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Wills and Estates Blog

Death of a Loved One: Practical and Legal Guidance

Thursday, September 22, 2016

Dealing with the death of a loved one both before and after death are the two most difficult situations in our lives. In addition to the emotional toll, there are also innumerable details, practical and legal, surrounding a loved one's death. Most people are not aware of the steps that need to be taken in preparation or after death. And even if they are aware, most people have a difficult time focusing on these tasks in such a fragile emotional state. In an attempt to help during this difficult time I wrote a manual of sorts. Death of a Loved One contains checklists to assist both before and after death. You can download a free copy of the booklet here. 

How Does the New Fiscal Cliff Legislation Affect my Estate Tax Planning?

Thursday, September 22, 2016

On January 2, 2013 the American Taxpayer Relief Act of 2012 was enacted, avoiding the so-called “fiscal cliff.” In addition to income tax changes, the law contained provisions on estate taxes which certainly did avoid something very cliff-like. Had the law not been enacted, the federal estate tax exemption would have reverted to $1 million per person. The “exemption” is the amount that passes free of estate tax. Under the last change to the estate tax law in 2010, the exemption had been at $5 million (See 5 Important Facts About the New Estate Tax). Avoiding this significant (i.e., cliff-like) change in the estate tax exemption was an important feature of the new act.

The new law preserves the federal estate tax scheme which has been in place for the past two years into the foreseeable future. Each person continues to have approximately $5 million that can be given away free of estate taxes. The only real change in the new law is that the highest estate tax bracket increased from 35% to 40%. Assuming your estate planning was appropriate last year, there should be no need to change it as a result of the new legislation.

Portability

The new law also continues the portability provisions which have been in place since 2010. (See 5 Important Facts About the New Estate Tax). These provisions allow the surviving spouse to be able to use their deceased’s spouse unused $5 million exemption. Thus, a married couple’s total exemption exceeds $10 million when indexed for inflation. The portability provisions make the use of credit shelter or bypass trusts unnecessary for federal estate tax purposes. Prior to portability, these types of trusts were the only technique to preserve the deceased’s spouse tax exemption.

State Estate Taxes

Unfortunately I have some bad news for my local readers in Maryland and the District of Columbia. Maryland and the District still have separate estate taxes which have only a $1 million exemption. Thus, if you have a taxable estate (including life insurance) in excess of $1 million, state estate taxes are still a concern even if they are not federally. Moreover, the portability provisions are still only federal law. As a result, credit shelter or bypass trusts still may be needed in Maryland and the District if married couples want to be able to use both of their exemptions. (See The 5 Most Important Reasons to Have a Will).

What is so “Special” about a Special Needs Trust?

Thursday, September 22, 2016

The Problem. You have a disabled child who is currently receiving need-based public assistance such as Supplemental Security Income (SSI) and Medicaid. Your child is receiving those benefits because he or she is disabled and because he or she does not have sufficient income and resources. As a parent, you want to make sure that your child is provided for after your death. This is especially true in the case of a disabled child. Your plan to provide for your disabled child probably includes a life insurance policy in addition to assets you have accumulated over your life time. But what happens to your child’s eligibility for SSI and Medicaid if they suddenly receive a significant amount of money in the form of inheritance and life insurance proceeds. The answer is that your child will lose the monthly SSI check and, more importantly, health insurance coverage through Medicaid. Is there a way to provide for your disabled child after your death without endangering their public disability benefits?

The Solution. The Special Needs Trust (SNT) is the answer. If your Will and beneficiary designations direct the assets into a properly drafted SNT, your disabled child will continue to receive their SSI and Medicaid coverage.

To understand how this works, first we need to discuss trusts in general. A trust is just an agreement between a grantor (the one with the money or property) and a trustee in which the trustee agrees to accept and hold money (or other property) for the benefit of someone else. Commonly parents, instead of giving assets to a minor, will give assets to a trustee who will hold the property or money for the minor until the minor reaches an appropriate age. Until the child reaches that age, the trustee will be tasked with using the money for the minor’s benefit. (See Avoid Naming Your Minor Children As Beneficiaries)

A SNT is a special type of trust created by statute. 42 U.S.C. §1396p(d)(4). If the requirements of the statute are followed, any money (or other property) put into the SNT will not be considered an available resource to a disabled beneficiary. Thus, the trust property will not cause the disabled beneficiary to lose their SSI and Medicaid.

Key Features of a Special Needs Trust

1. Beneficiary has no right to demand assets

The disabled beneficiary can have no right to demand any income or principal from the trust. This is the key feature. If the disabled beneficiary could demand payment, then the money in the trust would be available to the disabled beneficiary and thus the entire amount of the trust would be used to disqualify the person for SSI and Medicaid.

Thus in a SNT, the trustee must have complete discretion to use the money as they see fit. The disabled beneficiary can ask for whatever they want but the trustee has the ultimate authority whether not to expend the trust income or principal.

2. Trust funds cannot be used for basic necessities

The second key feature of a SNT is that the trustee cannot use the trust assets to pay for services being provided for by public assistance. The monthly SSI check is for the basic necessities of clothing, food and shelter. Thus the trust cannot be used for clothing, food or shelter. Then what can we do with the trust? The answer is everything else. The trust could be used to pay for a car, a computer, a vacation, etc. Think of the trust as a tool to enhance the quality of the disabled beneficiary’s life. It is not a mechanism to pay for their basic needs which are, theoretically, being taken care of by SSI and Medicaid.

Different Types of Special Needs Trusts

1. Self settled

A self settled SNT is one in which the disabled person’s own money (or money to which the disabled person is entitled) is being used to fund the trust. Examples of self settled SNTs are where the trust is funded with:

a recovery in a personal injury lawsuit,
a settlement of a workers’ compensation claim, or
an inheritance.

In each of these examples, the disabled person is entitled to the funds being used to create the trust.

There are two disadvantages to this type of SNT. First, it typically will require approval. In Maryland, the trust has to be approved by the State Attorney General and, most likely, a circuit court. This is expensive and time consuming. The second disadvantage occurs at the death of the disabled beneficiary. If the disabled beneficiary had used Medicaid at any point during their life, Medicaid will have to be paid back out of the remaining trust assets before any money can be distributed to heirs. This is referred to as a payback provision.

Unfortunately, the self settled SNT is the only real option for personal injury recoveries and workers’ compensation settlements. This is not the case with inheritances. If the parent (or any other person) plans ahead, they can create a third party SNT prior to death and avoid both the approval process and payback.

2. Third party

In contrast with a self settled trust, a third party trust is funded with money coming from somebody else – not the disabled person. The most common third party SNT is when a parent creates a SNT for their disabled child. They money is the parent’s money, not the child’s money. The third party SNT is preferred over a self settled SNT for two reasons. First, approval is not required. So, for instance, a parent could draft a SNT into their Will and it never has to be approved by anyone. Second, there is no payback required. The terms of the SNT will determine who gets the remaining trust assets at the disabled beneficiary’s death.

3. Pooled

In a pooled SNT, a non profit organization (NPO) has already drafted a SNT and had it approved by the appropriate state officials. Disabled persons can then join the SNT. The NPO keeps a separate account for each beneficiary but pools the money together for investment purposes. The NPO serves as the trustee. The pooled SNT has some distinct advantages. First, there is no need to get the trust approved. This can save significant time and expense. Second, the NPO handles all of the investment and generally earns a better rate of return because the assets are pooled. Third, the NPO’s trustees are well versed in SNT law and understand what types of expenses can and cannot be paid to ensure that the disabled person remains on SSI and Medicaid.

In conclusion, any parent of a disabled child should seriously consider creating an SNT to protect your child’s right to future public assistance. Once the SNT is established you would then just make sure that all assets go to the SNT at your death instead of to your disabled child directly. So in your Will, you need to direct your assets to the SNT, not the disabled child. For all the non probate assets (life insurance, 401ks, etc), you need to remove your disabled child as the beneficiary and instead designate the SNT. 

Preparing For the Death of a Loved One: 7 Practical Recommendations

Thursday, September 22, 2016

This is not an easy time and, emotionally, there is not much that your lawyer can do to help. What we can to is to assist you in understanding some of the practical issues involved. Below we describe seven recommendations of things to do before your loved one passes. At a minimum, this list will provide some guidance during this trying time and, at best, maybe it might even free up some extra time to spend with your loved one.

1. Notify Family & Friends

Your loved one’s family and friends will want to know what is happening. If possible discuss notification with your loved one. If you feel comfortable, consider preparing an email list. You can use the list to keep family and friends notified of changes in condition. The list can be used after death as well as a means to provide information about funeral services. This may not be the most personal, but it is the most efficient method to keep a larger number of people informed.

2. Locate Legal Documents

Speak with your loved one about the physical location of their legal documents. If your loved one does not have a Will, Advance Directive or Power of Attorney and they still have the capacity to execute these documents, consult with an attorney about having the documents drafted.

Will. After your loved one’s death you will need the original Will. Copies are not accepted by the Register of Wills. Thus it is of paramount importance to know its location and have access to the original Will. If it’s in a safe, you need the combination. If it’s in a safe deposit box, you will need to be a joint owner of the safe deposit box to have access to it after death.

Advance Directive. The Advance Directive appoints a health care agent to make health care decisions. This document also provides instructions regarding your loved one’s wishes regarding end of life medical care. If your loved one loses consciousness (or the legal capacity to make decisions), this document will allow you to consult with your loved one’s physicians and make decisions. The document will indicate your loved one’s wishes regarding what decisions to make in end of life situations. For instance, should artificial respiration be attempted when death is imminent?

Power of Attorney. The Power of Attorney allows your loved one’s agent to handle financial affairs if they become incapacitated. You may need this document to access your loved one’s bank accounts, pay for medical care, maintain the mortgage, and keep the utilities on in the house.

3. Be Certain Everyone Understands Your Loved One’s Wishes

You need to speak with your loved one about their wishes. Once you understand their wishes, it is your job to make sure everyone involved also understands.

Pre Death Wishes. Discuss with your loved one what their wishes are concerning end of life medical decisions. Hopefully this information is included in an Advance Directive. Once understood, the decisions need to be communicated to the medical providers. In Maryland, to make sure that your loved ones wishes are honored, you need your loved one’s health care provider to complete a Medical Orders for Life-Sustaining Treatment (MOLST) form. The completed MOLST form should remain with your loved one or his or her agent and a copy should be on file with the medical facility where your loved one resides. This is an important step as an advance directive alone will not stop emergency personnel from attempting to resuscitate.

Post Death Wishes. Make sure you understand what your loved one’s wishes are upon death. Do they want their organs donated? Do they want to be cremated or buried? What type of funeral service do they want? Do they want a headstone? Do they want their ashes scattered someplace?

4. Obtain Identifying Information

Before it is too late, obtain information that may be lost when your loved one passes. It is important to identify the institutions and account numbers for all of their financial accounts. You need to know if they have life insurance and the locations of the policies. In the digital age, user names and passwords are also very important. There are a variety of reasons you may need to access their email, Facebook, or other online services after their death. You may use their email or online services to notify family and friends about their death and/or funeral services. Or you may want to be able to collect pictures or videos posted on sites such as Facebook to use in a memorial service.

5. Make Funeral Arrangements

Start by contacting a reputable funeral home or crematorium. They should be able to assist you in all of the details. Planning ahead may seem morbid but many of the questions to be decided will be much easier with your loved one’s input. Some of the decisions to be made are:

  • location of final resting place 
  • determining how the body will be transported 
  • whether jewelry will remain or be removed from the body 
  • selection of a casket or urn 
  • selecting a grave marker and inscription 
  • selecting the deceased’s clothing 
  • selecting items to be placed in casket 
  • location and type of service 
  • types of flowers for the service 
  • identities of pall bearers 
  • identify of charity or organizations for donations 
  • selecting a photograph for display 
  • music selection 
  • selecting scripture or literature for the service 
  • selecting a person to deliver the eulogy.

6. Contact Professionals

Contact your loved one’s professionals: accountants, financial planners and lawyers. They may have valuable advice both before and after the death of your loved one.

7. Start Preparing Obituary

Although it may sound grim, start preparing an obituary. If you wait until your loved one passes, you may discover that you do not have the necessary information to write an obituary. Planning the obituary ahead of time can be cathartic and you may even learn something you didn’t know.

5 Things to Understand About Maryland’s Inheritance Tax

Thursday, September 22, 2016

1. It’s All About Who Inherits

Maryland has both an estate tax and inheritance tax. The estate tax is assessable if more than one million dollars passes at death. The total dollar value of the property determines whether there is an estate tax. The inheritance tax is not dependent upon the value of the estate, as even very small estates can have inheritance tax imposed. Inheritance tax is assessed on property given to a person who is further removed in relationship than a sibling. Thus, for example, a 10% tax will be assessed on property passing to a cousin, niece, nephew or friend.

2. It Applies to Non-Probate Property

Inheritance taxes, like estate taxes, are assessed on all property passing as a result of the death, not just the probate property. Thus, non-probate assets, such as life insurance and IRAs, which pass directly to the beneficiary, are still subject to inheritance tax if the person receiving the property is further removed in relationship than a brother or sister.

3. Think Carefully About Nieces & Nephews

If you are considering including your niece or nephew in your Will (or as a beneficiary on a non-probate asset) remember that they will be subject to the inheritance tax. It is worth considering whether the property should be given to your brother or sister with the hope that the property will be used for the benefit of a niece or nephew. This option requires trust that the brother or sister will use the property for the niece or nephew as this cannot be specified in the Will.

4. Giving Away a Car or a House Can Cause Problems

Be careful about giving anything other than cash to someone who will be subject to an inheritance tax. If you give someone $10,000 in cash, the inheritance tax will simply reduce the amount inherited – in this case to $9,000. (10% comes off the top to pay the inheritance tax). But if you give them a car with a bluebook value of $20,000, they will need to come up with $2,000 to pay the inheritance tax. If they can’t afford the tax, they will have to sell the car. The same is true for houses. If you give a niece your $300,000 house she will need to come up with $30,000 to pay the inheritance taxes. Thus it is important to make sure that your intended beneficiary can pay the inheritance taxes due.

5. Same Sex Couples Beware

Same sex couples who jointly own their primary residence can be for a nasty surprise after the death of their partner. Same sex partners, if not legally married, are further removed in relationship than a brother or sister. In fact, they are not related at all. Thus the inheritance tax would apply to any property the surviving partner receives. Thus the surviving partner would be subject to 10% inheritance tax on half of the value of the house inherited as a result of their partner’s death. See Domestic Partnerships: How to Avoid Costly Inheritance Taxes on the Family Home for how to avoid this problem. 

Power of Attorney: Why Should I Give My Agent the Power to Make Gifts?

Tuesday, September 20, 2016

The idea behind a Durable General Power of Attorney (POA) is to appoint someone (your agent) who can manage your financial affairs if you (the principal) are unable to do so. The overwhelming majority of the language in the document describes the various things that your agent can do. Most POAs (including mine) contain language to allow the agent to make gifts on the principal’s behalf. After receiving their draft POAs, my clients will often call asking why we are allowing their agent to give their stuff away! This post explains the purpose of the gifting power.

Exhaustive List of Powers

If you have ever read a POA, you know that it should be prescribed as a cure for insomnia. The POA is basically an exhaustive list of all the various things that your agent can do on your behalf. For example, your agent can:

  • sell any interest I own in any kind of property, real or personal, tangible or intangible,
  • buy any kind of property,
  • invest and reinvest all or any part of my property, and
  • may enter into contracts of any type and for any purpose.

And the list goes on . . . and on, and on. Our standard POA is 28 pages long, single spaced!

The goal of the POA is to give your agent the power to do anything that they might need to do. As we cannot predict the future, we are uncertain as to what they may need to do. So we attempt to give them the power to do everything. Unfortunately the law does not allow us to have a simple document that just reads “I give my agent the power to do everything that I could do.” If a power is not specifically given to an agent, they don’t have that power. As a result, we get 28 page POAs that list every conceivable power that your agent may need to have.

Gifting Power

The power to make gifts will likely be one of a long list of enumerated powers. The purpose of giving your agent this power is in case you need to be qualified for Medicaid. Medicaid is a state and federal program that can be used to pay for nursing home care. In order to be eligible for Medicaid in the state of Maryland, your resources (stuff you own) must be less than $2,500. In order to become eligible, your property may need to be given away – hence the gifting power.

Here’s a typical scenario. Your mother has dementia and needs to go into a nursing home. When your mother was younger, she named you as her agent in her POA. Your mother has saved $200,000 over her lifetime with the hope of leaving a substantial inheritance to her children. At $10,000 a month for nursing home care, if your mother stays in the nursing home for 2 years there will be no inheritance for the children. All of the money she had saved during her life will go to the nursing home with none going to her children.

This is where the gifting power in the POA comes into play. A competent Elder Law attorney may be able to assist you in gifting away a portion of the assets to the children in order to qualify your mother for Medicaid. (Note: this is not as simple as simply giving the assets away. You must have qualified legal help to navigate the Medicaid gifting and penalty period rules.) Once qualified, Medicaid will pay for the ongoing nursing home care and your mother will be able to leave an inheritance to her children. Without the gifting power in the POA, this option would not have been available.

Some of my clients are concerned that the gifting power could be used to, in effect, steal from them. My responses to that concern are threefold. First, it is important to understand that the powers that you give to your agents are only to be used for your benefit. Second, bad people certainly exist who would use the powers in a POA to steal. These people would probably be stealing from the principal regardless of the existence of a gifting power. Third, the gifting power isn’t the problem, the choice of agent is. So long as the agent you choose is 100% trustworthy, there should be no problems.


Should I Use an Online Legal Document Service to do my Will?

Tuesday, September 20, 2016

The question I get about online Wills (or do-it-yourself kits often purchased at office supply stores) is whether they are “valid.” I cannot answer the question in a global fashion. It is certainly possible to have a technically “valid” Will without using an attorney. It is also possible that the document will fail as a Will for a variety of reasons. In that case you will die intestate which is not a good idea. (See The 5 Most Important Reasons to Have a Will). Without reviewing the completed document, however, I cannot determine whether any Will is “valid.” As important as whether the Will is valid is whether it is a good Will. Does it accomplish your goals? Does it protect your family and loved ones? Does it ease their burden after your passing?

When someone hires an attorney to draft a Will, they are not paying for a document. They are paying for legal advice and counsel. They are paying for the collaborative process by which the client and attorney together create the Will. The attorney listens as the client describes his or her concerns and wishes. The attorney asks the right questions fleshing out the subtleties of the client’s particular situation. The attorney identifies pitfalls. The attorney describes alternative ways to accomplish the client’s goals. The attorney illustrates the pros and cons of different options. Only at the conclusion of this process does the attorney actually draft a document. The service being purchased is this process - the result of the process is the Will.

When you use an online legal document service or buy a do-it-yourself kit, you do not get the advice or counsel, you do not get the process involved in creating a good Will. You get only the document itself. The online legal document service and the do-it-yourself kit are not attorneys. Anyone considering using these one of these services should investigate them thoroughly, paying particular attention to their disclaimers.

For instance, I reviewed the disclaimer for one such online legal document service: LegalZoom. (LegalZoom Disclaimer) The LegalZoom disclaimer warns:

  • LegalZoom “is not a law firm”
  • LegalZoom “is not a substitute for the advice of an attorney”
  • LegalZoom does not “review your answers for legal sufficiency, draw legal conclusions, provide legal advice or apply the law to the facts of your particular situation”
  • “The legal information on this site is not legal advice and is not guaranteed to be correct, complete, or up-to-date”

As an attorney, if I gave this disclaimer to prospective new clients they would turn right around and walk right out the door! It is important to understand that when using these services you are acting on your own, as your own attorney. I’m sure you have heard the adage: a person who represents himself has a fool for a client.

LegalZoom sums it up best with the final sentence of their disclaimer: “[i]n short, your use of this site is at your own risk.” (Emphasis supplied). In reality, it is probably not at your risk since you will be deceased by the time any legal errors are discovered. It’s really at the risk of your family and loved ones.


6 Reasons Not to Put Your Child’s Name on the Deed to your House

Tuesday, September 20, 2016

Instead of drafting a Will, many people just put their child’s name on the deed to their house. Their goal is to make things easier for their child by eliminating the need to go through probate. If the house is the only asset, this can be an effective way to avoid probate. (If there are other assets besides the house which they still own in their sole name – their child will still have to go through probate.) In Maryland, though, probate is not a particularly daunting or expensive procedure. In my opinion, the disadvantages of putting your child’s name on the deed far outweigh the advantage of avoiding probate.

1. Loss of Control

When your child’s name goes on the deed, your child becomes the legal co-owner of the house. Should you at some point want to sell the house and move to Florida, your child must agree. If they don’t agree, you cannot sell. No Del Boca Vista for you!

2. Inheritance by Others

If your child dies before you, depending on the way the deed is worded, your child's ownership interest in the house could pass to their heirs. You could end up owning the house with your son-in-law. Definitely no Del Boca Vista for you!

3. Exposure to Creditors

Because your child is now a joint owner of your house, your house is also your child’s asset. Your house is now exposed to your child’s creditors. If your child runs into tax problems, a tax lien could be filed against your house. If your child declares bankruptcy, your house may have to be sold. If your child is sued as a result of a motor vehicle accident, your house could be attached.

4. Taxable Gift

Putting your child’s name on the deed may seem like a simple transaction, but it is legally a gift of half the value of your house. If your house is worth more than $26,000, a federal gift tax return is required to be filed.

5. Capital Gains Tax

When you put your child’s name on the deed, the child is considered to have acquired their half of the house at half of the same price you paid for the house. Let’s say that the house you paid $100,000 for 30 years ago is now worth $500,000. (Now that’s wishful thinking!) Your child now owns half the house and is considered to have acquired it for $50,000. After you die, if your child sells the house for $500,000, the child will have to pay capital gains tax on the half of the house they acquired before you died. In this scenario your child would owe capital gains tax on $200,000. (This assumes the house is not your child’s primary residence.)

Conversely, when your child inherits the house after your death, they take the property at your date of death value. Even though you only paid $100,000 for your $500,000 house, your child is considered to have acquired the property for $500,000. Thus, if your child then sells the property for $500,000, there is no capital gains tax.

6. Medicaid Penalty

Medicaid is a quasi state/federal program that will pay for nursing home care for individuals without sufficient resources. In the application process, Medicaid looks for whether the individual has given money away in an attempt to become eligible for benefits. Putting your child’s name on your deed is considered a gift and as such may trigger a period of ineligibility for Medicaid benefits.


Get Your Advance Directive: Don’t Be A Headline

Tuesday, September 20, 2016

In giving estate planning seminars, I am always trying to impress upon my audience the importance of planning while young and healthy. One of many reasons to plan sooner rather than later is to avoid being the subject of a news story like the one ran by the Associated Press on October 31, 2011: “Maryland Feeding-Tube Case Pits Wife Against Mother.” My job as an estate planning attorney is to prevent tragic headlines like this.

Mr. Sanger was a 55 year old computer technician residing in Frederick County, Maryland. Mr. Sanger did not have an Advance Directive. In July of this year, he suffered a heart attack which resulted in severe brain damage. After three months, Mr. Sanger’s wife consented to have her husband’s feeding tube removed. Mr. Sanger’s mother and brother disagreed and went to the Frederick County Circuit Court to have the feeding tube restored. On October 20, 2011 they obtained a temporary order to have the feeding tube reinserted. The Court was scheduled to hear arguments on whether the tube should be permanently restored on November 2, 2011. Mr. Sanger died prior to the hearing.

A valid Advance Directive could have avoided this type of family strife and the ensuing media frenzy. First, an Advance Directive would have identified the party legally responsible for making the decision – Mr. Sanger’s health care agent. Mr. Sanger could have designated his wife (or any other person) as his agent, with the legal power to make the decision. Second, in the Advance Directive, Mr. Sanger could have indicated as to whether he wished to remain on a feeding tube in an end-of-life situation. No doubt this would have made Mrs. Sanger’s decision to remove the feeding tube easier. It also would have provided clear guidance to all the family members as to what Mr. Sanger would have wanted. Theoretically, family members could have still sought court intervention. But with Mr. Sanger having previously identified his health care agent and made his wishes clear, the outcome would have been all but determined.


Think Twice About Designating A Disabled Person as a Beneficiary

Tuesday, September 20, 2016

Despite your good intentions, naming your disabled niece as the beneficiary of your life insurance policy may not do her any good whatsoever. In this final installment in this series, I explain why disabled beneficiaries should be handled with extreme caution. This advice actually applies to all manner of property given to a disabled person - including property distributed under a Will. The reason for caution is this: an inheritance from any source could disqualify the disabled person from receiving public benefits.

Many disabled people (children and adults) receive disability benefits through the Social Security Administration (SSA). The SSA administers two separate disability programs, disability insurance and supplemental security income (SSI). (See Have I Worked Enough to Qualify for Social Security Disability Benefts?). The SSI program is means tested. Thus, in addition to proving disability, the applicant must be below a certain level of means (e.g. income and resources). SSI benefits are particularly important as the disabled person receives not only a monthly cash benefit but health insurance through Medicaid. A sudden increase in resources may disqualify the person from both their cash benefits and, more importantly, Medicaid.

Imagine this situation. You loved your disabled niece so much that you named her as the beneficiary of your $100,000 life insurance policy. After your death the insurance company sent her a check for $100,000. Your niece (or her guardian) deposited the check into her account and the next month SSI notified her that her monthly checks were stopping and that she is no longer eligible for Medicaid. Your niece then used the life insurance proceeds to pay for doctor’s bills and basic survival as she had no other income. A year later she again is eligible for SSI and Medicaid as she has exhausted the $100,000. What exactly did she get as a result of your generosity? Nothing.

There was a way to have made your generosity count. A special or supplemental needs trust (SNT) is a trust that receives property and holds it for the benefit of a disabled person. If the SNT was drafted correctly, your disabled niece could have received the life insurance proceeds and still qualified for SSI. Thus, she could have continued to receive her cash payments and Medicaid. A properly drafted SNT does not impact SSI eligibility because a) the money is owned by the trust (not the disabled person) and b) the money in the trust is not available to the disabled person for basic needs such as food, shelter, and housing.

SSI benefits are for food, shelter and housing. If the disabled person has access to trust funds that could pay for food, shelter and housing, the trust funds are considered “available” to the disabled person. These available resources would most likely disqualify the disabled person for SSI benefits.

But what’s the point of putting the money into this SNT if your niece cannot use the money for food, shelter and housing? Because our niece can use if for everything else! She could buy a computer, a car, or go on a vacation! So long as the funds are not used for food, shelter and housing, they can be used for anything else. In this way your life insurance proceeds could be used to enhance the quality of her life.

It should be apparent at this point that if your estate planning involves property going to a disabled person it is imperative that you discuss your options with a qualified estate planning attorney.


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    "Thanks to Mr. Shultz's aggressive and professional work ethic style I was able to receive the medical services and compensation pertaining to my case."

    Navdeep C.


    "I can honestly say this firm is simply TOP NOTCH! They not only have handled countless cases for my members that require their services, they also have gone well beyond their "scope" to help some of my folks in other areas of need. "

    Rick H.


    "The attention and professional care the staff has taken toward my needs has always been excellent. I have no complaints nor worries that my issues discussed are not addressed."

    Tim T.


    "I just got off the phone with Craig and let him know how thankful we are to you, him and Ken for all your efforts – you are all really terrific to work with!"

    Val K.


    Locations Throughout Maryland, Virginia & Washington DC

    Gaithersburg Office

    481 N. Frederick Avenue, Suite 300
    Gaithersburg, MD 20877
    301-670-7030 / 800-248-3352
    Fax: 301-670-9492

    Lutherville Office

    1301 York Road, Suite 600
    Lutherville, MD 21093
    410-769-5400 / 800-248-3352
    Fax: 410-769-9200

    Frederick Office

    30 W. Patrick Street, Suite 105
    Frederick, MD 21701
    301-668-2100 / 800-827-2667
    Fax: 301-668-2000

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