Category: Trusts

Patent Pending Retirement Trust for Baby Boomers’ Children

Posted by heschlawadmin on June 1, 2020

William E. Hesch Law Firm, LLC

3047 Madison Road, Suite 205

Cincinnati, OH 45209

(513) 731-6601 Phone

(513) 731-4173 Fax

www.heschlaw.com

bill.hesch@williamhesch.com

Patent Pending Retirement Trust for Baby Boomers’ Children

The Patent Pending Retirement Trust is an innovative trust idea that William E. Hesch, Esq., CPA, PFS created when working on an estate plan for his millennial children. Bill was worried about his children planning for their retirement, and was trying to think of creative ways in which he could ensure that the two of them would have a sufficient amount of money to live off of when they reached retirement age. Using his expertise in estate planning law, wills and trust law, asset protection planning and tax planning from his years of experience as an attorney, CPA, and financial planner (PFS) Bill created a Retirement Trust for his children. In its simplest form the Retirement Trust is a trust meant to be a retirement plan for the Grantor’s children who do not expect Social Security to be, much of any help to them in thirty (30) years.

After using the trust for his estate plan, he began sharing the idea with clients over the past three years, to gauge whether or not there was a need in the estate planning market for such an instrument. Many clients loved the concept and have in fact requested a Retirement Trust for their own estate plan. Due to the positive reaction from his clients, Bill filed for a patent in August, 2018 and the Retirement Trust became “patent pending” in August, 2019.

Why use a Retirement Trust?

It is well known that the younger generations are not saving enough for their retirement. Millennials are not saving for retirement in their 401(K)s and IRAs, and social security may not provide much retirement income for the generations that follow the baby boomers. The main purpose for the Retirement Trust is to provide financial security for Grantor’s children in their retirement years. A Retirement Trust allows the Grantor (or Grantors) to hold assets in a trust for the benefit of their children until their children reach an age specified by said Grantor, typically sixty-two (62) years of age. Upon reaching age sixty-two (62), the children begin receiving monthly distributions of retirement income, as provided for in the trust document. There are a number of features the Grantor had customized in the instrument for his or her specific situation.

Who are the clients using Retirement Trusts?

This trust is typically used by baby boomer clients whose children are already old enough to be out of college and in the work force. These clients want the benefits of using a revocable trust in their estate plans but are concerned with their children’s (or other beneficiaries’) financial security when they retire. They have these concerns for many reasons, including: (1) their children’s past financial decision making; (2) have children who are entrepreneurs and are worried those children won’t have a nest egg for their retirement; (3) their children have potential creditor problems and don’t want them inheriting trust assets outright in a lump sum distribution; or (4) they believe social security benefits will not be there for their children. It is a fact that seventy percent (70%) of lottery winners end up bankrupt in just a few years after receiving a large financial windfall. It is not hard to believe that many children receiving a substantial windfall all at once from their parent, in their thirties or forties, may suffer the same fate.

How does the Retirement Trust work?

The Retirement Trust is a revocable trust that becomes irrevocable upon the death of the Grantor or both Grantors. Upon the death of the Grantor, the trust is divided into sub trusts for each child. Each child has the right to certain monthly distributions of their sub trust until that child reaches retirement age, typically age sixty-two (62).

Required distributions before reaching age sixty-two (62).

The Grantor has a choice of the method in which the required distributions before reaching the age of retirement are distributed, but it is commonly one or more of the following options: (1) a fixed dollar amount of the trust income and principal each year, adjusted for inflation annually (i.e. $20k); (2) a fixed percentage of the trust principal each year (i.e. 4% which would allow the trust nest egg to grow, while supplementing beneficiary’s income.); and (3) the Grantor may attach a work requirement to the beneficiary’s distributions before reaching the designated retirement age. If a child becomes disabled, monthly payments commence for early retirement.

Distributions upon reaching the age of retirement.

Once the child reaches age sixty-two (62), the balance of assets remaining in that child’s sub trust are totaled and that child is entitled to a monthly annuity payment using the average monthly payment amounts that would be payed from Northwestern Mutual and New York Life annuities, payable for the remainder of that child’s life. Typically, the trust will outline that payments shall be paid monthly beginning on the last day of the month in which the child turns sixty-two (62).

Northwestern Mutual and New York Life do not need to be the insurance companies identified in this section of the Trust. Any insurance company’s annuities or actuarial tables or the IRS life expectancy tables can be used to compute a monthly benefit to be payable for that child’s life. To clarify, an annuity is not actually purchased from one of these insurance companies. The Trustee simply obtains a quote from each insurance company and pays from the trust the equivalent of the average monthly annuity payment that would have been paid from those insurance companies had an annuity actually been purchased.

For more information about this creative, innovative, Patent Pending Retirement Trust, call Bill Hesch to set up a free 30-minute initial consultation at 513-509-7829.

(Legal Disclaimer: William E. Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

SPECIAL NEEDS TRUSTS: Pt. 3 – Pooled Trust Mistakes

Posted by heschlawadmin on August 6, 2018

Aside from the individually structured first and third party special needs trusts, a pooled SNT is a trust that is for multiple individuals with special needs. A pooled SNT is a trust that is established and managed by a non-profit organization. It is a trust that pools together all of the assets of the disabled individuals that have accounts through the trust, as well as assets acquired through outside donations, and makes distributions to the beneficiaries based on their individual shares of the trust’s assets. Pooled SNTs are a way to relieve family members of the job of being the trustee and allows professionals to handle the tedious responsibilities of being the trustee. Some important aspects that set apart pooled SNTs from first and third party SNTs are:

Pooled SNTs do not have any age limits;
The disabled person is able to be one of the grantors of the trust; and
Any excess funds at death are generally kept by the non-profit.

While there are many benefits of being a part of a pooled SNT, there are many mistakes to avoid when planning to join a pooled SNT. One of the first mistakes that people make when pursuing admission to a pooled SNT is not seeking legal advice on the issue. There are many different types of pooled SNT, and all vary from the type of care they give, to the ways they handle the trust’s assets. It is vital to have an experienced legal professional help plan which trust is best for the unique needs of the disabled person. Another mistake that family members of the disabled person’s family must avoid is failing to update their own estate planning documents. Failing to update your own estate plan to make the disabled person’s pooled SNT one of the beneficiaries of your will, trust, life insurance, or retirement accounts will cause an unnecessary delay in the beneficiary receiving the money.

One of the biggest mistakes that people in this situation make is failing to plan at all. While you are alive, you may be the primary caregiver as well as the trustee of a disabled person’s SNT, whether a first party SNT or a third party SNT. But, what will happen to their care and financial security after you pass? It is essential to have a seamless plan in place to allow the disabled person to continue receiving the necessary funds and care they need to live a comfortable life. A pooled trust may be the best tool for that plan, and may be worth pursuing.

A pooled SNT may be the best plan for preserving a disabled person’s assets and ensuring quality care. If a member of your family is disabled, and has not already set up an SNT, call Bill Hesch, attorney, CPA, and financial planner, to find out if a pooled SNT would be in their best interest, or to receive a second opinion on your existing SNT plan.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

SPECIAL NEEDS TRUST MISTAKES: Pt. 2 – Third Party Trust Mistakes

Posted by heschlawadmin on July 19, 2018

A Third Party Special Needs Trust is created for the benefit of a disabled person, which ensures that the disabled person will have proper care. The Third Party SNT is funded with assets typically by family and friends of the disabled person. Unlike the First Party SNT, the property is never owned by the disabled person, and there is also no payback of Medicaid or any other government benefits. When properly planned, a Third Party SNT can provide greater flexibility than a First Party SNT, and can be a very useful mechanism for providing proper care for a person with special needs.

While every state has its own requirements for Special Needs Trusts, generally, Third Party SNTs are more flexible because there are no age requirements. They also do not have to be monitored by the Probate Court in the county of their residence, and may be either revocable or irrevocable. As long as there is careful planning and proper management, there is no repayment of any governmental funds, like Medicaid.

There are common mistakes that must be avoided to ensure that the Third Party SNT works properly and will not have adverse effects on the disabled person or trustee. One of the first mistakes is improperly transferring property into the trust that may disqualify government benefits or require the trust to payback the state funds. It is essential that the property in the trust is never owned by the disabled person, and he or she have no legal right to the property. Transferring property, including money, that can be traced back to the disabled person can be considered a “step-transfer,” and would result in Medicaid and other state funds to be repaid, which could cost thousands of dollars.

Another common mistake is making the primary caregiver the trustee. The trustee position for any SNT is a demanding job, and mistakes must be avoided. Caregivers already have plenty of responsibility looking after the person with special needs. Adding to the stressful job of being primary caregiver to the trustee of the SNT, may result in careless mistakes with the transfer of money to the disabled person. For example, a disabled person on SSI cannot receive money for rent, food, and clothing. Thus, the trustee must keep accurate records to document the purpose for each distribution to the disabled person, and avoid having to repay the government for an improper SSI distribution. Also, by having the trustee and caregiver roles assumed by different people, an important check and balance is put on the primary caregiver and trustee.

A third common mistake is having a disabled person as a beneficiary of a Crummey Trust. In a Crummey Trust, the beneficiary has Crummey Powers, which allow for a Grantor to gift property under the annual gift tax exclusion, and the beneficiary is given the right to withdraw the gift for 30 days. However, the beneficiary of a Third Party SNT should not be given such right since a disabled beneficiary of a Third Party SNT would possibly be required to repay the government benefits received by them, to the extent of the withdrawal power.

Third Party SNTs are very useful vehicles to help fund the care that a disabled person desperately needs. They are a flexible and efficient way to help the disabled person financially and keep their government benefits if drafted and managed properly. If you have a member of your family who has special needs, and want the ability to provide them with financial assistance without adversely affecting their governmental benefits, please contact Bill Hesch, attorney, CPA, and financial planner to get started, or for a second opinion.

SPECIAL NEEDS TRUST MISTAKES: Pt. 1 – First Party Mistakes

Posted by heschlawadmin on June 18, 2018

A First Party Special Needs Trust is set up for the benefit of a person with special needs, and is funded with the disabled person’s own property. Different rules apply when a Third Party SNT that is set up by family members for the benefit of the disabled person. Typically, a First Party SNT is used in two common scenarios: the disabled person receives a lawsuit settlement for damages, or when the disabled person inherits money or property from family, who did not set up a Third Party SNT.

When a disabled person owns property outright, the person may face difficulty receiving government benefits. This is where a First Party SNT comes in; it allows the disabled person to have access to their property, while the trust retains ownership of it, which improves the disabled person’s ability to receive government funding. When formed properly, the First Party SNT is a useful vehicle for ensuring proper care for a person with special needs.

Although every state has different rules that must be met when forming a First Party SNT, the requirements are generally:

The trust is irrevocable
The trust is set up by a parent or guardian in court
The beneficiary of the trust is under the age of 65
The assets in the trust must have been owned by the beneficiary
Benefits received through Medicaid must be repaid after the beneficiary passes away

Proper planning is essential to ensure that all of these requirements are met and that the First Party SNT operates effectively. If the First Party SNT is not formed properly, there may be several problematic issues that arise. One of the worst problems is the disabled person losing their governmental benefits, like SSI or Medicaid. This can result as a flaw in formation or in improper management by the trustee of the SNT. Proper planning is also essential to avoid issues with Medicaid repayment after the death of the beneficiary. When formed correctly, the assets of the trust will be used to repay the costs of Medicaid. However, if the trust is not formed or managed correctly, repayment can be an unnecessary burden on the beneficiary’s estate. Likewise, the trustee of the First Party SNT may face personal liability if the funds were not managed or accounted for properly. All of these consequences can be mistakes of poor planning and management of the First Party SNT.

If you or a member of your family has special needs and will be receiving money from a lawsuit for damages, or inheriting money from your family, who have not set up a Third Party SNT, please contact Bill Hesch, attorney, CPA and financial planner for a second opinion to avoid the common mistakes that are typically made, due to lack of proper planning.

ABLE Accounts

Posted by heschlawadmin on February 15, 2018

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

So you might be asking, which planning tool do I need? A Special Needs Trust or an ABLE Account? The answer could be both. ABLE Accounts allow for more accessibility of funds, with a prepaid debt card feature. The card does not pull money directly out of your ABLE Account. Instead, you get to choose a specific amount of money to load onto your card. This way, you can better control budgets and plan for your Qualified Disability Expenses. They also allow the disabled person to easily receive and save funds from employment without affecting government benefits. If a disabled person is able to work, SSI limits benefits for that person if they have a balance in personal bank account exceeding $2,000. ABLE Accounts allow a person on SSI to work and retain income without diminishing their maximum SSI benefit. However, the money in an ABLE Account will be counted as a resource for SSI purposes if the balance increases over $100,000.

Unfortunately, the funds placed in a ABLE Account are not protected long term because of the medicaid payback provision upon the account holders death. If a family member, by gift or inheritance, plans to leave money for a disabled person the Special Needs Trust is the preferred planning tool. The Special Needs Trusts discussed last month can hold unlimited funds while also allowing for the disabled person to continue receiving SSI.

There are many considerations to look at when trying to protect government benefits for a disabled person and making sure to plan properly is so important. The rules for both Special Need Trust and ABLE Accounts are very complex and it is highly recommended that you work closely with your attorney, CPA, and financial advisor.

Providing For and Protecting a Disabled Child

Posted by heschlawadmin on January 23, 2018

Do you have your disabled child written into your will? Or are they disinherited and you are relying on their siblings to take care of them? This is potentially problematic and you should consider a Special Needs Trust.

Both of these methods of attempting to care for a disabled child, after your death, have undesirable risk. If your child is receiving Supplemental Security Income (SSI), Medicaid, or other needs-based state or federal government funds, leaving your child assets in your will can cause them to become disqualified for this type of government assistance. If you are disinheriting your disabled child in anticipation that your other children will see to it they are taken care of, you are also taking on risk. The other children do not have any obligation to provide top-notch care for their disabled sibling. One way to eliminate these risks and make sure that your disabled child is provided and protected for long after you are gone, is to set up a Special Needs Trust.

Special Needs Trusts are a unique way to make sure that your disabled child’s comfort, dignity, and joy are maintained while also making sure that your child does not lose out on government benefits. A properly constructed Special Needs Trust is not counted as an asset as applied to eligibility for government benefits. This means that your disabled child will be allowed to receive things like, social security and Medicaid for food and shelter, and the trust will be able to provide for things like, medical and dental expenses not covered by third parties, clothing, electronic equipment, training programs, education and education supplies, treatment and rehabilitation, private residential care, telephone, cable, internet, transportation, vacations, participation in hobbies and sports, and much more. As long as the trust is paying for things other than housing and food, items that social security and other government assistant programs are meant to provide, the special non-support needs paid for by the trust will not be considered income to the disabled child. Setting up as Special Needs Trust can be a great way to ensure that your child is taken care of in the future.

Planning for the provisions and protection of a disabled child can be difficult for a parent after they are gone but it is not impossible. Through proper planning, your child can receive the benefit of your estate while still maintaining government benefits.

Is Your Old A-B Trust a Tax Burden for your Family?

Posted by heschlawadmin on March 3, 2017

Save Taxes by Updating your Estate Plan

If you have an old A-B Trust in place, you may be unaware that recent tax law changes have transformed your A-B Trust from an estate tax shelter into an income tax burden for your loved ones. An A-B Trust, also known as a Credit Shelter Trust or Bypass Trust, typically provides that on the death of the first spouse, a particular share of the married couple’s assets are transferred into an irrevocable sub-trust (the “B” trust), rather than to the surviving spouse directly. Traditionally, using an A-B Trust was an estate planning strategy to preserve the deceased spouse’s estate tax exemption to be used upon the death of the surviving spouse. Without sheltering the first spouse’s unused exemption in the “B” trust, any assets in excess of the survivor’s exemption amount would be exposed to very high federal estate taxes.

However, tax law changes in 2013 made permanent an individual federal estate lifetime tax exemption of $5 million (adjusted annually for inflation – 2017 is $5.49 million). If you and your spouse won’t surpass the combined $11 million threshold, your A-B Trust may need to be changed from an estate tax planning perspective. Married couples whose combined assets including life insurance proceeds are less than $5.49 million clearly need to review whether their A-B Trust structure needs to be changed. BEWARE – if you keep your old A-B Trust in place, you might actually be creating a negative income tax consequence because of a specific tax basis rule.

The Internal Revenue Code provides that the tax basis in inherited property gets “stepped up” to its date-of-death fair market value when it is included in a decedent’s estate. When the first spouse dies and the couple has an A-B Trust in place, the assets passing to the “B” Trust get this “stepped up” tax basis. However, when the surviving spouse dies and there are assets remaining in the “B” trust, those assets will not receive the same basis adjustment since those assets are not included in the surviving spouse’s estate. As a result, when the surviving spouse dies and the beneficiaries of the A-B Trust sell the “B” trust assets, the beneficiaries will be responsible for paying any capital gains taxes associated with those assets. If a long amount of time has passed between the spouses’ deaths and the “B” trust assets are valuable, the income tax liability for the beneficiaries could be significant.

While the non-tax reasons for having a trust in place may ultimately drive your estate plan, saving income taxes should now be an important consideration. There are several strategies your estate planning attorney can use to help you maximize income tax savings, and each strategy has its own advantages and disadvantages. Your estate planning lawyer can give you peace of mind by identifying and implementing strategies to help your family save income taxes when you pass away. If you have an old A-B Trust in place, contact your estate planning lawyer today to review your estate plan.

Ohio Medicaid Rules Have Changed! Income Trusts-Medicaid Eligibility

Posted by heschlawadmin on July 22, 2016

Ohio Medicaid Rules Have Changed! Do You Need a Qualified Income Trust for Medicaid Eligibility?

Do you or a loved one live in Ohio and receive Medicaid benefits for long-term care? Do you foresee yourself or a loved one needing long-term care in the future? If so, the Ohio Department of Medicaid made changes to its eligibility requirements in 2016 that may affect you.

The Ohio Qualified Income Trust and its Requirements

In order to receive Medicaid benefits for long-term care, an individual’s monthly income must be below the Medicaid income limit set by the state of Ohio. Starting August 1, 2016, if a Medicaid applicant or recipient’s monthly income exceeds $2,199, the applicant or recipient must set up a Qualified Income Trust (aka a “QIT” or “Miller Trust”) before he or she is eligible for benefits. For individuals already receiving Medicaid benefits, they must set up their QIT either before August 1 or before their 2017 renewal date. To be enforceable, the trust must be irrevocable, it must name Ohio as a residual beneficiary, and it must be properly executed. The trust must also only contain the individual’s income. It cannot shield assets or contain someone else’s income.

The Trustee of the QIT may use the trust funds to pay certain expenses, such as: the Medicaid recipient’s patient liability to the nursing home, the recipient’s $50/month allowance, incurred medical expenses, bank and Trustee fees, and other limited expenses. Any funds remaining in the trust upon the individual’s death must be paid to the Ohio Department of Medicaid.

Setting Up a Qualified Income Trust

The Ohio Department of Medicaid has contracted the services of Automated Health Systems to help individuals already receiving Medicaid benefits set up a QIT free of charge. However, individuals are encouraged to reach out to an elder law attorney if they want more personalized and service-oriented representation. An elder law attorney can address important issues relating to QITs and Medicaid eligibility. Such issues might include: who will serve as Trustee, what will happen if a Medicaid applicant lacks capacity to sign a trust, which bank should be used to manage the trust funds, and how an annual trust account is prepared. An elder law attorney can also assist the family through the confusing Medicaid application process.

Setting up a QIT is just a small piece of the Medicaid eligibility puzzle. When applying for Medicaid benefits, it’s important that everything is done correctly. If not, you or your loved one could be denied Medicaid benefits and could possibly get evicted from the long-term care facility. Contact an elder law attorney if you need to plan for the nursing home and Medicaid eligibility.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning. He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.