You may have heard people discussing “revocable,” “irrevocable,” and “living” trusts interchangeably. Trusts can be a good way to transfer your property after your death and let your heirs avoid the probate process. Trusts may also add unnecessary layers to small estates that would not have been probated anyway.
When it’s time to discuss establishing a trust with your attorney, one of the first things to do is make sure you clarify the difference between “revocable” and “irrevocable” trusts. The distinction is important for the settlor—you—to understand before beginning the process.
Types of Trusts
The testamentary trust, as the name implies, is created when the will is written and executed. It only becomes effective when the settlor dies. The most common type of testamentary trust is one that provides for minor children when their parents die.
More common today is the inter vivos or living trust. This trust is created while the settlor is alive and allows the settlor to establish what will and will not be placed in the trust. There are two subtypes of a living trust.
- Revocable trusts can be altered or amended by the settlor during their lifetime. The settlor is usually also the trustee and may be a beneficiary of the trust. If the settlor chooses, a revocable trust can be terminated before the settlor’s death.
- Irrevocable trusts may not be altered by the settlor or anyone else. Once property is transferred into an irrevocable trust, the settlor no longer has direct control over it, although the settlor may be the trustee of the trust. Revocable trusts become irrevocable upon the death of the settlor.
In Iowa, great deference is given to the language of the trust and the intent of the settlor. The Iowa Trust Code provides that the terms of the trust shall always control, even if the language of the Code differs. If you have pressing questions about your will or trusts, don’t hesitate to contact our experienced legal team today.
Terminating an Irrevocable Trust
Once an irrevocable trust has been created, terminating or modifying it becomes difficult.
- If the settlor and all beneficiaries agree, the trust can be modified or terminated.
- If the settlor is deceased, the court may modify or terminate the trust on a petition by the beneficiaries or with a showing of a change of circumstances.
- The trust also terminates automatically when the term of the trust expires, if it is revoked, if its stated purpose is fulfilled, or if the purpose becomes impossible or unlawful.
Because the language of the trust always controls, terminating or modifying a trust is not as straightforward as it seems. The Iowa Supreme Court ruled this year that if one settlor has died, the survivor may not amend the resulting irrevocable trust unless the trust itself so states.
In Little v. Davis, No. 21-0953 (Iowa Sup. Ct. May 6, 2022), the spouses had placed the husband’s separate farmland property in a revocable trust to protect it for his children in the event he predeceased his wife. The trust stated that when the first spouse died, “the surviving settlor “shall not have the power to amend, revoke and/or terminate the [trust].”
The wife predeceased her husband. The husband decided, with the consent of all four beneficiary children, to amend the trust following her death. The husband died the next year, and one of the wife’s children sued, claiming the amendment should not have been allowed. The Supreme Court ultimately agreed, citing the Iowa Trust Code that required all settlors to agree to an amendment. Since the deceased spouse could not agree, a court order was required to amend the trust.
Implications for Your Estate Planning
This should not deter anyone from establishing a revocable or irrevocable trust if they feel it is necessary to protect their property. In the above case, both parties agreed that the husband’s property should be reserved in trust for his own children. The language used when drafting a trust is of critical importance.
Be sure that your intentions are clear. The court will always defer to the language of the trust since you won’t be here to explain what you wanted. In the above case, the spouses could have saved everyone a lot of litigation if they had said, “we want the husband’s separate property to go only to his children no matter who dies first.”
You should discuss your plans with an experienced estate planning attorney before committing anything to writing. At Arenson Law Group, PC, we will review the options with you and make sure we understand exactly what you want to happen upon your death. That way, when we draft your trust, no mistakes will be made.
Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC at (319) 363-8199 for a consultation about your estate plan. We will review your finances and property with you so that you can be sure your final wishes will be carried out as you intend.
If you are considering estate planning and you have children with special needs, you should discuss your options with an estate planning attorney. It’s important to understand the factors that impact how your assets will be handled. In developing your estate plan, you can generally choose between leaving an inheritance via a will and establishing a trust. There are key differences that may impact your child’s eligibility for certain benefits. Call us today.
Consider the Differences Between an Inheritance and a Trust
You could decide to leave an inheritance to your child with special needs. This may seem like a solid option if the child has the capability to manage these finances. However, this could reduce or eliminate government benefits. These may include Medicaid, Supplemental Security Income (SSI), and the Supplemental Nutrition Assistance Program (SNAP). These programs require that the eligible recipient have a limited amount of income and assets to qualify for benefits. Receiving an inheritance may push your child’s assets or income above this threshold.
You could decide to leave your whole inheritance to your special needs child’s siblings. The intent in such a situation may be for these siblings to care for your child with special needs. However, this poses a high potential for conflict within the family. The funds may not be used for their intended purpose. In some cases, the money may become part of a divorce settlement or be spent on other things.
You could decide to establish a special needs trust. The funds would be held in the trust and managed by a trustee. This means that the funds cannot be considered income, thereby preserving eligibility for public programs. The trust is structured in such a way that the child cannot override the trustee.
Understand the Different Types of Special Needs Trusts
Three main types of special needs trusts exist with varying implications. A first-party trust is funded by assets that belong to the beneficiary. This type of trust is often used if the beneficiary is expected to receive a sizable sum, such as an inheritance. Eligibility for programs like Medicaid is unaffected. However, in the event of the beneficiary’s death, there will be a requirement for the remaining funds to pay back amounts for Medicaid benefits received.
A third-party trust is similar to a first-party trust, although they differ in the source of the funding. A third-party trust is funded by assets that belong to someone other than the beneficiary. These could include parents, siblings, or other family members. A third-party trust also does not impact eligibility for public programs. In addition, there is no payback provision for Medicaid. This means that in the event of the beneficiary’s death, the remaining funds can be passed on to other family members. A third-party trust is commonly used for a beneficiary with special needs.
A pooled trust is also similar to a first-party trust, although it is managed differently. A nonprofit organization holds the funds in an account and manages the investment. They do this for multiple beneficiaries who each have their own account with the organization. There is a payback provision in the event of the beneficiary’s death. A portion of the remaining funds would also go to the nonprofit.
Determine Whether an ABLE Account Is Right for Your Situation
An Achieving a Better Life Experience (ABLE) account is a savings account that can pay costs like living expenses and education. The stipulations are that the beneficiary must have become disabled before age 26 and that a maximum of $15,000 can be contributed to the account annually. The ABLE account earns interest and does not affect the child’s eligibility for federal benefits. There is a payback provision for Medicaid benefits received in the event of the beneficiary’s death.
Think About Who Would Make the Best Trustee for Your Children
When establishing a trust, this decision is critical. The individual who serves as trustee will be making many decisions as they make sure your child is taken care of in your absence. People to consider may include siblings, close family friends, your attorney, or a financial advisor. In any case, this person should have the time and resources necessary to manage care for your child with special needs.
Discuss Your Situation with an Estate Planning Attorney
Estate planning can seem overwhelming and stressful. There are a significant number of details to understand and consider. The future implications of decisions you make today may not be obvious. In order to navigate this process successfully, you need to speak with an experienced estate planning attorney. They have the knowledge and understanding to guide you through the myriad of decisions before you. An experienced lawyer will be able to advise you about making the best decisions for your children’s future.
Contact Us Today
If you are setting up your will and have children with special needs, we can help. Call (319) 363-8199 to speak with one of Arenson Law Group, PC’s Cedar Rapids estate planning attorneys today. Our team will be glad to schedule an initial consultation to discuss your situation with you. Let us put your mind at ease as we guide you through your options. Call us now.
If you are considering a do-not-resuscitate order (DNR), you need to speak with an experienced estate planning attorney. While a DNR is a medical form that you complete but that your physician must sign, it’s important to be aware of the legal implications. You owe it to yourself and your family to understand how a DNR may affect your future.
What Is a DNR?
A do-not-resuscitate order is a specific type of medical order that is signed by a doctor. A DNR tells health care providers not to revive you if you experience certain conditions. Specifically, the order instructs providers not to perform cardiopulmonary resuscitation (CPR) if either your heart stops or you stop breathing. These health care providers may include doctors, emergency medical personnel, and em
ergency room staff. A DNR does not include any instructions about pain management.
During CPR, medical techniques are used to perform resuscitation. These may include mouth-to-mouth breathing or, in some cases, breathing tubes. Medication and electric shock using an automated external defibrillator (AED) machine may be used as well.
When Is a DNR Used?
Typically, a DNR is used in specific cases, such as when a person has a terminal illness that is in advanced stages. In such a situation, a DNR works in complement with a living will. You may want a DNR for a variety of reasons. The intent is usually to have a DNR in place prior to an unexpected emergency.
Generally, there are considerations of what a person’s quality of life would be like after resuscitation. You may worry that you’ll be dependent on medical devices indefinitely for life support. You may also be concerned that CPR may involve a significant amount of pain. While this may be the case in some instances, it’s critical to discuss this with your physician. They will be able to help you decide if a DNR is right for you. Your doctor will also help you understand the implications of how this will affect situations you may encounter. A DNR is not usually used by someone who is in good health.
Who Can Override a DNR?
Once you have a DNR in place, you are the only person who can override the order. This means that you need to be able to communicate your wishes about receiving CPR. If you have a DNR in place and you change your mind about it, you need to speak with your doctor as soon as possible.
In the event that you are unconscious or unable to speak, no one else can override a DNR for you. This is true even if you had previously changed your mind about the DNR and told someone else about this decision. They still would not be able to override the order, no matter who the person is. This includes your spouse, children, and other family members.
What Alternatives to a DNR Should I Consider?
Sometimes a person may have an incomplete understanding of what a DNR is or how it works. A DNR is also often confused with other end-of-life documents. While these legal instruments are similar in some facets, they differ in key ways. It’s important to understand these differences because they are legally binding documents. If you are considering creating a DNR, you may benefit from considering these options as well:
- Living Will– This is also called an advanced health care directive and is used to specify instructions for end-of-life medical care. These instructions may impact your future degree of personal independence and self-sufficiency. A living will might include directives regarding pain management, dialysis, use of a ventilator, intubation, and organ donation.
- Medical Power of Attorney– This is also called a health care proxy. A medical power of attorney allows you to authorize a specific person to make all major healthcare choices for you. These choices include decisions regarding end-of-life care. They also include things like surgery and day-to-day healthcare choices. The authority of a medical power of attorney to make decisions on your behalf is greater than the authority of other people, such as your spouse or children.
Contact Arenson Law Group, PC Today
Our experienced Cedar Rapids estate planning attorneys are ready to discuss your unique situation with you. This can be a sensitive topic, and there are many complex decisions to make. Call us at (319) 363-8199 to speak with a member of the Arenson Law Group, PC legal team and set up an initial consultation. We can help you navigate the process of planning your estate with compassion and understanding. Let us guide you so you can make the best decision for your family’s future.