11/29/2010 @ 4:45:PM By Maureen Lyons
Most Americans have never discussed what should happen when they die. There are many decisions to make, yet they have very little help in making those decisions.
Studies show that more than 90% of Americans believe that pre-funding their funeral is a good idea, yet only 12% have done it. Studies also show that elder law and estate planning clients would prefer that this discussion take place in the context of their other planning. This creates an opportunity for the planning team to work together to fill this unique planning need.
According to a survey conducted by the National Funeral Directors Association, clients identified the following as the most appropriate times to pre-fund a funeral:
80% find it appropriate to pre-fund when afflicted with a serious illness.
71% find it appropriate to pre-fund with their trusted advisor.
61% find it appropriate to pre-fund at retirement.
58% find it appropriate to pre-fund when planning retirement.
9% find it appropriate to pre-fund when solicited by a funeral home.
Only 12% of Americans have worked with a funeral home to pre-plan, and only 9% find it appropriate to pre-fund when solicited by a funeral home. However, 71% of Americans would like to set aside funds with their trusted advisor for this purpose.
A conversation about Final Expense benefits the following individuals: clients over the age of 55; adult children worried about their parents; those who don’twant to burden their family at death; those afflicted with a serious illness; and those with a funeral home aversion.
What is a Final Expense Trust?
A final expense trust (aka a funeral trust or burial trust) is specific-purpose, guaranteed-issue insurance product that is irrevocable, un-assignable and provides dollar-for-dollar coverage that is readily available to pay the actual costs of a person’s final funeral, cremation, burial, or related expenses. Simply stated, it is a product designed to ensure the availability of funds to pay for the client’s desired final expenses when needed.
The benefits of a Final Expense Trust include:
- Death benefits are payable to the funeral home of the client’s choice; any excess funds will be returned to the client’s estate or designated beneficiaries.
- Funds are protected from all creditors, probate, nursing homes, and even Medicaid (Medi-Cal in California). Funds are immediately excluded as a resource in determining qualification for Medicaid. There is no Medicaid penalty for purchases of final expense trusts for the client and other members of the client’s family. Policy limits vary by product.
Final Expense Trust Considerations
Here are several questions you might think about relating to this planning tool:
What is important to you about how funeral arrangements should be conducted, or how do you picture the most appropriate final arrangements?
1. Is it important to you to have a traditional funeral?
2. What are your feelings regarding burial or cremation?
3. What needs to be purchased to fulfill your final wishes?
4. What do you believe these final arrangements will cost, and how do you plan to pay for them?
5. Do you know that Medicaid requires the spend-down of all liquid assets (including cash value life insurance and CDs), but actually encourages paying for a funeral with a pre-paid funeral and burial insurance trust?
Final Expense Trusts allow seniors and their families to address one of their significant planning
concerns – what will happen when they die. By working together, the senior’s “planning team” or advisor can address this issue without affecting eligibility for Medi-Cal/Medicaid or other government benefits.
Posted Under: Comprehensive Estate Planning, Estate Planning, Trust Administration
Tags: , final expense trust, funeral trust, long term care, Planning
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11/24/2010 @ 9:57:AM By maureen
Happy Thanksgiving to everyone from all of us at Moynihan Lyons.
Our office will be closed Thanksgiving Day through Friday.
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11/22/2010 @ 8:01:AM By Moynihan_Lyons
In this post we will cover two additional mistakes people can make in planning for family members with special needs.
Relying on siblings to use their money for the child with special needs’ benefit. Parents may be relying on their other children to provide for the special needs child from their own inheritances. This can be a temporary solution for a brief time such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect the child with special needs after the parent/s dies or when siblings have their own expenses and financial priorities.
Here’s what can happen…
What if the inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?
Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents are able to provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.
Failing to protect the child with special needs from predators. An inheritance from parents who fund their child’s special needs trust by will rather than by a revocable living trust is in the public record. Predators are particularly attracted to vulnerable beneficiaries, such as the young and those with limited self-protective capacities. When you plan using a trust, rather than a will, the parent can decide who has access to the information about the child’s inheritance. This protects the special needs child and other family members, who may be serving as trustees, from predators.
In conclusion, planning for special needs beneficiaries requires particular care and the participation of the family’s entire “advisory team.” The estate planning and/or elder law attorney plays a pivotal role in ensuring the future well-being of a special needs child.
A properly drafted and funded Special Needs Trust can ensure that the beneficiary has sufficient assets to care for him or her, in a manner consistent with the parent’s wishes, throughout the beneficiary’s lifetime.
Posted Under: Comprehensive Estate Planning, Revocable Living Trusts, Special Needs Trusts, Trust Administration
Tags: , Planning, Special Needs, Special Needs Trust
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11/15/2010 @ 8:01:AM By Moynihan_Lyons
So far, we have shown five common mistakes families can make.
Here are some additional issues people are likely to encounter…
Failure to properly “fund” and maintain the plan. When planning for children with special needs, it is absolutely critical that there are sufficient assets available for the special needs beneficiary throughout his or her lifetime. In many instances, this requires utilization of a funding vehicle that can ensure liquidity when necessary. Oftentimes permanent life insurance is the perfect vehicle for this purpose, particularly if the clients are young and healthy such that insurance rates are low.
It should be noted that because this is an ever-changing area, it is imperative to revisit the plan frequently to ensure that it continues to meet the demands of the special needs beneficiary.
Some situations may require special strategies. For example, if the client is potentially subject to estate tax, an Irrevocable Life Insurance Trust can own and be the beneficiary of the policy, naming the Special Needs Trust as the beneficiary. Alternatively, in a non-taxable situation, it is also possible to name the client’s revocable trust as the beneficiary to help equalize inheritances if that happens to be the objective.
Choosing the wrong trustee. As a parent (or grandparent) of a special needs child, you will be able to manage the trust as long as you are alive. However, when you are no longer able to serve as trustee, you can choose who will serve according to the instructions you provide. It is possible to choose a team of advisors and/or a professional trustee. It is critical that the person’s chosen be financially savvy, well-organized, and of course, ethical.
Failing to invite contributions from others to the trust. A key benefit of creating a Special Needs Trust now is that the beneficiary’s extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the Special Needs Trust as the beneficiary of their own assets in their revocable trust or will. They can also name the Special Needs Trust as a beneficiary of life insurance or retirement benefits.
Posted Under: Comprehensive Estate Planning, News, Special Needs Trusts, Trust Administration
Tags: , Planning, Special Needs, Special Needs Trust
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11/8/2010 @ 8:00:AM By Moynihan_Lyons
In today’s post, we continue looking at the problems typically encountered in planning for family members with special needs.
Ignoring the special needs when planning for the child’s benefit. Planning that is not designed with the child’s special needs in mind will probably render the child ineligible for essential government needs. A properly designed Special Needs Trust promotes the special needs person’s comfort and happiness without sacrificing eligibility. This Trust can be used as the vehicle to pass assets to the child. Otherwise, those assets may disqualify the child from public benefits and might become available to repay the state for the assistance provided.
Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation, and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment and appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses. These are the kinds of things parents may currently provide for their child or other special needs beneficiary.
Creating a “generic” special needs trust that doesn’t fit. Even some “special needs trusts” are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the child’s public benefits, many trusts are not customized to the particular child’s needs. Thus the child fails to receive the benefits that the parent provided when they were alive.
Another frequent mistake occurs when the Special Needs Trust includes a “pay-back” provision rather than allowing the remainder of the trust to go to others upon the death of the special needs child. While these “pay-back” provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save your clients hundreds of thousands of dollars, or more.
The take home message is that you need to make sure that your attorney is well versed in special needs legal planning.
Posted Under: Comprehensive Estate Planning, Special Needs Trusts, Trust Administration
Tags: , Planning, Special Needs, Special Needs Trust
Comments: 0
11/3/2010 @ 11:19:AM By Moynihan_Lyons
There are unique planning requirements for families with children, grandchildren or other family members (such as parents) with special needs. However, a lot of misconceptions exist in this area that result in costly mistakes in planning for special needs beneficiaries.
In this post we will cover the three most common mistakes related to special needs planning.
Disinheriting the child. Many disabled people rely on SSI, Medicaid/Medi-Cal or other government benefits to provide food and shelter. Some parents may have ben advised to disinherit their disabled child – the child who needs their help most – to protect that child’s public benefits. However, these benefits rarely provide more than basic needs. Also, this “solution” does not allow the parent/s to help the child after the former becomes incapacitated or is gone.
When a child requires, or is likely to require, governmental assistance to meet his or her basic needs, parents, grandparents and others who love the child should consider establishing a Special Needs Trust. This tool can protect public benefits and care for the child during the client’s incapacity or after the clients’s death.
Procrastination. Because none of us knows when we may die or become incapacitated, it is important that you plan for a beneficiary with special needs early on, just as you should for other dependents such as minor children. However, unlike most other beneficiaries, a child with special needs may never be able to compensate for a failure to plan. A minor beneficiary without special needs can obtain more resources as he or she reaches adulthood and can work to meet essential needs, but a child with special needs may never have that ability.
Failure to coordinate a planning team effort. Ideally, an elder law attorney experienced in special needs planning should be a key member of the client’s planning team. Other important members of this group are: (a) a life insurance agent who can ensure that there will be enough money to maintain the benefits for the special needs child, (b) a CPA who can advise on the Specials Needs Trust’s tax return; (c) an investment advisor who can ensure that the trust’s funds resources will last for the child’s lifetime; (d) any other advisors (such as a care planning expert, if needed) that may support the goals of the trust going forward.
Posted Under: Estate Planning, Special Needs Trusts, Trust Administration
Tags: , Planning, Special Needs, Special Needs Trust
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