No one wants to think about his or her death, but a little preparation in the form of a prepaid funeral contract can be useful. In addition to helping your family after your death, a prepaid funeral contract can be a good way to spend down assets in order to qualify for Medicaid.
A prepaid or pre-need funeral contract allows you to purchase funeral goods and services before you die. The contract can be entered into with a funeral home or cemetery. Prepaid funeral contracts can include payments for: embalming and restoration, room for the funeral service, casket, vault or grave liner, cremation, transportation, permits, headstones, death certificates, and obituaries, among other things.
One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price—possibly saving your family money. You are also saving your family from having to make arrangements after you die, which can be difficult and time-consuming. And, if you are planning on applying for Medicaid, a prepaid funeral contract can be a way to spend down your assets.
Medicaid applicants must spend down their available assets until they reach the qualifying level (usually around $2,000, depending on the state). By purchasing a prepaid funeral contract, you can turn available assets into an exempt asset that won't affect your eligibility. In order for a prepaid funeral contract to be exempt from Medicaid asset rules, the contract must be irrevocable. That means you can't change it or cancel it once it is signed.
Before purchasing a contract, you should shop around and compare prices to make sure it is the right contract for you. Buyers need to be careful that they are buying from a reputable company and need to ask for a price list to make sure they are not overpaying.
Call Hoopis Manosh Estate Law for additional assistance with Medicaid Qualification! (401)773.9993.
Grandparents may be tempted to leave an IRA to a grandchild because children have a low tax rate, but the "kiddie tax" could make doing this less beneficial.
An IRA can be a great gift for a grandchild. A young person who inherits an IRA has to take minimum distributions, but because the distributions are based on the beneficiary's life expectancy, grandchildren's distributions will be small and allow the IRA to continue to grow. In addition, children are taxed at a lower rate than adults—usually 10 percent.
However, the lower tax rate does not apply to all unearned income. Enacted to prevent parents from lowering their tax burden by shifting investment (unearned) income to children, the so-called "kiddie tax" allows some of a child's investment income to be taxed at the parent's rate. For 2017, the first $1,050 of unearned income is tax-free, and the next $1,050 is taxed at the child’s rate. Any additional income is taxed at the parent's rate, which could be as high as 35 percent. The kiddie tax applies to individuals under age 18, individuals who are age 18 and have earned income that is less than or equal to half their support for the year, and individuals who are age 19 to 23 and full-time students.
If a grandparent leaves an IRA to a grandchild, the grandchild must begin taking required minimum distributions within a year after the grandparent dies. These distributions are unearned income that will be taxed at the parent's rate if the child receives more than $2,100 of income (in 2017). In addition to IRAs, the kiddie tax applies to other investments that supply income, such as cash, stocks, bonds, mutual funds, and real estate.
If grandparents want to leave investments to their grandchildren, they are better off leaving investments that appreciate in value, but don't supply income until the investment is sold. Grandparents can also leave grandchildren a Roth IRA because the distributions are tax-free.
Call Hoopis Manosh Estate Law for a consultation. We will carefully consider each of your goals and design an Estate Plan to perfectly plan for your family. (401)773.9993.
The Department of Housing and Urban Development (HUD) has announced changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD will raise reverse mortgage fees for some borrowers and lower the amount homeowners can borrow.
A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. Seniors sometimes use the loans to pay for long-term care.
To start, HUD is changing the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Currently, homeowners pay 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who take out a loan that is more than 60 percent of their home's value pay a 2.5 percent premium. The new rule will require homeowners to pay a standard 2 percent upfront mortgage insurance premium. Homeowners considering a large reverse mortgage may want to wait until after the new rules go into effect. To offset the upfront costs, the annual mortgage insurance premium rate will be dropped from 1.25 percent to 0.5 percent.
In addition, HUD is lowering the amount that homeowners can borrow. The average borrower at current interest rates will be able to borrow only around 58 percent of the value of their home, down from 64 percent.
The changes are set to go into effect on October 2, 2017. The changes will only affect borrowers who take out new loans; they will not affect existing loans.
For more on the new requirements, click here.
For a better way to plan for Long Term Care, contact Hoopis Manosh Estate Law. 401.773.9993.
The beneficiary of a special needs trust can never control or access trust funds – that is the job of the trustee. A common fear among beneficiaries or their families is that the trustee may not do what’s in the beneficiary’s best interests and that, if this happens, the beneficiary may not be able to do anything about it.
Choosing the right person to serve as trustee is one of the most important and difficult issues in creating a special needs trust. If you haven’t chosen wisely, problems can emerge. The trustee might be incompetent in administering the trust and thus jeopardize the beneficiary’s public benefits, be unresponsive to the beneficiary’s needs, or even take improper fees from the trust. Or, the beneficiary and the trustee simply might not get along. Can the beneficiary of a special needs trust do anything about the actions, or inactions, of the trustee?
The short answer is “yes.” First, the law generally charges a trustee of a special needs trust with the usual duties of any trustee, plus other specific obligations. Usually, the trustee has an affirmative duty to inquire into the needs and welfare of the beneficiary, to communicate with the beneficiary and other involved individuals, and to make certain that the beneficiary maintains eligibility for public benefit programs.
If the beneficiary has grounds to believe that the trustee is not acting according to the law, the beneficiary generally has the right to petition a court to remove the trustee and bring related actions to address the trustee’s conduct. Some states allow out-of-court ways to initiate a change of trustee. For example, in Pennsylvania, the beneficiary, or his or her representative, can draft a settlement agreement with the trustee to replace that trustee. As long as the change in trustee does not violate the essential purpose of the trust, the document is binding without going to court. However, these procedures, whether in or out of court, can be time-consuming and costly, and in some cases, merely “not getting along” with the trustee may not be enough to justify removal. Moreover, the beneficiary may not have the wherewithal to initiate the action or the legal capacity to do so. Generally, in court proceedings, the beneficiary must be able to understand what’s going on and assist in the legal representation.
To avoid these types of obstacles, a special needs planner may draft the trust document to include mechanisms for removing a trustee (including defining reasons for trustee removal). The trust can also include provisions for trustee resignation, the appointment of successor trustees, and the appointment of a “trust protector.” The trust protector is a person or entity chosen by the person setting up the trust to keep an eye on the trustee’s performance, usually with the right to remove the trustee and appoint a new one. Even though there is no need to anticipate trustee misconduct, appointing a trust protector is a recommended way to provide an extra level of protection to the beneficiary. However, the rights and procedures for changing trustees vary from state to state. Therefore, the best way to build in protections that allow for the replacement of a trustee gone bad is to consult with Hoopis Manosh Estate Law, a qualified special needs planner. Call 401.773.9993.
Loving parents set up a special needs trust (SNT) for their child with disabilities and name themselves as trustees. They intend to fund it with assets upon their deaths and provide for the appointment of the husband’s sister as the successor trustee when both parents are gone. The lawyer who drafts the trust realizes that the sister might not be available to serve as successor trustee when the time comes because she is about the same age as the parents. However, no other family members or friends are suitable to serve, so the drafter recommends naming a local younger attorney to serve. In all likelihood, the younger lawyer will survive the parents and still be available to serve as successor trustee for the child. How could this plan go wrong?
The problem with this recommended solution is that no one is given authority to supervise the younger successor trustee. This is particularly troubling because he is a stranger to the family and has minimal experience in managing trusts. Moreover, a core characteristic of a SNT is the trustee’s broad discretion over distributions: whether, when and what kind of distributions to make. The parents are understandably not comfortable with a proposed plan that vests such broad discretion and authority in a person they do not know, without any check on its exercise.
Typically, a state’s trust law assumes that trust beneficiaries will supervise the trustee, and that beneficiaries will call the trustee to account if the trust is mismanaged. However, that expectation cannot be met if the trust beneficiary has a disability that affects his capacity to understand financial matters. In many cases, the beneficiary of a SNT is unable to adequately supervise the trustee’s actions.
One solution to this common problem is the appointment of a Trust Protector. The SNT agreement names a person to monitor the trustee’s actions periodically to help ensure that the trust is managed well. The Trust Protector’s primary duties are to protect the interest of the SNT beneficiary, to uphold the settlors’ intent, and to counsel a misguided trustee. While the concept of a Trust Protector has merit, implementation raises many questions.
First, who should be appointed as a Trust Protector? Sometimes there is a family member who does not have the time to serve as a trustee but is able to undertake the less labor intensive role of a Trust Protector. Sometimes private professional fiduciaries are willing to serve as a Trust Protector, particularly if an independent party would be helpful in that role. The SNT may also name an accountant, attorney, or nonprofit organization to serve in this role.
A second consideration is the breadth of authority the Trust Protector should be given (i.e., the Trust Protector’s powers). At a minimum, a Trust Protector should have the power to review the reports and accounts of the trustee (which is, of course, what a trust beneficiary without disabilities would typically be capable of doing). Further, a Trust Protector usually is given the authority to terminate the trustee if the Trust Protector decides that a replacement is necessary or advisable. Finally, a Trust Protector often has the right to name a replacement trustee if the named trustee is removed from office, resigns, or is unable to continue to serve.
However, the power to terminate an existing trustee and hire a new trustee raises additional questions. For instance, should the Trust Protector be given the authority to terminate the trustee “at will” or only upon a showing of “reasonable grounds”? What grounds are considered “reasonable” when it comes to replacing a trustee? In an effort to avoid giving the trustee too much power and discretion, the settlors of the SNT similarly should avoid giving the Trust Protector too much authority.
A Trust Protector is often given additional authority beyond the right to review trustee accountings and replace trustees. For example, a SNT sometimes gives a Trust Protector the power to revise certain provisions in the trust agreement. In this way, a Trust Protector is able to keep pace with changes in tax laws and public benefit eligibility rules, and to respond to the beneficiary’s current needs and capabilities. However, any powers to revise the trust agreement should be guided by an intent to preserve or maximize the beneficiary’s eligibility for public benefits. If no limitations are placed on the Trust Protector, his or her revisions to the SNT agreement, or even the mere existence of the power to revise the agreement, might result in unintended consequences that risk undermining the purpose and effectiveness of the SNT. A Trust Protector also may be given certain less frequently encountered powers, including the authority to name an advisory group to guide the trustee’s actions, to mediate disputes between the trustee and beneficiary, or to control the costs of trust administration. The Trust Protector also might be allowed to add or remove successor beneficiaries, to approve distributions, to control investments or investment advisors, and to deviate from express trust provisions, such as changing the identity of named successor trustees. These are but a few of the possible powers that may be given to a Trust Protector.
A third question is: what are the actual duties of a Trust Protector? Certainly one of the Trust Protector’s primary duties is to ensure good trust management by reviewing the trustee’s periodic accountings and reports. Some Trust Protectors also have a duty to consult with the trustee on an annual or other periodic basis. It is important to consider how much responsibility to vest in a Trust Protector, and to outline the consequences of the Trust Protector’s failure to perform. For instance, should the trust agreement make the Trust Protector legally liable to the SNT or its beneficiary if the Trust Protector does not adequately review accountings and reports? Should the Trust Protector be liable if he or she does not terminate the trustee for cause, or if the Trust Protector was not careful enough in choosing a replacement trustee? Does the Trust Protector have a “fiduciary duty” (a very high level of care) to the beneficiary, similar to that which the trustee owes to the beneficiary? If the persons creating a SNT ascribe too many duties and too high a level of care to the Trust Protector (especially if a failure to perform makes a Trust Protector legally liable to the SNT or the beneficiary) they may find that no one is willing to take on the job!
A fourth question is: what are the rights of a Trust Protector? While a Trust Protector may have the right to review all trustee reports and accountings, less obvious is the right of a Trust Protector to be paid for his or her time undertaking these duties. It is a rare Trust Protector who will accept such responsibilities without compensation. Limiting a Trust Protector’s compensation to a reasonable fee based on an arm’s length standard should help to avoid many of the conflicts of interest that might arise, considering that the Trust Protector is being paid by the very trustee that he or she supervises.
Finally, SNT settlors who are considering naming a Trust Protector should work with an experienced drafting attorney to address a number of other factors, including:
A Trust Protector may be well suited to supervise the trustee of a SNT. A Trust Protector also serves as an essential safety valve to address changes in circumstances during the term of the trust. However, naming a Trust Protector requires a very thoughtful review of the various implications of the position, and careful drafting to address all of the questions that should be answered in each individual case. A well-crafted Trust Protector provision adds significant value to a SNT.
Call Hoopis Manosh Estate Law for a comprehensive plan to protect your loved one. 401.773.9993.
Carrying out the job of an executor is no easy task. At first, it seems like an honor, but as time passes the executor soon realizes that it’s not all sunshine and roses. When people write their wills, they will usually select a trusted person, such as their spouse, an adult child, a sibling, or a close friend to act as the executor of their estate.
The executor has the legal responsibility to pay off all debts and taxes and distribute the remaining portion of the estate to the decedent’s heirs. Beyond paying off creditors and adhering to strict probate court rules and deadlines, there can be a minefield of family issues.
Executors Can Be Sued if They Harm the EstateNot only are executors held the highest standard of fiduciary duty, they can be sued and held personally liable if they make a mistake that harms the estate. That said, here are some of the biggest mistakes that executors make during probate:
If you have accepted the job as an executor or a personal representative, consult with an experienced probate attorney before you begin carrying out your fiduciary duties. Hoopis Manosh Estate Law is happy to help! Call 401.773.9993 for a free consultation.
(This article originally appeared on www.probate.com, August 23, 2016).
Let’s say that your close family member or friend passed away and you were surprised to learn that he or she named you as the executor of their will. You may be honored to take on the job, or you may feel that you simply don’t have the time or the energy to accept. You may think that despite how you feel, you don’t have a choice – but you do.
Even if you had a close relationship with the deceased, you can still politely pass on the opportunity so someone else can take care of it. If you truly are the best man or woman for the job in the decedent’s family or circle of friends, there are ways to ease the burden.
Who can serve as an executor? Each state has enacted laws that say who can serve as an executor or a personal representative for an estate that’s in probate. Generally, anybody can serve as an executor so long as they have not been convicted of a felony, but if the executor is out-of-state, there may be stricter requirements. (Please note- the State of Rhode Island does not restrict service based on criminal record).
Not everyone is suited for the role of an executor. The most-qualified personal representatives are meticulous, patient, well-organized, impartial, and of an exceptional moral character. Executors are held to the highest standards of “fiduciary duty” and must not engage in any self-dealing.
Since executors must deal with the beneficiaries directly, it helps when they have pleasant personalities and know how to get along with other people. They need to have plenty of time on their hands too. If the executor is a homemaker, retired, or only works part-time, that’s good since settling an estate takes many hours over a period of six to twelve months.
Do you have to be good at math or a financial wizard to be an executor? No, not necessarily. Probate courts across the country encourage personal representatives to seek help with the financial and legal matters (probate attorneys, tax preparers, and accountants). The fees for these services are paid out of the estate, not out of the executor’s pocket.
Can I hire an attorney to do all the work for me? Some executors don’t have a lot of free time on their hands or they prefer to trust a professional to handle everything for them. In these cases, some executors turn everything over to a probate lawyer. Often with simpler estates, an executor may handle the routine tasks, while consulting the experts on more complex matters.
If you’ve been asked to be an executor, the complexity of the estate should dictate what you do next. If you’re unfamiliar with the decedent’s affairs, and are not sure where to start, you should seek advice from a professional probate attorney. Hoopis Manosh Estate Law is happy to help! Call for a free consultation, 401-773-9993.
(This article originally appeared on www.probate.com, December 6, 2016).
Many seniors and their families don't use a lawyer to plan for long-term care or Medicaid, often because they're afraid of the cost. But an attorney can help you save money in the long run as well as make sure you are getting the best care for your loved one.
Instead of taking steps based on what you've heard from others, doing nothing, or enlisting a non-lawyer referred by a nursing home, you can hire an elder law attorney. Here are a few reasons why you should at least consider this option:
Call Hoopis Manosh Estate Law today to begin the process of protecting your assets. 401.773.9993.
Many families are justly concerned about the long-term financial security of their loved ones with special needs, especially if parents who have been providing support pass away. This concern is one reason to create a special needs trust. But not every family can afford to fund a special needs trust with enough money to properly care for a person with special needs over the course of his lifetime. Life insurance provides a unique opportunity for many families to guarantee the financial security of their loved ones with special needs without placing a significant financial strain on other family members.
There are many different types of life insurance that can be used to fund a special needs trust, but whichever type of insurance is purchased, the death benefit is directed to a special needs trust created for the individual with special needs to provide financial security after the parents are gone. Term life insurance is the easiest to understand. Under a term policy, the insurance company agrees to pay a fixed amount of money if the insured person dies during a set period of time. If the insured person survives the policy's term, the insurance lapses and there is no benefit.
Whole life insurance is a little different. A whole policy typically lasts for the insured person's lifetime and the policy accrues value over time. The accrued funds generate interest and the policy typically pays dividends, adding to the value of the payout. Universal life insurance accumulates value like a whole life insurance policy, but the policy owner can typically adjust the premium payments and death benefits over the life of the policy. With both whole life insurance and universal life insurance, the policy owners can contribute enough money to the policy to guarantee a future death benefit, regardless of how long they live. This is called a "paid up" policy, and it provides the emotional security of knowing that the life insurance will be there to fund the trust even if a family's financial circumstances change in the future.
One of the most important types of life insurance for families of people with special needs is called second to die or survivorship insurance. These are policies taken out on the lives of two people that only pay out when the second person passes away. Because of this, the premiums are typically lower than individual policies, allowing families to provide greater sums for the beneficiaries after the death of the second parent. However, there is no guarantee that the second insured person will continue to pay for the policy, potentially leaving the special needs trust in the lurch.
Once a family has decided to fund a trust with life insurance, the follow up question becomes "how much life insurance should we buy?" You should always consult with your special needs planner before purchasing any life insurance destined for a special needs trust.
Call Hoopis Manosh Estate Law to begin the process of protecting your loved one now. 401.773.9993.
Even if you've created an estate plan, are you sure you included everything you need to? There are certain provisions that people often forget to put in in a will or estate plan that can have a big impact on your family.
1. Alternate Beneficiaries
One of the most important things your estate plan should include is at least one alternative beneficiary in case the named beneficiary does not outlive you or is unable to claim under the will. If a will names a beneficiary who isn't able to take possession of the property, your assets may pass as though you didn't have a will at all. This means state law will determine who gets your property, not you. By providing an alternative beneficiary, you can make sure that the property goes where you want it to go.
2. Personal Possessions and Family Heirlooms
Not all heirlooms are worth a lot of money, but they may contain sentimental value. It is a good idea to be clear about which family members should get which items. You can write a list directly into your will, but this makes it difficult if you want to add items or delete items. A personal property memorandum is a separate document that details which friends and family members get what personal property. In some states, if the document is referenced in the will, it is legally binding. Even if the document is not legally binding, it is helpful to leave instructions for your heirs to avoid confusion and bickering.
3. Digital Assets
More and more we conduct business online. What happens to these online assets and accounts after you die? There are some steps you can take to help your family deal with your digital property. You should make a list of all of your online accounts, including e-mail, financial accounts, Facebook, Mint, and anywhere else you conduct business online. Include your username and password for each account. Also, include access information for your digital devices, including smartphones and computers. And then you need to make sure the agent under your durable power of attorney and the personal representative named in your will have authority to deal with your online accounts.
Pets are beloved members of the family, but they can't take care of themselves after you are gone. While you can't leave property directly to a pet, you can name a caretaker in your will and leave that person money to care for the pet. Don't forget to name an alternative beneficiary as well. If you want more security, in some states, you can set up a pet trust. With a pet trust, the trustee makes payments on a regular basis to your pet's caregiver and pays for your pet's needs as they come up.
Contact Hoopis Manosh Estate Law to make sure your estate plan takes care of all your needs. 401.773.9993.