Sumner PC & Associates
Experienced Trust Lawyers in Michigan
While no one likes to consider their mortality, advanced planning with a Michigan estate and wills attorney will help your family during a difficult time. Estate planning lets you protect your loved ones, control the distribution of your assets, and direct your end of life care. At Sumner & Associates, P.C., we empower our clients through comprehensive estate planning services. We also help their families administer their wills and trusts.
Preparing Your Future With Trusts
If you have questions about establishing a trust or any estate-related legality, contact our estate planning attorneys at Sumner & Associates, P.C. today. Our dedicated team will work with you to protect your interests and meet your long-term goals. Our firm has over 50 years of combined legal experience in the Michigan area, and are ready to help you protect your property and family next.
Living trusts are estate planning tools that allow you to set aside property or assets for specific purposes. These include:
- Revocable Living Trusts. Revocable living trusts allow you to set aside property or assets. They are essentially legal “containers” for assets. You can set aside money, real estate, investments, businesses, and more. Some folks even use trusts to set aside financial support for a beloved pet. While you’re alive, you have total control over the trust, hence the term “revocable”. Once you pass, the trust becomes irrevocable, and its assets are transferred according to your wishes. Trusts have several advantages over wills when transferring assets.
- Irrevocable Living Trusts. Irrevocable living trusts are not under the direct control of the grantor at the time they are constructed. Assets held in an irrevocable living trust are thus not considered part of your estate. This provides certain tax advantages. An estate planning attorney can tell you more about irrevocable living trusts.
- Special Needs Trusts. Those with lifelong illnesses or disabilities generally require the financial support of their family. Concerned family members can gift money and assets to those with disabilities but have to be aware that those who get social security and public benefits cannot directly possess the money without disqualifying them from receiving public benefits. A special needs trust provides a way that the assets can be held by the individual without threatening their Social Security payments.
Why is Having a Will Important?
If you don’t leave a will, your assets, property, and belongings will be distributed by what is known as intestate succession, an algorithm that allots a specific percentage of your assets to specific relatives with your spouse at the top of your list and your children next in line. A legal will gives you more control over how your assets are distributed when you pass. But in order to be valid, the will needs two witnesses to sign off on it. It can also be contested if one of your heirs isn’t happy with the results. When you have an estate planning lawyer draft your will, you can be assured that it is ironclad.
Probate & Guardianships
When your assets pass through probate, the transfers are all a matter of public record. Additionally, the process can be costly and time-consuming. Your creditors get the first crack at liquidating your assets to settle outstanding debts, and your heirs come second. Your tax liability, privacy, and wishes can be protected by looking into living trusts to distribute valuable assets. While some assets, like real estate, cannot avoid public records, there are a number of benefits that trusts provide.
If you become incapacitated and can no longer take care of your own needs, you can assign a guardian who will see to your needs. Typically, this is a spouse or a trusted sibling. The guardian has decision-making power over their ward’s day-to-day needs and finances. If you don’t name a guardian, another person can petition the court for guardianship. The guardian has considerable power over their ward, so this selection must be made carefully. For instance, those with severe dementia would be candidates to have a guardian watching over them.
Trust Administration & Types of Trusts
“Trust Administration” generally refers to the process of carrying out the terms of a written trust document. If you set up a trust during your lifetime (i.e., a so-called Living Trust), the trust administration process begins as soon as you sign your trust. If you set up a trust within your will (i.e., a so-called Testamentary Trust), the trust administration process begins immediately after your death. The trustee is responsible for properly administering your trust.
What Is a Living Trust?
Essentially, living trusts serve as containers for property. There are two different kinds:
These trusts can serve the same sort of purposes but operate according to different rules.
The Difference Between Revocable and Irrevocable Living Trusts
In the simplest possible terms, an irrevocable living trust cannot be modified while a revocable trust can. To modify an irrevocable trust you need the permission of the beneficiary, not the trustee or the individual who set up the trust (the grantor). Revocable living trusts can be modified by the grantor at any time.
Irrevocable trusts cannot be modified, but they do come with certain advantages that are trade-offs for that restriction. One of the largest advantages is that once in an irrevocable trust, the assets are no longer in your name or part of your estate. This is not true of revocable living trusts. In other words, creditors or those who have secured a judgment against you in a lawsuit can come after those assets as part of the settlement. These assets wouldn’t be touchable in this case. They can also be used to move assets out of state.
In cases where you’ve assigned a beneficiary for the purposes of estate planning, the assets would not be taxed as part of your income. They would, however, be taxed on their way out of the trust when the assets are disbursed to the trust’s beneficiary. Additionally, since assets in a revocable living trust are considered part of the grantor’s estate, those assets are considered for the purposes of levying the estate tax. In cases where an estate is close to the estate tax threshold, assets held in a revocable trust might push them over the limit.
However, this is not true of an irrevocable living trust. Since the assets held in the trust are not considered a part of the estate, they would not be considered as part of the estate for assessing the estate tax.
Revocable vs Irrevocable Living Trusts in Estate Planning
As we discussed earlier, irrevocable living trusts are useful because the assets held in that trust are not considered part of your overall estate and thus not subject to capital gains or estate tax. However, they cannot be modified by the grantor (who set up the trust) at any time until the lifetime of the trust has expired. While the lifetime of the trust need not be the grantor’s entire life, for estate planning purposes, it generally will be.
Meanwhile, revocable living trusts are useful insofar as they can avoid probate. For those without major tax issues, a revocable living trust is an excellent option. The trusts disburse assets held within the trust directly to heirs. While they are still exposed to creditors, it is much more difficult for a creditor to access funds disbursed by the trust and nearly impossible after those funds have been disbursed.
A creditor or the winner of a settlement in a lawsuit would be required to sue the trust directly which is more costly, more difficult, and requires better timing than the day after the grantor dies.
If, however, the deceased allows their property to pass through probate, the first thing that the probate court will do is contact all of the deceased’s creditors and ensure that their debts are settled before their heirs get a dime of inheritance. While paying off your debts is a virtue, you also want to ensure that your creditors don’t get first dibs on sentimental items and that your family members are cared for when you pass. Having a revocable living trust disburse important items give you more control over the situation than probate would allow.
One of the other major upsides of a revocable living trust is that it allows the trustee (who is usually an estate planning attorney) to take control of the trust if you become incapacitated. This establishes a clear transition of power over your assets and does so in a much more specific fashion than establishing a financial power of attorney.
Trust Administration During the Trust-Maker’s Life
Unlike a will, a trust should not be put in your safe-deposit box and forgotten. You should take time to learn how to properly maintain or administer your trust. If you do not properly administer your trust during your lifetime, your family will likely be confronted with a greater burden upon your death, and perhaps even financial harm.
Alternatively, you can have an attorney set up your trust for you and then transfer assets into the trust to be distributed to your heirs upon your passing.
Trust Administration After the Trust-Maker’s Death
Contrary to what many people think, even though probate might not be required because of the existence of a fully funded trust, that doesn’t mean that there are no steps required for proper trust administration after the trust-maker’s death. Indeed, as I point out in my published article in the Journal of Taxation of Investments, post-death trust administration is a lot like probate without court involvement.
Here are some of the steps involved in proper trust administration after the trust-maker’s death:
- securing the original trust document(s) and providing copies to the beneficiaries and other interested parties;
- gathering all of the trust-maker’s assets and properly investing the assets during the period of trust administration;
- determining whether a legal notice to potential, unknown creditors should be published in a newspaper;
- paying the final debts of the trust-maker;
- keeping beneficiaries informed as to the process of trust administration, including an estimated time period for completion of trust administration;
- obtaining a tax identification number for the trust;
- filing the trust-maker’s final personal income tax return (Form 1040) and a tax return for the trust (Form 1041);
- filing state and federal estate tax returns for the trust estate;
- preparing a complete trust inventory and accounting; and
- making distributions of trust assets pursuant to the distribution provisions of the trust, and obtaining signed and dated Receipts on Distribution from each beneficiary.
It is very important that a trust be properly administered. If a trust is not properly administered, the beneficiaries of the trust may be harmed. You should only work with an attorney who has a dedicated focus on trust administration.
Talk to a Trust Administration Lawyer Today
Trust administration is not a simple process and a poorly administered trust can result in serious consequences after you pass. These consequences can make it more difficult for your family members to inherit your assets according to your wishes and may void the trust entirely. The reliable trust administration attorneys at Sumner & Associates, P.C. will ensure that your trust is created properly and meets your individual estate planning needs. We will sit down and work out an estate plan that addresses your unique concerns and execute that plan in a manner that you can feel safe about. Contact us today.
Demystifying Special Needs Trusts in Michigan
If you have assets that you’d like to transfer to someone with an illness or disability who receives government benefits, you should consider a special needs trust. This can allow you to provide for your loved on and they will continue to receive benefits from the government or another organization that sets limits on their assets. For more information, contact a Rochester Hills MI special needs trusts lawyer at Sumner & Associates, P.C. today.
What Is a Special Needs Trust?
A special needs trust, otherwise known as a “supplemental needs trust,” is a legal instrument that is established for the benefit of a person who is receiving, or will be receiving, means-tested government benefits, such as SSI (Supplemental Security Income) and/or Medicaid (health care coverage for people with relatively little income and assets).
Although the people receiving the benefits of a special needs trust are often having some of their needs met by government programs, they often have additional needs. A special needs trust may be established to provide for those additional needs, such as medical and mobility equipment or vocational training. The trust may specifically state what it can be used for, or the trustee may determine how it is used. There are also limitations on special needs trusts funds established by Congress.
Who May Benefit From a Special Needs Trust?
Anyone with an illness or physical or mental disability who receives benefits from an organization that limits their assets can benefit from a special needs trust. Often, a child with special needs is the beneficiary of a special needs trust. A parent or other relative can set up a trust and name a trustee to dole out assets as needed. This allows the child to continue to receive benefits from the government while having other needs met by the trust.
Adults who have disabilities are often beneficiaries of special needs trusts as well. Adults who are on Medicaid, subsidized housing, Supplemental Security Income (SSI), and other programs, may not be able to receive this government assistance if they have more than a certain amount of assets. These programs monitor bank accounts and the values of houses and cars, prohibiting their beneficiaries from receiving significant amounts. However, a special needs trust can allow adults to continue receiving those benefits while still having access to trust assets.
Requirements of Special Needs Trusts
Because special needs trusts are set up to help people who are still obtaining government benefits, they have requirements established by Congress. The trust must be:
- An entity with its own Federal Identification Number (you cannot use your Social Security Number)
- Created to benefit someone under the age of 65
- For the benefit someone who is disabled according to Social Security standards
It is important to note that a person does not have to be receiving Social Security benefits, but they must be disabled according to Social Security standards. This can become a point of contention if the trust is challenged.
Example of the Use of Special Needs Trust
Let’s say that Grandma has a grandchild who was born with a disabling condition. Grandchild regularly needs expensive medical care. If Grandma’s will leaves money directly to Grandchild, Grandchild will have to use those inherited funds before being eligible for further government benefits. A good solution to this problem is for Grandma to have Grandchild’s inheritance paid into a Third-Party Special Needs Trust.
The trustee of the trust will be able to use trust monies to purchase goods and services (i.e., “supplemental needs”) for Grandchild that are not provided for through government benefits. As long as the trustee spends trust monies in an authorized fashion, Grandchild will continue to receive uninterrupted government benefits. Grandma can provide that if Grandchild does not survive the complete distribution of the Third-Party Special Needs Trust, the left-over cash and securities in the trust can be paid directly to other beneficiaries chosen by Grandma.
Another Example of the Use of a Special Needs Trust
Let’s say that Daughter receives government benefits, such as SSI and Medicaid. Mom dies with a Will that leaves monies directly to Daughter (i.e., not in a Third-Party Special Needs Trust). Daughter essentially has two choices. First, she can accept the inheritance and use it for any purpose, but if she does, her access to SSI and Medicaid will be restricted for a period of time. In other words, Daughter will be penalized for having received the inheritance and using it for any purpose she desired.
Second, the inheritance can be immediately deposited into a Self-Settled Special Needs Trust, otherwise known as a Supplemental Needs (d)(4)(A) Pay-Back Trust.
The Self-Settled Pay-Back Trust must provide that any monies left in the trust at the time of Daughter’s death shall be paid to the government to the extent of the value of the government benefits provided to Daughter during her lifetime.
While Daughter is living, the trustee may use trust monies to provide Daughter with goods and services (i.e., “supplemental needs”) that are not provided for through government benefits.
It is very important that only authorized expenditures are made from the Special Needs Trust; therefore, it is critical that you appoint a trustee who knows, or is capable of learning, the technical rules related to government benefits and Special Needs Trusts.
Important Rules That Must Be Adhered to During the Administration of Special Needs Trusts
It is very important that the rules regarding distributions from Special Needs Trusts are followed.
If the rules are not followed, you take the risk that Supplemental Security Income (SSI) and/or Medicaid benefits will be withheld for a period of time.
To ensure that benefits continue uninterrupted, it is very important that you follow the rules regarding distributions from the Special Needs Trust.
Generally, no trust monies should be distributed from the trustee directly to the beneficiary. When the trustee spends trust monies for the beneficiary’s supplemental needs, the trustee must make payment directly to the provider of the goods and services. For example, if trust monies are used to purchase a television for the beneficiary, the trustee must not give money to the beneficiary to make the purchase. Rather, the trustee must pay trust monies directly to the store.
Trust monies must only be used for “supplemental” needs. That is, monies shall only be used for goods and services not provided for through Supplemental Security Income (SSI) and/or Medicaid. Those programs are designed to provide for primary needs.
Special Needs Trust Monies
Special Needs Trust monies must only be used to satisfy supplemental needs. Following is a list of many, but not all, of the goods and services that typically may be purchased with Special Needs Trust monies:
- television set
- household furniture
- transportation expenses
- vehicle insurance
- exercise equipment
- trips and vacations
- eye glasses and contact lenses
- education expenses
- special dietary needs
- out-of-pocket medical and dental expenses
- life insurance premiums
- materials for hobbies
- tickets for events / movies
- musical instruments
- club memberships
- home improvements
- computer equipment
- conferences / seminars
- cable television
- telephone and radio
- entertainment and many, many more
Additional Information About Special Needs Trusts
Following are some links to websites that provide additional information regarding the use of Special Needs Trusts:
- National Alliance on Mental Illness: Special Needs Planning
- Estate Planning: What Parents of Children With Disabilities Should Know
- Illinois Yellow Pages for Kids With Disabilities
- Autism and PDD Network
Consult With Experienced Michigan Special Needs Trusts Lawyers Today
You may know that a trust is the best option for you, but you may be unsure of what kind you need. Our Michigan estate planning lawyers can evaluate your situation and help you set up a trust that works for you and your family. Call Sumner & Associates, P.C. for award winning treatment and care today.