FUTURE PLANNING, GUARDIANSHIP AND TRUSTS

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1 KEEP IN MIND: AGE 18 FUTURE PLANNING, GUARDIANSHIP AND TRUSTS Darcy J. Chamberlin Chamberlin Law Group 1200 Harger Road, Suite 209 Oak Brook, IL Legal Decision-Making Health Insurance Government Programs SSI Medicaid Impact of Divorce LEGAL DECISION-MAKING All children are presumed competent at age 18 (age of majority in IL) Adult Guardianship Guardian of the Person Guardian of the Estate Limited v. Plenary Legal Decision-Making Options and Alternatives 105 ILCS 5/14 Creates framework for parents of a child 18 years of age or older who is eligible for special education programs to allow for a responsible relative to exercise education rights on behalf of a child who is not under legal guardianship But lacks the ability to provide informed consent Legal Decision-Making Options and Alternatives Representative Payee Powers of Attorney Property Revocable, not protect against contracts Health Care Mental Health Declaration Form HIPAA Release Legal capacity to execute POAs 215 ILCS 5/367b Continuation Coverage mandated Under group health insurance plans Special needs child cannot age out of plan Notice Compare to IL law effective June 1, 2009 Group health insurance plans must offer Dependent coverage for unmarried child under age 26 Compare to Affordable Care Act (ACA) 1

2 HEALTH INSURANCE Government Programs Affordable Care Act (ACA) (or Obamacare) ACA eliminates the option for health insurance companies to deny coverage for a preexisting condition, including a history of seizures Medicaid for health insurance, income test only For persons with severely disabling seizures, Medicaid programs (other than health insurance ) still retain income and assets limitations and will continue to remain important Supplemental Security Income (SSI) Have a disability Limited Assets and Income For most families, child under age 18 not eligible for SSI due to deeming of parents assets/income Once child attains age 18, eligibility based on child s income/assets What Does SSI Do Monthly payment- up to $710 (2013) $721 (2014) Portal to Medicaid and SSDI Determination of a disability Onset before age 22 Eligible for Social Security Disability Insurance (SSDI) (and 2 years later, Medicare) as a dependent adult child (DAC) when insured parent retires, dies or becomes disabled Pickle Amendment (protects Medicaid eligibility when child becomes eligible for SSDI) MEDICAID (For Programs Other than Health Insurance) Must have a disability and Limited Assets and Income Varies depending on program Waiver programs Home Services Residential Supportive Services Gifts during Lifetime Gifts at Death Lifetime Gifts General Rule: No assets in the name of the child with disabilities Otherwise creates problem when child turns 18 and wants to apply for SSI and Medicaid How then can Parents, Grandparents make gifts to the child or help save for the future 2

3 Uniform Transfers to Minors Act (UTMA) 529 Plans UTMA accounts are the child s resources At age 21 Impacts SSI eligibility in Illinois Child takes control of account and uses funds for unintended purposes What to do? Custodian could purchase exempt assets Computers, clothing, wheelchair vans Larger accounts may end up in Payback SNT (court order may be needed) Tell grandparents, others not to gift to UTMA Not counted by SSI or Medicaid Owned by donor who can name child with special needs as the beneficiary Special needs trust can own 529 ABLE ACCOUNTS Achieving a Better Life Experience Act S. 313; H.R. 641 NOT YET PASSED Hybrid 529 plan Subject to payback to Medicaid upon death of child SAVINGS BONDS Countable by SSI and Medicaid Paper bond registered in child s name alone Electronic bond registered in child s name alone Paper bond registered in child s name and parent s name in any order Not countable by SSI and Medicaid Electronic bond registered in parent s name first, child second Either electronic or paper bond, child as beneficiary SAVINGS BONDS Not recommended for saving for child with special needs Beneficiary or electronic secondary owner Bond becomes asset of child upon death of primary owner Lifetime Gift Trusts Irrevocable Special Needs Trust Trust can be drafted to qualify gifts for the gift tax annual exclusion But could jeopardize SSI when child with disability is sole beneficiary of the Gift Trust File gift tax return Multiple beneficiaries Income tax issues Alternative: gift to parents who earmark for the child 3

4 Gifts at Death Estate Planning Putting those documents in place to allow an individual to provide for him or herself in case of incapacity or to provide for their loved ones after death With the least amount of probate costs Probate during life: Guardianship Probate at death With the least amount of tax costs Gifts at Death- Estate Planning Becomes even more critical when providing for a loved one with a disability Goals To maximize The family s resources Government benefits To provide for lifetime care and advocacy for our loved one with a disability The Tool- Special Needs Trust Special Needs Trust (SNT) Sometimes called a third party SNT or third party supplemental needs trust To enable beneficiary to retain government benefits and essential services To provide lifetime advocacy to enable your loved one to live as independently as possible free from neglect and abuse Common Pitfalls No planning Uninformed planning Uniform Transfers or Gifts to Minors Act Unplanned beneficiary designations Disinheritance No Planning Dying intestate (without a will or trust) may leave all or portion of the estate to decedent s children Any child on SSI or Medicaid will lose eligibility until inheritance is either spent down, converted to an exempt resource, or placed in Exempt Trust Payback SNT Pooled Payback SNT (current law: only if under age 65) 4

5 No Planning Unplanned Beneficiary Designations A Payback SNT (sometimes referred to as a First Party SNT) differs from the third party SNT: The trust must be established by parent, grandparent, court or legal guardian (and in limited circumstances, by the person with the disability) There is a lien (payback) upon death of Medicaid recipient for any Medicaid benefits provided by any state for the beneficiary If established by the court, often require costly accountings Designating a retirement plan, insurance policy or annuity directly to a public benefits recipient will likely cause a reduction or elimination of benefits Unplanned Beneficiary Designations Disinheritance Many retirement plans and life insurance default to children of participant/insured Example: Husband designates Wife as beneficiary of his IRA. Mother predeceases Father and no other designation is made. On father s death, the IRA makes children the beneficiaries by default If one of the children is on SSI or Medicaid, benefits are lost until spent, used to purchase exempt assets or transferred to Payback SNT Things go wrong No legal guarantees Not necessary Planning for a Loved One with a Disability Two Types of SNTs: Third Party or First Party (or Payback SNT) Source of Funds Special Needs Trust (SNT) Basics Who Establishes the Trust Distribution Upon Death of Beneficiary 5

6 Types of SNTs Source of Funds Third-Party SNT Funds belong to someone other than the beneficiary Payback SNT or Pooled Payback SNT Funds belong to the beneficiary with the disability Unplanned inheritance Personal injury award Adult onset of disability Different Names for same Trust Payback SNT, First Party SNT, (d)(4)(a) or (C) SNT, Self-Settled Trust, OBRA Payback Trust Types of SNTs Who Establishes the Trust Third-Party SNT Anyone other than the beneficiary First Party SNT (Payback SNT) Parent, grandparent, court or guardian But not the person with the disability First Party Pooled Payback SNT (Pooled Payback SNT) Parent, grandparent, court or guardian Or person with the disability Signs joinder agreement Types of SNTs Distribution Upon Death Third-Party SNT No Restrictions First Party SNT (Payback SNT) Medicaid repaid before remainder beneficiaries First Party Pooled Payback SNT (or Pooled Payback SNT) Medicaid repaid to extent not retained by pooled trust for charitable purposes Hallmarks of a Third Party SNT What is a Trust A contract to control property for benefit of beneficiary to achieve some goal Example: Revocable Living Trust (RLT) To avoid probate Minimize federal estate tax Creditor protection Compare to Will Wills direct distribution of probate assets Trusts avoid probate Hallmark of Third Party SNT Absolute Discretion SNT is a contract directing trustee to use the trust funds to provide those things or experiences for the beneficiary that are not otherwise provided by government benefits If beneficiary cannot revoke the trust or compel Trustee to make distributions, Medicaid and SSI cannot compel Trustee to make distributions Therefore trust assets are not countable by Medicaid or SSI Absolute Discretion Trustee Should Consider all resources available Consider public benefits But preserving public benefits not sole goal Focus on what is best for beneficiary Trustee Does Not Have To Spend Any Funds! 6

7 CAUTION How to Establish Third-Party SNT Daunting to undertake estate planning But if parents do not plan Child may end up with First Party Payback SNT No payback required in third party SNT Testamentary SNT Subtrust of a RLT Stand-alone SNT (revocable or irrevocable) Other family members can gift During lifetime or upon death Talk to them Dot leave money the wrong way Greater privacy Your Intent Clearly express your intent in the SNT and related documents Guidance to your Trustee and Future Trustees Trust broad instructions Journal or Letter of Intent more detailed Medical history Things that work Dreams Future residential aspirations, in own apartment, roommates Residential Needs What kind of housing is acceptable What is not acceptable Should provision be made for caregiver in the home Is it desirable or practical that the beneficiary own a home or live with others How is the home to be maintained Selecting the Ideal Trustee Acts in beneficiary s best interest Understands public benefits Maintains the books Understands taxes Invests wisely and conforms to fiduciary rules Can identify abuse, poor service Is Immortal Options Successors Individuals, co-trustees Individual with professional Trustee Individual Trustee works with team of professionals attorney, CPA, financial advisors, care manager 7

8 How to Choose the Trustee Beneficiary s disability and needs how to achieve greatest independence Amount of funds in the trust Need for advocacy and care managers Where does Trustee live in relation to beneficiary Possible Trustee Candidates Family or friends Professional fiduciary Trust company CPA Private social worker, care manager Combination of above Selection of Trustee Critical Super-discretionary trust Often coupled with an extremely vulnerable beneficiary Trust Protector Reviews accountings and assessments from care manager May hire and fire Trustee or care manager without cause Amend trust to deal with changes in tax laws Must be deemed independent for tax purposes When to Fund Third Party SNT At death of both parents During lifetime Tax issues with lifetime gifts What to Put into Third Party SNT Funding options Projecting the Budget Life insurance, second to die policies Real estate Is there money to pay expenses of RE Will beneficiary live in own home or group setting Cash or investments 529 plans Retirement plans (need attorney assistance) Gifts from other family or friends Lifetime or at death 8

9 Tell Other Family / Friends About your Estate Plan Undo planning Well-meaning family member names child with disability as beneficiary on savings bonds, CD, life insurance, etc. Letter to family/friends SPECIAL ISSUES IN DIVORCE Life Insurance Irrevocably name child as beneficiary Names non-snt trust as beneficiary Child Support for Child Over Age 18 Irrevocably assigned by court order to Payback SNT CHAMBERLIN LAW GROUP Full Service Estate Planning Law Firm Darcy J. Chamberlin 1200 Harger Road, Suite 209 Oak Brook, IL