How Do Special Needs Trusts Work?

Special-needs trusts have been used for many years. However, there are two factors that are changing and parents need to be aware of them, says the article “Special-Needs Trusts: How They Work and What Has Changed” from The Wall Street Journal. For one thing, many people with disabilities and chronic illnesses are leading much longer lives because of medical advances. As a result, they are often outliving their parents and primary caregivers. This makes planning for the long term more critical.

Second, there have been significant changes in tax laws, specifically laws concerning inherited retirement accounts.

Special needs planning has never been easy because of the many unknowns. How much care will be needed? How much will it cost? How long will the special needs individual live? Tax rules are complex and coordinating special needs planning with estate planning can be a challenge. A 2018 study from the University of Illinois found that less than 50% of parents of children with disabilities had planned for their children’s future. Parents who had not done any planning told researchers they were just overwhelmed.

Here are some of the basics:

A Special-Needs Trust, or SNT, is created to protect the assets of a person with a disability, including mental or physical conditions. The trust may be used to pay for various goods and services, including medical equipment, education, home furnishings, etc.

A trustee is appointed to manage all and any spending. The beneficiary has no control over assets inside the trust. The assets are not owned by the beneficiary, so the beneficiary should continue to be eligible for government programs that limit assets, including Supplemental Security Income or Medicaid.

There are different types of Special Needs Trusts: pooled, first party and third party. They are not simple entities to create, so it’s important to work with an experienced estate elder law attorney who is familiar with these trusts.

To fund the trust after parents have passed, they could name the Special Needs Trust as the beneficiary of their IRA, so withdrawals from the account would be paid to the trust to benefit their child. There will be required minimum distributions (RMDs), because the IRA would become an Inherited IRA and the trust would need to take distributions.

The SECURE Act from 2019 ended the ability to stretch out RMDs for inherited traditional IRAs from lifetime to ten years. However, the SECURE Act created exceptions: individuals who are disabled or chronically ill are still permitted to take distributions over their lifetimes. This has to be done correctly, or it won’t work. However, done correctly, it could provide income over the special needs individual’s lifetime.

The strategy assumes that the SNT beneficiary is disabled or chronically ill, according to the terms of the tax code. The terms are defined very strictly and may not be the same as the requirements for SSI or Medicaid.

The traditional IRA may or may not be the best way to fund an SNT. It may create larger distributions than are permitted by the SNT or create large tax bills. Roth IRAs or life insurance may be the better options.

The goal is to exchange assets, like traditional IRAs, for more tax-efficient assets to reach post-death planning solutions for the special needs individual, long after their parents and caregivers have passed.

Reference: The Wall Street Journal (June 3, 2021) “Special-Needs Trusts: How They Work and What Has Changed”


What Is the Main Purpose of a Trust?

There are advantages and disadvantages of an irrevocable trust, and you’ll want to be fully informed before taking steps that may be costly to undo, explains the article “Understanding your trust” from The Sentinel. Once your home is deeded to an irrevocable trust, you won’t be able to make any changes without getting permission from the beneficiary or beneficiaries named in the trust. Your rights of ownership are transferred to the trust, when you deed it to the trust.

A separate legal agreement with the trustee, the person in charge of the trust, will be needed to give you a legal right to occupy the home also. Any changes could be made but will take time and could be costly. Changes can also only be made, if the beneficiaries agree.

There was a time when lenders inserted clauses into mortgages that any time a sale or transfer of the deed occurred, full payment of the mortgage would be due. This changed, and today the mortgage is not due just because of a change in the deed. However, it may be a challenge to refinance if the home is held in an irrevocable trust.

For most people, the reason to put a home into an irrevocable trust is to prevent the home from being lost to a creditor, including protecting the home’s equity from the cost of nursing home care, during life or after death. In some states, like Pennsylvania, the state will initiate a collection action against the estate to recover the amount paid for the deceased homeowner’s nursing care costs.

The move to put a home into an irrevocable trust can work as long as the trust remains intact and the homeowner does not apply for financial assistance for nursing home care for at least five years from the date that the deed was transferred as recorded in the courthouse.  If long-term care needs arise before that time, putting the home into an irrevocable trust may not serve its intended purpose.

There are some tax benefits from an irrevocable trust. If the homeowner lives at least one year after the home is deeded to the trust, in some states no inheritance taxes will be due on the home. Check with a local estate planning attorney to learn what the rules are in your state.

If the trust is prepared by an experienced elder law attorney, it is likely that the capital gain on the sale of the home by the trust after the homeowner’s death will be taxed based on the home’s value at the time of sale, rather than the value at the time it is placed into the trust or on the day of death.

If the home is the only asset in the trust, the taxpayer ID of the trust will be the homeowner’s Social Security number, and no annual tax return is required. If, however, other assets, particularly income-producing assets, are placed in the trust, then the trust needs to have its own EIN (a federal tax identification number) and annual tax returns will need to be paid. Taxes on a trust are normally at a higher rate than individual income rates.

Your estate planning attorney will explain the numerous strategies that can be used to protect your assets and your home from the high cost of long-term care. There are many Medicaid compliant techniques and tools, depending upon the situation of the individual and the family.

Reference: The Sentinel (April 23, 2021) “Understanding your trust”


What Is the Purpose of an Estate Plan?










Speak with an experienced estate planning attorney to assist you in preparing your documents.



What is not Covered by a Will?

A last will and testament is one part of a holistic estate plan used to direct the distribution of property after a person has died. A recent article titled “What you can’t do with a will” from Ponte Vedra Recorder explains how wills work, and the types of property not distributed through a will.

Wills are used to inform the probate court regarding your choice of guardians for any minor children and the executor of your estate. Without a will, both of those decisions will be made by the court. It’s better to make those decisions yourself and to make them legally binding with a will.

Lacking a will, an estate will be distributed according to the laws of the state, which creates extra expenses and sometimes, leads to life-long fights between family members.  Property distributed through a will necessarily must be processed through a probate, a formal process involving a court. However, some assets do not pass through probate. Here’s how non-probate assets are distributed:

Jointly Held Property. When one of the “joint tenants” dies, their interest in the property ends and the other joint tenant owns the entire property.

Property in Trust. Assets owned by a trust pass to the beneficiaries under the terms of the trust, with the guidance of the trustee.

Life Insurance. Proceeds from life insurance policies are distributed directly to the named beneficiaries. Whatever a will says about life insurance proceeds does not matter—the beneficiary designation is what controls this distribution, unless there is no beneficiary designated.

Retirement Accounts. IRAs, 401(k) and similar assets pass to named beneficiaries. In most cases, under federal law, the surviving spouse is the automatic beneficiary of a 401(k), although there are always exceptions. The owner of an IRA may name a preferred beneficiary.

Transfer on Death (TOD) Accounts. Some investment accounts have the ability to name a designated beneficiary who receives the assets upon the death of the original owner. They transfer outside of probate.

Here are some things that should NOT be included in your will:

Funeral instructions might not be read until days or even weeks after death. Create a separate letter of instructions and make sure family members know where it is.

Provisions for a special needs family member need to be made separately from a will. A special needs trust is used to ensure that the family member can inherit assets but does not become ineligible for government benefits. Talk to an elder law estate planning attorney about how this is best handled.

Conditions on gifts should not be addressed in a will. Certain conditions are not permitted by law. If you want to control how and when assets are distributed, you want to create a trust. The trust can set conditions, like reaching a certain age or being fully employed, etc., for a trustee to release funds.

Reference: Ponte Vedra Recorder (April 15, 2021) “What you can’t do with a will”


What Is a Living Trust Estate Plan?

Living trusts are one of the most popular estate planning tools. However, a living trust accomplishes several goals, explains the article “Living trusts allow estates to avoid probate” from The Record Courier. A living trust allows for the management of a beneficiary’s inheritance and may also reduce estate taxes. A person with many heirs or who owns real estate should consider including a living trust in their estate plan.

A trust is a fiduciary relationship, where the person who creates the trust, known as the “grantor,” “settlor,” “trustor” or “trustmaker,” gives the “trustee” the right to hold title to assets to benefit another person. This third person is usually an heir, a beneficiary, or a charity.

With a living trust, the grantor, trustee and beneficiary may be one and the same person. A living trust may be created by one person for that person’s benefit. When the grantor dies, or becomes incapacitated, another person designated by the trust becomes the successor trustee and manages the trust for the benefit of the beneficiary or heir. All of these roles are defined in the trust documents.

The living trust, which is sometimes referred to as an “inter vivos” trust, is created to benefit the grantor while they are living. A grantor can make any and all changes they wish while they are living to their trust (within the law, of course). A testamentary trust is created through a person’s will, and assets are transferred to the trust only when the grantor dies. A testamentary trust is an “irrevocable” trust, and no changes can be made to an irrevocable trust.

There are numerous other trusts used to manage the distribution of wealth and protect assets from taxes. Any trust agreement must identify the name of the trust, the initial trustee and the beneficiaries, as well as the terms of the trust and the name of a successor trustee.

For the trust to achieve its desired outcome, assets must be transferred from the individual to the trust. This is called “funding the trust.” The trust creator typically holds title to assets, but to fund the trust, titled property, like bank and investment accounts, real property or vehicles, are transferred to the trust by changing the name on the title. Personal property that does not have a title is transferred by an assignment of all tangible property to the trustee. An estate planning attorney will be able to help with this process, which can be cumbersome but is completely necessary for the trust to work.

Some assets, like life insurance or retirement accounts, do not need to be transferred to the trust. They use a beneficiary designation, naming a person who will become the owner upon the death of the original owner. These assets do not belong in a trust, unless there are special circumstances.

Reference: The Record Courier (April 3, 2021) “Living trusts allow estates to avoid probate”


Common Mistakes when Making Beneficiary Designations

Let’s say you divorce and remarry and forget to change your beneficiary from your ex-spouse. Your ex-spouse will be smiling all the way to the bank. There won’t be much that your new spouse could do, if you forgot to make that change before you die. Any time there is a life change, including happy events, like marriage, birth or adoption, your beneficiary designations need to be reviewed, says the article “One Beneficiary Mistake You Really Don’t Want to Make” from Kiplinger. If there are new people in your life you would like to leave a bequest to, like grandchildren or a charitable organization you want to support as part of your legacy, your beneficiary designations will need to reflect those as well.

For people who are married, their spouse is usually the primary beneficiary. Children are contingent beneficiaries who receive the proceeds upon death, if the primary beneficiary dies before or at the same time that you do. It is wise to notify any insurance company or retirement fund custodian about the death of a primary beneficiary, even if you have properly named contingent beneficiaries.

When there are multiple grandchildren, things can get a little complicated. Let’s say you’re married and have three adult children. The first beneficiary is your spouse, and your three children are contingent beneficiaries. Let’s say Sam has three children, Dolores has no children and James has two children, for a total of five grandchildren.

If both your spouse and James, die before you do, all of the proceeds would pass to your two surviving children, and James’ two children would effectively be disinherited. That’s probably not what you would want. However, there is a solution. You can specify that if one of your children dies before you and your spouse, their share goes to his or her children. This is a “per stirpes” distribution.

This way, each branch of the family will receive an equal share across generations. If this is what you want, you’ll need to request per stirpes, because equal distribution, or per capita, is the default designation. Not all insurance companies make this option available, so you’ll need to speak with your insurance broker to make sure this is set up properly for insurance or annuities.

Any assets that have a named designated beneficiary are not controlled by your will. Consequently, when you are creating or reviewing your estate plan, create a list of all of your assets and the desired beneficiaries for them. Your estate planning attorney will help review all of your assets and means of distribution, so your wishes for your family are clear.

Reference: Kiplinger (March 23, 2021) “One Beneficiary Mistake You Really Don’t Want to Make”


Why Do I Need a Will?

Estate planning attorneys aren’t the only professionals to advise anyone who is a legal adult and of sound mind to have a will. Financial advisors, CPAs and other professional advisors recognize that without a will, a person places themselves and their family in an unnecessarily difficult position. A recent article titled “One document everyone should have” from the Aiken Standard explains why this document is so important and what else is needed for an estate plan. A will is a “testamentary” document, meaning it becomes operative, only when the person who makes the will (the “testator”) dies.

The process of probate can only begin upon death. Each county or jurisdiction has a probate court, where the estate assets of deceased individuals are administrated. On the date a person dies, those assets must be identified. Some assets must be used to pay debts, if there are any, and the balance is distributed either according to the directions in the will or, if there is no will or the will has been deemed to be invalid, according to the laws of the state.

All this assumes, by the way, that the decedent did not arrange for his or her assets to pass without probate, by various non-probate transfer methods. For example, there is no probate required, if there is a surviving joint owner or designated beneficiary.

When there is no will and assets are subject to probate, then such assets are passed by intestacy, which usually means they are distributed along the lines of kinship. This may not always be the desired outcome, but with no will, the law controls asset distribution.

Why is a will important?

  • It allows you to leave specific property to specific loved ones, friends, or charities.
  • It may be used to provide funeral and burial instructions, although they can also be provided in a different document, so they are available to family or friends immediately.
  • A will can direct how you want assets to be used to pay debts, any taxes and payment of estate administration expenses, which include the cost of probate, legal fees and executor fees.
  • A will can be used to minimize estate taxes, which may be levied not just by the federal government but also by the state.
  • The will names the estate’s executor and the extent of his or her powers.
  • If there are minor children, the will is used to name a guardian to raise the children.
  • If you would like to disinherit any relative, the will provides the means to doing so.

Everyone needs a will, regardless of how large or small their personal assets may be. Every adult should also have an estate plan that includes other important documents, like a Power of Attorney to name another individual to act on your behalf, if you are unable to do so because of an injury or illness. A Healthcare Proxy and a Living Will are also important, so those who love you can follow your end of life care wishes. Contact an experienced estate planning attorney to assist you.

Reference: Aiken Standard (March 13,2021) “One document everyone should have”


Can an Executor be Replaced?

The executor of a last will and testament is the person responsible for carrying out the instructions in a will. Giving a person this role is giving them the authority to handle many tasks concerning an estate, as explained in the article “How to Change the Executor of a Will” from The person you name can be anyone you wish, from a spouse to a trusted family member, an adult child or even an estate planning attorney. Minor children may not serve as executors and some states do not permit convicted felons from serving as executors.

What does the executor do?

A beneficiary, a person who receives an inheritance from the estate, is permitted to serve as an executor, but the executor who is a beneficiary may not witness the will if they have a direct interest in it. The executor usually is in charge of:

  • Getting death certificates
  • Creating an inventory of the decedent’s assets, unless one exists already
  • Contacting an attorney to begin the probate process
  • Notifying financial institutions, including banks and investment firms of the person’s death
  • Obtaining a tax ID number for the estate and opening an estate account
  • Distributing assets to the persons named in the will.

The executor may not change the terms of the will, only carry out the instructions. They may collect a fee for their services, usually a percentage of the estate’s value. Regardless, whether they collect their fee is an individual decision.

Can you change the name of the executor on your estate?

There are many reasons why you might wish to change the person you originally named as executor to your estate. This is an important task, and if there have been changes in your life, then your estate plan and will should reflect those changes. Some of the reasons for changing your executor:

  • If the original executor dies, or becomes seriously ill and cannot fulfill their duties
  • If your spouse was the executor, but is now your ex-spouse
  • The person originally named as executor does not want the responsibility
  • Your original executor now lives many miles away.

There are two different ways to change the executor of your will. It is recommended that you discuss which of these two ways are better for your unique situation. Simple solutions often turn into estate planning nightmares.

How is a Codicil Used to Change the Executor?

A codicil is an amendment to a will that changes the terms, without changing the entire will. You specify the changes you want to make to your will, the name of the person who you now want to serve as executor from now on and the date the change needs to take effect. Estate laws are different in every state, so check with your estate planning attorney on the best way to do this. In some states, you’ll need at least two witnesses to be present when you sign and date the codicil. Remember that beneficiaries may not witness the codicil. Be careful to keep your will and the codicil in a safe place.

Why Change the Entire Will to Change Only the Executor’s Name?

The reasons for your changing your executor’s name may have occurred in combination with other changes in your life that warrant a review of your entire estate plan. This should be done every three or four years, or every time there are big life changes or big changes to tax laws. If you don’t review your estate plan, you can miss out on new opportunities to protect more of your estate for your family.

What If I Don’t Name an Executor?

Not having an executor is similar to not having a will. If you do not have either, the court will assign an executor to be in charge of distributing your estate, according to the laws of your state. You may not like how the law distributes your assets, but you will have given up any control. It’s much better for all concerned for you to have a will and make certain to have an executor.

Reference: (Dec. 29, 2020) “How to Change the Executor of a Will”

Special Needs Plans Need Regular Reviews to Protect Loved Ones

Special needs planning is far more detailed than estate planning, although both require regular reviews and updates to be effective. For creating a wholly new plan or reviewing an older plan, one way to start is by writing a biography of a loved one with special needs, recommends the article “Special needs plan should be carefully considered” from The News-Enterprise.

Write down the person’s name, birth date and their age at the time of writing. Include information about favorite activities, closest friends and favorite places. Consider all of the things they like and dislike. Make detailed notes about relationships with family members, including any household pets. Think of it as creating a guide to your loved one for someone who has never met them. This guide will be useful in mapping out a plan that will best suit their needs.

Follow this by writing down what you envision for their future, in three distinct scenarios. A good future, where you are able to care for them, a not-so-great future where they are alive and well, but you are not present in their life and a bad future. You should be as specific as possible. This exercise will provide you with a clear sense of what pitfalls may occur, so you and your estate planning attorney can plan better.

Your plan needs to consider who will become the person’s guardian. You’ll need to list more than one person and put their names in order of preference. Consider the possibility that the first person may not wish to or be able to serve as a guardian and have second and third guardians. Talk to each person to be sure they are willing and able to take on this responsibility.

Next, consider living arrangements. Will your loved one be able to live independently, with regular check ins? Could they live in an accessory apartment with a guardian close at hand? Or would they need to live in a group care facility with an on-site social worker?

A special needs plan usually includes a Special Needs Trust (SNT), with comprehensive details for the trustee. Just as you need multiple guardians, you should also name several trustees. The guardian is responsible for a person and the trustee is responsible for the property.

The question is raised whether a family member or a professional should be the trustee. Having a family member manage the finances is not always the best idea. A professional fiduciary will be able to manage the funds without the emotional ties that could cloud their ability to make good decisions. This is especially important, if the beneficiary has a drug dependency problem, does not have a strong family network or if the estate is large.

Consideration should also be given to having the trustee check in on the beneficiary on a regular basis to ensure that the beneficiary’s needs are being met. The trustee should have permission to make decisions about the use of the trust funds in special circumstances. The trustee will need to be someone who is skilled with managing money and is well-organized and responsible. Special needs planning is complex, but careful planning will give you the peace of mind of knowing that your loved one will be cared for by people you choose and trust.

Contact an experienced estate planning attorney to help you establish a special needs trust.

Reference: The News Enterprise (Oct. 13, 2020) “Special needs plan should be carefully considered”


What are the Responsibilities of a Trustee?

Before accepting the role of a trustee, it is important to have a thorough understanding of what you will need to do and for how long. Trustees are often appointed to manage trust assets for a child or adult with special needs. This responsibility could be for a lifetime, so be sure that you are up for the task. Trustee duties are outlined in a recent article, “Trustee responsibilities,” from


1–Locating and reviewing all of the documents of the grantor, especially any funeral and burial instructions. Contacting his or her estate planning attorney.


3–Unless the executor is taking care of this task, the trustee needs to obtain multiple originals of the death certificate. These are usually ordered by the funeral director.



6–Pay outstanding bills and debts. The trustee may be personally liable, if this is not handled correctly.


8–File claims for life insurance, IRAs and annuities.




Reference: (Oct. 19, 2020) “Trustee responsibilities”