Estate Tax is Gone; Long Live the Estate Tax

If estate tax is gone, why do I need a trust?

For 2018, an individual gets about $11.18 million of estate tax exemption.  This means that if you passed in 2018, the first $11.18 million would not be taxed.  A couple could possible double that to $22.36 million.  The exemption also includes lifetime gifts made.

BUT, that doesn’t mean the exemption is going to stay that large.  Congress is constantly changing the exemption.

You should always consider estate tax as part of your planning, even if it doesn’t apply to you today.  Congress could change the exemption back to $300,000 tomorrow if they want to.

Trust planning should always be considered, even if you consider your estate simple, not just for tax planning.

You have beneficiaries on all your accounts, your house is in both names…

Why else do I need a Trust?

1. You have children
   1. Under 18; or
   2. Who are poor money managers; or
   3. In a rocky marriage; or
   4. With credit issues; or
   5. With special needs; or
   6. Receiving government benefits
2. You want to keep control over the money for a long time or put conditions on its distribution
3. You want your assets to be managed well even if you are incapacitated
4. Medicaid planning
5. The 3,2,1 problem
6. Incapacity planning
7. Prevent Probate
   1. Keep your private affairs private
   2. Save on lawyer’s fees
   3. Keep your family out of court
   4. Speedy transfer
8. Every plan should have a backup and a Trust is an excellent backup

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Start Planning to Stop Worrying

Worry is bad for your health!  Planning can go a long way towards reducing the worry in your life.  Make that nagging voice in the back of your mind go away and get a good night’s sleep again.  Read on to see how planning reduces stress and worry.

Amy and Joe were worried about the future of their children and who would raise them; their money; and their healthcare management.  After meeting with their planning attorney, they knew what they needed to get done.  They started planning to stop their worries.  Once their plan was in place and fully funded, they found a new sense of relief.

Minor Children

Never worry again about who will raise minor children.  Name their guardian in you Last Will and Testament so that the Judge knows who you want.  Don’t leave it to the whim of the courts and the bickering of your family.  In the worst case, they could end up in the foster care system.

Life Support

Don’t fret about being hooked up to machines for a long time. With a Living Will (Advance Directive) you don’t have to worry about it.  You have left instructions.

Healthcare

Concern about your healthcare decisions will melt away when you have a Durable Power of Attorney for Healthcare and Medical Information Waiver (HIPAA Waiver).  Medical decisions will be made in advance and any that aren’t will be in the hands of somebody you know and trust.  With the HIPAA Release, you’ll be certain that trusted loved ones will be able to get information on your medical condition.

Assets

Finally, any doubts about the management of your assets will melt away.  With your Durable Power of Attorney and Revocable Living Trust in place you know your assets will never get frozen.  Your bills will always be paid.  And, you won’t have to worry about Probate, incapacity, care of your minor or special needs children, asset administration, and much more.

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Who Raises Your Children if You Can’t?

If both parents should perish, then who raises your children can be a dicey situation.

Some people believe that the God parents get automatic legal guardianship of your children.  But, that isn’t the case in Arkansas.

The best way to create the most stable environment possible is to leave instructions as to who you want to have guardianship (raise your children) in your Last Will and Testament (Will).  This is the usual place to leave your nomination.

However, a court gets the last say in the matter.  They are there as a safety net in case your choice is not longer a good choice.  What if they started drinking?  Their marriage fell apart? Or worse, what if they have perished as well?

If no nominations were made, then somebody will have to step up and go to court to seek a guardianship.  A Judge will get the complete choice.

If nobody steps forward, your children could be wards of the state.  That is they enter the foster care system until they turn 18.

And, without a plan, the Judge will decide how their money is managed.  But one thing is almost certain, they will get all of it when they turn 18.

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The 3-2-1 Problem

Setting up beneficiaries is a great way to avoid probate for many assets like life insurance, annuities, and retirement plans.

BUT, there is a serious problem that can happen.

Case 1:  The owner of the assets develops dementia and can’t change the beneficiaries anymore.  The secondary beneficiary passes first.  Then the primary beneficiary passes.  This can leave the asset exposed to probate.

Case 2: The owner, primary, and secondary beneficiary are in a care accident.  Think of the case where the son is taking mom and dad to the doctor for an appointment.  The secondary beneficiary (son) perishes immediately.  A few days later, the primary beneficiary (mom) perishes.  Then a few days later, the owner perishes.  Again, this leaves the assets exposed to probate.

The best way to beat this is to have a Revocable Living Trust as the last beneficiary in the chain, as a catch-all or safety net.  The Revocable Living Trust will have instructions in it to handle this case and keep the money out of probate and in the family.

PS:  I call it the 3-2-1 problem because there were 3, then 2, then 1…

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Will Law in Arkansas

Will Law

Will law is an ancient area of law, going back to biblical times.  Wills and will law from the Greek period forward is common.  It can be straightforward, or complicated depending on the circumstances.

A Last Will and Testament is a legally binding document that says how a person (the testator) wants their belongings divided up after they pass.  In reality, it is a list of gifts to be given out under the direction of the court (probate). A Will may also name guardians for your children, decide how debts are to be paid, and serve as a backup to a living trust.

Under Arkansas will law, a testator must be 18 years old, know what they have, and who they want it to go to.  Wills that are typed must have two witnesses.  Writing after the signatures is usually ignored.

The witnesses may sign an affidavit for facts they would typically be required to testify to in order to validate the Will.

Arkansas does allow hand written (holographic) wills.  But, a holographic will must have 3 disinterested witnesses.  A holographic will must be completely in the handwriting of the testator. A disinterested witness is one who will not inherit under the will and is not related to the testator.

Arkansas will law does not allow oral wills.

An Arkansas Will is revoked by subsequent Wills that revoke prior Wills, burning, tearing, cancellation, obliteration, or destruction with the intent of revocation.  No revoked Will may be revived other than by executing the Will again.

If you don’t have a Will, the Arkansas Legislature has already decided who gets your stuff and how much they get.  The courts and heirs will control how long it takes.

NOTE:  State laws are always subject to change at any time.  Usually changes are through the legislature enacting new laws.  But, sometimes the courts will modify or interpret the laws through other means.

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What Kinds of Special Needs Trust?

A Special Needs Trust is a trust established to supplement government benefits.

Special needs trusts have four major types.

As with any special needs trust, these supplement federal aid and a special needs trust cannot pay for items that the aid is paying for.

Summary of Special Needs Trust

2 special needs trusts are directly authorized by federal law, 1 is allowed, and 1 is implicitly allowed.

The two directly allowed by federal law are authorized in § 1396p(d)(4)(A) and § 1396p(d)(4)(C).  These are sometimes talked about using just the last 4 letters: the (d)(4)(A) trust and the (d)(4)(C) trust (d4a and d4c).

Both the (d)(4)(A) trust and the (d)(4)(C) trust have a Medicaid payback provision.

(d)(4)(A) Trust

A (d)(4)(A) trust is a trust established with a person’s own money.  Until December of 2017, a person could not establish this type of trust themselves.  Other than the person, a guardians, judge, parent, or grandparent may establish this trust.  The other require is that the person is under 65 years old.

(d)(4)(A) in summary:

• Person is under 65 years old
• Established by the person, parent, grandparent, legal guardian, or judge (under judicial order)
• Medicaid payback provision
• Only the persons money allowed in the trust

(d)(4)(C) Trust

A (d)(4)(C) trust is a “pooled” trust.  A pool of many different people’s money is held in trust.  This type of trust doesn’t have the age restriction of the (d)(4)(A) trust.  But, it must still be established by a parent, grandparent, legal guardian, judge, or the individual.

While this is a pool of money, the individual’s money is used for and available only to the individual.

(d)(4)(C) in summary:

• No age restrictions
• Can be established by the individual, parent, grandparent, legal guardian, or judge
• Medicaid payback
• Managed by a non-profit trustee
• Unlimited funding allowed

Third Party Trust

Third party supplemental needs trusts are not explicitly allowed under federal law, but implicitly allowed.

The third-party trust is established with funds that do not belong to the individiaul.

With the third-party trust, people other than the individual contribute, the money never legally belongs to the individual, the money can be used for their benefit, then the money goes where you decide.

Anybody can contribute to the trust, in any amount.  The trust can contain any amount of money or property.

Again, the money is used to supplement government benefits, not replace them.\

• Contains assets only
• Is established by anyone other than the individual
• No age restrictions
• Unlimited assets allowed
• When the individual passes, the funds are distributed in full without Medicaid payback
• No Medicaid payback

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Do You Need a Will or a Trust?

Do You Need a Will or a Trust?

1. Do you have children under 18?
2. Do you have children with special needs?
3. Are you leaving money to anybody under 18 or with special needs?
4. Do your children have problems managing money?
5. Are you children young, but over 18? (young people tend to spend rapidly…)
6. Do you want to just about guarantee no probate?
7. Do you want somebody you trust to manage your money if you can’t?
8. Is your estate going to be subject to estate taxes?
9. Do you have more than simple instructions for your assets?
10. Do you want to minimize fees and costs?
11. Do you have a blended family?

If you answered yes to any of these questions, you most likely need a trust…

Otherwise, we can probably use other techniques to pass your assets without probate.

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