What is a Special Needs Trust?

Under the current Social Security public benefits system, a disabled individual is eligible to receive government assistance to provide for basic needs such as food, clothing, health care, and shelter.  To receive assistance, a recipient cannot have more than $2,000 in cash and assets in their name.  A Special Needs Trust is a legal document that allows a person with a physical or mental disability to have, held in trust for his or her benefit, an unlimited amount of assets without jeopardizing state or federal benefits. If monies are placed in a Special Needs Trust they are not considered part of your child’s assets and your child can still qualify for all benefits and programs.

Why Alternatives to a “Special Needs Trust” May Lead to Catastrophe for Your Child

Regardless of the size of your estate, leaving all of your money to a relative to care for a disabled child is risky.  When an individual holds those assets, they may be spent, ill-managed, or attached by judgment creditors.  But a Special Needs Trust guarantees that the funds will be held only for the benefit of your disabled child.  Judgment creditors of the disabled child or of a caretaker cannot attach money in a Special Needs Trust.

How Your Child Can Benefit from the Funds in the Trust

The money in the Special Needs Trust can be used to pay for a number of things, including vacations, care-giving services, and even a home for your child. Plus, it will provide you with the peace of mind that your child’s access to vital government services and benefits is not threatened.

Contact San Diego Law Firm to Set Up a Special Needs Trust for Your Child

A Special Needs Trust, like all trust and estate planning documents, must be drafted precisely to be valid.  In an age when technology makes us feel empowered to take matters into our own hands, legal planning for the future of a disabled child is not something you should try to accomplish on your own.  A Special Needs Trust requires specific language, and if it is poorly crafted it can cause your child to lose benefits and health care he or she would otherwise be entitled to.  Our estate planning attorneys at San Diego Law Firm are familiar with the public benefits system, and can prepare a Special Needs Trust that will accomplish the purposes you intend.  They can also integrate it with your will, living trust, and other estate-planning documents, so that it operates exactly as you intent.  For more information or an appointment, please call us at 619-794-0243.

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Knowing loved ones will be financially cared for in the event of death can give a family breadwinner great peace of mind.  Life insurance is a valuable tool in any estate plan because of the benefits it provides. 

First, life insurance can help family members bare the financial consequences of an unexpected death.  The National Funeral Directors Association approximates the average expense of a funeral to be upwards of $6500.00. This is a cost that may be prohibitive unless there is a reliable and immediate source of funds which can be used to pay for high funeral expenses.

Second, a life insurance policy ensures the loved ones’ future financial security. For example, if the family’s primary income earner passes away, a well funded life insurance policy will provide money to meet current and future household expenses such as mortgage and education costs. If you want to ensure that all of your life insurance proceeds are used for the purposes which you intend, you may want to consider having your attorney prepare an Irrevocable Life Insurance Trust for you.

Life Insurance and Estate Tax

What you may not know is that the proceeds paid on a life insurance policy are included in an estate (everything you own when you die) for estate tax purposes.  This means the size of the estate is actually inflated by the face value of the policy.  For example, if you have real estate, bank accounts, and stocks that add up to $2,000,000 you may think that only $2,000,000 of the estate will be subject to the federal estate tax rate. However, if you have $500,000 worth of life insurance it is considered part of your estate, and estate taxes will be due on $2,500,000!  The underlying reason life insurance benefits are included in an estate is because the policy holder is deemed to “own” the proceeds so that the IRS can fully tax those proceeds as part the deceased persons estate at death.  

Reduce Estate Tax With a Life Insurance Trust

One way to avoid tax on life insurance proceeds is to establish an Irrevocable Life Insurance Trust, or ILIT.   Under an ILIT, the life insurance policy is not “owned” by the decedent or his or her spouse.  Therefore, the proceeds are not considered part of the decedent’s estate. This is done by transferring ownership of a life insurance policy to the trustee of an ILIT.  After ownership interest of the life insurance policy is transferred to the trustee, you’ll no longer “own” the policy and the proceeds can’t be taxed as being part of your estate when you die.

Advantages and Disadvantages

However, there are a few drawbacks to consider in setting up an ILIT. For example:

• You can’t change the beneficiary of the policy:  If you as an insured want the flexibility to deal with changed family circumstances, an ILIT may not be the right choice for you because after the ILIT is created, the insured gives up the right to change the beneficiary of the policy.
• You can’t borrow from the policy:  If your policy normally allows you to borrow against the policy or make cash withdrawals from it, under an ILIT you will no longer be able to do this.
• Transferring an existing policy to the trust could be complicated:  If you already have a life insurance policy, ownership can be transferred. But, if the insured dies within 3 years of the date from which the policy was transferred, the life insurance policy will be included in the estate for tax purposes anyway!  However, depending on a number of factors, your attorney may be able to avoid this problem with a “fail-safe” clause that ensures that the proceeds of a transferred policy are held separately under an ILIT. 

Our estate planning attorneys at San Diego Law Firm know the complexities involved in making sure loved ones and assets will be cared for and protected in the worst-case scenario for a family. We can answer your questions about life insurance trusts and other estate planning tools that you can use to ensure that 100% of life insurance proceeds go to the beneficiaries instead of to paying estate taxes.  Also, we can look over your existing estate plan to make sure that all potential “fail-safe” mechanisms are in place.  Call us at 619-794-0243 for advice and a consultation on ILIT issues.

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Dying Without a Valid Will (Intestacy)                                 

If you don’t leave behind any instructions for how you want your property divided (such as with a valid will or living trust), then California law steps in so that the probate court can distribute your property to your heirs.  A person who dies without a valid will is said to have died “intestate.”  In these situations, California’s intestacy laws apply.  These laws decide which family members will inherit by creating a hierarchy.  Sometimes things get more complicated, but here are the basics:

      ●    If You’re Survived by a Spouse or Domestic Partner

Your surviving spouse or domestic partner will receive your full share of “community property” (your shared marital property as determined by California’s community property laws).  You might also have your own “separate property” (usually this is property you owned before marriage or inherited while married).  Assuming that your separate property never turned into community property, then your spouse or domestic partner will get a share of those assets.  He or she will either get all, half, or a third of your separate property depending on whether you have certain relatives.  Those relatives (usually children) would receive the rest. 

      ●    If There’s No Spouse or Domestic Partner

If you had children (or a grandchild from a child who died), then they’ll inherit your estate.  If you didn’t have any children, then the hierarchy goes from parents, to siblings, to grandparents, to aunts and uncles, to cousins, and then more distant family members.  Keep in mind that once there’s someone eligible to inherit, the probate court won’t give property to anyone who’s further down on the hierarchy.  For example, if you have children, your parents will not inherit anything from you under the intestacy system.

What the Intestacy Rules Leave Out

When there’s no will or trust, the rules for distributing your property ignore many things that you probably think are very important.  For example:

      ●    Strained Family Relationships - Maybe someone who you wouldn’t want to inherit from you will under California’s intestacy rules.

      ●    Protecting Adult Children (From Themselves) - You may have a child who’s over 18, but who’s likely to seriously mismanage his or her inheritance, or lose it to creditors.  To avoid this situation, you’d probably want to establish a trust that can include safeguards.

      ●    Some People & Organizations Can Never Inherit From You - Even if you’re in a long-term relationship, your significant other won’t be eligible to inherit from you if you didn’t marry or enter into a domestic partnership.  Your friends, charities, and other organizations that you may want to leave a gift for also won’t receive anything. 

      ●    Leaving Loved Ones Out, Even If They’re Related - Your family member may not get to share in the inheritance, even if you would have wanted them to.  California’s intestacy system is a hierarchy.  Certain relatives (like a spouse or children) are higher up on the hierarchy than others (like parents, aunts, uncles, or cousins).  Under this system, your property is meant to be inherited by the relatives who are as high up on the hierarchy as possible.  As soon as there’s someone who can inherit, relatives who are lower on the list are shut out.

Create Your Own Plan Instead

If you create a will or trust, then you can usually decide who gets what and how.  You’ll also be able to control how much they get.  For example, even if you want your children to receive most of your property, you can still make gifts to a niece, friend, or others. 

After you’ve made your will and trust, watch out for pitfalls that can lead to intestacy (or partial intestacy).  In part, this means making sure all your property is covered by a valid estate plan.  If you get new assets after creating your will and living trust, then let us know.  For the same reason, any changes to your will or living trust need to be made carefully. 

We’ll advise you on your best options, so you can learn about the benefits of estate planning.  Remember, avoiding probate is not your only goal.  Estate planning is about taking control, while also finding the best way to minimize any taxes.  Get essential help with your will and living trust by contacting San Diego Law Firm’s experienced estate planning attorneys at (619) 794-0243.

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Decide if you want your agent’s powers to start now, or later

Just as important as what your agent can do is when they can do it.  A power of attorney can give your agent power right away, or hold off until a future event or condition happens.  We’ll explain the benefits and drawbacks with either option.  Your decision will depend on who you will name as your agent and your personal circumstances.

For example, take a look at the following scenarios:

      ●    Illness, Medical Conditions, or Accidents

You can have your power of attorney go into effect only if you lose the physical or mental capacity to make financial decisions, such as after an illness or accident. 

You may want to include a requirement that a doctor first determine the incapacity before your power of attorney can be used.  On the other hand, this delay can work against you in an emergency when a decision needs to be made immediately.  We’ll explain your options and take all of this into account when preparing your power of attorney. 

      ●    Temporary Absence

If you go on vacation without your kids, you may want to set up a special power of attorney for the time you’ll be away.  Even if you don’t have kids, if you’ll be gone for a long time you may need someone to manage your finances while you’re out of the country.

      ●    Spouses and Domestic Partners

Many spouses and domestic partners decide to make their powers of attorney effective immediately.  If you’re married or in a registered domestic partnership, you probably own most of your property together.  Even so, some transactions require authorization from both of you.  Also, some of your money and property may be in your name only, so you need the power of attorney to give your spouse access those assets if there’s an emergency. 

Make sure your power of attorney is done right

With years of experience behind us, your lawyer at San Diego Law Firm will create a power of attorney that follows California law and avoids the pitfalls of generic or poorly written powers of attorney.  That way, you can be much more confident that your power of attorney will be accepted by banks, investment firms, and others. 

An alternative to “Conservatorships”

Remember that if you lose capacity in the future, by creating a power of attorney you can decide who you would like to manage your finances.  This means that in many situations, a good power of attorney can help you avoid the need for a “conservatorship” down the road.  A conservatorship would require that a loved one go to court so that a judge can appoint someone to manage your finances and healthcare.

A properly written power of attorney – along with a similar document for your medical decisions (called an “advance health care directive“) – can help minimize family conflict.  While conservatorships can be necessary for some, many times a power of attorney is appropriate and can avoid the expense and time involved with creating a conservatorship in court. 

Also keep in mind that a living trust and a guardianship can do more than you think, because both can help you plan for possible incapacity.  Don’t miss your opportunity to plan for the future.  Reach San Diego Law Firm experienced estate planning lawyers at (619) 794-0243.

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Choosing someone to manage your finances

Whoever you choose to handle your finances through your power of attorney is known as your “agent.”  If this person steps in because you aren’t able to manage your finances, then you’ll depend on your agent to keep things on the right track for you.

Most people choose a family member such as a spouse or domestic partner for the job, but you might also consider naming an advisor or someone else who you can trust. 

Not only do you need to trust them personally, but also ask yourself whether you can trust their judgment because they’ll be handling your finances.  For instance, will this person be responsible and reliable enough to carry out your daily tasks?  What’s more, you may want to name a back-up agent in case your first choice is no longer available. 

How much power will you give your agent?

So exactly what does a power of attorney let your agent do?  How much (or how little) your agent can do will depend on what’s included in your power of attorney document.  It’s all up to you, but you can only make good choices if you really know and understand the options. 

You don’t want to make the mistake of using a generic power of attorney form that doesn’t capture your wishes.  We’ll make sure your authorization is accurate, complete, and really reflects what you want.  California law allows you to authorize many different types of actions in your power of attorney.  Here are a few common examples of what you may want your agent to do for you:

    ●    Sign contracts and other documents on your behalf

    ●    Manage your bank accounts

    ●    Accept your government benefits for you

    ●    File your taxes

    ●    Buy or collect insurance

    ●    Write checks to pay your mortgage, medical expenses, and other bills

    ●    Manage your property and make repairs

    ●    Buy and sell real estate

    ●    Manage your business

    ●    Take steps to minimize any estate taxes that could be due when your property is inherited

    ●    Invest your money in stocks and bonds, and oversee your existing investments

Beware of the outdated power of attorney

On her blog, Financial Planning Mastered, certified financial planner Sue Quint warns that banks and financial companies are more likely to accept your power of attorney if you update it every so often.  The bank may be more likely to question the document and deny your agent access to your accounts if it’s dated too far back. 

By reviewing your power of attorney, you’ll also have the opportunity to make changes and you may even decide to name someone else as your agent.  We’ll help you cancel your old power of attorney and get a new one in place. 

You can learn more in Part 2 of this post about how a power of attorney works.  Also get information about what you can do now to protect yourself and your loved ones by speaking with an experienced estate planning attorney at San Diego Law Firm.  Reach us at (619) 794-0243.

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Your choice of guardian is one of the most important decisions you’ll make in your will, so how do you decide?  In “How to Choose a Guardian,” mother of three Denise Oliveri proposes that you figure this out by answering five questions.  To decide who will be right for the job, she suggests you evaluate age and health concerns, moral and educational values, financial ability to care for a child, and whether your child would have to move away.

Property & Money Matters

Splitting up responsibilities – Sometimes you’ll find it’s best to name different people to handle the parenting and the finances.  This will depend on the personalities, schedules, and skills of those who you would want to care for your child.  In this case, you can name a “guardian of the person” to raise your child, and a “guardian of the estate” to manage money and assets left behind for your child. 

Decide how the inheritance should be handled – Remember that you may only want certain property to be gifted under your will if your chosen guardian accepts the appointment in court.  That way, you can make sure these resources are available for your kids even if the person you nominated turns down the guardianship.  We’ll ensure you take this and similar considerations into account so that your will matches your wishes.  Another option is to create a living trust that names a trustee to manage finances.  This can be a better option for you and your kids, and give you more control over how and when money will be spent. 

Making sure your wishes are carried out

Choose alternates – In the event the guardianship becomes necessary later on, what happens if the person you choose can’t act as guardian any more?  You can plan for this possibility by naming alternate guardians.  This gives you greater security that your child or children will be cared for by someone you’ve chosen.

Think your choices through in your will – If the person you’ve chosen is comfortable with taking on the role of guardian and accepts, then your next step will be to include your guardianship decisions in your will and the other parent’s will.  If you’ve chosen a couple to act as co-guardians, we’ll prepare your will to make sure it accurately reflects your intentions.  For example, if the couple later divorces or one spouse dies, will you still want either spouse to be your child’s guardian?

Don’t leave it all for the judge to decide

As long as you’ve nominated your guardian in a valid will, then the chances are the court will appoint the person you’ve chosen as guardian.  The court will only deny the appointment if it’s necessary to protect your child’s best interests.  You may recall Michael Jackson’s mother was approved as guardian to his three children, as reported by CNN, despite concerns of her age.

If you didn’t name a guardian in your will, then the decision will be left completely in the judge’s hands.  The court will try to make the best decision for your child, but the appointed guardian may be different from who you would have wanted.  Remember, it’s not enough to just come to an informal agreement about guardianship with your family and friends.  Your nomination has to be properly made in your will. 

Our experienced wills, trusts, and probate attorneys are here to help you understand guardianships and its responsibilities.  We’ll also prepare a will and living trust that’s comprehensive enough to truly carry out your goals.  Don’t miss a chance to help ensure your children’s security and well-being will be protected.  Contact San Diego Law Firm at (619) 794-0243.

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For many, a California conservatorship becomes vital for aging parents and other elderly persons who can no longer meet their basic living needs to take care of themselves.  Even so, these are not the only circumstances in which a conservatorship can be beneficial.  A serious injury or illness may have caused someone to lose the ability to physically take care of him or herself, or to competently make financial decisions.  A famous example involves Britney Spears.  Recently, the San Francisco Chronicle’s entertainment blog reported that Britney Spears’ conservatorship was extended, at least for the near future.  Spears’ father first became her conservator and maintained power over his daughter’s company after she was hospitalized for a psychiatric hold in 2008.  In any case, just as important as the question of whether a conservatorship is needed, is the question of who should be appointed conservator.  It’s a decision that should only be made after learning about a conservator’s legal duties and what it means to be responsible for the care of an incapacitated person.  Among other things, the conservator will provide accountings of income and expenses incurred in managing the incapacitated person’s affairs.  The probate court will supervise the conservatorship to ensure that the incapacitated person’s affairs are reliably taken care of and that the protected person’s rights are abided by.  Litigation can result if a conservator breaches his or her duties to the person being taken care of.

Conservatorships can be very demanding, and in light of this we’ll discuss whether a conservatorship is required, or whether there’s another way to meet the needs of your loved one that can be more appropriate and less costly.  For example, living trusts and durable powers of attorney are alternatives that may be available.  Even so, there are circumstances where a conservatorship is the best solution because it can go beyond a power of attorney.  There are many who profit from taking advantage of another’s incapacity, and a conservatorship can protect your loved one from potential fraud when he or she no longer can.  In the case of an aging parent or loved one, a conservatorship can also protect against elder abuse.  We’ll provide you with the information and advice you need in deciding whether to become a conservator, prepare your petition, and work to prove the necessity of a conservatorship in court.  We’re here to help conservators perform their duties and defend against wrongful claims, or can represent you if you have reason to contest the conservatorship.  San Diego Law Firm’s conservatorship lawyers can work to better protect your loved one and minimize tension and stress within your family.  Get help in finding the best solution available by contacting San Diego Law Firm at (619) 794-0243.

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For many, accountings are provided on time and with no need for objection.  For others, a series of challenges arise that have to be dealt with quickly before time runs out.  Beneficiaries sometimes find themselves in one or more of the following situations:

- The trustee or executor (or other fiduciary) doesn’t provide the required accounting and refuses to do so

- An account is made, but it turns out to be incomplete or incorrect

- You haven’t received required distributions from your share of the inheritance

- In managing the trust property or estate, you believe the trustee or executor may have spent or invested money carelessly or even wastefully

If you have similar concerns, we’ll work to quickly resolve the issue, and when needed we’ll petition the court for an order directing the trustee or other administrator to provide the accounting, or object to the accounting that’s been given.  Keep in mind that deadlines apply to your challenge of an accounting.  If you’re serving as a trustee, executor, or other fiduciary, we can prepare any accountings you’ll be required to submit.  Even if an accounting is waived, it’s often wise for executors and trustees to create an accounting that records all transactions.  No matter what the issue, we know how important it is to handle these matters tactfully and to strive to maintain harmony in your family after a loved one has passed away.  At the same time, it’s important to make sure your rights as a beneficiary are dealt with fairly, and to do so we can begin an accounting action or take any other necessary steps.  If you are serving as a trustee, executor, administrator, or other fiduciary, we’ll provide you with the guidance you need to properly carry out your many other duties in opening a probate or administering a living trust.  Act to protect your inheritance by contacting San Diego Law Firm’s experienced wills, trusts, and probate attorneys at (619) 794-0243.

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Currently, to qualify for Medi-cal benefits, a single person can’t have more than $2,000 in “countable” or “non-exempt” assets, and a married person whose spouse will still live at home can’t have more than $109,560 in countable assets.  Countable or non-exempt assets are generally assets that can easily be turned into cash.  Examples of countable assets include second homes, bank accounts, stocks and bonds, and assets held in your living trust.  Medi-cal rules also establish “exempt” assets that won’t be counted when deciding whether you or a loved one qualifies for benefits.  For instance, the equity in your principle home will be exempt up to $750,000 if you are single and intend to return home.  Whereas, if you’re married or have a child who is blind, disabled, or under 21 and lives in the home, then there won’t be a limit on the amount of equity exempt.  More examples of exempt property include your personal belongings, household items, certain life insurance, and one car.  Your income isn’t counted in determining if you qualify, but it can affect whether you’ll have to pay a share of the nursing home and medical costs.   You can plan to meet Medi-cal eligibility through many different methods, such as by converting countable assets to exempt assets (e.g. by paying down your mortgage or buying a new replacement car), transferring assets to your spouse or family members, or filing a petition to increase the eligibility limit so you can keep extra assets.  But no matter the strategy, the law must be carefully abided by and potential disadvantages have to be evaluated in light of your goals and circumstances.  Certain actions can bring negative tax consequences that will outweigh the possible benefits, or can lead to penalties and lengthy periods of ineligibility.

If benefits are received, then Medi-cal will attempt to collect the payments back through an “estate claim” when the beneficiary passes away by looking to the assets belonging to that person at the time of his or her death.  This includes assets that were previously exempt for eligibility purposes, but there are some exceptions.  For example if the beneficiary’s spouse was living in a home owned by the beneficiary, Medi-cal will not collect until the spouse still living in the home has also died.  Some assets can be legally transferred away during the beneficiary’s lifetime and won’t be subject to collection, but this should only be done when eligibility won’t be jeopardized.  Also note that when it comes to Medi-cal, the rules and regulations are constantly changing, creating additional planning challenges.  Just last year, in September 2008, major changes were introduced when Governor Schwarzenegger signed the Deficit Reduction Act (DRA) into law, which modified important Medi-cal eligibility rules for long term care.  It’s to be expected that more change is on the way.  On this note, a HealthAccess.org blog by Cynthia Craft reports that the Senate Health Committee recently brought experts together to discuss how to restructure the Medi-cal program if the federal government grants California a five-year waiver period starting in September 2010.  If granted, Medi-cal will be able operate outside of current Medicaid rules in order to try out new changes.  Regardless of what may happen, careful planning is essential to protecting your assets for your loved ones.  Learn more about our Medi-cal help, and when possible, prepare early while you have the most options available to safeguard your estate from the rising costs of long term medical care.  Even if you’ve already been denied Medi-cal, we can often help you reapply and correct previous mistakes.  For experienced, up-to-date help with Medi-cal planning, contact San Diego Law Firm at (619) 794-0243.

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What are valid reasons for challenging a will or trust?  Hollywood’s favorite example is the deathbed will, where – in a dramatic portrayal – the will is signed just moments before passing away, disinheriting everyone except for the person who callously pressured the testator into signing.  If there were a will contest here, what would the empty handed family members allege as grounds for the challenge?   One issue is capacity, because the deceased may not have had the level of capacity legally needed to change or create the will if the testator’s mental competence had grown too weak in his or her final moments.  Not only that, but the benefited person may have exercised duress or undue influence over the testator.  Other common reasons to contest a will include forgery, fraud, the existence of a more recent will, omitted children or spouses, and errors in executing the will.  If under the facts the legal requirements are met for any of these grounds, then the will or part of it is invalidated and property will instead be distributed according to California’s laws on inheritance, or possibly according to another will or trust.

The new California law on no contest clauses will be applied starting January 1, 2010, but it will affect wills that became irrevocable as of January 1, 2001 (for example, if a person dies on or after this date, the will becomes irrevocable at that point).  The law lists three categories of actions that are considered “will contests,” and anything else will not trigger the no contest clause and its threat of forfeiture.  If the challenger wins the will contest, then the no contest provision has no consequence because the will is ignored.  If the challenger loses, then typically the no contest clause will be enforced unless there was “probable cause” to dispute the will. 

It may be time to create or update your will and living trust to reflect this new law as well as recent case law.  We’ll also plan on the most effective way to include a no contest clause when you make amendments to these documents, and discuss the pros and cons of these clauses so you can decide on whether to include a no contest clause in your will or trust.  If you think you’ll be involved in a will contest, we’ll assess whether you’re a proper party to bring the action, and if you have possible grounds for a contest.  Whenever possible we’ll seek resolution without resorting to litigation.  Also keep in mind that a will contest must be brought within certain time limits so act soon.  Contact San Diego Law Firm’s experienced attorneys at (619) 794-0243 for help with any aspect of the probate and inheritance process.

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