A SPECIAL NEEDS TRUST IS FOR? A disabled person who receives assets - PDF document

10/7/2012 WHAT ARE THEY AND WHO ARE THEY FOR? A SPECIAL NEEDS TRUST IS FOR…? � A disabled person who receives assets that would cause A disabled person who receives assets that would cause them to become ineligible for public benefits including health care and income (Medi ‐ Cal/SSI) � A disabled person whose receives assets which are insufficient to provide them with support or cover the cost of health care � A disabled minor � A disabled adult 1

10/7/2012 WHAT IS A SPECIAL NEEDS TRUST AND WHAT IS IT USED FOR? � A legally authorized trust created by a disabled person A legally authorized trust created by a disabled person (“self ‐ settled) or for the benefit of a disabled person by a third party. � Allows for assets in the trust to be used to SUPPLEMENT BUT NOT REPLACE government benefits � Pays for the supplemental needs of the disabled person WHY DO YOU NEED A SPECIAL NEEDS TRUST? � Receipt of assets by a disabled person will result in Receipt of assets by a disabled person will result in disqualification for government assistance � The value of the assets received is insufficient to pay for health care needs without rapid depletion � To preserve the right to receive government benefits while maintaining funds to cover the cost of supplemental needs 2

10/7/2012 OTHER ESTATE PLANNING OPTIONS FOR THE BENEFIT OF A DISABLED PERSON: � DIRECT DISTRIBUTION TO A DISABLED BENEFICIARY THROUGH A TRUST OR WILL: • Could result in loss of needs ‐ based government benefits; or • May require rapid Spend Down in Month Received; or • Can use funds to create a First Party/Self ‐ Settled SNT � DISINHERIT � DISINHERIT � SUPPORT TRUST • Could result in loss of needs ‐ based government benefits ; � THIRD PARTY SPECIAL NEEDS TRUST GOVERNMENT BENEFITS AVAILABLE FOR THE DISABLED � ENTITLEMENT � Social Security (Retirement) � Social Security Disability (SSDI) � Medicare � NEEDS BASED (MEANS TESTED) � Supplemental Security Income (SSI) � Medi ‐ Cal (Medicaid in other states) � In Home Support Services (IHSS) � In Home Support Services (IHSS) � Subsidized Housing (HUD) � Temporary Aid to Needy Families (TANF) � California Children’s Services (CCS) 3

10/7/2012 SSI BENEFITS: What are they and who qualifies? � WHAT ARE SSI BENEFITS? � Monthly cash payments for food and shelter (clothing no longer included) � For disabled person � Also referred to as SSI/SSP (state supplemental payment) – SSI: $698; SSP: $132.40 = Total Payment: $830.40/month � Monthly Payments in 2012: Single Person in own home: $830.40 � Single Person living in household of someone else: $609.16 (Minor: $516.17) � Couple in own home: $1,407.20 � Couple living in household of someone else: $1,075.33 � Automatic qualification for Medi ‐ Cal with no share of cost (co ‐ payment) � � Automatic qualification for In Home Support Service for assistance with activities of daily living including cooking, cleaning, bathing, etc.) � WHO QUALIFIES? � Must be aged or disabl e d � Must show financial need (limited assets and income ) ASSET LIMITATIONS FOR SSI: � No more than $2,000 in Countable Resources No more than $2,000 in Countable Resources � Countable Resources include: � Bank Accounts � Stocks, bonds, mutual funds � Promissory Notes � Real property other than principal residence p p y p p � Second car (20 CFR 416.1210, et.seq.) 4

10/7/2012 SSI BENEFIT REDUCTION BASED ON INCOME: WHAT IS INCOME? � Income I � Earned: wages � Unearned: annuities, pensions, spousal & child support, dividends, interest, royalties prizes gifts death benefits royalties, prizes, gifts, death benefits, worker’s compensation, inheritance, in ‐ kind support and maintenance IN KIND SUPPORT & MAINTENANCE � IF SPECIAL NEEDS TRUST PAYS FOR THE FOLLOWING ITEMS, DEEMED IN ‐ KIND SUPPORT & MAINTENANCE & BENEFIT IS REDUCED OR ELIMINATED: Food 1. Mortgage 2. Real Property Taxes 3. Rent 4. Heat & Fuel (not auto gasoline) ( ) 5. Electricity 6. Water 7. Sewer 8. Garbage removal 9. 5

10/7/2012 HOW IS SSI BENEFIT REDUCED DUE TO IN ‐ KIND SUPPORT & MAINTENANCE? � Reduced by actual value of IKSM: ie. $150 in groceries Reduced by actual value of IKSM: ie. $150 in groceries reduces benefit by $130 (after $20 set ‐ aside) � Maximum reduction is 1/3 of federal benefit rate ($244.66 in 2012 plus $20 ) � EXAMPLE: SSDI: $650/mo. & SSI $180.40 – trust pays rent = $800, SSI benefit reduced by $225 + $20 = $245 = loss of SSI � If reduction is greater than benefit LOSS OF SSI � If reduction is greater than benefit, LOSS OF SSI � Loss of SSI results in loss of Medi ‐ Cal and IHSS unless eligible under a different program (20 CFR 416.1131) MEDI ‐ CAL BENEFITS: WHAT ARE THEY AND WHO QUALIFIES? � What is Medi ‐ Cal? � California's Medicaid program. C lif i ' M di id � Public health insurance program which provides needed health care services � Financed equally by the State and federal government. � Only government program that pays for extended long term care � Who qualifies for Medi ‐ Cal? � Low ‐ income individuals who prove need including: Families with children � Seniors � Persons with disabilities h d b l � Foster care � Pregnant women � Low income people with specific diseases such as tuberculosis, breast cancer or � HIV/AIDS 6

10/7/2012 ADVANTAGES OF SPECIAL NEEDS TRUSTS � Preservation of public benefits Preservation of public benefits � Resources maintained to meet ongoing supplemental needs of beneficiary � Professional Management of assets available � Court Supervision including regular court accountings and bonding of Trustee g DISADVANTAGES OF SPECIAL NEEDS TRUSTS � Lack of flexibility in use of the assets � Loss of control by beneficiary and/or family � Cost of administration � Court supervision – invasive & costly � Difficulty finding trustee for small estate � Loss of privacy � Court Accountings: invasive & costly � Annual government review for eligibility � Payback provisions 7

10/7/2012 TYPES OF SPECIAL NEEDS TRUSTS? 1. FIRST PARTY “SELF ‐ SETTLED” SPECIAL NEEDS TRUSTS: ESTABLISHED BY: Disabled Person � � Under age 65 Upon receipt of proceeds of a settlement or judgment from � litigation � Upon receipt of inheritance MUST BE ESTABLISHED THROUGH MUST BE ESTABLISHED THROUGH: � Court approval of settlement (PC 3600) � Parent or grandparent � Conservator/Guardian (PC 2580) � Court confirmation of agent’s act under Power of Atty (PC 4541) � TYPES OF SPECIAL NEEDS TRUSTS (CONTINUED): 2. 2. THIRD PARTY SPECIAL NEEDS TRUSTS THIRD PARTY SPECIAL NEEDS TRUSTS � Established by a Third Party within their trust OR � Established directly by a Third Party AND � Can be initiated during the life of the trust creator (trustor) � Most commonly effective on death of trustor 8

10/7/2012 BASIC REQUIREMENTS FOR ALL SPECIAL NEEDS TRUSTS: � DISABLED BENEFICIARY DISABLED BENEFICIARY � IRREVOCABLE BY BENEFICIARY � BENEFICIARY CANNOT BE THE TRUSTEE � FUNDS NOT AVAILABLE FOR SUPPORT & MAINTENANCE � FUNDS NOT AVAILABLE FOR FOOD & SHELTER FUNDS NOT AVAILABLE FOR FOOD & SHELTER WITHOUT DECREASE IN BENEFIT � DISTRIBUTIONS AT THE SOLE DISCRETION OF THE TRUSTEE REQUIREMENTS FOR FIRST PARTY/SELF ‐ SETTLED SPECIAL NEEDS TRUSTS: Pursuant to 42 USC 1396p(d)(4)(A): Pursuant to 42 USC 1396p(d)(4)(A): � Beneficiary must be disabled � Beneficiary must be under age 65 � Trust must include Medi ‐ Cal payback provision � Trust must be established by: o Parent/Grandparent o Conservator/Guardian o Conservator/Guardian o Court Order (most courts accept power of atty) Pursuant to 42 USC 1396p(d)(4)(C): Pooled Trust can be used if over 65 9

10/7/2012 FIRST PARTY: LITIGATION SPECIAL NEEDS TRUSTS: PROBATE CODE ¶3600 � For minors & incompetent adults p � Must notify the Dept of Health Care Svcs., Dept of Mental Health & Dept. of Developmental Svcs. � Trust must include payback provision � Trust must require regular court accountings & ongoing court supervision � Trust must require notification of governmental agencies T i ifi i f l i re: accountings & death of beneficiary � Trust must be court approved COURT APPROVAL OF LITIGATION SNT’S REQUIRES: � Beneficiary must have disability that substantially Beneficiary must have disability that substantially impairs ability to provide for own care & constitutes a substantial handicap � Beneficiary is likely to have special needs that will not be met without the SNT � That money to be placed in SNT does not exceed amount that is reasonably necessary to meet special needs � Requirements found in Probate Code ¶3604 10

10/7/2012 FIRST PARTY SPECIAL NEEDS TRUSTS CREATED BY PARENT/GRANDPARENT: � Beneficiary must be competent Beneficiary must be competent � Beneficiary must be under age 65 � Trust creator must have Power of Attorney for beneficiary � Requires Notice within 10 days of creation: � Department of Health Services p � Department of Mental Health � Department of Developmental Services TRUST DRAFTING CONSIDERATIONS: � SOURCE OF FUNDS: First Party versus Third Party: SOURCE OF FUNDS: First Party versus Third Party: Payback provision required? � TRUSTEE: Most appropriate: Corporate versus Family member – can the Trustee be bonded? � COST: Ongoing Trust Administration: Court accountings, other petitions: consider value of trust: cost/benefit analysis. � OPTIONS: Availability of other alternatives. � NEED FOR PUBLIC BENEFITS: Is the beneficiary receiving or will they receive benefits? 11