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Tips for Giving Gifts to Your Grandkids
Patricia Bloom-McDonald • Mar 20, 2014

When it comes to grandchildren, most grandparents seek to shower them with gifts. There is a great deal of truth in the common jokes about how spoiled grandkids can be. Often, this practice does not stop when the grandkids have grown up, and grandparents will help them out with school tuition payments, their first car, wedding fees, and even more. Even more than the love that is shown during their life as they bestow gifts on their grandkids is the desire to be remembered. This is why grandparents often leave large gifts behind for their grandchildren to enjoy long after they are gone. Although helping your grandchildren is considered to be a good idea, there are always legal issues which should be addressed beforehand. If you are considering giving a large gift to your grandkids or other loved ones, Elder Law Attorney Patricia Bloom-McDonald can guide you through the legalities. Here are a few things to consider when giving or leaving gifts for your grandchildren.

Will Taxes be an Issue?

The gift tax exemption in the Commonwealth of Massachusetts, as well as other states, was ten thousand dollars. It has recently been raised to fourteen thousand dollars to cover cost of living expenses. This means that anyone who receives a gift or gifts from someone which total to over fourteen thousand dollars in one year, they must report that amount on a gift tax return. Although many people may be required to report this gift tax, not many will ever have to pay anything. That is because the total of gifts in any one year must exceed $5.34 million before the recipient is required to pay anything. Another thing to take into account is that there is no limit to how much someone can pay to their loved one’s college or their cost of health care as long as they make the payments directly to the school or to their doctor, hospital, etc. For those who wish to leave behind a great deal to their grandchildren, but do not want to leave them with a heavy tax burden, setting up a trust is a good idea.

Are You Being Fair?

In many families, grandparents may be closer to some grandkids than others. This could be for a number of reasons. In some cases, it is simply a matter of location, since it is easier to become close to those who live closer. In other cases, there may have been a family dispute which caused the grandparents not to be able to see their grandchildren as often as they wish. Either way, it is quite normal to be more familiar with some grandkids and not with others. Of course, these types of feelings may cause you to decide to leave more to the grandkids which you are closer to than to others. While this may seem fair to you, there are a number of issues which could result from those types of decisions.

1. Family issues could arise because other grandchildren and their parents feel that you are showing favoritism.

2. Parents of the grandchildren which are being favored may feel that you are trying to interfere in their relationship with them and their methods of teaching kids responsibility.

3. The grandchildren that you favor may become too dependent on your help.

4. Leaving behind more for some grandchildren than others could cause family members to contest your will and fight against your last wishes in court.

While it is your money, and your choices to do with it as you like, it is always a good idea make your wishes clearly known and understood before it can go to court. In order to avoid probate court in such matters, it is a good idea to leave any inheritance behind in the form of a trust. If you have any questions about the best way to give gifts or leave an inheritance to your grandchildren, give Elder Law Attorney Patricia Bloom-McDonald a call today.

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Using a Credit Card When You Have a Special Needs Trust

25 May, 2023
A special needs trust (SNT) allows you to meet your needs while receiving government benefits, such as Medicaid/MassHealth and Supplemental Security Income (SSI). When you have a special needs trust, you can use it to pay for goods and services government benefits do not cover, such as therapy, education,and housing. Since receiving income directly from your trust would jeopardize your eligibility for benefits, your trustee cannot give you cash from your SNT. When you use a credit card for permitted transactions, and your trustee pays off the balance with funds from your trust, these payments to a credit card company are not considered income. An SSI or Medicaid/MassHealth recipient who is capable of managing their own affairs can therefore use a credit card to make small purchases, and the trustee of the special needs trust need not micromanage every transaction. In the past, beneficiaries of SNTs sent their bills to their trustees for payment. Today, an individual with an SNT who qualifies for a personal credit card may find that using a credit card is more convenient. Credit cards have several benefits. Using a credit card to manage payments from your special needs trust allows you to maintain independence, gain access to some of the advantages of a credit card, and easily keep records while preserving your eligibility for Medicaid/MassHealth and SSI. Although credit cards can help people manage their special needs trusts, there are also several important restrictions and considerations to keep in mind. Consult with a special needs planner to ensure all transactions are acceptable under the trust's rules and comply with government regulations. The Benefits of Using Credit Cards When You Have a Special Needs Trust If you have a special needs trust, using a credit card has many benefits, including: Independence : Allowing you to maintain your independence. You can use your card to make qualifying purchases yourself. Your trustee does not have to make the transactions for you. Access to the Typical Advantages of a Credit Card : Using it responsibly can help you establish or build credit history, which may be important for your future financial needs. Record-Keeping : Credit cards provide easy record-keeping and a convenient way to monitor transactions from your special needs trust, which can also help special needs trustees fulfill their duty to maintain records. When you use your card, your trustee can observe your purchases and ensure that all expenses are allowable under the trust’s rules. Your statements can help your trustee keep track of funds leaving the trust. Benefits Eligibility : While adhering to Medicaid/MassHealth and SSI’s income and asset limits, you can access funds from your SNT. Credit cards can help prevent your trustee from accidentally providing you with cash payments that could affect your eligibility for government benefits. Considerations When Using a Credit Card for Your Special Needs Trust While you can use a credit card to access funds from your special needs trust for certain transactions , restrictions apply. If your trustee sees a charge on your card that could affect your benefits eligibility , they can flag it for review. You cannot use your credit card to pay for food and shelter, which SSI would cover. When administering your funds, your trustee must ensure that any expenditures are for your sole benefit if you have a first-party special needs trust. While using a credit card is appropriate, you should not use a debit card. Debit cards are considered cash income. Best Practices When using a credit card for a special needs trust fund, remember several best practices. Choose a card with low fees and interest rates. Set a clear budget and monitor transactions regularly. Keep thorough records and receipts of expenses. Consult with your special needs planning attorney. A special needs planning attorney can help you navigate the rules that apply to your trust and understand how to use a credit card to preserve your Medicaid/MassHealth and SSI eligibility. 

How an ILIT can help offset estate taxes

12 May, 2023
With the Federal estate tax exemption possibly about to be lowered, it may be time to think about steps you can take to keep your estate from being taxed. An irrevocable life insurance trust allows you to pass on money to your heirs while avoiding both the federal estate tax, as well as any applicable state estate tax which is currently $1 million in the Commonwealth of Massachusetts. Senate Democrats have proposed lowering the current estate tax exemption from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. While it is unclear if this proposal will pass, it is likely that some change to the estate tax is coming. Even if Congress does not take any action, the current rate will sunset in 2026 and essentially be cut in half, to about $6 million per individual. In the Commonwealth of Massachusetts, the current estate tax exemption is $1 million for individuals and is taxed at dollar $1.00. A proposal to raise it to $3 Million and the tax to start at $3 Million (not at $1.00) has been submitted in the legislature but has not yet been voted on or enacted. One way to make up for any estate tax your estate may have to pay is by setting up an irrevocable life insurance trust [ILIT]and funding it with a policy that has a death benefit that would pay your heirs some or all of the amount your estate will be taxed. If you purchased such a life insurance policy directly, it could end up being taxed as part of your estate. But if a trust owned the policy, it could pass outside your estate. While a life insurance trust can be highly beneficial, it is also complicated to set up and maintain properly. The following are some of the requirements: Trustee . If you are setting up the trust, you cannot also serve as a trustee. If you are the trustee, you have control of the trust, which could lead to the trust being included in your estate. You will need to name another trusted person or financial institution to act as trustee. Policy ownership . The trust must own the life insurance policy. If you transfer an existing policy to the trust and die within three years, the policy will still be considered a part of your estate. To avoid this risk, the trust can purchase a policy directly rather than receive an existing policy. Premiums . You need to transfer funds to the trust to pay the policy premiums, which creates an issue with gift taxes. A transfer to a trust is usually not subject to the $15,000 yearly gift tax exclusion. For a gift to qualify for the exclusion, the recipient must have a "present interest" in the money. Because a promise to give someone money later does not count as a present interest, most gifts to trusts aren't excluded from the gift tax. To avoid this, you can use something called a “Crummey” power which gives beneficiaries the right to withdraw the funds transferred to the trust for up to 30 days. As part of the process, the trustee needs to send them a letter, known as a Crummey letter, letting them know about the trust funding and their right to withdraw the funds. After the 30 days have passed, the trustee can use the funds to pay the annual insurance premium. You run the risk of the beneficiaries withdrawing the funds, but if they know that by allowing the money to stay in the trust they will receive more money later, it shouldn’t be a problem. Beneficiaries . The beneficiary of the life insurance policy is usually the trust. Once the funds are deposited in the trust, the trustee can distribute the assets to the beneficiaries in the way specified by the trust. For example, if your beneficiaries are minors, you can wait to have the trustee distribute the assets. Keeping the assets in the trust will also protect them from your beneficiaries’ creditors. The downside of an irrevocable life insurance trust is that you do not have the ability to change it once it is set up, although the policy would effectively be canceled if you stopped paying the premiums. If you are considering this type of trust, discuss it with your attorney.
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