ABLE accounts are a relatively new planning tool available to individuals with disabilities. The Achieving a Better Life Experience (ABLE) Act, signed by President Obama in 2014, allows individuals who meet certain criteria to open and hold assets in an account that will not be counted as a resource for the purposes of public benefits. At the same time, the account beneficiary has more control and access to the funds than with a traditional special needs trust.
https://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.png00Darrin Williamshttps://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.pngDarrin Williams2017-03-30 14:30:002023-10-27 14:42:06Reviewing the Three New ABLE Programs Available Nationwide
One of the first questions clients ask when discussing a special needs trust is how the money can be used for the beneficiary. It is crucial to be careful when making distributions for the benefit of the trust beneficiary. This is particularly true if the beneficiary receives Supplemental Security Income (SSI) because any distribution could potentially violate Social Security’s rules regarding unearned income for SSI recipients. If a distribution runs afoul of these rules, the Social Security Administration will treat the distribution as unearned income on behalf of the beneficiary and reduce the beneficiary’s income dollar-for-dollar after the first $20 of the distribution.
https://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.png00Darrin Williamshttps://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.pngDarrin Williams2017-02-03 14:11:002024-04-03 14:41:38How to Use Money for a SNT Beneficiary Without Disrupting Their SSI
For many Americans, the majority of our wealth is held in retirement accounts. When it comes to inheritance and estate planning, special considerations are necessary to ensure that these assets are protected and distributed according to your wishes. It is critical to have knowledge of all the options available for retirement asset transfer, in order to best serve your needs.
Many clients rightly consider establishing a Supplemental Needs Trust (SNT) to address the legal and financial needs of their loved ones with disabilities. However, in addition to these immediate concerns, it is important to consider how much care your loved one may need in the future and who will oversee any arrangements relating to that care.
https://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.png00Darrin Williamshttps://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.pngDarrin Williams2016-10-20 22:37:002024-04-03 14:43:07Creating a Future Care Plan for Your Loved One With Special Needs
A primary rule of a first-party supplemental needs trust is that it is used for the sole benefit of the beneficiary. This is often a trap for trustees who use the trust’s assets for the beneficiary, but ultimately to benefit someone else as well. A recent case shows how important this rule is and how confusing it can be.
If you have a child with special needs who requires an institutional level of care that can be provided in your home instead of in a hospital or other institution, the Katie Beckett Medicaid Waiver program may allow you to keep your child at home, even if you think that your assets are too high to qualify for Medicaid.
https://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.png00Darrin Williamshttps://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.pngDarrin Williams2016-09-25 21:25:002024-04-03 14:43:17Children With Special Needs May Receive Medicaid Coverage for Home Care Despite Parents’ Assets
Assisted living facilities are a housing option for people who can still live independently but who need some assistance. Costs can range from $2,000 to more than $6,000 a month, depending on location. Medicare won’t pay for this type of care, but Medicaid might. Almost all state Medicaid programs will cover at least some assisted living costs for eligible residents.
It is a great feeling to have your special needs plan in place for your loved one. But, like all good plans, it may need to be adjusted as your circumstances change, especially with special needs plans that last a life time. So, it is important to have your plan reviewed periodically by a competent special needs attorney. If you haven’t had your plan reviewed recently, here are 7 events that may require changes to your plan.
https://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.png00Darrin Williamshttps://www.pierrolaw.com/wp-content/uploads/2021/01/pierrolaw-color-logo-transparent-300x132.pngDarrin Williams2016-09-08 21:56:002024-04-03 14:43:56Seven Events That Require an Immediate Call to Your Special Needs Planner
In our last blog on “Planning With GRATs”, we discussed how a Grantor Retained Annuity Trust (GRAT) can be an effective wealth transfer technique without incurring a gift tax or utilizing one’s lifetime gift tax exemption. A risk, however, with a long-term GRAT is if the Grantor dies prior to the expiration of its term. Death of the Grantor would subject the trust assets, including any income and appreciation, to estate tax. To reduce the mortality risk (especially for elderly clients or for those with health concerns), there is an estate planning technique that utilizes shorter-term GRATs.
A Grantor Retained Annuity Trust (“GRAT”) can be a powerful estate planning tool for transferring wealth to family members with little or no gift or estate tax cost. The Grantor creates an irrevocable trust and transfers assets to the trust in exchange for an annuity payable over any term of years. To the extent the trust assets grow at a rate greater than the IRS Section 7520 rate, the excess is transferred to the beneficiaries free of estate and gift tax at the end of the trust term. With historically low interest rates, now may be a great time to establish a GRAT using assets that are expected to appreciate in value. A GRAT can help reduce estate tax exposure, providing the Grantor outlives the trust’s term.
In a traditional GRAT the value of the property contributed to the trust is reduced by the value of the annuity payments made to the Grantor during the trust term. The balance or “remainder” projected to be on hand at the expiration of the GRAT term, which is calculated based on the IRS Section 7520 rate at the time of transfer, is considered a gift and subject to gift tax.
To avoid a gift upon formation of the GRAT, the retained annuity is designed to equal the value of the assets transferred based upon the term of the trust and the IRS Section 7520 rate at time of formation. The annuity payments can be a fixed percentage of the initial transfer or a fixed percentage of the trust’s assets, recalculated on an annual basis. Since a GRAT is a “Grantor Trust”, the assets held are not eroded by income or capital gains tax.
A “Zeroed-Out” or “Walton” GRAT is designed so the present value of the annuity payments is equal to the value of the assets contributed to the trust, so the present value of the remainder interest is zero. Any appreciation of the GRAT assets above the IRS Section 7520 rate pass to the beneficiaries gift-tax free.
The key to a successful GRAT is for the trust assets to generate returns that exceed the IRS Section 7520 rate. Historically, long-term investments yield higher average returns and therefore, longer term GRATs typically have a greater chance of outperforming the benchmark 7520 rate. Locking a GRAT in at a low rate also increases the chances of success. Many affluent individuals increase the savings by setting up multiple GRATs with varying terms.
If the GRAT asset performance is flat or decreases, the GRAT unwinds as if it had never been created. There is little downside since the grantor receives back everything in the form of annuity payments.
While GRATs offer no guarantee of success, they remain a relatively simple and effective wealth transfer strategy. Like any investment or planning technique, taking advantage of GRATs sooner than later offers more wealth transfer opportunity. Depending upon the age and health of the grantor, individuals may want to consider some form of life insurance to mitigate the adverse consequences of death during the term. At the Pierro Law Group we seek to maximize the benefits of any estate planning technique, whether a GRAT or otherwise. We work with clients, their families and trusted advisors to ensure a cohesive and comprehensive estate plan. Please contact us to learn more about GRATs and how they may play a roll in your estate plan.
