Wills

Wills are the most common way for people to state their preferences about how their real and personal property should be handled after their deaths. Many people use their wills to express their feelings and sentiments toward their loved ones. A well-written Will eases the transition for survivors by transferring property quickly and avoiding many tax burdens. Despite these advantages, many estimates figure that at least seventy percent of Americans do not have valid wills. While it is difficult to contemplate mortality, many people find that great peace of mind results from putting their affairs in order. If there is no will the surrogate can still provide for distribution of the estate under state laws of distribution.

Wills vary from extremely simple single-page documents to elaborate volumes, depending on the estate size and preferences of the person making the will (the "testator"). Wills describe the estate, the people who will receive specific property (the "devisees"), and even special instructions about care of minor children, gifts to charity, and formation of posthumous trusts. Many people choose to disinherit people who might usually be expected to receive property. For all these examples, the testator must follow the legal rules for wills in order to make the document effective.

If a person dies without a valid will and did not make alternative arrangements to distribute property, survivors may face a complicated, time-consuming, and expensive legal process. Dying without a will leaves an estate "intestate," and a probate court must appoint an Administrator to split up the estate as provided for under the laws of distribution. The Administrator pays any unpaid debts and death expenses first, then follows the legal guidelines. The rules vary depending on whether the deceased was married and had children, and whether the spouse and children are alive. If the intestate individual has no surviving spouse, children, or grandchildren, the estate is divided between various other relatives. Therefore, intestacy may mean that people who would never have been chosen to receive property will in fact be entitled to a portion of the estate. Additionally, state intestacy laws only recognize relatives, so close friends, significant others, life partners, or charities that the deceased favored do not receive anything. If no relatives are found, the estate typically goes to the state or local government. Intestacy also poses a heavy tax burden on estate assets. When made aware of the consequences of intestacy, most people prefer to leave instructions rather than subject their survivors and property to government-mandated division.

Elder Law

The three major categories that make up elder law are:

- Estate planning and administration, including tax questions.
Estate planning, is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. The various goals of estate planning include making sure the greatest amount of the estate passes to the estate owner's intended beneficiaries, often including paying the least amount of taxes and avoiding or minimizing probate court involvement. Additional goals typically include providing for and designating guardians for minor children and planning for incapacity.

- Medicaid, long-term disability, and other long-term care issues.
Medicaid is the US health insurance program for individuals and families with low incomes and resources. It is jointly funded by the states and federal government, and is managed by the states. Among the groups of people served by Medicaid are eligible low-income parents, children, seniors, and people with disabilities. Medicaid is the largest source of funding for medical and health-related services for people with limited income.

- Proper planning could provide for guardianship, conservatorship and commitment matters, including fiduciary administration.
A legal guardian is a person who has the legal authority (and the corresponding duty) to care for the personal and property interests of another person, called a ward. Usually, a person has the status of guardian because the ward is incapable of caring for his or her own interests due to infancy, incapacity, or disability.

Other issues found under the umbrella of elder law include such areas as estate planning; wills; trusts; guardianships; protection against elder abuse, neglect, and fraud; end-of-life planning; all levels of disability and medical care; retirement planning; Social Security benefits; Medicare and Medicaid coverage; Medicaid planning (United States); consumer protection; nursing homes and in-home care; powers of attorney; physicians' or medical care directives, declarations and powers of attorney; landlord/tenant needs; real estate and mortgage assistance; various levels of advice, counseling and advocacy of rights; tax issues; and discrimination.

Supplemental Needs Trusts

A Supplemental Needs Trusts, also called a special needs trust is a trust which is designed to provide benefits to, and protect the assets of, physically disabled or mentally disabled persons and still allow such persons to be qualified for and receive governmental health care benefits, especially long-term nursing care benefits, under the Medicaid welfare program. Supplemental or Special Needs Trusts are frequently used to receive an inheritance or personal injury litigation proceeds on behalf of a disabled person in order to allow the person to qualify for Medicaid benefits.

Medicaid is the Federal program administered by the states which provides health care for the poor. Federal law establishes certain mandatory requirements which each state must adopt in its local Medicaid program, and the states are also given options to elect certain other components in the health care plan which they may decide to provide. Accordingly, Medicaid does vary from state to state in certain aspects, but there are also mandatory Federal law provisions.

One significant governmental benefit which is available only through Medicaid is long-term nursing care which includes care for the physically disabled and the mentally disabled. Long-term nursing care can be extremely expensive. Medicaid is a welfare program. To qualify for Medicaid and its long-term nursing care benefits, the applicant must be “poor” and there is a limit to the countable assets which he or she can own. To qualify for Medicaid, the applicant must meet the asset guidelines for Supplemental Security Income (“SSI”). SSI allows a single applicant to own no more than $2,000 in countable assets and a married applicant to own no more than $3,000 in countable assets. Certain assets are specifically exempted and are not countable.

Living Trusts

A living trust (inter vivos trust) is a trust created during a person's lifetime. Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during life. A trust manages the distribution of a person's property by transferring its benefits and obligations to different people. There are many reasons to create a trust, making this property distribution technique a popular choice for many people when creating an estate plan.

The basics of trust creation are fairly simple. To create a trust, the property owner (called the "trustor," "grantor," or "settlor") transfers legal ownership to a person or institution (called the "trustee") to manage that property for the benefit of another person (called the "beneficiary"). The trustee often receives compensation for his or her management role. Trusts create a "fiduciary" relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If a trustee does not live up to this duty, then the trustee is legally accountable to the beneficiary for any damage to his or her interests. The grantor may act as the trustee himself or herself, and retain ownership instead of transferring the property, but he or she still must act in a fiduciary capacity. A grantor may also name himself or herself as one of the beneficiaries of the trust. In any trust arrangement, however, the trust cannot become effective until the grantor transfers the property to the trustee.

Irrevocable Trust

An irrevocable trust is an arrangement in which the grantor departs with ownership and control of property. Usually this involves a gift of the property to the trust. The trust then stands as a separate taxable entity and pays tax on its accumulated income. Trusts typically receive a deduction for income that is distributed on a current basis. Because the grantor must permanently depart with the ownership and control of the property being transferred to an irrevocable trust, such a device has limited appeal to most taxpayers.

Irrevocable trusts, however, are useful in life insurance planning. For instance, a properly structured irrevocable life insurance trust can avoid probate costs and fees, and estate taxes on the insurance proceeds paid to the trust upon the grantor's death. Irrevocable trusts are also useful in providing children, especially those over age 14, with a fund for education or other specific planning purposes. Again, the trust is usually funded with "after-tax" dollars through a gift. The annual gift tax exclusion (an exclusion for gifts of $10,000 or less per year per donee) does not apply to gifts of a future interest (such as a gift to a trust), so the so-called "Crummy" trust provisions must be properly applied to make the gift a "present" interest. Drafting such clauses requires expertise.

A grantor's use of irrevocable trusts to avoid taxation of income, and to provide for accumulation of income to provide for beneficiaries at a later date, has been limited under the current tax system. The Revenue Reconciliation Act (RRA) of 1993 has made trusts subject to faster tax rate escalation than individual taxpayers. For example, trusts are taxed at 39.6 percent on taxable income in excess of $7,650. For filers of joint returns, the 39.6 percent rate does not begin until taxable income is $256,500.

Ironically, the impact of RRA changes will not severely impact trusts whose grantors or beneficiaries are already in the 39.6 percent bracket; they will affect the smaller estates of middle and upper-middle income taxpayers, whose grantors and beneficiaries are in lower tax brackets.

To avoid being taxed at the higher rates, trust income can be reduced by increasing distributions to beneficiaries, reducing the amount of taxable income produced by the trust assets, or having the trust invest in assets that produce capital gain (maximum tax rate is only 28 percent) rather than ordinary income.

Since a trust is taxed as a separate entity on accumulated income, it is sometimes desirable to create as many trusts as possible for purposes of accumulating income at the lower tax brackets. However, two or more trusts will be treated as one trust if the trusts have substantially the same grantor and primary beneficiaries, and federal tax avoidance is the principal purpose of the trusts.

Although limited in recent years, income splitting among family members through family trust arrangements remains a valid way of reducing overall family income tax. Although an assignment of income from one family member to another is not sufficient, an outright transfer of income-producing property can achieve income splitting. If the family member to be benefited lacks the ability to manage the assets, you can use a trust. If the beneficiary is a minor, you may consider the creation of a custodial account under the applicable state's Gifts to Minors Act or the Uniform Transfers to Minors Act.

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