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Distinguishing Between Irrevocable Trusts When Planning for Public Benefits

October 19, 2015

by David Zumpano with 2 Comments Asset Protection Estate Planning Drafting Software

A question comes up for many practicing lawyers and allied professionals as to what trust to use when clients want to protect their assets and ensure eligibility for Medicaid and other needs-based benefits, should the need for long-term care arise. The Irrevocable Pure Grantor Trust (iPug®) has long been a trust of choice in providing clients with the most flexibility, the greatest protection and the greatest amount of control. Understanding the distinctions between the various iPug Trusts, and how to use them to accomplish your client's goal, is essential.

There are three iPug protection trusts utilized for clients, and each of them are Medicaid compliant, ensuring the assets within them are not considered available resources in determining their eligibility for Medicaid benefits.

The three iPug Trusts are the MIT, the FIT and the KIT. Let's cover each of them separately.

The MIT, My Income Trust, is an income-only trust that allows the grantor to be the trustee to manage and distribute the assets as the grantor desires, other than to themselves or their spouse. Under Medicaid law, any trust created by an applicant or a spouse shall be deemed an available resource to the extent the applicant or spouse is able to benefit from it. That's why it is essential in all three trusts that the grantor does not have access to the principal directly or indirectly by any means.

For example, the court in Doherty held that a trust that contained the provision that allowed the trustee to terminate the trust if they deemed it appropriate and return the trust to the "beneficiary" was an available resource because, even though the trustee did not terminate the trust, the authority for them to do so would have resulted in the assets being re-conveyed back to the grantor. This incidental approach was enough to have it be considered an “available resource.” That's why it's essential that attorneys be certain that within the four corners of the trust document, there is no authority in any person or any condition which could occur so as to permit the grantors to access principal.

The Doherty discussion has no impact on iPug Trust use because iPug protection trusts have long stated that if the trust is terminated for any reason, the proceeds go to the "remainder" beneficiaries. This is an example of how to ensure that there is no way for the trust assets ever to get back to the grantors. iPug Trusts also permit the grantor the power to change the beneficiaries of the trust and the time, manner and method of distribution of trust assets at any time but without the right to change it back to the grantor or their spouse. This gives the client the maximum control available under the law. While the grantor as trustee and the retained powers and protection for beneficiaries are unusual to all iPug Trusts, let's examine the distinctions between these iPug Trusts. The MIT permits the grantor to retain a right for their life to the income from the trust. This ensures that the grantor can still control all of the assets and retain all of the beneficial interests from the assets, such as the interest on the bank income and the dividends from the brokers' accounts and right to live in or use the trust real estate, all without subjecting the assets to risk, and ensuring the assets are not included as an available resource in determining Medicaid benefits. The second iPug Trust is the partial MIT, wherein the grantor retains a right to only part of the income, not all of it. In that case, only the income right retained will be at risk to creditors, predators, and long-term care costs. The MIT is commonly referred to as the income only version of the iPug.

The second trust in the iPug trilogy is the control-only version, which is known as the Family Irrevocable Trust (FIT). In the FIT, the grantor retains all the rights to control and manage the assets, and has full 100 percent authority to distribute the assets to anyone they determine other than themselves or their spouse during their lifetime, but the grantor retains no right to the income or principal. The primary use of a FIT is when the client does not need the income from their assets to maintain their lifestyle because they have sufficient other income to meet their needs. The predominant benefit to the FIT Trust is allowing the grantor to remain in full control of their assets and to distribute them to the beneficiaries they choose, when they choose to distribute them (during life or after death).

In addition, the assets accumulated and held in the FIT can be held and delivered to the beneficiaries at a "step-up" in tax basis at death, which ensures the beneficiaries inherit it at the tax value as of the date of death. This will eliminate any capital gains tax to the beneficiary if they were to sell it. [All iPug Trusts ensure the assets transferred to the beneficiaries after the death of the grantor can continue in an asset protection trust for the beneficiaries for their lives, wherein the beneficiaries can have full control of the trust and full rights to the income and principal of the trust. But creditors, predators, and lawsuits will not have access to it, nor will the principal of the trust be considered an available resource for the beneficiaries' Medicaid intentions and it will not be considered a resource for purposes of the application for financial aid for children who may be in college.] The FIT is a great trust for clients who are successful and no longer need the benefits of their money but want to continue to manage and grow it during their lifetimes for their beneficiaries.

Finally, the third trust in the iPug trilogy is the KIT, this is the Kids Irrevocable trust. This trust is typically utilized to undo improper transfers done by the grantor during their lifetime. Many times clients come to attorneys having already transferred the farm to the kids. Transferring this farm or other assets such as bank accounts or brokers' accounts not only puts the assets outside the reach of the grantor's control, but more horrifically, subjects them to the risk of the transferees' creditors and predators. For example, if the child of the grantor who received the asset got divorced, died, got sued, or went bankrupt, the very assets transferred to the child by the parent will be subject to those liabilities, thereby putting at risk the parent who initially transferred them. The way to protect assets already transferred to third parties is to use the KIT. The KIT is an irrevocable trust created by the children who receive the assets, who then agree that, during the lifetime of their parent(s), they give up all right to control and access to those assets, so as to ensure they are protected from their creditors and predators at least during the lifetime of the parents. A properly drafted KIT will also ensure that the assets are protected after the death of the parents and are given back to the kids in a separate share MIT or FIT, depending upon the individual goal of each child. LWP is the only organization in the industry that provides a KIT trust that permits this type of drafting. The Kids Irrevocable Trust is also a usable tool when doing planning to ensure that a client is eligible for veterans aid and attendance and housebound pension benefits.

So utilizing irrevocable pure grantor trusts is essential in today's estate planning environment. The use of MITs, FITs, or KITs further distinguishes your skills as an attorney to meet the individual needs of clients. The LWP iPug Trust Drafting system carefully identifies each of these trusts and triggers warnings and instructions when choices are made that can be better served in one of the other trusts. Don't go it alone. Trust the technology and support LWP gives you to provide the best options for your client. To request a complementary live demo of our Drafting Software, click here now.

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

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Are you busy?

October 15, 2015

by Lawyers With Purpose with No Comment Systems & Processes

I appreciate how incredibly busy you are, trust me.

Not so busy that you don't have time to generate leads and get hired by clients…

…but still busy.

As we learned after getting great feedback over the past week, it appears many attorneys like you are too busy to take a look at our complete, automated, integrated practice management, marketing and document drafting system to see if it was worth the investment.

Because of this, I’m going to do something extraordinary.

I'm giving you full access to “The Revenue Focuser 90 Minute Virtual Workshop™.” This is the very tool that allowed my partner, David J. Zumpano, CPA, Esq., to create an estate and elder law practice that generated the revenue he wanted (he started paying himself first on day 1). Because of this tool, he was able to work only 40 hours a week and hire his first full-time team member to handle all of the non-revenue-producing activities!

This isn't a “teaser” tips and techniques tool that’s going to force you to print a tree. Click here to download the 90-Minute Revenue Focuser Virtual Workshop. We have had attorneys across the country double their revenue – not just because they completed the worksheet, but because they actually started charging the fees we recommend. We call that FDS: Follow the dang system!

Do yourself a HUGE financial favor (“I’m not making money”… STOP that NOW!) and download here.

In your corner,

Molly

P.S. If you would like a suggested Fee Schedule, shoot me an email and I’d be happy to share Dave Zumpano’s fee schedule, which he uses every day in his practice.

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Focus on Forms: Getting Benefits for Widows

October 13, 2015

by Lawyers With Purpose with No Comment Estate Planning Drafting Software Systems & Processes VA

Today’s post is another installment in the Focus on Forms series that considers and discusses some of the most common forms associated with Department of Veterans Affairs (VA) pension claims. The goal of the Focus on Forms series is threefold: to define the purpose of the forms; to discuss how they should be completed; and to recommend what to file with these forms. Today’s subject is the 21-534EZ Application for DIC, Death Pension, and/or Accrued Benefits.

The VA form 21-534EZ is used by a veteran’s surviving dependent to apply for non-service-connected pension, Dependency and Indemnity Compensation (DIC), and accrued benefits. The veteran’s surviving dependent may be a spouse, a parent, or a child. This form is the counterpart to the VA form 21-527EZ, however the 21-534EZ can be used to apply for the various types of benefits outlined above, while the 21-527EZ can only be used by a veteran applying for non-service-connected pension. If you are seeking service-connected compensation benefits for a veteran, you would use the VA form 21-526EZ.

When you download the 21-534EZ from the VA website, the document has 11 pages: six pages of instructions and five pages of form. There is much valuable information provided here. The first few pages of instructions explain what is, and how to file, a Fully Developed Claim (FDC), which is a relatively quicker claim process compared to the Standard Claim Process. The remaining instruction pages discuss what evidence you should provide to support your claim, depending on the type and/or level of benefit sought: Base, Housebound, or Aid & Attendance. The last page of instructions also includes information regarding benefits for a helpless child of a veteran, validity of marriages, and the effective date.

There are 13 sections to VA form 21-534 EZ, numbered with Roman numerals. Three of these are labeled “Must Complete,” while the other 10 sections are to be completed only if applicable. You may recall that this is the opposite of VA form 21-527EZ, which has 10 compulsory sections and three optional. The reason for this is partly because the form 21-534EZ can be used for more than one type of benefit, thus some sections only apply to a particular benefit. Another reason is that, since there usually is a prior claim already on file with the VA, there is certain info that the VA already has, and thus it does not need to be provided again. The sections you should complete for death pension are sections I to III, VII to IX, and XI to XII – that is 8 sections total.

Sections I and II are for the veteran’s and claimant’s Personal and Service Information, respectively. Most of the fields here are self-explanatory. If the surviving spouse previously filed a claim with the VA or you already filed an informal claim/intent to file claim, you may have the VA file number to put in field 6; otherwise put “Unknown.” If the VA ever assigned the veteran a file number, the surviving spouse inherits that same file number. Field 13 asks if the claimant is a veteran, oddly enough because if the claimant is a veteran, he/she should be filling out forms other than the VA form 21-534EZ. Field 16 allows you to select which benefits the claimant is seeking, and you may check all that apply. The instructions for Section II Veteran’s Service Information indicate that it need not be completed if the veteran was receiving VA Compensation or Pension benefits at the time of death, because it is assumed that this would already be on file with the VA; however, as incomplete forms are not always received well by the VA, it is recommended that you complete this section despite these instructions.

Section III is for Marital Information and by definition is applicable only when the surviving spouse is completing this form. Completion of this section may make or break a claim, the reason being that with very few exceptions the surviving spouse only has a claim to the veteran’s pension by virtue of marriage. In most cases, if the claimant cannot prove a valid marriage to the veteran, the claim will be denied regardless of how eligible he/she otherwise might be. The next three sections are only required if the claimant is a dependent child (Section IV), the veteran’s parent (Section V), or is seeking Dependency and Indemnity Compensation (Section VI); otherwise they can be crossed off as non-applicable.

The next three sections (VII to IX) are related to finances and are similar to those same-numbered sections in VA form 21-527EZ. Section VII: Net Worth is for reporting all countable assets of the claimant, and any dependents should be listed here as of the effective date. Sections VIII and IX are both for reporting income of the claimant and any dependents as of the effective date. The difference is that Section VIII: Gross Monthly Income should be used to report income that is received in fixed, monthly payments, such as Social Security or retirement pension, while Section IX: Expected Income is for reporting annual amounts of income that are not received in fixed, monthly payments. The effective date is the date that the informal claim or intent to file a claim was filed, or if not filed, the date the formal claim was submitted. Every source of income received by the claimant and any dependent should appear in either section VIII or IX, but never in both.

Section X may be used for reporting unreimbursed medical, last illness, burial, or other expenses; however, if there are many expenses, the VA form 21P-8416 Medical Expense Report can be used, in which case section X is completed by cross referencing VA form 21P-8416. The last page and the three last sections of form 21-534EZ consist of Direct Deposit Information (XI), Claim Certification and Signature (XII), and Witnesses to Signature (XIII). The first two of these sections must be completed and the claimant must sign Section XII, as the VA does not recognize Powers of Attorney. The final section is only applicable if the claimant signed the previous section with an “X,” in which case two witnesses must also sign to vouch for the identity of the signer.

What you file with the VA form 21-534EZ should support the data you entered in the 13 sections of the form. This would include photo identification, birth certificate and military discharge paperwork. More importantly, include marriage certificates, divorce decrees and/or death certificates to properly document marriage to the veteran and the proper dissolution of any prior marriages. The practice in our firm is also to provide financial statements to support the net worth and income as of the effective date reported in sections VII to IX, although this is not required by the VA.

In summary, the VA Form 21-534EZ is the primary application form for a veteran’s surviving dependent seeking death pension benefits, Dependency and Indemnity Compensation (DIC), and/or accrued benefits. It is best practice to complete all three mandatory sections of this form and any of the remaining 10 sections, if applicable, and to provide all documents that support what is declared on the form. Keep up to date with changes to VA forms by updating your LWP-CCS software whenever new releases are available and by checking the VA website regularly.

Did you know we offer a FREE "VA Tech School" webinar every month? Click here to register now for this complementary webinar on Wednesday, November 4th where we'll be talking about all the changes that have happened and will happen to VA Benefits in 2015 and 2016 that may impact how you do VA planning in your firm. Register now to find out what you will miss from the Tri-annual Practice Enhancement Retreat legal-technical focus session “Changes to VA Benefits in 2015/16 and How to Profit From Them”.

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers with Purpose.

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 with Purpose; and Co-Founder of Veterans Advocate Group of America.

WEBINAR: Turning a Death Benefit Into a Life Care Benefit

October 13, 2015

by Lawyers With Purpose with 2 Comments Asset Protection

Too often seniors who own life insurance policies will surrender them or allow them to lapse without realizing they can access a higher conversion value that can be used to pay for long-term care supports and services. Many policy owners who are getting ready for long-term care face tough choices about their policy – can they afford to continue paying premiums, and how will the policy affect Medicaid eligibility? Many are forced to abandon their policies despite having made premium payments for years.

But there is a better option for a life insurance policy – converting it into a Long Term Care Benefit Plan. More and more elder law attorneys are coming to realize this is a viable option for clients in search of funding options for senior care. Instead of abandoning a policy they have been making payments on for years, they are selling the policy into a tax-free benefit** account that is both Medicaid and VA Aid & Attendance qualified.

The range policy owners can receive is 20%-60% of the death benefit, and their money goes into an irrevocable, FDIC-insured account that makes monthly payments directly to any form of senior care they choose. If their needs change, the account can be adjusted to pay for escalating costs and/or changing care providers and environments.

Any form of life insurance policy is eligible to be converted, including term, whole, group and universal life policies. To qualify, the policy must have a minimum death benefit of $50,000 and the insured must have an immediate need for care (typically within 90 days or less from time of enrollment). Think of a Long Term Care Benefit Plan as the opposite of long-term care insurance. To buy long-term care insurance, you must be young and healthy. To convert a life insurance policy into a Long Term Care Benefit Plan, you must have an immediate need for care (the older and sicker you are, the higher percentage amount you will get for the policy) and the in-force policy can't be less than $50,000 of death benefit.

As an alternative to abandoning a policy for little to nothing in return, converting a life policy into a Long Term Care Benefit Plan provides the highest possible value in the form of a protected account that is tax-advantaged as well as Medicaid and VA qualified.

Please join Victoria L. Collier, along with Chris Orestis of Life Care Funding on Thursday, October 15th at 3:00 EST to learn more about this option for clients in search of funding options for senior care. Click here to register now for this FREE WEBINAR.

** Please note that the actual tax treatment of the proceeds from the sale of a life insurance policy will depend on many factors, including but not limited to who owns the policy, the health of the insured, the use of proceeds, the size of the estate and the state in which the policy owner lives (for purposes of state taxation). This material does not constitute tax, legal or accounting advice, and neither Life Care Funding, LLC nor any of its agent, employees, or representatives are in the business of offering such advice. The information above cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. Anyone interested in selling a life insurance policy in order to fund Long Term Care Benefits should seek professional advice based on his or her particular circumstances from an independent tax advisor.

Roslyn Drotar – Lawyers With Purpose

The VA Fiduciary Process

October 9, 2015

by Lawyers With Purpose with 2 Comments Estate Planning Drafting Software Systems & Processes VA

What is the VA Fiduciary Process?

The veterans benefits fiduciary process occurs when the Department of Veterans Affairs (VA) has approved a claim but has proposed a finding of incompetency of the claimant. This means that the VA believes the claimant does not have the mental ability to manage receipt of VA funds. To help the claimant with his or her VA benefit, a fiduciary needs to be appointed. The term “fiduciary process” is used to describe what happens from the time the VA approves a claim with a proposed finding of incompetency through the time the VA appoints a fiduciary and releases any withheld retroactive benefits. This process can take from three months to over a year to complete.

When can you expect to encounter the VA Fiduciary Process?

You will generally know from the first meeting with a client or client’s family members whether to expect a proposed finding of incompetency that would require that a fiduciary be appointed. At that meeting, you should note for the file the client’s medical condition, especially as it relates to competency. Another alert is the way that the doctor completes the physician statement (VA form 21-2680). If a claimant has a diagnosis of dementia, and/or if the physician indicates on the statement that the claimant does not have the ability to manage his or her own financial affairs, you can expect a proposal of incompetency by the VA.

What should you do when filing the original claim?

If you expect a proposal of incompetency, include a VA form 21-4138, Statement in Support of Claim, regarding the fiduciary process with the fully developed claim. Your statement should acknowledge evidence of incompetency, waive the right to carry a gun under the Brady Handgun Bill, waive the right to a hearing, and include the name, relationship, and contact information for the person who will be nominated as fiduciary (usually a competent spouse or other family member). The purpose of the proposal of the finding of incompetency is to give the claimant a 60-day due process period to object to this proposal. In submitting VA form 21-4138 acknowledging evidence of incompetency, the goal is to expedite the process by waiving the due process period.

What about after a claim is approved?

After filing the formal claim, you will not hear anything about the proposal of incompetency or the fiduciary process until the approval letter arrives. This letter may state that retroactive benefits are being withheld because a finding of incompetency has been proposed. However, the claimant may also receive a separate fiduciary letter regarding their legal rights during the fiduciary process. The VA will start to pay the monthly awarded benefit shortly after the date of the award letter, but any money owed back to the effective date of the claim will be withheld until a fiduciary has been appointed. Even though you may have already submitted a waiver of this waiting period with the formal claim (on the aforementioned 21-4138, Statement in Support of Claim), you should respond again by re-sending the VA form 21-4138 regarding the fiduciary process. This time, file the statement with the Pension Management Center as well as mail it directly to the appropriate fiduciary hub (the VA department that administrates the fiduciary program).

The law firm generally does not get copied on any correspondence from the fiduciary hub, even when the lawyer is acting as the VA representative. The attorney is kept in the loop for the purpose of the claim adjudication process, but once there is an approval with a proposed finding of incompetency, the fiduciary hub deals directly with the nominated fiduciary. Thus, the representative must rely on the claimant or proposed fiduciary to get information and updates. However, you can call the fiduciary hub as long as you are the VA-recognized authorized representative at (888) 407-0144 for a status update.

Then what?

Then it is a waiting game until a fiduciary hub field examiner contacts the nominated fiduciary to schedule an in-person interview. You should instruct the client to contact you when they have scheduled this interview so you can then provide further guidance as to what they should say or not say during the interview. The nominated fiduciary should expect to provide references, a credit check and possibly a surety bond if the retroactive benefit is large. After the interview has taken place, the fiduciary hub will send a letter appointing the fiduciary. The last action the firm takes is to follow up with the fiduciary to confirm that the withheld benefits are deposited and that the lump sum deposit is correct.

If you're a Lawyers With Purpose, for further information regarding the fiduciary process, especially recommendations regarding the interview and the yearly accounting, log into the members section of the website and take a look at the webinar “VA Tech School – Fiduciary Process”. The Lawyers with Purpose software and systems have an automatic workflow to assist members with this part of the VA application process.

Did you know we are hosting a FREE webinar on October 15th at 5 EST on the VA Proposed Rule Changes. Attend this webinar presented by Victoria L. Collier, CELA, the nation’s expert on VA Pension Benefits and Lawyers With Purpose to discuss these sweeping changes to the laws. At the webinar you will learn the details of the proposed changes, how to advise your clients between now and when the law changes, when we can expect the laws to change and how you can influence a more positive change. Click here to register now.

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC, and Director of VA Services for Lawyers With Purpose.

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; and Co-Founder of Lawyers With Purpose.

Congratulations To Richard Winblad, LWP Member Of The Month

October 9, 2015

by Lawyers With Purpose with No Comment Uncategorized

What is the greatest success you’ve had since joining LWP?

The greatest success that I’ve had since joining LWP was the ability to counsel and find a solution for a Veteran and his family. They came to my office with a huge unmanageable memory care expense. Using the training enabled me to identify the availability of the Aid and Assistance Pension. We found answers for what appeared to be a hopeless situation.

What is your favorite LWP tool?

The software simplifies trust package creation. The data prompts are well thought out and designed to prevent drafting mistakes. However, I find that the systems are the best tools. The RMS systems, videos and materials are outstanding.

How has being part of LWP impacted your team and your practice?

My team is getting excited about the materials and watching training videos. They will get a first-hand experience at the upcoming retreat. Personally, the LWP training has given me the ability to help those facing uncertainty find solutions. Not only is this a confidence booster but it also motivates me to find more people to help.

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Understanding Grantor Trusts

October 7, 2015

by David Zumpano with No Comment Estate Planning Drafting Software

Many lawyers are perplexed when utilizing grantor trusts in estate, asset protection and benefit planning. It is easy to become confused when comparing grantor trusts with pure grantor trusts. Let's review these issues systematically.

The Internal Revenue Code provides that if a trust triggers any of the provisions identified in Sections 671 through 679 of the Internal Revenue Code, all income from that trust will be taxed to the grantor regardless of who receives it. The most typical provisions in a trust that trigger grantor trust status are if the grantor retains an interest in the income or principal from the trust, the power to control who gets the income or principal, the power to revoke the trust, or the right to borrow money from the trust without adequate interest or security. Grantor trust status also occurs if the grantor has the right to pay premiums on life insurance on the grantor. Interestingly, triggering a "grantor trust" status does not necessarily trigger the principal of the trust to be included in the estate of the grantor at death. It's merely an income tax impact.

To determine if assets in a trust are included in the grantor's estate at death for estate tax purposes, one must look to the provisions of Sections 2035 through 2042 of the Internal Revenue Code to determine whether estate tax inclusions are triggered. Inclusions are typically caused by provisions that allow the grantor the right to possess or enjoy the property of the trust or receive the income or principal of the property from the trust, or to be able to designate who will.

Other provisions include maintaining a revisionary interest to the grantor in excess of 5 percent, or permitting the grantor to have any other interest in the trust at death. While some of the grantor trust provisions can also trigger estate tax inclusion, one can often craft a trust to ensure that the principal of the trust is not included in the estate of the grantor, but the income tax is. This strategy of “Grantor Trust” status allows additional gifts by the grantors that are not subject to the annual gift tax exclusion. Restated, the additional income tax being paid by the grantor is money that would otherwise have been paid by the trust to beneficiaries who received the proceeds. Having the income taxes come out of the grantor's assets, and not the trust principal, permits the additional accumulation of funds for the beneficiaries without any gift tax consequence for the grantor. Most typically, irrevocable life insurance trusts are grantor trusts for income tax purposes, but are not included in the estate of the grantor at death.

So then, what is a Pure Grantor Trust? That is a term of art to describe a trust that taxes the grantor on the income (grantor trust) and ensures that the assets of the trust are included in the estate of the grantor. A Pure Grantor Trust is both a grantor trust for income tax purposes and is included in the estate of the grantor at death. Fifteen years ago, many would consider such a trust as malpractice, but since the change in the estate tax laws in 2001, this has become the preferred plan of 99.8 percent of Americans.

Why?

Because they are not subject to federal estate taxes, and including the assets of the grantor in their estate provides for a "step up" in tax basis after death. This ensures that their heirs inherit the property at the fair market value determined at the grantor's date of death, rather than carry-over tax basis, in which the heirs inherit the property at the cost the grantor paid for it. Unfortunately, many lawyers are still stuck in the pre‑2001 mindset and restrict clients to plans based on the estate tax avoidance rules. The key now is understanding when to use each type of trust.

Typically individuals with more than $5,430,000 or couples with more than $10,860,000 are concerned with the estate tax and would be more likely to use the traditional irrevocable trust that avoids estate tax inclusion in the grantor's estate at death. Individuals with less than $5,430,000 are better served using the Irrevocable Pure Grantor Trust™ (iPug®) to achieve asset protection from creditors, predators, and long-term care costs, and to ensure they remain eligible for needs-based benefits such as Medicaid.

Distinguishing the different trusts and their uses comes down to identifying the need of the individual client. Obviously, revocable trusts are pure grantor trusts and have all income taxed to the grantor, and all of the principal is included in the estate of the grantor. Revocable trusts are traditionally used to provide for the proper distribution and management of assets during the life or after the death of the grantor. Alternatively, if an individual has a taxable estate under federal or state law, then a non‑grantor trust is typically the trust of choice to ensure that the principal of the trust is not included in the grantor's estate. Whether the income is taxed to the grantor or not is also client goal specific. Notwithstanding, in most cases practitioners will choose to make irrevocable trusts grantor trusts to take advantage of the additional reduction in the grantor's estate and to benefit the beneficiaries by having income tax paid by the grantor.

Individuals who are not subject to estate tax and who are concerned about asset protection are better served with the iPug Trust, which allows them to be the trustee and maintain full control of the trust assets, and even allows them to retain benefits from them to the extent they are willing to risk them. For example, an income-only iPug Trust will allow the grantor rights to all of the income, which also makes the income available to the grantor's creditors and predators. These trusts have become the trusts of choice when doing Medicaid benefits planning, because they are compliant with federal and state Medicaid laws so as to ensure that the assets in the trust are not considered an available resource in determining the Medicaid eligibility of the grantor.

Finally, when planning for veteran's benefits, particularly Aid and Attendance Pension Benefits, the traditional Irrevocable Non-Grantor Trust is the trust of choice that provides the grantor is not deemed to be the owner for income tax purposes, and it is not included in the grantor's estate at death. While often these individuals are not concerned about estate taxes, the current policy of the Veterans Administration is that if any trust created by the applicant provides any benefits to the grantor, all assets in the trust are deemed available to the grantor in determining eligibility for Aid and Attendance Benefits. Therefore, when doing veteran benefits planning, the same trust is used as if doing advanced estate tax planning.

So which is the best trust for your client? All of them depend upon your client's needs. It is your responsibility to ensure how to draft the trusts in regards to the provisions of IRA Sections 671 to 679 and 2036 to 2042 and the resulting impact of Non-Grantor Trusts starters, Grantor Trust starters, or Pure Grantor Trusts starters. That's why the Lawyers with Purpose client-centered trust software system is your answer to keep it all straight, because it warns you if you choose inconsistent options that may trigger different results based on the client's intentions. Don't go it alone, let Lawyers with Purpose show you how.

If you want to know more about our estate planning drafting software, schedule a free live demo by clicking here and discover the most powerful, flexible and easy to use software that will help your grow your practice.

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

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Who Has Your Back?

October 6, 2015

by Lawyers With Purpose with No Comment Systems & Processes

I was sitting in a hotel room in Florida at 11:24 in the morning when my cousin called. My aunt was in the hospital after having a stroke and learning she has a brain tumor. It was Saturday and the hospital wanted to discharge her to a rehabilitation facility on Monday. Like many of our clients, my aunt had completed a will in the 1980s but did not have a financial power of attorney or health care directive. Knowing that I am an elder care attorney, my cousin reached out to me for help.

We spent almost an hour on the phone outlining priority actions. Although I could educate my cousin and tell her what needs to be done, I could not personally help because I don’t know the laws in Texas, where I am from and where my aunt lives. Fortunately, I do know people.

Immediately I reached out to my friend and colleague, Sandra Ard, from Ard Law Firm, PLLC, www.ArdLawFirm.com, in Dickinson, Texas. After returning home from getting her nails done, Sandy spent the rest of her Saturday afternoon preparing legal documents and driving to Galveston to meet my aunt at the hospital to execute them. Sandy could have said, “Call me on Monday.” But she didn’t.

I would not expect any lawyer, even a friend, to take such remarkable measures for a client. I did not expect Sandy to do so just because it was my family member who needed help, but I was hopeful.

I was right to be, for one simple reason: Ard Law Firm is a member of Lawyers with Purpose. Sandy is the epitome of what a Lawyer with Purpose is and shows exactly what members in our community do for each other. Sandy has my back!

Without Lawyers with Purpose, I would not know Sandy Ard. Without Sandy Ard, I would not have been able to help my cousin and aunt so quickly. Although many organizations offer similar software and training, Lawyers with Purpose has a community that cannot be compared or copied.

Want to experience this for yourself?

I may be able to get you in the door for the Practice Enhancement Retreat, Wednesday, October 21st – Friday, October 23rd. Email me at vcollier@lawyerswithpurpose.com if you’re at all interested – I'll have your back – but do so quickly!

Victoria L. Collier, Co-Founder, Lawyers with Purpose, LLC, www.LawyersWithPurpose.com; Certified Elder Law Attorney through the National Elder Law Foundation; Fellow of the National Academy of Elder Law Attorneys; Founder and Managing Attorney of The Elder & Disability Law Firm of Victoria L. Collier, PC, www.ElderLawGeorgia.com; Co-Founder of Veterans Advocates Group of America; Entrepreneur; Author; and nationally renowned Presenter.

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When Clients Die: VA Accrued Benefits Claims

October 2, 2015

by Lawyers With Purpose with No Comment Legal Technical VA

It happens more often than one would like – claimants dying before the VA approves their claim. What do you do when this occurs? Is there anything you can do to preserve the benefit your firm worked so hard to obtain for the client, or does the claim die with the claimant?

The answer depends on two factors: 1), whether the claimant has a surviving spouse; and 2), how far along in the process the VA claim was on the date of death.

It matters if the claimant has a surviving spouse or other dependent, because that individual may be able to take over a pending claim as a substitute claimant. Section 5121A, (a)(1) of Title 38 of the U.S. Code regarding Substitution in Case of Death of Claimant states, “If a claimant dies while a claim for any benefit under a law administered by the Secretary, or an appeal of a decision with respect to such a claim, is pending, a living person who would be eligible to receive accrued benefits due to the claimant under section 5121 (a) of this title may, not later than one year after the date of the death of such claimant, file a request to be substituted as the claimant for the purposes of processing the claim to completion.” In the case of the death of a veteran, the living persons who would be eligible to receive accrued benefits would be, in this order:

The veteran’s spouse;
The veteran’s children (in equal shares);
The veteran’s dependent parents (in equal shares).

In the case of the death of a surviving spouse or remarried surviving spouse, the benefits would be payable to the children of the deceased veteran, and in the case of the death of a child, they would go to the surviving children of the veteran who are entitled to death compensation, dependency and indemnity compensation, or death pension. This type of substitution is requested by filing a VA form 21-0847 Request for Substitution of Claimant upon Death of Claimant. This form must also be accompanied by the actual application for accrued benefits. There are two VA forms that are used to apply for accrued benefits: the VA form 21-534EZ and the 21-601. The VA form 21-534EZ has multiple uses, one of which is applying for accrued benefits for the surviving spouse or other dependent of a deceased claimant.

The VA form 21-601 is solely for applying for accrued benefits, as its name “Application for Accrued Amounts due to a Deceased Beneficiary” makes clear, but it is intended for those who are not a surviving dependent of a deceased veteran or other claimant. The prerequisite for this type of claim is that the person seeking accrued benefits must have paid or owe for the claimant’s last illness and burial expenses out of their own pocket. As described in the VA Fact Sheet on “Accrued Benefits and Substitution,” “If there are no living persons who are entitled to accrued benefits on the basis of relationship, VA will pay accrued benefits to reimburse the person(s) who paid for or who are responsible to pay for the Veteran’s last illness and burial expenses. . . . The amount of accrued benefits payable as reimbursement is limited to the actual amount of expenses paid, and the amount of accrued benefits available.”

It matters also at what point in the process the VA claim was on the date of death, because that can determine whether, in fact, accrued benefits even exist. Per page 5 of the directions for VA form 21-534EZ, accrued benefits are benefits that “were due the veteran based on existing ratings, decisions, or evidence in VA's possession at the time of death, but the benefits were not paid before the veteran's death.” It may seem obvious, but if nothing has been filed with the VA, there is no such evidence and thus there are no potential accrued benefits. This is another very important reason why you should file a claim as soon as a client qualifies.

This would also seem to suggest that if only an Intent to File/Informal Claim has been filed, accrued benefits might not be payable. Fortunately, this should not affect the surviving dependent of a veteran as long as they are eligible in their own right for VA death pension and file within a year of the death of the veteran. The VA should grant accrued benefits as well as award death pension back to the month of the veteran’s death, regardless of what was on file with the VA at the time of death. For an unrelated third party, it is unclear whether the VA will consider a VA form 21-601 after the filing of an Intent to File/Informal Claim, but before the filing of the formal claim. However, be sure to supply the VA form 21-527EZ with any accrued benefits claim if that form was never filed with the VA.

If a client dies after the formal claim has been filed, but before the receipt of funds in the claimant’s account, an accrued benefits claim can be submitted even if the VA has not started processing the claim. As long as the information on file with the VA supports the deceased claimant’s eligibility, benefits retroactive to the original effective date could be claimed. Again, the identity of the survivor will determine what form is used: the 21-534EZ for a surviving dependent of the claimant, or the 21-601 for all others, including unrelated third parties.

Given that there is no way to control if and when your client dies, how do you prepare your firm as well as your client’s family to deal with such unfortunate circumstances? The best way is to arm yourself with the knowledge of the options at every stage in the VA claim process when a claimant dies. Also, remind your clients at every stage to keep you informed of any decline in the claimant’s health. That way, when your firm gets that phone call or email with the bad news of a client’s death, you will be ready to guide your client’s family in the right direction to preserve the benefit that that client did not live to receive.

Did you know we offer FREE "VA Tech School" the first Wednesday of every month! Join us Wednesday, October 7th at 12 EST where Victoria L. Collier will be talking about "Denied Benefits Due to Transfers of Assets: How to Appeal and Win." Click here to register.

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers With Purpose.

Focus on Forms: Third Party VA Forms – the 21-22a and 21-0845

September 29, 2015

by Lawyers With Purpose with 5 Comments Estate Planning Drafting Software Legal Technical VA

This post is an installment in the Focus on Forms series, which considers and discusses some of the most common forms associated with Department of Veterans Affairs (VA) pension claims. The goal of this post – like all those in the Focus on Forms series – is threefold: to define the purpose of the forms; to discuss how they should be completed; and to recommend what to file with these forms. Today’s subject is the forms related to third parties that may be involved in a pension claim, specifically, the 21-22a and the 21-0845.

Purpose of the 21-22A and the 21-0845

The VA forms 21-22a and 21-0845 are used to establish representation of a claimant by a third party and authorize the release of information to a third party, respectively. The VA does not recognize Powers of Attorney and will only speak or release information to a claimant unless a third party has been recognized by the VA as the claimant's authorized representative or recipient of personal information. The only other person who would be able to communicate or obtain information from the VA regarding a claimant would be the person appointed as fiduciary after an award has been adjudicated and when a claimant has been deemed incompetent. These forms do not have any impact on the processing of the VA claim other than to identify to whom the VA can disclose information. If there is no third party representing the claimant, these forms do not need to be submitted to the VA.

Form 21-22a is entitled, “Appointment of Individual as Claimant’s Representative” and is to be used by accredited attorneys, accredited agents, private individuals, or service organization representatives who want to be recognized in the “preparation, presentation, and prosecution of claims for VA benefits for a particular claimant.” It is a two-page form with instructions embedded in the fields. The individual named on this form should be copied on all correspondence issued by the VA regarding the claimant.

Form 21-0845 is the Authorization to Disclose Personal Information to a Third Party and was recently updated by the VA. The current version is dated May 2015 on the lower left corner of the form. The new version is available in the latest release of the Lawyers with Purpose VA software. It consists of a single page with an introductory first page of general information and specific instructions. It is used to identify non-accredited third parties that can be given information about the claim, but it does not imply that these parties in any way “represent” the claimant. For example, a child, home health care company or assisted living facility may be listed as having authority to obtain information. Note that forms 21-0845 signed by VA beneficiaries who have been deemed incompetent will not be accepted. Therefore, it is best practices to have the claimant sign this form before submitting a claim for benefits, which is a time frame wherein the VA presumes the person is competent.

Completing the 21-22a and the 21-0845

Both of these forms are fairly straightforward. Per the Respondent Burden field in the upper right corner of these files, they should each take no more than 5 minutes to complete. This is an accurate assessment. What is likely to take more time on the VA form 21-22a is getting all the necessary signatures in the appropriate places. It can be confusing, but the claimant and the representative each sign twice – once on each page. Most of the other fields are self-explanatory. An important feature that may easily be overlooked on the 21-22a is a cleverly hidden field that has no number. It is on the second page in the section called “Conditions of Appointment.” The very fine print here indicates that if the individual named on the form as representative is “an accredited agent or attorney, this authorization includes the following individually named administrative employees of my representative.” In the space that follows, you may list all such non-accredited team members who may need to call the VA regarding the status of a claim.

The 21-0845 has similar fields to those in the 21-22a, with the notable exception that the latest version of the 21-0845 now sports the individual character boxes to aid the VA in computer processing of forms at intake. The 21-0845 also allows you to select a security question and answer that you may need to provide as confirmation that you are the person identified when you telephone the VA.

What to file with the 21-22a and the 21-0845

There is nothing in particular that is required to be filed with either of these two forms. They both should be submitted with an Intent to File a Claim or the Fully Developed Claim. They should also be included with any other correspondence you may need to address to the VA, particularly when the third party is the individual signing the correspondence.

The individual appointed as the claimant’s representative on the form 21-22a will automatically be authorized to receive the information accessible by the form 21-0845. So you may ask, why file the 21-0845 in addition to the 21-22a? Some VA call center agents employ the extra security layer provided by the form 21-0845 and will require the response to the security question before they release any information over the telephone. Furthermore, you cannot have more than one 21-0845 on file with the VA at any one time. By filing one with your client’s claim, you ensure from the outset that your firm is the only third party with access to that claim information. Subsequent 21-0845s that are filed will not replace the active one on file until the claimant has notified the VA that he/she wishes to withdraw it.

As mentioned above, neither of these forms will directly affect the adjudication of a pension claim, but when in place they allow you to manage the claim more effectively. Without the powers these forms bestow, you are dependent on receiving information secondhand and perhaps not in a timely manner, which can in turn lead to unnecessary denials.

If you want to sharpen your VA technical legal saw, we offer a free "VA Tech School" webinar the first Wednesday of every month. Click here and join us on Wednesday, October 7th at 12 EST. This month's topic is "Denied Benefits Due to Transfers of Assets: How to Appeal and Win!" Register today!

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers with Purpose.

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; and Co-Founder of Lawyers With Purpose, www.LawyersWithPurpose.com.