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By Editor, November 10, 2010

A special needs trust is designed to benefit an individual who has a disability by enabling them to have an unlimited amount of assets, while preserving governmental benefits, and protecting resources.

This type of trust is an important tool to set up early, even if you don’t have assets to fund the trust now or don’t think you will need governmental benefits.

Why a special needs trust?

To preserve

Disabled individuals of any age who qualify or may qualify in the future for Medicaid and SSI benefits could benefit from a special needs trust.  If you have a loved one who has a disability and you are providing all of their support now, the need for governmental support may not arise until after your death.

For purposes of qualifying for certain governmental benefits available to physically or mentally disabled individuals, a person cannot have personal assets greater than $2,000. If a qualifying individual were to receive third party funds, such as a bequest from a relative or life insurance proceeds, these monies could disqualify the recipient from their benefits.  A special needs trust is set up to provide supplemental care over and above what the government provides and is authorized to hold non-countable assets; thus, providing the disabled individual with a means to receive unlimited amounts of assets, while preserving their benefits.

To enable

A special needs trust is not only meant to maintain benefits eligibility, but to also enable the individual to enjoy new experiences, provide opportunities for a fulfilled and happy life, and to enhance their quality of life.  A special needs trust can act on a sliding scale, providing for needs where governmental benefits don’t and can be used to fund additional services such as recreational and vocational activities, hobbies, travel, communication equipment, a pet or service animal, or domestic and personal assistants.

To protect

Even if qualifying for governmental benefits is not a concern for your disabled loved one, a special needs trust can provide protection of funds, which are not subject to creditors or seizure if your beneficiary should ever be sued.  Spendthrift trusts or family trusts are not appropriate for disabled beneficiaries because they do not address the specific “special needs” of the individual or their future lifestyle. 

Similarly, a special needs trust guarantees that the funds will be held and used only for the benefit of the special needs beneficiary.  If funds were left outright to a sibling or guardian to be used to take care of the individual, the assets are again at risk in the event the non-disabled fund holders become subject to liabilities or judgments such as automobile accidents, bankruptcy or divorce.  Also, proper use of the funds would be difficult to ensure and legal action is challenging with an informal relationship; whereas, trustees are legally obligated to follow the terms of the trust document and action cannot be taken against them as can be a trustee.

Who can set up a special needs trust?

Anyone can set up a special needs trust for the benefit of a disabled individual; they do not have to be a relative. Likewise, anyone can contribute to a special needs trust and there is no limit to the number of trusts that can be created for a beneficiary.

How should the trust be funded?

A special needs trust is a legal, “stand alone” document that will be signed and notarized.  Once you receive a tax ID number for trust, you can open a bank account with a minimal deposit.  Additional property can be put into the trust will you are alive, or can be funded at your death through a will, living trust or beneficiary designation.

Most commonly, a special needs trust is funded with a second-to-die life insurance policy, but it can hold virtually any type of property, including stocks, real estate, collectibles, or a business interest.  The primary purpose of the trust is to supplement the beneficiary’s governmental benefits, so funding the trust with liquid assets makes the most sence.  However, the trustee typically has the authority to sell property in the trust to raise cash.

Please contact us for more information on special needs trusts.

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By Editor, November 5, 2010

At some point, every owner exits his business and, in many cases, the business represents a significant portion of the family wealth.  While most business owners recognize the importance of an exit strategy, few actually have a plan in place.  The longer an owner has to implement a plan, the greater the opportunity to maximize the value of the business, minimize taxes and achieve estate planning goals.

Exit planning should be viewed as a process rather than a one-time event.  Though there are many key steps involved in developing a plan, the following exercise will help you initiate the process:

Determine your exit objectives

Many times, an owner does not address their objectives until they are ready to exit the business.  They generally have an idea of the value they want from their business, but don’t necessarily know if this will meet their needs in retirement.  Identifying your objectives early on will allow plenty of time to provide for your objectives.  Objectives will include:

• A retirement timetable – when do you want to retire?
• Income needs during retirement – what is the annual after-tax amount you will need to pay for a lifestyle you are comfortable with?
• To whom would you like to transfer your business? – a family member, co-owner, key-employee, or outside party.
• Additional objectives might include creating a legacy, rewarding employees, providing charitable gifts, shifting wealth to children, or receiving desired value for your business.

Common misstep: Stopping the process of exit planning with a buy-sell agreement, and not taking into consideration other long term goals and objectives.

Determine your business and personal resources

Once you know your objectives, it is important to measure your resources.  Perhaps you have a retirement plan or other personal assets that will provide for some of your income needs in retirement. Determining resources will include:

• What is your business actually worth?
• What are the key drivers of your business’s value?
• What personal resources are available?
• How will the taxes consequences affect your resources?

Common misstep: Overestimating the value of the business and not giving enough time or planning to achieve value needed.

By analyzing your objectives (what you want) versus your resources (what you have), a gap between the two is now more apparent.  The next step will be to develop a plan that will intersect your wants and needs.  All exit planning strategies will begin with these two steps, the answers to which will establish a foundation for timing of the plan, involvement of other advisors, estate planning, business continuity and protecting the value of your business.

Please contact us if we can help you get started in this process.

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By Editor, August 3, 2010

As your parents age, pay close attention to their mental health, as well as their physical health. Advanced age or illness can impair their intellectual ability to manage day-to-day activities, making the need for an incapacity determination a possibility.

The issue of incapacity can bring about gut-wrenching decisions that are worthy of some advanced planning and thought.

If you observe a parent’s declining mental condition, you may have to make the difficult decision to have him declared incompetent. A guardian or conservator will then be appointed by a judge to manage his affairs.

What is “capacity?”

“Capacity,” generally means the mental ability to adequately function and live in the manner to which one is accustomed, but the legal definition can vary from state to state. If a person is unable to adequately care for their own health or financial needs, an adjudication process to determine their competency may be necessary.

What is a guardian or conservator?

If incapacity has been determined by a judge and a guardian or conservator has been appointed, the guardianship or conservatorship will specify the extent of duties.  They may be responsible for managing all aspects of your parent’s life or a narrower scope, such as financial matters.  They will owe a duty of care to your parents and will be held accountable by the court to demonstrate appropriate actions. The guardian or conservator is often a child or adult grandchild, but doesn’t have to be a family member.

Asking for assistance

Ideally, an elderly parent knows he needs assistance and asks for help.  In this circumstance, the expense and emotional charge of a guardianship proceeding can be avoided. There are various ways to assist your parents, such as:

Power of attorney

Your parents may still be legally competent to make decisions, but consent to give you or another trusted individual the legal right to act on his behalf for financial and health care matters.  This is similar to a guardianship or conservatorship.

Paying bills

If you are unable to write checks and pay your parent’s bills, you can hire a professional firm to provide the service.  Delegating the work could free up time and energy for you to focus on other things, while still maintaining a sense of control.

If you face decisions involving the capacity of your parents, understanding the roles of a guardian or conservator makes it somewhat easier.  Advance communication with your parents and family members is also key.

Contact Wilson Price Family Office  for more information about how to plan for a parent’s incapacity, guardianship or conservatorship.

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By Editor, August 3, 2010

You can typically name beneficiaries for a variety of assets, including retirement plans, annuities and life insurance policies.  But naming a beneficiary is not as simple as putting a name on a form; it should involve careful consideration, as the repercussions for your loved ones could be significant.

Out-of-date

If you haven’t reviewed your beneficiary designations recently, it’s possible the designations are no longer appropriate.  Review your designations on a regular basis, ideally annually, and when major life events occur, such as marriage, divorce, birth or death.  The assets are passed outside of legal proceedings and the designation is absolutely binding.  The assignment of assets cannot be superseded, not even by a Will. 

Be Specific

Most beneficiary designation forms allow you to name more than one primary and contingent beneficiary with specified percentage of assets.  Be specific and name each versus naming one trusted relative or friend to distribute the assets for you.  If no beneficiary is named, the assets will be distributed through the probate process, which in the case of a retirement plan, can create adverse tax consequences.

Tax Consequences

With life insurance, the goal is to keep the proceeds out of your estate.  If your spouse doesn’t need the money after you are gone, policies (existing or new) can be structured in various ways to keep life insurance from increasing the value of your estate.  This will be even more apparent next year if the estate tax exemption falls to $1 million.  Life insurance may play a major role in creating taxable estates for those who wouldn’t normally have the issue. This estate tax issue can be avoided in many cases if structured properly. 

Regardless of the beneficiary designation, retirement plans, however, will be includable in the value of the estate.  It is important, though, to make sure the designation is not left blank or that “the estate” is not named as the beneficiary.  In these cases, the retirement assets must be distributed within 5 years or at least as fast as the decedent was receiving required minimum distributions (RMDs), thus triggering a quicker income taxability of the assets in addition to the estate taxability. If your family does not need the funds for living expenses, the goal here is to defer distributions as long as possible, “stretching” the assets over longer life expectancies.  This can be accomplished by naming an individual as beneficiary.

Other considerations

To avoid taxable distributions altogether, you could donate your retirement plan to a charity if other assets are available to provide for your family.  Not only will the organization receive the assets tax-free, but your estate will also be eligible for a charitable deduction.

You can name almost anyone as your beneficiary, including individuals, charities and trusts, but minor children, however, cannot be named beneficiaries of life insurance policies, retirement plans or annuities. Additionally, if you are considering designating a special-needs person as your beneficiary, it may hinder the individual’s eligibility for government provided benefits.

There are various ways to still provide for those you want to benefit after you are gone, but with careful planning with an accredited estate planner.

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By Editor, October 31, 2009

Brian Harrison, CPA is a Principal with Warren Averett Wilson Price and has more than 10 years of experience in public accounting. His areas of specialization include estate and trust tax planning, as well as individual and corporate tax planning. Brian is a member of the Montgomery Estate Planning Council, the American Institute of CPAs and the Alabama Society of CPAs. He is also an active member of the Kiwanis Club of Montgomery, serves on the board of Sav-A-Life of Montgomery and has served as a Steering Committee Member of the Tukabatchee Area Boy Scout’s Tenderfoot Fundraising Campaign for 3 years.

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Phone: (334) 260-2301

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By Editor, October 30, 2009

Jennifer Burton is an accountant with Warren Averett Wilson Price and has more than 10 years of experience in the Estate and Trust department with fiduciary accounting and taxation, estate and gift planning and taxation, individual income tax planning and preparation.  She is active in her community in Tallapoosa County and serves as Chairperson of the Finance Committee for New Prospect United Methodist Church.

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Phone: 334-260-2396