robert w. maher
Attorney-at-Law  · Partner with the Law Firm Dyer & Maher.
Wills and Trusts

A last will and testament is a legal document that lets you, the testator (the person making the will), designate individuals or charities to receive your property and possessions when you pass away. These individuals and charities are commonly referred to as beneficiaries in your last will. A last will also allows you to name a guardian to care for minor children. The main purpose of a will is to ensure that the testator's wishes, and not the default laws of the state, will be followed upon the testator's death. Generally speaking, your will affects only those assets that are titled in your name at your death and for which there is no designated beneficiary.

WHAT DOES A WILL NOT DO?

A will does not govern the transfer of certain types of assets, called non-probate property, which by operation of law (title) or contract (such as a beneficiary designation) pass to someone other than your estate on your death. For example, real estate and other assets owned with rights of survivorship pass automatically to the surviving owner. Likewise, an IRA or insurance policy payable to a named beneficiary passes to that named beneficiary regardless of your will.

You should review your will periodically. If it is not up to date when you die, your estate may not be distributed as you wish. Your will can be changed through a codicil, a legal document that must be drafted and executed with the same procedure that applies to wills. A codicil is an amendment to your will. You should not change your will by simply crossing out words or sentences, or by making any notes or written corrections on it. You may also establish a new will and, in doing so, revoke your old will. If you get married or divorced, or establish a registered domestic partnership or terminate one, you should seek the advice of a lawyer and make a new will, as such a change in status results in automatic changes to your will. You should also review your will when there are any other major changes in your family (such as births and deaths), when the value of your assets significantly increases or decreases, and when it is no longer appropriate for your proposed guardian or executor or testamentary trustee to act in that capacity.

If the decedent dies intestate — without leaving a will — the court appoints a Personal Representative to distribute the decedent's property according to the laws of Descent and Distribution. These laws direct the distribution of assets based on hereditary succession.

In general, the probate process involves collecting the decedent's assets, liquidating liabilities, paying necessary taxes, and distributing property to heirs. Probate procedures are governed by state law which varies from state to state and from time to time. Dying without making a will means you'll have no say over who receives your property. State laws will decide. In some states, only 1/2 of one's assets go to the surviving spouse. Depending on your situation, the rest would go to your children, parents or close relatives. Pennsylvania has restrictions.

A trust is really a relationship between three parties — a donor, who supplies the funds for the trust; a trustee, who agrees to hold and administer the funds according to the donor's wishes; and a beneficiary or beneficiaries who receive the benefit of the funds. Often, but not always, the donor's wishes are spelled out in a document that gives the trustee instructions about how she should use the trust assets. Trusts have been used for estate planning for a long time, and are highly useful tools for ensuring that a donor's property is administered as he sees fit. One of the reasons trusts are so popular is that they usually survive the death of the donor, providing a low-cost way to manage the donor's assets for others when the donor is gone.

A special needs trust is a trust tailored to a person with special needs that is designed to manage assets for that person's benefit while not compromising access to important government benefits. There are three main types of special needs trusts: the first-party trust, the third-party trust, and the pooled trust. All three name the person with special needs as the beneficiary. A "first-party" special needs trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A "third-party" special needs trust holds funds belonging to other people who want to help the person with special needs. A pooled trust holds funds from many different beneficiaries with special needs.

The reason there are several different types of trusts has to do with regulations regarding Supplemental Security Income (SSI}. SSI is a government program that assists people with low incomes who have special needs. In order to qualify for SSI, an applicant or beneficiary can have only $2,000 in his own name. If the person has more than $2,000 in his own name, (typically because of excess savings, an inheritance or an accident settlement), the government allows him to qualify for SSI so long as he places his assets into a first-party special needs trust. The trust must be created by the beneficiary's parent or grandparent, or by a court, but it cannot be created by the beneficiary, even though his assets are going to fund the trust. While the beneficiary is living, the funds in the trust are used for his benefit, and when he dies, any assets remaining in the trust are used to reimburse the government for the cost of his medical care. These trusts are especially useful for beneficiaries who are receiving SSI and come into large amounts of money, because the trust allows the beneficiary to retain his benefits while still being able to use his own funds when necessary.

The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect an SSI beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the "payback" provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in her trust can pass to other family members, or to charity, without having to be used to reimburse the government.

A pooled trust is an alternative to the first-party special needs trust, and is discussed in greater detail here. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources for investment purposes, while still maintaining separate accounts for each beneficiary's needs. When the beneficiary dies, the funds remaining in her account reimburse the government for her care, but a portion also goes towards the non-profit organization responsible for managing the trust.

Anyone can establish a special needs trust and, if the trust is properly drafted to account for tax planning, in certain situations gifts into the trust could very well reduce the size of the donor's taxable estate. As if these are not enough reasons to create a trust, elderly people who are attempting to qualify for long-term care coverage through Medicaid can transfer their assets into a properly drafted third-party special needs trust for the sole benefit of a person with disabilities without incurring a transfer-of-assets penalty, allowing the elder to qualify for Medicaid and making sure that the person with disabilities is taken care of in the future.

Of course, every person with special needs is different, which means that every special needs trust is going to be different as well. The only way to determine which special needs trust is right for your family is to meet with a qualified special needs planner to discuss your needs.