Elder Law Firm of Steve Bailey

How Can a Special Needs Trust Benefit My Parents and Protect from a Nursing Home?

 “A special needs trust can hold assets that can be used to improve the quality of life for your disabled parents, without making them ineligible for nursing home Medicaid”

A special needs trust can help your disabled parents maintain eligibility for Medicaid and Supplemental Security Income (SSI). If you are caring for your aging loved ones, you are probably struggling with how to make sure they get the care they need and still have enough money to last their lifetimes. You may be asking, “How can a special needs trust benefit my parents?”

A special needs trust can hold assets that can improve the quality of life for your disabled parents without making them ineligible for Medicaid or SSI. Even if they receive an inheritance or other windfall while they are receiving Medicaid or SSI, carefully using a special needs trust can preserve their eligibility. A special needs trust can also be a way to avoid the Medicaid penalty for transfers made within the five year window before applying for Medicaid.

Too many assets

It is a nice problem to have.  However, if your parent has too many assets to qualify for nursing home or long-term care Medicaid assistance, a special needs trust can help. The trust can also help your parent qualify for Supplemental Security Income (SSI). If they follow all the state and federal legal requirements, your parent can use the funds for allowed amenities and not incur Medicaid penalties.

Who can fund a special needs trust for my parents?

Your parents can fund a special needs trust with:

• only their own assets (first-party trusts),
• their assets combined with the assets of others (pooled trusts), or
• the assets of friends or relatives (third-party trusts).

What are the rules for a first-party special needs trust?

A first-party special needs trust contains only the assets of the Medicaid beneficiary (your parent). Your parent must be younger than 65 and disabled to set up a special needs trust. Historically, only a parent, grandparent, guardian or court could create the trust. As of 2016, a disabled person can establish his own first party special needs trust. You can only use the assets in the trust for the benefit of your parent. First party special needs trusts must contain a payback provision. In that provision, you must designate the state that pays your parent’s Medicaid benefits as the primary beneficiary. When your parent dies, the state gets reimbursed for all medical assistance they provided during her lifetime.

When is a pooled trust useful?

Your parent can contribute their assets to a pooled trust, even if he is over the age of 65. Pooled trusts are operated by non-profit organizations such as the Alabama Family Trust. There is a master trust, and each participant’s sub-account. These trusts are also payback trusts.  Therefore, after your parent dies, the state gets reimbursed for the benefits paid to him. The non-profit that operates the pooled trust divides any remaining funds with whomever your parent designated. But with proper planning, there will be nothing left to pay Medicaid back; see below!

How could a pooled trust allow my parents to save at least half of their assets (and maybe more) when they enter a nursing home?

Since Medicaid does not pay all the expenses of a nursing home resident in Alabama and because most parents would rather their children inherit their assets instead of spending  them all on a nursing home, pleased know that they can accomplish these objectives by using the pooled trust as part of a “half-loaf” plan. Plan even if they have done no prior Medicaid planning. Saving anything  from Medicaid is complicated and dangerous so do not try this on your own, you could be disqualified from receiving Medicaid forever. So, consult an experienced elder law attorney for help with this technique.

How could a third-party special needs trust benefit my parents?

Third-party trusts are not funded with your parents’ assets.  Therefore, these trusts do not have the same state or federal restrictions as the other special needs trusts. Your parents never own these assets, so the assets do not disqualify them from receiving Medicaid, unless distribution results in your parents owning assets over the allowed amount. Third party special needs trusts require no payback provision, because there is no requirement you reimburse the state for Medicaid benefits paid to your parents.

References:

AGED, Inc. “Types of Trusts.” (accessed June 29, 2017) http://trustaged.org/types-of-trusts/ 

Nolo. “Using a Medicaid Special Needs Trust When You Have Too Many Assets to Qualify.”  http://www.nolo.com/legal-encyclopedia/using-special-needs-trust-when-you-have-too-many-assets-medicaid.html  

Fechtman, Robert. “Your Client May Need A Special Needs Trust: Tips For Creating A Special Needs Trust For Disabled Clients.”  https://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/specialtrusthtml.html 

Branch Banking and Trust Co. “Special Needs Trusts and Government Benefit Programs.”  https://www.bbt.com/wealth/retirement-and-planning/trusts-and-estates/special-needs-trusts-and-government-benefit-programs.page 

French, Gregory. “Planning for Multiple Generations.”  http://www.specialneedsalliance.org/the-voice/planning-for-multiple-generations-2/ 

Skelton, Jane. “The Most Basic of Special Needs Trust Presentations: 10 Questions and Answers.”  http://www.stetson.edu/law/conferences/materials/media/5%20Skelton%20mat%20aa.pdf

To Trust or Not to Trust… That is The Question

“It's called a trust for a reason: You're counting on this stand-alone legal entity to do something you can't.”

A trust is a good idea to ensure that ownership of your assets will go to your heirs smoothly and privately. A trust can also have some tax advantages and can protect your assets from creditors. But it depends on the trust, says Yahoo Finance, in “How to Choose Between a Revocable and Irrevocable Trust.”

Irrevocable or Revocable Trust

Think about the amount of control you need over your assets because this will dictate if you should have an irrevocable or revocable trust (provided that one of these is appropriate in your situation).

A revocable trust allows you to revoke and rewrite the trust. But an irrevocable trust does just the opposite. You—otherwise legally called the trustor, grantor, or settlor—create the irrevocable trust, then relinquish control to a trustee. You can’t change the terms without getting the approval from the beneficiaries but an independent person can (think your best friend, accountant or attorney). The rule used to be that the amount of control the grantor has over the trust equates to the benefits. The more control you have, the fewer benefits.  The less control you have, the greater the potential benefits. Modern trusts, however, can be designed for you to give up apparent control but retain actual control, having your cake and eating it too. 

The main reason for a revocable trust is to accept assets when you can no longer manage your own affairs. When you move assets to a revocable trust, you instruct how they should be used upon your death. This usually occurs without going through probate and usually with some level of privacy for your living heirs. When you pass, a properly set up revocable trust will become an irrevocable trust, with a trustee managing it. As a result, a revocable trust can become somewhat of a substitute for a will and will give privacy to the family.

Incapacity

A revocable trust is useful for setting up plans to handle your assets and income if you become incapacitated. The trust will contain a provision for the continued management of the assets without a formal court order. But you might also achieve the same planning goals by using a general durable power of attorney. Talk with an experienced estate planning attorney to be sure.

The main irrevocable trust advantages (tax advantages) are primarily for the very well-off. Those advantages can be complex. For everyone else (individuals with less than $5,500,000 and couples with less than $11,000,000), the advantages of irrevocable trusts are in addressing special circumstances, like guaranteeing for the continued support of a disabled dependent or ensuring the protection of assets from professional liability or long-trm care cost.

An irrevocable trust can protect assets from creditors, but you need to place the assets in the trust before you have credit problems. Trusts are also used as generation-skipping tools (transferring wealth to your grandchildren), protecting assets in divorce and to provide for your next of kin in a responsible way.

Reference: Yahoo Finance (January 23, 2017) “How to Choose Between a Revocable and Irrevocable Trust”

What a Trump Presidency Means for Your Money and Plans

“The uncertainty and challenges now facing seniors, disabled and medically needy Americans are unequaled and unsettling.”

The election of Donald Trump as president will certainly mean changes in policy are likely to occur that affect the elderly population and those with special needs. According to WealthManagement.com’s article, “How Trump Policies Could Affect the Elderly and Those with Special Needs,” the uncertainty and challenges now facing seniors, disabled, and medically needy citizens are unsettling. Let’s look at a few:

Social Security and Medicare. Trump has said Social Security and Medicare will remain intact and (presumably) solvent. But how solvency would work with the impending bankruptcy of both programs (Medicare first, long before Social Security) remains to be seen. One proposal to counter insolvency is some form of Social Security and Medicare privatization. The Affordable Care Act (ACA) took some steps designed to extend the solvency of Medicare, and Trump said he’d keep parts of the ACA, but didn’t explain how he’d pay for it.

Medicaid. Each state has its own state Medicaid plan, but there are rules to be followed from Washington. Proposed block grants mean each state would receive a certain number of Medicaid dollars, and the state would decide how to use and spend those dollars. The proposed plans may be designed to restrict protective planning and make it much harder for seniors to protect their homes and other assets while qualifying for Medicaid, particularly for long-term care.

Gift and estate tax. Trump wants to eliminate the gift and estate tax, perhaps replaced by a “mark to market” tax of capital gains at death. A compromise could significantly increase the level of estate and gift tax protection.

Individuals with special needs. So far, there are no proposals made that would directly affect services for special needs children and adults.

Veterans’ Benefits. Many think Trump supports maintaining and maybe expanding services for veterans. But proposals that predate the election have been introduced that could restrict access to needed programs, such as Aid and Attendance, which provides financial assistance for veterans and spouses of veterans who need higher levels of home care assistance.

Regardless of the future changes, there will be a premium on advanced planning. This will increase the involvement of younger generations, since planning that involves and relies on involvement of the children and grandchildren will expand dramatically.


Reference: WealthManagement.com (January 6, 2017) “How Trump Policies Could Affect the Elderly and Those with Special Needs”

Money Savings Ideas for Caregivers

“Taking care of your money will help you take care of a loved one.”

If you're a caregiver for a family member with an illness or special needs, thoughts can drift to money very easily. If loved ones are sick or in need of special attention, it costs money, which may be a real strain on your finances.

A new annual AARP Research Report surveyed over 1,800 family caregivers last summer and found that they spend an average of $6,954 in out-of-pocket expenses related to caregiving.

US News’s recent article, “How Family Caregivers Can Ease the Financial Burden,” suggests a few ideas if you have money problems while caring for a family member and you lack funds.

Engage a professional for advice. One option is to hire a geriatric care manager and an elder law attorney to help you learn about where you can save money. Be certain that the attorney is certified in elder law because the laws and rules of Medicare and Medicaid change frequently. An experienced elder law attorney will know what programs are available.

A seasoned geriatric care manager understands the financial resources system and helps match eligible applicants with programs. If your family member has special needs, you can hire a special needs caregiver. Regardless of the family member's health issue, there's most likely an organization or care manager who can help you find resources that will help you pay for care.

Your utility company may be able to help you with your bills if you're running any special equipment necessary for a loved one to live at home. Many utilities have a program for this situation. In addition, if there's an outage, your home will get priority for getting back online.

Look at thrift stores, if your insurance company won’t pay for equipment for your loved one. A church may have access to durable medical equipment at no or low cost.

Take your time making financial decisions and resist the urge to get everything just right away.

Reference: US News (December 9, 2016) “How Family Caregivers Can Ease the Financial Burden”

Who Will Care for My Disabled Child When I Die?

“It is the biggest fear for every parent in this situation: What is going to happen when I’m gone?”
 

Thinking about who will care for a family member with an intellectual or developmental disability after parents die is difficult. However, you can help everyone by planning wisely and early.

Sacramento Magazine’s recent article, “When the Caregiver Dies,” reports that millions of parents of children with an intellectual or developmental disability (“I/DD”) must address the real likelihood their children will outlive them and that the responsibility of caring for the child will eventually fall to another. Across the country, there are more than 880,000 people with I/DD who live with a family caregiver over the age of 60, according to The Arc, an advocacy organization for people with I/DD.

Personal safety is a primary concern of these parents because those with disabilities are disproportionately vulnerable to violence. The U.S. Department of Justice says the age-adjusted rate of violent crime against people with disabilities is almost triple that of people without disabilities, and among individuals with disabilities, those with cognitive disabilities experience the highest rate of violent victimization.

There are also other vulnerabilities. Some individuals with I/DD may place trust in people who want to take advantage of them. There are also practical considerations surrounding the loss of a trusted caregiver. A parent who’s intimately involved in daily caregiving is acutely aware of all of the details that make a day run more smoothly. This includes the person’s likes and dislikes, things that can trigger negative behavior, and how to help him or her after an unpleasant experience. It’s very hard to replace a caregiver who has that kind of deeply personal knowledge.

You can increase the odds of a good quality of life and happiness by advocating and planning for your child as soon as possible.

Devising a care plan for someone whose disability prevents them from living independently may involve having a sibling or another close family member assume the caregiving responsibilities in the parents’ home after the parents die. If that’s not an option, families may consider a non-family caregiver, a group home or another place that satisfies the particular needs of the individual.

Regardless of their living arrangements, families of children with I/DD must usually deal with many years of expensive care. One way to plan for a child’s financial future is by creating a special needs trust, which serves as a receptacle for assets intended for the child with a disability. The assets in a special needs trust are generally used to pay costs that government benefit programs don’t cover. By leaving assets to the trust, a person with special needs can still qualify for government benefits. Families can fund a special needs trust by starting early with savings or investments. Buying a life insurance policy with the special needs trust as the recipient of the proceeds is also a good start.

Make sure that you use an attorney with considerable experience setting up special needs trusts, since some estate planners who are not well-versed in disability benefits may not set up the trust correctly and not adequately serve the needs of the child.

A letter of intent, typically written by one or both parents, provides practical guidance about the person’s daily needs, special interests and personal wishes. A letter of intent is very important. Parents should keep a diary for a month about everything they did on a daily basis to care for the child, then translate that into a letter and review it every year. The letter should detail things like the person’s daily schedule and medical history, religious preferences and favorite foods. This is a good way to help current and future caregivers be aware of the needs of the whole person, rather than just their housing or medical needs.

Parents who have a child with a brain-based diagnosis should know, as early as possible in that child’s life, how they operate, their strengths and weaknesses, their likes and dislikes and their desires.

Reference: Sacramento Magazine (November 14, 2016) “When the Caregiver Dies”

The ABC’s of Trusts and Why You Might Want One

“So, what is a trust?”

A professionally-designed trust can help just about everyone. Physician’s Money Digest, in “6 Reasons You May Need a Trust,” reminds us to think of a trust as a holding spot where you put your assets before they are released to the people or organizations you eventually want to receive them. Anything you transfer to the trust becomes property of the trust. The trust then holds the property for your benefit, or for the benefit of those whom you choose.

The three separate parties to a trust are: (i) the grantor, who creates the trust; (ii) the beneficiaries, who receive income and/or principal from the trust; and (iii) the trustee, who manages the trust pursuant to the trust document. The trust document has the rules set by the grantor regarding how the trust is to be managed. These rules instruct the trustee on administration, such as how to invest and manage trust assets, any limitations on trust activities, when and how to distribute principal and income earned, and who receives the distributions.

There are many different kinds and uses for trusts. Here are a few of the reasons for considering one:

Protection from predators. If you want to leave property to a relative but need to make sure the beneficiary doesn’t lose it in a lawsuit, a properly drafted trust is untouchable by the legal system.

Protection for someone from themselves. Too many young adults’ lives are ruined by inheriting large sums of money while they are young and irresponsible. A trust can give the authority to a reliable trustee to determine when beneficiaries are ready for their money.

Disability planning. You can provide for a disabled relative without disqualifying him or her from Medicaid or other government assistance with the help of a “Special Needs Trust” (SNT). This lets you set aside funds for the care and benefit of a person with special needs and the trust isn’t considered an asset when he or she applies for government benefits.

Estate planning. The first $5.45 million of property per decedent is exempt from taxation. Multiple marriages are a good reason to use a trust in estate planning. If you and/or your spouse have children from previous marriages, you can use a trust to be certain that the remainder of the estate of the first to die goes to your own children by blood, while giving support to the surviving spouse during his or her lifetime or until remarriage.

Privacy and simplicity. No one will know who owns trust property except for you, your attorney, and the trustee. Trust property doesn’t pass through probate.

Asset protection. A trust can be a powerful tool to protect your assets from bankruptcy, lawsuits, and divorce. If your child doesn’t need all of the trust principal for living expenses, you might think about a provision to allow assets that won't be spent to remain "locked in" and secure from others.

Trust law is complicated, so you should consult an estate planning attorney who has experience in estate and trust planning.

Reference: Physician’s Money Digest (October 26, 2016) “6 Reasons You May Need a Trust”