Barnes Lipscomb & Stewart PLLC

What’s the Right Way to Give a Disabled Child the Family Home?

There are many factors to consider when giving the family home to a disabled son.

For a disabled child who depends upon Social Security Disability for income—about $18,000 a year—a mother’s gift of the family home is generous and kind. However, there are tax considerations that must be planned for, so as not to put his ownership at risk.

nj.com’s recent article, “When giving a home as a gift, why planning matters” asks how will his cost basis and capital gains be determined?

A donor’s basis in the home is typically the amount paid by the donor at purchase, plus the cost of improvements made by the donor. When the son or donee receives the home as a gift, his basis is the donor’s basis.

However, there are some special rules, if the fair market value of the home is less than the donor’s basis at the time of the gift. When the donee wants to sell the property, his original basis is upped by the cost of improvements made by the donee.

A single person can receive a $250,000 exclusion from capital gain on the sale of a personal residence, if she’s owned the residence for two out of the last five years and lived in the home for two out of the last five years prior to sale.

However, a shorter time period— one year out of the last five years—is allowed for individuals who were unable to care for themselves and need nursing home or other care facility services.

If the gain is more than the exclusion, the net capital gain is taxed at 0% for taxpayers in the 10-12% ordinary income tax brackets; at 15% for those in the 22-35% tax brackets, and 20% for taxpayers in the 37% bracket.

While income tax does not appear to be an issue in this scenario, if the son’s mother retained at least a life estate in the home until her death, it would allow the home to receive a step-up in basis to the date of death value on the mother’s death. That would eliminate the majority of the potential income tax gain, provided the son delayed selling it until after his mother’s death.

That’s why it’s important to consider whether a gift now is the right move.

The family would be wise to speak with an elder law estate planning attorney before making any gifts. If the ownership of the home disqualifies the son for government benefits, the gift could have disastrous results. It may be better for the house to be placed in a trust, for instance, with another family member serving as the trustee. The attorney will be able to help the family determine the best way to transfer the ownership of the house from the mother for the son’s use.

Reference: nj.com (August 1, 2019) “When giving a home as a gift, why planning matters”

Naming a Guardian in Your Will

If you have minor children, you need a will so that you can select their guardian, if their parent or parents dies unexpectedly.

Parents need to direct the same energy used to map out a sleeping/feeding schedule, decide which diapers to buy, or what preschool to enroll in, to having a will. That’s the document that is used to distribute your assets and, for parents of minor children, name a guardian who will raise your child or children, if parents should die while their children are still under legal age.

If you don’t take this step, the court will decide, and your children will be left to whoever the court thinks is going to be their best guardian.

U.S. News and World Report’s recent article “How to Choose a Guardian for Your Child” says that, at worst, forgetting to name a guardian can mean a long court proceeding. This can be expensive, cause stress in family relationships and put your children in guardianship limbo.

There are two types of guardianship to consider when deciding who will care for your children: guardian of the estate and guardian of the person. The guardian of the estate is a person who’ll manage the minor child's inheritance on their behalf. It’s a fiduciary responsibility, and this guardian must make sure he or she carefully and appropriately manages accounts, keeps receipts, reports back to the court and doesn’t comingle the child's assets with his or her own. Another option is for a parent is to set up a trust and have a trustee manage the funds for the child. This can allow the parent more control over how and when money is distributed, especially if you anticipate leaving a substantial inheritance.

The guardian of the person is the daily caretaker who’ll make sure your child gets health care, educational, housing and has all other needs met.

These two guardians can be the same person or different people, depending on the skills and abilities of your family members and friends. A separate person managing the estate can provide a series of checks and balances that can help, if you are concerned about the misuse of your child's funds.

You may want the guardian of the estate to have good money-management skills. The guardian of the person may be someone who shares your same values, has the energy to raise a child and is close by so that your child doesn’t have to lose the familiar comforts of their school and neighborhood.

You should also name backup guardians, in the event that the primary guardian is unable or unwilling to take on the responsibility. You should also be sure to speak with your guardians ahead of time and make certain they understand the responsibility and are willing to take on the task of helping care for your children, if you pass away.

An experienced estate planning attorney will be able to help you draft a will with the terms of guardian ship included, create a power of attorney and health care proxy and help you work through the difficult question of who the best guardian for your children will be. That is admittedly not a legal issue, but with years of experience helping families, the attorney will have helpful insights into the guardianship process.

Reference: U.S. News and World Report (June 4, 2019) “How to Choose a Guardian for Your Child”

Financial Advisors Join the Fight Against Elder Financial Abuse

Both banks and financial advisors are starting to take a more pro-active role in preventing financial abuse. It’s common sense, since they are often the first to see questionable transactions.

Don’t be surprised if your next visit to a financial advisor or a personal banker includes a conversation about providing the name and contact information for a relative or trusted friend. That information is so the advisor or banker can reach out to someone on your behalf, if they have a reasonable belief that you are about to become or have become the victim of a scammer.

Kiplinger’s recent article, “New Rules Battle Financial Scams, Elder Abuse” says that your adviser could place a temporary hold on a suspicious disbursement request from you, so your money is protected until the concern is investigated. When money leaves an account, it’s hard to get it back.

Changes include several new laws that protect seniors and their money. For older adults, financial exploitation is a growing problem. One in five older Americans are the victim of financial exploitation each year, resulting in the loss of $3 billion annually.

Mild cognitive impairment can result in older adults not seeing red flags for fraud, says Michael Pieciak, president of the North American Securities Administrators Association (NASAA), which represents state securities regulators. The ability to judge risk may be diminished. He noted that social isolation plays a part, with vulnerable seniors home during the day and apt to answer the phone when a fraudster calls.

Federal and state lawmakers, along with the financial services industry, have initiated new rules to help safeguard seniors and their assets. The idea is that financial institutions and professionals are on the front lines of spotting elder financial abuse. The changes are designed to protect seniors and to shield financial professionals from liability for reporting possible exploitation.

Congress passed the Senior Safe Act in 2018. This law protects financial services professionals from being sued over privacy and other violations for reporting suspected elder financial abuse to law enforcement, provided they’ve been trained. If a bank teller notices that a senior seems confused about withdrawing money or making puzzling transactions, the teller could tell a superior, who could contact authorities, if necessary.

Being named a trusted contact is different from being named a durable power of attorney. Your trusted contact may not conduct any business on your behalf, and a power of attorney supersedes it. However, if there is worrisome behavior, your trusted point of contact may be notified. If the banker or adviser thinks that the contact him or herself may be the point of exploitation, they are now instructed to contact the authorities directly.

Reference: Kiplinger (April 3, 2019) “New Rules Battle Financial Scams, Elder Abuse”

How to Build an Estate Plan When Beneficiaries Aren’t Up to the Task

Not everyone is ready to receive an inheritance. Some are too young, others are elderly and vulnerable, while still others can’t manage large sums of money. That’s what trusts and good estate plans are for.

If you have to think twice about an heir’s suitability for an inheritance, then you should be talking with your estate planning attorney. There are ways to allow heirs to benefit from your generosity, without putting themselves or their inheritance at risk.

A recent Kiplinger article asks: “Is Your Beneficiary Ready to Receive Money?” In fact, not everyone will be mentally or emotionally prepared for the money you wish to leave them. Here are some things to consider:

The Beneficiary’s Age. Children under 18 years old cannot sign legal contracts. Without some planning, the court will take custody of the funds on the child’s behalf. This could occur via custody accounts, protective orders, or conservatorships. If this happens, there’s little control over how the money will be used. The conservatorship will usually end, and the funds be paid to the child, when they become an adult. Giving significant financial resources to a young adult who’s not ready for the responsibility, often ends in disaster. Work with an estate planning attorney to find a solution to avoid this result.

The Beneficiary’s Lifestyle. There are many other circumstances for which you need to consider and plan. These include the following:

• A beneficiary with a substance abuse or gambling problem;
• A beneficiary and her inheritance winds up in an abusive relationship;
• A beneficiary is sued;
• A beneficiary is going through a divorce;
• A beneficiary has a disability; and
• A beneficiary who’s unable to manage assets.

All of these issues can be addressed, with the aid of an estate planning attorney. A testamentary trust can be created to make certain that minors (and adults who may not be ready) don’t get money too soon, while also making sure they have funds available to help with school, health care and life expenses.

Who Will Manage the Trust? Every trust must have a trustee. Find a person who is willing to do the work. You can also engage a professional trust company for larger trusts. The trustee will distribute funds, only in the ways you’ve instructed. Conditions can include getting an education or using the money for a home or for substance abuse rehab.

Estate Plan Review. Review your estate plan after major life events or every few years. Talk to a qualified estate planning attorney to make the process easier and to be certain that your money goes to the right people at the right time.

Parents and grandparents are advised to stay in touch with their potential heirs, whether they are living nearby or far away. If you created a will or trust when heirs were young, their lives, values and priorities have no doubt changed. The wild adolescent may have matured into a kind and generous individual, or the most responsible kid you ever knew might have become ensnared in a dangerous relationship.

Your estate planning attorney will make the process easier, even if there are some changes to be made. Stay in touch and make sure that your gifts go to the right people, at the right time.

Reference: Kiplinger (April 1, 2019) “Is Your Beneficiary Ready to Receive Money?”

What Will Happen to Rapper Nipsey Hussle’s Children?

The death of Rapper Nipsey Hussle leads many to wonder if he had an estate plan, and if so, if he named a guardian for his two minor children. All of his estate would go to them, but they are minors and will need guardians or a trustee to manage his assets.

When Rapper Nipsey Hussle was killed in front of his store in Los Angeles, he left behind two minor children and a girlfriend. If he did not have an estate plan, he joins artists like Aretha Franklin and Prince who also died with no estate plans. He also created a problem for his children, because minors are not permitted to own more than a certain amount of assets, according to Rolling Out’s article, “RIP Nipsey Hussle: 5 reasons you need an estate plan.”

This means that a guardian or trustee must be appointed to manage the funds for them, until they reach the age of majority. If the deceased doesn’t have a will that instructs who that guardian shall be, they will be chosen by the court. In this case, Nipsey’s longtime girlfriend Lauren London would get nothing from Hussle’s estate (even though that may not have been his intention), because it looks like she wasn’t his spouse or an heir. Consider these important reasons for an estate plan:

Property transfer wishes. This is the primary objective of estate planning. Your estate consists of all your property (real, personal, and intellectual) minus your debts. Your estate plan will determine who gets what and when. Create clear goals, as to who should inherit your property and alternative beneficiaries, in case someone predeceases you.

Transfer costs and taxes. Another goal of estate planning is maximizing any available tax benefits. You can limit estate taxes by creating trusts, making charitable donations and by establishing a family limited partnership for a business.

More net assets to heirs. An estate plan will help avoid the expense and delays of probate.

Liquidity at death. Funds need to be available to satisfy the immediate needs of the family. This can be accomplished with life insurance policies, IRAs, stocks and bonds. If all of your property is being transferred by will or intestate succession, no one gets anything, until the estate is probated.

Personal wishes surrounding death. Write down all of your preferences concerning burial, cremation, and organ donation to help your family.

Since this article was first published, Rolling Out added an update that said that Nipsey Hussle and Lauren London may have been secretly married. If that’s the case, she would inherit part of the estate. Otherwise, his family will be busy trying to untangle his estate, seeking guardianship of his children and many other tasks, all during a difficult time.

Reference: Rolling Out (April 1, 2019) “RIP Nipsey Hussle: 5 reasons you need an estate plan”

Vulnerable Elderly Pack Las Vegas Courtroom to See Abuser Get Justice

They were tormented, robbed and had their spirits broken, all by one woman who was a professional guardian and took every possible advantage of her position.

There were relatives of people who had died while under her care and people who read statements from elderly victims, who were simply too weak or sick to come to court to look her in the eye. They lost thousands of dollars, heirlooms of great monetary value and family possessions that were irreplaceable. They were put under her care, and their stories were not easy to hear.

The Las Vegas Journal-Review reported in a recent article, “Ex-Nevada guardian to serve up to 40 years behind bars,” that as victims wept and told their stories of suffering during a court hearing, a shackled and seated April Parks kept her head turned and never looked their way.

Karen Kelly, Clark County’s public guardian, read through a long list of names of seniors who were victimized and lived under “intense anxiety and anguish” for the final years of their lives because of Parks and those who worked closely with her. Parks’ business partner, Mark Simmons, and her husband, Gary Neal Taylor, also were ordered to serve time in prison. In addition, the judge ordered the three defendants to pay more than $500,000 to their victims. Parks, 53, pleaded guilty last year to exploitation, theft and perjury charges.

One woman, Barbara Ann Neely, said Parks separated her from family and friends, saying, “She was not a guardian to me.”

Neely said. “She did not protect me. As each day passed, I felt like I was in a grave, buried alive.”

Another victim compared Parks to Hitler.

The 53-year-old Parks told the judge that she accepted responsibility “but never intended harm,” adding that “things could have been done better. … We were a group practice, and honestly I think some things got ahead of us.”

She claimed that she had a “great passion” for guardianship and took “great care and concern” in her work.

How one person could have harmed so many people is hard to imagine. However, she was one of the most active private professional guardians in the state and had been given complete control of the financial  and medical needs and estates of as many as fifty to one hundred elderly and mentally incapacitated people at a given time.

The case shines a light on a system that is clearly not working for the people it is intended to benefit.

Las Vegas Journal-Review (January 4, 2019) “Ex-Nevada guardian to serve up to 40 years behind bars”

My Millennial Kids Don’t Get Estate Planning. How Can I Help Them?

Boomer parents of millennials are trying to get their adult kids to understand the importance of having an estate plan, especially those who are married with young children. The gift of a plan created by an estate planning attorney, may be the best way to educate the kids, while protecting them and beloved grandchildren.

As Forbes explains in its recent article, “The Estate Planning Gift To Give Your Millennial Children In 2019,” Boomers entering their 60s and 70s are more focused than ever before on managing their family legacies. The 2018 U.S. Trust Insights on Wealth and Worth Study found that 67% of those over 50 want to use their wealth to invest in their children and grandchildren. Boomers who’ve managed their finances successfully, want to be sure their hard work doesn’t go to waste.

The challenge, however, is that Boomers can’t control all aspects of their financial lives. One complaint they have to their estate planning attorneys, is that their kids aren’t doing the things that they ask. Gen Xers and Millennials may see estate planning as a very low priority. Most are burdened by heavy debt and trying to get their day to day financial lives on the right track. Nagging parents might make them resist this type of advice.

There is one thing Baby Boomers can do to make certain their children do the right thing when it comes to estate planning—they can make a gift of estate planning to their adult children.

However, before Boomers do this, they should think about several issues to put their family on the path to success. Family dynamics can be challenging, and family patterns are often hard to break.

Parents who want to offer to pay for an adult child’s estate plan, should consider how best to broach the issue. A wrong start could torpedo the wrong situation and end in a family drama. Timing is crucial for these discussions. The assistance of your estate planning attorney can smooth the way for a successful approach. He can outline the process for everyone to feel that they have a voice.

The advice for Boomers making this type of gift is quite simple: these conversations need to be more intentional in the why and the how. Boomers must also respect boundaries, once the estate plan is completed. They may have paid for the estate plan, but that does not mean they’re entitled to see the child’s documents. The burden of enforcing this parameter falls to the estate attorney.

Invite your kids to a family meeting with your estate attorney. That could be a perfect way to introduce them to the process and concepts of an estate plan.

Reference: Forbes (December 12, 2018) “The Estate Planning Gift To Give Your Millennial Children In 2019”

Helping Elderly Parents Manage Financial Matters

It’s a perilous combination: aging seniors with diminishing capacity and large amounts of money. Add concerned children into the mix, and it can be either a good outcome, or a disaster.

While the age it begins is different for everyone, at some point during the senior years we start to lose some of our cognitive capacity. The problem is, that’s when our portfolios likely reach their peak: just when we’re not as good as we used to be about making decisions.

U.S. News & World Report’s recent article, “How to Help Aging Parents Manage Portfolios,” says that, at some point, adult children may believe it's time to help with responses from the subtle (just a few suggestions) to the intermediate (monitoring accounts) to the extreme (gaining control from their parents). How do you know when it's the right time?

These are delicate subjects, and it can be a hard to speak with aging parents about their money and their potential to be the targets of scams. Loneliness and depression raise the odds of financial exploitation. Changes in social circumstances, like the loss of a spouse, can greatly increase risk and vulnerability.

Right after losing the ability to drive, the biggest loss of independence a senior citizen experiences is the ability to handle their own finances. Just a few mistakes can wreck a portfolio's ability to cover the parents' remaining expenses or provide the bequests they'd hoped to leave to family.

While control issues make many uncomfortable, hurt feelings and hassles are in many cases much worse, if problems are left to fester. The first step is to be aware of signs of mental decline—don’t jump to conclusions each time a senior struggles for a word. It’s not good to have your parent feel like she’s under a microscope and being constantly monitored.

If there are past-due notices all about, or if there’s a lot of charity mail, it might be a sign of a problem handling finances or dealing with day-to-day financial matters.

Start that discussion gently, by talking about your own finances to help put the parent at ease. Make it casual, not a confrontation with a formal sit-down. Do it one-on-one.

If the first steps raise concerns, the child can simply offer some suggestions to make things run more smoothly, like setting up automatic cash transfers from the parent's investment accounts to a bank account, and automatic bill payments from the bank. Assisting with the parent's tax return, can also ease the parent's burdens and allow the child to keep on top of things. In addition, the child can register with the bank to get copies of bank and investment statements, so that he can monitor if there are any suspicious withdrawals or failures to pay monthly expenses.

If the parent is showing distinct signs of weakened abilities, it might be time to go further and ask for access to the parent's accounts. Make this an offer to help, not a takeover. That way the child can monitor financial accounts.

You can also have your parent designate you as their agent in a durable power of attorney, which allows you to transact business on their behalf.

At some point, an elderly person may not be competent to handle financial affairs at all. Poorly-advised investments or susceptibility to scams are a definite sign of vulnerability. The adult child can petition a judge to make the child the parent's conservator or guardian to take charge of finances and other matters involving the parent's welfare. It is an adversarial and complex proceeding with attorneys and medical experts.

Don’t wait until someone has scammed your trusting dad into investing all of his money into a scam. Take a kind and gentle approach but do know when it’s time to take control.

Reference: U.S. News & World Report (October 22, 2018) “How to Help Aging Parents Manage Portfolios”

What is a Special Needs Trust and Do I Need One?

A special needs trust holds and protects financial assets or receives funds that a disabled beneficiary may receive in the future.

The special needs trust, sometimes referred to as a supplemental needs trust, is a legal structure that manages the assets and may receive contributions from a variety of sources during the lifetime of the beneficiary, according to WTOP’s recent article, “5 reasons to consider a special needs trust.” A special needs trust can also be created to receive assets from a legal settlement, when the recipient is a minor.

Other special needs trusts are part of an estate plan, when family members want to provide assets or life insurance proceeds at their own death as an inheritance for someone with special needs. If you’re not clear about a need for a special needs trust, talk with an elder care or trusts attorney to review your specific situation. In the meantime, here are some common uses:

Reserving assets for support during your life or at your death. Trusts are typically intended to provide a legal way to title and hold assets to be used to help beneficiaries. This trust is used to benefit someone who has physical or mental disabilities. A special needs trust can be used to provide for a variety of needs and the initial trust language specifies the donor’s intended use of the funds.

Designating a trustee. A major benefit of a trust is the ability to appoint a trustee to manage investment decisions and oversee the distribution of the trust assets. With a beneficiary who’s unable to manage finances independently, the trustee can safeguard the assets and administer spending decisions. The trustee must also ensure that the trust assets are used pursuant to the initial intentions.

Maintaining a disabled person’s aid from a government program. It’s not uncommon for a well-meaning family member to err and name the disabled family member as a beneficiary in their will. This could actually disadvantage the individual, by disrupting the aid they receive from the government. Many government programs have income requirements that cannot be exceeded. To protect the beneficiary, grantors can direct the intended inheritance or life insurance benefits to the special needs trust. This won’t jeopardize government income or other services that may be their sole source of support.

Preserving family wealth. This trust structure can create a way to provide assets, while limiting their use. A special needs trust also helps ensure that wealth is allocated properly.

If any of these situations apply to your family, think about creating a special needs trust during your lifetime. You can also wait to change your estate plan to establish the trust upon your death.

You’ll want to work with an attorney who has experience with special needs trusts, since there are tax and estate planning considerations that need to be considered.

Reference: WTOP (October 25, 2018) “5 reasons to consider a special needs trust”

Judge Rules this State’s Elder Exploitation Law is Too Vague

An 80-year old woman charged with taking money from a man with Alzheimer’s disease, will not be charged with elder exploitation, because the law is not clear enough.

This case makes one wonder how Montana’s laws about elder exploitation were created. According to an article appearing in US News & World Report, “Judge Rule's State's Elder Exploitation Law Is Vague,” a state judge ruled that the charges against Rose-Marie Bowman of Missoula should be dismissed.

She’s charged with taking money from an account for which she was a co-signor, after the other co-signor gave her control of his finances in 2012. The victim, Lanny Franzen, has been diagnosed with Alzheimer's disease. Missoula County Prosecutors say she manipulated Franzen into putting money into the account.

Attorneys for Bowman asked for the elder exploitation charge to be dismissed, arguing the law could be used to prosecute innocent actions. District Judge Robert “Dusty” Deschamps agreed, holding that the statute "is so broad and devoid of any requirements for proof of a criminal state of mind by the accused, a person is left to guess what specific acts might be allowed or prohibited by statute."

Pabst commented that judges have previously struck down statutes, because of vagueness but this situation is still "unusual."

This type of exploitation, according to the statute, happens when someone knowingly “obtains or uses” an older, incapacitated, or developmentally disabled person’s “funds, assets, or property with the intent to temporarily or permanently deprive” the respective victim. In a motion to dismiss the case, Bowman’s attorneys argued that the vagueness of the statute lets prosecutors to pursue a son who accepts a gift from his elderly mother.

The vagueness is focused on the statute’s use of two words: “use” and “obtain.” The two words are not clearly defined, with regard to criminal exploitation.

The prosecutors have several days to decide, if they want to appeal the judge’s ruling to the Montana Supreme Court, file charges under another law, or drop the case. Missoula County Attorney Kirsten Pabst says she's consulting with the state attorney general's office.

Reference: US News & World Report (August 24, 2018) “Judge Rule's State's Elder Exploitation Law Is Vague”