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House in Trust with Mortgage

Can I Put My House In A Trust If It Has A Mortgage?

More and more people are becoming ever more concerned with either protecting their assets, maintaining eligibility for Medicaid, or leaving as much as possible to children and future grandkids. As such, more and more people are realizing the remarkable utility of trusts within their estate planning. One’s residence often represents the most significant asset an individual or couple possesses, and for many, financial assistance is needed to purchase it, that is mortgages. A common question presented to Cleveland estate planning attorneys is, can protect my house with a trust if it has a mortgage? As with any legal question, the answer is not black and white. 

  • What is trust? 

To understand how the what, when, and how of funding your trust with a mortgaged house, we must start with the basics, what is a trust? A trust, to put it simply, is a private agreement that allows a third party, a trustee, to manage the assets that are placed inside the trust for the benefit of trust beneficiaries. There are innumerable types of trusts, each with own its respective legal conventions and purposes. A critical aspect of trusts is that the assets housed within them usually aren’t counted as a part of the trust creator’s taxable estate. Thus, when the owner of the trust creates the trust and properly funds it, the assets go from the owner’s taxable estate to the trust. Afterwards, when the owner dies, the assets are not in the owner’s estate and subject to probate, and if the trust is drafted properly, are further ignored for the purposes of Medicaid eligibility. Further, trust assets pass via the beneficiary designations set down when the trust was created. These conveyances via beneficiary designation are much simpler, quicker, and cost-effective then going through probate and can be halted or expedited when circumstantially advantageous depending on the terms of the trust.   

  • When can a mortgage be called?  

The next basic to understand is when can your bank come after your house, i.e. a bank calling on a mortgage. A mortgage being called is when a financial institution/holder of the mortgage demands that the full amount of a mortgage be paid. When this can occur is conditional and which events will trigger are often denoted within the mountain of legal documents that physically make up your mortgage. In the context of funding a trust with a mortgaged house, your “due-on-sale clause” is what your estate planning attorney will be concerned about.    

A “due-on-sale clause” is a contract provision which authorizes a lender (your bank), at its discretion, to collect on the loan, i.e. declare it immediately due and payable if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent. This is fair because banks depend on mortgages getting paid off, or at least foreclosed, and the mortgage contract is between you and the bank, not the potential buyers and the bank.  

  • How can a mortgaged house in placed in trust without having the mortgage called?  

Any “due-on-sale clause” facially seems to be a death nail to any thought of funding trust with a mortgaged house, I mean, not many people have thousands, if not hundreds of thousands, of dollars in liquid assets to immediately pay off a house. This is where the Garn-St. Germain Depository Institutions Act of 1982 comes into play and your estate planning attorney earns his money. The relevant part of the Garn-St. Germain Act in the context is 12 U.S. Code § 1701j–3, subsection d, as follows:  

(d) Exemption of specified transfers or dispositions.  With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon— […] 

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; … 

So, to bring everything back down to Earth, this subsection possesses the two “prongs” of the Garn-St. Germain test, occupancy and beneficiary status for the trust makers for the mortgaged house. When there is a mortgage, a trust must be properly drafted to include specified reserved occupancy language in the trust to satisfy the occupancy prong of Garn-St. Germain. Simply, the trust makers, you, must specifically reserve the right to live in the house. Further, in some way, the trust makers, must be a trust beneficiary. The beneficiary status prong usually isn’t an issue with self-settled trusts given their nature, i.e. trusts made with the intent to provide some tangible benefit to the trust makers. An argument can be made that the reservation of occupancy rights inherently makes the settlors beneficiaries, however, more cautious estate planning attorneys further make trust makers income beneficiaries as well.  

Facially, drafting a trust to satisfy the prongs of the Garn-St. Germain test appears straight-forward, however, care must be taken when making your trust. The interplay between the actual language of a trust can have profound effects on taxation, ownership, inheritance, and eligibility for state and federal assistance programs whose admittance guidelines are based on income and asset thresholds.    

Now it is important to note that the issue of a mortgage is an issue apart from Medicaid eligibility, though often the two are interrelated. Addressing both concerns requires the same solution, precise drafting of trust language that is statutorily compliant.  Under the Garn-St. Germain Depository Institutions Act of 1982, placing the home in the MAPT does not trigger the “due on sale clause” contained in most mortgages provided certain steps are taken and legal standards are satisfied. Thus, with a knowledgeable estate planning attorney, you can remain Medicaid eligible and avoid Medicaid Estate Recovery, while still living in your home and paying the mortgage as you always have.  

Helping You And Your Loved Ones Plan For the Future

power of attorney

Financial Power of Attorney | Baron Law | Cleveland, Ohio

Financial power attorney (POA) is a set of documents that you’re giving your agent the ability to act and make financial decisions on your behalf. They’re most commonly used in an elder law scenario. They can also be used in a crisis scenario, if you are overseas, a business owner, and you need to elect someone to make those decisions on your behalf.

Are There Different Types of Powers of Attorneys?

General and Limited:

A general power of attorney gives your agent the ability to govern any part of your estate plan. Whereas, a limited power of attorney is restricted from having control over certain aspects of your estate that you deem fit.

Springing and Current:

A springing power of attorney only allows your agent to act when a certain offense occurs. Whereas, a current power of attorney can act at any time. We recommend that clients have a current power of attorney because it can be difficult to really point out a point time when the springing power returning comes into effect.

How Do I Know if My Financial POA is Up-To-Date?

Financial power of attorney laws changed in 2012, so if you have not updated your power of attorney since then, you’ll want to get it updated as soon as possible.

In addition, you’ll want to look for hot powers in your financial power of attorney, which are:

  • Gifting Powers
  • Powers Over Beneficiary designations
  • Powers Over Retirement Accounts
  • Ability to Make Trusts
  • Safety Deposit Boxes

These are the hot powers, and if you don’t have those, then financial institutions may not warrant your financial power of attorney. It’s really important that you look for these in your document.


Estate planning can seem like a big hassle because they are so many levels which require close detail. If you want to make sure your financial POA is up-to-date and can really act on your behalf, contact us at Baron Law today.

What is the Difference Between a Trust and a Will in Estate Planning?

What is a Will?

A will is a basic document outlining your wishes for your estate. It identifies an executor of your estate and provides the opportunity to divide your assets among your beneficiaries. This tool allows you to control the future care for any minor children and division of your assets. Without a will, the laws of your state will determine how your assets are divided. Therefore, a will is the minimum estate plan you need to care for your family and your assets. However, the purpose of a will is to guide the probate court to act in accordance with your desired plan.

What are the limitations with a will?

Probate

A will does not avoid probate court, and the average time to administer a will through probate is 18 months, while the minimum is six months. The length of this process can place a burden on the family left behind, and it allows creditors to make claims on any debts you owe.

Cost

Probate requires a number of fees–on average 5-7% of the value of the estate.

Public Transaction

Anything that goes through probate is public information. This means that both your assets and the way you choose to divide them become public, able to be found online in detail.

What is a Trust?

A trust is another form of estate planning that allows you to divide your assets as you desire. While this is similar to a will, a trust allows greater control and bypasses the limitations of a will as seen above.

A trust avoids probate, thus freeing your assets and your family from the court system. As such, probate fees are also avoided, and your personal information (assets and beneficiaries) is kept private.

What are other benefits of a trust?

Taxes

Saving on taxes is one benefit of a trust. However, given current tax laws, this is not an advantage unless your estate’s value is over 10 million dollars. Note, though, that this exemption is subject to change, and tax benefits may become more valuable.

Asset Protection

This is the biggest reason people use trusts over wills. Trusts allow for greater protection of the estate in case of something unexpected such as a beneficiary who develops a credit issue, or the possibility of a divorce.


If you are realizing that estate planning is more important and less simple than you thought, Baron Law will walk you through every step to ensure that your family and your assets are protected. To learn more about the difference between a will and a trust, or to begin planning for your future, contact the estate planning attorneys at Baron Law today.

Gray Divorce – Important Issues to Consider

Back in the day, societal pressure, economic dependence, or religious dogma often kept couples together. Before the 1950’s, divorce and separation weren’t even talked about in causal conversation, now 1 in 2 marriages end in some sort of post-marriage separation. Before the 1960’s, women weren’t in the workforce in the positions and numbers they are today. And with the corresponding purchase power of living wages, higher salaries, and stable careers, people are less and less dependent on another person to survive or live comfortably.  Further, organized religion is less impactful and abundant than it was in the past, many people are “religious” or “spiritual”, but pastors and priests are seeing their flocks grow smaller and smaller. Consequently, religious pressure to stay married regardless of personal happiness is no longer there.  All these factors, along with many others, has led to the recent increase of divorces in older American couples.

Logically, it makes sense. Less societal pressure plus long lengths of time can cause even the strongest relationships to break.  This is why the concept of “gray divorce” is becoming more prevalent. Divorce and dissolution are always messy and complicated affairs, but the unique considerations for older adults and long-lived relationships represent a beast of a different color. A senior couple going through divorce needs an experienced hand to guide them through the tempestuous waters of Ohio domestic courts, but before you make that call to a Cleveland area divorce attorney, it is smart to know what to expect.

What is Gray Divorce?

Gray divorce” a term of art that refers to divorce among people aged 50 and over. This term has risen in popularity because divorce rates for people aged 50 and over has doubled since 1990. Further, divorce rates for people aged 65 and over has almost tripled since 1990. What’s the cause of this historic increase in divorce rates?

One theory for the climbing rates of senior divorce is the link between the currently aging baby boomer population and increased comfortability with the concept of divorce. Right now, the baby boomer generation, those aged from 51 to 69, make up the bulk of Americans living in retirement. Most of these baby boomers grew up during the 50’s and 60’s, when the historic divorce boom first occurred. At this time, the now aging boomers were youths living in a period of unprecedented martial instability, personal freedom, and gender liberation. The concepts learned in youth are now resurfacing later in life. Divorce statistics, and also common sense, tend to reflect this.

Remarriages tend to be less stable than first marriages and also, contrary to Disney movies, love tends to fade, especially after long lengths of time often filled with hills and valleys of personal growth and development. These days, with everyone living longer and more comfortably, throwing in the proverbial towel just makes more sense for more people. Over half of gray divorces involve couples married 20 or more years. Further, the divorce rate for seniors 50 and older in second marriage is almost double the rate of those who have only been married once. Senior divorce rates are at an all-time high and will likely stay at increased levels for the foreseeable future.

So “gray divorce” is here to stay, at least for now, so what’s the big deal? Well, for starters, long lives with a corresponding close bond like marriage means by the time retirement comes around, couples considering divorce must deal with high net worth, expansive family structures and relationships, and assets which are often not amenable with quick or clean post-martial division. Issues that younger married couples often don’t have to deal with.

Issues Specific with Gray Divorce

The longer a marriage lasts, the more intertwined a couple’s lives become and messier the split will be. Soon to be ex-spouses may think they have everything planned out and that they know where all of the martial assets are located, however, this is seldom, if ever, the case. Long marriages don’t usually end quickly, usually things fall apart over time with many instances of discussion, compromise, and remedial efforts, like marriage counselling, are attempted. During this slow spiral, thoughts of broken hearts and a soon-to-be confused family take precedence and less thought to property division is given. Only when the time comes for court intervention does the laborious world of court procedure and property division get attention.

Certain things immediately come to mind during divorce, like bank accounts, the martial home, car, and retirements accounts. These, however, are only the tip of the iceberg. There are also many easily-overlooked or hidden assets which need to be located, identified, cataloged, and negotiated by the parties and representing attorneys. The following list highlights only some of the unique issues and assets surrounding gray divorce:

  • Prepaid Burial Plots – who gets them?
  • Timeshare property – who get it? What if no one wants it, how do you liquidate it?
  • Patents, copyrights, royalties  – who gets them? Are they even divisible?
  • “Hidden value” items – rare items of personal property or antiques
  • Pets – pets are family and there’s no such thing as pet visitation agreements, who will get Scruffy?
  • Family get-togethers – Thanksgiving and Christmas just got a lot more complicated.
  • Cash/Gold/Precious Metals or Gems – these assets tend to go unreported to the IRS and are often hidden by one spouse.
  • Redrafting of estate plan – each person needs a new estate plan, how will you pay for retirement or healthcare costs now? Who will be your executor?

This list only touches on the many issues and decisions surrounding later life divorce. Divorce at any stage of life is a difficult process but for those individuals separating after spending years laying down roots, difficulties are magnified, and an experienced divorce attorney is a must. If you are thinking about separating from a long term partner, or find yourself in the middle of a separation in which you are way over your head, call the experienced divorce specialists at Baron Law.

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Six Month Creditor Claim Blog Photo

Six-Month Creditor Claim Period

Payment of the decedent’s debts is one of the basic responsibilities of an estate fiduciary. Ohio law specifically provides that the fiduciary of an estate shall proceed with diligence to pay the debts of the decedent. The critical questions remain, however, of who to pay and when to pay them. Unless a fiduciary is confident that the estate will have more than enough assets to pay all of the debts of the decedent, it may actually be better not to pay any debts received until the expiration of the creditor’s claim period. Under Ohio law, legitimate creditors have six months to present their claims. When such period expires, only the majority of legitimate debts claims against the estate will remain because if specified claims are not brought timely, they are foreclosed as a matter of law. At this time it can be determined whether or not there are sufficient probate assets with which to pay the debts or if the estate is insolvent. Most people, however, are ignorant of this little wrinkle of Ohio probate law. As such, when a loved one or friend passes, always contact an experienced Ohio probate attorney.

All too often a gung-ho fiduciary starts paying estate debts without a comprehensive accounting of estate assets or complete list of debts and obligations. This results in payment of debts which may have fallen off after the creditor’s claim period or, more seriously, if Ohio statutes are not fully complied during estate administration or assets are prematurely distributed, potential personal liability for a fiduciary. This means that if a surviving spouse, heir, beneficiary, or legitimate creditor should have gotten something from the estate that a fiduciary mistakenly gave away, the fiduciary must personally pay them their share, whatever the amount or value of the asset. This looming threat of personal liability is a significant reason why must appointed fiduciaries seek the counsel of experienced Cleveland estate planning and probate attorneys.

It cannot be understated the significant windfall potential for an estate if the six-month creditor’s claim period is waited out. The difficulty, however, is convincing friends, heirs, and devisees to be patient. Easier said than done. Now, after the debts of the estate are settled and verified and the time has come to pay them, unless the decedent’s will provides otherwise and/or in the absence of sufficient cash or other liquid assets to satisfy the debts, payment is made from the proceeds of the sale of: 1) tangible personal property which has not been specifically devised, then 2) specifically devised tangible personal property, then 3) non-specifically devised real property, and finally 4) specifically devised real property.

Good Ohio legal counselors always advise their client to be wary. A common point, but often overlooked one, of avoiding probate via beneficiary designations or trust usage is privacy. If everything passes via will, anyone anywhere can look up the estate online and see what is going on. A little information in the wrong hands can do a lot of damage. For example, a recent client came into a piece of property of the east side of Cleveland. Naturally, the previous owner failed to property taxes for many years. Lo a behold a nice company called the client and offered to negotiate, settle, then pay off the back taxes, for a nominal fee of course. Client, being uninformed, agreed on the spot and gave out his credit card information. The estate had been closed for quite some time, way past the six month creditor claim period, and now the client has new problems to deal with. All this could have been avoided with a quick 30-second phone call with their Cleveland estate planning attorney, don’t make the same mistake they did.

Helping You and Your Loved Ones Plan for the Future

LTC Medicaid Rejected

My LTC Policy Was Rejected By Medicaid, What Now?

Common scenario for Cleveland estate planning attorneys. Estate planning client comes in distraught. They did the smart and sensible thing, they purchased a long-term care insurance policy years ago to help cover the cost of later-in-life medical costs. They recently applied for Medicaid thinking their LTC policy wouldn’t be counted for calculating their Medicaid eligibility. Unfortunately for them, they received rejection letter from the Ohio Department of Medicaid saying they didn’t meet the asset requirements. Now, the Medicaid benefits, that they were counting on and always thought were readily available no longer are. Now, their estate plan is seriously threatened, and they are scrambling to make sense of the situation and found out what went wrong.

As the old saying goes, the best-laid plans of mice and men often go awry. The relationship between long-term care insurance polices and Medicaid eligibility is not a simple one. As with anything involving government bureaucracy, what you don’t know can hurt you and an experienced guide is worth his weight in gold. Two lessons often taken to heart far too late to avoid tough decisions and missed opportunities.  So, what happened to the person above? The best way to illustrate what happened is to answer the two most common questions anyone in that situation would ask.

Why did my LTC policy get rejected from Medicaid?

Only certain long-term care policies that comply with the guidelines set by the Ohio Long-Term Care Insurance Partnership program count as qualified policies and therefore aren’t countable Medicaid resources. So, what polices are “qualified?”

Per the Ohio Department of Insurance, for a LTC policy to qualify, insurance companies’ policies must meet several requirements, including:

  • The policy must have been issued after Sept. 10, 2007
  • The insured must be a resident of Ohio when coverage first becomes effective
  • The policy must be a federally tax-qualified plan based on the Internal Revenue Service Code (qualified plans can lower federal taxes, but they have benefit triggers that are less flexible than those required by nonqualified plans)
  • The policy must meet strict consumer protection standards (standard fee-look period, coverage outlines, mandatory informational disclosures, etc.)
  • The policy must include certain protection against inflation (the most common inflation protection automatically increases benefits each year by 5%)

So, if you have a long-term care policy, but don’t know, or worse hope without knowing, if it is a qualified policy, you’re likely in for a rude awaking when you apply for Medicaid.

What do I do now that my LTC policy was rejected by Medicaid?

Before any definitive answer or plan can be formulated, certain information about a Medicaid applicant must be answered definitively. At the very least, the information and/or documents needed are:

  1. LTC policy documents – should be overt on whether it was sold/defined as a qualified LTC policy.
  2. Rejection notice from the department of Medicaid – reasons for reject and any explanation regarding why the submitted policy was rejected.
  3. How does the applicant know their LTC policy is a qualified one?
  4. Contacting the insurance carrier to find out the exact details of the LTC policy in dispute.
  5. Where and how did an applicant purchase the LTC policy.
  6. Did the applicant receive the required CSPA complaint disclosures and documents (if was sold non-qualified policy but received CSPA docs could an indication of potential fraud).
  7. The realities of applicant’s current financial situation and health needs.

This last point is really the starting point and is exactly why you retain the services of experienced estate planning attorneys. Every estate planning attorney starts with the same questions, what do you need, what do you have, and prove it. No intelligent planning or decisions can be made until you know exactly where you stand. Further, in this context, the realities of where you stand are even more important because now your options are limited and you are, in a way, at the mercy of the Ohio Department of Medicaid.

If you have been rejected by Medicaid you are essentially in the realm of Medicaid crisis planning, where important questions must be asked, and tough decisions must be made. If someone is applying for Medicaid, the need is now and a solution must be found. One such critical consideration is the current need for care and the potential penalty period. To illustrate, let’s say a rejected applicant has a $400,000 non-qualified LTC policy. As of right now, with current Medicaid penalty divisor of $6,570, 400K/6,570 = approximately 61 months of Medicaid ineligibility, a little more than 5 years.

With this five-year Medicaid ineligibility period on the horizon, options are limited. Namely you can either appeal the rejection or resort to Medicaid spenddown. Medicaid spenddown is a beast all its own, is never something anyone wants to do, and largely depends on how ineligible for Medicaid you are, based on your current income and assets. For most, however, the good news is this situation and Medicaid spenddown, if the proper Ohio estate planning attorneys are used, will never be a worry because they will have done things the right way and won’t be subject to any nasty surprises. Failure to surround yourself with the right advisors, regretfully, often leads to  uncomfortable discussions and decisions that will have to be made sooner rather than later.

Helping You and Your Loved Ones Plan for the Future

Special Needs Self Settled Trusts

The Three Flavors of Special Needs Trusts: #3 Self-Settled Trusts

The federal “Special Needs Trust Fairness Act,” enacted in December of 2016, changed the law to allow individuals with special needs to create their own special needs trust. Ohio law, in response, has changed to coincide with this recent change. Currently, a mentally or physically disabled person may create a self-settled trust to hold their own assets and avoid them being counted for Medicaid or other public assistance program eligibility. Usually the need arises to make this type of trust when a person with special needs receives a legal settlement or inheritance while already eligible and receiving government assistance.

In a nutshell, “self-settled” special needs trusts are simply trusts established by the disabled beneficiary with the beneficiary’s own money and assets.  The devil, however, is in the details. Self-settled special needs trusts are, by regulatory requirements, only available to those persons who are 1) disabled and 2) are under 65 years of age. Further, the trust must be appropriately drafted to include language that mandates that the cost of Medicaid services actually paid on the individual’s behalf will be paid back to Ohio at the individual’s death. Thus, in an indirect way, the Department of Medicaid and other government program will get their money and be reimbursed, at the point of death, but the individual reliant on government assistance can still maintain eligibility. Therefore, both parties win. Note, however, the use and drafting of self-settled special needs trusts is nuanced. For example, with these trusts once a beneficiary reaches 65, the trust can no longer be funded with new assets or money. Yes, what is already in the trust will remain protected, but flexibility and control is lesser than with other types of special needs trusts. As such, always consult an experienced Cleveland area estate planning attorney when deciding which type of special needs trusts is appropriate for you and your family.

A self-settled special needs trusts are often referred to as a “Medicaid payback trust.” Both names refer to the same type of trust, however, the later name focuses on the primary characteristic, and requirement, of a self-settled special needs trust, in that any Medicaid resources or services received by the beneficiary will be paid back from the assets housed within the trust. A partial corollary is a Miller trust. A Miller trust houses income for those receiving nursing home care that would otherwise put them over the income thresholds for the Medicaid income cap. The income is kept in trust and used to pay for care, but relevant here, names the State of Ohio as a beneficiary under the trust. Thus, the State of Ohio can recover the total amount of Medicaid payments made to an individual after death.

Self-settled special needs trusts are different from Miller trusts in that they allow for a much greater breath of resources allowed to be placed in trust and does not set the State of Ohio as a direct beneficiary under the trust. Naming a person or entity as a trust beneficiary grants them certain rights and privileges which, in certain circumstances, can lead to headaches and issues for the special needs person and their families.

Often self-settled special needs trusts are estate planning instruments of last resort. Usually within the context of an unexpected windfall going to a person with special needs. Going the self-settled route also places administrative labor and costs of the trust on the special needs person. Further the requirements of specific drafting to be legally operative under Ohio law is usually something laypersons are ill-equipped to do themselves. As such, always consult an experienced Cleveland area estate planning attorney when deciding which type of special needs trust is good for you and your family. The stakes are too high to do things ill-informed.

Helping You and Your Loved Ones Plan for the Future

Special Needs Trust #2 photo

The Three Flavors of Special Needs Trusts: #2 Pooled Trusts

Baron Law LLC, Cleveland, Ohio, offers information for you to reflect upon while you are setting out looking for an estate planning attorney to help protect as much of your assets as you can. For more comprehensive information contact Baron Law Cleveland to draft your comprehensive estate plan to endeavor to keep more of your assets for your heirs and not hand them over to the government by way of taxes.

In order for those with special needs to qualify for government assistance programs such as Social Security Income and Medicaid, they must meet health, income, and asset thresholds. In other words, at least on paper, potential recipients must be quite poor to receive benefits. As such, just like to initially receive benefits, if special needs person is already receiving these benefits they must maintain the established thresholds of assets and income, or lack thereof. So, an inheritance, receiving an accident or medical malpractice settlement, or merely amassing too much money in an account can kick these people off of much needed benefits due to violating the standards set down by managing government entities and departments. In the hopes of preventing this outcome proactively, many people turn to special needs trusts.

Special Needs Trusts: Revisited

A special needs trust allows a disabled person to, theoretically, shelter an unlimited amount of assets for their needs without being disqualified from government benefits.  As hinted to above, this is because the assets held in a special needs trust properly drafted by experienced Cleveland attorneys are not counted as individual resources for purposes of qualifying for benefits.  On paper, at least in the eyes of the government and taxman, the beneficiaries of special needs trusts meet their asset and income thresholds. As a consequence, those special needs persons lucky enough to have a special needs trusts have access to more money, which can be spent on comforts, necessities, housing, and much needed medical care. Though we in this country are lucky to have government assistance programs available to us, anyone with a loved one solely dependent on them will tell you it’s certainly not enough. A properly drafted special needs trust will provide extra care and life satisfaction for disabled loved ones regardless of whether supporting family members are around for many years or pass away suddenly.

Pooled Special Needs Trusts

As mentioned in previous blogs, there are many “flavors” of special needs trusts. One such type is a “pooled” special needs trust. The focal point with this trust is maximizing potential gains from money funded into the trust, minimizing administrative costs, and delegating trust management to experienced personnel. In a nutshell, pooled trusts are a method to provide benefits of a special needs trusts without having to do the administrative legwork yourself.

As a rule, pooled trusts are required to be run by non-profit companies or organizations. The company or organization running the pooled trust drafts a master trust agreement that dictates the terms of the trust and the relationship between the trust and all participants.

In almost all cases, the pooled trust is run by a professional administrator. After establishment of the trust, money is transferred into the pooled trust to fund a particular individual’s stake in the trust. This single source of funding is then pooled with other people’s money to make one big pot, hence the name pooled trust. This pot is then controlled and invested, usually by an investment manager, similar to the way a hedge fund or other investment group operates.

The major takeaway is the “pooled” aspect of this particular trust. In theory, because there are many sources of funding brought together and utilized tactically, a pooled trust can make more stable investments and provide additional management services that other types of special needs trust cannot. Again, this increased investment power and potential returns coupled with lowered administrative costs, because it is borne by a large group instead of the individual and also an individual trustee does not need to be vetted and appointed, is also with the added benefit of the special needs beneficiary still being able to receive government benefits.

Unique Issues with Pooled Special Needs Trusts

The most obvious potential issue with pooled trusts is control, or lack thereof for individual participants. With a pooled trust, the trust assets are managed by people selected by the non-profit organization and not by anyone associated with an individual participant. This, in turn, means unassociated individuals and trust terms dictate how investments proceed and when disbursements occur, pretty much in a take it or leave it style. Once money is surrendered and placed into the pooled trust, individual participants how no say over how it is spent or when it will be distributed.  Additionally, it is a little known and little advertised fact that after the special needs beneficiary passes, some or all of their particular trust account will be kept to help with continued funding for the pooled trust. As always read the fine print and be completely sure you know what you’re signing up for.

With pooled trusts you make undertake a pro’s vs. con’s analysis, lack of control versus potential gains that might be indispensable in providing of critical healthcare costs for those with special needs. Consult an experienced Cleveland estate planning attorney who is familiar with drafting and administrating special needs trusts in order to find out potential options and they best course to take. Further, before signing on the dotted line to participate in any pooled trust, have an experienced Ohio estate planning attorney review the master trust agreement. Often these documents are very massive and have many hidden terms that can have profound impacts on your and your loved ones with special needs.

Helping You and Your Loved Ones Plan for the Future

Special Needs Trusts

The Three Flavors of Special Needs Trusts: #1 Third-Party Trusts

Estate Planning law firm Baron Law Cleveland offers the following part 1 of a three part series of explaining the difference trusts available for those who have loved ones with Special Needs.  Dan Baron of Baron Law can advise what is best trust for your situation as the trusts are as individual as your loved one.

According to recent statistics for the National Organization on Disability, nearly 1/5 of all Americans, almost 54 million, have a physical, sensory, or intellectual disability. Every one of those 54 million have parents, siblings, family members, and loved ones who want to ensure they are comfortable and provided for. As with many things with special needs persons, the solution for providing for them isn’t straightforward or simple. This is where special needs trusts often play a pivotal role in providing support and estate planning peace of mind.

Special Needs Trusts: A Primer

Special Needs Trusts, as their name suggests, are trusts. As trusts, they hold the common characteristics and features shared by all trusts. A trust, to put it simply, is a private agreement that allows a third party, a trustee, to manage the assets that are placed inside the trust for the benefit of trust beneficiaries. There are innumerable types of trusts, each with own its respective legal conventions and purposes. A critical aspect of trusts is that the assets housed within them usually aren’t counted as a part of the trust creator’s taxable estate. Thus, when the owner of the trust creates the trust and properly funds it, the assets go from the owner’s taxable estate to the trust. Afterwards, when the owner dies, the assets are not in the owner’s estate and subject to probate.

The distinguishing aspect and purpose of special needs trusts, sometimes referred as supplemental needs trusts, is that resources placed within these trusts can be managed for the benefit of a person with special needs but still allow them to qualify for public benefits like supplemental security income and Medicaid. This allows grantors, those who create the trust, usually in this instance parents of someone with special needs, to provide much need stable and monetary support while still allowing often indispensable social assistance programs for their children, even long after the parents pass. Third-party trusts seek to supplement income from assistance programs not to replace it.

Third-Party Special Needs Trusts

In general, there are three types of special needs trusts: Third-party trusts, self-settled trusts, and pooled trusts. Of focus here is third-party special needs trusts. The name denotes the defining characteristic of this trust, that a third-party set up a trust and funded the trust. This is also its most critical aspect because the funds and/or assets in the trust never belonged to the beneficiary with special needs, the government is not entailed to reimbursement for Medicaid payments made to the beneficiary nor are these assets taken into account when calculatng either initial or continued eligibility for government assistance programs for the special needs person.

These trusts are usually set up as a part of a comprehensive estate plan that initially provides a place to house gifts given by family members during their life to someone with special needs and later to also house inheritance from these same family members when they pass. Third-party special needs trusts are often denoted as beneficiaries on life insurance polices or certain retirements accounts. Further, these trusts can also own real estate or investments in the name of the trust but for the ultimate benefit of the person with special needs.

Advantages of Third-Party Special Needs Trusts

A big advantage of third-party special needs trusts is that, while the grantor is living, funds in the trust usually generate income tax for the grantor, not for the special needs beneficiary. This shift in taxation is dependent on proper drafting which is why experienced counsel is always recommended with special needs trusts. This tax shift avoids the hassle and stress of having to file income tax returns for an otherwise non-taxable special needs beneficiary and also having to explain the income to the Social Security Administration or other interested government entity.

Additionally, because it a trust, ultimately what happens after the special needs beneficiary is controlled by the grantor, you. Thus, the grantor always retains control and upon the special needs beneficiary’s death, the assets in the trust pass according to the grantor’s express wishes, even longer after death, and usually to the grantor’s surviving family member or other charitable institutions. This means the special needs person is always provided for, and far-above those people solely dependent on government assistance, and the money, at the end, will continue to do good for either your family or the world at large.

Helping You and Your Loved Ones Plan for the Future

Hot Powers

“Hot Powers”: What Are They And Should You Give Them?

Who will manage my finances and investments if I am sick or incapacitated? Who will pick what doctor treats me or if a risky but potentially lifesaving procedure should be performed? What if I am put on life sustaining medical support? These are the sorts of questions and issues typically handled by your power of attorney. As they suggest, these are critically important decisions that shouldn’t be taken lightly. Fundamentally, however, these issues can only be handled by your power of attorney if they possess authority, given by you and in writing, to do so. This is why ever since 2012, when Ohio law changed, “hot powers” are a significant topic for you to discuss with your estate planning attorney.

I. Durable Power of Attorney

To understand what hot powers are, you must understand what a power of attorney is. A financial power of attorney, also known as a durable power of attorney, is a legal document that a person can use to appoint someone to act on his or her behalf, i.e. an agency appointment. A power of attorney comes in many forms, but its primary purpose is to grant authority to one or more responsible parties to handle financial or health decisions of a person in the event of illness or other incapacity. Life, and its associated obligations and burdens, tend to continue regardless of one’s physical or mental health. Powers of attorney are protection that ensures affairs are handled and medical wishes are followed even if you are lacking capacity in mind or body.

As stated, powers of attorneys come in many forms. A financial power of attorney, as the name suggests, grants your agent the authority to make financial decisions for you. Managing investments, buying selling land or property, representing you in business negotiations, etc. Healthcare power of attorney works the same way but with healthcare decisions. If you are incapacitated or otherwise can’t decide for yourself, your agent will decide who your doctor is, what treatment you undergo, what medication should be administered, etc.

As always, the terms, powers, and limits for your agents are decided by you in the documents that appoint your agent. If you want to add limits on how long they are appointed, what issues they can or cannot decide, or when exactly their powers manifest, you can do so. Furthermore, you always possess the authority to dismiss them outright or appoint someone new.

Powers of attorney are important to have because surviving spouses or family members will face difficulty and frustration gaining access to things like bank accounts and property that is in your name only. This can be especially damaging within the context of business or professional relations in which the “gears of industry” must keep moving. Alas, if an individual trusted to handle the business if something happens doesn’t possess the authority to so, significant or even fatal business consequences may result. The same goes for medical decisions, often treatment decisions must be made right there and then. Hesitation may mean permanent damage or death to you and if someone doesn’t have express authority to make those decisions, things get confusing, messy, and take a lot longer.

II. “Hot Powers”

So, where do “hot powers” fit in all this. Effective March 22, 2012, Ohio adopted the Uniform Power of Attorney Act, or UPOAA, which was focused on preventing financial elder abuse. Now, powers of attorney must include a statutory language designed to help prevent agents from abusing their power. Put simply, the law now demands power of use more specific drafting and specific denotation “hot powers.”

“Hot powers” grant extraordinary powers to your agent and often these powers can have the effect of altering your estate plan. As such, these powers must be expressly granted per statutory guidelines before they are used by your agent. The most popular of them is the power to gift money or property. “Hot powers” are often used to continue a plan of gifting, sheltering money or property from costs of late life healthcare. Specified gifting “hot powers” can gift anywhere from a limited dollar amount or unlimited, dependent on the scope of the “hot powers” granted and the goals of your estate plan. Further, this power can also be limited to a class of people, such as spouse or children.

Since this new law, third parties such as a financial institution are not required to honor a general power of attorneys. Now, the law asks that a power of attorney include specifically which types of assets and accounts the agent is allowed to control. The spirit of this change is to 1) ensure individuals specifically know and agree to the powers they are giving, and 2) there will no longer be agents running around with “golden tickets” that allow them to do whatever they want to under the sun.

III. Should you give “hot powers”

Like every question in estate planning, whether you should give “hot powers” is circumstantial. The main consideration is who will be given the powers and under what terms. As stated above, “hot powers” are extraordinary powers meaning in the wrong hands they are really screw up your life and a well-crafted estate plan.

Regardless of whether you give these powers or not, it is probably wise to have your Cleveland estate planning attorney look at your powers of attorney if it has been more than five years. The law and your personal circumstances change quite often. Note, a power of attorney created before the 2012 law change will still be valid, however, it may be deficient in expected ways, ways that could hurt you down the line. In sum, the 2012 change means agents are prohibited from performing certain acts unless the power of attorney specifically authorizes them. Because financial power of attorney documents give significant powers to another person, they should be granted only after careful consideration and consultation with experienced legal counsel.