Estate Planning and Wealth Transfer

Family Estate planning documentEarlier last month the New York Times ran an article about basic reasons why you need to pay attention to your family’s estate planning. The article made me think of several instances where families would have benefited from having a well-thought out plan. While we are still at the beginning of the year, we want to suggest that you consider making this one of your goals for 2017.

After practicing trusts and estates law for over three decades, I probably now spend at least one-third of my time dealing with legal matters where families have not properly tended to their estate planning. Often, this results in probate-related disputes and litigation, particularly in second marriage situations and in families where grown children do not get along with one another for whatever reason.

The net result of failing to tend to estate planning matters is frequently legal and family chaos, which carries with it unnecessary emotional turmoil and family distress, inordinate conflicts and delays, and significantly increased legal fees to navigate through the matter. It is often impossible to get to the back side of this emotional experience without deep scars, bitterness, and a shallower wallet.

So, for the sake of your family and loved ones, please consider steps you can take now to avoid leaving loose ends unattended in your estate planning matters. Any of the Bradley team who practice in this area would welcome the opportunity to talk further with you about these matters.

Gift house with bowIn December, we posted a blog discussing a much anticipated hearing held on the Treasury Department’s issuance of proposed regulations under Section 2704 of the Internal Revenue Code (sometimes referred to as the 2704 proposed regulations) that could significantly impact the valuation of interests in family-owned businesses for estate and gift tax purposes. Comments made by Treasury Department representatives at the December 1 hearing allayed some early concerns regarding the scope and impact of the 2704 proposed regulations. However, many questions regarding the future of the proposed regulations still remained after the hearing adjourned. 

Additional news regarding the future of the 2704 proposed regulations came in the first few days of the 115th U.S. Congress. New bills were introduced in the House and the Senate to prevent the Treasury Department and Internal Revenue Service from finalizing the 2704 proposed regulations. The House bill (H.R. 308) was introduced by Rep. Warren Davidson (R-Ohio) and referred to the House Committee on Ways and Means. It essentially prohibits funds from being used to finalize, implement, administer or enforce the 2704 proposed regulations. The related Senate bill (S. 47) was introduced by Sen. Marco Rubio (R-Fla.) and referred to the Senate Finance Committee.

We will continue to post updates regarding H.R. 308 and S. 47 as they progress through committee, and any activity by the new Congress and administration regarding estate and gift tax issues of importance to family business owners. Please let us know if you would like to discuss these developments and their impact on transfers of ownership interests in your family business.

Special Needs Trusts Through the Lens of a Financial PlannerI met recently with my friend and advisor, Lauren Pearson, CFP®, to learn more about Special Needs Trusts. Lauren is a managing director and partner at HighTower Twickenham, an industry leading wealth management firm. Lauren has a great deal of experience advising families in this area and has experience in her own family.

D.: Lauren, what is your advice?

Lauren: If you have a relative or a loved one with special needs, you naturally want to provide for them in some way. In most cases, this generosity is demonstrated by providing for them in your will. Although well intended, your outright gift could compromise Social Security Disability Income (SSDI) and Medicaid benefits for the special needs person. Reinstating these benefits normally falls upon the caregiver which is more than arduous. If you are thinking of providing for a special needs loved one in your will, you might consider the following:

1) Always talk to the primary caregiver of the special needs person about your intentions. Note that the primary caregiver may be unaware of the need for a Special Needs Trust. If this is the case, please reach out to your estate planning attorney, preferably an attorney with experience drafting Special Needs Trusts, for advice and counsel. See list of interview questions for trusted advisors below.

2) If you are the primary caregiver for a special needs person, you should review all your estate planning documents and beneficiary information. My family thought all beneficiary information was up-to-date until we met with our attorney. A piece of property was to be split per stirpes with my brothers, one who has Down syndrome. This arrangement would have jeopardized my brother’s SSDI and Medicaid benefits. Make sure to review your documents regularly with your attorney.

3) For primary caregivers, think about what you want your loved one’s life to look like after you are gone. I encourage the families with whom I work to designate one person as the trustee and one person as the primary caregiver, if possible. Check with these people every two to three years to make sure they are still willing and able to serve in this capacity.

4) Make sure your trusted advisors are coordinated. It is important for your financial planner, estate planning attorney, and CPA to understand your intentions to create or contribute to a Special Needs Trust. If you are utilizing life insurance, include your agent in the conversation.

D.: So, might a Special Needs Trust be an appropriate way for a parent or other family member to provide financial support for a Special Needs family member?

Lauren: Yes.  A Special Needs Trust can enable a person with a disability (mental, physical, or certain chronic illnesses) to have held for their benefit an unlimited amount of assets without affecting Social Security Disability Income (SSDI) and Medicaid benefits. In a properly drafted Special Needs Trust, the assets held in trust are not considered countable assets for purposes of qualification for certain governmental benefits. The purpose of this trust, which is why the assets are not countable, is to provide for the special needs person beyond resources provided by the government.

D: When is a Special Needs Trust unsuitable?

Lauren: I have run into the case where someone has a small insurance payout and they know they can’t leave it outright to their special needs loved one, but it would cost almost as much to set up a Special Needs Trust. If you do not have a loved one capable of serving as trustee and there are not substantial assets to place in trust, consider a pooled trust like The Alabama Family Trust.

D.: What advice do you give your clients to select the right team to handle a Special Needs Trust?

Lauren: Ask the right questions. The internet is your friend because most professionals have bios listed on their company websites. Look for information in the bios that shows the professional is a subject matter expert or has a true interest in serving families with special needs.

Once you narrow down your providers to specialists, you need to find the right fit for your family. Here is a list of interview questions for families with a loved one with special needs:

1) How did you start working with special needs families?

2) How many special needs families have you served?

3) How long have you been working with special needs families?

4) For financial advisors/planners: Will you serve in a fiduciary capacity 100 percent of the time for my family? Very important.

5) Ask for references. Some industries do not allow references for confidentiality reasons but it is good to ask.

6) Ask the advisor to give you a case study where they have worked with a family like yours.