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How To Know When An SNT Needs A Tax ID Number

February 12, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical SNT

The question among many practitioners is, does a supplemental needs trust need a separate tax I.D. number and have to file a separate income tax return? The answer is, it depends. So let's examine when an SNT needs a separate tax I.D. and when it doesn’t.

A supplemental needs trust will be a first party or third party trust. A first party supplemental needs trust is funded with assets of the disabled individual who is also the beneficiary of the trust. Under law a first party supplemental needs trust can only be created by the parent or grandparent of the individual, or a court. Once the first party supplemental needs trust is created, it will not require a separate tax I.D. number, but instead will use the tax I.D. number of the disabled beneficiary. All income earned by the first party supplemental needs trust will be reported on the income tax return of the disabled beneficiary, but will not affect or be counted toward their continuing eligibility, as long as distributions are made on the beneficiary’s behalf and not made directly to the beneficiary.

A third party supplemental needs trust is created and funded by someone other than the disabled beneficiary, but for the benefit of a disabled beneficiary. Whether a tax I.D. number is required for the third party SNT will depend upon how the trust is structured. In most third party SNT’s, the creator of the trust (grantor) wishes to maintain control of the trust for the benefit of the disabled beneficiary. In this case, no separate tax I.D. number would be required as it would be considered a "grantor" trust and all income would be taxed to the grantor. If the grantor is not the trustee, but retains other identified rights, then the same rules would apply. Alternatively, if the grantor creates a trust and retains no rights to change it, benefit from it or control its distribution, then it may be a non‑grantor trust and need a separate tax identification number.

Similarly, after the grantor who created the trust and retained rights to make it a grantor trust dies, the third party supplemental needs trust now becomes a "non‑grantor trust" and requires a separate tax identification number. Annual income tax returns would have to be filed for non-grantor SNT’s but the actual tax will be deemed payable by either the beneficiary, or the trust, depending upon the actual distributions made. For example, if a supplemental needs trust earned $10,000.00 in a year, and they used $7,000.00 of it for the beneficiary, it would "pass through" the $7,000.00 in taxable income to the beneficiary on a Form K1. The remaining $3,000.00 retained in the trust, would be taxed at the trust tax rate and payable by the trustee directly with the tax return filed by the trust with the IRS. Finally, in relation to IRAs, the IRS has ruled in Private Letter Ruling 200820026, that an IRA payable to a supplemental needs trust at the death of the IRA owner, will not be required to be liquidated and, but instead, the age of the disabled beneficiary will be used for "stretch purposes" and it will be considered a grantor trust of the beneficiary for purposes of the IRA distribution.

So does a supplemental needs trust need a tax I.D. number? No and yes it all depends how you create the trust during lifetime and how you plan for it!

If you are interested in learning more about estate planning and more specifically on the iPug Business Planning, join us February 12th at 8 EST where we'll talk about:

Learning the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
Comprehensive outline of the 2 primary iPug® Business Protection Strategies
Learn why clients choose single purpose Irrevocable Pure Grantor Trusts™ over LLCs
Learn how it all comes down to Funding

And much much more… Click here to register now!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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How To Plan For The Home The Right Way

February 11, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

A major question comes up often during estate planning for seniors in determining what to do with the primary residence. There are many choices, but the actual selection will depend heavily on the ultimate goal of the client. Typical client goals include basic estate planning, probate avoidance, home management in the event of incompetency, benefits planning (Medicaid/VA), asset protection planning, and estate and income tax planning. Let's review strategies in each of these situations.

The most common form of ownership of the primary residence by a husband and wife is as tenants by the entirety or similar legal ownership. By state law, this provides asset protection during life as 100 percent of the property will convey to the surviving spouse without any liens attached by a deceased spouse’s liabilities. Obviously for single individuals no asset protection is provided and non-spousal joint tenancy may protect the assets for the surviving joint tenant, subject only to Medicaid and IRS's right to recovery. The most typical funding strategy is to transfer the primary residence to a revocable living trust (RLT) to avoid probate. Some states also allow payable-on-death deeds (ladybird deeds) or heirship deeds. While funding the home to a revocable trust or these other strategies avoid probate and could provide post death asset protection (RLT), they do not effectively provide protection "during life".

Another primary strategy is to convey the home to an irrevocable trust. These are typically done when clients are interested in estate tax savings or asset protection. The primary question relates to whether the irrevocable trust is a "grantor trust" or a "non-grantor trust” for tax purposes. Traditionally, estate tax reduction trusts are non-grantor trusts and the home would maintain its "carry over tax basis" to the beneficiaries of the trust thereby creating a capital gains tax on the difference between the sales value and the original price paid by the grantor who conveyed it to the trust. In contrast, a grantor trust that retains rights that include the value of the irrevocable trust in the estate of the deceased grantor, would receive a "step up" in basis after the death of the grantor. While these serve estate and income tax needs, they often may conflict with benefits planning, such as for Medicaid and/or veterans' benefits. In addition, one must be cautious in conveying a principle residence to a RLT or irrevocable trust as it could defeat any real property tax exemptions. The client is eligible for when the property is owned in the client’s name. You need to confirm with your local assessor on the impact of the credits upon funding the home to the trust chosen.

Medicaid and veterans' benefits, on the other hand, have additional restrictions above and beyond the tax and legal restrictions regarding trusts. Putting a personal residence in an irrevocable trust for Medicaid can provide asset protection during lifetime but doing so creates a uncompensated transfer which affects future eligibility. Another question in funding the personal residence is whether to retain a reserved life estate in the deed and convey the remainder to the trust or to convey the whole residence to the trust and maintain a right for the grantor to live there inside the trust document. This is often avoids the loss of any real property tax credits but if the home is sold during the grantor’s lifetime, then the grantor's pro rata ownership (lifetime interest) proceeds would be considered “available” in determining the grantor's ongoing Medicaid eligibility.

In contrast to Medicaid planning, planning for VA benefits has additional considerations. A veteran can convey their home to an irrevocable “grantor” trust without consequence. The caution, however, is if the residence is sold during the grantor's lifetime and converted to an income producing asset (cash, stocks, ect.) it would thereafter trigger the asset value in determining the veteran's future benefit eligibility.

Planning for the home appears simple but is absolutely essential that the overall client goal is identified before determining where to fund the home. Understanding these strategies are essential.

If you would like to learn more about irrevocable trust (iPug Trust) join our FREE webinar Thursday, February 12th at 8 EST click here to register now. During this webinar you'll discover:

Learn the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
Comprehensive outline of the 2 primary iPug® Protection Strategies
Learn why clients choose single purpose Irrevocable Pure Grantor Trusts™ over LLCs
Learn how it all comes down to Funding

Click here to register. We'll see you then!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

The Veterans Administration Proposes 3 Year Look Back On Gifts

January 28, 2015

by Lawyers With Purpose with 3 Comments Asset Protection Estate Planning Drafting Software Legal Technical VA

On Friday, January 23, 2015, the VA issued proposed new Veterans Administration regulations that would penalize wartime veterans up to ten years for making gifts of assets for less than fair market value. The VA is trying to stop what they perceive as lawyers and financial advisors “taking advantage of veterans” when helping them strategically plan to preserve assets and qualify for the Improved Pension benefit.

The proposed changes in regulations would:

Establish a 3 year look back for gifts
Impose penalties for up to 10 years
Create a bright-line net worth standard of $119,220, which includes annual income
Deny any expenses related to independent living facilities as care costs
Require Veterans to sell their home place property if the lot coverage exceeds 2 acres.

How will this work? When a veteran or widow of a veteran applies for the Improved Pension with Aid and Attendance, the VA will ask if any transfers of assets for less than fair market value have been made in the three years prior to the application. If so, the VA will presume it was for the purpose of meeting the VA eligibility standards.

Penalized gifts include gifts of money or assets to children or others, establishing estate plans with the use of trusts, and establishing retirement plans through the use of annuities which can provide a life time income stream.

When a gift has been determined to have happened during the look back period, the VA will calculate the penalty by dividing the value of the gift by the claimant’s pension rate with aid and attendance. Each classification of claimant varies, thus, the penalty periods will be different depending on who makes the claim. The pension rates with aid and attendance are as follows:

(1) Married veteran = $2,120

(2) Single veteran = $1,788

(3) Widow = $1,149

Thus, if a married veteran gives away $15,000 and a widow gives away $15,000, the widow is penalized almost double that of the veteran. (Married veteran $15,000 divided by $2,120 = 7 month penalty; widow $15,000 divided by $1,149 = 13 month penalty.)

Also, because the “net worth” standard will include income, high income earners will be allowed to have low to no savings for emergency items; whereas, very low income earners will be permitted to keep much more in savings. Because of the strict ruling on how the VA plans to define “medical care,” veterans who have dementia, Alzheimer’s Disease or other degenerative diseases and live in independent living facilities because they no longer drive and need a safe environment in which to live, will not be eligible for the benefits because they may not yet the hands on care for bathing, dressing, eating, toileting or transferring (ADLs). Although they are unsafe to live at home due to their health care condition of cognitive decline, the VA refuses to consider any expenses of care for a facility as deductible from the claimant’s income unless the claimant needs assistance with no less than 2 ADLs.

Between 2012 and 2014, Congress introduced two different bills, each imposing a three year look back penalty. Both bills were died. Nevertheless, the VA is moving forward on their own to create the look back and penalties. These changes will not only hurt wartime veterans, specifically WWII and Korean war vets, but it will further exacerbate the enormous claims back logs that already exist.

To fight this from happening, everyone who cares about a veteran must respond. Public comments must be received no later than March 24, 2015 and can be sent through http://www.regulations.gov or by mail or hand-delivery to: Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026. Comments must include that they are in response to “RIN 2900-AO73, Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits.”

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation, Author of 47 Secret Veterans Benefits for Seniors, Author of Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit, Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC, Co-Founder of Lawyers for Wartime Veterans, Co-Founder of Veterans Advocate Group of America.

If are in the Charlotte NC, area, or will be attending our Practice With Purpose Program or our Tri Annual Practice Enhancement Retreat, consider joining Victoria for her Specialty Program on Wednesday, February 4th, and get your initial VA Accreditation through the VA. If you provide legal advice to Veterans about specific VA claims, to include drafting asset protection trusts for VA Benefit qualifications, you MUST be accredited by the VA. Contact Molly Hall at mhall@lawyerswithpurpose.com for registration information.

** Before attending this course, you must have submitted an Application for Accreditation, VA Form 21a, to the Office of General Counsel and received approval.

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How To Distinguish The Snapshot Date From The Look Back Date

January 27, 2015

by David Zumpano with One Comment Asset Protection Estate Planning Drafting Software Legal Technical

Many lawyers doing Medicaid qualification for their clients often get confused between the snapshot date and lookback date. These dates are not only confused by lawyers, but also often by the Medicaid departments processing the application. So let's set it straight. 42 US 1396r-5 (c) states the snapshot date occurs on the first day of the month in which a Medicaid applicant reached thirty days of "continuous institutionalization". Continuous institutionalization is identified as thirty consecutive days in an institution of care. These include hospitals, nursing homes, VA facilities, or the like.

If an individual enters a hospital on January 15, is discharged on January 30, enters a nursing home on February 5, and applies for Medicaid on March 1, no snapshot date has occurred. Why? It's simple. Thirty continuous days of institutionalization has not occurred by March 1. By virtue of the discharge from the hospital on January 30 and readmission to the nursing home on February 5, a lag occurred, restarting the 30 day period. Since they entered the nursing home February 5, and applied March 1, no snapshot date is set because thirty continuous days has not occurred.

Continuing, if the client stays in the nursing home through March 5, then the snapshot date would be February 1, the first day of the month in which the applicant entered a facility for thirty days of continuous institutionalization. The significance of the snapshot date is it represents the date Medicaid will look at all financial assets owned by the Medicaid applicant and spouse in determining whether or not they are eligible for benefits. In this case, Medicaid would take a "snapshot" of all assets owned by the applicant and spouse on February 1 and use this information to determine the client's individual resource allowance, the community spouse resource allowance, and the client's net available monthly income that can be used for the cost of care.

What makes all this confusing is, although the federal statute is clear as outlined above, most states treat the “lookback date”, as the "snapshot date." The lookback date is entirely different; it is the date when applicant resides in a nursing home AND applies for Medicaid benefits. In this case the lookback date does not occur until the Medicaid applicant applies for Medicaid. Since they are already in the nursing home, they would have to apply for benefits to establish the lookback date.

In this case, if an application was filed, the lookback date would also be March 1, the first day of the month of application after admission. In many cases clients come to you long after the snapshot date and in many cases may have been residing in a nursing home for many, many months, before they apply for Medicaid so no lookback has been established. The lookback date has a use and different significance than the snapshot date. While the snapshot is used to calculate all the allowable exemptions, the lookback date is used to establish the date at which Medicaid will look back sixty months at all financial data of an applicant to determine if there were any uncompensated transfers.

Understanding these key definitions is critical in having an effective Medicaid practice, but more importantly, to get your clients confident they will be eligible in the timeframe you identify. To learn more about Asset Protection and Medicaid Planning for your estate or elder law practice, consider joining us next week in Charlotte, NC, for our Practice With Purpose Program. We'll be covering this and so much more just on Day 1! We'll also be allowing a test drive in the room to review our drafting software!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

When To Dismantle ILIT’s For Today’s Clients

January 21, 2015

by David Zumpano with No Comment Estate Planning Drafting Software Legal Technical

I meet with many clients who come in and have an ILIT, (Irrevocable Life Insurance Trust), which was set up in the 1990s or 2000s as part of their estate plan. ILIT’s are typically used when a client is subject to Estate tax and wants to ensure the value of life insurance is not taxed in their estate. They were much more popular in the 90’s and early 2000’s when the estate tax limits were much lower. The question is, are they still needed?

A strong argument can be made that a vast majority of clients (99.8 percent) who have ILITs no longer need them because the estate tax levels have risen to a point where they only affect 2 out of 1,000 clients. So, what do we do with the old ILIT?

One strategy is to continue them and let them play out as intended. A second option is to dissolve the trust under state law, get the insurance policy and any cash value back to the grantor and have the grantor create a new irrevocable pure grantor trust that would ensure asset protection for the grantor but allow the grantor full control, as trustee, the ability to modify it as to any and all changes make other than making it available back to the grantor. The greatest benefit however is that it would allow the grantor to add other assets to the trust to benefit those intended now, during life rather than just after the grantor’s death.

There are two key steps to dissolve an irrevocable trust. First, to identify your state law for termination of an irrevocable trust, typically, by the consent of all the parties. Second, to identify under the state statutes who the beneficial interest would go to, that is back to the grantor, or to the beneficiaries. If there's a way to get it back to the grantor that yields the greatest result so the grantor's life insurance and other assets can be combined and utilized for the benefit of the grantor's beneficiaries during lifetime and after death with full complete asset protection and complete access and control by the beneficiaries. If your state statute requires the ILIT be distributed to the beneficiaries, then the key would be to identify the fewest number of beneficiaries and have them receive the benefits and create a "third party irrevocable pure grant trust" (otherwise known as a KIT™). Under this strategy the benefits could be used for the grantor and others, depending on the trust design. Typically, the ILIT beneficiaries create a trust for the benefit of a larger class of beneficiaries outside of themselves or limit what they are entitled to, to protect the trust corpus.

There are a lot of ILITs out there and obviously maintaining them is the "easier" thing to do. I question however, if they still serve the goal of the client. Terminating these trusts and creating new, more user friendly trusts may ultimately have a better impact on the client and the plan they are trying to accomplish, the key question are you up to speed on helping them to accomplish this effectively and efficiently?

To learn more, join us for our Practice With Purpose Program, February 3-5th, in Charlotte, NC.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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Medicaid Planning For Previously Transferred Assets

January 20, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

Many clients who come into my office in search of "qualifying for Medicaid" are concerned about losing their assets. Unfortunately, in many instances they got advice at the beauty shop or coffee shop (and sometimes a lawyer) to give their assets away so that they could be protected if sixty months goes by.

As we know, there is no rule that says a client has to wait 60 months, even if they transferred assets, and we are typically able to get clients qualified in much shorter periods of time, even in crisis. When preplanning, we are also able to protect between fifty and one hundred percent of assets immediately with the proper facts and planning. Understanding this level of planning requires a complete and thorough understanding of the 12 key Medicaid rules and how they apply to each client differently. For a demonstration of how the LWP industry exclusive software documents tally in minutes for any client fact pattern go to https://www.lawyerswithpurpose.com/Estate-Planning-Drafting-Software.php to schedule a software demo.

A key challenge for many clients who have already transferred assets is, how does it figure in in determining their eligibility now, in crisis, or later if they are preplanning. (The answer comes down to two distinctions.)

First, has the transfer been within the sixty months of when they come to see you? If so, the amount of the transfer should be added back to the client's assets as if they still owned them. That is the practical result when applying for Medicaid if within the sixty months of the application. Re-including the assets provides a proper picture of all assets of clients that have to be considered in determining how much can be protected and how much would be lost if the client is in crisis or will require long-term care within sixty months of the transfer.

After re-including the transferred assets, you must then calculate the amount of assets that will be protected and those that will be needed for care (in a crisis case), or, could be needed in a preplanning case, (if care is within sixty months). The key distinction actually comes down to funding. Pre‑transferred assets are a funding issue, not a calculation issue. After adding back the transferred assets and completing the calculations to determine the amount protected, then the first funding task is to allocate the previous transfer to the amount protected and then you only have to fund the balance. If the previous transfers are more than the amount of assets that could be protected, the family must make up for the excess transfer by giving it back (cure). If the amount previously transferred is less than the amount protected then the balance of the assets that can be protected, are thereafter transferred pursuant to the asset protection plan created by the attorney.

While complicated in the written word, with a proper understanding of the law and how to apply it to each client and when you have the software that calculates and supports the law and provides calculations in real time utilizing the Medicaid laws, you are able to confidently help your client protect their assets.

If you are interested in learning more about becoming a Lawyers With Purpose member, consider joining us for our Practice With Purpose Program in Charlotte, NC, February 3rd – 5th. We are almost at capacity and there are only a few seats left so register today!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

VA Pension Rates Finally Published

January 14, 2015

by Lawyers With Purpose with No Comment Estate Planning Drafting Software Legal Technical VA

Each year, with Congressional approval, Social Security and Veterans Benefits increase incrementally based on a cost of living adjustment increase. For 2015, that amount was 1.7%. For VA benefits, the effective date is December 1, 2014.

Even though those already getting the benefit received their increases, it was impossible for practitioners to advise applicants as to what rate to expect upon approval of a new application because the rates had not been published. As of January 12, 2015, the VA rates can be found at:

http://www.benefits.va.gov/pension/current_rates_veteran_pen.asp for veterans and http://www.benefits.va.gov/pension/current_rates_survivor_pen.asp for survivors (spouses and children).

For a quick breakdown, see below for both the annual and monthly amounts:

2015 VA Pension Rates – Effective 12/1/14

Veterans

Medical Deduction (5% of Maximum Annual Pension Rate) $643 (single) $842 (with dependent)

ANNUAL MONTHLY

Base Pension (single) $12,868 $1,072

Base Pension (w/ dependent) $16,851 $1,404

Housebound (single) $15,725 $1,310

Housebound (w/ dependent) $19,710 $1,642

A&A (single) $21,466 $1,788

A&A (w/ dependent) $25,448 $2,120

Surviving Spouse

Medical Deduction (5% of Maximum Annual Pension Rate) $431

ANNUAL MONTHLY

Base Pension $8,630 $719

Housebound $10,548 $879

A&A $13,794 $1,149

Two Vets Married to Each Other

ANNUAL MONTHLY

Base Pension $16,851 $1,404

One Housebound $19,710 $1,642

Both Housebound $22,566 $1,880

One A&A $25,448 $2,120

One Housebound and One A&A $28,300 $2,358

Both A&A $34,050 $2,837

Victoria L. Collier, CELA, Elder Care Attorney, Co-Founder of Lawyers for Wartime Veterans and Lawyers with Purpose, Veteran, author of 47 Secret Veterans Benefits for Seniors and most recent book, Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit.

If you want to learn more about expanding your VA practice, or starting a VA practice, Victoria Collier will be offering a LIVE VA Accreditation Course. She'll be teaching the necessary information for accreditation but also providing updates and practice tips based on current VA practices February 4th in Charlotte, NC. If you provide legal advice to veterans about specific VA claims, you MUST be accredited by the VA. Join us February 4th, where you'll LIVE in the room with Victoria L. Collier for your accreditation. Contact Kyle Russ at kruss@lawyerswithpurpose.com for registration information.

*Before attending the course, you must have submitted an Application for Accreditation, VA form 21a, to the Office of General Counsel, and received approval.

The VAAS™ Difference In VA Benefits Estate Planning Software

January 11, 2015

by David Zumpano with No Comment Estate Planning Drafting Software

I recently read a statistic that indicated one in three seniors are veterans. As estate, elder law and asset protection attorneys, we are often challenged when we encounter seniors in need of care, who are veterans seeking to protect their assets and qualify for Medicaid. The challenge is doing so while ensuring they can also be eligible for the Veterans 'Administration (VA) Aid and Attendance (A&A) benefit without messing up their other planning. Typically, there are three major challenges when doing estate planning, Medicaid planning and VA A&A benefit planning for the same client. First is determining if the veteran is eligible for Aid and Attendance benefits and its impact on the asset protection and Medicaid plan. Second is properly filing the application to ensure benefits are received timely. And third is keeping up the many changes regularly occurring in the VA’s benefits regulations and rules.

To keep up with these critical components of having an Aid and Attendance practice, a practitioner can have the VAAS™ difference to achieve it. VAAS™ is the Lawyers with Purpose Veterans' Administration Application Software. The power of VAAS™ is it takes you through a series of questions that will quickly identify not only if the veteran is eligible for benefits, but also identify the excess assets in planning strategies to make them eligible. It calculates and provides a VA calculation worksheet for you to track your thinking process and the law to support it. Secondly, and critical to the process, is VAAS™ is the only software in the legal industry that completes and prints the Veterans' Aid and Attendance application forms ready for filing.

The interview asks the relevant information on the client and based upon your answers, will properly identify the forms necessary and ask you all the relevant questions to complete them for filing of a benefits claim. And finally, subscribers of VAAS™ software get access to the nation's leading veteran’s benefits attorney, Victoria Collier, who hosts calls three times a month keeping you apprised of the changes in the Veterans' Administration policies affecting Aid and Attendance benefits as they occur as well as provides regular helpful tips and techniques to simplify your A&A practice.

Many of us practicing in the veterans' benefits area understand how complicated it can be when considering the Medicaid and estate planning issues in conjunction with VA benefits planning. That's why it is important to ensure you have the proper internal systems, knowledge and access to industry experts to ensure your VA A&A practice remains cutting edge and gets the results your client wants. For a demo of how the VAAS difference can impact your VA practice click here.

If you want to know more about Lawyers With Purpose, and what it's like to be a member, and part of our community of elder and estate planning attorney's nationally, join us for our Practice With Purpose Program this February 3rd – 5th in Charlotte, NC. But hurry and register today – the hotel cut off is TOMORROW – Monday, January 12th! And we only have 6 spots left!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

The Pitfalls Of Aged Distribution

January 6, 2015

by David Zumpano with 4 Comments Asset Protection Estate Planning Drafting Software Legal Technical

Many lawyers counsel clients to make distributions to beneficiaries at certain ages. Typically it’s distributed one-third at 25, one third at 30 and one third at 35 or some variation thereof. This is a mistake on many levels.

In fact, when properly examined, it’s contrary to most clients’ goals. Many clients’ primary goal with staged distributions is to “protect” the assets for the beneficiary. Jane was a client with only one son who was going to inherit all of her $750,000.00. She was concerned about his ability to manage it so she asked me to distribute it in staged distributions so he had time to come to understand how to manage it.

After Jane died her son, Bob, was disappointed to learn that his mom “didn’t trust him”. I shared with Bob that his mom adored him but just wanted to “protect him” from his inexperience of other “good intending” people. Well the rest of the story played out and after the first five years, Bob had blown through his first distribution. When he was entitled to his second distribution he actually asked the trustee not to give it to him and asked how he can better manage it to ensure that it was protected from being lost like his first third.

When Bob was entitled to his final distribution, five years later, his portfolio had grown over seventy percent from when mom died. Today, Bob still has all his money and what it’s grown to and it’s protected from his predators and creditors.

We accomplished this by permitting distributions at the discretion of the trustee, who, by the way, was Bob, rather than forcing the distribution out. The downsides of staged distribution at different ages is that it forces the money out of the asset protection trust and makes it available to all the creditors and predators of the beneficiary. When properly designed, like for Bob, the assets can be held for the beneficiary with the beneficiary in full control of when distributions are made out of the trust to them. Not only will this assure asset protection but it will also assure all of the growth of the assets will be protected while allowing the beneficiary access to the use and benefit of the money for their entire lifetime.

In fact, when examined closely, beneficiaries usually use the trust funds to purchase assets like a home or vacation property. This subjects the new asset to the creditors and long term care costs of the beneficiary. All these risks are avoided, when the beneficiary has his separate share asset protection trust purchase the asset. Before you design a plan that forces money out of protection trusts, consider instead educating your client into how a lifetime asset protection trust with the kids in control can ultimately serve the clients’ needs.

To learn more about Asset Protection Strategies and how Irrevocable Pure Grantor Trusts meet many needs of clients not traditionally considered join us at our Asset Protection & Medicaid Practice With Purpose Program. Hotel cut off is January 12th so register today. This event will sell out!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

VA Benefits Training – Not Just For Lawyers

January 2, 2015

by Lawyers With Purpose with No Comment Estate Planning Drafting Software Legal Technical VA

VA Pension Benefits Expert, Victoria Collier, is providing a live three hour VA Accreditation Training on February 4, 2015 in Charlotte, NC for just $249! But space is limited so register today!

The course meets all the initial accreditation requirements as well as on-going VA accreditation needs.

While that is essential for lawyers to continue to help Veterans, the course is also very instructive for support staff who actually do the day-to-day work to push the applications through. Although legal assistants and paralegals will not get CLE credit to take this course, it is an excellent primer and update of what’s happening now at the VA. Every person in the office who touches your VA claims would benefit from this training.

Make a commitment to train yourself and train your staff. You can learn together at the next live event hosted by Lawyers With Purpose. To register email Kyle Russ @ kruss@lawyerswithpurpose.com.

Lawyers With Purpose

** Before attending the course, you must have submitted an Application for Accreditation, VA Form 21a, to the Office Of General Counsel and received approval.**