By Thomas D. Begley, Jr., CELA

A Third Party Special Needs Trust is usually used in a Medicaid context not for the benefit of the grantor of the trust, but for the beneficiary.

The grantor of the trust is typically a parent, but could be grandparent, sibling, other relative or friend. The grantor uses the grantor’s assets to fund the trust. The assets of the beneficiary cannot be used to fund a Third Party Special Needs Trust. In order for the trust to be a Special Needs Trust, the beneficiary must be disabled. Disability is usually determined ,y the fact that the beneficiary has received a Determination of Disability from the Social Security Administration and is receiving either Supplemental Security Income (“SSI”) or Social Security Disability Income (“SSDI”). The trust is designed so that the assets are not counted for Medicaid eligibility purposes. The beneficiary is then able to take advantage of the continuation of public benefits including usually SSI and Medicaid, as well as use the assets in the trust to enrich the beneficiary’s life. The trustee is given complete discretion with respect to distributions, and special needs language is used in designing the trust. Provisions made for distributions to the beneficiary during the beneficiary’s lifetime and distribution of any remaining principal and accrued income upon the death of the beneficiary.

Trustee

It is always good practice to select a professional trustee. The professional trustee has expertise with respect to public benefits law, tax Jaw, investment management, and usually has the ability to assist in navigating the disability system. Often the grantor of the trust is uncomfortable with a professional trustee, but this problem can usually be solved by appointing a family member as trust protector. The trust protector monitors the performance of the trustee and is given the authority to remove and replace the trustee. The trust protector’s power to remove and replace the trustee can be conditioned on cause, which would be defined in the trust document, or can be without cause. It is generally required that the replacement trustee be a professional with a certain amount of assets under management. In order for disability organization to qualify, the asset management limit might be as low as $50,000,000. On occasion, the grantor of the trust has worked with a financial advisor who would like to continue to be the financial advisor after the trust is established. Many professional trustees, such as Comerica Bank, have arrangements with money managers, such as Morgan Stanley or UBS, where Comerica will retain the outside money manager to invest the funds. This should be spelled out clearly in the trust document. The investment manager has an additional cost for managing the funds. The combined cost of the investment manager and the trustee usually exceeds the cost of having a professional trustee manage the funds in-house. This should be clearly understood by the client.

Alternatives to a Special Needs Trust

There a number of alternatives to Special Needs Trusts. These include the following:

• Disinherit a Child. The problem with this strategy is that one cannot be certain that public benefits, as we know them today, will continue forever. Many public benefits have been cut back in recent years and there is no guarantee that current benefits will not be reduced as well.
• Leave Money to the Child. The problem with this approach is that unless the funds being left to the child are very significant, they may not last long if the child’s needs, particularly medical needs, are great. It is usually better to maintain public benefits and establish a trust for needs or wants that will not be covered by public benefits.
• Leave Funds to Sibling. This is the common strategy that frequently backfires. The idea is to leave the share of the person with disabilities to a brother or sister with the understanding that the brother or sister will use that money to care for the child with disabilities. The problems occur when the child to whom the funds are left is sued by a creditor, is divorced, or simply says, “I want to use this money for myself. The Will says that I have to use it for my sibling with disability, but I am not going to use it for that purpose.” Sometimes it is the sibling that makes this decision, but frequently it is the spouse of the sibling who pushes for that result.
• Pooled Trust. A Pooled Trust is a good solution for relatively small amounts of money. If the trust is less than $100,000, Pooled Trust makes sense. If it is between $100,000 and $200,000, a Pooled Trust should be compared to a Third Party Special Needs Trust. If the amount involved is in excess of $200,000, a Third Party Special Needs Trust is almost always the best solution.
• ABLEAccount. New Jersey has adopted legislation authorizing ABLE accounts. These accounts are expected to come into existence sometime in the next few months. ABLE accounts are already in existence in several states, and some states, such as Ohio, permit out-of-state residents to open an ABLE account in that state. A problem is that not more than the gift tax annual exclusion amount can be contributed to an account in any one year and no beneficiary can have more than one account. The annual exclusion gift tax exemption for 2017 is $14,000. So, if the inheritance is $14,000 or less, an ABLE account might make sense.

Planning Considerations

Let’s examine the seven planning considerations in the context of a Third Party Special Needs Trust.

• Availability. Assets in a Third Party Special Needs Trust are not available for SSI or Medicaid purposes, because the Special Needs Trust gives the trustee sole discretion with respect to distributions and prohibits the beneficiary from revoking the trust. If the assets in the trust are not available, they are not counted for SSI or Medicaid eligibility purposes.
• Transfer of Asset Penalty. There is a transfer of asset penalty to the grantor for transfers to a Third Party Special Needs Trust. This is why a Third Party Special Needs Trust is seldom utilized in Medicaid planning for the grantor.
• Payback. A Third Party Special Needs Trust is not required to have a provision calling for payback to Medicaid for medical assistance paid on behalf of the trust beneficiary.
• Funding. Virtually all assets could be used to fund a Third Party Special Needs Trust. If retirement assets are being used, typically the trust is simply made the beneficiary of the retirement account upon the grantor’s death. Accumulation Trust language should be included. Beneficiary designations of life insurance, annuities or retirement accounts must be addressed. If part of the funds are going to healthy children, and part are going to the Special Needs Trust, consideration should be given to leaving the retirement accounts to the healthy children, rather than to the trust. Administration of a trust with a retirement account is somewhat complex, even for professional trustees.
• Tax Considerations
  • Income tax. A Third Party Special Needs Trust can be designed as a grantor trust or a non-grantor trust.
  • Gift tax. A Third Party Special Needs Trust can be designed as an IDGT or a non-IDGT.
  • Estate tax. A Third Party Special Needs Trust can be designed so that the assets in the trust remain in the estate of the grantor or are excluded from the estate of the grantor.
• Estate Recovery. There is no estate recovery against the estate of the grantor of a Third Party Special Needs Trust or the beneficiary, so long as the grantor retains no interest in the trust.
• Elective Share. Assets in a Third Party Special Needs Trust would be subject to the elective share stature.

By Thomas D. Begley, Jr., CELA

(Article originally published in the Barrister)  Section 8 of the Federal Housing Act of 1937 provides a rental assistance program for low-income families and individuals. HUD pays rental subsidies so eligible families can afford decent, safe and sanitary housing. The programs are generally administered by Public Housing Agencies (PHAs). Generally, the family pays 30% of its adjusted monthly income for rent. Household income must be within the applicable limit established by HUD. The limits are based on family size and locality. Family members must be U.S. citizens or eligible aliens. There are income limits. Income includes Social Security and Disability benefits, pensions, annuities, alimony, some welfare payments and regular contributions from others. Lump sum acquisitions such as personal injury settlements, are not counted as income. If the personal injury plaintiff receives a settlement and puts the money under the mattress and spends it over time, the expenditures do not count as income and do not affect Section 8 eligibility.  Historically, distributions from trusts, including Special Needs Trusts, have been counted as income, unless they are used for medical purposes or are irregular and sporadic.

In an important decision for Section 8 Housing Voucher recipients, the United State District Court for the 1st Circuit reversed the District Court decision in an important public housing case.(1) In the lower court case,(2) the District Court held that Kimberly DeCambre was receiving distributions from an irrevocable Special Needs Trust funded with the proceeds of a personal injury settlement and disqualified DeCambre from her housing assistance on the grounds that she was no longer income eligible. The Housing Authority held that because the distributions from the Special Needs Trust should be counted as income, the amount of the subsidy provided under Section 8 should be reduced $0 . Over a three year period, the distributions from the trust exceeded $200.000. The Housing Authority and the District Court held the entire amount of the distributions were income and, therefore, DeCambre lost her eligibility for Section 8 assistance. The court stated that if Kimberly DeCambre had put the money under her mattress and spent it over time, there would have been no affect on her Section 8 eligibility. However, the court held that once the personal injury settlement was deposited into the trust, it somehow changed its charac ter and all distributions from the trust were considered distributions of income. These distributions, when added to DeCambre’s other income, reduced her subsidy to $0.

On appeal, an amicus brief was filed by the Special Needs Alliance, the National Academy of Elder Law Attorneys and the National Housing Law Project in support of DeCambre. The Appellate Court noted that lump sum additions to family assets, such as settlement for person or property losses are specifically excluded under HUD Regulations from annual income. DeCambre argued that because all of the funds in her Special Needs Trust derive from a series of lump sum settlement payments for a personal injury. the Housing Authority was required to exclude all of her distributions from her annual income. The lower court agreed up to this point stating that if DeCambre had simply put the money under her mattress and used it in the same manner that the trust had made distributions, there would be no problem because there is no asset test under Section 8. However, the District Court reasoned that by depositing the lump sum payments into the Special Needs Trust, the character of the distributions changed so that each distribution was 100% countable as income.

On appeal the amicus brief contended that the principal deposited into the Special Needs Trust should considered principal and only the income earned by investing the principal should be considered income. The Court of Appeals held that DeCambre’s Special Needs Trust was funded exclusively with the proceeds from a series of tort settlements. Had these settlement proceeds been paid directly to DeCambre, the parties agreed that they would have been treated as a lump sum addition to family assets and, therefore, would have been categorically excluded from annual income upon receipt under HUD’s Regulations. The parties agreed that income derived from investments should be considered income. The only issue was when the trust distributes to or for the benefit of the tenant, some or all of principal originally paid into the trust, how should that distribution be characterized. The Housing Authority maintains that even if DeCambre’s settlement proceeds bad the character of a lump-sum addition to family assets when they entered the Special Needs Trust, they no longer possess that character once they were disbursed from the Special Needs Trust. The Court of Appeals concluded that distributions of principal from the Special Needs Trust remain principal and only the investment income is considered income. The question not before the court was, what is the implication for Third-Party Special Needs Trusts? Should distributions of principal not be considered income, but be considered simply a distribution of principal as with a First-Party Special Needs Trust? The issue was not argued in DeCambre, but logically it would seem that the same result should obtain.

As a matter of procedure in both First-Party and Third-Party Trusts, the Housing Authority should look at the resident’s prior years’ federal and/or state income tax return.

Whether or not the DeCambre decision will be accepted by other PHAs in other districts remains to be seen. The decision may be of limited effect. Section 8 is being amended to provide an asset test of $100, 000.

• DeCambre v. Brookline Housing Authority, Case 15-1458, Document 00117013731 (June 14, 2016 ).
• Brookline Housing Auth. 95 F. Supp. 3d (D. Mass. 2015).

WHAT IS A STRUCTURED SETTLEMENT?

Most personal injury cases now involve a Structured Settlement. The industry is now providing $5 billion annually in Structured Settlement annuities.₁

A Structured Settlement is an annuity that pays the injured plaintiff a series of periodic payments over time, rather than in a single lump sum. The annuity is purchased by the defendant from a highly rated life insurance company. The issuer of the annuity agrees to make future payments to the injured party or directly to a Special Needs Trust or Settlement Protection Trust. Most states have Insurance Guarantee Funds offering protection if an insurance company fails. These Funds cover Structured Settlement annuities. However, there are relatively low limits on the amount of coverage. If the settlement is large, there may be more than one annuity in order to spread the risk over more than one insurance company. Payments are typically made for the life of the injured party with a guarantee of payment for a minimum term of years, usually closely correlated with the actual life expectancy of the injured party. If the injured party dies prematurely, the guaranteed portion of the settlement may be payable to his estate, to a trust, to a spouse, or to a child. If there is a Special Needs Trust, generally there must be a 100% commutation rider and the beneficiary on death must be the Special Needs Trust.

One of the principal advantages to a Structured Settlement is that it makes it more difficult for the plaintiff to squander the settlement. The payments made by the insurance company cannot be spent until received, absent a factoring transaction or commutation.

If the structure payments are made to a trust, the trustee would have to agree to a factoring transaction so there is additional protection. The income stream paid by the insurance company is known as a “Periodic Payment,” which is defined as “a commitment to make future payments to a claimant according to an agreed schedule on specified terms.”₂

WHO ARE THE PARTIES TO A STRUCTURED SETTLEMENT?

There are four parties to a Structured Settlement:

Annuitant. The annuitant is the “measuring life” for the annuity lifetime benefits. Generally, the injured plaintiff is the annuitant. If the annuity is for a fixed term of years without reference to the plaintiff’s lifetime, then technically there is no annuitant, although the term is still used for identification purposes.

Owner. The owner is the person who owns the annuity and has the normal incidents of ownership. These include:

• the right to designate and change the payee;
• the right to designate and change the beneficiary;
• the right to assign the annuity;
• the right to borrow against the annuity and assign it as collateral; and
• the right to commute the annuity.

It is important to understand that the claimant of the annuity is not the owner of the annuity. Ownership is either retained with the defendant property and casualty insurance carrier or, in the event of an assignment, ownership is retained by the assignment company, and the claimant has a right to receive the future periodic payments as they become due.

Payee. The payee is the person who receives the periodic payment.

Beneficiary. The beneficiary is the person who receives the payments upon the death of the annuitant. The use of the term “beneficiary” can be confusing in cases involving a Special Needs Trust because the beneficiary of the Special Needs Trust is normally the injured plaintiff, while the beneficiary of the Structured Settlement is the person who would receive benefits upon the death of the injured plaintiff. In cases involving Special Needs Trusts, many states require that the trust or the state be named as beneficiary of the Structured Settlement on death of the annuitant.

CAN PART OF A PERSONAL INJURY SETTLEMENT BE STRUCTURED AND PART LUMP SUM?

A settlement can be part lump sum and part Structured Settlement. It is almost always wise to take some lump sum as a part of the settlement to cover unanticipated emergencies. It is useful to try to anticipate immediate cash needs of the injured party and take a lump sum sufficient to pay those needs in the beginning. For example, if there is to be a purchase of a home, a vehicle, a vacation, or repayment of debt, better practice is to increase the lump sum portion of the settlement to include those items. A lump sum should also be set aside for unforeseen emergencies.

In larger cases, the plaintiff should have an investment portfolio. The Structured Settlement could serve as the income portion of the portfolio, but a lump sum should be set aside to invest in the equity component. An appropriate allocation must be made between the income and equity portions based on an investment policy statement.

IS THE INCOME COMPONENT OF A STRUCTURED SETTLEMENT PAYMENT TAXED?

Revenue Ruling 79-220 addressed the issue of whether the income component of a payment under a Structured Settlement annuity made to compensate for physical injuries or physical sickness is taxable.₃ The ruling involved the following facts. An insurance company purchased and retained exclusive ownership in a single premium annuity contract to fund monthly payment stipulated in settlement of a damage suit. An additional issue was whether payments made to the estate after the recipient’s death were fully excludable from income.

The ruling held that generally, under § 104(a)(2) of the Code, gross income does not include the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness. The ruling also stated that if the plaintiff died before the end of the guarantee period, the payments made to his estate also would be excludable from income under § 104. The ruling went on to say that if a lump sum damage payment was invested for the benefit of a claimant who has actual or constructive receipt or the economic benefit of the lump-sum payment, only the lump-sum payment would be excludable from income within the meaning of § 104(a)(2) of the Code, and all of the income from the investment of such payment would be taxable.

The significance of the ruling is that it clarified that the income component of a payment under a Structured Settlement is not taxable to the recipient. However, it would be unwise for an injured plaintiff to take a lump sum and buy his own annuity, because the income on the Structured Settlement purchased under a § 130 Qualified Assignment is income-tax free to the plaintiff. Conversely, if the plaintiff buys his own annuity, the income component would be taxable.

NOTE: While this Ruling used the language “personal injury,” the Code has since been amended to limit the exclusion from income tax to compensation for “physical injuries and physical sickness.”

An issue arises as to whether a Structured Settlement can be issued with the income excluded from tax where the payee of the structure is not injured but suffered damages from an incident involving physical injury or physical sickness or death of a related person. These claims often arise in wrongful death cases. According to Patrick Hindert,₄ “Derivative claims concern the receipt of funds by persons who are not themselves injured, but are harmed from an incident that involves the physical injury, sickness or death of a related person. Claims for loss of consortium or companionship, for example, are made by persons who cannot themselves demonstrate any physical injury or sickness of their own, but stem from a physical harm to their relative. These claims are treated as arising on account of the underlying physical injury or sickness, and so are tax-exempt. Likewise, damages from wrongful death claims are excludable from the recipient’s gross income, even though the recipient did not die and may have suffered no physical ailment…the recipients do not have to show that they themselves were physically injured or sickened, as long as the underlying reason for receiving funds was ‘on account of’ the related party’s physical injury or sickness.”

The authority is Conference Report 104-737 (August 1, 1996), which states in part, “(D)amages (other than punitive damages) received on account of a claim of wrongful death continue to be excludable from taxable income as under present law.”

WHEN SHOULD A STRUCTURED SETTLEMENT BE CONSIDERED?

Structured Settlements offer several benefits to all of the parties. A Structured Settlement might be considered in all of the following situations:

• Protection. To prevent premature exhaustion of funds through poor investments and/or mismanagement.
• Medical Needs. To guarantee funds for long-term medical needs.
• Future Use. Injured persons attempting to retain some portion of their settlement for future use.
• Disability. Injured parties who are temporarily or permanently disabled.
• Wage Loss. Total or partial wage loss for any period of time.
• Mental Incompetence. Severely injured or mentally incapacitated persons.
• Guardianship. Guardianship cases, including minors or incapacitated persons.
• Future Support. When a settlement is a large portion of all of the injured party’s future support.
• Alternative Investment. As an alternative to investing part of settlement proceeds.
• Fixed Income. As a part of an overall investment portfolio, providing for the fixed income portion.
• Severe Injury. Severe injury, especially involving shortened life expectancy resulting in a Rated Age.
• Mentally Disabled. For the mentally disabled, Structured Settlements make sense because of their inability to manage money.
• Death Cases. Death cases with surviving spouse and/or children needing monthly/annual income.
• Special Uses. Deferred payments for college funds, retirement, attorneys’ fees, or worker’s compensation cases.
• Tax-Free. Any case where a secure tax-free income makes sense.
• Minors. A Structured Settlement might also be considered in cases involving minors.
• Plaintiffs Lacking Money Management Skills. If the plaintiffs lack money management skills and a trust is not being utilized, a Structured Settlement might make good sense.
• Special Needs. In cases involving individuals with long-term special needs, the settlement can be structured in such a way as to pay for the rehabilitation or permanent care facility expenses later in life, and provide for disbursements to purchase medical equipment or modified vehicles. The settlement can also include a cost-of-living adjustment to help cover future increases in these expenses.₅

WHAT ARE THE ADVANTAGES TO A STRUCTURED SETTLEMENT?

Structured Settlements offer advantages to several parties involved, as discussed below.

The Plaintiff. There are a number of potential benefits to the injured plaintiff.

• Lifetime Payment. The Structured Settlement can guarantee the plaintiff a lifetime income. The amount of the income can be flexible. This insures that the plaintiff will not outlive his or her money.
• Tax Free. The income from the Structured Settlement is completely tax-free if it is for a physical illness or sickness or for a worker’s compensation claim and can be guaranteed for life. It should be noted that making the individual eligible for Medicaid would be a more cost-effective solution.
• Estate Taxes. The structure can provide funds to pay estate taxes.
• Public Benefits. The structure can be used in combination with a special needs trust to maintain public benefits.
• Mortgage Payments. A structure can be used to make mortgage payments, although it is usually better practice to buy a home with a lump sum from the settlement or to pay off an existing mortgage with a lump sum from the settlement.
• Creditor Protection. A structure also guarantees an income that is free from the claims of the injured person’s creditors until receipt. The structure offers protection to minors and can guarantee benefits for a spouse, children, and beneficiaries.
• Fiscal Restraint. It makes it more difficult, although not impossible, for the injured plaintiff to squander the money prior to it being received.
• Investment Risk. The structure eliminates investment risk, because the insurance company is responsible for management of the funds.
• Guarantee. The periodic payment is guaranteed.
• Fixed Immediate Annuity. Essentially, there is a fixed immediate annuity.
• Rate of Return. Whether the rate of return on the capital invested to purchase the annuity is more or less than what could be achieved by investing the lump sum is an issue that should be carefully analyzed.
• Settling the Case. Often, a Structured Settlement may be useful in settling a case where the defendant is unwilling to pay a large enough lump sum to meet the plaintiff’s needs, but is willing to arrange a Structured Settlement that will give the plaintiff enough income over time to meet those needs.
• Rated Age. If a plaintiff has medical conditions warranting the establishment of a rated age, the periodic payout from the Structured Settlement can be considerably higher. This maximizes the settlement for the lifetime of the plaintiff.

The Plaintiff’s Attorney. Personal injury attorneys often feel more comfortable in having arranged a Structured Settlement for their clients, because they feel it is more difficult for them to squander the settlement. Many personal injury attorneys are unaware that Structured Settlements can be factored and do not so advise their clients.

The Defendant. A Structured Settlement benefits the defendant-insurer in that it enables it to remove the claim from its books, take the tax deduction, and move on. The settlement may also save expenses involved in the defendant-insurer processing and paying claims.

The Defense Attorney. Using a Structured Settlement gives the defense attorney another alternative when negotiating a settlement. By taking advantage of the defendant’s rated age, it may be possible to achieve fairly high monthly annuity payments for the injured plaintiff. In determining a rated age, the insurance company looks at the injured person’s medical records. Because of the medical condition, the injured person often does not have a normal life expectancy. The insurance company determines how long they expect that person to live given the medical condition and assigns an age to the injured person. The age often is much higher than the injured person’s actual age. This means the insurance company can afford higher periodic payments, because payments are being made over a shorter period of time.

WHAT ARE THE DISADVANTAGES TO A STRUCTURED SETTLEMENT?

There are three disadvantages to Structured Settlements:

1. Rate of Return. If a Structured Settlement is purchased at a time where there is a low interest environment, the payments under the structure will be based on interest rates in effect at the time the structure is purchased and are locked in indefinitely based on that low rate. The annuity is a fixed annuity rather than a variable annuity, so the payee does not benefit from a rise in the stock market over time.

2. Lack of Liquidity. With respect to lack of liquidity, if the payments are fixed and an emergency arises, additional funds cannot be obtained short of commuting or factoring the annuity contract.

3. Insurer’s Solvency. The solvency of the insurance company providing the structure must be carefully examined. It is wise to purchase a structure only from top-rated companies and, where the sum is large enough, to purchase structures from more than one company to spread the risk. One way to protect the plaintiff is to be sure that the plaintiff is a secured creditor. The plaintiff receives a security interest in funding assets when a qualified assignment is used in settlement. Plaintiff’s counsel should always insist that a qualified assignment be used. Typically, a qualified assignment will be used, but occasionally the defense will draft a settlement agreement stating that the defendant “may” make a qualified assignment. A class action lawsuit₆ was filed against Ringler Associates, a national Structured Settlement company, for its role in setting up Structured Settlements funded with annuities issued by Executive Life of New York (ELNY). ELNY went into liquidation and nearly 1,500 beneficiaries lost nearly $1 billion in future Structured Settlement payments. For many annuitants this meant losing nearly 60% of their future payments. Many of these beneficiaries lived in states where ELNY was not licensed. The Structured Settlement consultants who sold these annuities pocketed huge undisclosed cash commissions while concealing what they knew about ELNY and its parent First Executive Corp. This raises the question in the Ringler lawsuit as to, if the Structures were not set up correctly, what is the responsibility of the property and casualty companies? Will they be dragged into cases that were closed twenty years ago?₇

—–

1 nssta.com (Aug. 22, 2015).

2 Daniel W. Hindert, Joseph Julnesdehner, & Patrick J. Hindert, Structured Settlements and Periodic Payment Judgments, Law Journal Press (2011).

3 Rev. Rul. 79-220.

4 Daniel W. Hindert, Joseph Julnesdehner, & Patrick J. Hindert, Structured Settlements and Periodic Payment Judgments, Law Journal Press (2011).

5 Structured Settlements: An Effective Solution for Meeting the Ongoing Financial Needs of Physical Injury Victims, Prudential (2014), www.prudential.com.

6 Westrope and Kelly v. Ringler, United State District Court, District of Oregon, Portland Division, Case No. 3:14-cv-00604-SD.

7 Tough Times for Structured Settlements, Edward Stone, www.lifehealthpro.com (Oct. 27, 2014).

by Thomas D. Begley, Jr., CELA

It is always difficult to move from one state to another, but when a family member has disabilities there are a number of considerations that should be addressed as early as possible.

• Health Care. Establish a “safety net” well in advance. Research the doctors, therapists and other service providers available in the new location and reach out to local advocacy organizations for referrals. Be sure your medical insurance serves the area to which you are moving. Otherwise, it may be necessary to obtain other medical insurance. Most medical insurance policies have geographic limitations.

• Special Education. If a child is receiving special education, it may be necessary to negotiate a new Individual Education Plan (IEP) and/or a 504 Plan prior to moving in order to avoid an interruption in services. The existing IEP should be forwarded to the new school district as a starting point.

• Guardianship does not automatically transfer from one state to the other. If the new home state has not signed a reciprocity agreement with the state you are leaving, transferring guardianship can be complex. Legal counsel in the state you are leaving and the state to which you are moving should be consulted to coordinate the process.

• SSI/SSDI. Simply supply the Social Security Administration with the new address on a timely basis and there should be no interruption in payments.

• SNAP (Food Stamps). SNAP is a federal program, but each state has variations. Verify the new state’s guidelines.

• Social Service Agencies. Do research and identify local providers of day care, in-home services, social programs, career assistance, and other supports.

• Estate Planning Documents. Review and update, if necessary, Wills, Special Needs Trusts, Living Trusts, Living Wills, and Powers of Attorney. Confirm that beneficiary designations are still correct.

• Motor Vehicle. Apply for a handicap vehicle permit, if required.

by Thomas D. Begley, Jr., Esquire, CELA

In any recovery involving a personal injury case, the interest of Medicare must be considered.^[1] The idea is that because Medicare is a secondary payer, a beneficiary should not be permitted to receive a recovery for future medical care, pocket the money, and then bill Medicare for that future medical care.

Are MSAs Appropriate in TPL Cases?

A Medicare Set-Aside Arrangement (MSA) is never required. In the context of Workers’ Compensation (WC) settlements it is a safe harbor. It should be a safe harbor in the context of Third Party Liability (TPL) settlements as well.

In June 2012, The Centers for Medicare and Medicaid Services (CMS) issued a Notice of Proposed Rulemaking.[2] The rulemaking would outline procedures for MSAs in TPL cases. The American Association for Justice (AAJ) has responded to CMS with respect to this Notice of Proposed Rulemaking.^[3] The Notice was submitted to the Office of Management and Budget (OMB) on August 1, 2013. The OMB did not approve the proposed rule and CMS withdrew it on October 8, 2014.^[4]

Reasons Supporting the Argument that the Medicare Secondary Payer Act Applies to TPL Cases with Respect to MSAs

There are a number of reasons to believe that MSAs are appropriate in personal injury cases. They are as follows:

• An informal survey of the 10 CMS Regional Offices by members of the Special Needs Alliance confirm that Region has taken the position that even in third party liability (TPL) cases, Medicare’s interests must be considered, and in the absence of further guidance, the Worker’s Compensation (WC) guidelines should be followed.

• The Medicare Secondary Payer Manual now includes language referring to “Liability Set-Aside Arrangement.”

• CMS has issued a memorandum that in TPL cases an MSA is not required “where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury relating to the liability insurance (including self-insurance) ‘settlement’ has been completed as of the date of ‘settlement’ and where future medical items and/or services for that injury will not be required, Medicare considers its interests, with respect to future medicals, for that particular ‘settlement’ satisfied.”[5] The converse would appear to be that if the treating physician will not sign such an opinion letter, the MSA would be required.

• The U.S. Attorney for the Western District of New York has issued a protocol indicating that, under certain circumstances, his office will review MSAs in TPL cases.[6]

• A U.S. District Court[7] has found that a set-aside for future medical expenses in a liability case is appropriate.

Cases Where an MSA is Not Required

There are several situations in which an MSA is unnecessary:

• The facts demonstrate that the claimant is only being compensated for past medicals and not for future medicals. There is no evidence of an attempt to maximize other aspects of the settlement.

• The treating physician concludes in writing that, to a reasonable degree of medical certainty, the individual no longer requires any Medicare-covered treatments related to the claim.

• The client is not receiving Medicare and has no reasonable expectation of receiving Medicare within 30 months. The Medicare Secondary Payer Act does not apply to individuals not covered by Medicare.

Five Alternatives for Personal Injury Attorneys with Respect to MSAs

That leaves practitioners in the same place they were in prior to October 8, 2014. The personal injury attorney, therefore, has five alternatives to consider with respect to an MSA:

1. Do nothing to protect Medicare and assume the risk that the rules will be enforced in his case, his client will be denied Medicare coverage for future medicals and possibly bring a malpractice action against the attorney;

2. Do nothing but draft releases documenting that the plaintiff has been advised of Medicare’s possible interest and that he knowingly agrees to assume any risk;

3. Be prepared to show that Medicare’s interest has been protected by shifting the primary payer – such as a continuing health insurance policy – and assume the risk that the health insurance policy will remain in place and that the person primarily being covered by the policy will not lose his job, die, retire, or become disabled;

4. Prepare an allocation report, but do not submit to CMS for approval, and fund the MSA;

5. Prepare and submit the MSA to CMS for approval.

The author recommends the fourth alternative to avoid any risk to the client and to the personal injury attorney. If the client does not “consider Medicare’s interest,” Medicare may deny future coverage. If the client files a claim and is denied, he may well bring a malpractice action against the personal injury attorney.

Special Needs Trusts and MSAs

Generally, MSA funds are deposited in a custodial account with a professional trustee or given to the client to self-administer. For cases less than $100,000, giving the funds to the client to self-administer makes sense. CMS has issued a letter of instructions to be delivered to the client who would be administering his or her own custodial account. Even if a client misuses the money, the personal injury attorney should be off the hook with respect to a subsequent malpractice claim.

If the MSA funds are self-administered by the client or administered by a professional custodian and held in a custodian account, they will be considered countable assets that will disqualify the client from asset-tested public benefits such as SSI and Medicaid. The solution to that problem is to deposit the funds in a Special Needs Trust. MSAs are generally administered by custodians such as Medivest. However, money in a custodial account is considered a countable asset for someone receiving asset-tested public benefits. In those situations, a Special Needs Trust (“SNT”) is required and the trust is designed so that the MSA funds are placed in a separate sub-trust within the SNT. Generally, a professional trustee will hire a professional custodian to administer the MSA sub-account. By wrapping the MSA sub-account in the SNT, the assets in that sub-account are no longer countable to the trust beneficiary.

[1] 42 U.S.C. §1395y(b)(2).

[2] 42 C.F.R. Parts 405 and 411; 77 Fed. Reg. 35917-35921 (Jun. 15, 2012).

[3] American Association for Justice (AAJ) in a letter to Suzanne Kalwa of the Centers for Medicare and Medicaid Services (Aug. 14, 2012).

[4] RIN: 0938-AR43 EO 12866 Meetings.

[5] CMS Memorandum, Subject: Medicare Secondary Payer – Liability Insurance (including self-insurance) Settlements, Judgments, Awards, or Other Payments for Future Medical Information, from Acting Director Financial Services Group to Consortium Administrator of Financial Management and Fee for Services Operations (Sept. 29, 2011).

[6] Western District of New York, Medicare Secondary Payer Protocol, Assistant U.S. Attorney Robert G. Trusiak (May 6, 2011).

[7] Big R Towing, Inc. v. Benoit, 211 W.L. 43219 (W.D. La. Jan. 5, 2011).

Michael Gilfix and Mark Gilfix recently appeared together on NBC Bay Area’s “Asian Pacific America with Robert Handa.” The episode focused on families in Asian communities with special needs, particularly those with autistic children.

They discussed the importance of Special Needs Trusts and their critical role in structuring an effective estate plan. Mark acknowledged the reluctance some Asian families feel toward seeking outside help, and said these trusts represent a “one-time, lifelong insurance policy” to protect their children’s livelihood.

Michael also talked about his book, “Special Needs Trust Creation and Management Guide,” which answers many of the most common questions parents have about Special Needs Trusts. For more information about this book, click here. (Link to www.gilfix.com/books)

Mark Gilfix also recently appeared on KTVU’s “Bay Area People.”

Mark said that because caring for autistic children is so time-consuming and expensive, parents do not understand how to provide for their children after they are gone. He pointed out that directly inheriting a parent’s assets can disqualify an autistic person from crucial needs-based programs such as Medi-Cal and Supplemental Security Income, a problem solved by Special Needs Trusts.

Mark also had the opportunity to talk about Michael’s Special Needs Trust guide. Viewers of both programs are invited to request a copy of the book here.

The segment can be seen here:
https://www.youtube.com/watch?v=jthuk-u0424

By Bernard A. Krooks, Certified Elder Law Attorney

A client recently asked the following question: I’m thinking about setting up a special needs trust for my son, who has a developmental disability. Will it mean a lot more work for my daughter, who will be handling my estate?

It’s a fair question, and one we hear a lot. No one ever asks: “could you please give us the most complicated estate plan possible?” Just about everyone wants things as simple as they can be.

When you think about providing an inheritance for your child — or anyone, for that matter — with a disability, there are some realities you just have to deal with. Those realities almost always lead to the same conclusion: a special needs trust is probably the right answer. There are a number of answers to the “can’t we keep it simpler?” question:

In most cases there’s going to be a trust, whether you set it up or not. If you leave money outright to a person with special needs, someone is probably going to have to transfer that inheritance to a trust in order to allow them to continue to receive public benefits. The trust set up after your death will be what’s called a “first-party” (or “self-settled”) trust, and the rules governing its use will be more restrictive. There will also have to be a “pay-back” provision for state Medicaid benefits when your son dies — so you will lose control over who receives the money you could have set aside. Even if no trust is set up, there is a high likelihood that your son will (because of his disability) require appointment of a guardian. The cost, loss of family control and interference by the legal system will consume a significant part of the inheritance you leave and frustrate those who are caring for your son. If you prepare a special needs trust now it sidesteps those limitations.

The trust you set up will not be that complicated to manage. People often overestimate the difficulty of handling a trust. Yes, there are tax returns to file, and possible accounting requirements. Neither is that complicated; neither is anywhere near as expensive as the likely costs of not creating a special needs trust. In any event, your daughter can hire experts to handle anything that she finds difficult. There are lawyers, accountants, care managers and even trust administrators who can take care of the heavy lifting for your daughter — or whomever you name as trustee. The costs can be paid out of the trust itself, so she will not be using her portion of the inheritance you leave, or her own money. Yes, they add an expense — but they can actually help improve the quality of life for both your daughter the trustee and your son with a disability.

Your daughter does not have to be the trustee at all. We frequently counsel clients to name someone else — a bank trust department, a trusted professional, or a different family member — as trustee. That lets your daughter take the role in your son’s life that she’s really better suited for: sister. If it is right for your circumstance, you might even consider naming her as “trust protector.” That could allow her, for instance, to receive trust accountings and follow up with the trustee, or even to change trustees if the named trustee is unresponsive, or too expensive, or just annoying. Trusts are wonderfully flexible planning devices — but that does mean you have to do the planning.

If your son’s condition improves, or he no longer requires public benefits, the trust can accommodate those changes. Depending on your son’s actual condition and the availability of other resources, you might reasonably hope that he will not need a special needs trust — or at least might not need one for the rest of his life. The good news: your special needs trust will be flexible enough to allow for the use of his inheritance as if there were no special needs. The bad news: that is only true if you set up the trust terms yourself — the trust that will be created for him if you do not plan will not have that flexibility.

Simply disinheriting your son probably is not a good plan. Sometimes clients express concern about the costs and what they perceive as complicated administrative and eligibility issues and they decide to just leave everything to the children who do not have disabilities. “My daughter will understand that she has to take care of my son,” clients tell us. That’s fine, and it might well work. But do you feel the same way about your daughter’s husband? What about the grandkids and step-grandkids who would inherit “your” money if both your daughter and her husband were to die before your son (the one with the disability)? What about the possibility of divorce or creditors’ claims against your daughter, or even bankruptcy? Most of our clients quickly recognize that disinheriting the child with a disability is not really a good planning technique.

But who knows what the public benefits system, the medical care available, or my son’s condition might look like twenty years from now? Indeed. That’s exactly why the trust is so important.

What does that mean for your planning? If you have a child, spouse or other family member with special needs — OR if you have a loved one who may have special needs in the future — your plan should include an appropriate trust. The cost is relatively small, and the benefits are significant. In fact, the cost of not doing anything is probably higher – and the opportunity loss from failing to plan is especially high. While doing special needs planning the right way necessarily involves going to a lawyer, it’s relatively easy to find one who specializes in this area of law.

Learn more about special needs planning by clicking here.

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THE FUTURE OF SPECIAL NEEDS PLANNING

by Thomas D. Begley, Jr., CELA

Special needs planning is a process of planning for the legal, personal, and financial needs of an individual with disabilities to enhance the quality of life of that person to allow them to reach their full potential.  It is interesting to examine the historical treatment of persons with disabilities.  In the pre-1700s, persons with disabilities were viewed as “possessed by the devil” and they were tortured, burned at the stake, and left to die.  Between the 1800s and 1920s, these individuals were viewed as genetically defective, inferior, hidden away, and displayed as freaks and beggars.  Between 1930 and 1940, they were viewed as genetically defective, polluting the race—institutionalized, sterilized, exterminated, and the subject of eugenics. From 1940 to 1970, there were usually viewed as unfortunate objects of pity, and were institutionalized with a view toward rehabilitation.  From the 1970s to the 2000s, individuals with disabilities are viewed as independent and self-determined.  The goal is for them to live independently, to provide civil rights, and to mainstream them into society.

Planning begins by examining unmet needs including whether the person needs a monthly income, is there a current need for advocacy, are health care needs being met, is there a change or loss in benefits, does the person have a satisfactory living arrangement, and are parents taking advantage of respite care.

Good planning involves team building.  The Special Needs Team should include individuals who are compassionate and who are experienced in the needs of individuals with disabilities.  Frequently, these team members have family members with disabilities themselves.  Members of the team should include an Attorney, a Life Care Planner, Financial Advisors, Care Managers, Caregivers, Benefit Counselors, and competent Trustees.  In cases involving a Third-Party Special Needs Trust where a parent is establishing a trust for a child with disabilities, the Attorney is often the first point of contact and is responsible for assembling the team.  A critical component is the Life Care Plan.  The family meets with the Life Care Planner and determines the lifestyle they would like to have for the child with disabilities after the parents are gone.  The Life Care Planner then determines the cost of each component of the plan.  Once the cost has been determined, Financial Advisors are brought in to determine how the parents can achieve that lifestyle.  In most cases, the solution is a second-to-die life insurance policy on the parents that would be payable to a Special Needs Trust on the death of the surviving parent.  After the parents have died, it is important to engage the services of a Care Manager to do an assessment of the individual with disabilities and develop a Care Plan based on the Life Care Plan initially developed by the parents in conjunction with the Life Care Planner.  The Care Manager hires Caregivers, supervises them, monitors the plan, and makes adjustments as required.  A Benefit Counselor, in some instances the Attorney, is responsible for obtaining whatever public benefits are available to stretch needed dollars for the benefit of the individual with disabilities.  It is important that the Attorney and the Client view the Attorney as more than a document generator but, more accurately, as the team leader who is building a team to achieve the goals that the parents establish for their child with disabilities.  The Attorney must be networked with local resources such as not-for-profits and trustees.  It is also important for the attorney to have strong relationships with Social Security and Medicaid.

The practitioner’s planning tools usually include a Third-Party Special Needs Trust, a Letter of Intent (updated on a regular basis), and the Special Needs Team.

In the future many changes will occur including different types of persons with different disabilities.  Many persons with disabilities are aging at a fast rate.  It will be even more important to keep abreast of legal, medical, and technological advances.  Special Needs Trusts may become commoditized, but Special Needs Planning will not.  The number of persons with disabilities is increasing.  In 2004, the U.S. Census Bureau estimated it was one in seven people; in 2010 the Bureau estimated it was one in five.  The population age 65 and older is predicted to double from 35 million to 70 million by 2030.  The population of people age 21 to 64 with disabilities is 20 million, which equals 12.1% of the population.  Under age 15, 5.2 million individuals have disabilities.  Roughly half of those are severe, according to the U.S. Census Bureau.  It is predicted that individuals with disabilities will grow substantially in the next twenty to thirty years because of the aging of baby boomers, Autism and returning combat veterans.  Because of medical advances, there may be fewer people with developmental disabilities such as Down Syndrome, Cerebral Palsy, and related conditions, but there may be more Americans with voluntary disabilities such as obesity and drug and alcohol addiction.  Voluntary disabilities may not be covered by government benefits in the future.  Because of medical advances, there is a higher survival rate of pre-mature birth babies.  Also, individuals with disabilities are outliving life expectancy, because of medical advances.  However, they are experiencing age-related issues at a much younger age.  It is likely that aging individuals with disabilities will develop secondary conditions such as Depression, Arthritis, Chronic Pain, Pressure Sores, Fatigue, etc., which may cause a loss of independence.  Genetic testing is now available that will not only determine whether an individual has Down Syndrome or Spina Bifida, but also a whole range of conditions.  It is anticipated that in the very near future genetic testing will be able to identify conditions such as eye and hair color, predisposition of an A-type personality, predisposition of Alzheimer’s or Dementia, and possibly sexual orientation.  Genetic testing may cover conditions such as the immune system, general health, cardiovascular conditions, aging, and Cancers.  The question is whether genetic testing will cause an increase in abortions.  This will raise the ethical question of whether such testing is desirable.

One of the fastest growing disabilities is Autism.  Nationally one of every 50 children is diagnosed with a condition on the Autism Spectrum.  The increase is partially due to the evolving definition of Autism.  Causes are not really known, but theories include environmental, vaccines, age of parents, and food such as glutens, MSG, Casein, dyes, etc.  There is no cure for Autism.  The possible passage of the Able Act and the implementation of the KISS Trust will tend to commoditize Special Needs Trusts.  However, they do not commoditize Special Needs Planning.  It is important for an Attorney to distinguish himself or herself as a Planner, not a document drafter.

THE IMPORTANCE OF A FINANCIAL ANALYSIS TO DETERMINE IF A SPECIAL NEEDS TRUST IS REQUIRED IN A PERSONAL INJURY CASE

by Thomas D. Begley, Jr., CELA

When a plaintiff receiving public benefits achieves a personal injury settlement, the plaintiff essentially has four choices:  (1) use a special needs trust (SNT) only; (2) use the SNT, but also buy ACA private health care; (3) do not use an SNT and buy ACA private insurance; or (4) do not use an SNT and attempt to become eligible for Medicaid-funded insurance through programs such as New Jersey Family Care.

Analysis of the Four Options with Respect to Special Needs Trusts

Let’s examine the advantages of each option.

1. Using an SNT only.  The advantage is that the plaintiff will continue to receive SSI, Medicaid, and other means-tested public benefits.  The disadvantages are that distributions from the trust must be for the sole benefit of the individual and that there is a Medicaid payback on the death of the trust beneficiary.

1. Use the SNT but also buy ACA private health care.  The advantage here is that the plaintiff’s SSI and Medicaid are protected.  The ACA insurance will result in a reduction or elimination of the Medicaid payback. Also, purchase of the ACA insurance may result in better health care and more access to health care providers than Traditional Medicaid.  The disadvantage is that the trust must pay the premiums for the ACA insurance, so this is a consideration in smaller trusts but definitely a good strategy for larger trusts.

1. Not use an SNT and buy ACA private insurance.  The advantage is that there is greater flexibility with respect to accessing the recovery.  The disadvantages are that the personal injury victim may squander the money and ACA insurance only covers what typical private medical insurance covers (i.e., hospitals and physicians), but does not cover what Medicaid Waiver programs cover, such as home- and community-based services or placement in group homes, assisted living facilities, or nursing homes.

1. Not use an SNT but rely on programs such as New Jersey Family Care.  The advantage is that there is greater access to the litigation proceeds.  The disadvantage is the money may be squandered, not everyone is eligible for New Jersey Family Care, and New Jersey Family Care does not cover hospital and physician costs.

Importance of SSI

If a personal injury victim is receiving means-tested public benefits such as SSI, Medicaid, Medicaid Waiver benefits, etc., it is often assumed that the plaintiff will require an SNT to preserve those benefits.  In the past, that conclusion was almost always true.  However, with the passage of the Affordable Care Act effective January 1, 2014, individuals with pre-existing conditions are now able to obtain private medical insurance and may not need to rely on Medicaid as much as prior to the ACA.  However, the analysis does not stop there.

Currently in New Jersey an SSI recipient is entitled to approximately $750 per month.  SSI comes with a COLA.  The value of the SSI payment over a lifetime is usually hundreds of thousands of dollars.

Who Will Hold the Money

In most cases, it makes financial sense to utilize an SNT if the plaintiff also receives SSI, unless the net settlement to the plaintiff exceeds roughly $3,000,000.  The SNT preserves SSI, which is often the individual’s only access to income.  In addition, if the plaintiff is incapacitated and is receiving means-tested public benefits, the litigation recovery must be placed in some kind of court-supervised entity, typically a guardianship or the Surrogate’s office.  It is always less expensive and easier to access funds held in an SNT than those held by a guardianship account or the Surrogate’s Court.  Funds held in a guardianship account or Surrogate’s Court are considered to be available for public benefits purposes and would cause a loss of both SSI and Medicaid.

Protecting the Plaintiff from Himself and Predators

Even if the plaintiff has legal capacity, frequently they do not have the sophistication to properly manage wealth.  An SNT allows the plaintiff to preserve eligibility for benefits, usually without court supervision in New Jersey, and to have a trustee with a fiduciary obligation to utilize the funds for the plaintiff’s sole benefit under a prudent investment strategy.  The trust also offers protection from financial predators including strangers, members of the opposite sex, and even family members looking to take advantage.  Under these circumstances, the SNT will provide the best option to safeguard and protect the person with a disability.

Budgeting

According to an analysis by Scott MacDonald, CSNA, Affordable Care Act’s Financial Effect on Settlement Planning, an individual receiving a net settlement of $1,000,000 that is placed into an SNT will receive an attainable annual total budget of $33,484.  If instead the plaintiff took the settlement and purchased private health care, even under the ACA, the annual budget would be reduced to $15,494.  If you add in the loss of the SSI COLA estimated at 2.5% over time, the plaintiff would be taking a 52% annual pay cut by not utilizing an SNT.  Using a similar analysis with a $100,000 net settlement, the SNT could provide $12,610 toward an annual budget, but if the beneficiary took the funds directly and lost SSI, the annual spending amount would be $3,614, a 71% reduction for life.  Under MacDonald’s analysis unless the plaintiff is netting at least $3,000,000, he will always be better off with an SNT.

Special needs planning is a process of planning for the legal, personal, and financial needs of an individual with disabilities to enhance the quality of life of that person to allow them to reach their full potential.  It is interesting to examine the historical treatment of persons with disabilities.  In the pre-1700s, persons with disabilities were viewed as “possessed by the devil” and they were tortured, burned at the stake, and left to die.  Between the 1800s and 1920s, these individuals were viewed as genetically defective, inferior, hidden away, and displayed as freaks and beggars.  Between 1930 and 1940, they were viewed as genetically defective, polluting the race—institutionalized, sterilized, exterminated, and the subject of eugenics. From 1940 to 1970, there were usually viewed as unfortunate objects of pity, and were institutionalized with a view toward rehabilitation.  From the 1970s to the 2000s, individuals with disabilities are viewed as independent and self-determined.  The goal is for them to live independently, to provide civil rights, and to mainstream them into society.

Planning begins by examining unmet needs including whether the person needs a monthly income, is there a current need for advocacy, are health care needs being met, is there a change or loss in benefits, does the person have a satisfactory living arrangement, and are parents taking advantage of respite care.

Good planning involves team building.  The Special Needs Team should include individuals who are compassionate and who are experienced in the needs of individuals with disabilities.  Frequently, these team members have family members with disabilities themselves.  Members of the team should include an Attorney, a Life Care Planner, Financial Advisors, Care Managers, Caregivers, Benefit Counselors, and competent Trustees.  In cases involving a Third-Party Special Needs Trust where a parent is establishing a trust for a child with disabilities, the Attorney is often the first point of contact and is responsible for assembling the team.  A critical component is the Life Care Plan.  The family meets with the Life Care Planner and determines the lifestyle they would like to have for the child with disabilities after the parents are gone.  The Life Care Planner then determines the cost of each component of the plan.  Once the cost has been determined, Financial Advisors are brought in to determine how the parents can achieve that lifestyle.  In most cases, the solution is a second-to-die life insurance policy on the parents that would be payable to a Special Needs Trust on the death of the surviving parent.  After the parents have died, it is important to engage the services of a Care Manager to do an assessment of the individual with disabilities and develop a Care Plan based on the Life Care Plan initially developed by the parents in conjunction with the Life Care Planner.  The Care Manager hires Caregivers, supervises them, monitors the plan, and makes adjustments as required.  A Benefit Counselor, in some instances the Attorney, is responsible for obtaining whatever public benefits are available to stretch needed dollars for the benefit of the individual with disabilities.  It is important that the Attorney and the Client view the Attorney as more than a document generator but, more accurately, as the team leader who is building a team to achieve the goals that the parents establish for their child with disabilities.  The Attorney must be networked with local resources such as not-for-profits and trustees.  It is also important for the attorney to have strong relationships with Social Security and Medicaid.

The practitioner’s planning tools usually include a Third-Party Special Needs Trust, a Letter of Intent (updated on a regular basis), and the Special Needs Team.

In the future many changes will occur including different types of persons with different disabilities.  Many persons with disabilities are aging at a fast rate.  It will be even more important to keep abreast of legal, medical, and technological advances.  Special Needs Trusts may become commoditized, but Special Needs Planning will not.  The number of persons with disabilities is increasing.  In 2004, the U.S. Census Bureau estimated it was one in seven people; in 2010 the Bureau estimated it was one in five.  The population age 65 and older is predicted to double from 35 million to 70 million by 2030.  The population of people age 21 to 64 with disabilities is 20 million, which equals 12.1% of the population.  Under age 15, 5.2 million individuals have disabilities.  Roughly half of those are severe, according to the U.S. Census Bureau.  It is predicted that individuals with disabilities will grow substantially in the next twenty to thirty years because of the aging of baby boomers, Autism and returning combat veterans.  Because of medical advances, there may be fewer people with developmental disabilities such as Down Syndrome, Cerebral Palsy, and related conditions, but there may be more Americans with voluntary disabilities such as obesity and drug and alcohol addiction.  Voluntary disabilities may not be covered by government benefits in the future.  Because of medical advances, there is a higher survival rate of pre-mature birth babies.  Also, individuals with disabilities are outliving life expectancy, because of medical advances.  However, they are experiencing age-related issues at a much younger age.  It is likely that aging individuals with disabilities will develop secondary conditions such as Depression, Arthritis, Chronic Pain, Pressure Sores, Fatigue, etc., which may cause a loss of independence.  Genetic testing is now available that will not only determine whether an individual has Down Syndrome or Spina Bifida, but also a whole range of conditions.  It is anticipated that in the very near future genetic testing will be able to identify conditions such as eye and hair color, predisposition of an A-type personality, predisposition of Alzheimer’s or Dementia, and possibly sexual orientation.  Genetic testing may cover conditions such as the immune system, general health, cardiovascular conditions, aging, and Cancers.  The question is whether genetic testing will cause an increase in abortions.  This will raise the ethical question of whether such testing is desirable.

One of the fastest growing disabilities is Autism.  Nationally one of every 50 children is diagnosed with a condition on the Autism Spectrum.  The increase is partially due to the evolving definition of Autism.  Causes are not really known, but theories include environmental, vaccines, age of parents, and food such as glutens, MSG, Casein, dyes, etc.  There is no cure for Autism.  The possible passage of the Able Act and the implementation of the KISS Trust will tend to commoditize Special Needs Trusts.  However, they do not commoditize Special Needs Planning.  It is important for an Attorney to distinguish himself or herself as a Planner, not a document drafter.

A direct gift or bequest may not be appropriate, for two major reasons:

1. The individual may not be capable of managing significant assets without assistance;
2. It may be necessary to maintain eligibility for government programs that have income and asset limits

One alternative to a direct gift is making a gift to a family member, such as a sibling, who can  be trusted to use the assets in the best interests of the individual with a disability. However, the family member must be willing and able to take on that responsibility and the gift would then become part of his or her estate, leaving it open to be lost in a divorce or claimed by creditors.

Another alternative is a special needs trust, which can help the individual with special needs maintain eligibility for government programs, while making funds available to enhance his or her quality of life. Creating a special needs trust is a complex task that should be done with the assistance of an estate planning attorney, experienced with special needs issues.

Interested in learning more about Special Needs Trusts? Click on the links below:

• FAQ’s about SNT’s
• Special Needs Planning
• Special Needs Trusts

Parents also need to prepare Special Needs Trusts for their special needs children. In addition to setting aside money for the child – without jeopardizing eligibility for government benefits – such trusts name a “trustee” who serves as an advocate and resource for the child.

Pioneers of Elder Law – For over 30 years, Gilfix & La Poll Associates LLP has innovated creative legal solutions to help you manage and plan the future of your estate.
To contact a special needs planning lawyer visit http://www.gilfix.com/ or call 800.244.9424.

The Social Security Act, which recognizes Special Needs Trusts, is silent on the type of trustee which may be selected. However, the Rules of Civil Procedure in Pennsylvania require that where an injured party is a minor or incompetent, a corporate fiduciary must be used (Pa. R.C.P, Rules 2039 and 2264). For-profit corporate fiduciaries, such as trust companies and banks, will generally accept accounts valued in excess of $250,000. For accounts less than $250,000, there are non-profit organizations, such as The ARC and PLAN New Jersey, that will accept smaller trust accounts.

The selection of a corporate fiduciary does not in and of itself guarantee that the Special Needs Trust will be properly managed. There are corporate fiduciaries that are excellent in their administration of Special Needs Trusts, while others have little or no experience. Substantial mistakes can be made if the corporate trustee does not possess the qualifications of administering a Special Needs Trust. These mistakes can result in the loss of Medicaid and Social Security benefits. These mistakes can be expensive and time consuming to correct.

A corporate trustee must be well versed in consulting with attorneys, the courts, and the disabled individuals and their families. The trust officer is perhaps the most vital component of the trust relationship.  The trust officer must fully comprehend the trust document, local rules and tax strategy. Additionally, the trust officer should be diligent about the maintenance of trust records, bill payment, investment of assets and trust inventory. The trust officer will be required to make critical decisions relating to the needs of the individual while balancing the preservation and distribution of the assets. The trust officer must often weigh the needs of the beneficiary with both affordability and common sense from an independent perspective.

The right corporate fiduciary will provide both peace of mind and financial security. Family dynamics and the stability of the life of the beneficiary are prominent aspects in the administration of a Special Needs Trust. As a result, the trust officer’s abilities and experience are especially important. First and foremost, the trustee should take the time to introduce themselves to the beneficiary and the family. They should get to know the needs of the beneficiary, the financial situation, and the future goals of the trust. These considerations are all influential in the long term administration of the Special Needs Trust.

Families and individuals should have a high level of comfort when deciding on both the corporate trustee and the trust officer. The individual and family should question the firms experience specifically in administering Special Needs Trusts. The trust officer’s individual education and experience should also be examined. Because of the nuances of Special Needs Trust administration, trust officers should be dedicated and committed to the practice. The trust officer will follow the trials and tribulations of the beneficiary and their family through many ups and downs.

The professional management of assets is another important component in the selection of a corporate trustee. Every professional investment manager must follow the Prudent Investor Act statute. Each state has its own Prudent Investor Act statute. This statute requires investment and portfolio managers to consider a variety of factors when choosing the appropriate investment strategy. These factors include inflation and deflation, taxes, liquidity, and diversification. The overall financial goals of the portfolio should be a primary consideration of the investment professional.  These financial goals should be long term. The investment strategy should stretch for the beneficiary’s lifetime. This might mean 10, 20, or even 50 years. Every effort should be made to preserve and even grow the assets held in the Special Needs Trust.

When speaking with the portfolio manager, it is important to ask for their overall money management strategy, as well as how that might compare to the money management strategy of the particular Special Needs Trust account. The corporate fiduciary should provide track records of investment performance. They should also understand liquidity needs and be aware of potential large purchases, such as handicap accessible vehicles and real estate.

The selection of a corporate trustee can be difficult, but it is important to do your homework and choose wisely. Above all, the beneficiary and the family should feel entirely comfortable with both the company and the trust officer charged with handling a Special Needs Trust.