Addressing Advanced Estate Planning Scenarios

November 29, 2018

estate planningMost people will be best served by the creation of a revocable living trust as a primary estate planning vehicle. This being stated, there are advanced techniques that can be utilized to address more complicated scenarios. In this blog post, we will take a look at three of them, and we will examine others in future articles.

Special Needs Planning

Many people with disabilities rely on Medicaid, which is a government health insurance program that is available to people with very limited financial resources. Clearly, people with special needs are going to accumulate significant health care expenses, so this coverage is a lifeline.

Another need-based benefit that a lot of individuals with special needs rely upon is Supplemental Security Income. The name is self-explanatory: this program provides a modest but steady stream of income to people that can qualify.

If someone that was enrolled in these programs was to receive an inheritance, benefit eligibility could be lost. However, this does not mean that you cannot include a loved one with special needs in your estate plan. There is a legal device called a supplemental needs trust that can be utilized to make your family member more comfortable.

You fund the trust, and you name a trustee to handle the administration tasks. It can be someone that you know personally, but many people use a fiduciary like a bank or a trust company. This can be a good idea for a number of different reasons, not the least of which is the fact that the fiduciary would fully understand the legal intricacies.

The government benefits do not necessarily meet all of the needs of the recipient. These are called supplemental needs, and the trustee can use assets in the trust to satisfy these needs. There are certain things that can and cannot be paid for, and this is why it is wise to empower a trustee that has a thorough understanding of the parameters.

Under ordinary circumstances, the Medicaid program is required to seek reimbursement from the estates of recipients after they pass away. When you establish a trust for the benefit of someone else with your own money, it is a third-party special needs trust. The Medicaid program would not be able to attach assets that are remaining in the trust after the passing of the beneficiary. In the trust declaration, you name a successor beneficiary, and this individual would assume ownership of the remainder.

Small Business Partners

To explain this second scenario, we will utilize a simple example. Let’s say that you run a business with a single partner named Bill. You both have equal shares in the business. If Bill becomes incapacitated, who will vote Bill’s interest in the business? If Bill dies before you do, what happens to his share in the business?

This question can be answered through the utilization of an estate planning device called a buy-sell agreement. For purposes of incapacity, you can restrict the class of persons who can vote Bill’s interest in the business.   For death planning, you and Bill get together to determine the value of a share in the business. Next, each of you would take out insurance policies on one another equal with payouts that are equal to this amount. After one partner dies, the other party would receive the proceeds from the insurance policy. The money would be used to buy the share that was owned by the deceased partner from his or her family. This is commonly referred to as cross-purchase buy-sell arrangement.

Incentive Trusts

It is possible to positively influence the behavior of someone on your inheritance list through the creation of an incentive trust. To provide another example, let’s say that you have a grandson that has struggled with a substance abuse problem for years. He has had success for extended periods of time, but there have been relapses on a number of different occasions.

You are concerned that he may utilize his inheritance to indulge in his excesses. Under these circumstances, you could convey assets into an incentive trust. The trustee would follow instructions with regard to the conditions that must be met before income or principal will be distributed to the beneficiary. Using this example, you could allow for distributions so long as the beneficiary remains clean.

These are a handful of the different situations that can be interested through the utilization of advanced estate planning techniques, but there are many others.

Attend a Free Estate Planning Webinar!

If you would like to build on your knowledge, you have some great opportunities coming up in the near future. Our estate planning attorneys are very passionate about education, and they go the extra mile to share information with community members through our free Webinars.

There are some dates on the schedule right now, and there will be more added on an ongoing basis. You can really learn a lot if you attend one of these sessions, so we urge you to attend the one that fits into your schedule. To see the dates and obtain registration information, visit our Webinar schedule page and click on the session that interests you.

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