Skip to main content
Monthly Archives

July 2016

What are the 4 different Trusts used in Estate Planning?

By Uncategorized

Ever since watching Gilligan’s Island as a kid I have secretly wondered how and what Thurston Howell, III and Lovey Howell meant when they mentioned their “Trust Accounts.” I thought it was something only related to rich people. Now I know it is not about being rich as much as it is about being smart.gilligans-island-Howells

What is a trust and why should I have one in my estate plan?

Trusts have been used for estate planning and asset protection for centuries. Their usefulness and flexibility for these purposes have been proven by the test of time. The origin of trusts can be found in the eleventh century crusades. Crusading English knights left their manors and estates in the care of trusted friends for safekeeping while themselves away on crusade. However, trusts are not just some dusty, antiquated notion from manorial England! Trusts

A trust is a separate legal entity for holding and investing property. One or more persons (the “trustee”) holds property, usually real estate or investments, for the benefit of another or several other people (the “beneficiary”). The person who gives the property for the trust is known as the “donor” or “grantor” or “settlor.” The trustee holds legal title or interest and is responsible for managing, investing, and distributing the assets or property of the trust. The beneficiary holds an equitable or beneficial interest.

  • What are the benefits of establishing a trust?

Depending on your situation, there can be several advantages to establishing a trust. The most well known benefit is avoiding probate. That is, in a trust that terminates with the death of the donor, any property in the trust prior to the donor’s death passes immediately to the beneficiaries by the terms of the trust without requiring probate. This can save time and money for the beneficiaries. Certain trusts can also result in tax advantages both for the donor and the beneficiary. Or they may be used to protect property from creditors, to help the grantor qualify for Medicaid, or simply to provide for someone else to manage and invest property for the grantor and the named beneficiaries. Trusts are private documents and only those with a direct interest in the trust need know of trust assets and distribution. If well drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated.irrevocable-trust

  • What kinds of trust are there?

There are several types of trusts, some of the more common of which are discussed below:

  • Revocable Trust

A revocable trust is sometimes referred to as a “living” or “inter vivos” trust. Such a trust is created during the life of the donor rather than through a will. With a revocable trust, the donor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. So, the donor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death. The disadvantage of a revocable trust is that the trust assets are countable to the donor for purposes of determining Medicaid eligibility and does not provide protection against creditors or in the event of a divorce.

  • Irrevocable Trust

An irrevocable trust is created during the life of the donor, who thereafter may not change or amend the trust. Any property placed into the trust may only be distributed by the trustee as provided for in the trust instrument itself. For instance, the donor can provide that he or she will receive income earned on the trust property. An irrevocable trust that provides for the donor to retain the right to income only is a popular tool for Medicaid planning.

  • Testamentary Trust

A testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the donor is probated upon his or her death. Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to provide funds for the surviving spouse in a form that should neither be considered available nor have to be spent down if he or she should seek Medicaid eligibility to pay for long-term care. Though a testamentary trust is an available tool for estate planners, it is rarely used as there are better more effective trusts that can achieve the same goals as a testamentary trust without the possibility of probate court involvement.

A supplemental needs trust can be created by the donor during life or as part of a will. Its purpose is to enable the donor to provide for the continuing care of a disabled spouse, child, relative or friend. The beneficiary of a well-drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs. Thereby, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing.

  • How can I find out if I should have a trust?

As with all estate planning, anyone considering a trust should contact our office at 401.648.7000 to schedule a free consultation to discuss how trusts can best work for you.


Veterans Benefits Increase in 2017

By Uncategorized

Veterans Will See Same Cost-of-Living Hike As Social Security in 2017

Veterans’ benefits will match the Social Security cost-of-living increase in 2017, thanks to a measure recently finalized by Congress this week. But Veterans’ groups hoping for a more permanent answer to the annual legislative hand-wringing over their benefits boost will have to wait longer for that solution.
Under law, annual cost-of-living increases are automatic for Social Security benefits, determined by the executive branch without intervention from Congress. But Veterans’ benefits fall into a different category, one that requires lawmakers to vote on an adjustment every year.
In the last few decades, Veterans have seen their annual adjustment differ from the Social Security COLA only one time (in 2000, as a result of a minor rounding difference between the two rates). But outside groups have called having the two increases dealt with separately confusing at best and potentially ripe for abuse or mistakes.
The measure finalized by the Senate links the Veterans’ benefits boost to Social Security rates for 2017 alone. Legislation to permanently tie veterans payouts to the Social Security cost-of-living calculations was passed by the House in February, but has languished in the Senate since then. Bill sponsor Rep. Ralph Abraham, R-La., said he is still hopeful that measure can advance through Congress later this year.

The change affects the annual rates of VA disability compensation, dependency compensation for surviving children and spouses, and medical clothing allowances for veterans, among other benefits.

It will not affect adjustments for military retirement pay, which are calculated through other methods.

Social Security and veterans benefits did not see a cost-of-living increase in 2016, due to lower inflation costs and the methodology used by government officials to calculate the raise. No announcements have been made on a possible 2017 social security increase which the veterans benefits are tied to.

Source: Military Times


Special Needs Trust Fairness Act Passed Committee

By Uncategorized

Breaking News: Committee Approves Special Needs Trust Fairness Act in Package!

On July 13, 2016, the House Energy and Commerce Committee approved the Special Needs Trust Fairness Act (H.R. 670) as part of a small legislative package to improve Medicaid!

The Special Needs Trust Fairness Act lets individuals with disabilities, who have the capacity, to create their own special needs trusts.

Special needs trusts allow persons with disabilities to supplement daily living expenses when government benefits alone are insufficient and protects them against the risk of impoverishment.

But under the current law, only a parent, grandparent, legal guardian of the individual, or a court can establish a special needs trust.

Empower persons with disabilities with responsibility for their own life decisions.

The package also includes Medicaid coverage of tobacco cessation services for mothers of newborns and limiting the use of federal Medicaid funds to cosmetic drugs except when medically necessary.


The Special Needs Trust Fairness Act of 2015 seeks to correct a problem many view in the current law that presumes all individuals with disabilities lack the mental capacity to establish their own special needs trusts. Proponents of the bill state this is false and unfair presumption imposes unnecessary legal fees and costs, court delays, and uncertainty on people who can little afford it. The suggested fix is: H.R. 670 which seeks to add the words “the individual” to 42 U.S.C. § 1396(d)(4)(A) to allow people with disabilities to establish their own individual special needs trusts. The Senate passed a companion version of this bill (S. 349) by unanimous consent on September 9, 2015


People with disabilities who want to live active lives face daunting costs to pay for what others do as a matter of course – from getting out of bed, taking a bath, or feeding or clothing oneself – to more complicated tasks – travel, reading and writing, or working productively. Medicaid may cover the medical and remedial costs for many, but of course there are many more expenses incurred during everyday living. Congress has long recognized the limits of Medicaid; in 1993, it authorized two types of special needs trusts that allow people to set aside funds to pay for supplemental care and meet their non-medical needs while retaining Medicaid. And, prior, Congress added ABLE Accounts, which provide tax incentives for individuals with disabilities to save funds for their non-medical disability needs without loss of Medicaid.

The Problem: “The Individual” is Missing from the Statute

In 1993, Congress authorized two kinds of trusts – individual and pooled non-profit trusts. The law, as drafted, allowed individuals with disabilities to place their funds in a pooled non-profit trust, but in another section left out the words “the individual” thereby failing to allow individuals to establish their own special needs trust:

  • Individual trusts “must be established by a parent, grandparent, legal guardian of the individual, or a court.” 42 USC §(d)(4)(A).
  • Pooled Trusts accounts “must be established by a parent, grandparent, legal guardian of such individual, the individual, or a court.” 42 USC (d)(4)(C)(emphasis added).

More recently, in the related ABLE Act, Congress permitted these accounts to be “established by an eligible individual.” P.L. 113-295

Proponents believe there is no valid public policy reason for prohibiting competent individuals with disabilities from establishing their own individual special needs trusts where all of the other, much more significant requirements are met. These requirements are plainly more important than who signed the document; they are, briefly, that the trust or trust account be:

  • Irrevocable.
  • Provide payback to Medicaid following the death of the beneficiary for all of its expenditures for the beneficiary.
  • Managed by a trustee for the “sole benefit” of the disabled individual.

This legislation would, of course, keep all of these requirements in place.


Why You Should NEVER Use a Life Estate Deed

By Uncategorized


A life estate deed is a deed that creates a life estate for your benefit during your lives. At your death, the property that is in the deed will pass automatically to who you designated beneficiaries in the deed without going through probate. This will protect the property from estate recovery should you require Medicaid-covered long-term care in a nursing home. While it does give your beneficiary an interest in the property now, you retain the sole right of possession during your lives, meaning that you can tell them to leave if you wish. The only limitation on your control of the property at this time is that you cannot sell or mortgage it without your beneficiary agreeing and signing the deed.

Businessman with Coat and Tie Holding House.

Businessman with Coat and Tie Holding House.

After your deaths, your beneficiary will own the property as cotenants with other named beneficiaries, meaning that if either dies before the property is sold, his or her share will pass under the terms of his or her will. The alternative would be to make them joint tenants so that the property would belong entirely to the survivor.
Creating this life estate is considered a transfer that will make you both ineligible for Medicaid for 5 years. If the grantor does require nursing home care during that time, the transfer penalty can be ‘‘cured’’ by the beneficiary conveying their remainder interest back to the grantor. We would discuss the best strategy to follow in that circumstance.

Why should you avoid using a life estate deed?

When you transfer property with a retained life estate to someone else, you can not sell the property without the remainder owners’ consent. You also lose the right to change who the eventual owners will be; once the transfer occurs, you can’t take it back without consent. This contrasts with a trust which allows you to retain a limited power of appointment and change who the eventual beneficiaries will be at any time. The property will become an asset of the remainder beneficiaries immediately upon the transfer and will also be available to the creditors and may prevent them from obtaining means tested governmental benefits such as Medicaid and SSI.
One of the biggest reason why you wouldn’t want to transfer the home subject to a life estate is that should the family decide to sell the home while you are in a nursing home, it will result in the life estate portion of that transfer (calculated using the LIFE ESTATE VALUATION TABLE) becoming an available resource and disqualify you from Medicaid eligibility.
THE MORAL OF THE STORY: If you plan to use a life estate deed, you should plan on holding title in the life estate until the death of the grantors.
A preferred method of holding title would be via an Income Only Trust which would allow for a sale of the real estate without the corresponding ineligibility from Medicaid or having the proceeds being deemed available for the grantors.
Want to discuss more? Contact our office to schedule a no-cost consultation.