Joe Seidel, Division Director of Bayada Home Health Care, explains the many different ways to pay for home healthcare.
Joe Seidel, Division Director of Bayada Home Health Care, explains the many different ways to pay for home healthcare.
Don Peeler shows off his no-step, custom built retirement community, Crystal Springs.
Individuals with special needs often face “quality of life” challenges compared to those without special needs. Many times individuals with special needs require added expenses to meet those needs. The added financial burden often leads individuals with special needs to depend on public benefits to help them meet those costs. Unfortunately, public benefits often fail to meet all of the needs of a disabled individual. However, the supplemental needs of those individuals (meaning needs not covered by public benefits) can be met by using funds held in a Special Needs Trust (SNT).
Understanding Special Needs Trusts
A Special Needs Trust is a trust that is established for an individual with special needs who is or may become dependent on public benefits. The trust is specifically identified to meet certain supplemental needs and to enhance the quality of life for the beneficiary, the special needs person. Most importantly, the SNT is created so as to not disqualify the beneficiary for the public benefits being received. The trust, then, is a pool of money available for the benefit of the beneficiary in order to provide him or her with goods or services that public benefits do not provide. For example, SNT funds may be used for in-home care services that would otherwise not be affordable to the beneficiary. Should a person with special needs receive these funds outright and outside a properly created SNT, the individual may become ineligible for the public benefits and reinstatement of the benefits can be a difficult process.
There are two types of SNTs: A third-party SNT and a first-party SNT. A third-party SNT is one in which a loved one has assets that he or she would like to use to benefit the individual with special needs. Whereas, a self-settled SNT is one in which the assets belongs to the individual with special needs.
A self-settled SNT is often used in the case of a litigation settlement. One example involves an individual who was in a car accident and sued the “at fault” driver successfully. By the time the lawsuit settlement was reached, the individual had been declared disabled. Instead of the settlement funds being given outright to the person who is now disabled, the funds could be placed into a self-settled SNT for the benefit of that individual. This allows the person with the disability to continue to receive benefits and have the settlement money available to him or her for supplemental purposes, increasing his or her quality of life.
Self-settled SNTs have been recognized by federal law since 1993 under 42 USC §1396p(d)(4)(A). A self-settled SNT contains a mandatory payback provision, meaning that upon the death of the beneficiary, the State will be paid back from the remaining trust assets up to the amount of public benefits expended on behalf of the beneficiary during his or her lifetime.
Within a self-settled trust an individual trustee or corporate trustee is appointed to manage the funds in the trust. Choosing the correct trustee is an important decision as the trustee will be responsible for managing and investing trust assets, and is responsible for following the guidelines regarding proper distributions from the trust. Failing to do so could result in a loss of benefits for the trust beneficiary.
Problem with the Current Law
The law, as currently written, states that a first-party trust may only be established by the individual’s parent, grandparent or a court of competent jurisdiction. It appears that the option for a competent individual to establish his or her own trust under 42 USC § 1396p (d)(4)(A) was a simple mistake by the writers of the law. However, this minor mistake causes major financial losses to disabled individuals. It requires those disabled individuals who have no parent or grandparent alive to establish the trust, to expend money on an attorney and court costs in order to ask for a court order establishing the trust. The money to accomplish this is often such an impediment for these individuals, that they do not pursue it and end up either kicked off the public benefits or forgoing the supplemental monies they would otherwise have access to.
Currently there are two identical bills sitting in the House of Representatives and in the Senate which would create the option for competent individual who is disabled to establish his or her own trust under 42 USC § 1396p(d)(4)(A). In May 2013, H.R. 2123 was introduced in the House and the next day it was referred to the House subcommittee on Health, where is currently sits. A few months later in November 2013, S. 1672 was introduced in the Senate, was read twice and referred to the Committee on Finance. The title of the identical bills is the “Special Needs Trust Fairness Act of 2013” and is described as “a bill to amend title XIX of the Social Security Act to empower individuals with disabilities to establish their own supplemental needs trusts.”
As advocates for individuals with special needs, it is important that we support this bill so that our clients have more choices for themselves with regards to establishing special needs trusts. If you feel so inclined, please contact your Congressional representative and ask for the passage of these bills. Encouragement from us of the importance of this bill to our clients is imperative to get the bill recognized and enacted. Otherwise, it may get lost in the shuffle and our clients’ needs may not be adequately addressed.
A Special Needs Planning attorney is an essential advocate when preparing SNTs for individuals with special needs. The attorney will be able to identify the type of SNT that would be helpful in the particular situation and will know how to properly construct it so as to prevent the person with special needs from being kicked off his or her benefits. There are many roadblocks that can arise in the planning process and it is imperative that you have an attorney familiar with the many federal and state laws and regulations concerning public benefits and SNTs.
If you have a client with special needs who would benefit from the establishment of an SNT, please contact us. We are committed to and passionate about assisting those with special needs and look forward to helping in any way we can.
Chris Munson – Yadkin Bank Reverse Mortgage Expert educates us on the ins and outs of reverse mortgages.
Great seminar! Thanks to all who came. I so enjoy doing these and educating the public on tools to help them save their hard earned money and property. Thanks again for a great night!
We will be at the Dover Foundation YMCA to assist the public with their healthcare directives on National Healthcare Decisions Day, Wednesday, April 16, 2014.
Practical Tips for Special Needs Planning
Understanding the pitfalls associated with special needs planning is a must for all who assist families with children, grandchildren or other loved ones (such as parents) with special needs.
Tip #1: Special needs beneficiaries require special planning. As a society, we have come a long way since 1987 regarding stereotyping people with special needs and these individuals’ planning requirements, but there remain numerous misconceptions that often result in costly mistakes when planning for special needs beneficiaries. These misperceptions may become even more costly in the future as fiscal pressures cause state and federal governments to cut back funding for people with disabilities. Thus, it is critically important that loved ones proactively and properly plan for these individuals.
The fiscal pressures of the federal and state governments make proactive planning for special needs beneficiaries increasingly more important. It is important not to make the mistakes below that could cause special needs beneficiaries to rely exclusively on shrinking government funds, or that place them in unduly restrictive or ineffective structures.
Tip #2: Don’t disinherit the special needs beneficiary. Many disabled persons receive Supplemental Security Income (“SSI”), Medicaid or other government benefits that provide basic food, shelter and/or medical care. The loved ones of the special needs beneficiaries may have been advised to disinherit them – beneficiaries who need their help most – to protect the public benefits. But these benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their special needs beneficiaries after they themselves become incapacitated or die. The best solution is for loved ones to create a special needs trust to hold the inheritance of a special needs beneficiary. A properly drafted special needs trust will protect public benefits a disabled beneficiary may be receiving, and it will provide for proper care of that individual throughout their lifetime.
Tip #3: Don’t rely on siblings to use their money for the benefit of a special needs beneficiary. Many family members rely on their other children to provide, from their own inheritances, for a child with special needs. This can be a very temporary solution, such as during a brief incapacity, if the other children are financially secure and have money to spare. However, it is not a solution that will protect a child with special needs after the death of the parents or when siblings have their own expenses and financial priorities.
For example, what if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?
Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.
Tip #4: Procrastination can be especially costly for special needs beneficiaries. None of us know when we may die or become incapacitated. It is important for loved ones with a special needs beneficiary to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, special needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.
Tip #5: Don’t ignore a special needs beneficiary when planning. Planning that is not designed with the beneficiary’s special needs in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed special needs trust promotes the comfort and happiness of the special needs beneficiary without sacrificing eligibility.
Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the disabled person also can receive funds to be used for quality-of-life-enhancing expenses: the types of benefits families currently provide to their child or other special needs beneficiary. However, the rules often change on the types of expenses that can be paid for by a special needs trust. Therefore it is important to continually seek advice when drafting or administering a special needs trust.
Tip #6: A special needs trust does not have to be inflexible. Some special needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary’s public benefits, many trusts are not customized to the particular beneficiary’s needs. Thus the beneficiary fails to receive the benefits that the parents or others provide while they were alive.
Another frequent mistake occurs when the special needs trust includes a pay-back provision rather than allowing the remainder of the trust to go to others upon the death of the special needs beneficiary. While these pay-back provisions are necessary in certain types of special needs trusts, an attorney who understands this area and knows the difference can save family members and loved ones hundreds of thousands of dollars, or more.
Tip #7: Exercise great caution in selecting a trustee. Loved ones or family members can manage the special needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create a special needs trust may choose a team of advisors and/or a professional trustee to serve. Whoever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical.
Tip #8: Invite others to contribute to the special needs trust. A key benefit of creating a special needs trust now is that the beneficiary’s extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the special needs trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits. Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the special needs trust now or as an inheritance later.
Tip #9: This is an ever-changing area of the law. The rules applicable to special needs trusts and planning are constantly changing. For example, the Affordable Care Act now makes private health insurance an option for people with special needs. However, private insurance will still not cover the costs of long-term care and other services or equipment necessary for a loved one with special needs. Thus, even if the family chooses private insurance, the special needs beneficiary may still require Medicaid eligibility, necessitating a special needs trust. Please contact us if you have questions about these options.
Planning for a special needs beneficiary requires particular care and knowledge on the part of the planning team. A properly drafted and funded special needs trust can ensure that a special needs beneficiary has sufficient assets to care for him or her, in a manner intended by loved ones, throughout the beneficiary’s lifetime. Please contact us if you have any questions regarding planning for special needs beneficiaries.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.
Recent studies estimate that of people turning 65 by the year 2005, 69% will need some form of long-term medical care. What does this mean to you? Statistically, the odds are you’re going to need some type of prolonged treatment and that’s going to be a huge financial drain on your resources.
Even estates of a half-million to two million dollars could be drawn down to zero with the enormous costs of prolonged healthcare, especially if that care involves some type of specialized treatment in addition to a long-term care or nursing home facility. How can you prepare for or plan around this? You find somebody that can help you, someone that can plan around it. That’s what we’re here for.
Give me a call at (704) 259-7040 to discuss your options.
There are some key differences between wills and trusts. Wills are publicly filed documents, meaning they will be probated at the courthouse and can be seen by any member of the public that wanted to go down to the courthouse and peruse through them. Trusts, on the other hand, are private documents. They’re maintained at your lawyer’s office and within your own family.
This is very advantageous because it prevents prying eyes from seeing how you distributed your assets at your passing. Trusts aren’t just for the wealthy. Trusts are for people that want to avoid the probate and keep information regarding how your estate was passed on within your immediate family.
If you ever need assistance or have any questions for me, give me a call on my personal line at (704) 259-7040. You can also reach me through my personal e-mail at Greg@McElderLaw.com.