- Machado & Carden discuss Choosing a Trustee
CHOOSING A TRUSTEE
Few legal restrictions exist for trustee selection. While some states may limit the ability of individuals or corporations to act as trustee without being licensed or registered by a bank or other appropriate agency, few other restrictions exist. The most obvious choices, along with some of the benefits and disadvantages of each, are listed below (Robert B. Fleming, Choosing a
Trustee, Special Needs Trusts, Stetson College of Law, October 22, 1999):
1. Parents. Parents are good choices from an economic perspective, in that they usually don’t charge a fee, unlike a professional trustee. If the plaintiff is a minor, his parents will know his needs better than anyone else and will be able to plan for his future needs.
But whether particular parents are the best choice depends on a number of factors. While they are very familiar with the daily needs of the beneficiary, they may not be able to view the entire picture objectively. They frequently suffer conflicts of interest given that the decisions they must make as trustee could potentially have a large effect on the household and the
parent/trustee’s decision may be influenced by that knowledge. The parent also may not have the necessary investment experience needed to manage the trust.
2. Other family members. Non parent family members may be appropriate to serve as trustees. They may be better able to manage the business, tax and administrative concerns of the trust. Additionally, the likelihood of self dealing may be reduced. Family members are also economically advantageous, since they will likely charge less than a professional trustee. The reduced costs and security offered by a non parent family member make then an attractive choice as trustee.
3. Family friends. A professional individual, a trusted advisor or a close friend may serve as trustee. A close friend may be willing to serve as trustee for lower fees. Additionally, a close friend may be more accessible in emergency situations and more willing to take on the social worker aspects associated with the trust than would a professional trustee. However, before
agreeing to a family friend, the attorney should do her best to make sure that the friend has sufficient experience and is sufficiently reliable to fill this important role.
Part 2 will discuss some other choices...
This series brought to you by Boston Attorneys Machado & Carden,LLP, specializing in Guardianship and Conservatorship.
Machado & Carden provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- Supplemental Needs Trust - Questions Answered Part 2
Are there restrictions on how the funds in the supplemental needs trust may be spent?
Yes and no. Yes, each public benefits program has restrictions that must be complied with in order not to jeopardize the beneficiary’s continued eligibility for public benefits.
For instance, the beneficiary would lose a dollar of SSI benefits for every dollar paid to him or her directly. In addition, payments by the trust for food, or housing for the beneficiary are considered "in kind" income and, again, the SSI benefit will be cut one dollar for every dollar of value of such "in kind" income. Some attorneys draft the trusts to limit the trustee's discretion to make such payments. Others do not limit the trustee's discretion, but instead counsel the trustee on how the trust funds may be spent, permitting more flexibility for unforeseen events or changes in circumstances in the future. The difference has to do with philosophy, the situation of the client, and the amount of money in the trust.
This series brought to you by Boston Attorneys Machado & Carden,LLP, specializing in Guardianship and Conservatorship.
Machado & Carden provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- Supplemental Needs Trust - Questions Answered Part 1
SUPPLEMENTAL NEEDS TRUSTS
• What is a supplemental needs trust?
Supplemental needs trusts (also known as "special needs" trusts) are drafted so that the funds will not be considered to belong to the beneficiary in determining his or her eligibility for public benefits, such as Medicaid, Supplemental Security Income (SSI), or public housing. These trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds, such as education, recreation, counseling, and medical attention beyond what is required simply to maintain an individual.
• Who can create a supplemental needs trust?
Very often supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). But the disabled individual can often create the trust himself or herself, depending on the program for which he or she seeks benefits. Medicaid is the most restrictive program in this regard, making it difficult for a beneficiary to create a trust for his or her own benefit. But even Medicaid has a "safe harbor" allowing for the creation of a supplemental needs trust with a beneficiary's own money if the trust meets certain requirements. This is sometimes called a "(d)(4)(A)" trust, referring the authorizing statute.
• Must the supplemental trust be irrevocable?
Yes, if it is created and funded by the person seeking public benefits himself or herself. No, if it is created and funded by someone else for the benefit of person receiving or seeking public benefits.
• Who can serve as trustee?
Choosing a trustee can be a difficult decision. The basic question to consider is whether to choose a professional trustee (such as a bank orhttp://MachadoCarden.com/) or to use family. Family and friends can serve as trustee, but it is important to consider whether they have the experience and qualifications to serve in this role. The only person who cannot serve as trustee is the beneficiary themselves as this could disqualify them for public benefits.
When choosing a trustee, the factors to be considered include the cost of the available parties, relative investment experience, and flexibility and bureaucracy. Additionally, the trustee’s knowledge of public benefits programs and their regulations, as well as the beneficiary’s special needs and circumstances, should be considered. Often it can make sense to split the necessary trustee roles, with a bank or trust company handling investments and accounting, a family member or social worker taking care of planning for the beneficiary and disbursements, and an elder law attorney advising on public benefits issues. This can be done through multiple trustees, or a single trustee advised by individuals with the necessary knowledge and experience.
Machado & Carden provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- Your Retirement - Part 3 - FAQ
The Roth IRA
As if the rules described above were not complicated enough, as part of the Taxpayer Relief Act of 1997 Congress created two new planning vehicles: the Roth IRA, named after Senator William V. Roth (R-Del.) And the Education IRA. The Roth IRA, in effect, turns a traditional IRA on its head. While traditional IRAs permit the taxpayer to shelter pre-tax earnings but taxes them upon withdrawal, the Roth IRA is for after-tax savings, but both the original deposits and the earnings on them are not taxed on withdrawal. In addition, unlike traditional IRAs, Roth IRAs are available to taxpayers already contributing to a plan at work and to taxpayers who continue to work after age 70 ½. Finally, there is no minimum distribution requirement upon reaching that age.
Eligibility for the Roth IRA is limited to taxpayers with an adjusted gross income of under $110,000 if single and $160,000 if married (to be adjusted for inflation after 1998). The contribution is limited to $2,000 a year, with smaller limits for taxpayers with income of between $95,000 and $110,000 if single and between $150,000 and $160,000 if married and filing a joint return.
Financial experts calculate that for many Americans a Roth IRA will save more money than a traditional IRA. This is because the future value of the interest earned, which will never be taxed, often far outweighs the value of deferring taxes on the investment itself. Remember, traditional IRAs may be converted to Roth IRAs this year only! Consult with your financial advisor to help decide if a Roth IRA makes sense for you.
The Education IRA
Similar to the Roth IRA, the new education IRA permits individuals to save up to $500 annually with the earnings accumulating tax free. This may be of special interest to parents and grandparents who can contribute this amount annually to accounts owned by their children and grandchildren. Although $500 a year isn't a lot of money given the size of college tuition, over time it can make a difference. It is only available to taxpayers whose adjusted gross income is under $110,000 for single taxpayers and $160,000 for married taxpayers filing a joint return, with limits on contributions for taxpayers with income between $95,000 and $110,000 and between $150,000 and $160,000, respectively (all numbers to be adjusted for inflation after 1998). If the parents' income exceeds these levels, grandparents and others with lower taxable incomes can contribute to the accounts. But only $500 can be added per child per year.
Funds can only be added to the accounts while the child is under age 18 and must be withdrawn by the time he or she reaches age 30 or turned over into an account for another family member. An advantage with these accounts over most accounts created for children is that the funds do not have to be turned over to the child at age 18. But a word of caution: if you expect that your child or grandchild will apply for financial assistance for college, it may be wiser to invest the money in your own name. The financial aid application process for college has become increasingly complex, but, in general, colleges treat assets held by the family -- especially a grandparent -- differently from assets held by the student.
Only a portion of family assets are expected to be used for a specific student's education, while all of the child's assets are expected to be used before the student draws on financial aid.
Conclusion
While the rules regarding retirement plans are complicated (and the summary above only brushes the surface) the most important lesson is to always name a designated beneficiary and to make sure that you name individuals only. (You can also name a trust that meets certain requirements beyond the scope of this article.) The second lesson is to consult with a qualified professional advisor when you reach 70 ½, if not before.
Machado & Carden, LLP provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- Your Retirement - Part 2 -FAQ
To Fix or Recalculate, That is the Question
The second consideration is not so straightforward. At your required beginning date, you may elect the "fixed" or "recalculation" method of determining your minimum distributions. As their names imply, under the first approach the portions of your retirement plan that you must withdraw is based on your life expectancy and that of your designated beneficiary on the required beginning date and it never changes. Under the second approach, you withdraw a bit less than under the fixed approach each year because your life expectancy and that of your designated beneficiary are recalculated each year. The choice makes little difference during the first few years, but the longer you live the better off you are with the recalculation method. Under the fixed approach, when you and your spouse reach age 90 you will have withdrawn everything. But if one of you reaches that age your life expectancy will still be five years, meaning that you would only have to withdraw one fifth of what remained in your plan that year if you had opted for the recalculation method.
On the other hand, if you choose the recalculation method after one of you dies, you will have to base future distributions on the survivor's life expectancy alone. If one spouse dies at a young age, this choice could accelerate minimum distributions. So, what's the best approach? Some experts recommend always using the fixed methods. Others recommend always using the recalculation method unless you or your spouse has a shortened life expectancy for one reason or another. In short, there's no answer that's right for everyone. What you choose may depend on predictions of your longevity and that of your spouse based on your health and the lifespan of other family members. If you designate someone other than your spouse as your beneficiary, you may not elect the recalculation method with respect to his life expectancy, only for your own.
Post-Death Treatment of Retirement Plans
What happens to retirement plans after the participant dies depends on whether the decedent had named a designated beneficiary, whether that designated beneficiary is the decedent's spouse, and whether the participant died before or after her required beginning date. If the participant dies before her required beginning date and has not named a designated beneficiary, all of the plan must be distributed before the end of the fifth calendar year after her death. This is often referred to as the five-year rule. On the other hand, if the decedent had named a designated beneficiary, the assets may be distributed over the beneficiary's life expectancy. If the beneficiary is not the decedent's spouse, the distributions must begin by the end of the calendar year after the participant died. If the beneficiary is the surviving spouse, distributions must begin by the end of the calendar year in which he reaches age 70 ½ or the calendar year after the participant's death, whichever is later.
Again, these rules show the importance of designated a beneficiary. Without a designated beneficiary, the heir must take distributions of the entire plan within five years and pay income taxes on such distributions. With a designated beneficiary, the heir can take distributions over his life expectancy, which for a 38-year-old child, for instance, would be 44.4 years. The ultimate difference to the heir may total hundreds of thousands of dollars over time, depending on the value of the retirement plan. You may designate more than one beneficiary, but the minimum distributions will be based on the life expectancy of your oldest beneficiary. Don't name a non-person, such as a charity, as a beneficiary of your plan or the five-year rule will apply to all of your beneficiaries.
If the plan participant dies after her required beginning date, again the outcome depends on whether she named a spouse as her designated beneficiary. If she did not designate a beneficiary, the heirs would be required to withdraw the entire plan within one year of the death of the participant.
The spouse has an option not available to other designated beneficiaries. He can roll the plan over into his own plan and it will be treated as if he had always been the owner. This means he can postpone withdrawals until his required beginning date and designate a new beneficiary.
A non-spouse designated beneficiary may withdraw from the plan based on her life expectancy and that of the decedent (unless the decedent elected the recalculation method, in which case the beneficiary must make withdrawals based on her life expectancy alone). Note, that in cases where the beneficiary is considerably younger than the decedent, this will allow smaller distributions than before the plan participant's death since the beneficiary will no longer be deemed to be only 10 years younger than the participant.
In part 3 we will discuss the different IRA's
Machado & Carden, LLP provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- Your Retirement - Part 1 - FAQ
This series will cover some Frequently Asked Questions:
Your Retirement
Following are the basic rules governing taking minimum distributions from retirement plans and a few pointers for getting the most out of them.
Calculating Your Minimum Distribution
Congress created the rules described below to encourage saving for retirement. They imposed a penalty for early withdrawal and a penalty for failure to withdraw once the owner reaches retirement age. Until last year, there was also a penalty for excess withdrawals, in other words for those who saved more than they need for retirement, but that has been repealed.
These penalties are in the form of excise taxes. Withdrawals (with limited exceptions) before age 59 ½ are subject to a 10 percent excise tax. The plan participant must begin taking distributions by the April 1 occurring after he or she reaches age 70 ½ (known as the required beginning date), or pay a whopping 50 percent excise tax on the amount that should have been distributed but was not.
In general, the advantage of retirement plans is that the participant may save income before taxes during his or her working career and continue to have such savings grow without paying taxes until the funds are withdrawn. This permits the retirement savings to grow at a much faster rate than other savings and investments. The participant must pay taxes on any amounts withdrawn. As a result, it usually makes sense to postpone withdrawals for as long as possible.
The amount the participant must withdraw after reaching age 70 ½ is based on her own life expectancy and that of the person she names to receive the plan after her death, known as the designated beneficiary. At the required beginning date, your life expectancy will be either 15.3 years or 16.0 years, depending on whether you have reached your 71st birthday before the applicable April 1. If you have not designated a beneficiary, you will have to withdraw this portion of your plan at that time that is 1/16th (assuming you're 70 years old on your required beginning date). In other words, if your plan holds $160,000, you'll have to withdraw $10,000 or pay a penalty.
On the other hand, if, for instance, you have named your spouse as your designated beneficiary and you are both 70 years old, your joint life expectancy will be 20.6 years, meaning that you can withdraw a smaller portion of your retirement plan each year -- only $7,767 from a plan holding $160,000. In the first year alone, this would permit you to continue to invest an additional $2,233 tax free and save more than $700 in income taxes (depending on your tax rate). The savings can be even greater if you name someone younger than yourself as a designated beneficiary, but if you choose someone who is not your spouse, he or she will always be deemed to be no more than 10 years younger than you.
You can always change designated beneficiaries after you have reached the required beginning date, but they can never be used to reduce your minimum distributions. This means that if you have no designated beneficiary on your required beginning date, you will always be stuck making withdrawals based on your own life expectancy. So, the first rule of retirement plans is to always designate a beneficiary.
Part 2: To Fix or Recalculate, that is the question.
Machado & Carden, LLP provide a full spectrum of services for the elderly, for disabled adults, and for the families.
- "Living Longer on Less in Massachusetts:"
These tough economic times have made it increasingly difficult for many Massachusetts seniors to make ends meet. The Institute on Assets and Social Policy recently released a report entitled: "Living Longer on Less in Massachusetts: The New Economic (in)Security of Seniors." This report highlights some of the financial difficulties faced by seniors today and discusses proposed changes to the law.
The study identified five factors critical in determining the economic stability of seniors. These factors are: Housing costs, healthcare expenses, household budget, home equity, and household assets. According to the study, 68 percent of all senior households in the state are financially at risk. Single and widowed seniors face the greatest financial hardships. The study recommended that seniors meet minimum financial criteria to be considered financially stable. To view the criteria and the proposed changes to state law, click on the following link to read the article in it's entirety:
Article
If you have any questions pertaining to Medicaid, guardianship, or other elderlaw issues, please feel free to contact us at [email protected] or [email protected] or by phone at (617) 263-1035 Boston or (508) 821-5599 Raynham
- National Healthcare Decisions Day
We want to make you aware that April 16, 2010 is National Healthcare Decisions Day. Despite increased public awareness over the last ten years millions of Americans still do not have health care proxies. We urge all of our friends and clients to join other national, state and community organizations in encouraging everyone to sign a health care proxy for themselves. Beyond signing the document it is just important to communicate with your appointed agent and your family regarding what your wishes are regarding health care decisions. To learn more about this effort, visit www.nationalhealthcaredecisionsday.org.
Health care proxies and living wills are simple estate planning tools that enable all of us to direct how are health care decisions are made in the event we become incapacitated. The absence of these documents can force families to seek guardianships in the probate court. Although this is not the end of the world, going to court means incurring unnecessary legal expense, stress and delays. In addition the health care proxy gives the patient and their family the peace of mind of knowing that their wishes will be honored regarding medical care. For all of us both personally and professionally (for those of us who work in related fields) it is important to keep in mind the important role these documents play. It is critical that we make sure that everyone has advanced directives.
Health care proxies are relatively straight forward documents. In Massachusetts, the proxy must be witnessed by two people. There is no requirement that the document be notarized but we think it is a good idea just in case you need to use it in another State which does have this requirement. In addition to naming your agent it is always a good idea to have an alternate just in case your first choice is not available. Finally, we recommend including a medical directive which describes in broad strokes what your wishes are regarding end of life decisions. Rather than having this in a separate living will which goes into lost of detail, we’ve found over the years that a medical directive in the health care proxy itself works better. A medical directive serves two functions. First, it can serve as a supportive guide to your health care agent helping them make the decision you would want. Second it allows health care providers a means of confirming that an agent is making decisions consistent with the written expressed wish of the patient.
In an effort towards encouraging everyone to have a health care proxy, we are making our firm’s health care proxy forms available. If you wish to download the forms, please go to our website at MachadoCarden.com to receive a copy of our form. Remember that our form must be witnessed by two people (neither of whom can be the agent or alternate) and notarized.
- Home Care as An Alternative to Nursing Home Care
Home Care as An Alternative to Nursing Home Care Part 1
By Carmen J. Young
If you or an elder or disabled person you know are living at home but need more care than you or your loved ones can provide, you should consider the services of a (PCA). A PCA is someone who can assist you with daily living needs in your own home, or in your assisted living facility. PCA services are specifically intended to allow elders or disabled people to remain at home when the alterative is a nursing home or other in-patient facility. PCA services are available to anyone covered by MassHealth who meets certain eligibility requirements.
The types of services offered by the MassHealth PCA Program include assistance with personal care needs, such as bathing, grooming, eating, getting dressed, and helping with medicines as well as housekeeping needs that include laundry, meal preparation and the like. To benefit from PCA services because of a disability, you should do the following:
1. If you are applying for MassHealth, include the Senior Medical Benefit Request form with your application
2. If you are already a MassHealth member, submit the MassHealth Eligibility Review Form.
If MassHealth determines that you are eligible for PCA services, you will be advised to contact a MassHealth PCA agency in your area to set up services. The Council has established a directory for consumers to use in searching for qualified PCAs. The directory can identify PCA candidates from its database based on several different criteria, including proximity to the consumer, language, skills, transportation, preferred hours and so forth. MassHealth does not screen PCAs, so the directory does not represent a screened or qualified list of potential providers. However, the consumer may call references and request a CORI background check for any potential PCA before hiring. The directory is accessible and free to anyone who is eligible for PCA services by registering online using your MassHealth number.
This series brought to you by Boston Attorneys Machado & Carden,LLP, specializing in Guardianship and Conservatorship.
Machado & Carden provide a full spectrum of services for the elderly, for disabled adults, and for the families.
Part 2 to follow
- Superior Court Upholds MassHealth Applicant's Sale of Property to Daughter:
Part 2
A Summary of Clark v. Dehner
Superior Court Decision
The Superior Court overturned MassHealth's decision, finding that the transaction between Susan and Michelle was valid and should not be considered a disqualifying transfer. The Court determined that the transaction was for fair market value, and that the promissory note satisfied all of the regulations requirements, in that it was actuarially sound, provided for equal payments, and prohibited cancellation at Susan's death. The Court disagreed with MassHealth's determination that the note was not reasonably enforceable because the transaction had occurred between family members. The Court acknowledged that there was no guarantee that Susan would sue Michelle in the event that she defaulted on the note. However, the Court noted that it was inappropriate of MassHealth to assume that Susan would not seek to enforce the note by all available means.
Conclusion
Practitioners and clients should be encouraged by the Court's decision in Clark. The decision validates transactions between family members using promissory notes, which can be a valuable last-minute planning option for clients needing immediate long-term care in a nursing home. Clark also offers practitioners with a creative planning opportunity to cure disqualifying transfers into irrevocable trusts, while preserving the value of the transferred asset for the family. The decision is also an important step in reversing MassHealth's trend of dissallowing long-term care planning techniques between family members set into motion by the implementation of the DRA. However, even in light of this favorable decision, practitioners are urged to be cautious and draft promissory notes and related agreements between family members in strict accordance with MassHealth's regulations.
United States Treasury Regulations require us to disclose the following in connection with this message: Any tax advice included in this message and its attachments was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.
Machado & Carden, LLP provide a full spectrum of services for the elderly, for disabled adults, and for the families.
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