New Regulations For Special Needs Trusts
August 23, 2010
I have written about special needs trusts in past posts on this blog. SNTs are a safe harbor for the assets of disabled individuals that allows them to receive government benefits and be able to use the trust assets to supplement those benefits, because we quickly find that what the government provides leaves much to be desired. However, these trust are very technical and the laws and regulations can and do change from time to time. A recent Social Security Administration regulation has made some very significant changes that trustees and beneficiaries of SNTs ought to be aware of.
Certain types of SNTs, referred to by attorneys as “first party SNTs”, require payback provisions. If there is anything left in the trust when the beneficiary dies the State must first be paid back all Medicaid benefits that the disabled individual received, before assets can be otherwise distributed. Many SNTs also have early termination clauses that provide for an early end to the trust. The new SSA regulations relate to these early termination clause.
For all trusts created on or after January 1, 2000, upon early termination, the assets must first be used to pay back Medicaid, similar to the requirement at the death of the disabled beneficiary. Additionally, all remaining assets must be payable only to the disabled individual. No one else can benefit from the trust. Finally, the power to terminate the trust early must be given to someone other than the beneficiary.
Some SNTs may already be in compliance with these new rules, but others will not. So what to do? Have a qualified attorney look at your trust and if necessary amend it. Failure to do so will cause the trust assets to be included as an asset owned by the disabled person and cause him/her to lose government benefits.
My Disabled Child is Now 18 – Does Anything Change? Part 2
July 26, 2010
A few weeks ago I wrote about a scenario we are seeing with increasing frequency, the child with special needs who reaches adulthood and how that changes the ability of a parent to protect and/or act for that child. There probably won’t be any noticeable change in the family’s life until a crisis occurs and the parents need to step in and make decisions for the child, decisions all parents of minor children routinely make every day. They are shocked, however, the first time they learn that they no longer legally have the right to do so, and aren’t even entitled to information about their child without the child’s consent.
We discussed guardianship as a possible solution. But if the child resists the process or the doctors and/or the court don’t agree that the child fits the test of incapacity then what do you do? The legal solutions are less than perfect but there are steps parents can and should take.
Every person, with or without special needs, ought to have a power of attorney and a health care directive, designating someone to act on their behalf should the need arise. On the health care side, that means someone who can speak with the doctors and make medical decisions should that become necessary. The power of attorney designates an agent to make every day financial decisions such as moving money between bank accounts, writing and depositing checks, applying for government benefits, communicating with creditors etc.
Parents of a child turning age 18 ought to encourage and arrange for that child to execute these documents as a significant step towards being a responsible adult. It can be a positive experience for a child who feels the pull of independence. Part of that independence is putting a support system in place of family and friends who they can rely on for help should the need arise. The parents should emphasize that this necessity is not unique to children with special needs. Parents should explain to Jimmy that Mom and Dad have a similar plan in place. It is something all responsible adults have.
And as I have discussed in previous blog posts, the creation of a special needs trust is so important because if the parent dies without protecting the child’s inheritance then there is a high degree of probability that those funds will be mismanaged by the child, or by those preying upon him/her, leaving the burden upon other family members to provide support. Additionally, a failure to protect the assets properly may disqualify the child for valuable government benefits.
By addressing these issues before a crisis occurs, in a positive manner, very often the child won’t see it as a limit on his/her eagerly anticipated independence but rather a natural step in the process.
My Adult Disabled Child Has Turned 18 – Does Anything Change?
July 5, 2010
Last September I wrote a post about a scenario increasing in frequency involving an elderly parent who is deteriorating mentally but has refused to sign a power of attorney or health care directive. The family’s last resort is the guardianship process. A few weeks ago I wrote about how parents who have adult children with special needs ought to set up a special needs trust to help meet the needs of those children. But what so many parents don’t realize is that when their child reaches the age of majority, age 18 in most states, they no longer legally have the right to make decisions for that child.
“But Jimmy can’t possibly make financial and health care decisions for himself”, the parent tells me. “You may know that,” I say, “but the law presumes that Jimmy is competent unless and until a court deems him to be incapacitated.” I then explain the guardianship process by which a judge must decide that Jimmy is in fact unable to make his own decisions and that the person requesting to be appointed his guardian is a suitable person to protect him and act in his best interests.
And as I wrote last year, because we have a strong history of individual rights in this country, taking away the freedom to make one’s own decisions is not something to be considered lightly. Jimmy must be examined by two doctors who must agree that he is incompetent. (The exact process may vary from state to state.) Then the court appoints an attorney to represent Jimmy. The attorney must meet with Jimmy and report back to the court. If Jimmy has the capacity to understand what guardianship means he may object to the process. His court appointed attorney must send the judge a report as to his/her opinion about whether Jimmy needs a guardian and whether the person applying for that appointment is appropriate.
So what happens if Jimmy objects or the doctors or his attorney don’t agree with Mom and Dad’s assessment? Stay tuned. We’ll discuss that next week.
Should I Leave My Disabled Child’s Inheritance to a Sibling to Hold?
June 21, 2010
For a variety of reasons parents often wish to distribute their estates equally amongst their children but not necessarily to each child outright. That may be because the child has a disability, substance abuse problem, issues managing money or other financial problems. Many people attempt to solve this problem by leaving that child’s share to a sibling to “hold and manage” for his brother/sister. Jack’s tale is a cautionary one against the dangers of employing what would seem to be an “easy” solution.
Jack’s dad had recently died leaving his estate to Jack and his 2 sisters in equal shares. But Dad’s will actually left Jack 2/3 of the assets because Jack’s sister Mary has special needs. She is not capable of managing her money and would lose her government benefits if she received her inheritance outright. Jack, however, was just diagnosed with Alzheimer’s Disease and may need nursing home care within the next few years. He understands that he will have to pay for that care but he doesn’t want to use Mary’s money for his care. There’s one big problem. It isn’t legally Mary’s money.
You see, Dad specifically disinherited Mary in his will. It makes no mention of his intent to have Jack take care of his sister. It just says that Jack inherits 2/3 of the estate. Legally, it’s his money so if he needs long term care he’ll have to spend down his money and Mary’s, before he can qualify for government assistance.
What Dad should have done was set up a special needs trust in his will and left Mary’s share to that trust. He could then have named Jack as the trustee and his sister Helen as a back up trustee. Mary would not lose her benefits. Jack would not have to spend down that money for his care. In fact, he can’t, since the money is not his. And if he can no longer serve as trustee then Helen can step up.
Could Jack set up a trust now? The answer is yes, but because Medicaid rules are quite complicated, the assets transferred to that trust would still subject him to a Medicaid transfer penalty. If Mary was his daughter and not his sister then he could avoid the penalty. In other words, Dad could have done it for Mary because of the parent/child relationship.
What Jack’s problem shows us is that sometimes the “easy” solution creates problems that are far more complicated to solve than the original problem. While it’s possible that Jack may still be able to protect Mary’s inheritance it is far from certain, and much will depend upon how long he stays healthy.
