Elder Law Issues

When you establish a special needs trust pay particular attention to the most important part: choosing a trustee. The choice of trustee really determines how well the trust will work.

There are several different types of special needs trust. Some are established by a parent or other person for the benefit of someone with a disability. Others are established by the individual themselves, or their guardian or a court. There are also pooled trusts. But they all share a common element: choosing the trustee controls how well the trust will satisfy the beneficiary’s needs.

Who makes a good trustee? As we discuss in this week’s podcast episode, the perfect trustee knows law, accounting, public benefits, taxes, investing, social work and medicine. Oh, and they are immortal.

Family members absolutely should be involved in care and expenditures for the beneficiary’s benefit. But they don’t always make the best trustees. Sometimes choosing a professional trustee is a better idea. Sometimes the value of a pooled trust can be the easy involvement of a professional group.

Oh, and by the way: the same considerations apply to choosing a trustee for any trust. But they get heightened when the beneficiary has a disability and the public benefits system kicks in.

At Fleming & Curti, PLC, we often act as fiduciary. We might be a trustee, or a guardian or conservator, or an agent. In all of those roles, we try to make regular home visits.

Why do we feel strongly about home visits? Because that’s the best way to get to know our beneficiaries, principals and protected individuals. Regular visits are actually required in cases of guardianship, but we think the same idea applies to other fiduciary roles, as well. And we encourage other fiduciaries to adopt the same approach.

Listen to our discussion about the concept, and (if you are a fiduciary, or will step into the role) please take inspiration from the concept. Want to dive a little more deeply into the need for visitation with a beneficiary/principal? This 2014 article from Estate Planning magazine, written by two special needs practitioners from New York, tell the story about how things can go wrong for a fiduciary.

Clients often come to us because they believe they need a guardianship. Perhaps their spouse has ended up in assisted living or a nursing home. Maybe their developmentally disabled child just turned 17 and they have been told they should get the process underway. Or a parent has become increasingly confused and a dementia diagnosis seems inevitable.

Here’s a common thread for those sessions: we usually begin by challenging whether they actually need a guardianship. Not whether they could prevail, but whether there is any good reason to start the legal proceedings at all.

Sometimes you genuinely do need to pursue a guardianship. And if so (and if your family member is living in Arizona) we’re usually happy to help. But, though it works against our own financial interest, we tend to be slow to encourage people to initiate the guardianship process.

Why do we think you may not need a guardianship? For several reasons:

Of course there’s more. Join us for this podcast episode and we’ll explain our view.

When a former client becomes incapacitated, we might hear from family members asking that we share documents and offer legal advice. We might take a little time to figure out what we can share and what additional information we might need to get. If our original client (the one who signed the documents) is still alive, we might not be able to give legal advice to their trustee/agent.

We wrote about this issue last week in our newsletter/blog post. But it’s nuanced enough that we wanted to talk about the issue as well.

As we explain here, there are really two separate issues. First, we may have confidences and/or secrets that we will need to keep private. And second, there may be a conflict of interest that prevents us from giving any legal advice.

The second problem (the conflict of interest) goes away on the death of our former client. So if you call to let us know that our client has died, and to seek legal counsel, at least we won’t have the conflict concern to deal with.

When we can’t help, we’ll try to get you to a good lawyer who can offer legal advice. Just don’t expect us to shift from representing your parent/sibling/child to representing you as fiduciary — at least not while they’re still alive. And we need to analyze whether we can share documents in the meantime.

You’ve carefully considered your estate plan, and decided it’s important to avoid probate. One way to accomplish that: use beneficiary designations to direct assets to named beneficiaries. But don’t forget the importance of maintaining those beneficiary designations over time.

Understand that there are effects of your simplified estate planning. One point to consider: maintaining your beneficiary designations is key to keeping your plan current. And don’t be surprised if we tell you that you might want to rethink the very idea of your beneficiary designations.

Too often we see clients who think they can set the beneficiary designations and forget about them. But as your assets change, and your family dynamics shift, those probate-avoidance techniques can skew your planning. That’s why you have to constantly work to maintain those beneficiary designations.

Sometimes the beneficiary designations themselves are a problem. If, for example, you name your four children as beneficiaries on your home, you’ve avoided probate. But you’ve also made your four children involuntary partners in everything from utility payments to decisions about selling, to managing for rental income. And if they don’t agree, the beneficiary designation might have saved probate costs but incurred terrific financial and emotional costs in operation of the property.

The HEMS standard, common in trusts, is an arcane expression. That does it mean, and what’s the significance?

If the trust directs the trustee to pay attention to the “health, education, maintenance and support” of a beneficiary, that’s magic language intending to invoke the HEMS standard. It means that there is a recognizable test to apply to judge the trustee’s decisions. It often means that the trustee’s authority is limited in a way that makes the trust’s income tax effect easier to calculate and understand.

Sometimes the HEMS standard works against the trust’s goal. Then a trust might direct the trustee to support the beneficiary’s happiness, or well-being, or some other, amorphous description. This is often the case with special needs trusts, for example. That trust may be maintaining a fine line between favorable tax treatment and possible inclusion in the beneficiary’s estate.

Whatever the purpose, who decides which distributions are for “health, education, maintenance and support”? Some expenditures seem obvious. Others are arguable.

In this week’s podcast episode, we talk about the HEMS standard, what it means and how to interpret it. There are few bright lines, but we can give you some familiarity with the language, at least.

529 Plans (for education expenses) have been popular for years. More recently, Congress authorized similar accounts for most people with disabilities. The so-called ABLE Act accounts are first cousins to 529 Plans — and recent legislative changes have made them even closer relatives.

A number of small changes make both kinds of accounts more flexible in individual circumstances. As we discuss in this week’s podcast episode, those changes are actually set to expire in the next two years. But we think the changes will likely be extended, and they are worth knowing more about in any case.

529 Plans have long been available. ABLE Act accounts are more recent. But when Congress adopted the disability accounts, they intended to offer similar opportunities for people to contribute to future needs for children and grandchildren. Both kinds of plans have some tax benefits; ABLE Act accounts have some drawbacks not shared with education accounts.

Under current rules, it’s possible to create an education account and use it to fund the disability account. This works even if the donor already knows about the disability. And future extensions of ABLE Act eligibility will make that power even stronger.

We think ABLE Act accounts work best as adjuncts to other planning. The integration with 529 education accounts expands and strengthens those planning opportunities.

Arizona law about giving notice in probate, guardianship and conservatorship proceedings has recently changed. What might have been a well-meaning piece of legislation has significantly increased the cost of court proceedings. And there’s very little reason to believe that anyone is more likely to know about court hearings as a result.

Giving notice is a complicated set of requirements — in Arizona and elsewhere. Some people are directly involved in probates, trust administrations, guardianships and conservatorships. Think the personal representative, or trustee. Same for the person subject to a guardianship or conservatorship.

Others are more tangentially involved. Perhaps there is a trust beneficiary, or an heir in a probate. Maybe an heir has even been disinherited. Next of kin might be on the notice list for a guardianship or conservatorship.

Under the new rules, most of those people have to be given notice by registered or certified mail (though a growing subset have to be personally served). Apparently, the Arizona legislature doesn’t really know what registered or certified mail even means.

We talk about giving notice and how the new rules complicate court proceedings in this week’s Elder Law Issues podcast. It’s a little bit of inside baseball, if you will — but it’s a good illustration of how the sausage gets made (to mix our metaphors).

We often find ourselves representing couples in development of a comprehensive estate plan. Do both spouses/partners need separate counsel? Not usually, but everyone has to appreciate that there are challenges.

As we discuss in this podcast episode, there are both ethical and practical issues inherent in representing couples. We owe a duty of confidentiality to each partner — but we also owe a duty of disclosure of any information that might affect either spouse’s planning. Confidences from one spouse are rare — but not unheard of. Everyone needs to understand what might happen if an actual conflict does arise in our representation.

There are also practical considerations in representing couples. Will every communication go to both partner’s email and physical mail addresses? Will we accept editing and suggested changes from one partner, or require both to communicate? Can we have a follow-up meeting with only one spouse — and if so, do we need to affirmatively tell the other spouse about the meeting?

And what happens if — perhaps years after the estate planning is completed — a married couple divorces. Can we continue representing both halves of the couple, or either? What duty might we have to notify one former partner about the other former partner’s appointments and actions?

Last week the Arizona Court of Appeals decided that people under guardianship do not automatically lose the right to vote. In this podcast episode, we discuss the case and its implications for other individuals.

As we explained in a recent issue of our newsletter, the significance for people who already have guardians appointed is hard to analyze. But new guardianship orders should not result in loss of the right to vote unless someone initiates a separate proceeding to suspend voting rights.