In the past, creditor protection was afforded to your IRA and to the beneficiaries that would inherit your IRA, such as your children.  However, in June of 2014, the United States Supreme Court ruled that an “Inherited IRA” is not protected from creditors of the beneficiaries.

This major change in the exempt status of the Inherited IRA, motivated estate planners  to examine new ways to protect these retirement assets from creditors.

The need to restore creditor protection while maintaining the favorable tax treatment of IRAs has led many clients to consider adding a stand alone Retirement Trust to their estate plan.  If drafted properly, this type of trust can protect Inherited IRA accounts from creditors, including a beneficiary’s divorcing spouse.

A Special Needs Trust (“SNT”) or Supplemental Needs Trust is a certain type of trust which can be used for goods and services that governmental programs will not cover.  The SNT must have special language within the trust such as: “This trust shall be used to supplement and not supplant governmental programs”.  Having such necessary language, the assets in the trust are not counted against the special needs beneficiary as an asset in determining eligibility for governmental programs such as Medicaid and Supplemental Security Income (SSI).

There are two types of SNTs.  The First Party SNT is funded with the special needs person’s own funds.  For instance, if a person with a disability is awarded monies from a settlement from an auto -mobile accident, those funds can be placed in a First Party SNT to preserve the eligibility for SSI and/or Medicaid.  The same process can be used for when a special needs person inherits a sum of money outright.

There is one disadvantage with the First Party SNT.  When the beneficiary dies, Medicaid will send a bill to the Trust for the monies spent by that program during her life.  The trust must pay back Medicaid the amount of the bill. However, if the trust assets are less than the Medicaid charge, Medicaid will absorb the balance of its bill.  If there is a balance after paying the Medicaid bill, the proceeds may be distributed to family or anyone who is a distributee of the Trust.

George Boxill, Prince’s sound engineer, was set to release on April 28, 2017 the “Deliverance” album that included  a total of 6 songs from the late performer.  However, a U. S. District Judge in Minneapolis agreed with Prince’s estate and issued  a temporary restraining order barring Boxhill from distributing any unreleased recordings, including the “Deliverance” EP.

Last week the estate sued Boxill , alleging that he violated his confidentiality agreement with Prince’s corporation and tried to financially gain from the release of the EP on the 1 year anniversary of the pop star’s death.  The suit went on to state that Boxhill had received no authorization to procure or release the songs and that the estate on March 21. 2017  demanded return of all recordings of Prince’s in his possession, including masters, copies or reproductions, but Boxhill refused.  Finally, the estate argued that the representative of the estate, Comerica Bank & Trust had the duty to maximize the estate, not Boxhill.

A Temporary Restraining Order (“TRO”) is a pre-trial petition usually filed along with a law suit which seeks to prohibit a person or entity from doing something that would cause “immediate irreparable harm” if it were allowed to happen.  If a judge is convinced that “immediate irreparable harm” would happen, she can issue a TRO without notice to the other party and without a hearing.  A TRO cannot be appealed.

When clients think about Asset Protection Off-shore trusts or some elaborate scheme of trusts and other entities usually come to mind.  However, there are several vehicles that are less complicated that a client can use that will probably suffice for her protection.

Here are some strategies that are not complicated and relatively easy to implement:

  1.  Purchase an Umbrella policy in addition to a Homeowners policy for your home.  An Umbrella policy is very inexpensive and will protect you for claims that exceed other policies for your home and auto.

When a guardian has been appointed for a person with a disability (the “ward”) there are sometimes disagreements as to that person’s care.  These disagreements are usually between the guardian and the other relatives of the ward.  Sometimes a guardian may attempt to push the limits of their power by blocking visitation by the ward’s adult children.  In this circumstance, the adult children may feel like they have no options but to obey the commands of the guardian.  However, under Illinois law there is a remedy available for those children.

The Illinois Probate Act provides that an adult child of a ward may petition the court if it is believed that the guardian is unreasonably preventing visitation.  755 ILCS 5/11a-17(g)(2).  If the court finds visitation to be in the best interests of the ward, the court may order the guardian to allow visitation.  When determining whether visitation is in the ward’s best interests, the primary question the court will ask is whether the ward, if competent, would have wanted to engage in visitation with the adult child.

If the wishes of the ward cannot be determined, the court will then review the following factors to determine his/her best interests:

When a guardian is appointed for a person with a disability (the “ward”), the guardian is required to follow certain guidelines.  There are two types of guardianships in Illinois, and they each have different rules to follow.

The first is “guardianship of the person.”  The guardian of the person is responsible for securing the support, care, comfort, education, and professional services for the ward.  Pursuant to the Illinois Probate Act, the guardian of the person is also expected to assist the ward in the development of maximum self-reliance and independence.  Despite the fact that guardians seemingly have a substantial amount of authority, they are not given carte blanche permission to make every decision associated with the ward.  A guardian is still expected to listen to the wishes of the ward and make an effort to carry out those wishes.  Furthermore, a guardian cannot change the residential placement of the ward without explicit authorization from the court.  This prevents a guardian from being able to place a ward in a nursing home without a thorough investigation by the court to determine if that home is in the ward’s best interests.

The second type of guardianship is called the “guardianship of the estate.”  The estate guardian is responsible for handling the finances and assets of the ward.  He/she is expected to manage the estate frugally and apply the income and principal of the estate so far as necessary for the comfort and suitable support and education of the ward (755 ILCS 5/11a-18).  The guardian may make payments directly to the ward, or to a third party to pay for things like rent, food, clothing, entertainment, etc.  Once again, this is a significant amount of power, but it is not without its limits.  A guardian of the estate can only spend the ward’s assets on things that directly benefit the ward or the ward’s minor or adult dependent children.  If the guardian is not following these guidelines, it may be grounds for the guardian to be removed.

Many times clients will call our firm and state that they need a Power of Attorney for their elderly relative because he/she has dementia or some other condition which causes diminished capacity.  Unfortunately, depending on the current mental capacity of the relative, it may be too late for them to sign a Power of Attorney.  The person signing the Power of Attorney has to completely understand the document to which they are executing.  It is not simply enough to be able to physically sign one’s name.  They need to comprehend the nature of the document and who they are appointing as their agent under the POA.

Powers of Attorney are important legal tools that allow a person to name an agent to handle their financial or medical decision making.  These are crucial documents which must be executed according to the standards set forth in the law.  If the documents are not executed properly, it could invalidate the Power of Attorney.  One common problem is where people attempt to have their relative sign the Power of Attorney when they lack the proper mental capacity.

However, even if someone does not have the proper mental capacity, there are other routes which are available to the family members.  Often times the only choice for the family in this situation is to pursue a guardianship.  When this happens, one or more of the family members will petition a court to become the court-appointed guardian of their relative (known as the “Respondent”).  If the judge approves the petition, the family member(s) will have the ability to handle the personal and financial affairs of the Respondent, in the same manner that an agent under a Power of Attorney would act.

Children under the age of 18 cannot directly inherit more than a small amount of money. If you make no provisions in your Will, a court will appoint a property guardian to manage your child’s assets until he reaches 18.

The property guardian may be a stranger who will add another layer of bureaucracy to the situation. When your child needs money, formal requests will need to be made through the court system.

One solution is to set up a custodial account for your child. You are allowed to choose the custodian, and the custodian makes decisions regarding how the money is spent. Once your child turns 18, the money is your child’s to spend as he pleases.

As Stacy L. Bradford points our in her Will Street Journal piece titled, “Deciding if Your Kid is Trust-Worthy”, a better alternative may be to set up a trust. A trust allows more control over how money is spent once the parents are gone. The parents can specify how the trust money is to be spent, for example on college tuition, and a trust can delay the age at which the child has access to the money, for example the child gets half at age 30 and the other half at 35.

The trustee makes all of the decisions, so it is important to pick a person who is trustworthy, financially astute and diligent.

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A holding by the U.S. Supreme Court in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, et al. makes clear the importance of keeping on top of estate planning matters.

In that case, a divorced father did not take all of the steps necessary to change with is pension plan the name of the beneficiary of his plan. When he died, the pension plan paid all of the benefits to the person named as the beneficiary. That person was his ex-wife. The father’s estate sued, claiming that it should have received the benefit because the ex-wife had waived her right to receive the benefit.

The law in that state held that a divorce ends the right of a spouse to an interest in the other spouse’s pension benefits.

A trial court ruled that the estate should receive the benefit. The 5th U.S. Circuit Court of Appeals reversed and ruled that the ex-wife should receive the benefit. The U.S. Supreme Court confirmed.

When naming beneficiaries, it is good to keep the following in mind:

  1. It is easy to change beneficiaries. Most financial firms make copies available online or you can call and ask for them. The forms are simple. Once completed it is good to make a copy of the form after submitting it and include the form with other estate planning documents;
  2. Name an alternate beneficiary. This addresses the situation where the primary beneficiary dies before you do. It also provides for the instance where the primary beneficiary disclaims the interest.
  3. Your will has no effect regarding who receives accounts with beneficiary designations like IRAs, 401(k)s, insurance policies and annuities. Be sure to update these beneficiary designations.

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An individual takes on legal responsibilities when he agrees to be a trustee. If the trustee does not perform his duties properly, he could be personally liable.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), referred to as a trustee, holds legal title to the property of another person.

A trustee’s duties include locating and protecting trust assets, investing assets prudently, distributing assets to beneficiaries, keeping track of income and expenditures and filing tax returns. A trustee has a fiduciary duty to the beneficiaries of the trust, meaning that the trustee has an obligation to act in the best interest of the beneficiaries at all times. It also means that the trustee will be held to a higher standard than if the trustee were dealing with his personal finances.

A trustee is entitled to hire an attorney and other professionals like an accountant to assist in the trust administration. The attorney, accountant and other professional fees are considered an expense of trust administration and are paid from the trust funds.

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