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PRESERVING ASSETS FOR MINORS AND INCAPACITATED INDIVIDUALS

Trusts are effective estate-planning and property management tools if drafted in the appropriate manner to meet the needs of the person wishing to establish the trust.

If a person wishes during lifetime or at time of death to transfer assets to children or incapacitated individuals, there are trust instruments that can be utilized to protect the beneficiary from himself/herself, from creditors, from divorcing spouses and from government attachment.

Generally speaking, a property owner (called the "grantor”, "trustor", or "settlor") transfers legal ownership (either immediately or at some later date, including at time of death) to a person or institution (called the “trustee") to manage that property for the benefit of another person (the “beneficiary"). Trusts can serve a number of purposes, including transferring wealth, reducing taxes, avoiding probate and controlling distribution of assets. HKQ Law Attorney Joseph Kluger points out another important function: “Trusts can be indispensable in preserving assets for those unable to manage financial affairs. Minors’ trusts and special needs trusts are but two examples of such trusts.”

UTMA and Minors Trusts

If a minor child inherits property from someone who passed away without a will, a court may require the appointment of a property guardian to manage that property until the child turns eighteen. While this is the age of majority in Pennsylvania, there may be a concern about whether an 18-year old is mature enough to manage his or her own financial affairs. For example, will the child be prudent enough to wisely invest the inheritance, or rather will the child spend the money on cars, partying, etc.? Fortunately, there are options that may alleviate these concerns.

If a trust had not been set up for the minor child, the child could inherit assets via the Uniform Transfers to Minors Act (UTMA). Each state has a version of UTMA, which allows a "custodian" to manage assets for children. The custodian has the right to collect, hold, manage, invest and reinvest a minor’s property – without a court's approval. When the custodianship ends (when the child turns 21 years old under Pennsylvania law), the money belongs to the beneficiary, outright.

There are occasions when a transfer under Pennsylvania’s UTMA may be appropriate, but we often see parents wishing to further restrict withdrawal rights of a beneficiary to a time beyond the age of 21, while still ensuring that money can be used for the "health, education, maintenance and support” of a child as needed over time.

A minor’s trust with spendthrift provisions allows such restrictions. For example, issues such as a beneficiary’s history of drug/alcohol abuse can be addressed in a minor’s trust, as could concerns that a beneficiary would be financially irresponsible even after the age of 21.

Indeed, the lawyers at HKQ Law often incorporate these concepts into a parent’s last will and testament.

Documented properly, a parent can have the comfort of knowing that his/her child/children will be financially better off without having the fear that the child will take the inheritance and immediately spend it on foolish items, make bad investment decisions or have someone else gain access to the money.

Special Needs Trusts

Also known as supplemental needs trusts, special needs trusts are specifically designed for the benefit of physically or mentally disabled individuals who may lack the capacity to manage financial affairs. These trusts protect the assets of disabled adults while maintaining their eligibility for government benefits such as Supplemental Security Income (SSI), Medicaid, vocational rehabilitation and subsidized housing.

If a close relative of a disabled individual passes away without a will, that individual may inherit assets under state law. Assets in excess $2,000 could jeopardize government benefits.

A special needs trust can serve a disabled individual for the rest of his or her life, ensuring that they are well cared for even after parents or guardians are gone. The trust provides safeguards that the individual's assets will remain under the control of the designated trustee. The trustee has a duty to protect the assets of the trust and to act in the best interest of the disabled individual. An individual or an institution (such as a bank) can serve as trustee.

While most special needs trusts are created when the disabled individual is young, special needs trusts must be created before the disabled individual's 65th birthday as there can be no additions to the trust after the trust beneficiary turns age 65. When drafting a special needs trust one must be mindful not only of Pennsylvania laws and regulations, but also applicable federal laws and state case law. As with a minor’s trust, a special needs trust can be part of a parent’s (or grandparent’s) last will and testament, or a separate document.

Money from a special needs trust can pay for things not covered by public benefits. For example, trust expenditures may cover medical and dental expenses, physical therapy, personal items, furniture, home improvements, technology, transportation, education and even vacations or entertainment. The trustee should pay money directly to a merchant or service provider rather than putting trust money directly into the hands of the beneficiary.  

Transferring assets to a minor or an incapacitated individual, and preserving those assets, can be a complex process. HQK Law can provide guidance throughout the process – from drafting the required documents to administration of the trust. To speak with one of our estate planning attorneys, call (800) 760-1529.

About Hourigan, Kluger & Quinn, PC

Hourigan, Kluger & Quinn is considered one of the top civil litigation and commercial law firms that has had the privilege of representing more families in the courtroom than any other NEPA firm. The attorneys at HKQ Law have been honored as Super Lawyers, Best Lawyers, Best Law Firms by US News and World Reports, and have received the AV Preeminent Rating by Martindale-Hubbel. HKQ Law was recently recognized for one of the top 20 Verdicts in Pennsylvania.

The firm’s Personal Injury Team, led by Attorney Joe Quinn, Jr., has won some of the largest verdicts and settlements in the region's history, totaling over a half billion dollars on behalf of injured clients. The Personal Injury Team focuses on a wide array of personal injury claims and civil litigation, including medical malpractice, auto and truck accidents, aviation accidents, unsafe vehicles, dangerous or defective products, workplace injuries (worker's compensation), construction site accidents, claim denials by insurance companies, dangerous drugs, defective children's products, nursing home abuse and neglect, and falls due to unsafe conditions (slip and fall).

Attorney Joseph A. Quinn, Jr. is one of only 100 attorneys in the United States (and one of only three in Pennsylvania) honored with membership in the Inner Circle of Trial Advocates, and one of only 500 attorneys worldwide chosen to be a Fellow of the International Academy of Trial Lawyers. He has been a Pennsylvania Super Lawyer every year since the program began and has been listed in The Best Lawyers in America every year since the publication was established in 1987. Best Lawyers also named him top personal injury attorney for Northeastern Pennsylvania and the Lehigh Valley. In addition, Best Lawyers, in conjunction with U.S. News & World Report, has designated HKQ a Tier 1 Best Law Firm for personal injury and medical malpractice litigation in Northeastern Pennsylvania and the Lehigh Valley.

Since the inception of the firm, the Commercial / Corporate Team led by Attorney Allan Kluger has provided comprehensive, integrated legal services to many of Northeastern and Eastern Pennsylvania's largest corporations, businesses, banks, non-profits and institutions, handling matters involving labor and employment, wills, trusts and estate planning, estate administration, elder law, commercial transactions, residential and commercial real estate, zoning, land use and development, telecommunications, mediations and arbitrations, commercial litigation, title insurance, business planning and business succession, corporate/business structuring, employment discrimination law for employers, banking, creditor’s rights, finance, lender liability defense, covenants not to compete, construction law, mergers and acquisitions and other business matters.

Additional information can be found at www.HKQLaw.com or by calling (800) 760-1529 (1LAW).

				

 

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