Jonathan Yitzchaki David Michaeli Instructor: Ina Rivkin Spring 2009 1.
Supplemental Needs Trusts & Related Estate Planning · & Related Estate Planning Presentation by...
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440 Milwaukee Ave., Suite 200, Lincolnshire, Illinois 60069 PHONE (847) 793-2484 • FAX (847) 793-2485 EMAIL [email protected] • WEB www.rivkinlaw.com Supplemental Needs Trusts & Related Estate Planning Presentation by Larry Rivkin for the Hydrocephalus Association 12 th National Conference June 30, 2012
Transcript of Supplemental Needs Trusts & Related Estate Planning · & Related Estate Planning Presentation by...
440 Milwaukee Ave., Suite 200, Lincolnshire, Illinois 60069 PHONE (847) 793-2484 • FAX (847) 793-2485
EMAIL [email protected] • WEB www.rivkinlaw.com
Supplemental Needs Trusts & Related Estate Planning
Presentation by Larry Rivkin
for the Hydrocephalus Association 12th National Conference
June 30, 2012
Page 1 Hydrocephalus Association 12th National Conference
June 30, 2012
Primary Reasons for Planning Provide for supplemental needs of child with
hydrocephalus, while preserving Medicaid and SSI eligibility, if such eligibility is likely
Designate desired guardians for children
Transfer assets at death to intended recipients and in desired manner
Prepare for incapacity
Simplify transitions
Protect assets from creditors
Defer and reduce taxes
Page 2 Hydrocephalus Association 12th National Conference
June 30, 2012
Public Benefit Programs
Non-Means Tested
Means Tested
Income SSDI SSI
Medical Medicare Medicaid
To be eligible for any of the programs identified above, individuals under the age of 65 must be unable
to engage in substantial gainful activity due to a disability that is expected to last at least one year.
Page 3 Hydrocephalus Association 12th National Conference
June 30, 2012
Exempt Assets $2,000 Homestead property Personal effects and household goods Motor vehicle Life insurance (with restrictions) Burial funds (with restrictions) and burial space Property used in a trade or business
Page 4 Hydrocephalus Association 12th National Conference
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Lose benefits
Disinherit child
Historical Choices
Page 5 Hydrocephalus Association 12th National Conference
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Solution for Third-Party Funded Trusts Most states have statutes or case law that
authorize SNTs for funds outside disabled person’s control
Trust assets exempt No government reimbursement at death
Page 6 Hydrocephalus Association 12th National Conference
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Solution #1 for Self-Funded Trusts
OBRA Payback Trust (d-4-A Trust) Authorizes SNTs for funds in control
of disabled person under age 65 Created by parent, grandparent, legal
guardian, or court Trust assets exempt during life Government reimbursement at death
Page 7 Hydrocephalus Association 12th National Conference
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Solution #2 for Self-Funded Trusts Pooled Trust (d-4-C Trust) Funds pooled for management purposes No age requirement Created by disabled person, parent,
grandparent, legal guardian, or court Trust assets exempt during life Government reimbursement at death
Page 8 Hydrocephalus Association 12th National Conference
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Primary Terms of Supplemental Needs Trust Irrevocable Grantors’ intent important Distributions for “supplemental needs” only Distributions in trustee’s sole discretion
(no standards) Distributions to providers of goods and
services, not directly to disabled person (Continued … )
Page 9 Hydrocephalus Association 12th National Conference
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Primary Terms of Supplemental Needs Trust (Continued) Avoid in-kind support and maintenance
(will reduce SSI) Trustees and successor trustees Remainder beneficiaries at death
(after government reimbursement for d-4-A trust)
Page 10 Hydrocephalus Association 12th National Conference
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Examples of Permissible SNT Distributions Dental care Optical care Supplemental nursing care Expenditures for travel, recreation, or
educational or cultural experiences Expenditures for travel of family members to
visit disabled person
Page 11 Hydrocephalus Association 12th National Conference –
June 30, 2012
Coordination with Other Estate Planning Documents Wills of parents, grandparents, etc. Insurance and retirement plan beneficiary
designations No assets should pass directly to disabled child All assets for disabled child should be allocated
to SNT Usefulness of stand-alone SNTs
Page 12 Hydrocephalus Association 12th National Conference –
June 30, 2012
Alternatives to SNT Trust that provides for child’s health, support, and
education needs Trust that provides generally for the child in the
trustee’s discretion, without reference to specific standards like health and support
Page 13 Hydrocephalus Association 12th National Conference
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Probate
Six-month court procedure before final distribution of estate
Threshold for small estates ($100,000 in Illinois, for example)
Jointly-held assets, assets with designated beneficiaries, and assets in trust are excluded
Page 14 Hydrocephalus Association 12th National Conference
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Heirs
During life, parent controls assets. If parent becomes incapacitated, successor trustee assumes control.
individually-owned assets Parent
remaining property at death Living
Trust
Advantages of Living Trust Probate avoidance Simplify transition upon incapacity Privacy Ease of amendment
Note: Living trust is not necessary for tax planning.
Page 15 Hydrocephalus Association 12th National Conference
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Transfer Taxes Three types:
Gift tax (35% federal) Estate tax – federal (35%) and some states (varying state tax
rates), including on insurance proceeds Generation Skipping Transfer (“GST”) tax (35% federal)
2012 Exemptions (Coupon Book) $13,000 per donee annual gifts Direct tuition and medical payments Unlimited transfers to U.S. citizen spouse and charities $5,120,000 federal gift, estate, and GST tax exemptions Varying state estate tax exemptions
Page 16 Hydrocephalus Association 12th National Conference
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Scheduled Federal Estate, Gift, and GST Tax Exemptions and Rates
Year Federal Exemption Maximum
Amount Federal Rate 2012 $5,120,000* 35% 2013 $1,000,000 (subject, in the case of the GST 55%
tax exemption, to inflation adjustment)
* For deaths in 2012, the unused federal estate tax exemption
of a first spouse to die may be utilized at the surviving spouse’s death.
Page 17 Hydrocephalus Association 12th National Conference
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(no IL or federal estate taxes)
Sample Estate Tax Planning
Husband’s Death
Wife’s Death
No Tax Planning Tax Planning with Trusts
IL estate taxes $565,603
Children $7,000,000
Joint Tenancy
$7,000,000
Wife $7,000,000
Children $6,434,397
A/B Plan for Illinois Married Couples in 2012
Family Trust
$3,500,000
Husband $3,500,000
Wife $3,500,000
(no IL or federal estate taxes)
If the federal estate tax exemption were to revert to $1,000,000, as scheduled, after 2012, the estate tax savings from A/B planning could potentially be much more significant.
Page 18 Hydrocephalus Association 12th National Conference
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(no IL or federal estate taxes)
Sample Estate Tax Planning
Husband’s Death
Wife’s Death
No Disclaimer Disclaimer
IL estate taxes $565,603
(Disclaimer; no IL or federal
estate taxes)
Family Trust
$3,500,000
Wife $3,500,000
Husband $3,500,000
Children $7,000,000
Children $6,434,397
Disclaimer Alternative for Illinois Married Couples in 2012
Wife $7,000,000
Husband $7,000,000
If the federal estate tax exemption were to revert to $1,000,000, as scheduled, after 2012, the estate tax savings from A/B planning could potentially be much more significant.
Page 19 Hydrocephalus Association 12th National Conference
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$ to pay premiums
death benefit
Benefits: Exclude insurance proceeds from parents’ taxable estates, subject to 3-year rule. Provide liquidity to pay estate taxes generated by illiquid assets, such as real estate or a
closely-held business interest. Ensure that proceeds not needed for taxes pass in accordance with parents’ estate plan.
premiums
insurance proceeds
withdrawal rights
[Spouse and]
Children
Parent ILIT (owns life insurance)
Insurance Company
Irrevocable Insurance Trust
Page 20 Hydrocephalus Association 12th National Conference
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Primary Documents Will
[Living Trust]
Supplemental Needs Trust(s)
Property Power of Attorney
Health Care Power of Attorney
[Irrevocable Insurance Trust]
[Deed]
Page 21 Hydrocephalus Association 12th National Conference
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Guardianship for child with disability
Of the person
Of the estate
Alternatives to guardianship
