CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
SSA Approval Of Special Needs Trust Legal Fees. On June 25, 2019, the Social Security Administration (SSA) issued updates to its Program Operations Manual System (POMS) pertaining to attorney fees subject to SSA’s fee authorization process. This change would apply only to first-party special needs trusts, i.e., a special needs trust established by a special needs trust beneficiary using the beneficiary’s own assets. Included would be pooled trust arrangements, such as the SWIRCA & More Pooled Trust, which I wrote, but only if the pooled trust sub-account is established using the beneficiary’s own assets. These rules would not affect a third-party special needs trust, i.e., a trust established by another person, such as a parent or grandparent, using the parent’s or grandparent’s funds. First-party special needs trusts are subject to Medicaid pay-back. That is the reason why SSI and Medicaid beneficiaries are allowed to create such trusts, placing their assets in a trust vehicle that will allow them to become eligible for SSI and/or Medicaid, and yet still have access to those funds to improve the beneficiary’s quality of life.
The POMS are not regulations and do not have the force of law, but the courts grant great deference to the POMS, and trusts will only be approved by the SSA which meet the POMS requirements. Consequently, attorneys must be very careful going forward about what they are doing, and how they do it, when the issue involves a special needs trust for a beneficiary who might be eligible for, or might become eligible for, SSI. If the trust is established for Medicaid purposes only, then the POMS provisions would not be applicable. Many believe, as I do, that the SSA has overreached in its attempt to control a relationship between an attorney and a client in a case which does not actually involve practice before the Social Security Administration. Without getting too much into the weeds regarding this issue, it should be pointed out that SSI beneficiaries will have fewer and perhaps no options when seeking assistance with trust drafting if attorneys do not desire to allow the SSA to interfere in the professional relationship between the attorney and the client.
What Is A Disclaimer? A disclaimer, also called a renunciation, is a refusal by a person to accept property received or inherited from another. If exercised properly, the transfer is treated as if it never occurred. The property can then pass on to another beneficiary with no tax or other consequences to the disclaimant. To be a “qualified disclaimer” for federal tax purposes, the disclaimer must meet a number of requirements. A disclaimer that meets those requirements will also generally satisfy the Indiana requirements for a disclaimer, and the Indiana requirements must be met if the disclaimer will in fact be a “legal” transfer of ownership, title, or benefits. There are significant planning opportunities available with disclaimers. A person who is to receive property or benefits due to the death of a person, before claiming those benefits, should stop and consider whether it might make sense to disclaim those benefits. It should be noted, however, that a disclaimer will be treated as a transfer for Medicaid eligibility purposes, and thus a transfer penalty due to the “uncompensated transfer” will result from even a lawful disclaimer which meets the federal and Indiana statutory requirements. In order to be effective, the disclaimant must not have received any benefits from the transfer before the disclaimer occurs. It should be noted that partial disclaimers are allowable, so that a person can receive a part of an inheritance or benefit, but disclaim the remaining part.
Family Involvement In Estate Planning. While the focus of estate planning is an individual’s or couple’s goals and aspirations, it is usually a good idea to explore family issues that might affect the estate plan. It is sometimes beneficial to involve the family in the discussions. Communication about what is being done or what is being contemplated, and understanding the expectations of other family members, can be very helpful in developing the estate plan in some instances. When children find out what their parents have done after they are gone, and do not understand why they made the decisions they did, disharmony may be the undesired result. If one child is more involved in a family business, and if that child receives the business or a disproportional part of it, there may be a perceived imbalance that the child’s siblings do not fully comprehend or appreciate. There may be ways to “equalize” inheritances, or at least make the imbalance seem less unfair, particularly if the reason for making certain decisions has been made clear. A particular child may have marital problems, or problems relating to drugs, alcohol, gambling, etc., and therefore using a trust for that child might be more appropriate. If a similar trust is not set up for the other children, then the child whose inheritance is restricted may have hard feelings. There may be alternative estate planning arrangements available to help alleviate those feelings. Communicating with the child, or even including appropriate language in the trust terms and conditions, can make a situation better than it otherwise might be. Transparency is beneficial in many areas of life, and the same often applies in the case of estate planning. Consideration should be given to ways of avoiding possible disputes in the future in an effort to maintain family harmony and relationships.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.