On Furlough from the Nursing Home

Nursing home residents and rehabilitation patients are not imprisoned. They have the right to come and go, with proper safeguards. With Memorial Day and the Fourth of July coming up, families should make plans to take their elderly and disabled family members to holiday get-togethers. Often, it only takes enough forethought to make sure someone drives a big enough vehicle to accommodate a wheelchair or other assistive equipment.

Who wants to be stuck in a nursing home when the family is at the beach scarfing down Ballpark wienies? If your family does not have someone in a nursing home, go pick up an honorary great-grandparent to take to the family picnic. The person will be thrilled and you can tell your siblings that you just found out you all were adopted and this is your real grandparent.

Many nursing home residents are spending down to get on Medicaid. Use some of that money to hire a medi-van or ambulance, if necessary. Paying for such services is permissible under Medicaid rules.

The Center for Medicare Advocacy has an excellent article by Toby Edelman that explains the nursing home resident’s right to leave temporarily. It is called “You Can Leave the Nursing Home.” http://www.medicareadvocacy.org/2012/05/17/you-can-leave-the-nursing-home/ Please read it and consider taking your family member out of the nursing home for family outings.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

HMS – Ignore Them

When a person dies, surviving family members are very vulnerable. They are going through the grieving process; they may feel guilty for not having done more for the decedent, or for an unresolved conflict; and they may be confused about their legal obligations related to the decedent’s debts. Collection agents take advantage of this vulnerability. They try to persuade grieving family members to pay debts they do not have to pay.

The State of Michigan has hired a debt collection company called HMS (Health Management Systems, Inc.) to pursue the families of deceased Medicaid recipients. This is called “estate recovery,” which is a euphemism for “take the widow’s mite when she dies.” Nursing home residents on Medicaid are not left with much — $2,000 in the bank, a pre-paid funeral, and maybe the home. The home, which is usually modest and outdated, is all the inheritance that will be left; so the state wants it. The same folks who think a $5 million tax-free estate puts an unreasonable crimp on rich families begrudge poor families a $50,000 bungalow in Grand Rapids.

As if the law, itself, were not burden enough on grieving families, the state will not be satisfied with what it is entitled to. It appears that HMS will act like other debt collectors – its employees will try to fleece grieving families for whatever they can get. It’s like sharing with a crocodile. The crocodile will be happy to accept its fair share, but then it wants your share, too.

The first contact the family of a deceased Medicaid recipient will receive from HMS is a letter asking that the family fill out a “voluntary” questionnaire. Except in very limited circumstances, do not return the questionnaire unless a probate estate has been opened and a personal representative (i.e., executor, executrix, or administrator) has been appointed by the probate court. The personal representative is the only person obligated to report anything to HMS and is the proper person to fill out the questionnaire.

The questionnaire is signed under oath and demands information HMS has no right to request. Filling out and returning the questionnaire if you are not the court-appointed personal representative makes you liable for the accuracy of the statements you make and gives HMS ammunition to try to browbeat you.

Responding to HMS by explaining that there is no probate and no personal representative, makes their collectors more insistent. As HMS sees things, “voluntary” means you have to fill out the questionnaire and return it. It is better to ignore HMS.

If you decide to return the questionnaire, do not make any false statements, but do not answer questions about non-probate assets or family members other than a surviving spouse. HMS has no right to ask about those things. In particular, do not provide HMS with anyone’s Social Security Number, including the surviving spouse’s. Under the Privacy Act of 1974, 5 U.S.C. § 552a, federal, state and local government agencies may only ask for a person’s Social Security Number if the agency needs it for a specific purpose. HMS is not a government agency and does not need the Social Security Number of the decedent’s family members for any legitimate purpose. Just say no.

If there is no probate estate or if there is a surviving spouse, there is no estate recovery and there is no reason to answer HMS. The only reason to fill out the questionnaire is to request a hardship waiver.

Hardship waivers are described in the estate recovery law, MCLA 400.112g. These include a waiver for the portion of the estate that is the primary income-producing asset of survivors, such as a family farm or business. They also include waivers for a home that is worth less than “50% of the average price of a home in the county,” whatever that means. The Medicaid Agency will not say how the average price of a home in the county is determined for this purpose. HMS gives you two weeks to return the questionnaire to request a hardship, but there is no time limit in the law. Furthermore, HMS makes it difficult to pursue a hardship waiver.

There are also four exemptions. The home of a deceased Medicaid recipient is exempt if it is occupied by: A) a surviving spouse, B) a minor, blind or disabled son or daughter, C) a brother or sister who has an ownership interest and has lived there for a year, or D) a relative who lived with, and provided care for, the recipient, keeping him or her out of a nursing home, for at least two years. Since these are exemptions, not hardship waivers, they do not need to be requested using the questionnaire procedure.

It is generally unwise to respond to HMS unless a probate estate has been opened. It is also unwise to do so without consulting a lawyer. Deciding what may be vulnerable to estate recovery involves serious legal issues and estate recovery places anything the decedent owned in jeopardy.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

The Guru’s Secret

As a lawyer with a post-graduate tax degree, I am known in some circles as a tax guru. I am also frequently consulted about Medicare, Medicaid and Social Security questions by other attorneys. One of the secrets to being a guru is knowing where to call to get information. Gurus cannot know everything so they have to know where to go for answers.

Social Security Administration, Medicare and the Internal Revenue Service have surprising good telephone hotlines that are available to answer citizen questions. I find that professionals can also get answers easily by calling the agency directly. Here are the numbers to call:

Social Security Administration 800-772-1213 (24/7)

IRS Individuals 800-829-1040 (M-F 7:00 a.m.-7:00 p.m.)

IRS for Businesses 800-829-4933 (M-F 7:00 a.m.-7:00 p.m.)

IRS for Nonprofits and Trustees 877-829-5500 (M-F 8:00 a.m.-5:00 p.m.)

The hotline for Medicare questions is 800 MEDICAR(e), numerically 800 633 4227. Although it is difficult to speak to someone on the Medicare hotline if you are not already enrolled in Medicare, enrollment questions are generally handled through the Social Security hotline.

There is no national Medicaid hotline and it is difficult to get answers about Medicaid that go beyond basic eligibility criteria. Many Medicaid agencies will only provide answers through local office staff and there is no access to staff for persons who are not applying or already enrolled in Medicaid. Nongovernmental organizations have contracts with Medicaid to answer citizen enquiries in most states, but the quality of the information varies from state to state and from person to person. Elder law attorneys may be able to provide the most helpful answers, but finding a knowledgeable Medicaid attorney can be difficult. Start with the attorney directory on the National Academy of Elder Law Attorneys website, .

There are good times and bad times to call. In general, call early in the day and not on Monday or Friday. I usually call in, put the phone on speaker and wait for someone to pick up. You might have to penetrate several levels of advisors to get an answer to a difficult question, but it is cost-effective and the answer you finally get should be authoritative, if not conclusive. If you have called one of the above hotlines, please take our survey. If you have called more than once, please fill out multiple surveys.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Trust Me, But Not in the Third Circuit

This is the fourth of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care.  This column and the other three each explain the pros and cons of one plan, how it works, and in what states it is available. This column discusses irrevocable sole-benefit trusts.

In the first post, we met Sam and Hazel.  Sam recently became a nursing home resident and will not be returning home.  His monthly nursing home bill is $8,000, far above their combined income.  They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings.  This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their savings rapidly.

The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care.  Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings.

A way to preserve more assets is to convert liquid assets into an income stream.  If money is put into an irrevocable trust, it may be unavailable to the person creating and funding the trust depending on the terms of the trust.  By locking the money up in a properly-drafted trust and giving the community spouse only a monthly payment, the excess assets become an income stream.  Federal Medicaid law protects the community spouse’s income, so that the excess assets become a protected income stream.

This works because of the “sole-benefit” rule.  Assets transferred to the individual’s spouse or to another – such as a trustee – for the sole benefit of the individual’s spouse do not make the institutionalized spouse ineligible for benefits.  42 USCA § 1396p(c)(2)(B).  Furthermore, the income of the community spouse is not counted as available to the spouse in the nursing home.  42 USCA § 1396r-5(b)(1).

Since sole-benefit trusts are enshrined in federal law, they can be used to protect assets in many states.  The states covered by the U.S. Third Circuit Court of Appeals are a notable exception.  According to that court, “Once the community spouse receives [irrevocable trust] payments, there is nothing preventing her or him from sharing them with the institutionalized spouse as well.”  Johnson v. Guhl, 357 F.3d 403, 408 (3d Cir. 2004).  Therefore, sole-benefit trusts cannot be used in Pennsylvania, New Jersey, Delaware and the Virgin Islands.

Surprisingly, the same court laid down contradictory law in 2008.  In James v. Richman, the court stated that requiring the community spouse to share would undermine the rule that “no income of the community spouse shall be deemed available to the institutionalized spouse.” James v. Richman, 547 F.3d 214, 219 (3rd Cir. 2008).

For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, please call either of the numbers below or visit my website and click on the “contact” button.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Putting Older Michiganians through the Wringer

Over the past several years, the Michigan Department of Social Services has been ratcheting up the difficulty of applying for long-term care Medicaid. In 2007, diabolical rules about anyone over 65 who gives anything away were put in place. While some states, like Pennsylvania, allow gifts that are within certain limits, Michigan’s rules penalize holiday or birthday gifts to grandkids, church tithes, and even handouts to panhandlers. In practice, eligibility workers try to disqualify applicants who sell their homes at market price, if the sale is below the property tax assessment value. In this real estate market, listing at the assessment value and waiting for a buyer would be like sending Lindsay Lohan a 12-step brochure and waiting for her to sober up.

Earlier this year, an eligibility manual revision included rules on jointly-held property that would be farcical if they were not so unfair to vulnerable adults. Michigan DHS goes to great lengths to make it difficult to qualify and get an application approved. The Department seems to believe that the most cherished goal of anyone over 65 is to get into a nursing home and have the state pay for the care. Since it assumes that older Americans spend all their time devising ways to get rid of their money, the Department devises every trick and hurdle it can think of to thwart anyone qualifying for Medicaid.

Having stuck joint owners of property like lambs at Eid, Michigan Medicaid decided to victimize the dead. It instituted estate recovery to grab the homes of deceased Medicaid recipients. The estate-recovery program initiated this past summer was undesirable, but not unreasonable. There was an exclusion equal to half the average price of a home in the county. Now, Michigan Senator Kahn, from Saginaw, has hatched a plot to suck Medicaid recipients’ estates drier than an appellate brief in a utilities rate case. For details review “Can the Kahn Plan,” June 12, 2011.

That the state is so hostile to people in nursing homes is perplexing. The Engler Administration, from 1991 to 2002, was much more accommodating. It made sense for the state to interpret the rules liberally. While the state is now trying to cut corners, Medicaid is the wrong program to scrimp on because the state gains so much by spending Medicaid dollars.

It only costs the state about a quarter to spend a Medicaid dollar. The federal government covers about 55% of the Medicaid budget. Since medical expenses largely fund payroll and building expenses, the state gets back 10-15% of the Medicaid dollar in payroll, sales, and property taxes. In light of the federal subsidy and recovery through taxes cutting back on Medicaid spending is false economy. The state is hurting itself by being so niggardly, as well as making life difficult for some our least fortunate citizens. Lean on your state legislators to vote against the Kahn Plan, Senate Bills 404, 405, and 406, ant to urge the Department of Human Services to stop stuffing elderly citizens into the wringer.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Crystal Mountain Fall Conference

Although being out of the office is a lot less disconnected in this cyber-connected era, it is still nice to get away. Crystal Mountain is near Michigan’s Little Finger. Even though it is only 100 miles or so farther north than Dearborn, the climate is different.

This early there is almost no color change. Last year it was fascinating because the conference was in early October. Driving from Dearborn to Thomsonville one could see a gradual change from all green trees to the glorious fall panoply of reds, oranges, purples, and browns that Michigan stages every year.

I walked to the top of the Crystal Mountain’s ski slope. I am used to exercising on a machine and walking up an actual slope on physical dirt is a whole different level of exercise. It only took 10 minutes, but it was more work than a half hour on an elliptical trainer or stair climber. From the bottom it looks like it’s a mile up. By the time I got to the top, I felt as if I had climbed a mile. Imagine my chagrin when I checked the Crystal Mountain website and found out that the vertical drop is only 375 feet!

I’m up here for the conference and so far it has been extremely interesting. Valerie Stone, Ph.D., a neuropsychologist from Golden, Colorado, gave a riviting talk about competency and protecting the rights of older adults and Jeffrey Geller, MD, MPH, a professor at University of Massachusetts School of Medicine, gave us an insider’s view of the medicines used to treat mental illness and dementia. They are tough acts to follow. I will have to be in my best speaking form on Friday when I talk about “Bed Wars,” the challenge of finding the best placement for patients who need nursing care, and protecting their rights there.

As great as it is to get away, I would be nicer to share it with my wife and children. Therefore, this blog entry is addressed and dedicated to them.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Step Away from the Car

An older client had a minor accident in a parking lot and the police were called. Because of her age, the police officer referred her to the driver’s license department for a driver evaluation. This was extremely distressful to her because no one wants to lose the right to drive. However, there comes a time for nearly everyone to give up the keys and quit driving. When the person does not recognize that the time has come, it can create a major family crisis.

I once had a boss who insisted on driving despite being nearly blind. I remember cruising through stopsigns, cringing at serial near-misses in his battered car. As a young subordinate I did not have the standing to make him stop driving. Sons and daughters often face a similar situation. It can be extremely difficult to make a parent stop driving. A driver’s license is the defining badge of adulthood and independence. Where public transporation is a problem, the inability to drive is often the equivalent of being confined to the house. Even where there is a convenient bus or metro, using it may be considered to be a loss of status. Many older citizens will insist on driving despite the danger to themselves and others.

This is a time when sons and daughters must take a firm stand. It is better to have the parent mad than to have the parent drive through some children waiting for a school bus or into the front of a crowded restaurant. If the parent is still coherent, pointing out the dangers, or the financial risk, may be sufficient. Many who were alive during the depression will be more responsive to the danger to their financial security than to their personal safety.

When the parent cannot recognize a serious inability to drive, it may be necessary to pull what might be a dirty trick in less dire circumstances. This might involve alerting the police when the parent is behind the wheel, or askng the parent’s doctor to make a referral for driver evaluation. Most states have protocols for driver re-qualification when a driver’s capacity is questioned.

There are also various ways to disable the car. This may backfire if the person has sufficient means to buy another one.

One daughter took her father’s license out of his wallet. When he realized it was missing she took him to get a new license, knowing that he would fail the eye test.

It may not be necessary to take away the car entirely. Look for driver re-training courses for older drivers. Some states have lesser restrictions that can be applies, such as no night driving, or no freeway driving.

These situations require planning to avoid a conflict that might result in permanent estrangement between parents and children. Siblings have to work together. Although parents often resist giving up driving, they generally realize that there is a problem. With compassion for the parent’s dilemma and creativity in finding alternative transportation, it should be possible to ensure the parent’s and the public’s safety while assuring that the parent will not be marooned at home.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Medicaid Estate Recovery Mystification

One of the core principles of government in the United States is transparency. Freedom of the press and laws that require government agencies to provide information to citizens on request are considered essential to keeping our bureaucrats, mandarins, syndics and pashas more honest than they might otherwise be. However, as in many states, Michigan Department of Human Services and Department of Community Health, which administer welfare programs, are exempt from the public notice and open meetings laws that govern other departments. DHS and DCH are particularly restrictive in providing information about the new Estate Recovery Program that started July 1, 2011 to recoup Medical Assistance, or Medicaid, benefits from deceased recipients.

State welfare agencies are the bureaucratic offspring of local and county welfare boards. These boards operated with very loose guidelines to provide assistance to the poor and the sick. Until welfare became largely federalized and firm guidelines imposed, the role of the welfare worker was very maternalistic toward the individuals and families the welfare boards helped. They were free to remove children from homes that fell short on hygienic or moral grounds, as viewed by the workers. They would stage dawn raids on the homes of single mothers to look for a man in the house or evidence such as men’s shoes under the bed. This highhandedness has been curbed through court cases establishing that welfare recipients have the right to fair treatment, but it still exists.

The Medicaid agency must properly consider relevant data in making its decisions. Friedman v. Perales, 668 F. Supp. 216, 221 (S.D.N.Y. 1987), aff’d, 841 F. 2d 47 (2d Cir. 1988). This infers a right to present information to the agency and the right to be informed how the agency makes its decisions. Michigan DHS and DCH have been thwarting elder law attorneys and their clients in procuring information about estate recovery. For example, HMS, the estate recovery contractor refuses to provide a copy of the form used to request an estate-recovery exemption.

In a call to HMS recently, the agent refused to provide a copy of the exemption form unless an estate-recovery questionnaire were first submitted–and HMS decided that there might be an exemption. This would make it difficult to know how to fill out the questionnaire. A letter to the DCH Director has not been answered.

In a bizarre twist, DCH refuses to provide information about how it will determine whether a home is “of modest value.” Medicaid policy says that a home is of modest value if it is worth less than the average price of a home in the county where located. A colleague attempted to get information about how HMS and DCH will determine the relevant average. He explained that his request concerned the exemption in MCL 400.112g(3)(e)(i) “for the portion of the value of the medical assistance recipient’s homestead that is equal to or less than 50% of the average price of a home in the county in which the medicaid recipient’s homestead is located as of the date of the medical assistance recipient’s death.” He requested a copy of records to be used to determine the value of the “average price of a home” for each Michigan county or the method that would be used to determine it.

The response from DCH was:

There are no records that meet the description of your request. It is the responsibility of the applicant to provide sufficient documentation showing that a hardship exists. If the home is of modest value, this would include a tax assessment value from the county where the home is located. It may also include an appraisal of the home. This documentation must be submitted along with the undue hardship application to show that a hardship exists. MDCH will use this information in making a decision about whether to grant the hardship.

In other words, the personal representative should provide information about the value of the home and hope that the agency will decide that it is of “modest value.” This is unfair to potential and present Medicaid recipients of long-term care services. They need to make decisions about whether to maintain the home or abandon it, keep it or sell it.

This is an important issue to our elderly poor and middle class. The Michigan government owes fair disclosure to Medicaid recipients and their families. The exemption form and how DCH will determine the average values of homes in various counties will become common knowledge as estate recovery claims are made and decided. It is oppressive and unfair to the first few Medicaid recipients who have to deal with the issues to impose an information lockdown. The Medicaid agency should stop playing headgames with its clientele and adopt a policy of open and fair disclosure.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 313.531.3020

Life Insurance Trust FAQs

What are Irrevocable Life Insurance Trusts?

Life insurance has an interesting history. While some current life insurance companies, such as New York Life and New England Mutual, trace their roots to the first half of the 19th Century, life insurance did not become widely available to working-class Americans until close to the turn of the 20th Century. Beginning in the 1880s, companies such as Metropolitan Life Insurance began selling life insurance through local agents, who collected weekly or monthly premium payments and stayed in close contact with their customers.

World War I gave the life insurance industry a jumpstart. All active-duty personnel were covered for death or disability and the government began selling low-cost life and disability insurance to active members of the military. After the war, mustered-out soldiers and sailors purchased life insurance from stock and mutual companies. By 1929, life insurance was so popular that the number of policies in force in the United States equaled total population.

Life insurance is still an important building block of family financial security, although not as prevalent as it was in the 20th Century. It has very interesting tax and creditor-protection advantages that should be considered in any financial plan. Irrevocable life insurance trusts (ILITs) are a way to harness these advantages to protect the financial security of our spouses, offspring, and other beneficiaries.

When the tax-free estate for federal estate tax was lower, ILITs were useful to bypass the taxable estate or to provide funds to pay the estate tax. Since the tax-free estate is now $5 million per individual, estate tax is a concern for only a small minority. However, ILITs can play a pivotal role in estate planning for beneficiaries who have disabilities.

With a high tax-free estate, is a life insurance trust useful if I am not rich?

A trust for a beneficiary who has special needs can be structured to provide an enhanced quality of life without diminishing public benefits, such as Supplemental Security Income or Medicaid. Using life insurance to fund this type of trust is cost-effective and avoids taxable income until after the death of the person whose life insurance funds the trust. For example, assume that an ILIT contains a $100,000 policy, on which the premiums totaled $50,000. On the death of the insured, the whole $100,000 is available for the beneficiary, tax-free. If the trust is properly structured, the trustee can distribute funds to improve the beneficiary’s quality of life, while the beneficiary continues to receive SSI, Medicaid, and other public benefits without reduction.

This type of trust has other applications, such as to benefit a son or daughter who has credit problems or a spouse who cannot be trusted. Garrison LawHouse, PC can help you set up an estate plan that will provide the greatest benefit for your heirs and other beneficiaries, while ensuring the manner in which your estate will be distributed will reflect your values and desires. Setting up an ILIT may be one of the ways to ensure that your objectives will be reached.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

© John B. Payne, 2011

Charitable Trust FAQs

What Does a Charitable Trust Do?

A charitable trust helps to reduce estate and other taxes. Certain assets carry a heavy capital gains tax or income tax burden. They cannot be liquidated without paying a large portion of the proceeds to the government. A charitable trust may allow these assets to be liquidated and placed in trust, without paying the tax. It may also generate charitable deductions to shelter other income.

What is a Charitable Remainder Trust?

A Charitable Remainder Trust (CRT) holds assets in trust for the lives of the beneficiaries, paying income on the corpus to the beneficiaries. At the end of a specified period, or on death of the beneficiaries, a charity receives the corpus. Because the gross value of the assets generates income for many years, the CRT gives you more money back than you would receive by liquidating the assets and then investing the proceeds. The large charitable deduction on the donor’s Form 1040 when the trust is established also results in tax savings that may be invested to generate even more return on investment.

What is a Charitable Lead Trust?

A Charitable Lead Trust (CLT) holds assets in trust for a period of time, often the life of the grantor, paying income on the corpus to a charity. At the end of the period, the corpus is given to specified trust beneficiaries. If you want to benefit your descendants, but do not need the income from the assets, this type of trust is very useful. The Charitable Lead Trust shelters current income, saving income tax. At the end of the trust period, the corpus is received by the beneficiaries, free of estate or other tax.

How Does a Charitable Remainder Trust Work?

Assume that you have a $750,000 parcel of vacant land with a very low tax basis. You want to sell it and invest the funds to generate a steady income. If you sold the land, you would incur capital gains tax of over $100,000, leaving you with less than $650,000 of principal to generate income. Establishing a charitable remainder trust would spawn a large charitable deduction. It would also produce a higher income stream because the entire $750,000 would remain as principal. Apart from the satisfaction of giving a large sum to a worthy cause, it makes financial sense to establish the trust. The $25,000 or more saved due to the charitable tax deduction can also be invested for additional yield.

Are There Other Benefits to Having a Trust Hold Property to Be Distributed after You Die?

Yes. If you name an individual as beneficiary of an insurance policy or of your will, and that person is incapacitated when you die, the court will probably take control of the proceeds. That is because most benefits to be paid to an incompetent person are subject to court supervision. But if the assets are in trust, and the trust instructs the trustee to do so, the trustee can use the proceeds to provide for this person, without court interference.

You can also create a more complex plan to benefit your family in a trust than you can in a will. If you have a large number of beneficiaries and you want each to have a customized plan, using a trust makes sense. For example, if you want your son to receive distributions only if he maintains sobriety, marries, wears a pony tail, or becomes a plumber, such conditions can be included in a trust. A court might refuse to enforce such limitations.

Who Can Be Beneficiaries of the Trust?

You can name any person or organization you wish, but most people name their children and/or spouse.

Can I Make Any Changes to the Trust?

A Charitable Trust is generally irrevocable, so you cannot make changes after the Trust has been set up. Read yours carefully and be sure it is exactly what you want before you sign.

When Should I Set up a Charitable Trust?

You can set one up any time, but because the Trust is irrevocable, many people wait until they are in their 50s or 60s. By then, family relationships have usually settled – and you know whom you want to include as a beneficiary.

Should I Seek Professional Assistance?

If you think a charitable trust would be of value to you and your family, talk with a competent estate planning attorney. If you are not sure whether the attorney with whom you are talking has the background you need, do not be afraid to ask about the attorney’s training and professional affiliations. A well-qualified estate planning attorney should have a tax or accounting degree or at least 15 years of experience drafting wills and trusts. The attorney should also have appropriate professional affiliations. These could include active involvement in ABA or state bar sections related to estate planning. They could also include membership in the National Association of Elder Law Attorneys and other professional groups concerned with estate planning. A well-qualified attorney will be happy to explain his credentials.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

© John B. Payne, 2011