Every parent has concerns about how they will pass on their assets to their loved ones in the future but there are many more complications when you have a child who is struggling with mental illness or with addiction issues.
Many parents who find themselves in this situation may feel overwhelmed by the process of caring for these children and therefore, avoid thinking about how these children will be taken care of when the parents are gone. Estate planning might differ in this situation when compared with another type of family. There are a couple of important steps that you need to take in order to plan appropriately for the future.
Whether the child is affected by addiction or mental illness, they may never fully recover from this condition and this is why it is important to think about using tools such as a trust in order to strategically allow access to them for support.
Not distributing the assets directly to your children means that they will most likely be invested with an experienced financial advisor with the ideal purpose of the money growing. In the event that the mental illness or addiction problem gets worse, this allows for more resources to fight the addiction. If the addiction problem is abated, however, the trustee may be able to help the child with new endeavors such as education or job opportunities. Careful planning should always go into any situation in which there is mental illness or serious concerns about addiction or spendthrift behavior. A trust may be the most appropriate way to plan for this- ask your Virginia estate planning attorney for more information.
According to a National Law Review article, people who created lifetime irrevocable trusts to avoid estate taxes don’t have to live with them irrevocably, in some instances.
“The assets in the irrevocable trust pass upon death free of estate tax,” according to the item “To achieve the estate tax advantages, the client needs to give up control, which necessarily means the trust is irrevocable.
However, changes in life or in the law oftentimes make the trust provisions less desirable.”
An example given in the article is if the create of the trust, for whatever reason, wants to change the trustee or even the location of the trust, along with the change in how the money will be disposed after death.
“Fortunately, a number of states now allow irrevocable trusts to be amended, even without court involvement,” the story states.
Legally acceptable means of amending provisions without court approval, called “decanting” and “nonjudicial reformation,” can change what might originally have appeared permanent.
“The dilemma is whether these changes could jeopardize the estate tax advantages the client desired and obtained at the creation of the trust,” the article goes on.
“The good estate tax news is that the IRS has issued a number of Private Letter Rulings that indicate estate and generation skipping tax advantages will still apply even if an irrevocable trust is modified. Of course, the devil is in the details, in determining what types of changes are appropriate and the method in which the changes can be done under state law. But at least in the estate tax world, what is irrevocable may be irrevocable only in part.”
There’s irrevocable in the dictionary, and then there’s irrevocable in the law. The two are not the same thing at all, and for that, some people are quite grateful, according to a recent article in Forbes magazine.
“Americans were once trust-happy,” the story began. “Now many are having second thoughts, and rightly so. Given the 2013 tax law, a trust may be more trouble and expense than it’s worth. Worse, a trust set up to save taxes might even increase them.”
“You need to ask, ‘Does this trust still make sense?’” Kenneth Brier, an estate lawyer in Needham, Mass., was quoted as saying.
Irrevocable, according to Merriam-Webster, means “not possible to revoke.”
Irrevocable when it comes to trusts doesn’t necessarily mean that at all, the Forbes piece points out.
“It’s often possible to terminate a supposedly ‘irrevocable’ trust” according to the article. “One common situation involves a bypass trust. In a typical estate plan, when the first spouse dies, assets equal to his exemption from federal estate and gift taxes are placed in this trust. The widow has access to the earnings and if need be the principal, but at her death the trust assets bypass her estate and go straight to the kids. The point is to preserve the husband’s exemption from estate tax. It made sense for a lot of families when the amount exempt from federal estate tax was $675,000 per person in 2001 or $2 million in 2008.
“But in December 2010 Congress temporarily upped the exemption to $5 million and this past January made that exemption permanent and indexed for inflation; i’s $5.25 million for 2013. Moreover, since 2011 spouses have been able to inherit each other’s unused exemptions. So, going forward, a couple can shield a combined $10.5 million from federal estate tax without a bypass trust.”
Fortunately, Forbes indicated, most bypass trusts allow the trustee to distribute assets in kind to a widow if the trust is $100,000 or less or if, and this is key, it no longer makes economic sense. In other words, if the fees are higher than the value of keeping the trust intact, a trustee can essentially revoke it, or be forced to do so.
“If the trustee won’t go along you can petition a judge to terminate the trust,” the article concluded.