Frequently Asked Questions
What is estate planning?
Estate planning involves decisions about how you want to leave your money and other assets when you die and how you want to manage these during your lifetime if you become incapacitated, and taking the steps to ensure that your wishes are carried out. This process includes thinking about your own needs and wishes, the needs of those for whom you want to provide in the future, the selection of the right people to carry out your plans, and choosing and executing the right documents. Estate planning is really about relationships, and how you want to take care of yourself and others in the future.
Your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, retirement accounts, investments, life insurance, furniture, personal possessions. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.
When that happens—and it is a “when” and not an “if”—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will probably want this to happen with the least amount paid in taxes, legal fees, and court costs.
You may have particular considerations in your estate planning such as:
- A child with disabilities
- Blended families and coordination with former spouses
- Naming the right people for important jobs
- Tax planning
- Keeping your beneficiary designations up to date
- Coordinating probate and non-probate assets
- Charitable giving
What does “estate” mean?
Believe it or not, you have an estate. In fact, nearly everyone does. No matter how large or small, your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, retirement accounts, investments, life insurance, furniture, personal possessions.
What is a Will? What is a trust? What is the difference?
A Will is legal document, signed and witnessed according to state law, which instructs how an individual’s probate estate is to be divided up and given away after death and appoints the people or entities who will carry out these instructions. A Will only comes into effect when you die. As long as you are alive and capable of making decisions about your property you can always change your Will. A Will is important for all of us, but especially for parents of minor children, as your Will is where you name a guardian to care for your minor children if you die unexpectedly. Your Will only controls the handling of assets that are in your probate estate. Many assets will pass at your death outside of the probate process, and are not controlled by your Will.
A trust is a legal entity that may last a long time, in contrast to a Will, which has a shorter purpose. The most common trusts are created by a person to benefit one or more people whether during the lifetime of the trust creator or after his or her death, and appoints people or an organization to manage the trust assets according to the instructions in the trust document. In that little description we have the four important characters in a trust: the grantor (who sets it up), the beneficiary (for whose benefit the trust is created), the trustee, (who manages and administers the trust), and the trust document or agreement (which contains the instructions).
There are many types of trusts. The type of trust and the characteristics that best suit your situation will depend on many factors, most importantly your own planning goals. Common goals that can be met with a trust are to protect assets for a child or other loved one who has disabilities, to ensure a way to manage property in case you become incapacitated, or to avoid taxes.
You may create a trust under your Will, or through a separate document. A trust under your Will continues on in the future, after the other terms of the Will have been used to administer your probate estate.
What is probate?
Probate is a process that validates a Will, directs the identification and valuing of certain assets that belonged to the person who has died, sees that debts and taxes get paid, and that the assets get distributed to the correct parties, either those named in the deceased person’s Will, or if there is no Will then to those who would inherit under our laws of intestacy.
Not all assets pass through probate. Only those assets that are in your own name alone have to go through probate. Many assets will pass to the next rightful owner outside of probate, for example, those that have a joint owner, or a beneficiary designation (like life insurance or retirement accounts), or are in a trust. These assets will all pass to the next owner under different rules and are not controlled by your Will. Your Will only controls the property that goes through probate.
What resources are available to assist a Personal Representative of an estate?
A good source of information about serving as a Personal Representative is found at the Maryland State Registers of Wills website. You may also want to contact the Register of Wills in your county or Baltimore City. The Personal Representative may want to engage an attorney for assistance in administering the estate, but there is no legal requirement to do so, and many people opt to handle the estate administration themselves.
How is property divided up when I die?
Part of the probate process involves paying debts, taxes, funeral expenses, probate fees, and allowances for certain family members who survive you. Once these requirements are met, the remaining assets in your probate estate will be distributed according to the terms of your Will. If you die without a Will, the State of Maryland substitutes its own estate plan for you, and your probate estate is left in certain fixed percentages to those related to you: a spouse, children or more remote relatives. We refer to these people as your legal heirs.
Non-probate property is divided up depending on the type of asset involved. For jointly titled property, generally the surviving joint owner(s) receive your share. But if the jointly titled property is titled as “tenants in common”, then your share will actually be part of your probate estate. For assets that pass by beneficiary designations, like life insurance and retirement accounts, the most recent forms you have completed will guide who receives what and in what shares. If you have not completed beneficiary designations by the time you die, then the rules of the insurance company or custodian of the retirement account will dictate who may receive the assets or if the assets must go through your probate estate.
What is special needs planning?
This is a specialized field in estate planning that is focused on those individuals with disabilities who may need assistance with their decision making, who may seek to become eligible for public benefits, and who may need assistance and supports as they strive for a full and fruitful life in their community.
As special needs planning attorneys, we may be involved in drafting trusts, counseling families and individuals about guardianship and its alternatives, planning for eligibility for important public benefits that provide income, health insurance and services for people with disabilities, and advising parents about their own and their child’s estate planning. We remain involved as advocates and fiduciaries for clients and beneficiaries whose family may have passed away. We devote time and energy to lobbying for changes to our laws, regulations and policies affecting people with disabilities. All of this work is aimed to help individuals with disabilities to enjoy their lives to the fullest.
What is a Special Needs Trust?
A Special Needs Trust is a type of trust established to manage assets for someone (the beneficiary) who may not be able to do so himself or herself due to disability and to help preserve the beneficiary’s eligibility for public benefits, like Medicaid (what we call Medical Assistance in Maryland), Supplemental Security Income (SSI), and many other important programs. These types of trusts come into play in a multitude of situations, including parents planning to leave their assets for a child with disabilities, an individual with disabilities coming into an inheritance or settling a personal injury suit that may jeopardize benefits eligibility, or one spouse planning for a disabled spouse.
What type of Special Needs Trust do I need?
How do I set up a Special Needs Trust?
A Special Needs Trust is based on a written document, and may be part of your Will, or it may stand on its own as a separate document, or may be created through opening an account with a pooled special needs trust. It may be set up so that the trust only takes effect when you die, or it may be effective in the present and can accept funds while you are living. Because a Special Needs Trust will often be in place for the beneficiary’s lifetime, it has to last a long time. Many things can change over time and so it is wise to create flexibility in your planning to allow for changes in the future.
How do I fund a Special Needs Trust?
Many different types of resources can be used to fund a Special Needs Trust. They may include your family’s savings, investments in stocks and mutual funds, Certificates of Deposit (CDs), certain military benefits, Individual Retirement Accounts (IRAs) and other retirement accounts, life insurance, and real property. Parents and other family members or friends can name the trust in their Wills to receive a portion of their probate estate. A trust can be named as a beneficiary of a life insurance policy, IRA or other retirement account.Technically, it is the trustee that is usually named as a beneficiary.
How can a Special Needs Trust be used?
While a Special Needs Trust is written to ensure that the trust assets are not counted in determining eligibility for means-tested public benefits, the trustee must also be careful in how the funds are used, to avoid creating other eligibility problems.
Examples of the types of things generally allowed to be paid from a special needs trust include clothing, communications and assistive devices, education expenses like tuition, fees and books, computer equipment and services, vacations, transportation, memberships, subscriptions, cable and telephone equipment and services, hobbies, pets, a vehicle and necessary modifications, sporting goods and equipment, medical expenses not covered by government benefits or private insurance such as cosmetic surgery, and cultural and artistic activities.
Trust distributions should be for the benefit of the beneficiary, and generally should not duplicate what services public benefits already provide. SSI, for example, is intended to provide for the individual’s basic needs: food and shelter. If a trust pays for these items, this may cause a reduction in the SSI payment. Medicaid and Medicare are health insurance; so a trustee should check first to see if health related goods and services are covered by these programs before making a payment from the trust.
First party trusts are subject to a stricter standard of “the sole benefit” of the beneficiary. Usually third party trusts do not have this restriction. A special needs trustee usually does not make payments directly to the beneficiary, as this could affect the beneficiary’s benefits.
How do I tell SSI or Medicaid that I have a trust?
SSI and Medicaid require prompt reporting of any change in financial circumstances. Generally, you should provide a copy of the trust document, and explain where the trust assets came from, and when the trust received assets. This should be in writing, sent to the local office which is responsible for your benefits; you should keep a copy of what you sent in, and obtain confirmation of receipt.
What is SSI?
Supplemental Security Income (SSI) is a Federal income supplement program funded by general tax revenues (not Social Security taxes). SSI is administered by the Social Security Administration. SSI provides a monthly income benefit to meet basic needs for food and shelter. SSI recipients in Maryland automatically qualify for Medicaid (Medical Assistance as we call it in our state.)
SSI is intended to help people who are aged, blind and disabled and who have little to no income and very limited resources. The current countable resource limit for an individual is $2,000. SSI provides a monthly income benefit to meet basic needs for food and shelter. SSI recipients in Maryland automatically qualify for Medicaid (Medical Assistance as we call it in our state.)
What is Medicaid?
Medicaid is a joint federal and state funded health insurance program for low-income individuals and families. There are many programs within the Medicaid umbrella. Medicaid covers children, pregnant women, certain low-income working people, adults who are aged, blind, and/or disabled and other people who are eligible to receive federally assisted income maintenance payments. Medicaid health insurance is comprehensive and includes pharmacy benefits.
What is Medical Assistance?
What is a “Medicaid waiver”?
A waiver is a special program within the Medicaid system designed by a State to cover certain home and community-based services (HCBS) as an alternative to receiving care in an institution such as a nursing home. To become a waiver participant an individual must qualify by meeting certain criteria. Each waiver will have different criteria; for example, having a certain medical condition or needing a specific level of care. The notion of a “waiver” means that the State has received permission from the federal government to apply eligibility rules that differ from the basic Medicaid rules, for example, waiver programs often allow people to have a higher income than for basic Medicaid; waiver programs often cap or limit the number of people who can be enrolled.
Each waiver program is built on a base of Medicaid eligibility, so each waiver participant has basic health insurance, and then additional services and supports are added, targeted to the specific population the waiver is intended to serve. Maryland Medicaid has a number of waiver programs, including those for people with developmental disabilities (“the Community Pathways Waiver”), young people on the autism spectrum (“the Autism Waiver”), medically fragile individuals under a certain age (“the Model Waiver”), and certain people with a traumatic brain injury (“the Traumatic Brain Injury Waiver”).
What is Social Security Disability Insurance?
Social Security Disability Insurance (SSDI) pays an income benefit to an individual and certain family members if the individual is “insured” meaning that he or she worked long enough and paid Social Security taxes, and the individual meets the Social Security Administration definition of disability. A spouse, a minor child, or an adult child who was disabled before the age of 22 may also be able to receive SSDI on the record of the individual. This program is generally not subject to financial tests, except if the individual or the disabled adult child have earnings from work beyond a certain amount and duration.
What is Medicare?
Medicare is the federally funded health insurance program for people over the age of 65 and for younger people with disabilities who receive Social Security Disability Insurance; also people with End Stage Renal Disease. There are three main parts of Medicare: Parts A, B & D.
Medicare Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care; all subject to certain limits. Medicare Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services. Medicare Part D helps cover the cost of prescription drugs.
Medicare pays for a portion of covered services, and the Medicare beneficiary is responsible for the balance. Many people purchase Medicare Supplemental Insurance (sometimes called Medigap Insurance) to cover these out of pocket expenses. For people who are eligible for Medicaid and Medicare (dual eligibles), the Medicaid program pays for the Medicare premiums, copayments and coinsurance. For people with low income on Medicare who are not Medicaid eligible, there are programs that can assist with the Medicare premiums and out of pocket medical expenses; these are referred to as “Medicare Savings Programs”.
What is an ABLE Account?
ABLE accounts are tax-favored savings accounts for certain people with disabilities, which allow the account owner to accumulate funds of more than $2,000 and still qualify for SSI, Medicaid and many other means-tested public benefits. There are many rules for eligibility for an ABLE account, but using the account can be easy. Maryland’s ABLE program can be reached online at www.marylandable.org.
To be eligible for an ABLE account, an individual must have become disabled before the age of 26. There is no upper age limit for funding or use of an ABLE account. Disability must be established either by SSI or SSDI eligibility attained before the age of 26, or by a doctor’s certificate attesting to the individual’s diagnosis and its effect on the individual’s functional capabilities. The ABLE account owner is also considered the account beneficiary.
An individual may have only one ABLE account. There are important limits on the amounts that may be contributed to an ABLE account. There is an annual contribution limit, currently $15,000. This applies to all contributions to the account. The account owner, any other person or a trust may contribute to an ABLE account.
When ABLE account balance exceeds $100,000, any excess over this amount will count towards the individual’s $2,000 resource limit for SSI; if the amount over $100,000 exceeds $2,000, then the individual’s SSI eligibility will be suspended, but Medicaid eligibility may continue if all relevant Medicaid eligibility requirements continue to be met. If the balance goes below $100,000 within 12 months, SSI can be reinstated without a new application.
There is a lifetime contribution limit for ABLE accounts; in Maryland, this limit is currently $500,000.
If the owner does not have the capacity to establish, fund or manage an ABLE account, then that person’s agent under a power of attorney, or his guardian, or a parent may do so. Under the Maryland ABLE program, if a parent established the account for a child under the age of 18, and if the child is not capable of managing the account as an adult, the parent must either be named as an agent under the child’s power of attorney or be appointed as her guardian once she turns 18 in order to manage and use the ABLE account.
Contributions to a Maryland ABLE account may qualify for a state income tax deduction. An individual may enroll in any other state’s ABLE program that accepts out of state enrollees, but will not receive the state income tax deduction.
ABLE accounts are intended to be used to pay for the owner’s “qualified disability expenses” (QDEs). QDEs are intended to maintain or improve the health, independence, or qualify of life of the account owner. QDEs include basic living expenses, education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services.
Income earned in the ABLE account (interest, dividends and capital gains) is tax free so long as the withdrawals are used for QDEs. If withdrawals are made for purposes other than QDEs, the income portion of the withdrawal would be subject to income tax and a 10% penalty.
When the owner dies, funds in the ABLE account are subject to a claim by the state for certain Medicaid benefits paid on behalf of the owner for the period starting with the opening of the account. Generally the state is able to repaid from funds in the ABLE account for long term support services (including waiver services) provided after the age of 55. Certain expenses can be paid from the ABLE account prior to repaying the state; these include any outstanding bills for QDEs, and funeral and burial expenses for the account owner.