Estate Planning for Parents of Persons with Developmental and Other Severe Chronic Disabilities

1. Estate Planning for Parents of Persons with Developmental and Other Severe Chronic Disabilities Presented by Donald D. Vanarelli, Esq. Certified Elder Law Attorney Registered Guardian R. 1:40 Approved Mediator

2. Facts of Life 1. Persons with disabilities are living longer and public benefits are often necessary. 2. There is no guarantee that public benefits will provide adequate resources over the disabled person’s lifetime. 3. There is no guarantee that public agencies will provide services and advocacy over the disabled person’s lifetime.

3. Typical Timeline for a Child With a Disability Birth through age 18 • Accepting disability • Learning the system • Learning the culture of disability • Mainstreaming • Access • Advocacy • Support systems

4. Typical Timeline for a Child With a Disability Upon Attaining Age 18 • Deeming of parents’ income and resources to the disabled child ends. • Child becomes eligible for public benefits based upon evidence of disability and the child’s low income and resources – parents’ resources not considered in determining child’s eligibility. • Parental decision-making authority ends - Guardianship may be necessary.

5. Providing for Persons with Disabilities • Pitfalls to commonly used eligibility strategies: • Uniform Gift to Minors Act Accounts • Unstructured Beneficiary Designations • No planning at all

6. Uniform Gifts to Minors Act(UGMA) Accounts • Once the child takes control of the account, the child may then use the money for purposes other than education -- regardless of the custodian’s wishes. • UGMA accounts are considered available resources for purpose of SSI eligibility.

7. Unstructured Beneficiary Designations Naming an SSI or Medicaid recipient as the beneficiary of a retirement plan, insurance policy or annuity will cause a reduction or elimination of public benefits.

8. No Planning at All • Dying intestate (without a will or trust) will usually leave all or a portion of the estate to the decedent’s children. • Any child receiving SSI or Medicaid will lose eligibility until the inheritance is either spent down, converted to a exempt resource, or placed in a Special Needs Trust.

9. Providing for Persons with Disabilities:Special Needs Trust Basics Purpose - To preserve the disabled person’s eligibility for needs-based governmental benefits while providing assets which may be used to supplement public benefits in order to improve the disabled person’s quality of life.

10. Elements of a Special Needs Trust A Special Needs Trust (SNT) is drafted specifically so trust assets are not considered to be “countable resources” in determining the disabled person’s eligibility for public benefits based on need.

11. Elements of a Special Needs Trust The SSA describes a discretionary trust as “a trust in which the trustee has full discretion as to the time, purpose and amount of the distributions.” If the beneficiary has no discretion over the distributions, the trust is not counted in determining SSI eligibility.

12. Elements of a Special Needs Trust Assets in a SNT will not count as a resource for public benefits purposes. The assets in the SNT may be used to supplement the beneficiary’s needs not covered by public benefits without a reduction or elimination of those public benefits.

13. Examples of Permissible SNT Expenditures • Education • Travel Expenses • Newspaper and Magazine Subscriptions • Personal Care Services • Home Care Services • Non-covered Medical Expenses • Vacations • Companions

14. Does Every Person with a Disability Need a Trust? • A trust is appropriate if it helps to achieve greater independence or reliable asset management. • Always keep in mind that a trust by its nature means a loss of control over the funds by the disabled beneficiary.

15. Special Needs Trusts vs.Support Trust • If needs-based public benefits are either not needed or not anticipated by the disabled beneficiary, no need to establish a SNT. • If public benefits are not an issue, it may be appropriate to establish a support trust to provide financial oversight and administration for the disabled person’s behalf.

16. Types of Special Needs Trusts 1. Self-Settled Trust 2. Third Party Trust

17. Self-Settled SNT 1. Established with the assets of the disabled person - proceeds of a personal injury award or other court action, inheritances or gifts received before the creation of the trust. 2. Must be established by a parent, grandparent, guardian or a court. 3. The disabled person can be the only beneficiary of a self-settled SNT. No remainder beneficiaries may be named in the trust instrument.

18. Self-Settled SNT (cont’d) 4. Self-settled SNT must be intervivos and irrevocable. 5. Medicare and Medicaid liens must be paid before funding. 6. Self-settled SNT can be established only if the beneficiary is under age 65. 7. “Pay-back” provision required.

19. Third Party SNT 1. Established with assets owned by a third party for the benefit of the disabled person. 2. Usually established and funded by the parents, relatives or friends of the disabled adult child as part of an estate or gifting plan. 3. Other children can be named as remainder beneficiaries after death of disabled person.

20. Third Party SNT (cont’d) 4. Third Party SNT may be revocable and intervivos, or irrevocable and testamentary. 5. No need to pay Medicare or Medicaid liens before funding. 6. No age limit for disabled beneficiary. 7. “Pay-back” provision not required.

21. The Golden Rule The golden rule in SNT planning - the trustee should make payments on behalf of the beneficiary directly to third party vendors for equipment or services which are not food or shelter. For example, distributions directly to a retailer for a radio or television, to an airline for a plane ticket, or to a companion/aide for services rendered are not income to the beneficiary.

22. Example: Distributions from a SNT Directly to an SSI Beneficiary Jill is the trustee of a special needs trust established by her deceased mother, Paula, for the benefit of Paula’s disabled daughter and Jill’s sister, Anne. Anne’s living expenses, including rent, food, transportation and clothing, total approximately $2,000 per month. Jill sends Anne a check on the first of every month for $2,000 so Anne can pay her expenses. Since Anne is receiving cash income in excess of her monthly SSI benefits, she loses her SSI. Since Anne received Medicaid based on her SSI payment, she also loses Medicaid.

23. Example: Distributions from a SNT to Third Party Vendors for Food or Shelter Jill is the trustee of a testamentary special needs trust established by Joan under her last will and testament for her adult disabled daughter, Pamela. Pamela receives SSI, Medicaid, food stamps and services from DDD. Pamela lives in an apartment. Jill signed the lease as trustee of the SNT and pays all rent directly to the landlord. The rental payments will result in a reduction, but not the elimination, of Pamela’s SSI benefits.

24. Example: Distributions from a SNT to Third Party Vendors for Items Which are Not Food or Shelter Jill, a disabled adult, receives SSI. Joan is the trustee of a special needs trust established by Jill’s parents for her benefit. Jill likes to read the New York Times. Joan arranges with the local newspaper distributor to deliver the New York Times to Jill on a daily basis, including Sundays, and pays the bill directly to the newspaper distributor. This is not considered income, and will not affect Jill’s SSI benefits.

25. Objectives Should be Expressed in The SNT and Memorandum of Intent The trust should set out broad instructions that are not likely to change. Example - “I wish that my child live as independently as possible in the least restrictive environment”.

26. Objectives Should be Expressed in the SNT and Memorandum of Intent The memorandum of intent should reflect more timely and detailed instructions. Example - “I have inspected the Brown Acre Independent Living Center and, in the event of my incapacity or death, I believe that this facility meets my son David’s needs. Please make sure that David is monitored regularly by the care manager, especially regarding his medication because he is prone to frequent side effects”.

27. Follow-Up Steps:(1) Select Resources Select a combination of resources that will guarantee adequate funds for the disabled child’s lifetime, such as insurance, savings, investments, family assistance, etc., and change the ownership of each asset to the SNT.

28. Follow-Up Steps:(2) Remove Child as Beneficiary Remove the disabled child as the beneficiary from all of the parents’, and others relatives’, financial programs, i.e., employer sponsored retirement plans, IRAs, KEOGHSs, life insurance policies, etc.

29. Follow-Up Steps:(3) Meet With Caregivers Hold a meeting with all interested parties, i.e., the Guardian, all Trustees and Successor Trustees and all siblings, to review the estate planning documents, discuss plan and management of trust assets.

30. Follow-Up Steps:(4) New Wills for Parents Prepare Last Will and Testaments for parents excluding the child from receiving any portion of the parents’ estate outright and free of trust which may cause the disabled child to lose government benefits.

31. Periodic Update and Review The Estate Plan should be periodically reviewed to: • Ensure all assets either are owned by the SNT, or SNT is named as the beneficiary of the assets. • To update trustees and members of advisory committees. • Changes in the beneficiary’s condition or eligibility for benefits. • Changes in your economic situation.

32. THANK YOU FOR ATTENDING. QUESTIONS / COMMENTS?