Utilizing Special Needs Trust for the Family Law Practitioner

Transcription

1 Utilizing Special Needs Trust for the Family Law Practitioner

2 For More Materials on this Subject I will post this video (assuming the equipment works) and related materials on the Golden State Pooled Trust website.

3 What I Intend to Cover A Review of Benefits Law How Child Support Affects Needs Based Benefit Special Needs Trust Basics Coordinating Estate Planning for Disabled Children of Divorced Parents

4 A Review of Benefits Law Not Affected by Alimony or Support: Social Security Insurance Benefits (OASDI) Medicare Special Education Affected by Alimony and Support: Supplemental Security Income (SSI) MediCal In Home Support Services Developmental Disability Waivers

5 Common Programs that Families of Disabled Children Utilize Many disabled children with developmental disabilities will utilize services from the regional center. Many of these services are based upon MediCal eligibility We will go through a brief overview of a few programs

6 Eligibility for Supplemental Security Income Aged is age 65 or over Blindness is central visual acuity of 20/200 or less or field of vision limitation of 20 degrees or less in the better eye with corrective lens Disability is inability to perform any work due to medically determinable physical or mental impairment, must last one year or longer or result in death, and age, education, and prior work experience are considered

7 Supplemental Security Income Supplemental Security Income SSI is a federal program, administered by the states, and is based on sufficient evidence of disability and financial need

8 Supplemental Security Income Supplemental Security Income SSI is intended to pay for the beneficiary's food, and shelter and nothing more.

9 Supplemental Security Income Supplemental Security Income SSI rate in the in 2013 is $866.40

10 3 Part SSI Test Meet Definition of Disability Income test determines how much is received. Resource test determines eligibility

11 Definition for Disability under SSI and SSA Disability Programs Disability is inability to perform any work due to medically determinable physical or mental impairment, must last one year or longer or result in death, and age, education, and prior work experience are considered

12 Compare with California : Family Code: (a) The father and mother have an equal responsibility to maintain, to the extent of their ability, a child of whatever age who is incapacitated from earning a living and without sufficient means.

13 Types of SSI Income Unearned Income Earned Income In-Kind Support & Maintenance Includes gifts, payments from annuities and pensions, alimony & support payments, dividends, interest, rents, awards and payment from other benefit programs. Reduces benefits dollar for dollar after the first $20 Consists of wages, royalties, net earnings from self-employment, and any honoraria received for services rendered. Reduces benefits one dollar for every two dollars after the first $65 earned monthly Actual receipt of food, clothing, or shelter, or something that can be used to get one of these. Reduces benefits dollar for dollar up to a maximum of $ in 2013

14 Two Other Important Concepts 1. Special Treatment of Child Support Payments 2. Deeming of income and Resources

15 One Third Rule Child Support Rule One-third of the amount of a child support payment made by an absent parent (a parent not living in the household), is excluded as countable income. However, this exclusion credit only occurs as long as the individual is defined as a child under SSI rules.

16 One Third Rule Child Support Rule A child is defined as an individual that is neither married nor head of a household and under age 18, or under age 22 and a student regularly attending school or college or training that is designed to prepare the individual for a job.

17 One Third Rule Child Support Rule Example as Child For example, child support of $900 per month is paid to the custodial mother by the father for the benefit of their 12 year old child. Before counting other income deemed from the mother, the child s monthly SSI benefit rate is $ Subtracting the $20 unearned income disregard from two-thirds of the payment, the child s benefit rate is reduced to $ $ (600 20) = $286.40

18 One Third Rule Child Support Rule Example as Adult Once the child is defined as an adult, then the benefit would be reduced by the full child support payment less the unearned disregard, or $ (900 20) = $0.

19 Child Support Paid Inkind Child support might be paid as in kind support and maintenance (ISM) in the form of food or shelter. This may be an advantage rather than paying cash in larger child support payment situations because the SSI benefit reduction caused by ISM is only reduced by the lesser of the actual values of the ISM or the presumed maximum value (PMV), which is $ in POMS SI B.2.

20 Child Support Paid Inkind Example For example, rather than pay child support directly to the mother, the father pays the rent for the mother and 12 year old child directly to the landlord in the amount of $1,800 per month. The child s share of the support is equal to $900

21 Child Support Paid Inkind Example If the support were paid directly to the mother, the reduction would be $580 (900 x 2/3-20), and the child would receive $ in benefits. However, since received as ISM, it only reduces the SSI benefit by the lesser of the two, the PMV, , and the child receives $ (an additional $432.34)

22 Deemed Income Income and resources of a parent to an eligible child under age 18, of a spouse living in the household, or of a sponsor to an alien, is counted as being available to the eligible individual, but with certain exclusions

23 Effect of Child Support and Alimony on SSI Benefits 100% of alimony is countable as income to spouse, and can also be deemed to eligible child 2/3 of child support provided by an absent parent to child is countable until age 18, and 100% thereafter In-kind alimony and child support for food and shelter reduces benefits up to $ maximum Child support to ineligible sibling is not countable If child relocates with other parent, benefits must be recalculated 25

24 Basics Of SSI Eligibility Resources Anything that can be converted to cash for support is a resource. If resources exceed $2,000 on the first day of a calendar month, the beneficiary's public benefits will be lost until resources are reduced.

25 BASICS OF SSI ELIGIBILITY Exempt Resources A home, if the beneficiary has an ownership interest and it serves as his/her principal residence.

26 BASICS OF SSI ELIGIBILITY Exempt Resources Household goods of any value as of March 2005

27 BASICS OF SSI ELIGIBILITY Exempt Resources One automobile of any value. (as of March 2005)

28 BASICS OF SSI ELIGIBILITY Exempt Resources Items related to the disability

29 BASICS OF SSI ELIGIBILITY Exempt Resources Life insurance policies with cash surrender value, if their total face values amount to less than $1,500, and All term life insurance. A burial plot, or other burial space, worth any amount. Up to $1,500 set aside for burial expenses Insurance Policy

30 Deeming of Resources from Parent to Child The resources of the child include the value of the countable resources of the parent(s) or spouse of a parent, to the extent that the resources of the parent(s) or spouse of a parent exceed the resource limit of: an individual, if one parent lives in the household; or a couple, if two parents (or one parent and the spouse of that parent) live in the household. The value of parental resources is subject to deeming whether or not those resources are available to the child

31 BASICS OF MEDI-CAL ELIGIBILITY If an SSI beneficiary receives at least $1 of SSI, the beneficiary then receives full scope free Medi-Cal automatically. =

32 Benefit Basics Covered health services include: medically necessary durable medical equipment, pharmaceutical goods, medical services and treatments, hospitalization including nursing care and dental care, and many regional center benefits including Medi-Cal residential programs.

33 In Home Support Services The In Home Support Services program pays for care of a disabled beneficiary s care to in the home to provide care in the home to avoid institutionalization. IHSS The beneficiary can qualify for up to 283 hours of care a month Income and resource limitations are essentially the same as Medi-Cal and SSI rules

34 In Home Support Services In many cases this can be an essential program for a parent IHSS providing care for a disabled child because the income the parent receives is not countable for needs based benefit purposes. In addition the caregiver can qualify for MediCal

35 Benefit Basics The Developmental Disability Waiver program allows a developmentally disabled child to remain in the parents home without the parents assets and income being deemed to the child. Without this program many disabled children would need to be placed outside of the home. DD Medi-Cal Waiver

36 Benefit Basics A disabled child may be eligible for Social Security if a parent is eligible and the child's disability began before age 22. Social Security

37 Benefit Basics Social Security Benefits do not become payable until the eligible parent dies, retires, or becomes disabled.

38 Benefit Basics Social Security Social Security is not affected by the child's assets, but the child's income may result in an ineligibility determination.

39 Social Security Upon the disability or retirement of the parent, an eligible disabled child will receive an amount equal to 1/2 of the parent s benefit Upon the death of the parent, an eligible disabled child will receive an amount equal to 3/4 what the parent s SSA benefit.

40 Social Security Example Helen has been disabled from birth, and is receiving $ in SSI monthly Helen s father, Earl, retires and receives $1,600 a month. Helen begins to receive $800 per month Receipt of the SSA is unearned income which reduces Helen s SSI by $780. Helen now receives $86.40 SSI and $800 SSA

41 Social Security Example Earl, dies and Helen begins to receive $1,200 per month Helen s SSI is eliminated completely. Helen will lose her categorical eligibility for Medi-Cal and needs to either go to Share of Cost or reduce her countable income below $1,161.

42 Benefit Basics Medicare is a federal health insurance program for people over 65 and people under 65 who have been receiving Social Security based on disability for two or more years. Persons can be eligible for both Medicare and Medi-Cal. Medi-Cal is payor of last resort and covers long term care costs. Medicare

43 Special Needs Trust Basics Special Needs Trusts are divided into two categories Third Party Special Needs Trusts Self Settled Special Needs Trusts

44 Setting Objectives Proper planning will focus on achieving as much independence as possible for the disabled beneficiary Benefits alone should not be the sole planning objective.

45 Elements of a Special Needs Trust A Trust is a contract to control property for the benefit of a beneficiary to meet some objective A special needs trust is drafted specifically so trust assets are considered not to be "available resources" in calculating the disabled person's eligibility for needs based benefits.

46 Elements of a Special Needs Trust The Social Security Administration describes a discretionary trust as a trust in which the trustee has full discretion as to the time, purpose and amount of all distributions. If the beneficiary has no discretion over the distributions, the trust is not counted for SSI eligibility.

47 Elements of a Special Needs Trust The funds in the trust may then be used to supplement the beneficiary s needs not covered by public benefits without a reduction or elimination of SSI, MediCal or IHSS.

48 Special Needs Trusts Can Be Divided Into Two Categories If the source of the fund are from someone other than the benefits recipient, the trust is categorized as a Third Party Special Needs Trust If the source of the funds of the Special Needs Trust are from the benefit s recipient, then the trust is categorized as a self settled or MediCal Payback Trust Special Needs Trust 3 rd party No recovery upon death of beneficiary Special Needs Trust Self Settled MediCal Payback Medi-Cal Recovery upon Death of Beneficiary

49 The Estate Planning Special Needs Trust or Third Party Special Needs Trust

50 Third-Party Trust Social Security says SI A 17 A third-party trust is a trust established by someone other than the beneficiary as grantor. For example, a third-party trust may be established by a grandparent for a grandchild. Be alert for situations where a trust is allegedly established by a third party, but in reality is created with the beneficiary's property. Special Needs Trust

51 Third-Party Trust SI A 17 A third-party trust can have great latitude, and upon the death of the beneficiary can be left to anyone you wish except: You cannot leave it to the drafting attorney. Special Needs Trust

52 The Individual Self Settled MediCal Payback Trust

53 Self Settled Special Needs Trusts or MediCal Payback Trusts SI B1. Federal Law Allows A Disabled Individual to Protect Their Own Assets And Maintain Their SSI AND Medi-Cal If The Special Needs Trust Which contains the assets of an individual under age 65 and who is disabled ; and Special Needs Trust

54 Self Settled Special Needs Trusts or MediCal Payback Trusts SI B1. Federal Law Allows A Disabled Individual to Protect Their Own Assets And Maintain Their SSI AND Medi-Cal If The Special Needs Trust Which is established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and Special Needs Trust

55 Self Settled Special Needs Trusts or MediCal Payback Trusts SI B1. Federal Law Allows A Disabled Individual to Protect Their Own Assets And Maintain Their SSI AND Medi-Cal If The Special Needs Trust Which provides that the State will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan. Special Needs Trust

56 Court Process and Public Benefits Court ordered divisions of property do not create benefit eligibility transfer penalties Court separation or child support order, or divorce decree, not required to create division of households for benefit eligibility purposes SSI follows state law in interpreting judicial orders for lawful division of property and countability Court order putting income and resources into a SNT for benefit of recipient creates exclusion of countability until distributed

57 Child Support Child support is defined by the SSI program as in kind or cash payments to a child or a child s legal representative or custodian to meet the child s needs for food and shelter.

58 If child support is paid to an SSI eligible parent, it is considered to be the child s income and is countable to the child as long as the parent and child live in the same household. Child support payments, including arrearage payments, are considered as unearned income.

59 Irrevocably Assigning Support Payments to a SNT Also consider that because spousal or child support is typically spent on a regular basis after deposit into a SNT and therefore does not tend to accumulate, use of a d4a trust for support as compared to a third party trust may not pose much risk for recovery.

60 Coordinating Estate Planning for Disabled Children of Divorced Parents We have many cases where parents have divorced but are still both very involved in the disabled child s life. The ideal is to create a Stand Alone Special Needs Trust where both parents can coordinate their estate planning

61 Common Issues in Coordinating Estate Planning for Disabled Children Coordinating the parents objectives Who will serve as Trustee Where will the remainder go when the disabled child passes away Pros and Cons of utilizing counsel for both parents Resolving conflicts

62 Coordinating the parents objectives A Special Needs Trust by it s nature is a form of a Spendthrift Trust where the beneficiary cannot be controlled by the beneficiary It is critically important that the trust be clear on the overall objective of the trust to assist the beneficiary and avoid conflict

63 Coordinating the parents objectives - Examples Examples of common objectives Advocacy Housing Education Maintaining contact with family

64 Gene s Slides Follow

65 Eligibility for a Child. Definition of Disability Disability for a Child Under 18 Is a medically determinable physical or mental impairment or combination of impairments that causes marked and severe functional limitations, and that can be expected to cause death or that has lasted or can be expected to last for a continuous period of not less than 12 months. 20 CFR

66 The Problem: Child Support and SSI // Medi- Cal Don t Mix CS will Reduce or Eliminate SSI If SSI is eliminated, Child Can Lose Medi- Cal

67 Example #1: Hypo #1: Child Support $900/month Child Was Getting $856/month SSI Will Be Reduced Calculations: $900 X 2/3 = $600 $600 - $20 Disregard = $580 SSI of $870- $580 CS = $290 of SSI SSI Reduced CS Benefit Diminished

68 Example #2: Hypo #2 Child Support Ordered at $1,350/month Child Was Receiving SSI of $870/month SSI Eliminated! Calculations: $1350 X 2/3 = $900 $900 - $20 disregard = $880 = Reduction in SSI SSI of $870 - $880 in CS = 0 Child Bounced off SSI! Child Loses Medi-Cal

69 Goal: To Enhance Standard of Living of Child By Preserving Full Value of Child Support And Public Benefits SSI and Medi-Cal Solution: the Special Needs Trust

70 Meeting the Absent Parent Test Problem: SSI requires that Payor be the Absent Parent to reduce CS offset by one-third. POMS SI (A)(2) a bio parent.. (1) who does not live in the same household as the child... [and (2) who does not] retain parental responsibility and control The Term is foreign to CA Family Law, which favors shared custody / time between parents

71 Suggested Approach Look to the parental time share Urge that the parent with less time is the absent parent This is consistent with the guideline formula for determining CS. Family Code The H Factor is the % time that the higher earner has with child Avoid Joint Custody labels in Order See CEB, Ch. 4., at 4.16B In Practice, if parents living apart, SSA usually allows a 1/3 reduction

72 SNT for CS Must be Ordered Must be Court Ordered. POMS SI (B)(1)(f) Cannot be established by agreement Problem: How to Arrange this?

73 SNT Must be Ordered (cont d) Educate Counsel for Parties Consider incentives to Payor Parent, e.g. (1) Lower CS payment. But, see. FC 4061(a)(5) [can agree to CS below G Line only if no app. for public assistance is pending. CalWorks only?] (2) Other Incentives? Family Lawyers: Very Creative, e.g. Assignment of W/H Allowance

74 SNT Must be Ordered (cont d) Educate Judge Conference in Chambers Request that Court Order SNT Payor May Consider Pro Forma Objection Prepare Proposed Judgment Carefully See, CEB, Ch. 4, 4.16D Potential Problem: the Chandler Case

75 The Chandler Case 60 CA4th 124, 70 CR 2d 109 (1997) Potential Obstacle Facts: High Income F; G line >>>$9,197/mo, but child s expenses only $3K/month. Ct ordered F to pay only $3K to Mom + additional $4K/mo to trust for C s future medical, travel & educational expenses. Although Mom = Trustee, her discretion limited by trust terms

76 Chandler (Cont d) Held: C/S Order Reversed. Abuse of discretion Court Cannot Oder CS paid to a trust over Objection of Recipient Parent Rationale: Payor Cannot Control Payee s use of CS But, Majority allowed an opening...

77 Chandler (Cont d) "We doubt it is ever appropriate to employ a trust... But even assuming a trust can be used, it must be limited to cases where there is a strong showing of necessity, buttressed by specific, detailed factual findings compelling the need to limit access to support funds... The trial court's explanation for employing a trust in this case falls far short of this standard." CEB, Ch. 4, at 4.16G

78 Chandler (Cont d) In Chandler: Child Was not disabled Trust was Not a SNT No Special Need identified No need for Public Benefits Stinging Dissent Chandler >> Distinguishable Not Controlling Where Parties Agree

79 SSI Requires Assignment to SNT Be Irrevocable POMS SI (J)(1)(d) Problem: How to Square with CA Family Law That Precludes Court From Abdicating Jurisdiction re: CS? Approach: Suggest that only the payment of CS to SNT be irrevocable, BUT that court retain jurisdiction over Amount of CS Timing of Payment & Enforcement CEB, 4.16I

80 Court Jurisdiction Over SNT Trustee? Court may have concerns Offer These Assurances: 1) CRC 5.18(a): Ct May order injunctive or other relief against a trustee w/respect to any... matter subject to the juris. of the court in the proceeding. No Req t of Joinder 2) Alternatively, Joinder Available if Ct Wishes 3) Also, Trustee of CA based trust automatically subject to orders of probate court. Probate C CEB, Ch. 4, 4.16I

81 The Drake Case 53 CA4th 1139; 62 CR 2d 46 (1997) CS ordered for Incapacitated Adult Child, per F.C Mom Set up Trust for Child (not ct ordered) Mom Died Held: Trust treated as surrogate mom in G line calc. All time share allocated to Trust (surrogate) C s SSDI Treated as Trust s/mom s Income in Guideline Calculation, notwithstanding FC 4504 (which normally credits SSDI against CS of Payor), bcs taken into consideration

82 Implications of Drake Income from SNT for Child Does Not Discharge Parent s own CS obligation OK to treated SNT as Surrogate Parent in G Line Calc of CS OK to treat Trust Income as Parent s OK to Reallocate all Timeshare to SNT/Surrogate OK to treat Child s SSDI as surrogate PARENT S income, rtr than as a direct offset to CS payment

83 SNT and CRC Rule Issue: Must Fam. Ct. order recite that SNT is subject to court s continuing jurisdiction as Trust Funded By Court Order SNT for Support Not W/I Definition of trust funded by court order Probate Code 2580 (Substituted Judgment) Probate Code 3100 (Claims of Minors/Disabled)