The SECURE Act, passed at the end of 2019, changed a number of rules regarding inherited IRAs, making it more difficult for most beneficiaries to save on taxes by “stretching” distributions over many years. However, an exception to the new rules potentially changes advice that special needs planners often give clients, and leaving an IRA to a special needs trust is no longer such a bad idea.

For many reasons, it’s usually not advisable to make an individual with special needs the beneficiary of an IRA or 401(k) plan (i.e., leaving an IRA to a special needs trust). She may not be able to manage the funds, and owning the account may render her ineligible for vital public benefits. This is why planners always recommend that parents with children with special needs leave their share of their estates in a special needs trust for the child’s benefit. But parents are often encouraged to leave their retirement plans to other children, if any, because holding a retirement plan in a special needs trust gets complicated.

Why a SECURE SNT Can Save in Taxes

But in light of the SECURE Act’s new rules, this advice may no longer apply, especially in the case of people with larger retirement plan accounts. Under the terms of the SECURE Act, most people who inherit retirement plans now must withdraw all the funds, and pay income taxes on them, within 10 years of inheriting them. One of several exceptions to this rule is recipients who are disabled. They can withdraw the funds over their life expectancies, which can be several decades, both postponing tax payments and potentially paying at lower rates for two reasons.

First, by spreading out the withdrawals over many years, the withdrawn funds are less likely to push the recipient into a higher tax bracket. Second, a beneficiary with a disability is likely to be in a lower tax bracket in the first place than a non-disabled beneficiary.

Happily, the new law states that the retirement plan owner can designate a SNT as the beneficiary, and the trustee can use the required minimum distributions to pay for the care and support of the person with special needs.  Leaving an IRA to a special needs trust is now a viable option. 

For these reasons, it may well make more sense for some people to have some or all of their retirement plans payable to a special needs trust for their children or grandchildren with special needs, including leaving an IRA to a special needs trust. It’s still more complicated to make use of a trust, but now the benefits of doing so are more likely to justify the added expense and complications. Whether it makes sense in your case depends on your exact situation.

Review Your Existing SNT

You should also be aware that if you have an existing special needs trust that was designed to accept retirement plan benefits, it needs to be updated to conform with the SECURE Act. Whether you have questions about your existing plan or would like to consider creating a SECURE special needs trust, contact your special needs planning attorneys at Elville and Associates.  Through their educational approach to planning, they’ll counsel you on the best approach for you and offer peace of mind along the way.  You can also reach out to the firm’s Legal Administrator, Mary Guay Kramer, at mary@elvilleassociates.com or at 443-741-3635, and she’ll gladly work with you to set a convenient time to meet with one of our attorneys to discuss your planning needs.

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The VA offers two veterans’ disability programs. Disability compensation is available only for veterans with service-connected disabilities, while the disability pension benefit is available to anyone who served during wartime and has a disability. The disability does not have to be related to military service.

Disability compensation benefit

If you have an injury or disease that happened while on active duty or if active duty made an existing injury or disease worse, you may be eligible for disability compensation/veterans’ benefits. The amount of compensation you get depends on how disabled you are and whether you have children or other dependents. To determine your disability rating, which is used to calculate compensation, you may use this disability calculator. Click here to see the current compensation rates. Additional funds may be available if you have severe disabilities, such as loss of limbs, or a seriously disabled spouse.

Disability pension benefit

The Veterans’ Administration pays a pension to disabled veterans who are not able to work. This veterans’ benefit is also available for surviving spouses and children. This pension is available whether or not your disability is service-connected, but to be eligible you must meet the following requirements:

• You must not have been discharged under dishonorable conditions.
• If you enlisted before September 7, 1980, you must have served 90 days or more of active duty with at least one day during a period of war. Anyone who enlisted after September 7, 1980, however, must serve at least 24 months or the full period for which that person was called to serve.
• You must be permanently and totally disabled, or age 65 or older. You will need a letter from your doctor to prove that you are disabled.

In addition, your income must be below the yearly limit set by law; called the Maximum Annual Pension Rate (MAPR). The MAPR for 2021 is below:

Your veterans’ benefit depends on your income. The VA pays the difference between your income and the MAPR. The pension is usually paid in 12 equal payments.

Example: John is a single veteran and has a yearly income of $8,015. His pension benefit would be $5,916 (13,931 – 8,015). Therefore, he would get $493 a month.

Your income does not include welfare benefits or Supplemental Security Income. It also does not include unreimbursed medical expenses actually paid by the veteran or a member of his or her family. This can include Medicare, Medigap, and long-term care insurance premiums; over-the-counter medications taken at a doctor’s recommendation; long-term care costs, such as nursing home fees; the cost of an in-home attendant that provides some medical or nursing services; and the cost of an assisted living facility. These expenses must be unreimbursed. This means that insurance must not pay the expenses. The expenses should also be recurring this means they should recur every month.

Aid and Attendance

A veteran who needs the help of an attendant may qualify for additional help on top of the disability pension benefit. The veteran needs to show that he or she needs the help of an attendant on a regular basis. A veteran who lives in an assisted living facility is presumed to need aid and attendance.

A veteran who meets these requirements will get the difference between his or her income and the MAPR below (in 2021 figures):

How to apply

You can apply for both veterans’ benefits by filling out VA Form 21-526, Veteran’s Application for Compensation or Pension. If available, you should attach copies of dependency records (marriage & children’s birth certificates) and current medical evidence (doctor & hospital reports). You can apply online at https://www.va.gov/disability/how-to-file-claim/.

Veterans of the United States armed forces may be eligible for a broad range of program, services, and veterans’ benefits provided by the U.S. Department of Veterans Affairs (VA).  The process to apply can be complicated, though, and rules have recently changed.  Contact Elville and Associates’ senior elder law attorney Lindsay V.R. Moss to discuss how she can assist you with the application process for VA Aid & Attendance veterans’ benefit.  Ms. Moss is one of a select few VA-accredited attorneys in the Howard County area and an outstanding resource for your loved one’s or your needs.  She can be reached at 443-393-7696 or by email at lindsay@elvilleassociates.com.  You can also fill out a contact form here and she’ll respond to your request promptly.

Other resources for veterans:

https://www.mesotheliomaveterans.org/ — The Mesothelioma Veterans Center offers free resources that are reviewed by certified oncologists and provide detailed information about mesothelioma and its health impacts. Its mission is to raise awareness about cancer and other asbestos-related diseases such as mesothelioma.

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Parents or other family members establishing a special needs trust for their child often want to name a professional — usually a bank, trust company, attorney, certified public accountant or non-profit — as one of the trustees of the trust in order to take advantage of that individual’s experience with investments, money management and tax planning. The professional trustee can also be a great option for families looking for a “disinterested party” to provide a counterweight to a family trustee who may be much more familiar, and much more emotionally invested, in the beneficiary’s day-to-day life. If your child is about to receive a large cash settlement, hiring a professional trustee may even be essential in order to preserve and manage the trust’s assets for the long-term, especially if you have little investment experience.

But not every professional trustee recommended provides the best services for trusts designed for children with special needs. Here are some questions to ask while searching for the right professional trustee for your trust.

• How much experience do you have working with special needs trusts?
  Special needs trusts have very complicated rules regarding distributions to and for a beneficiary with a disability. Not every bank trust department or attorney understands these rules, so it pays to look for a professional trustee who works with other special needs trusts and who can give you concrete examples of their expertise in this area. Remember: one mistake by a trustee could significantly compromise your child’s benefits for a long time.
• What kinds of specific services do you provide for special needs trusts?
  Unlike some trusts that merely require the trustee to pay income checks at quarterly intervals to a group of beneficiaries, special needs trusts often require a great deal of coordination and support from a trustee. Since most beneficiaries are not allowed to receive significant cash payments, the trustee often has to pay numerous bills directly to service providers, and will often have to arrange for services and care for a beneficiary who is incapable of making the proper requests himself. A good professional trustee will have a support staff or structure in place to handle these matters quickly and efficiently.
• Do you provide tax planning and do you prepare tax returns in-house?
  Large special needs trusts usually have large tax returns. Some trustees would rather not deal with the sophisticated tax planning that goes into a well-run special needs trust. Make sure to ask how a professional trustee handles tax planning and annual tax filings, and what makes her qualified to do so. Just because a trustee may know everything about special needs law does not mean she is able to get the taxes right, too.
• What do you charge and what other requirements must the trust meet in order to retain your services?
  A professional trustee will typically charge a set percentage of the trust’s assets in order to manage the trust. But this may not be the only fee. Professional trustees often charge extra for tax planning, other time-consuming projects, and brokerage services. Sometimes, large integrated banks will require the trust to allow them to hire their own subsidiaries at market rates to perform tasks that the trustee should be doing on his own. Make sure to see a list of all fees and changes to the actual trust that a professional trustee wants to make before making a decision.

This list is by no means exhaustive.  To download a list of 34 questions to give to family members who are considering hiring a private professional trustee, click here. 

The special needs planning attorneys at Elville and Associates, including Academy of Special Needs Planners’ member and firm Managing Principal Stephen R. Elville, can help you select an appropriate professional trustee, and they have the names of certain companies and people who have performed this work well for other clients in your situation.  Contact Elville and Associates today to schedule a consultation to discuss your situation.  Or, please reach out to the firm’s Legal Administrator, Mary Guay Kramer, at 443-741-3635 or at mary@elvilleassociates.com.

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Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets.  Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future. 

A trust is a legal entity under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. An irrevocable trust cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal of the irrevocable trust is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. 

While gifting assets outright is much simpler process than setting up a trust, the following are some of the advantages of setting up an irrevocable trust instead:

• Income. Putting assets in an irrevocable trust means you can receive income from the assets to continue to pay for living expenses. Depending on how the trust is set up, you can receive regular income payments or the trustee could have discretion to make payments. 
• Control. With an irrevocable trust, you as the grantor can maintain some control over the assets. You get to choose the trustees and establish the rules of the trust. You can also retain the right to change beneficiaries with a power of appointment in your will.  
• Asset protection from creditors. If you give money to a family member directly, that money could be lost to the recipient’s carelessness, creditors, or divorce. Keeping the funds in an irrevocable trust protects the assets for the future. 
• Taxes. If the irrevocable trust is structured properly, it can have a tax advantage for your beneficiaries. Assets that have gone up in value will receive a “step-up” in basis on your death, which means your beneficiaries will pay less in capital gains taxes. Assets that are gifted do not receive a “step-up.” 
• Medicaid. If you anticipate needing long-term care benefits in the future, then it is important to plan ahead. If you give away money or fund an irrevocable trust within the five years (the “look-back period”) before applying for Medicaid, you may face a period of ineligibility for Medicaid benefits. The actual period of ineligibility will depend on the amount gifted or transferred to the trust. Putting assets in a trust allows you to plan ahead while retaining some income and control over the assets. 

To set up an irrevocable trust and become further educated regarding this option, contact the experienced estate planning attorneys at Elville and Associates. 

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Passing assets to your grandchildren can be a great way to ensure their future is provided for, and a generation-skipping trust can help you accomplish this goal while reducing estate taxes and also providing for your children.  

A generation-skipping trust allows you to “skip” over the generation directly below you and pass your assets to the succeeding generation. While this type of trust is most commonly used for family, you can designate anyone who is at least 37.5 younger than you as the beneficiary (except a spouse or ex-spouse).  

One purpose of a generation-skipping trust is to minimize estate taxes. Estates worth more than $11.7 (in 2021) have to pay a federal estate tax. Twelve states also impose their own estate tax, which in some states applies to smaller estates. When someone passes on an estate to their child and the child then passes the estate to their children, the estate taxes would be assessed twice—each time the estate is passed down. The generation-skipping trust avoids one of these transfers and estate tax assessments. 

While your children cannot touch the assets in the trust, they can receive any income generated by the trust. The trust can also be set up to allow them to have some say in the rights and interests of future beneficiaries. Once your children pass on, the beneficiaries will have access to the assets. 

Note however, that a generation-skipping trust is subject to the generation-skipping transfer (GST) tax. This tax applies to transfers from grandparents to grandchildren, even in a trust. The GST tax has tracked the estate tax rate and exemption amounts, so the current GST exemption amount is $11.7 million (in 2021). If you transfer more than that, the tax rate is 40 percent.  

The trust can be structured to take advantage of the GST tax exemption by transferring assets to the trust that fall under the exemption amount. If the assets increase in value, the proceeds can be allocated to the beneficiaries of the trust. And because the trust is irrevocable, your estate won’t have to pay the GST tax even if the value of the assets increases over the exemption amount. 

Generation-skipping trusts are complicated documents. Consult with the attorneys at Elville and Associates to determine if one would be right for your family. 

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As we have written previously, there are a number of tax proposals being considered in Congress that could significantly affect gifting and estate plans. There are planning strategies to help protect your estate from future tax changes, so now is a good time to review your estate plan and see if you need to make adjustments. 

Under Vermont senator Bernie Sanders’ For the 99.5 Percent Act, the estate tax exemption would be reduced from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. Any estate that is valued at under the exemption amount will not pay any federal estate taxes, while those exceeding the exemption threshold would be subject to a progressively increasing tax rate that starts at 45 percent. The Act would also slash the lifetime gift tax exemption from $11.7 million to $1 million, although individuals would still be able to give away $15,000 a year without the gift counting toward the lifetime limit.  Take time to review your estate plan to ensure your plan is protected from future tax changes. 

Another proposal in the Senate is the Sensible Tax and Equity Promotion (STEP) Act, which would eliminate the step-up in basis that beneficiaries receive when they inherit property. The proposal would require an estate to pay tax on all previously untaxed gains. This means that if an estate includes property that has increased in value, the estate would have to pay taxes on that increase. However, the Act would allow the first $1 million of appreciated assets to pass without taxation. In addition, families that inherit a farm or business would be able to pay the tax in installments over a 15-year period. Any taxes paid under the bill would be deductible from the estate tax.  Be sure to review your plan with the attorneys at Elville and Associate to ensure it is prepared for these proposed changes.

President Biden has also introduced his tax proposals, which include an increase of the capital gains tax rate to 40 percent. This would apply only to income over $1 million. Biden’s proposal also contains a similar elimination of the step up in basis as the STEP Act. In addition, the proposal targets dynasty trusts. The income that has appreciated in a dynasty trust may be subject to capital gains if it hasn’t been subject to recognition in the past 90 years. There would also be no valuation discounts when calculating capital gains. 

It isn’t clear which if any of these proposals will make it all the way through Congress and get signed into law, but with Democrats in control of both houses of Congress and the presidency, some changes are likely. It is difficult to plan given such uncertainty, but the following are some options to talk to the attorneys at Elville and Associates about before any of these proposals become law: 

• Maximize the use of available exemptions by transferring assets into a trust before the end of the year. There are a number of different types of trusts that might be beneficial, including a spousal lifetime access trust (SLAT). Don’t forget about the generation-skipping transfer tax exemption, which allows you to transfer funds to a trust that benefits grandchildren. A review of your plan will help you understand how exemptions affect you.
• Consider including charities in your estate plan. A charitable remainder trust allows you to provide yourself and your spouse income during your lifetime and leave the remainder to a charity. Profits from the trust are not subject to capital gains taxes and the trust can help reduce your taxable estate.  Consider a review of your plan to determine if a charitable remainder trust is a good strategy for you. 
• Include a disclaimer in any trust you may have that would change provisions if there are changes to the tax code. To be effective, the disclaimer has to be carefully crafted. 
• To avoid paying capital gains taxes on appreciated assets, consider borrowing money and putting it into a trust instead. 
• Consider giving away a fractional interest in property before the end of the year and any valuation discounts may be eliminated. 
• Make sure you have enough liquidity in your estate to pay any possible taxes that are due. You can do this using life insurance or through borrowing or increasing access to credit. 

Before taking any steps, talk to the attorneys at Elville and Associates about what you can do now to protect your estate from future tax changes. To schedule a consultation to review your estate plan, please reach out to the firm’s Legal Administrator, Mary Guay Kramer, at mary@elvilleassociates.com, or fill out our contact form on our website by clicking here.

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Webinar attendees come to understand what is involved in the planning process for a special needs family and the importance of preserving your loved one’s financial security and quality of life. Presented by Elville and Associates’ Managing Principal and Lead Attorney Stephen R. Elville, this webinar is a broad reaching discussion about planning for their loved one with special needs.

The key issues of understanding the role of public benefits, making decisions about the future, Maryland ABLE, creating flexibility in your planning, and using estate planning and trusts to protect assets are discussed along with the types of special needs trusts and their specific purposes (along with who the decision makers and beneficiaries can be in these trusts). Also, touched upon is the “planning team concept” – how your planning team (attorney, financial advisor, CPA, and others) – can work together to help provide your family peace of mind during the special needs planning process.

More Webinars from Elville and Associates

The education of clients and their families through counseling and superior legal-technical knowledge is the mission of Elville and Associates.  We hold multiple educational events every month. Click to view our calendar of educational webinars and events or visit the Elville and Associates YouTube channel to view recordings of our past webinars.

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August is national ABLE to Save Month! We are celebrating the Maryland ABLE program during ABLE to Save Month, which makes it possible for Marylanders with disabilities to have greater independence and financial stability. A Maryland ABLE account can change the way people with disabilities and their families participate in the community, build financial wellness, and plan for the future by empowering them to save and invest for the added expenses that come with having a disability. 

During ABLE to Save Month, learn more about how a Maryland ABLE account can help people with disabilities and their families pay for everyday needs, save and invest with a tax-advantaged account, and prepare for the future while keeping federal and state means-tested benefits such as SSI and Medicaid. During ABLE to Save Month and beyond, should you have any questions about Maryland ABLE accounts, please reach out to Maryland ABLE’s Communications Manager, Kelly Nelson, at knelson@marylandable.org.

The attorneys and staff at Elville and Associates have been fortunate to maintain a very strong relationship with Maryland ABLE over the years through its focus on special needs planning here at the firm.  A Maryland ABLE account can be a powerful tool used as part of family’s special needs planning. 

For more detailed information pertaining to your circumstances, it is very important to partner with a law firm that specializes in the area of special needs planning and understands the nuances associated with it.  Founded in June 2010 by Stephen Elville, J.D., LL.M., Elville and Associates is an estate planning, elder law, and special needs planning practice.  It is the firm’s mission to provide practical solutions to its clients’ needs through counseling, education, and the use of superior legal-technical knowledge.  As it relates to special needs planning, the firm works collaboratively with individuals and families and their professional advisors to counsel, educate, and create a comprehensive plan for the family and their special needs loved one.  This includes, among other planning considerations:

• establishing proper estate planning for the family, including the use of special needs trusts
• leveraging means tested public benefits
• selecting the proper team to provide lifetime management
• planning for appropriate housing and an ongoing system for advocacy
• providing financial security
• planning for caregiving needs
• coordinating the entire extended family’s planning
• protect the beneficiary from predators and preserving assets for other heirs

Should you have any questions about Elville and Associates and its services, please contact Steve Elville at steve@elvilleassociates.com, or by phone at 443-393-7696 x108.  Community Relations Director Jeff Stauffer may also be reached at jeff@elvilleassociates.com, or at 443-393-7696 x117.

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Understanding Alzheimer’s and Dementia: A discussion of the risk factors, stages of the disease, and current research will be provided by Ellen Perticone, Owner of Senior Placement Navigators, in collaboration with the Alzheimer’s Association. Topics to be discussed include:

• Understand the relationship between Alzheimer’s and dementia
• Find out how Alzheimer’s disease affects the brain
• Explore the risk factors and stages of the disease
• Learn about current research and FDA-approved treatments that address some symptoms
• Identify Association resources

More Webinars from Elville and Associates

The education of clients and their families through counseling and superior legal-technical knowledge is the mission of Elville and Associates.  We hold multiple educational events every month. Click to view our calendar of educational webinars and events or visit the Elville and Associates YouTube channel to view recordings of our past webinars.

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Pets are an integral part of American life. For many, the great joy, love, affection, and satisfaction derived from the experience of pet ownership is one of life’s great experiences. Millions of pet owners across the country make huge sacrifices for the care and maintenance of their pets and consider them part of their family. Pet ownership also provides many ancillary benefits to people, including improved health. Stephen R. Elville, Managing Principal and Lead Attorney of Elville and Associates, P.C., leads a discussion about how individuals may develop pet-related provisions in their estate plan for the care, maintenance, security, and long-term well-being of the pet(s), thereby creating an empowering situation for the owner, the trustee of a trust for the benefit of a pet, the caretaker or custodian of the pet, and for the pet itself. The following topics are discussed:

(1) Why clients should consider the use of pet care provisions in Wills and Trusts;

(2) Why pet care provisions in power of attorney documents are equally important;

(3) Understanding Maryland law relating to pet trusts;

(4) Utilizing a stand-alone pet trust versus other alternatives;

(5) Understanding practical pet care provisions outside of formal pet trusts;

(6) Utilizing Letters of Wishes for pet care;

(7) The structure of pet trusts – how does it all work; and

(8) The funding and alignment of assets in pet trusts and pet care-related provisions.

More Webinars from Elville and Associates

The education of clients and their families through counseling and superior legal-technical knowledge is the mission of Elville and Associates.  We hold multiple educational events every month. Click to view our calendar of educational webinars and events or visit the Elville and Associates YouTube channel to view recordings of our past webinars.

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