Session 4 Brothers Estate planning

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Session 4 Brothers Estate planning Powered By Docstoc
					Estate Planning and
Special Needs Trusts
       Presented by:
    Joshua L. Brothers
      Barbara Byram
   William L.E. Dussault

            Public Benefits Review
SSI/Medicaid                        SSDI/Medicare
   –   Disabled, blind, >65            –   Disabled, blind, >65
   –   Disabled = no SGA               –   Disabled = no SGA
       ($1,000.00/month)                   ($980/month)
   –   “Means tested”                  –   “Entitlement program”
         – Income                            – Available to
             – Earned ($2:$1)                  individuals who have
             – Unearned ($1:$1)
                                               paid FICA taxes in the
                                               last 20 of 40 quarters
             – ISM (up to 1/3)                 prior to disability
         – Assets < $2000                    – Not “means tested”
           (individual)                –   Medicare available when:
             – Exemptions                  over 65 or meets SSA
                include primary            disability definition, 29
                home (<$500k),             months post injury
                vehicle, personal
                property, SNT             
     Last Will and Testament (aka the “Will”)
•   Most common estate planning document
•   Controls distribution of “probate” assets at death
•   Washington’s probate process
•   Federal Estate tax considerations ($3,500,000 in 2009; none in 2010,
    $1,000,000 in 2011)
     – Living trusts and estate taxes
     – $2,000,000 WA State Estate tax
•   Should I leave assets to an individual with disabilities?
     – Outright distribution
     – Disinherit the individual
     – “Testamentary” special needs trust

    Roles of Individuals in a Will
• Executor:
   – Duties
   – Who to name?
• Guardian:
   – Duties
   – Who to name?
   – Should be consistent with any Court files
• Trustee:
   – Duties
   – Who to name?

    Probate vs. Non-Probate Assets
•   Probate assets are assets held in the decedent’s name without a beneficiary
    designation that pass in accordance with the decedent’s will.
•   Non-probate assets are those that pass by a written instrument or arrangement
    other than a will
     –   Jointly owned property with right of survivorship (bank accounts and real property)
     –   Pay on Death (POD) Account
     –   Trust
     –   Community Property
     –   Individual Retirement Accounts (IRA)
     –   401(k) Plans
     –   Life Insurance
•   Review non-probate assets on a regular basis

                                 What is a Trust?
•   Separate legal entity
•   Barrier between beneficiary and Trust assets
•   Roles
     – Trustor or Settlor
     – Trustee
     – Beneficiary
•   Basic Functions of a Trust
     – Safeguard assets
     – Financial Management
     – Distributions
•   “Types” of Trusts are just restrictions on basic functions
•   Can serve as an alternative to guardianship

             What is a Special Needs Trust (SNT)?
• Purposes:
    – Financial management
    – Continued eligibility for “means” sensitive benefits (primarily SSI and Medicaid)
• Restriction on expenditures – “extra and supplemental needs” of the
    – Needs not covered by SSI and Medicaid
    – Cannot pay for basic food (groceries) and shelter (rent and basic utilities) or primary
      medical services otherwise covered by benefits
    – Can be used to pay for vacations, clothes, entertainment, education, etc.
    – Trust restrictions must be observed.
• Must be “irrevocable”
• Sole benefit

               Source of Funding Matters
• 2 sources of funding:
   – Assets of anyone but the beneficiary (3rd Party SNT)
   – The beneficiary’s assets (Self-Settled SNT or (d)(4)(A) SNT)
• Source determines who can establish the SNT and the terms of
  the SNT
• Self-settled are any assets which the beneficiary or his/her
  guardianship is entitled to receive
   – Outright inheritances or gifts
   – Settlements/judgments
   – Social Security back payments

                 Self-Settled (d)(4)(A) SNT
•   Beneficiary’s own assets
•   Restrictions
     –   Beneficiary must be disabled
     –   Established by parents, grandparents, guardian, or court
     –   Beneficiary must be under 65 years of age
     –   Medicaid Reimbursement
•   “Grantor” Trust if drafted appropriately
•   Alternative: (d)(4)(C) SNT
     –   Pooled Trust
     –   Retained Trust assets replaces Medicaid Reimbursement

                                 Third Party SNT
•   Assets of anyone other than the beneficiary
•   No (d)(4)(A) SNT restrictions
     – Anyone can establish
     – Beneficiary can be any age
     – No Medicaid reimbursement
•   Complex Trusts
•   Can be a Living or Testamentary Trust
•   Common situations in which a Third Party SNT is created
     – Will and Estate Planning documents
     – Family or friends want to assist the beneficiary
     – Avoidance of multiple SNTs in wills
•   Control of assets after the beneficiary has passed away

              Developmental Disabilities Life
              Opportunities Trust (DDLOT)
•   Also known as the Endowment Trust
•   State-run Trust that is administered by the Arc
•   Available only to individuals who are developmentally disabled as
    determined by DDD
•   Can be self-settled or third party
•   Administrative Fees & Costs
     – $600 enrollment fee
     – Tax return preparation and filing fee
     – Annual management fees for day-to-day management (greater of $75 or 2% of
       account balance with $750 cap)
     – Investment Board Fees (investment fees)
     – Trust Manager Fees (the Arc)
     – State Treasurer Fees

                   DDLOT Matching Funds
•   Administrative fees currently being matched
     –   Tax prep/filing fees
     –   $600 enrollment fee
•   Administrative fees previously matched, but now on hold
     –   Annual management fee
•   Match of Contributions (on hold!)
     –   25% state match of up to $31,000 ($7,750)
     –   Contributions cannot be withdrawn in the same year they are deposited
     –   Only $3,100 will be matched in a single year
•   Vesting
     –   Requires the accumulation of $25 per month for 3 consecutive years ($900 over three years)
     –   Can be periodic payments or a lump sum
     –   Can only spend “matched funds” after being vested
•   Matching funds are not guaranteed and have run out
     –   2010 Legislative Session
     –   Foundation
•   Proportionate Distributions
   DDLOT Investment Strategy
• Conservative Investment Strategy
  – 23% in fixed income (bond market fund)
  – 24% in cash equivalents (short-term investment or
    money market funds)
  – 14% in US Equities
  – 39% in Treasury Inflation Protection Securities (US
    inflation indexed bonds)

        DDLOT Advantages & Disadvantages
               Advantages                         Disadvantages
•   Potential for matching funds      •   Loss of control
•   Professional management if no          –   Timely distributions
    family to assist                       –   Rejection of distribution requests
•   No on-going attorney’s fees and        –   Investments
    costs for court reporting              –   Immediate availability of funds
                                           –   Terms of Trust (trustee, etc.)
                                           –   Property
                                      •   Conservative investments
                                      •   Potential administrative fees and
                                          costs – about to find out!
                                      •   Risk Aversion?

              Disclaimer & Notice
• This training and written materials are designed to provide accurate
  and authoritative information in regard to the subject matter
  covered. It is provided with the understanding that the presenters
  are not engaged in rendering legal, financial or other professional
  services. If legal advice or other expert assistance is required, the
  services of a competent professional should be sought.

• Please keep in mind all written materials and power point slides are
  the intellectual property of the Dussault Law Group. These
  materials may not be distributed without the express written
  consent of the authors.

   Thank You!
 Joshua L. Brothers
   Barbara Byram
William L.E. Dussault


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