Planning for Life

By Harry S. Margolis

As we've discussed before (here), the SECURE Act, passed at the end of 2019, changed a number of rules regarding inherited IRAs, making it more difficult to "stretch" them for most beneficiaries. However, an exception to the new rules could upend the advice we've often given clients doing special needs planning.

By Harry S. Margolis

Trusts created for individuals with special needs generally fall into two broad categories: those created with the beneficiary's own funds, often from the proceeds of a personal injury settlement, and those funded by third parties, often by parents and grandparents. The tax treatment of the two trusts is somewhat different.

By Harry S. Margolis

We reported on the SECURE Act when it was enacted at the end of 2019. (You can read about the rules it changed here.) Since then, we and other attorneys have been parsing it and learning a lot more about how its changes work and how they may affect clients. Here's some of our new learning:

1.  Estates in Progress May Want to Disclaim

Except for eligible beneficiaries (spouses, minor children, and disabled or chronically ill individuals), those inheriting IRAs from decedents dying this year and in the future will have to withdraw and pay taxes on the inherited accounts within 10 years from the year of the original owners death. Those who inherited IRAs from people dying before this year can continue to "stretch" out the distributions through their own lifetimes.

By Harry S. Margolis

We have prepared a handout to assist beneficiaries of Supplemental Security Income and other public benefits programs to determine whether they're better off using ABLE accounts or special needs trusts, or both.

Both ABLE accounts and SNTs permit the beneficiary to maintain eligibility for public benefits programs will being the beneficiary of funds held in reserve, but both also have their advantages and drawbacks. Here are a few of them:

By Harry S. Margolis

ABLE accounts were created by the Achieving a Better Life Experience Act of 2014 as an alternative to special needs trusts and to share the benefits of 529 plans for people who are unlikely to pursue higher education. They only go part way towards those goals but nevertheless can be very useful in providing flexibility around very strict public benefit rules, especially those of the Supplemental Security Income (SSI) program.

By Harry S. Margolis

In determining eligibility for MassHealth and Supplemental Security Income (SSI), the state and federal agencies treat self-settled trusts—those created by the applicant for benefit—and third-party trusts—those created by someone else—entirely differently. The assets held in a self-settled trust are considered available to the applicant for benefits to the extent the trustee has discretion to distribute them to the applicant or to use them for her benefit. The assets of a third-party trust are only considered available to the extent the trustee actually distributes them to or uses them for the applicant for benefits.

These rules track the rules for creditors. With some exceptions, creditors can gain access to assets in trusts created by the debtor and cannot gain access to trusts created by someone else for the benefit of the debtor. The issue in the case of Calhoun, et al. v. Rawlins (93 Mass. App. Ct. 458, June 27, 2018) is whether a trust created by one divorcing spouse for the benefit of the other spouse is protected from the creditors of the beneficiary spouse. This has significance for special needs planning because it's not unusual for a special needs trust to be created in the context of divorce.