Estate Planning Bits

Pooled Trusts – what are they and what do they do?

A recent popular estate planning technique is the use of a Pooled Trust. Pooled Trusts are basically entities that are established and administered by a non-profit organization. Each person who contributes to the Pooled Trust, called a Donor, has a separate account established for them, and they each become a beneficiary of the Pooled Trust.

The Trust assets are pooled together and invested in funds controlled by the trustee, who will utilize the funds to or for the benefit of each particular beneficiary. Upon the death of a beneficiary, normally a portion of the funds remains in the Trust for other charitable purposes and for beneficiaries who have disabilities, while the other portion is repaid to the State for the amount that the State Medicaid Office may have paid for that particular beneficiary’s expenses while alive.

Many Pooled Trusts are established by individuals who have disabilities and are on Medicaid or SSI and are not permitted to maintain significant assets. If their assets had not been contributed to a Pooled Trust, they would have been denied benefits, required to spend all of their funds down to approximately $1,500 and then re-apply for benefits.

By depositing and contributing their funds to a Pooled Trust, they immediately become qualified for or maintain their qualification for Medicaid and SSI, and they do not lose other benefits, such as housing, subsidies, food stamps, oil assistance, etc.

While they are alive, the trustee may expend and use income and/or principal from the Pooled Trust for the beneficiary, but only for purposes that would not otherwise disqualify the beneficiary from benefits. If the Trust is administered properly, the beneficiary is remains eligible for Medicaid benefits, and it is anticipated that a significant portion of the funds will be spent on the beneficiary during their lifetime, so there will not be a substantial amount to be repaid to the State upon their death.

Because a Pooled Trust is managed by a non-profit organization, it is not necessary to select an independent trustee. The non-profit becomes the trustee itself. Normally, because Pooled Trusts are commingled with other assets and managed similarly, administrative expenses of the Trust are also lower than those of any individually managed account.

In most states, there are choices to be made as to which Trust would be most appropriate, and it is important to select the one that matches the needs of the beneficiary before selecting a Pooled Trust.

By: Hyman G. Darling, Esquire

Family Limited Partnership advantages

A Family Limited Partnership provides a good option for parties seeking to protect their family assets. It removes the assets from their estate while still retaining control over them.

The partnership becomes its own entity, with its own tax identification number. It can then conduct the same activities as an individual or a corporation.

In a Family Limited Partnership, family members, typically the parents, put assets into a partnership, and then give minority interests to other family members, typically the children, while the general partners retain control of these assets. This gives the parents an opportunity to shift assets to their children. The Family Limited Partnership also allows for children to manage their parents’ assets, and then after their parents’ death, those assets do not need to go through probate.

There are significant advantages to using a Family Limited Partnership as a part of your estate plan. One advantage is the control the general partners retain over the assets; they can decide whether to distribute or reinvest any income or profits from the partnership.

Another advantage is the restrictions that can be placed on the limited partners; they can be restricted from transferring or selling their interest, ensuring that wealth stays within the family.

A Family Limited Partnership can also protect assets should a limited partner become divorced or have trouble with creditors. Family Limited Partnerships also provide more flexibility than other estate planning devices, like the irrevocable trust. For example, the partnership may be amended or terminated upon agreement of the members, and the partnership can provide that all disputes be resolved through arbitration, rather than in court.

Perhaps one of the largest advantages to a Family Limited Partnership is the valuation discount. This valuation discount is due to a limited partner’s lack of control and marketability in their interest. A gift of, for example, a 10% interest in a $1,000,000 limited partnership has a substantially lower value than a gift of $100,000 for gift tax purposes.

With careful drafting, a gift of a partnership interest can fall under the annual gift tax exclusion. By using the Family Limited Partnership, families with significant assets can significantly lower both their gift and estate tax payments.

By: Brett A. Kaufman, Esquire