The Problem 

If you are disabled or elderly  you may not qualify for certain government benefits, such as Supplemental Security Income (SSI) and Medicaid , because your income or “countable assets” are too high.   Generally your home, furnishings, vehicle and certain other specific types of property are not counted, while  bank and financial accounts and the like are counted.

If you are already qualified, and your countable assets increase, you can lose your benefits.  For example, a parent or grandparent leaves assets to a loved one receiving government benefits and this disqualifies the loved one from receiving the benefits.  This can happen when the onset of disability is after the Will or other planning is done, or if the effect of the inheritance on government benefits is simply not addressed.  It can result in the recipient having to “spend down” the entire inheritance, i.e. pay out-of-pocket what the government benefit used to pay for.  When the entire inheritance is gone, the recipient is again eligible for benefits, but in the meantime  the entire inheritance has been wasted.

The Solution

Set up a special needs trust.  Special needs trusts, also called supplemental needs trusts, are trusts  designed to permit the beneficiary to enjoy the benefits of the assets owned by the trust without those assets being counted when qualifying for SSI or Medicaid.

A trust is an arrangement under which one person, the trustee, holds legal title to assets for the benefit of one or more other persons (the beneficiary or beneficiaries).  The trust agreement will contain  directions regarding administration, investment and distribution of trust assets.

First-Party Self-Settled Special Needs Trusts

Trusts funded with the disabled person’s own money are called first party special needs trusts.  They must meet strict requirements of federal law.  The trust must be irrevocable and established before age 65.  The trust must be for a disabled person and the trust assets can only be used for that person’s  benefit.  The trust must include a “payback” requirement.  That means any assets in the trust at termination, often at the death of the disabled person, must be paid to the state up to the amount of government benefits provided.  These trusts are often used when a disabled person comes into money, for example, upon settlement of a personal injury suit.

Third Party Supplemental Needs Trusts

Third party supplemental needs trusts are the solution to the inheritance problem.  Rather than leaving assets outright, the parent or grandparent leaves them to a trustee who receives them with the instructions to provide for the loved one’s needs – those that the government program does not cover – generally anything other than food and shelter.

It is important that the trustee has some discretion and is not required to distribute any income or principal to the beneficiary.  Also, the disabled person cannot have the right to demand payment of any income or principal of the trust from the trustee.  The trustee’s discretion and the beneficiary’s lack of a right to demand distributions are what keeps the trust assets from being countable resources under the SSI and Medicaid rules.

So long as the trust document provides trustee discretion and does not entitle the beneficiary to demand distributions, the trust can be very flexible otherwise.  These trusts are not subject to the strict federal requirements applicable to self-settled trusts.  For example, there can be other beneficiaries and their need not be a pay-back requirement.  Because the future is uncertain, every Will should contain  supplemental needs trust provisions that are triggered whenever a gift would be made under the Will directly to a person eligible for government benefits such as SSI or Medicaid.

Conclusion

Government benefits can be very important for the safety and security of the disabled and the elderly.  However, they are not very generous.  Through proper planning, a parent or other donor can ensure that their gift enhances the recipient’s quality of life and adds to  government benefits, rather than eliminating or reducing the government benefit.

 

Advance directives allow you to express your wishes regarding health care decisions in the event that you are incapacitated and cannot communicate your preferences yourself.

Components of Advance Directives

Usually advance directives address two distinct issues: 1) directions regarding end-of-life medical care – a living will and, 2) designation of a health care agent to act in the event of incapacity –  a health care power of attorney. These two parts are often combined into one document and called an advance health care directive or by a similar name..

  • Living Will: A living will may also be called a health care declaration, or something similar. The person who makes a living will is sometimes called the declarant.   A living will is different from a last will and testament, which directs the distribution of a decedent’s estate.   A living will, on the other hand, takes effect during the declarant’s lifetime and tells medical professionals the type of care the declarant desires should she become incapable of expressing such wishes herself.

Many state laws on advance directives set forth a statutory form which covers some aspects of end-of-life medical care, containing blanks for individual directions and providing that other forms of living will are also valid (although the state laws regarding manner of execution are generally mandatory).

Maryland’s law provides a statutory form that covers three end-of-life situations: 1) Terminal condition (death is imminent), 2) Persistent vegetative state (coma), and 3) End stage condition (incurable condition that will result in death).  For each, there are three choices for level of care: a) just keep me comfortable, b) keep me comfortable and use an i.v. for hydration or nutrition if necessary, and c) use all appropriate medical interventions to prolong my life.

A living will can address other subjects including: Cardiopulmonary resuscitation (CPR); artificial life-sustaining equipment (ventilators, dialysis machines, etc.), and organ donation.

These, of course, are deeply personal decisions that require thoughtful consideration if the living is to reflect the declarant’s values and wishes.

  • Health Care Power of Attorney: A health care power of attorney may also be called a medical power of attorney or durable power of attorney for health care (among other names). You use it to nominate someone to oversee your healthcare decisions in the event you are unable to do so, either temporarily or permanently.  The person who makes the health care power of attorney is sometimes call the principal.  The person named in the document to make decisions for the principal may be referred to as an attorney-in-fact, health care proxy, health care agent, health care surrogate, or something similar.

Regardless of what the agent is called, he is obligated by law to follow your instructions regarding health care decisions.  Your instructions are included in your living will or in the health care power of attorney.  Depending upon your situation, the selection of your primary and back-up health care agent may be obvious and perfectly satisfactory – your spouse or your local and responsible child, etc.  Sometimes it is a tough choice requiring careful thought and difficult conversations.  But it is always an important choice.

When is the best time to create an advance directive?

The best time to create an advance directive is when you’re healthy because you have the opportunity to consider your options carefully when immediate health concerns aren’t on your mind. You can also discuss your choices with your loved ones ahead of time.

It is especially advisable for those who are scheduled to undergo surgery or who are critically or terminally ill to consider making an advance directive.

When does an advance directive take effect?

In general, the provisions of your living will become applicable when you are unable to make or communicate decisions regarding your medical care.  Your health care agent has authority under your advance directive under the conditions specified in the document or under state law – usually when you are unable to make or communicate the decisions yourself.  So your doctors and your health care agent will refer to, and generally be bound by, the instructions in your living will.

Can I change an advance directive?

Your advance directive remains in effect from the time you sign it until and unless you change it, which you can do at any time.  You should review your advance directive periodically to make sure it still accurately reflects your wishes regarding your medical care. If you do want to modify an advance directive, it is often advisable to simply create a new one so there is no potential confusion created by conflicting changes.

Where should I store my advance directive?

You should make several copies of your advance directive. Keep the original in a safe place that is accessible to your health care agent and let someone know where it is.  You should provide copies to the person named in the document as your agent, your doctors, and anyone else you think may be involved in your medical care.

Conclusion.

Illness or old age eventually come to us all. The time will probably come when you will need an Advance Medical Directive.  An Advance Medical Directive should be included in every estate plan. Contact us if you have questions or want to make an Advance Medical Directive.

by Michael F. Callahan

A general power of attorney is an effective tool if you will be out of the country and need someone to handle certain matters, or when you are physically or mentally incapable of managing your affairs. A general POA is often included in an estate plan to make sure someone can handle your financial matters if you become unable to do so.

What is a Power of Attorney?

A power of attorney (POA) is a document that is used to appoint a person or institution to manage your affairs if you become unable to do so. The person or institution you appoint is called your agent or attorney-in-fact.

Powers

You can grant broad powers to your agent.  You can give your agent any power that you have to make financial decisions, including the power to handle financial and business transactions, buy life insurance, settle claims, operate business interests, make gifts, and employ professional help.

Competency to Sign a Power of attorney.

You must be mentally competent at the time you execute your POA in order for it to be effective.  If you think your mental capability may be questioned, have a doctor verify it in writing.  Do not delay making a POA until your competency is questionable.

Make Sure Your Power of Attorney is Durable.

Be sure that your POA is “durable”.  This means that it contains language specifying that your appointment of an agent is still valid if you become incapacitated. That’s when you want your agent to act on your behalf.  But you have to state so specifically in your POA or your agent’s power will lapse just when he or she is needed.

Selecting an Agent.

Your POA is only as good as the person you select as agent.  Trust is a key factor when choosing an agent for your power of attorney. Whether the agent selected is a friend, relative, organization, or attorney, you need someone who will look out for your best interests, respect your wishes, act with care, keep good records and won’t abuse the powers granted to him or her.

Naming a Successor Agent.

Have a backup. Agents can fall ill, be injured, or otherwise be unable to serve when the time comes. A successor agent takes over power of attorney duties from the original agent, if needed.

Executing Your Power of Attorney.

You must sign and notarize the original POA document.  Banks and other businesses may refuse to transact with your agent on your behalf unless they receive a certified copy of the POA.

Revoking Your Power of Attorney.

You can revoke a POA at any time. Simply notify your agent in writing and retrieve all copies of your POA. Notify any financial institutions you deal with that your agent’s power of attorney has been revoked.

Conclusion.

Illness, injury, old age, or daily life commitments happen to everyone. The time will come when you will need a Power of Attorney.  A POA should be included in every estate plan. That is why you should understand what a power of attorney is and how it can assist in taking care of your business, even when you can’t.  Contact us if you have questions or want to give someone your Power of Attorney.

by Michael F. Callahan

A Will directs the passage of property after the death of the maker of the Will and names the testator’s personal representative.  Wills are revocable – they can be modified or revoked by the testator so long as he or she is alive and has testamentary capacity.  Most of our divorce clients arrive in one of two situations – they have not made a Will or they have made a Will that leaves all their property to their spouse and names their spouse personal representative of their estate.  Most of our divorce clients have a lot going on – it’s not the best time for calm thoughtful reflection on how they want to take care of those they love in the event of their death.

If you are separated and contemplating or pursuing divorce, circumstances have certainly changed since you decided to leave all your property to your spouse and name him or her as your personal representative.  Divorce is a process, it takes time.  Unless there is an early settlement it can be years from separation to date of final divorce.  We recommend clients in this situation consider amending or revoking their Will.

What about those persons who are separated from their spouse and have not made a Will? If you die without a valid Will, the state has rules governing who gets your property and who has priority for appointment as your personal representative.  In most circumstances in the Washington, DC area, the state’s rules put the surviving spouse in charge of your estate.  If you have no children, your surviving spouse will receive all of your probate estate.  If you have children, his or her share will be one-third in DC and one-third in Virginia if your children are not the surviving spouse’s children, one-half in Maryland, or all in Virginia if all of your children are the surviving spouse’s children.  We recommend clients in this situation consider making a Will to avoid these outcomes.  Note, however, that statutory spousal protections usually make it impossible to ensure that your estranged spouse takes nothing from your estate.

 

 

A Will is a written document directing the passage of property after the death of the maker of the Will – the “testator.”  A valid Will must be executed by the testator with the requisite formalities – usually in the presence of two disinterested witnesses who also sign the document.

Among other things a Will addresses who will receive the testator’s property that does not pass “outside probate” by deed, deposit contract, beneficiary designation or other non-probate means.  A Will generally names the testator’s personal representative, trustee, if necessary, and back-ups.  A good Will should also name a guardian of any minor children and provide for the care and management of any property that passes to minors.  Most complete Wills have many other provisions addressing debts and taxes, simultaneous death, and administrative matters.

If you don’t make a Will before you die you leave an “intestate” estate.  Don’t worry, the state has rules governing who gets your property, who has priority for appointment as your personal representative and how any of your property received by minors will be managed.  If you are confident that you and your loved ones will be perfectly satisfied with the state’s choices about all this, you don’t need a Will.

Most married people want their surviving spouses taken care of when they die. The statutes of Maryland Virginia and DC reflect this. See a prior article here – Wills and Decedent Estates of Divorced and Divorcing Spouses.

Of course when the marriage breaks down, most people no longer want to provide for their estranged spouse. But divorce takes time. And the state statutes and federal statutes protect spouses. Is there a way to successfully disinherit your spouse before the divorce is final?

State law generally grants the surviving spouse all or part of the probate estate of the decedent by intestate succession when the decedent did not make a Will and by right of election against the Will when the decedent made a Will. Virginia, but not Maryland, expands the spousal protections to the “augmented” estate. The augmented estate includes certain non-probate assets and prior gifts.

Maryland case law suggests that Maryland’s statutory surviving spouse protections can be avoided by the common device of using a revocable trust instead of a Will as the primary estate planning document. Generally this requires executing a revocable trust which includes a clause stating who is to receive the grantor’s property at his or her death and transferring all or some of the grantor’s property to the trust. This keeps the property out of the probate estate and out of reach of the surviving spouse’s election against the Will.

The surviving spouse’s recourse is to seek to invalidate the trust. Karsenty v Shoukroun, 406 Md. 469 (2008) was a case where the decedent transferred property to a revocable trust with a disposition at death other than to his wife. The Court of Appeals of Maryland spent 40 pages discussing fraud on marital rights, unlawful frustration of marital rights and also legitimate estate planning. But the court stopped short of saying you cannot do by a revocable trust what you cannot do by Will. They sent the case back to the trial judge to consider the facts in light of the Court of Appeals 40 page discussion. So if you want to disinherit your spouse so that he or she doesn’t inherit in case you die before the divorce is final, a revocable trust is certainly worth a try in Maryland.

Not so in Virginia. The property transferred to the revocable trust is part of the “augmented estate” and the surviving spouse gets a share of that.
This sort of unilateral action to disinherit the spouse is appropriate only for protracted, contested divorces. In most divorce cases, estate planning is done by each spouse pursuant to an agreement with mutual waivers of estate rights. After all, your spouse doesn’t want you to inherit from him or her either.

In a prior post here I said: Post-divorce you should review your Will and all beneficiary designations to ensure that you do not unintentionally include a gift to your former spouse. Although we strongly recommend against relying on statutes to correct your estate plan despite your own inaction, there are statutes that provide that the judgment of divorce eliminates prior bequests or certain beneficiary designation to the former spouse. See Va. Code Sec. 20-111, 20-111.1, 64.1-59; Md. Code, Estates and Trusts Article, Sec. 4-105(4); DC Code Sec. 18-109 and Estate of Roscoe H. Liles, 435 A.2d 379; 1981 D.C. App. LEXIS 355. The effect of these statutes on the treatment of a now former spouse in an estate plan is uncertain and incomplete and may be frustrated by federal law spousal protections. The savings statutes are no substitute for a careful review of estate planning documents and beneficiary designations and corrective action based on the divorce settlement or judgment.
The Virginia legislature recently ensured that the Virginia circuit courts tell all divorcing parties what we’ve been telling our clients and the readers of this blog. They added section E to Va. Code § 20-111.1. Revocation of death benefits by divorce or annulment. It provides:
… E. Every decree of annulment or divorce from the bond of matrimony entered on or after July 1, 2012, shall contain the following notice in conspicuous, bold print:

Beneficiary designations for any death benefit, as defined in subsection B of § 20-111.1 of the Code of Virginia, made payable to a former spouse may or may not be automatically revoked by operation of law upon the entry of a final decree of annulment or divorce. If a party intends to revoke any beneficiary designation made payable to a former spouse following the annulment or divorce, the party is responsible for following any and all instructions to change such beneficiary designation given by the provider of the death benefit. Otherwise, existing beneficiary designations may remain in full force and effect after the entry of a final decree of annulment or divorce.

Once you are divorced, review your beneficiary designations and your Will and make changes as necessary.

          After your divorce you should review your Will and all beneficiary designations to ensure that you do not unintentionally include a gift to your former spouse.  Although we strongly recommend against relying on statutes to correct your estate plan despite your own inaction, there are statutes that provide that the judgment of divorce eliminates prior bequests or certain beneficiary designations to the former spouse.   See Va. Code Sec. 20-111, 20-111.1, 64.1-59; Md. Code, Estates and Trusts Article, Sec. 4-105(4); DC Code Sec. 18-109 and Estate of Roscoe H. Liles, 435 A.2d 379; 1981 D.C. App. LEXIS 355.  The effect of these statutes on the treatment of a now former spouse in an estate plan is uncertain and incomplete and may be frustrated by federal law spousal protections.  The savings statutes are no substitute for a careful review of estate planning documents and beneficiary designations and corrective action based on the divorce settlement or judgment.

             You can improve on the intestate estate outcome by unilateral action.  You can make a Will or a new Will; or revoke a Will that leaves everything to your now estranged spouse.  We encourage clients to consider taking these actions early on in the process.

            However you cannot freely disinherit your spouse.  In each local jurisdiction the surviving spouse can renounce the gift, if any, to the spouse in the Will and elect to take a statutory share of the estate.  The surviving spouse is entitled to claim an elective share as follows:

Maryland – an allowance of $5,000 and one-half of the net probate estate if there are no surviving issue of the decedent and one-third if there are surviving issue.  Md. Code, Estates and Trusts Article, Sec. 3-201 and 3-203.

Virginia –  one-half of the augmented estate if there are no surviving issue of the decedent and one-third of the augmented estate if there are surviving issue.  Va. Code Sec. 64.1-16.1.

 District of Columbia – the surviving spouse who renounces the gift under the Will is entitled to the amount he or she would take if the decedent did not make a Will.  D.C. Code Sec. 19-113.

If you die intestate (without a valid Will) your spouse is entitled to the following percentages of your net probate estate:

Maryland – the surviving spouse takes entire net probate estate unless there are surviving decedents or surviving parents of the decedent;

the surviving spouse takes $15,000 plus one-half of the net probate estate if the decedent is survived by decedents who are not minor children, or by parents of the decedent; and

the surviving spouse takes one-half of the net probate estate if the decedent is survived by his or her minor children.

See MD Code, Estates and Trust Article, Sec. 3-102.

 Virginia – surviving spouse takes entire net probate estate unless there are surviving descendants of the decedent who are not descendants of the surviving spouse, in that event the surviving spouse takes one-third of the net probate estate;

the surviving spouse also has a claim to one-half of the augmented estate if the decedent is not survived by descendants and one-third if the decedent is survived by descendants,

See Va. Code Sec. 64.1-1.

 District of Columbia – D.C. law provides that the surviving spouse or domestic partner, and minor children, are entitled to a reasonable allowance from the probate estate for maintenance during estate administration.  D.C. Code section 19-101.04

The surviving spouse or domestic partner takes the entire net probate estate if the decedent is not survived by descendants or parents;

The surviving spouse or domestic partner takes two-thirds of the net probate estate if the decedent is survived only by descendants who are issue of the decedent and the surviving spouse;

The surviving spouse or domestic partner takes three-fourths of the net probate estate if the decedent is not survived by descendants but is survived by a parent;

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is  survived only by descendants who are issue of the decedent and the surviving spouse, and the surviving spouse has other issue; and

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is survived by descendants one or more of who are not issue of the surviving spouse.  D.C. Code section 19-302.

            Also in each local jurisdiction there is a statutory preference for the surviving spouse to be the personal representative or executor of the estate.