Blogs from December, 2020

Who will make sure my Executor or Successor Trustee adheres to my final wishes? How can I be certain the instructions I leave behind can be enforced? There are at least 3 ways to make certain that your Executor/Successor Trustee does the right thing.

1. Have a clear plan in place

While there are many factors that can help, having a clearly written, comprehensive plan in place is paramount. An Executor of an estate or the Successor Trustee of a Living Trust has a fiduciary duty to carry out the terms of the plan they are given. To do that with ease, the plan must be clear, and it must address all things necessary. Ambiguity and lack of detail opens the door for confusion and misdirection once you have passed away. A clear and comprehensive plan is easy to execute and even easier to enforce. 

2. Choose the correct Executor/Successor Trustee

Choosing the correct Executor/Successor Trustee for is also important.

You can choose a loved one (family or friend) or go with a professional such as an attorney or bank department, or you can set up Co-Executors/Co-Successor Trustees. There are pros and cons to each option. Choosing a loved one is the most widely used option. It offers your survivors the comfort of having a familiar person complete your estate wrap up, and it costs your estate less money by avoiding professional fees. However, it does place a great deal of responsibility upon your Executor/Successor Trustee.

Choosing a professional Executor/Trustee can ensure fairness, objectivity, and a thorough understanding of what has to be done in order to carry out your wishes. This option is often utilized if there are hints of disagreement or in-fighting among beneficiaries. The con to this option is that it usually costs your estate additional professional fees.

Co-Executors/Co-Trustees operate like a check and balance system. This is an option that can be used to spread the workload between a couple of people and to ensure that a solo Executor/Successor is not stalling the wrap up of the estate. This option does not fit every situation and is usually used sparingly. 

3. Removal of Executor/Successor Trustee

What happens when an Executor/Trustee has strayed away from the clear plan you left behind? Usually, what we see are the beneficiaries not receiving what they are due or simply left wondering what is happening with the estate. The Texas Estates Code lays out the fiduciary duties for Executors/Trustees along with a path for removal. If necessary, we can request that a judge grant an order to remove/replace the Executor/Trustee who is failing to do the job correctly. Of course, this should be avoided, and it can be with proper planning.

With a clear and comprehensive plan in place that addresses each asset in your estate, your Executor/Trustee will know exactly how to carry out your wishes. It is important that you talk to your Executor/Successor Trustee about your assets and your intentions for your legacy. Communication and advanced planning will ensure your estate does not wind up needing the Court to enforce the terms of your plan. 

Planning to leave a legacy for a loved one with a disability demands careful detail. Not only do you want to include that loved one in the distribution of gifts from your estate, you also want to make sure that you continue to contribute to their quality of life even after you die. If a beneficiary is currently receiving, or there is a chance he or she will ever receive, public benefits based on their disability, it is imperative to plan in a special way guaranteeing you do not disqualify that beneficiary from receiving the public benefits they need to live.

ABLE Accounts (529A) and Special (Supplemental) Needs Trusts (SNT) are tools we use to plan for disabled beneficiaries. ABLE Accounts were created by federal legislation through the Achieving a Better Life Experience Act in 2014, and they can be used as an alternative to a Special Needs Trust in some situations. Special Needs Trusts are a type of an Irrevocable Living Trust used to hold assets for the benefit of a disabled loved one while still allowing them to qualify for public benefits.

ABLE Accounts and SNTs are both used to reach the same goal: providing for a disabled beneficiary, while still allowing them to qualify for public benefits. Both tools allow either the disabled beneficiary or a 3^rd party (parent, sibling, loved one) to contribute assets for the benefit of the beneficiary. The owner of an ABLE Account is always the Designated Beneficiary, no matter who is making the contributions to the Account. A Special Needs Trust is held in the name of the disabled beneficiary and the assets are used solely for that person’s benefit.

One major difference between these two tools is that an ABLE Account must be created before the beneficiary reaches 26 years of age. The beneficiary’s disability must be documented prior to this time as well. A Special Needs Trust can be created by the beneficiary or by a 3^rd party at any time during the life of the beneficiary.

ABLE Account contributions are capped currently at $15,000.00 per year in total contributions and cannot reach more than $500,000.00 in total value over the life of the account. The contributions are all made with “after-tax” dollars, and any interest gained is not taxed until the money is withdrawn from the account. A Special Needs Trust can hold any kind of asset. Real Estate or “pre-tax” retirement funds can be held in Special Needs Trust for a disabled beneficiary, and there is no cap to the value of the contributions to a Special Needs Trust.

While both tools allow assets to support a beneficiary while still permitting them to qualify for benefits such as Medicaid, the Special Needs Trust has more flexible options for the secondary beneficiary. An ABLE Account is subject to a “claw-back” or creditor claim from Medicaid after the disabled beneficiary dies. Any funds left in the ABLE Account when the beneficiary dies will likely all go to the State as reimbursement for the Medicaid expenses incurred over the lifetime of the disabled beneficiary. A Special Needs Trust still allows a beneficiary to qualify for Medicaid, but the 3^rd party making the contributions can designate an alternate beneficiary to receive the remainder of the assets when the disabled beneficiary dies. 

ABLE Accounts have little to no start up cost aside from the small initial contribution. They can be used in conjunction with a Special Needs Trust to easily allow cash contributions to be made by caring loved ones or the beneficiary themselves. The simplicity of the ABLE Account makes it a valuable tool in planning for disabled loved ones. 

When leaving varied types of assets, especially real estate or more complex investments, to a disabled beneficiary, the Special Needs Trust is needed to address all assets and who has the control over those assets. While ABLE Accounts have their place and can be useful, the Special Needs Trust is a more customizable and comprehensive planning tool. A Special Needs Trust should be set up by an experienced attorney and should plan, in detail, for each asset it will control. There is more cost involved with the setup of a Special Needs Trust, but as the saying goes…the juice is worth the squeeze. A Special Needs Trust offers increased flexibility and will certainly prove to be a blessing to your beneficiary in the future.

Do you have questions about ABLE Accounts or Special Needs Trusts? Contact us today.