Estate Planning and Special Needs Trusts

1. Estate Planning andSpecial Needs TrustsPresented by:Joshua L. BrothersBarbara ByramWilliam L.E. Dussault www.dussaultlaw.com

2. Public Benefits Review • SSI/Medicaid • Disabled, blind, >65 • Disabled = no SGA ($1,000.00/month) • “Means tested” • Income • Earned ($2:$1) • Unearned ($1:$1) • ISM (up to 1/3) • Assets < $2000 (individual) • Exemptions include primary home (<$500k), vehicle, personal property, SNT • SSDI/Medicare • Disabled, blind, >65 • Disabled = no SGA ($980/month) • “Entitlement program” • Available to individuals who have paid FICA taxes in the last 20 of 40 quarters prior to disability • Not “means tested” • Medicare available when: over 65 or meets SSA disability definition, 29 months post injury www.dussaultlaw.com

3. Last Will and Testament (aka the “Will”) • Most common estate planning document • Controls distribution of “probate” assets at death • Washington’s probate process • Federal Estate tax considerations ($3,500,000 in 2009; none in 2010, $1,000,000 in 2011) • Living trusts and estate taxes • $2,000,000 WA State Estate tax • Should I leave assets to an individual with disabilities? • Outright distribution • Disinherit the individual • “Testamentary” special needs trust www.dussaultlaw.com

4. Roles of Individuals in a Will • Executor: • Duties • Who to name? • Guardian: • Duties • Who to name? • Should be consistent with any Court files • Trustee: • Duties • Who to name? www.dussaultlaw.com

5. Probate vs. Non-Probate Assets • Probate assets are assets held in the decedent’s name without a beneficiary designation that pass in accordance with the decedent’s will. • Non-probate assets are those that pass by a written instrument or arrangement other than a will • Jointly owned property with right of survivorship (bank accounts and real property) • Pay on Death (POD) Account • Trust • Community Property • Individual Retirement Accounts (IRA) • 401(k) Plans • Life Insurance • Review non-probate assets on a regular basis www.dussaultlaw.com

6. What is a Trust? • Separate legal entity • Barrier between beneficiary and Trust assets • Roles • Trustor or Settlor • Trustee • Beneficiary • Basic Functions of a Trust • Safeguard assets • Financial Management • Distributions • “Types” of Trusts are just restrictions on basic functions • Can serve as an alternative to guardianship www.dussaultlaw.com

7. What is a Special Needs Trust (SNT)? • Purposes: • Financial management • Continued eligibility for “means” sensitive benefits (primarily SSI and Medicaid) • Restriction on expenditures – “extra and supplemental needs” of the beneficiary • Needs not covered by SSI and Medicaid • Cannot pay for basic food (groceries) and shelter (rent and basic utilities) or primary medical services otherwise covered by benefits • Can be used to pay for vacations, clothes, entertainment, education, etc. • Trust restrictions must be observed. • Must be “irrevocable” • Sole benefit www.dussaultlaw.com

8. Source of Funding Matters • 2 sources of funding: • Assets of anyone but the beneficiary (3rd Party SNT) • The beneficiary’s assets (Self-Settled SNT or (d)(4)(A) SNT) • Source determines who can establish the SNT and the terms of the SNT • Self-settled are any assets which the beneficiary or his/her guardianship is entitled to receive • Outright inheritances or gifts • Settlements/judgments • Social Security back payments www.dussaultlaw.com

9. Self-Settled (d)(4)(A) SNT • Beneficiary’s own assets • Restrictions • Beneficiary must be disabled • Established by parents, grandparents, guardian, or court • Beneficiary must be under 65 years of age • Medicaid Reimbursement • “Grantor” Trust if drafted appropriately • Alternative: (d)(4)(C) SNT • Pooled Trust • Retained Trust assets replaces Medicaid Reimbursement www.dussaultlaw.com

10. Third Party SNT • Assets of anyone other than the beneficiary • No (d)(4)(A) SNT restrictions • Anyone can establish • Beneficiary can be any age • No Medicaid reimbursement • Complex Trusts • Can be a Living or Testamentary Trust • Common situations in which a Third Party SNT is created • Will and Estate Planning documents • Family or friends want to assist the beneficiary • Avoidance of multiple SNTs in wills • Control of assets after the beneficiary has passed away www.dussaultlaw.com

11. Developmental Disabilities Life Opportunities Trust (DDLOT) • Also known as the Endowment Trust • State-run Trust that is administered by the Arc • Available only to individuals who are developmentally disabled as determined by DDD • Can be self-settled or third party • Administrative Fees & Costs • $600 enrollment fee • Tax return preparation and filing fee • Annual management fees for day-to-day management (greater of $75 or 2% of account balance with $750 cap) • Investment Board Fees (investment fees) • Trust Manager Fees (the Arc) • State Treasurer Fees www.dussaultlaw.com

12. DDLOT Matching Funds • Administrative fees currently being matched • Tax prep/filing fees • $600 enrollment fee • Administrative fees previously matched, but now on hold • Annual management fee • Match of Contributions (on hold!) • 25% state match of up to $31,000 ($7,750) • Contributions cannot be withdrawn in the same year they are deposited • Only $3,100 will be matched in a single year • Vesting • Requires the accumulation of $25 per month for 3 consecutive years ($900 over three years) • Can be periodic payments or a lump sum • Can only spend “matched funds” after being vested • Matching funds are not guaranteed and have run out • 2010 Legislative Session • Foundation • Proportionate Distributions www.dussaultlaw.com

13. DDLOT Investment Strategy • Conservative Investment Strategy • 23% in fixed income (bond market fund) • 24% in cash equivalents (short-term investment or money market funds) • 14% in US Equities • 39% in Treasury Inflation Protection Securities (US inflation indexed bonds) www.dussaultlaw.com

14. DDLOT Advantages & Disadvantages Advantages • Potential for matching funds • Professional management if no family to assist • No on-going attorney’s fees and costs for court reporting Disadvantages • Loss of control • Timely distributions • Rejection of distribution requests • Investments • Immediate availability of funds • Terms of Trust (trustee, etc.) • Property • Conservative investments • Potential administrative fees and costs – about to find out! • Risk Aversion? www.dussaultlaw.com

15. Disclaimer & Notice • This training and written materials are designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the presenters are not engaged in rendering legal, financial or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. • Please keep in mind all written materials and power point slides are the intellectual property of the Dussault Law Group. These materials may not be distributed without the express written consent of the authors. www.dussaultlaw.com

16. Thank You! Joshua L. Brothers Barbara Byram William L.E. Dussault www.dussaultlaw.com