Special Amenities Trust: Preserve Governmental Benefits and Protect Your Inheritance

August 11, 2011 by · Leave a Comment 

By: Adil Daudi, Esq.

In the unfortunate situation of having a child with a certain disability, the stress on the parents can be overwhelming. Families in such situations face unique challenges when it comes to planning for their estate planning; as not only are they concerned about their child receiving their inheritance, but they carry the additional concern of not knowing whether their child will continue to receive their governmental benefits (Social Security Disability, Medicaid, or Supplementary Security Income).

It is imperative for any parent who has a disabled or mentally ill child to be proactive by developing a sound estate plan that takes these needs into consideration and helps ensure that their child’s inheritance will not interfere with their government benefits. One way of handling such a situation is through the use of a Special Amenities Trust (SAT). An SAT is a specific trust created to ensure that beneficiaries who are on governmental assistance can continue to receive their inheritance without losing their governmental benefits.

How Does a Special Amenities Trust Work?

There is one primary rule when it comes to a SAT: the trust funds in the trust can’t be used for food, clothing or shelter for the beneficiary. In other words, the Trustee of the trust can pay for anything the beneficiary would want for personal purposes, as long as it is not in the category of food, clothing or shelter. The rationale behind this restriction is that the funds received from the government should suffice for the beneficiary’s ability to provide food, clothing and shelter. Outside of this restriction, the trust is able to purchase any other item it deems necessary, or even luxurious. If the beneficiary wishes to go on a vacation, the trust funds could be used to cover the entire trip.

Who Manages the Trust?

One thing to note when setting such a trust is that it is deemed irrevocable. That means that once it is created, it cannot be changed, altered or amended.  If done properly, this irrevocability is not an issue because this type of trust has proven to effectively assist families and protect their beneficiary’s interests.

As part of the creating process, the individual who manages the trust would be a Trustee. The Trustee’s sole responsibility is to ensure that the funds in the trust are being distributed to your beneficiary as they request it (as long as the request is not for one of the above-listed limitations).

The Trustee, who should be a trusted family member or friend, carries absolute discretion over the distributions to the beneficiary. Prior to any funds being withdrawn, the beneficiary must seek the permission from the Trustee who would make sure that the funds would be used for the proper purpose. However, this does not limit the beneficiary from receiving their funds, it simply ensures the trust is being maintained for its primary purpose. It is very common for the beneficiary to ask the Trustee for certain items they wish to purchase, and any purchases made should be paid directly from the trust. It is important for the Trustee to make sure that the beneficiary does not have any direct access to the funds, as that would negate the purpose of the trust and possibly have the government stop their aid.

If you have a special needs child receiving governmental benefits, then there is no better planning you can do than by obtaining a Special Amenities Trust. Knowing that your child’s inheritance can impact their ability to receive public assistance is enough to take a proactive approach and build an estate plan that is carefully tailored and monitored to meet your needs and objectives that goes beyond the mere avoidance of probate and tax minimization. Be sure to speak to your local Attorney to learn the many advantages of setting up such a trust.

Every parent intends to support their child well after they have passed. Take the time and sit down with an attorney to better develop your estate plan and guarantee your child continues to receive care throughout their lifetime without having their government assistance disqualified.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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An Effective Tool to Save on Estate Taxes

June 2, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

With the limited free-time you have outside of work, drafting a sound estate plan is usually not the first thing on your list of chores.  However, a simple overlook can cost you money. When discussing an estate plan, more and more people have begun to inquire about Irrevocable Life Insurance Trusts (ILIT). An ILIT is a unique estate planning tool utilized to help minimize taxes – estate or gift, by reducing the size of your estate.

This trusted tool has saved individuals hundreds, if not thousands of dollars by limiting the amount of taxes paid upon their death. Although commonly used to effectuate a goal, many still hesitate to implement this tool as part of their overall estate plan.

With the ever-changing demands of society, it has become essential for you to carry some form of life insurance to ensure your loved ones are taken care. The amount of coverage varies depending on your family and your current lifestyle. However, there is no dispute that carrying life insurance is no longer a luxury, but rather a necessity.

Many are unaware that without proper planning life insurance proceeds become subject to federal estate taxes. This is something often overlooked until you realize the sizable amount of estate taxes you pay. The State of Michigan includes life insurance proceeds in your estate if you claim “incidents of ownership” over the policy; for example, being able to change your beneficiary; borrow from your policy; or exercise any other right that is usually possessed by an owner. By giving up these rights you are assured to have your proceeds excluded from your estate.

Another option is to list your spouse as the beneficiary. This too, reduces the value of your estate, as the proceeds will be excluded, but don’t be fooled into thinking the planning stops here. What happens when your spouse passes away? The amount your spouse inherited will be counted in his/her estate. Therefore, although you possibly avoided estate taxes upon your death, you have not completely solved the problem. This is where the effectiveness of an ILIT is best illustrated.

An ILIT is an extremely useful tool used to help minimize your estate taxes. With the estate tax exemption being widely speculated to hit pre-2001 figures, $1 million exemption at a 55% tax rate, ILITs are increasingly becoming the most popular estate planning tool. Remember, planning for today will serve you no protection for tomorrow; but planning for tomorrow will serve you protection for today.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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