King & Wood, P.A.

How to Protect Child’s Public Benefits

“If you have a child or other family member who has special needs due to physical or mental conditions, you face a variety of challenges planning for their care, including financial ones.”

Well-meaning relatives may not understand that putting a family member with special needs in their will could put your family member’s lifestyle and future at risk, says the article “Protect benefits for children with special needs from Hoosier Times. Planning ahead is your best defense.

Individuals with special needs are eligible for a variety of government benefits and local programs that help with housing, medical needs, specialized equipment, independent living, job training and a variety of other services. Most of these programs are means-tested, that is, they require participants to qualify for benefits. If your loved one has no income and few assets, that’s not a problem.

However, when relatives, especially grandparents, include individuals with special needs in their estate plans or make them beneficiaries of insurance policies or retirement plans, they could put all of these benefits at risk.

Hopefully, relatives will keep you informed of their plans. You’ll need to be appreciative but firm and explain just how badly their generosity could backfire, if their gifts are not structured properly.

There is a way to leave bequests or make gifts to individuals with special needs that will not put their benefits at risk: a Special Needs Trust (SNT), either one that has been created already or one created for their gift. A SNT is designed to help people with special needs use financial gifts for different purposes, while maintaining their eligibility for services.

There are two types of SNTs:

First-party SNT—An individual with Special Needs, their legal guardian, or the court may establish a first party SNT funded by the individual’s own assets, either through earnings or an inheritance or a personal injury award. The first party SNT includes a “payback” rule: the trust must pay back the state for certain benefits, when the individual with special needs dies.

Third-party SNT—A relative other than the individual wishes to include them in an estate plan, so the relative or other person sets up a third-party SNT. The third-party trust is funded with assets from the relative or other person and no payback provision is required.

There are many issues involved in establishing an SNT, so the best person to set one up is an elder law estate planning attorney. You’ll also want to involve anyone in the family who might contribute to the trust, so they know what to expect and how they can participate, if they wish to do so.

Reference: Hoosier Times (March 4, 2021) “Protect benefits for children with special needs

What Is Family Business Succession Planning?

“If you plan to pass your business to your offspring, there is more to keep in mind when creating your succession plan than your descendants—there are also their spouses—especially if they become ex-spouses.”

Many family-owned businesses have had to scramble to maintain ownership, when owners or heirs were struck by COVID-19. Lacking a succession plan may have led to disastrous results, or at best, less than optimal corporate structures and large tax bills. This difficult lesson is a wake-up call, says the article “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’” from Bloomberg Tax.

Another factor putting family-owned businesses at risk is divorce. Contemplating the best way to transfer ownership to the next generation requires a candid examination of family dynamics and acknowledgment of outsiders (i.e., in-laws) and the possibility of divorce.

Before documents can be created, a number of issues need to be discussed:

Transfer timing. When will the ownership of the business transfer to the next generation? There are some who use life-events as prompts: births, marriages and/or the death of the owners.

How will the transfer take place? Corporate structures and estate planning tools provide many options limited only by the tax liabilities and wishes of the family. Be wary, since each decision for the structure may have unintended consequences. Short and long-term strategic planning is needed.

To whom will the business be transferred? Who will receive an ownership interest and what will be the rights of ownership? Will there be different levels of ownership, and will those levels depend upon the level of activity in the business? Will percentages be used, or shares, or another form?

In drafting a succession plan, it is wise to assume that the future owners will either marry or divorce—perhaps multiple times. The succession plan should address these issues to prevent an ex-spouse from becoming a shareholder, whose interest in the business needs to be bought out.

The operating agreement/partnership agreement should require all future owners to enter into a prenuptial agreement before marriage specifically excluding their interest in the family business from being distributed, valued, or deemed marital property subject to distribution, if there is a divorce.

An owner may even exact a penalty for a subsequent owner who fails to enter into a prenup prior to a marriage. The same corporate document should specifically bar an owner’s spouse from receiving an ownership interest under any circumstance.

A prenup is intended to remove the future value of the owner’s interest from the marital asset pool. This typically requires the owner to buy-out the future spouse’s legal claim to future value. This could be a costly issue, since the value of the future ownership interest cannot be predicted at the time of the marriage.

Many different strategies can be used to develop a succession plan that ideally works alongside the business owner’s estate plan. These are used to ensure that the business remains in the family and the family interests are protected.

Reference: Bloomberg Tax (April 5,2021) “Succession Planning for the Family-Owned Business—Keepin’ it ‘All in the Family’”

Common Mistakes when Making Beneficiary Designations

“Once you’ve bought an annuity or a life insurance policy and named your beneficiaries, you may never think about those beneficiary designations again. However, that could be a big mistake.”

Let’s say you divorce and remarry and forget to change your beneficiary from your ex-spouse. Your ex-spouse will be smiling all the way to the bank. There won’t be much that your new spouse could do, if you forgot to make that change before you die. Any time there is a life change, including happy events, like marriage, birth or adoption, your beneficiary designations need to be reviewed, says the article “One Beneficiary Mistake You Really Don’t Want to Make” from Kiplinger.

If there are new people in your life you would like to leave a bequest to, like grandchildren or a charitable organization you want to support as part of your legacy, your beneficiary designations will need to reflect those as well.

For people who are married, their spouse is usually the primary beneficiary. Children are contingent beneficiaries who receive the proceeds upon death, if the primary beneficiary dies before or at the same time that you do. It is wise to notify any insurance company or retirement fund custodian about the death of a primary beneficiary, even if you have properly named contingent beneficiaries.

When there are multiple grandchildren, things can get a little complicated. Let’s say you’re married and have three adult children. The first beneficiary is your spouse, and your three children are contingent beneficiaries. Let’s say Sam has three children, Dolores has no children and James has two children, for a total of five grandchildren.

If both your spouse and James, die before you do, all of the proceeds would pass to your two surviving children, and James’ two children would effectively be disinherited. That’s probably not what you would want. However, there is a solution. You can specify that if one of your children dies before you and your spouse, their share goes to his or her children. This is a “per stirpes” distribution.

This way, each branch of the family will receive an equal share across generations. If this is what you want, you’ll need to request per stirpes, because equal distribution, or per capita, is the default designation. Not all insurance companies make this option available, so you’ll need to speak with your insurance broker to make sure this is set up properly for insurance or annuities.

Any assets that have a named designated beneficiary are not controlled by your will. Consequently, when you are creating or reviewing your estate plan, create a list of all of your assets and the desired beneficiaries for them. Your estate planning attorney will help review all of your assets and means of distribution, so your wishes for your family are clear.

Reference: Kiplinger (March 23, 2021) “One Beneficiary Mistake You Really Don’t Want to Make”

Welcome, Bobby Celander!

We are pleased to welcome our law firm’s newest associate, Robert Benjamin Celander. Bobby is an April 2021 graduate of the Florida State University College of Law (J.D., magna cum laude). Bobby attended law school on an academic scholarship. During the summer after his first year, he served as an intern to Chief Judge Jonathan Sjostrom of Florida’s Second Judicial Circuit. During the summer after his second year, and all through his third year, he served as a law clerk to our firm.

Bobby is a graduate of the University of Florida (B.A., cum laude, 2017), where he completed dual majors in history and political science, served as President of Delta Upsilon Fraternity, was elected to Florida Blue Key, served as a Cicerone, and graduated with a perfect 4.0 cumulative grade point average.

Bobby is a native of Tallahassee and co-salutatorian of Maclay School’s Class of 2013. He is also an accomplished fine artist. Through Celander Pet Portraits, he illustrates and paints pastel portraits of animals by commission.

Bobby will work for us intermittently as he prepares for the July 2021 administration of the Florida Bar Examination.

Welcome Bobby!

What Happens when Homeowner Dies without Will?

“How do we move into probate, so we do not lose the house and bank accounts, while not killing ourselves in the process?”

When parents die suddenly, in this case due to COVID-19, and there is no will and no discussions have taken place, siblings are placed in an awkward, expensive and emotionally fraught situation. The article titled “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?” from MarketWatch sums up the situation, but the answer is complicated.

When there is no will, or “intestacy,” there aren’t a lot of choices.

These parents had a few bank accounts, owned their home outright and left no debts. They had six adult children, including one that died and is survived by two living sons. None of the siblings agrees upon anything, so nothing has been done.

One of the siblings lives in the house rent free. Another brother was loaned $35,000 for a down payment on a mobile home. He now claims that the loan was a gift and does not have to pay it back. There are receipts, but the money was paid directly to the escrow company from the mother’s bank account.

How do you determine if this brother received a loan or a gift? What do you do about the brother who lives rent-free in the family home? How does the family now move the estate into probate without losing the house and the bank accounts, while maintaining a sense of family?

For starters, an administrator needs to be appointed to begin the probate process and act as a mediator among the siblings. In some states, the administrator also requires a family tree, so they can know who the descendants are. Barring some huge change of heart among the siblings, this is the only option.

If the parents failed to name a personal representative and the siblings cannot agree on who should serve, an estate administration lawyer is the sensible choice. The court may name someone, if there is concern about possible conflicts of interests or the rights of creditors or other beneficiaries.

A warning to all concerned about how the appointment of an administrator works, or sometimes, does not work. Working with an estate planning attorney that the siblings can agree upon is better, as the attorney has a fiduciary and ethical obligation to the estate. While state laws usually hold the administrator responsible to the standard of care of a “reasonable, prudent” individual, not all will agree what is reasonable and prudent.

One note about the loan/gift: if the mother helped a brother to qualify for a mortgage, it is possible that a “Gift Letter” was created to satisfy the bank or the resident’s association. Assuming this was not a notarized loan agreement, the administrator may rule that the $35,000 was a gift. Personal loans should always be recorded in a notarized agreement.

This family’s disaster serves as a good lesson for anyone who does not have an estate plan. Siblings rarely agree, and a properly prepared estate plan protects more than your assets. It also protects your children from losing each other in a fight over your property.

Reference: MarketWatch (April 4, 2021) “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?”

What Is a Living Trust Estate Plan?

“While a Last Will can help ensure that one’s wishes regarding the distribution of their estate upon death are followed, it is the living trust that allows the estate to avoid probate.”

Living trusts are one of the most popular estate planning tools. However, a living trust accomplishes several goals, explains the article “Living trusts allow estates to avoid probate” from The Record Courier. A living trust allows for the management of a beneficiary’s inheritance and may also reduce estate taxes. A person with many heirs or who owns real estate should consider including a living trust in their estate plan.

A trust is a fiduciary relationship, where the person who creates the trust, known as the “grantor,” “settlor,” “trustor” or “trustmaker,” gives the “trustee” the right to hold title to assets to benefit another person. This third person is usually an heir, a beneficiary, or a charity.

With a living trust, the grantor, trustee and beneficiary may be one and the same person. A living trust may be created by one person for that person’s benefit. When the grantor dies, or becomes incapacitated, another person designated by the trust becomes the successor trustee and manages the trust for the benefit of the beneficiary or heir. All of these roles are defined in the trust documents.

The living trust, which is sometimes referred to as an “inter vivos” trust, is created to benefit the grantor while they are living. A grantor can make any and all changes they wish while they are living to their trust (within the law, of course). A testamentary trust is created through a person’s will, and assets are transferred to the trust only when the grantor dies. A testamentary trust is an “irrevocable” trust, and no changes can be made to an irrevocable trust.

There are numerous other trusts used to manage the distribution of wealth and protect assets from taxes. Any trust agreement must identify the name of the trust, the initial trustee and the beneficiaries, as well as the terms of the trust and the name of a successor trustee.

For the trust to achieve its desired outcome, assets must be transferred from the individual to the trust. This is called “funding the trust.” The trust creator typically holds title to assets, but to fund the trust, titled property, like bank and investment accounts, real property or vehicles, are transferred to the trust by changing the name on the title. Personal property that does not have a title is transferred by an assignment of all tangible property to the trustee. An estate planning attorney will be able to help with this process, which can be cumbersome but is completely necessary for the trust to work.

Some assets, like life insurance or retirement accounts, do not need to be transferred to the trust. They use a beneficiary designation, naming a person who will become the owner upon the death of the original owner. These assets do not belong in a trust, unless there are special circumstances.

Reference: The Record Courier (April 3, 2021) “Living trusts allow estates to avoid probate”

Court Victory for Adults Caring for Parents at Home

“Advocates are celebrating an important victory for individuals who provide care for their parents at home. The new decision will likely lead to a substantial expansion in the number of homes transferred to those caregivers.”

A New Jersey Appellate Division recently reaffirmed the state’s regulation that allows older adults to transfer their homes to adult caregiver children without Medicaid penalty, reports an article titled “Major Victory for Adults Who Provide Home Care for Parents” from The National Law Review. The regulation permits the home to be transferred with no Medicaid penalty, when the adult child has provided care to the parent for a period of two years. This allows the parents to remain at home under the care of their children, delaying the need to enter a long-term care facility.

New Jersey Medicaid has tried to narrow this rule for many years, claiming that the regulation only applies to caregivers who did not work outside of the home. This decision, along with other cases, recognizes that caregivers qualify if they meet the requirements of the regulation, regardless of whether they work outside of the home.

The court held that the language of the regulations requires only that:

• The adult child must live with the parent for two years, prior to the parent moving into a nursing facility.
• The child provided special care that allowed the parent to live at home when the parent would otherwise need to move out of their own home and into a nursing care facility.
• The care provided by the adult child was more than personal support activities and was essential for the health and safety of the parent.

In the past, qualifying to transfer a home to an adult caregiver child was met by a huge obstacle: the caregiver was required to either provide all care to the parents or pay for any care from their own pockets. This argument has now been firmly rejected in the decision A.M. v. Monmouth County Board of Social Services.

The court held that there was nothing in the regulation requiring the child to be the only provider of care, and the question of who paid for additional care was completely irrelevant legally.

It is now clear that as long as the child personally provides essential care without which the parent would need to live in a nursing facility, then the fact that additional caregivers may be needed does not preclude the ability to transfer the home to the adult child.

The decision is a huge shift, and one that elder law estate planning attorneys have fought over for years, as there have been increasingly stricter interpretation of the rule by New Jersey Medicaid.

While Medicaid is a federal program, each state has the legal right to set its own eligibility requirements. This New Jersey Appellate Court decision is expected to have an influence over other states’ decisions in similar circumstances. Since every state is different, adult children should speak with an elder law estate planning attorney about how the law of their parent’s state of residence would apply if they were facing this situation.

Reference: The National Law Review (March 22, 2021) “Major Victory for Adults Who Provide Home Care for Parents”

Why Do I Need a Will?

“A will is a legal document, governed by the laws of each state, written to guarantee that your possessions will be left upon your death to the people or organizations you specify.”

Estate planning attorneys aren’t the only professionals to advise anyone who is a legal adult and of sound mind to have a will. Financial advisors, CPAs and other professional advisors recognize that without a will, a person places themselves and their family in an unnecessarily difficult position. A recent article titled “One document everyone should have” from the Aiken Standard explains why this document is so important and what else is needed for an estate plan. A will is a “testamentary” document, meaning it becomes operative, only when the person who makes the will (the “testator”) dies.

The process of probate can only begin upon death. Each county or jurisdiction has a probate court, where the estate assets of deceased individuals are administrated. On the date a person dies, those assets must be identified. Some assets must be used to pay debts, if there are any, and the balance is distributed either according to the directions in the will or, if there is no will or the will has been deemed to be invalid, according to the laws of the state.

All this assumes, by the way, that the decedent did not arrange for his or her assets to pass without probate, by various non-probate transfer methods. For example, there is no probate required, if there is a surviving joint owner or designated beneficiary.

When there is no will and assets are subject to probate, then such assets are passed by intestacy, which usually means they are distributed along the lines of kinship. This may not always be the desired outcome, but with no will, the law controls asset distribution.

Why is a will important?

• It allows you to leave specific property to specific loved ones, friends, or charities.
• It may be used to provide funeral and burial instructions, although they can also be provided in a different document, so they are available to family or friends immediately.
• A will can direct how you want assets to be used to pay debts, any taxes and payment of estate administration expenses, which include the cost of probate, legal fees and executor fees.
• A will can be used to minimize estate taxes, which may be levied not just by the federal government but also by the state.
• The will names the estate’s executor and the extent of his or her powers.
• If there are minor children, the will is used to name a guardian to raise the children.
• If you would like to disinherit any relative, the will provides the means to doing so.

Everyone needs a will, regardless of how large or small their personal assets may be. Every adult should also have an estate plan that includes other important documents, like a Power of Attorney to name another individual to act on your behalf, if you are unable to do so because of an injury or illness. A Healthcare Proxy and a Living Will are also important, so those who love you can follow your end of life care wishes.

Reference: Aiken Standard (March 13,2021) “One document everyone should have”

What Is Fair in a Second Marriage and Estate Planning?

“If you are planning to take another walk down the aisle, it is critical to take the time to review and revise your estate plan, especially if meaningful assets and debts are being brought into the marriage.”

The assets you and your second spouse bring into the marriage need to be carefully considered when revising your estate plan, says a recent article “Value of an Estate Plan Review With a Second Marriage” from Mondaq. If there are children from one or both partner’s prior marriages, those too need to be considered. If you plan on having children together, the estate plan needs to include this as well.

The best time to prepare this new estate plan would be before the wedding. This way, you can both go forward with the wedding and celebration with clear minds and hearts.

Start with a complete inventory of all assets and debts. List financial accounts, including investments, savings and checking accounts. Real estate and any personal assets, pensions and tax deferred retirement accounts should be included.

Review your wills, trusts, health care plans and directives, powers of attorney and any other estate planning documents at this time.

There may be assets that need to be retitled, and beneficiaries on all assets that permit designated beneficiaries should be updated at this time. Check to be sure a prior spouse is not the beneficiary of any life insurance or pensions. Any debts or liabilities that one partner brings to the marriage should be reviewed at this time. Comingling accounts and marriage will make both spouses responsible for each other’s debts, which should be discussed candidly.

Based on the inventory, one or the other partner may wish to have a prenuptial agreement to protect their individual financial interests. A prenuptial agreement may also be used to waive respective rights to each other’s property. These agreements are also used to serve as a means of retaining control of a business and defining premarital assets and debt.

When children are involved, decisions need to be made as to how assets are to be divided. Does one spouse want to leave their assets to their own children or to all of the children?

One way of addressing children in a second marriage is to create a separate marital trust to ensure that the new spouse receives the share of the assets you want them to have, while preserving your children’s inheritance. In the case of IRAs, it may be prudent to split them into separate IRAs among your spouse and children to protect the children’s inheritance.

When naming new beneficiaries, be aware that your new spouse may have mandatory rights to certain assets, such as qualified retirement plans. The only person who can inherit a Health Savings Account (HSA) without it becoming taxable, is your spouse. Remember to change this from your former spouse to the new spouse. Naming your children as the beneficiary would cause the account to be taxable on your death.

An estate planning attorney who has worked with second and subsequent marriages can help facilitate a discussion about structuring an estate plan. Working with a professional who knows how these situations are resolved can be a great help in getting the process started and keeping it moving forward.

Reference: Mondaq (March 2, 2021) “Value of an Estate Plan Review With a Second Marriage”

Have Estate Planning Conversations with Aging Parents

“Nearly half of working-age Americans assume that they will receive an inheritance that will support them later in life, according to a survey by the financial services company HSBC.”

Let’s start with this idea: maybe your parents are going to leave you a generous bequest as part of their estate plan. Do you know this for a fact, or is it wishful thinking? The only way to know, advises a recent article from Yahoo! Finance titled “How To Talk to Your Parents About Their Estate (Without Making It Awkward),” is to have a conversation, or a series of conversations. It’s not the first awkward conversation you’ll have with your parents, but it may be a bit stickier than you expect.

No matter how you approach it, this is a sensitive issue. How do you avoid appearing greedy or selfish? There is actually a lot more to know beyond the inheritance issue. You need to know how to ensure that your parents’ wishes are carried out, while they are living as well as after their deaths.

It will be helpful to be aware that the prospective inheritance amount may change over the course of your parents’ remaining lives. You also don’t want your parents thinking that you consider yourself entitled in any way to the assets they have built over the course of their lives.

Instead, start the conversation by talking about their estate plan. Explain that you want to be able to follow their instructions. You might reference an article or blog post that you have read about the importance of estate planning. You can also talk about your own estate plan, explaining that you have created an estate plan to protect your children and family members and to be sure that your instructions are followed.

Don’t be afraid to acknowledge how difficult this conversation is for you. Reassure them that you are not looking forward to their demise, but you have concerns about how things will work out when the time does come.

Depending upon your family dynamics, holidays may be a good time to address estate planning. This provides an opportunity for all family members to be included and for concerns and plans to be shared among involved siblings.

This does not mean discussing inheritances at the dinner table. Focus on what your parents’ wishes are and include a conversation about what values they would like to pass on to the next generation. If there are family histories or stories to share, this is also part of your inheritance.

Regardless of when or how you approach the topic, you do want to be sure your parents have a plan in place, so there is a path for whoever will be taking care of them and their assets. Ask if they have these key legal documents:

• A Last Will, also known as a Last Will and Testament
• A Power of Attorney to designate someone to make financial and legal decisions, if they are not able to do so for themselves.
• A Living Will or health care directive that will designate someone who can make healthcare decisions and address end of life care for them.

Ask where your parents keep these documents, and how you can find them when the time comes. Are they in your father’s night table, or in a lockbox in the attic? If they have a financial advisor or estate planning attorney, who is that person? You’ll need to be able to access the documents and speak with their estate planning attorney.

A few awkward moments now will help all of you as your parents, and you, move through the coming stages of life.

Reference: Yahoo! Finance (March 25, 2021) “How To Talk to Your Parents About Their Estate (Without Making It Awkward)”