In this series of blogs for the month of June, I highlighted the issues that need to be addressed when a loved one receives a diagnosis of Alzheimer’s disease.
In last week’s blog, we discussed powers of attorney and types of wills, this week I will discuss trusts and a look at guardianships.
A trust is created during a person’s lifetime and survives after the individual dies. A trust can also be created by a will and formed after death. Once the assets are placed in a trust, they belong to the trust itself and then are subject to the rule and the instructions of that trust.
In such a situation, a trustee is named and that person holds the title to the trust property while the beneficiary receives the benefits of the terms of the trust.
Let’s take a look at some of the types of trusts.
Revocable Trusts, also called Living Trusts, are created during the lifetime of the trust maker and can be altered, changed, modified or revoked at any time. A living trust is a document that provides direction about your property and assets. It allows you to pool all your financial resources in one place and provide instructions on how these resources are to be handled when you are no longer able to manage your affairs. In this trust, you will name a trustee who is legally bound to follow your instructions. A successor trustee is also named in case the original trustee can no longer serve.
All assets should be transferred to the trust, this includes all property and accounts. This trust allows the estate to avoid probate, a process in which the court distributes your property that may not be according to your wishes. Although this trust makes it more difficult for a creditor to get to assets, it does not provide total asset protection. Typically, a revocable trust evolves into an irrevocable trust upon the death of the trustmaker.
An Irrevocable Trust is one that cannot be altered, changed, modified or revoked after its creation. Once property is transferred to an irrevocable trust no one, and this includes the trustmaker, can remove property from the trust.
A Charitable Trust is set up to benefit a particular charity or the public in general. These trusts can lower or avoid the imposition of estate or gift taxes. In addition to the financial benefits of this type of trust, the altruistic nature of the trustmaker’s wishes benefit a great many people and organizations.
If you want to provide for a loved one with special needs, a Special Needs Trust can be developed. This trust helps to avoid jeopardizing your loved one's ability to receive Supplemental Security Income (SSI) and Medicaid benefits. Instead of leaving property directly to your loved one, you leave it to the special needs trust. This allows your loved one to obtain benefits from the trust without effecting his or her eligibility for government benefits.
You also choose someone to serve as trustee, who will have complete discretion over the trust property and will oversee the spending of money on your loved one's behalf. Because your loved one will have no control over the money, SSI and Medicaid administrators will ignore the trust property for program eligibility purposes. The trust ends when it is no longer needed -- commonly, at the beneficiary's death or when the trust funds have all been spent.
There also exist other trusts that are not as common as the one’s I mentioned however they can be explored with an experienced elder law attorney.
As I wrote about last week, Alzheimer’s disease results in rapid dementia as the blood vessels of the brain become diseased. The loss of mental functions is a tragedy for the individual and for those who love him or her. Despite all the emotions associated with this condition, thought must be given to the important legal issues that can and do arise.
The law assumes one thing – an adult has the ability to decide on matters concerning property, finances and health issues. This assumption centers around the ability to make rational decisions which is the foundation that the concepts of autonomy and independence are built upon.
When an adult’s ability to make appropriate and rational decisions no longer exists, the law has two mechanisms in place to address this issue by appointing an attorney-in-fact or a guardian/conservator.
Before the individual reaches the point of losing mental capacity for decision making, they should appoint an attorney-in-fact through a legal document known as a durable power of attorney. Once in place, this person will have the authority to make decisions on finances, property and even personal care decisions. This document should specify which powers of decision are to be delegated to the attorney-in-fact in case there are questions concerning the authority delegated to them.
In cases where the durable power of attorney document has not been executed for the individual then the courts may appoint a guardian for the person and for the estate. In some states, guardians may also be called conservators.
For a guardian to be appointed, a petition must be filed with the court and in subsequent proceedings, proof must be presented showing that the individual has now become incapacitated, as specified in the Uniform Probate Code.
The courts currently prefer to impose guardianship only if there is compelling evidence that the individual cannot take care of his or her current needs. Once the court is convinced of the person’s mental incapacity, it then needs to determine that the appointment of a guardian is the way the individual will receive the essential services and protection needed. If the court feels that the person can be provided for through another means, a guardian may not be appointed.
These alternative arrangements may be in the form of a durable power of attorney, joint ownerships, a living trust created to manage the person’s assets, an advance health care directive, and a duly appointed representative to receive veterans or social security benefits. These arrangements can help the individual to avoid guardianship.
Next week, I will look at Medicaid planning.