Upstate Estate Law, P.C. Blog

1. Probate Avoidance. Regardless of whether there is an estate tax or not, the probate fees on most estates averages 1 to 5% of the total value of the estate, not including any loans on the property. For example, if you own a $500,000 home at death and there is a $300,000 loan on the property, the statutory probate fees are calculated on $500,000, not the $200,000 of equity. The combined probate fees in South Carolina on an estate that is $1.0 million, for example, could range from $5,000 to $15,000 when the probate inventory fees, possible bond fees, attorney’s fees, and all the court filing fees are added up.

Not only are the statutory fees relatively high compared to a trust administration, a probate case doesn’t cover things such as changing ownership of retirement accounts, managing distributions from life insurance policies, etc. And the probate process in South Carolina usually takes 9-12 months in most Probate courts (and that is if the estate is fairly simple). And one of the things that most people probably don’t even realize is that when a probate action is filed, the deceased person’s entire estate is now open to public disclosure. All court filed documents are readily accessible by anyone who searches.

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If your spouse is disabled and has qualified to receive Supplemental Security Income (SSI) and/or Medicaid benefits, you will need to carefully consider how to provide your Spouse with an inheritance, or else those benefits be endangered. The resource and income limits required in order to qualify for SSI and Medicaid are very low. A poorly planned inheritance to your Spouse can result in disqualification from these vital programs.

There are a number of planning techniques that can be utilized in order to prevent this disqualification. They include converting counted resources into exempt resources, such as using the inheritance to fund the purchase of a home, car, a pre-need funeral contract, or a qualified-Medicaid annuity for the benefit of the disabled Spouse. Another technique is the establishment of a third-party Special Needs Trust.

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Medicaid Special Needs Trusts have received much needed legislative attention from the United States Congress and President of the United States. HR 34 was signed into law by President Obama on December 13, 2016. Title 5, Section 5007 of HR 34 is entitled “Fairness In Medicaid Supplemental Needs Trusts” and contains exactly two sentences designed to correct a 23 year old omission made in the Social Security Act.

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The Social Security Administration recently issued an Emergency Message to all personnel requiring workers to specifically inform SSI applicants or beneficiaries of the reasons a special needs trust has been rejected by the agency. And elder law attorneys everywhere say thank you!

In the past, when the SSA determined that assets in an SSI beneficiary’s or applicant’s trust were countable, the agency would frequently send a notice of ineligibility to the beneficiary or applicant because his/her assets exceeded the resource limit. However, this notice almost never explained the reasoning behind the SSA’s rejection of the trust.

The new Emergency Message, which went out to all field level SSA personnel, requires caseworkers to spell out exactly what portion of the Program Operations Manual System (POMS) applies to the trust being rejected. Unfortunately, the Emergency Message does not tell field workers that they have to explain their reasoning in plain English — merely citing the appropriate section of the POMS appears to be enough. While this will make it relatively easy for professionals to determine what went wrong with a trust and whether an appeal is in order, it will likely give the layperson little if any guidance about his or her trust.

To read the Emergency Message, go here.

I get this question pretty frequently. The terms above refer to two very general categories of trusts.

An inter vivos trust is a trust that was created during the lifetime of its creator (the Grantor or Trustor).

A testamentary trust is set up upon the death of its creator, usually in the creator’s Last Will and Testament.

Some distinctions are that an inter vivos trust may be freely revocable and modifiable by its creator during his/her lifetime, whereas the testamentary trust is typically irrevocable, except under certain circumstances. The inter vivos trust may be set up to accomplish asset management, incapacity planning, or Medicaid planning for its creator. A testamentary trust is useful to protect the creator’s eventual beneficiaries from dissipating their inheritance through immaturity, creditors’ claims, divorce, and the like.

These two trust types probably represent the most general distinction that can be made among trusts. Make no mistake though, there are a lot of different types of trusts that can be created. In future posts, I will write more about these different types of trusts.