will is said to have died “intestate.”  In these situations, California’s intestacy laws apply.  These laws decide which family members will inherit by creating a hierarchy.  Sometimes things get more complicated, but here are the basics:

      ●    If You’re Survived by a Spouse or Domestic Partner

Your surviving spouse or domestic partner will receive your full share of “community property” (your shared marital property as determined by California’s community property laws).  You might also have your own “separate property” (usually this is property you owned before marriage or inherited while married).  Assuming that your separate property never turned into community property, then your spouse or domestic partner will get a share of those assets.  He or she will either get all, half, or a third of your separate property depending on whether you have certain relatives.  Those relatives (usually children) would receive the rest. 

      ●    If There’s No Spouse or Domestic Partner

If you had children (or a grandchild from a child who died), then they’ll inherit your estate.  If you didn’t have any children, then the hierarchy goes from parents, to siblings, to grandparents, to aunts and uncles, to cousins, and then more distant family members.  Keep in mind that once there’s someone eligible to inherit, the probate court won’t give property to anyone who’s further down on the hierarchy.  For example, if you have children, your parents will not inherit anything from you under the intestacy system.

What the Intestacy Rules Leave Out

When there’s no will or trust, the rules for distributing your property ignore many things that you probably think are very important.  For example:

      ●    Strained Family Relationships - Maybe someone who you wouldn’t want to inherit from you will under California’s intestacy rules.

      ●    Protecting Adult Children (From Themselves) - You may have a child who’s over 18, but who’s likely to seriously mismanage his or her inheritance, or lose it to creditors.  To avoid this situation, you’d probably want to establish a trust that can include safeguards.

      ●    Some People & Organizations Can Never Inherit From You - Even if you’re in a long-term relationship, your significant other won’t be eligible to inherit from you if you didn’t marry or enter into a domestic partnership.  Your friends, charities, and other organizations that you may want to leave a gift for also won’t receive anything. 

      ●    Leaving Loved Ones Out, Even If They’re Related - Your family member may not get to share in the inheritance, even if you would have wanted them to.  California’s intestacy system is a hierarchy.  Certain relatives (like a spouse or children) are higher up on the hierarchy than others (like parents, aunts, uncles, or cousins).  Under this system, your property is meant to be inherited by the relatives who are as high up on the hierarchy as possible.  As soon as there’s someone who can inherit, relatives who are lower on the list are shut out.

Create Your Own Plan Instead

If you create a will or trust, then you can usually decide who gets what and how.  You’ll also be able to control how much they get.  For example, even if you want your children to receive most of your property, you can still make gifts to a niece, friend, or others. 

After you’ve made your will and trust, watch out for pitfalls that can lead to intestacy (or partial intestacy).  In part, this means making sure all your property is covered by a valid estate plan.  If you get new assets after creating your will and living trust, then let us know.  For the same reason, any changes to your will or living trust need to be made carefully. 

We’ll advise you on your best options, so you can learn about the benefits of estate planning.  Remember, avoiding probate is not your only goal.  Estate planning is about taking control, while also finding the best way to minimize any taxes.  Get essential help with your will and living trust by contacting San Diego Law Firm’s experienced estate planning attorneys at (619) 794-0243.

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Decide if you want your agent’s powers to start now, or later

Just as important as what your agent can do is when they can do it.  A power of attorney can give your agent power right away, or hold off until a future event or condition happens.  We’ll explain the benefits and drawbacks with either option.  Your decision will depend on who you will name as your agent and your personal circumstances.

For example, take a look at the following scenarios:

      ●    Illness, Medical Conditions, or Accidents

You can have your power of attorney go into effect only if you lose the physical or mental capacity to make financial decisions, such as after an illness or accident. 

You may want to include a requirement that a doctor first determine the incapacity before your power of attorney can be used.  On the other hand, this delay can work against you in an emergency when a decision needs to be made immediately.  We’ll explain your options and take all of this into account when preparing your power of attorney. 

      ●    Temporary Absence

If you go on vacation without your kids, you may want to set up a special power of attorney for the time you’ll be away.  Even if you don’t have kids, if you’ll be gone for a long time you may need someone to manage your finances while you’re out of the country.

      ●    Spouses and Domestic Partners

Many spouses and domestic partners decide to make their powers of attorney effective immediately.  If you’re married or in a registered domestic partnership, you probably own most of your property together.  Even so, some transactions require authorization from both of you.  Also, some of your money and property may be in your name only, so you need the power of attorney to give your spouse access those assets if there’s an emergency. 

Make sure your power of attorney is done right

With years of experience behind us, your lawyer at San Diego Law Firm will create a power of attorney that follows California law and avoids the pitfalls of generic or poorly written powers of attorney.  That way, you can be much more confident that your power of attorney will be accepted by banks, investment firms, and others. 

An alternative to “Conservatorships”

Remember that if you lose capacity in the future, by creating a power of attorney you can decide who you would like to manage your finances.  This means that in many situations, a good power of attorney can help you avoid the need for a “conservatorship” down the road.  A conservatorship would require that a loved one go to court so that a judge can appoint someone to manage your finances and healthcare.

A properly written power of attorney – along with a similar document for your medical decisions (called an “advance health care directive“) – can help minimize family conflict.  While conservatorships can be necessary for some, many times a power of attorney is appropriate and can avoid the expense and time involved with creating a conservatorship in court. 

Also keep in mind that a living trust and a guardianship can do more than you think, because both can help you plan for possible incapacity.  Don’t miss your opportunity to plan for the future.  Reach San Diego Law Firm experienced estate planning lawyers at (619) 794-0243.

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Choosing someone to manage your finances

Whoever you choose to handle your finances through your power of attorney is known as your “agent.”  If this person steps in because you aren’t able to manage your finances, then you’ll depend on your agent to keep things on the right track for you.

Most people choose a family member such as a spouse or domestic partner for the job, but you might also consider naming an advisor or someone else who you can trust. 

Not only do you need to trust them personally, but also ask yourself whether you can trust their judgment because they’ll be handling your finances.  For instance, will this person be responsible and reliable enough to carry out your daily tasks?  What’s more, you may want to name a back-up agent in case your first choice is no longer available. 

How much power will you give your agent?

So exactly what does a power of attorney let your agent do?  How much (or how little) your agent can do will depend on what’s included in your power of attorney document.  It’s all up to you, but you can only make good choices if you really know and understand the options. 

You don’t want to make the mistake of using a generic power of attorney form that doesn’t capture your wishes.  We’ll make sure your authorization is accurate, complete, and really reflects what you want.  California law allows you to authorize many different types of actions in your power of attorney.  Here are a few common examples of what you may want your agent to do for you:

    ●    Sign contracts and other documents on your behalf

    ●    Manage your bank accounts

    ●    Accept your government benefits for you

    ●    File your taxes

    ●    Buy or collect insurance

    ●    Write checks to pay your mortgage, medical expenses, and other bills

    ●    Manage your property and make repairs

    ●    Buy and sell real estate

    ●    Manage your business

    ●    Take steps to minimize any estate taxes that could be due when your property is inherited

    ●    Invest your money in stocks and bonds, and oversee your existing investments

Beware of the outdated power of attorney

On her blog, Financial Planning Mastered, certified financial planner Sue Quint warns that banks and financial companies are more likely to accept your power of attorney if you update it every so often.  The bank may be more likely to question the document and deny your agent access to your accounts if it’s dated too far back. 

By reviewing your power of attorney, you’ll also have the opportunity to make changes and you may even decide to name someone else as your agent.  We’ll help you cancel your old power of attorney and get a new one in place. 

You can learn more in Part 2 of this post about how a power of attorney works.  Also get information about what you can do now to protect yourself and your loved ones by speaking with an experienced estate planning attorney at San Diego Law Firm.  Reach us at (619) 794-0243.

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Your choice of guardian is one of the most important decisions you’ll make in your will, so how do you decide?  In “How to Choose a Guardian,” mother of three Denise Oliveri proposes that you figure this out by answering five questions.  To decide who will be right for the job, she suggests you evaluate age and health concerns, moral and educational values, financial ability to care for a child, and whether your child would have to move away.

Property & Money Matters

Splitting up responsibilities – Sometimes you’ll find it’s best to name different people to handle the parenting and the finances.  This will depend on the personalities, schedules, and skills of those who you would want to care for your child.  In this case, you can name a “guardian of the person” to raise your child, and a “guardian of the estate” to manage money and assets left behind for your child. 

Decide how the inheritance should be handled – Remember that you may only want certain property to be gifted under your will if your chosen guardian accepts the appointment in court.  That way, you can make sure these resources are available for your kids even if the person you nominated turns down the guardianship.  We’ll ensure you take this and similar considerations into account so that your will matches your wishes.  Another option is to create a living trust that names a trustee to manage finances.  This can be a better option for you and your kids, and give you more control over how and when money will be spent. 

Making sure your wishes are carried out

Choose alternates – In the event the guardianship becomes necessary later on, what happens if the person you choose can’t act as guardian any more?  You can plan for this possibility by naming alternate guardians.  This gives you greater security that your child or children will be cared for by someone you’ve chosen.

Think your choices through in your will – If the person you’ve chosen is comfortable with taking on the role of guardian and accepts, then your next step will be to include your guardianship decisions in your will and the other parent’s will.  If you’ve chosen a couple to act as co-guardians, we’ll prepare your will to make sure it accurately reflects your intentions.  For example, if the couple later divorces or one spouse dies, will you still want either spouse to be your child’s guardian?

Don’t leave it all for the judge to decide

As long as you’ve nominated your guardian in a valid will, then the chances are the court will appoint the person you’ve chosen as guardian.  The court will only deny the appointment if it’s necessary to protect your child’s best interests.  You may recall Michael Jackson’s mother was approved as guardian to his three children, as reported by CNN, despite concerns of her age.

If you didn’t name a guardian in your will, then the decision will be left completely in the judge’s hands.  The court will try to make the best decision for your child, but the appointed guardian may be different from who you would have wanted.  Remember, it’s not enough to just come to an informal agreement about guardianship with your family and friends.  Your nomination has to be properly made in your will. 

Our experienced wills, trusts, and probate attorneys are here to help you understand guardianships and its responsibilities.  We’ll also prepare a will and living trust that’s comprehensive enough to truly carry out your goals.  Don’t miss a chance to help ensure your children’s security and well-being will be protected.  Contact San Diego Law Firm at (619) 794-0243.

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Recently, much has been made about the many deals struck by the executors of Michael Jackson’s estate.  The Los Angeles Times reports on agreements for a movie, television special, tribute concert, merchandising, a high end clothing line, “digital apparel,” and a traveling memorabilia exhibition.  Just as they should have, the executors (who are also the trustees of Jackson’s trust), worked fast to secure these deals while demand soared high for anything related to the King of Pop.  This is because personal representatives (and trustees) have the duty to invest and manage assets.  For example, when there’s a large amount of cash left behind, the executor may need to invest the money as permitted by the will and California law to prevent losing income that can be earned for the estate.  Otherwise, the executor could be liable for the loss.                                           

Besides investing money, personal representatives also need to make the most out of the assets already in the estate, sometimes this requires selling property or renting out empty real estate.  Executors and administrators also need to find and collect all of the deceased’s assets, such as personal items, life insurance, partnership interests, and bank accounts.  Known creditors must be given notice and legitimate debts need to be paid off, so you have to make sure the estate will have enough money to pay for bills, costs, and expenses.  Federal and California taxes must be paid, and as the personal representative, you’re potentially liable for the value of distributed assets if there’s a deficiency.  Don’t assume that only fraudulent transactions and lying will get a personal representative into trouble, because at times mistakes can also lead to personal liability.

The bottom line is that you are a fiduciary, and everything a personal representative does needs to be in the best interest of the estate, which also means you have to be careful not to favor individual beneficiaries.  As assets are managed and distributed, we’ll consult with you about investments, handle title transfers, prepare and file required documents, work to resolve disputes, advise you on potential legal issues, and appear on your behalf in court.  Make sure you’re handling your responsibilities properly, speak with San Diego Law Firm’s knowledgeable probate attorneys at (619) 794-0243.

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You can transfer ownership of your business gradually, not only helping to keep things running smoothly since you’ll remain in control of the business, but also reducing tax liability.  Richard C. Morais of Forbes Magazine proposes that you start making transfers now, to take advantage of depressed values during the recession.  You’ll then be able to make transfers of a larger percentage of your business while staying within the limits of annual gift tax exclusions, all because for now, the business may be valued lower.

Plan now, because you don’t want to put your family in a position where they’ll have to sell the business when you’re gone, either because they can’t run it, or can’t afford the taxes.  If it’s best to sell the business, then the sale will likely be more profitable if you sell it yourself while the business has goodwill.  We’ll strategize and help you create a personalized and comprehensive business succession plan designed to meet your needs and that of your family.  Learn more from our attorneys, and benefit from our expertise in business, wills, trusts, and succession planning.  Contact San Diego Law Firm at (619) 794-0253.

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With an advance health care directive, you’ll name someone to make medical decisions for you if you’re unable to, and name a backup.  You’ll also detail your quality of life preferences by explaining what treatments you will or won’t want, stating preferences on resuscitation and life support, as well as whether you’ll want to be at your home, a hospital, or a nursing home.  Speak with your doctor to understand treatment options as you plan end of life options.  Then talk to your family and others close to you about these preferences, and give your doctor and family members copies of your advance health care directive to make sure your instructions are known and abided by.

We’ll take care to create a legally binding document that’s clear in its instructions and complies with California law, helping to minimize the risk of disagreement and uncertainty for your family.  If you have children from a prior marriage or are in a same sex relationship, an advance health care directive is even more essential to preventing conflict.  Now is the time to act if you want to carry out your wishes later. The same is true with your will and living trust.  Contact San Diego Law Firm’s experienced will and trust attorneys at (619) 794-0243 to prepare or update these important documents.

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Besides preventing disputes, you can cut costs by shopping around as you plan out burial and funeral wishes. Just as with the rest of an estate plan (i.e. your will and living trust), preparing burial instructions is an important step toward minimizing conflict and helping to ensure your plans are carried out. For help in meeting these goals, contact our experienced will and trust attorneys at San Diego Law Firm, (619) 794-0243.

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