BENEFITS AND SPECIAL NEEDS TRUSTS PRIMER

1. BENEFITS AND SPECIAL NEEDS TRUSTS PRIMER PREPARED BY: MELISSA LADER BARNHARDT, J.D., LL.M. F.V.P. & TRUST CONSULTANT SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively “SunTrust”) cannot provide legal services or give legal advice. SunTrust’s services or advice relating to “estate planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan.

2. GENERAL GUIDE TO BENEFITS • SOCIAL SECURITY BENEFITS (SS VS. SSI VS. SSDI) • SSI AND MEDICAID • SSDI AND MEDICARE • ADULT VS. MINOR (DEEMING ISSUES) • INCOME AND ASSET LIMITATIONS • MEDICAID WAIVERS (MEDICAID AND APD TIERS) • MEDICALLY NEEDY PROGRAM (SHARE OF COST) • INSTITUTIONALIZED CARE PROGRAM (INCOME/ASSETS) • LOOK BACK PERIOD FOR QUALIFICATION OF MEDICAID 2

3. TOOLS USED IN MEDICAID PLANNINGSPECIAL NEEDS TRUSTS • Omnibus Reconciliation Act of 1993 - Passed on August 10, 1993. It amended the Social Security Act 42.U.S.C. Sec. 1396p to permit specialized trusts for disabled individuals. A. (d)(4)(A) trusts (FSNT) - under age 65 individual; B. (d)(4)(B) trusts – Miller (Qualified Income) Trusts; and, C. (d)(4)(C) trusts - any age; managed by a not for profit (pooled trust). • Purpose - To permit a disabled person without a prior estate plan (or if so to possibly amend a trust to comport with the law) to place his/her assets in trust in order to qualify for government based entitlements. Otherwise, there is a lengthy look back period (Deficit Reduction Act of 2005 changes look back period and date of eligibility) that will disqualify unless spent down to the Medicaid limitations. 3

4. SPECIAL NEEDS TRUST : UNIQUE PROVISIONS A. Irrevocable trust (unless TSNT); B. Creator of trust for FSNT - parent, grandparent, guardian,court or if a pooled trust, the person with the disability (joinder agreement); Differentiate a TSNT; C. Definition of disability - defined under 42 U.S.C. 1382 and 1614(a)(3) - an individual shall be considered disabled if he or she is unable to engage in any substantial or gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than twelve months; D. If a minor - look at whether the child as an adult with the same disability, would prevent gainful employment; E. Pooled nature of funds vs. individual accounts; 4

5. SPECIAL NEEDS TRUST : UNIQUE PROVISIONS (continued) F. Payback provision - upon the individual’s death, the state’s Medicaid agency that paid for services is reimbursed prior to disbursement to heirs (multiple states/funeral issue) unless a pooled trust (retention by charity) or TSNT; Under the new POMS, one cannot limit the time period to the term of the trust; G. Tax provision – FSNT treated as a grantor trust (usually has a limited power of appointment); TSNT may be treated as a grantor trust or a complex trust; H. Trust to benefit individual beneficiary only (sole benefit rule) emphasized in the new POMS for the FSNT; I. Payment restrictions during lifetime (food/shelter rules/gift cards/POMS); Payment restrictions after death (new POMS); J. No creditor protection (FSNT); and, L. Types of assets - residential property, vehicle (liability issues), cash securities, annuity (issues after 65), life insurance proceeds. 5

6. CLIENT SCENARIO #1 Suzie Smith walks into your office and states that her father, age 60, just had a stroke. The father is mentally competent, although he has difficulty speaking. She further explains that he has approximately $300,000 to $500,000 in assets and it is unclear at this time as to whether he will be able to live at home. She wants to know what you can do, if anything, to maximize his assets. 6

7. CLIENT SCENARIO #1 - ANALYSIS OPTION #1 - Spend down assets to $2,000 A. Nursing home (NH) analysis NH private room cost: $200.00 per day Semi-private NH rate: $180.00 per day NH public aid rate (semi-private): $100.00 per day Prescription cost: $500.00 per month (Issue: Medicare Part D) How long would the money last? 4 to 6.9 years / $71,700 per year (semi-private room) B. Place at home with 24 hour care $150.00 for private care or $4500 per month $500.00 per month for medications (Issue: Medicare Part D) $500.00 additional monthly expenses How long will the money last? 4 to 7.5 years / $5,500 per month or $66,000 per year 7

8. CLIENT SCENARIO #1 - ANALYSIS (continued) OPTION #2 - Transfer funds to Children/ Personal Services Contract Transfer funds to children and have a contract with the children to pay for the parent privately for the period of ineligibility. Personal Services Contract for personal care based on reasonable compensation and Medicaid Actuarial Tables. OPTION #3 – Transfer funds to Annuity New rules under the Deficit Reduction Act of 2005 require pay back provision. OPTION #4 - Utilize Individual or Pooled Special Needs Trust Nursing home placement: Reduce nursing home expense from $71,700 to $29,700 while Medicaid pays the nursing home expense and prescription coverage. Supplement needs of client from trust. 8

9. HOW TO REDUCE COSTS BY USING A POOLED SPECIAL NEEDS TRUST Original nursing home cost: $5,475.00 per month Medicaid payment: $3,000.00 per month Amount paid from trust: $2,475.00 per month Original prescription cost: $ 500.00 per month Medicaid payment: $ 500.00 per month Amount paid from trust: $ 0.00 per month Original cost $5,975.00 per month - $71,700.00 per year New cost $2,475.00 per month - $29,700.00 per year Note: Funds will now last 10 to 17 years vs. 4 to 7 years. Note: Mr. Smith could enter a Pooled Trust via a joinder agreement. 9

10. MAXIMIZE BENEFITS/ QUALITY OF LIFE Original Care Cost: $4,500.00 per month Medicaid Waiver: $3,000.00 per month Amount paid from trust: $1,500.00 per month Original prescription cost: $ 500.00 per month Medicaid payment: $ 500.00 per month Amount paid from trust: $ 0.00 per month Other Monthly Costs: $500.00 per month Original cost $5,500.00 per month - $66,000 per year New cost $2,000.00 per month - $24,000 per year Note: Funds will now last 12 to 20 years vs. 4 to 7.5 years. 10

11. CLIENT SCENARIO #2 Suzie and Dan Smith walk into your office and state that their daughter, who is 17 years old was diagnosed with autism a couple of years ago. They explain that she and her husband heard about the Developmental Disability Waivers a few years ago and she remains on the waiting list. They want to plan for when she turns 18 for health insurance, Social Security Disability, and waiver services and also for what will happen on their death. They further state that their parents want to leave money for her and are wondering how to do that without disqualifying her from benefits. What will happen if they do no planning? What if they plan, but the grandparents do nothing? What is the solution? 11

12. CLIENT SCENARIO #2 - ANALYSIS I. Definition of Developmental Disability – Autism – FL. Stat. 393; II. Create Life Care Plan; III. Determine Parents Needs for Estate Planning Tools; IV. Primary Benefits – SSI/SSDI/MEDICAID/MEDICARE/ICP; V. Health Insurance – Private Insurance coupled with Medicaid or Medicare; VI. Establish Revocable Trusts with Third Party Trust Provision for Child with Disability; 12

13. CLIENT SCENARIO #2 - ANALYSIS (continued) VII. Establish Stand Alone Third Party SNT for Others to Donate to Avoid Outright Distribution and Need for First Party SNT. In Florida, There is No Payback for a Third Party SNT. First Party SNT will have Payback Requirement to State Medicaid that provided services (issues of portability); VIII. Make Sure Information is Shared with Grandparents for Appropriate Beneficiary Designations; IX. Permissible Disbursements from SNT; X. Appointment of Trustee (Co-Trustee); XI. Need for Provisions with Trust Advisory Committee and/or Trust Protector; and, XII. Alternatives – Pooled Trust for Small Sums. 13

14. CLIENT SCENARIO #3 The client, age 8, was in a severe car accident at the age of 3 and is a quadriplegic, on a ventilator, but is not impaired cognitively. He is going to receive a settlement in the amount of 6 million dollars and his parents are going to receive $100,000 that they are going to use to pay back their debts. The guardian ad litem in the guardianship proceeding to approve the settlement is recommending a full structure for the settlement. The family lives in a small home that is not accessible. They also have two other teenage children. The child has 24 hour nursing (shift care) provided via Medicaid. The father works and the child is receiving $30 a month in SSI benefits. The father is also looking at obtaining private 14

15. CLIENT SCENARIO #3 (CONTINUED) health insurance. This is the first meeting with the family. ANALYSIS: I. Review of Life Care Plan; II. Discussion of Life Care Plan in Conjunction with Structured; Settlement Proposal (Pros and Cons); III. Parents Settlement Portion; IV. Confirmation of Benefits; V. Review of Document – Terms; and, VI. Determine Need for Expenses From Trust - (Issue of 1/3rd Reduction). 15

16. DRAFT LANGUAGE/ISSUES • “Trustee shall not pay for food or shelter items.” • “Trustee shall determine and apply for the government benefits on behalf of the beneficiary.” • “Trustee shall act at the direction of the outside Trust Advisory Committee and is bound by that decision.” • “Trustee shall not pay anything from the trust that will reduce, diminish or alter a government benefit.” • “Trustee shall arrange and pay for a pre-paid burial plan for the disabled beneficiary.” 16

17. DRAFT LANGUAGE/ISSUES • Allow for disbursements by Trustee to be pursuant to the Programs Operations Manual (“POMS”) of Social Security (which Medicaid follows in the State of Florida). • Permit the trustee to make distributions for items that may reduce or even eliminate government benefits if in the best interest of the disabled beneficiary (1/3rd reduction rule). Add a paragraph that if this authority made the trust a countable resource or countable income that this authority would be deemed null and void. • Use outside Trust Advisory Committee, but do not permit them to direct the trustee or bind the trustee. • Use permissive instead of mandatory language. 17

18. ADMINISTRATIVE NIGHTMARES • EXPECTATIONS – SOLE BENEFIT RULE A. Vacation – Can’t the Whole Family Go? B. Family Caregivers – How to Determine? (Hobbs Controversy) C. House Expenses – My Family will Live There and the Trust will Pay All Expenses, Right? D. Funeral Plan – I Don’t Want to Talk About It! • BENEFITS ISSUES A. Type – I think I get SSDI. B. I Don’t Want to Qualify for Government Benefits! 18

19. RESOURCES ON THE WEB • WWW.SSA.GOV • WWW.CAREMANAGER.ORG • WWW.SPECIALNEEDSALLIANCE.COM • WWW.ADVOCACYCENTER.COM • WWW.MEDICAREADVOCACY.ORG • WWW.DISABILITYRESOURCES.ORG 19

20. SUNTRUST DISCLOSURES __________________________________________________________________ SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively, “SunTrust”) are not permitted to give legal or tax advice. While SunTrust can assist clients in the areas of estate and financial planning, only an attorney can draft legal documents, provide legal services and give legal advice. Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan. Because it cannot provide legal services or give legal advice, SunTrust’s services or advice relating to “estate planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan. These materials are educational in nature. The implications and risks of a transaction may be different from individual to individual based upon past estate, gift and income tax strategies employed and each individual’s unique financial and familial circumstances and risk tolerances.