October 10, 2008

More ways you can mess up your estate plan—Part five

By Robert P. Bergman
Special to the Times

The next installment in our continuing of Ways You Can Mess Up Your Estate Plan:

#9. Special provisions for a disabled beneficiary

If you have a disabled beneficiary, perhaps a handicapped minor or adult child, you should consider leaving them their inheritance in a specially drafted trust to protect the handicapped child and keep them eligible for public assistance.

Without public assistance, many such children would have to spend their entire inheritance within a few years on medical and other needs. If you leave the inheritance to them outright, they may be ineligible for public assistance until they spend the inheritance down to the statutory $2,000 limit.

If you leave the disabled child’s inheritance to another child with the understanding that that child would help the disabled child, that child may die, get a divorce or be sued, and that intended inheritance may not be available to the intended beneficiary.

These special trusts can be separately drafted so that other family members and friends can make contributions, or they can be drafted as part of a revocable living trust estate plan. The special trust share for a disabled beneficiary can be managed by a selected family member or professional trust, and can be available for the beneficiary’s “supplemental needs” - over and above what Medicaid (“Medi-Cal” in California) or SSI would provide.

This trust can provide the disabled beneficiary with a specially equipped automobile, stereo equipment, computer equipment, vacations and the like.

Even a small amount of money left to this type of trust can make a significant difference in the beneficiary’s lifestyle over a great many years, and yet still keep them eligible for SSI and Medicaid.

#10. Special provisions for the spendthrift child

After you are gone, will your beneficiaries use their inheritance in a constructive manner? Or will they waste it foolishly? How are they today at managing their money? That may give you some idea as to how their inheritance will be spent after you are gone.

Will the inheritance be available for the education of your grandchildren, or will it all be gone in just a few years?

Many people like the idea of holding an inheritance in trust until the beneficiary reaches a certain age, such as 30. Others like giving their children one-third of their inheritance after they are both gone, with another third five years later and the remaining balance five years after that. That gives the beneficiary three chances to blow it!

A thoughtful estate plan could require that a beneficiary be drug- or alcohol-tested monthly for three years before receiving an inheritance outright.

Another increasingly popular form of planning involves leaving property in trust for a beneficiary’s lifetime without ever distributing it outright to the beneficiary. This is done because, as long as an inheritance is being held in trust, it can be protected from the beneficiary’s spending habits, from creditors, from bankruptcy and from divorcing spouses. Also, this type of trust can control where the inheritance goes upon the death of the beneficiary, or can also give the beneficiary the ability to pass the trust property on to other family members as the beneficiary decides. It may be fair to state that most people would prefer to see a deceased child’s inheritance go to their other children rather than their deceased child’s spouse.

Robert P. Bergman is a San Jose estate planning attorney and counselor who devotes his law practice exclusively to assisting individuals and couples plan for incapacity and the eventual transfer of their property to their heirs. Bob specializes in working with parents who have minor children. Bob gives a regular monthly seminar at the Jewish Community Center in Los Gatos entitled “Everything You Wanted To Know About Estate Planning, But Were Afraid to Ask!” Visit his Web site at www.lawbob.com where you can learn more, get on his mailing list, register for an upcoming seminar, schedule a consultation, and read other articles on estate planning topics that Bob has written. You can also reach him by e-mail at rpb@lawbob.com or telephone at (408) 247-0444. All inquiries are confidential. This column is intended to provide general information about estate planning ideas, concepts, and laws, and is not to be relied upon as rendering legal advice about your particular situation. No attorney-client relationship is created by these articles. The laws concerning estate planning, wills, trusts, and estate taxes are very complex, often state-specific, and change on a regular basis. Consult with an experienced attorney before taking any action that would affect your personal or business matters.