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With the help of an attorney, you can draft a trust that reflects your express wishes about when the income and principal will be available to the child or grandchild, and even how the funds will be spent.

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

Multi-Generational Planning Part 1

Multi-Generational Planning

Part 1 of 2

 

Multi-generational planning for your children and grandchildren is not just a nice thing to do.  It also can reduce the size of your estate and the tax that will be due upon your death.  And, given the right set of facts and done by an experienced elder law attorney, it can help reduce or eliminate your nursing home or other long-term care costs.

 

Gifts to Children and Grandchildren

 

Making annual gifts to children and grandchildren is a well-recognized method of reducing or eliminating estate taxes.  When annual gifts are made consistent with the estate and gift tax laws, they are called annual exclusion gifts.

 

Annual exclusion gifts cannot be used for nursing home planning.  They disqualify the person (or their spouse) who makes the gift from eligibility for financial assistance to pay for their care and may result in the loss of their home, farm, and other assets. So annual exclusion gifts should be used only if you have sufficient long-term care insurance to cover any period of time you may need care in a nursing home or other care facility, and, in this writer's opinion, only if you believe you will have a taxable estate at your death ($2 million in 2007).

 

With those cautions firmly in mind, taxpayers can give each of their children and grandchildren (and their spouses or any other person) up to $12,000 a year (in 2007) without having to report the gifts.  While you can make an outright gift, pay health care and school costs directly, or put the money in a custodial account, putting the money into a trust has some major advantages.

 

With the help of an attorney, you can draft a trust that reflects your express wishes about when the income and principal will be available to the child or grandchild, and even how the funds will be spent. Transferring funds into such a trust offers the following benefits:

 

  • 1. You can reduce the size of your estate by transferring up to $12,000 (in 2007) into each trust you create for each child or grandchild. No gift taxes will be due in connection with the transfers.

 

  • 2. Although the trust owns the assets, you control them as trustee and can decide what type of investments to make.

 

  • 3. Income earned by the trust from amounts that you've deposited need not be taxed to you; the trust could pay the taxes.

 

  • 4. Amounts deposited in trust, and the income earned from those funds, will be used for the benefit of your children or grandchildren.

 

  • 5. You can provide that the trust terminate at any age you specify.

 

  • 6. One of the neatest features of such planning is the trust can be designed to protect your children and grandchildren from lawsuits, bankruptcy, business failures, divorces, and all sorts of other predators and creditors.

 

In order to qualify for these benefits, however, certain restrictions apply. These trusts are complex legal documents and should not be set up without the help of an experienced estate planning or elder law attorney. As a result, a major downside of such trusts is the cost of establishing and maintaining them, which you should discuss with your attorney before going ahead with a trust.

 

As a final note on establishing such trusts, you must be totally comfortable with this gift planning strategy and the amount of money available to you in your estate. In short, you should only make gifts if you feel certain that the amount of funds remaining in your name and the amount of income they will produce will be adequate for your needs.

 

Planning for Children and Grandchildren with Special Needs

 

Many minor and adult children with special needs qualify for medical programs such as Medicaid.  In most cases, it is vitally important that the child maintain eligibility for such medical programs.  Indeed, maintaining eligibility for Medicaid is worth far more than any gift or inheritance which a parent (or grandparent) might leave to the child.

 

Because it is so important to maintain a disabled child's eligibility for medical assistance, many parents (and grandparents) disinherit their beloved child.  This is most unfortunate.  There is absolutely no need to disinherit a disabled child or grandchild.  A well-crafted "special needs trust" designed by an experienced elder law attorney can give the child a much higher quality of life than they would otherwise have  - while allowing the child to maintain his or her all-important eligibility for medical benefits through the Medicaid program.

 

In next month's article on multi-generational planning, we will cover planning for special needs children, i.e., minor and adult disabled children, in greater depth.

 

Richard Habiger is an elder law attorney.  You may contact him at 618-549-4529 or Richard@HabigerElderLaw.com.

 

 


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Physical Address
1808 Clark Street, Carterville, Illinois 62918
Phone: 618-985-4529
Toll Free: 800-336-4529

Mailing Address
1808 Clark Street
Carterville, Illinois 62918
Phone: (618) 985-4529