The PrivateBanks Role as GUARDIAN of The PrivateBanks Role as - PowerPoint PPT Presentation

The PrivateBank’s Role as GUARDIAN of The PrivateBank’s Role as GUARDIAN of the Estate the Estate – March 21, 2013 March 21, 2013

The PrivateBank’s Role as GUARDIAN of the The PrivateBank’s Role as GUARDIAN of the Estate/ Estate/ OBRA Trust OBRA Trust Best interest of the Ward (Guardianship estates)/ Sole Benefit of the beneficiary (OBRA • trust). Ward can either be: W d ith b • A minor (under age 18); or • A disabled adult (see below). • Definition of “disabled person” under Illinois statute for guardianship purposes: • Not fully able to manage his estate due to mental deterioration or physical incapacity; • or due to mental illness or a person with a developmental disability; or because of gambling, idleness, debauchery, or excessive use of intoxicants or drugs, so spends or bli idl d b h i f i t i t d d wastes his estate as to expose himself or his family to want or suffering; or is diagnosed with fetal alcohol syndrome or fetal alcohol effects. (755 ILCS 5/11a‐2). “Decedent’s estate” definition of “capacity”: must be of sound mind and memory at the • time of executing the Will (755 ILCS 5/4‐1). February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 2

Annual Accountings to the Probate Court Annual Accountings to the Probate Court All accountings (yearly) are presented and approved by the Court, as well as attorney • fees and guardianship fees (petitions). No Bond is required for Corporate Fiduciary (1 ½ x FMV for individual • fiduciary…premiums to be annually). GAAP accounting (no P & I accounting for Guardianship estates): • • “Decedent’s Estate” have P& I accounting (760 ILCS 15/6) • OBRA trusts have P&I accounting (760 ILCS 15/3) • Guardianship estates do NOT have P&I accounting (GAAP) February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 3

Investment Management: Investment Management: No more than 67% in equities (755 ILCS 5/21‐2.12). – Fixed Income securities: BBB or better in rating (“investment grade”) (755 ILCS – 5/21‐2.08). Mutual funds are allowed (755 ILCS 5/21‐1.07) and so are Open‐end registered – investment companies (REITs) (755 ILCS 5/21‐1.05a). Only the 15 permitted investments are allowed under the statute (755 ILCS 5/21‐2 Only the 15 permitted investments are allowed under the statute (755 ILCS 5/21 2 – through 2.15). IPS (investment policy statement)/Asset Allocation/Asset Classes: Specific Fund, – ETF, or S.A.M (Separate Asset Manager). Cash Flow needs and financial objectives of the ward. C h l d d f l b f h d – If applicable, reflect existence of Structured Settlement (annuity) in management of – liquid assets; insurance company with an investment grade rating (755 ILCS 5/21‐ 2.11). February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 4

Investment Management (Continued): Investment Management (Continued): Prudent Investor rule (760 ILCS 5/5) for “trusts” vs. Prudent Person rule for – “estates” for 13 out of the 15 investments allowed (Estate of Joseph Collins Lieberman a Minor vs The Northern Trust: Appellate Court of Illinois 2 nd District Lieberman, a Minor vs. The Northern Trust: Appellate Court of Illinois, 2 nd District No 02‐P‐1053 and 02‐P‐1054). • Guardian estates: prudent person rule (except for 2 investments of mutual funds and common trust funds which have a higher standard of care of prudent investor rule). i t l ) • Decedent estates: prudent person rule (except for 2 investments); 9 allowed investments (per statute 755 ILCS 5/21‐1) except for 2 investments that require the higher standard of care of the prudent investor rule plus whatever the Last Will & Testament allow the executor to invest in. • Trusts: prudent investor rule (higher standard of care for trusts) and this would include OBRA trusts. • Still a bit of a gray area…. Still a bit of a gray area…. February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 5

Custody/Other Risks/Petition the Court Custody/Other Risks/Petition the Court Custody of Assets…Safety from creditors (in an escrowed segregated account, thus free • from general creditors of the bank). Other risks: health insurance and umbrella policy (slip and fall). • Petition the Court (via the Attorney) for: • Budget amount per month (initial budget, temporary budget, permanent budget): – • Medical expenses • Medical expenses • Physical therapy • Occupational therapy • Caretaker expenses p • Other Special major purchases (Van, etc.). – Petition for attorney fees and guardianship fees. – “Annual Report” filings with the court for disabled (medical and general update – report)…reprinted form that you fill in and update yearly. February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 6

Preparation of Income Tax Returns for the Preparation of Income Tax Returns for the Ward (Federal and State 1040s) Ward (Federal and State 1040s) Guardianship estate is ignored under the Federal income tax laws. – For minors the “kiddie tax” rule for “passive income” over a threshold amount [IRC For minors, the kiddie tax rule for passive income over a threshold amount [IRC – Section 6201(c)]. Federal IRS Form 8615. Need copy of parent’s return (due to the “kiddie tax” issue, if applicable). – Who claims the ward as a “dependent” as a personal exemption on the 1040 (over – 50% of the support test, plus other factors)? 50% f th t t t l th f t )? If an OBRA trust, prepare the 1041 return as well. – Structured Settlement annuities (qualified annuities) are generally income “tax‐free” – each month over the term of the annuity. A mere promise to pay by the insurance y p p y y carrier (no segregated account), so rating of the insurance carrier is important. Non‐qualified deferred commercial annuities are partially taxable (exclusion ratio – calculation). February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 7

Cash Flow Needs of the Estate: Cash Flow Needs of the Estate: Budget per month; – Special major purchases; and – Fees: guardianship, attorney, social worker fees, miscellaneous. – February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 8

Estate/Gift Tax Planning Estate/Gift Tax Planning Some Judges allow this type of planning: • Annual gifts of $14,000 per donee per annum. – Heirs at Law (natural objects of their bounty) [755 ILCS 5/11‐13(b)]. – Upon death of the ward, convert the “guardianship estate” over to a “decedent’s – estate.” Do a “final accounting” for the guardianship estate, and then transfer over the assets to the probate estate of the decedent (get an FEIN number for the decedent’s estate). February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 9

3 Types of “Special Needs Trusts” 3 Types of “Special Needs Trusts” OBRA Trust: “pay‐back” to the State upon death or termination (Medicaid liens). Don’t be confused, • there are 3 types of “special needs trusts” and this phrase is used “loosely,” yet you should know the real differences as follows: 1 Phillips trust (3 rd party‐settled; private trust; no pay‐back) Phillips Trust 114 ILL 2 nd 85 91 500 1. Phillips trust (3 party‐settled; private trust; no pay‐back) Phillips Trust 114 ILL 2 85,91, 500 N.E. 2d 29 (1986) (Phillips II). 2. OBRA trusts: 2 kinds (self‐settled trusts) both of which are “pay‐back” trusts: 2a. Pooled OBRA trust (Illinois Disability Association) 42 USC Section 1396p(b) (D)(4) (C) ….used to be…could be any age, but recently the law was changed to: (C) used to be cou d be a y age, but ece t y t e aw was c a ged to » General rule: can’t do a pooled OBRA trust if over age 65, but there are exceptions if: The ward is deemed to be “disabled”*; and • The Guardian is the Public Guardian or State Guardian….(gov’t guardian). The Guardian is the Public Guardian or State Guardian….(gov t guardian). • 2b. OBRA trust for P.I. injuries (D) (4) (A) ….must be under age 65 at the time of funding . (760 ILCS 5/15.1). Trust for the “Sole Benefit” of the beneficiary: [42 USC Section 1396p (d) (4) (A)], Section 120.347 of Trust for the Sole Benefit of the beneficiary: [42 USC Section 1396p (d) (4) (A)], Section 120.347 of • the Illinois Administrative Code 89 Ill. Admin. Code Section 120.347; and 760 ILCS 5/15.1. * “Disabled” defined under SSA: not able to be gainfully employed. • Upon death is the Trust included in the “gross estate”? Probably not, but depends. • February 2013 February 2013 PVTB Role as Guardian of Estate PVTB Role as Guardian of Estate 10 10