By: Trevor L. Stapleton

Some assets automatically pass to a designated beneficiary upon the owner’s death, often referred to as “non probate” assets. Common examples are bank accounts or life insurance policies where a beneficiary designation is made on the account. This may seem like a quick and efficient way to provide for the disposition of an estate, eliminating probate and avoiding the costs of working with an attorney. However, there are a number of drawbacks to relying solely on Payable-on-Death and Transfer-on-Death Designations.

1.         Payable-on-Death and Transfer-on-Death Designations are inflexible. In the event that a beneficiary you name dies first, the interest may revert to your estate unless you update the beneficiary designation. In the event you have more than one account, this requires you to closely monitor your beneficiary designations and affirmatively make changes, on an account by account basis, which could be time consuming. There is also a chance that an account could be missed and the beneficiary designation not updated, which could cause unintended consequences such as the asset passing to someone you did not want to benefit or a probate proceeding. Payable-on-Death and Transfer-on-Death Designations do not allow for alternate or contingent dispositions, again risking unintended outcomes.

2.         Payable-on-Death and Transfer-on-Death Designations do not provide access or management of the asset in the event of your incapacity. These non probate transfers only occur at death. Should you become incapacitated, other steps are necessary to manage the account for you, which could include court proceedings.

3.         Payable-on-Death and Transfer-on-Death Designations are short term planning.   Often, spouses are the Payable-on-Death or Transfer-on-Death beneficiaries, which ignores the longer term planning that estate planning should include. Even if everything passes to the surviving spouse based on Payable-on-Death and Transfer-on-Death Designations, the surviving spouse is faced with having to undertake estate planning steps alone. The surviving spouse would have to promptly update asset and account information (to remove the deceased spouse) and make new beneficiary designations. Until this is done, there is the risk that all the assets that avoided probate proceedings at the first death could be subject to probate at the surviving spouse’s death. This places a heavy burden on the surviving spouse who, in addition to grieving the loss of a spouse, may also be older, ill, or even incapacitated, making taking action impractical or even impossible.

In contrast to these limitations, a comprehensive estate plan will include tools that not only avoid probate but also provide for flexibility and comprehensive asset management during lifetime and after death. While Payable-on-Death and Transfer-on-Death Designations can be a part of your estate plan, they should be carefully coordinated and are not a substitute for comprehensive planning.

By: Trevor L. Stapleton

Government programs such as Social Security, Medicare, and Medicaid provide financial assistance to millions of Americans with disabilities. However, qualification for public “means tested” programs is typically available only if an individual has very limited financial resources. For example, programs such as Supplemental Security Income (SSI) and Medicaid generally require individuals to have limited income and countable assets of no more than $2,000. And the rules relative to qualification can be nuanced, difficult to navigate and are heavily scrutinized. Families trying to do the right thing for their loved ones can unintentionally or inadvertently cause reduction, disruption or even loss of public assistance. As such, the need for comprehensive estate planning for families with a family member with a disability is even more critical.

The challenge of planning with a family member with a disability is implementing a plan to provide necessary support without putting essential benefits at risk. Planning must be proactive and consider protecting benefits, supporting quality of life, and include long-term financial planning alongside long-term care needs.

As with estate planning in general, various tools and techniques can be coordinated depending on a family’s unique circumstances. A primary concern, though, is ensuring that money or other assets are not left directly to the individual with a disability, as this will jeopardize means tested benefits, and rather than providing additional benefit, these resources will have to be expended typically on care costs otherwise covered by public benefits. A beneficial plan should provide for the disposition and management of assets in a way to provide supplemental benefit to the individual with a disability.

A common tool to facilitate supplemental benefits to an individual with a disability is a special (or supplemental) needs trust (SNT). A SNT is a separate legal entity (trust) that holds funds for a beneficiary with a disability. The SNT is carefully drafted to allow money to be used for expenses that improve the quality of life but do not affect eligibility for programs such as SSI or Medicaid. The primary directive of the SNT is to use funds to supplement public benefits, not replace them. A single SNT can receive and hold gifts and inheritances from any number of family members or friends, and in any amounts.

The SNT can also provide for administrative flexibility and oversight of the use of funds, for example, allowing designated friends or family members input into some decision making. There should be a careful balance though, to avoid the SNT becoming too administratively cumbersome or complex. One size/form will absolutely not fit all, and families should work with experienced professionals.

It is also important to note that actual health care decision making and generally care and maintenance of the individual with a disability will be the responsibility of a conservator, which is separate and distinct from the SNT and the functions that the Trustee performs administering the SNT. While a discussion of conservatorship is beyond the scope of this article, the key distinction to keep in mind is that the Trustee of the SNT controls the purse strings, while a conservator oversees the care and custody of the individual.   

A more recent tool in the special needs planning arsenal is the Achieving a Better Life Experience (“ABLE”) account. An ABLE account allows eligible individuals with disabilities to save a limited amount of money each year for qualified expenses such as housing, education, transportation, and healthcare. These accounts are not “countable assets” and therefore do not impact public benefit qualification if the funds are used for qualifying expenses. It is important to note that an ABLE account is the personal account of the individual with a disability. He or she is the account owner and has control and access to the account. Limiting the amount in an ABLE account may be prudent for individuals who may be vulnerable to being taken advantage of. If an ABLE account is to be included in a conservatorship to help protect against predators, this creates an additional administrative layer of reporting and Court oversight to be considered as well. While an ABLE account provides an opportunity for individuals with a disability to accumulate funds and exercise independence, it may not be appropriate in all circumstances. Also due to the limitations on annual and cumulative amounts, ABLE accounts are NOT a replacement for a SNT, but a tool that can be implemented as part of an overall, comprehensive plan.

The right approach to estate planning if there is a family member with a disability involves a combination of tools, carefully coordinated to reflect a family’s resources, goals, and the specific needs of the individual with a disability. Each approach should be examined individually and collectively, with the assistance of experienced professionals to avoid unintentional or inadvertent consequences.