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Why Do I Need An Estate Plan? Part 3

by | Dec 14, 2023 | Estate Planning

This is part 3 of an on-going blog series about why you need an estate plan. Often times, people wish to leave some or all of their inheritances to heirs who need help managing these assets, whether that be because the heirs are minors or maybe they have special needs that require assistance. In many cases, there is no problem leaving an inheritance for a child or other loved one.  However, there are several reasons why you may not wish to leave a beneficiary a lump sum.  In these cases, estate planning documents such as trusts can help avoid the bad consequences of leaving certain beneficiaries cash outright.

Persons receiving government benefits may lose those benefits if they receive a lump sum from an estate.  Such benefits are called “means-tested,” and often a relatively small amount of money can disqualify a person from receiving means-tested benefits.  Often, once the inheritance is spent, the person will have to reapply for the benefits, a time-consuming and difficult process.

In this case, you may want to set up what is commonly called a Special Needs trust.  Such trusts can hold assets for a person’s benefit without disqualifying them from these types of means tested benefits, such as Medicaid.

Minor beneficiaries (children under 18) are another category to consider.  Indiana state law dictates that children under 18 cannot inherit more than $10,000 without a guardian being appointed to oversee the use of that inheritance.  A guardian must be appointed in this case even if one of the children’s parents survives.   Having a guardian appointed can be a burdensome and expensive procedure, but it can be avoided with the proper estate planning documents.

If you wish to leave funds to a grandchild under 18, or if your own child or children are currently under 18 and would inherit your assets if something happened, it is best to make provisions in your estate plan for this situation.  You can include a Uniform Transfers to Minors Act provision and name a custodian for the account.  The Uniform Transfers to Minors Act allows you to create a basic “mini-trust” with mandatory distribution to the beneficiary when he or she turns 20 (check).  Or, if you prefer, a custom-drafted trust for minors can be included in your will that specifies when distributions can be made at your discretion and include other provisions specific to your circumstances.

Finally, some potential beneficiaries struggle with addictions, psychological issues, or may simply not be the best at managing money, and you might prefer that they not receive funds outright.  In these cases, a trust to hold assets for them after you are gone may be the best solution.  It may even be a life saver.

In all of these situations, estate planning documents give you powerful tools to avoid unwanted outcomes when you are gone. If you have heirs discussed above, give us a call so that we can ensure that you have the best plan in place to provide for your loved ones.