Presents

Introduction to Special Needs Planning

With

Harry S. Margolis

Sponsored by:

January 7, 2014

Why Special Needs Planning is a Great Area of Practice

Growing Need:• More individuals with special needs

• Better medical care• Longevity

• Needs recognized

Make a real difference in clients’ lives:• Public benefits• Asset protection

• Structure for care and financial management• Relieving burden on siblings

Effect of Affordable Care Act

• Fewer people will need Medicaid because there is no more pre-existing condition exclusion

• Fewer people will need to maintain SSI eligibility in order to get Medicaid

Public Benefits

Available Programs:• Medicaid• Medicare• Supplemental Security Income (SSI)• Social Security Disability Income

(SSDI)• Housing• Veteran Benefits

Public BenefitsMedicaid

Often vital• Coverage can be more extensive than

Medicare or private insurance• Often provides supplemental benefits,

such as personal care attendants

• Eligibility and benefits differ among states

• In many states tied to SSI

Public BenefitsMedicare

• No financial restrictions

• Eligible after receiving SSDI for 2 years

• Not as comprehensive as Medicaid

• But more doctors accept reimbursement

• Co-payments and deductibles

Public BenefitsSupplemental Security Income

• Restrictive

• $2,000 limit on countable assets

• Federal benefit level ($721 a month in 2014) plus state supplement

• Dollar-for-dollar income offset (after $20 disregard)

• In-kind income

• Upper limit on reduction for housing and food

• In kind support and maintenance (ISM) – 1/3 of $721 plus $20 - $260 (in 2014)

Public BenefitsSocial Security Disability Income

• Not based on financial eligibility

• Benefit based on beneficiary’s work record or that of parent

• If based on parent’s work record, child must have been disabled before age 22, and parent must either be receiving SS benefits or be deceased

• Benefit may be more or less than SSI benefit

• Can change from SSI to SSDI when parent retires

• Easier to manage than SSI

Public BenefitsHousing

• Section 8 most prominent

• Other state and federal programs, so ask

• Section 8 has tough rules on treating recurring payments as income

• But applied differently by different agencies

Veteran Benefits

• Veterans with disabilities may receive benefits for:• Service Connected Disabilities• Non-Service Connected Disabilities

• Income and Resource limitations apply

• SNTs – (d) (4) (A) and (C) – not currently recognized by the Veteran’s Administration, but no transfer penalty (for the moment)

Trusts as Primary Planning Tool

• Management

• Structure

• Asset protection

• Eligibility for benefits

Trusts

Management:

• Trustee or trustees manage trust property for benefit of beneficiary or beneficiaries

• Held to a fiduciary standard

• Trust lays out ground rules for how funds are managed and distributed

Trusts

Structure:• Succession of trustees• Trustee oversight• Care committee• Trust protector• Succession of beneficiaries• Power of appointment

Asset Protection

• Predators

• Creditors

• Poor decision-making

• Alternative of relying on siblings

Public Benefits

• Trust funds not counted (if properly drafted and administered)

• Self-funded vs. third-party trusts

• Self-funded: must fall under a statutory exception

• Third-party: must be discretionary, not support

(d)(4)(A) or Payback Trusts

• Presumption that self-settled trusts are available assets

• Just as they may be reached by creditors

• Exception under 42 USC §1396p(d)(4)(A)

• For both Medicaid and SSI

(d)(4)(A) or Payback Trusts

• Sole beneficiary

• Must be disabled and under age 65 (when the trust is funded)

• Trust created by parent, grandparent, court or guardian

• For SSI, must be “seeded” – $20

• At beneficiary’s death, must provide for reimbursement to state for Medicaid expenditures made

(d)(4)(C) or Pooled Trusts

• Exception under 42 USC §1396p(d)(4)(C)

• For both Medicaid and SSI

• Trust must be managed by not-for-profit organization

• Must be disabled and, depending on the state, under age 65 (when the trust is funded)

• Trust created by parent, grandparent, court, guardian, or beneficiary

• At beneficiary’s death, must provide for reimbursement of state for Medicaid expenditures made, unless remaining in the pooled trust• See www.specialneedsanswers.com for

comprehensive listing of pooled trusts

Third-Party Trusts

• By parents and grandparents

• Discretionary vs. more limited

• Trend towards more discretionary, less limited

• Intent language

• Revocable vs. irrevocable

Third-Party Trust Funding

• Usually at death

• May include contributions from others (grandparents, aunts, uncles)

• Life insurance

• Retirement plans

• How much?

• Revocable or irrevocable?

Letter of Intent

• Guides trustees

• Provides in depth information about beneficiary likes and dislikes, medical information, parents’ hopes for child

• Updating necessary

• Often seems to fall by the wayside

Personal Injury Cases

• Generally self-settled trusts

• Disabled prior to injury?

• To structure or not to structure?

• Still need SNT

• Last minute nature of cases

• Dealing with PI attorneys

Choice of Trustee:The Family

The Bad:• Poor investments• Poor reporting• Difficulty following SSI rules• Education burden

Choice of Trustee:The Family

The Good:• Knows the beneficiary’s needs• Knows service providers• Care• Continuity

Choice of Trustee:Professional Trustees

The Bad:• Don’t know beneficiary• Don’t know benefit rules• Arbitrary• Lack of control• Trust officers changing• Banks changing

Choice of Trustee:Professional Trustee

The Good:• Investment acumen• Ability to say “no”• Proper accounting• Proper tax reporting• No conflict of interest• Ability to set up accounts properly

Choice of Trustee

A Combination: Potentially the best of both worlds.

Traps for the Unwary

• Distributing more than $20 directly to the beneficiary in a calendar month

• Commingling the beneficiary’s funds with the trust funds, with the trustee’s own money or between trusts

• Poor record-keeping

• Leaving disabled individual as beneficiary of IRAs and life insurance policies

• Savings bonds

• Failure to notify state and federal agencies

House Ownership by Trust

• To be avoided, if possible

• Not a countable asset for SSI or Medicaid

• But subject to estate recovery and bad management

• So SNTs often own houses

• What if parents and other siblings live in house?

• Co-ownership? Rent? Ancillary beneficiaries?

Advocacy and Monitoring Care

Who will take over from parents? • Parents are primary advocates and care

providers

• Who will take their place?• Other family members• Professional care managers• Guardian• Attorneys• Trustees

• Coordinating care

Trust Protectors

• May be written into the trust or may be informal• Care provider• Advocate• Family members• Special needs attorney• Financial advisor• Specialist in special need, e.g., social

worker, physical therapist, psychologist, etc.

• Care manager

Introduction to Special Needs Planning

Harry S. Margolis

Margolis & Bloom, LLP

Boston, Dedham, Framingham & Woburn

hsm@margolis.com

www.margolis.com

Support(866) 296-5509

support@specialneedsplanners.com