Today s Program. ASNP Program Materials 3/22/17. Drafting the World s Greatest Special Needs Trust

Transcription

1 Presents Drafting the World s Greatest Special Needs Trust With Michele Fuller, Kevin Urbatsch, Ray Falcon, Nancy Chudacoff, Travis Finchum, and Robert Mascali Today s Program Introduction Third Party SNT provisions (d)(4)(a) SNT provisions Provisions common to both types of SNTs Questions ASNP Program Materials Agenda ASNP s Drafting Guide for Drafting the World s Best Special Needs Trust David Lillesand s Annotated one-page (d)(4)(a) SNT Article: Professor Jeffrey Pennell s Deconstructing the SNT Draft Third Party SNT Draft Self-Settled (d)(4)(a) SNT ASNP Brochure Memo of Intent 1

2 Types of Special Needs Trusts Third-Party Using Assets of Others First Party or Self-Settled (d)(4)(a) (a/k/a Payback SNT) (d)(4)(b) (Miller Trust) (d)(4)(c) (a/k/a Pooled Trust) Drafting Depends on Type of SNT First Party SNT Federal specific legal requirements State specific legal requirements Don t be creative Third Party SNT Less legal requirements = More flexibility and creativity Exceptions Sole benefit if want parent to qualify for long term Medicaid Setting up SNT for spouse Third-Party Special Needs Trust For SSI purposes, the Social Security Administration defines in the POMS SI (B)(17) a third party trust as "a trust established by someone other than the beneficiary as grantor. It defines a grantor in the POMS SI (B)(2) as "the individual who provides the trust principal (or corpus). 2

3 Third Party SNT Requirements SSI regulations impose two requirements for third party SNTs: 1. The beneficiary cannot have authority to revoke the trust; and 2. The beneficiary cannot direct the use of trust assets for his or her support and maintenance under the terms of the trust 42 USC 1382b(e)(3)(A), 20 CFR (a)(1); POMS SI (D)(2) Third Party SNT Drafting Common drafting error, focusing only on preserving public benefit eligibility Missing main planning concerns of parents (replacing what the parent does): Caregiving instructions for hiring and utilizing caregivers Advocacy preserving opportunities Housing live in home? facility? board & care? Collecting the parents/grandparents knowledge of person with a disability Memorandum of Intent Third Party SNT Provisions NC 1. Introductory provisions Naming the SNT Trust Funding 2. Trust intent 3. Testamentary or Living SNT 4. Revocable or Irrevocable 3

4 Drafting the Third Party SNT Living (inter vivos) versus Testamentary If for spouse, must be testamentary trust (cannot use Living SNT) Revocable versus Non Revocable Beneficiary with disability must never have right to revoke trust Others may have that right (e.g. Parents) Third Party SNT Provisions KU Describing Beneficiary s disability Defining the term Special Needs Using a Memorandum of Intent Provisions for Care Manager and Advocate Providing Specific Instructions on Distributions Maintaining contact with family Social/cultural activities Sporting Defining Disability in Trust Generally, I use a general definition in document May want to provide a more thorough definition If doing so, should only do so after fully discussing with client, if using a general definition from internet be prepared for upset client when definition does not match their child s condition My belief is better to provide detailed description of disability in Memorandum of Intent, easier to update and let parent define their child s condition 4

5 Defining the Term Special Needs Most SNTs define the term to include a laundry list of goods and services that can be purchased Is it necessary? Is it helpful? Be careful of placing too many limitations Be careful of allowing too many options (i.e., the shopping list) Memorandum of Intent In third party planning, most critical document for customized plans Add in specifics of person with disability Keep updated (reminder to do it on person s birthday) Prepare trust provision to have SNT Management Team review and utilize when interpreting intent Send Memo of Intent guidelines to client Refer clients to Life Planning for Adults with Developmental Disabilities: A Guide for Parents and Family Members by Professor Judith Greenbaum Advocate/Care Manager Oftentimes, the client is planning for their loved one with special needs and the client is the one providing all the care, advocacy, love, and support Planning for the loss of this essential person is one of the most critical areas, especially in providing advocacy, as one of our members recently stated: People with disabilities are repeatedly denied constitutional due process rights, reasonable accommodations under the law, and their basic needs. I think many criminals are given those and if they are not there is a significant legal response. Folks with disabilities are often given significantly less, and often victimized and punished for being a burden when they have committed no crime. Patti Dudek 5

6 Considerations for Advocacy and Care Management The SNT Trustee does not have legal authority to manage a beneficiary s life, however, the drafter can provide them authority to manage or pay for that type of advocacy Great topic for a Memorandum of Intent Drafting for Care Management and Advocacy Drafters should focus on Settlor s desires for: Coordinating and evaluating existing care to make sure it is being done efficiently and thoroughly; Applying to obtain services the person with a disability may require if no one else can do so; Determining if Beneficiary is receiving all services and public benefits; Visiting the Beneficiary to inspect and review home care; Speaking with the Beneficiary s medical personnel to make sure health care is appropriate and care plans are being followed; or Advocating for services and care if in the opinion trust management team, it is not. ASNP Drafting Guide s Options Option One: Provides a discretionary standard on when to hire a Care Manager or Advocate Option Two: General provision allowing trustee to hire professionals as needed 6

7 SNT Disbursement Provisions to Enhance Quality of Life When drafting a third party SNT, one of the best ways to make you a hero for your client is discussing specialized services that will enhance the quality of life of a child with a disability Usually can determine in an intake form by asking such questions as: Does child attend annual camp Does child attend religious services Does child participate in Special Olympics or other athletic events Does child enjoys concerts, movies, or other social activities Is visiting family a priority ASNP Drafting Guide: Some Provisions There are provisions that can be customized for your client s specific situation: Recreation and Social Activities Family Activities Payment for Vacations Third Party SNT Provisions RF 1. Third party SNT taxation provisions 2. Termination provisions Loss of public benefits Substantial gainful employment No longer disabled Uneconomical to administer Death 3. General or Limited Power of Appointment 4. Remainder beneficiaries Setting up contingent SNT for heirs 7

8 Third Party SNT Provisions Trust Income Tax Trust is a taxpayer, like you or me, EXCEPT Trust marginal tax rates are UGLY For $418,400 For $12, % Third Party SNT Provisions Trust Income Tax Trust is a taxpayer, like you or me, HOWEVER BIG DIFFERENCE Between revocable and irrevocable trusts Third Party SNT Provisions Trust Income Tax Beat the Irrevocable Trust compressed rates ---- Grantor Trust Income taxed to the Grantor, who has a lower marginal rate (usually) Give Grantor or other persons certain non-fiduciary powers to: 1. Add beneficiaries. 674(b)(5) 2. Reacquire trust corpus by substituting property of equivalent value. 675(4)(C) Don t give these powers to the SNT primary beneficiary 8

9 Third Party SNT Provisions Third party SNT taxation! Do it Right! I m STILL broke!! Third Party SNT Provisions Qualified Disability Trust I. Applies to a non-grantor complex trust (not only SNTs) II. Allows trust a $4,050 personal income tax exemption 1041 Royal St NOLA Third Party SNT Provisions Qualified Disability Trust To be treated as a QDT, the trust must be 1. Irrevocable 2. Sole benefit of beneficiary 3. Beneficiary is under the age of sixty-five 4. All current beneficiaries have been determined disabled by the SSA I.R.C. 642(b)(2)(C)(ii); 42 U.S.C. 1396p(c)(2)(B)(iv). 9

10 Third Party SNT Provisions Trust Termination provisions DEATH Nuff Said Oh, and don t forget to provide for contingent beneficiaries.... Third Party SNT Provisions SSI office Trust Termination provisions Loss of Public Benefits 1. Cure the trust flaws (trustee or trust protector) 2. Kick out to beneficiary (or treat as support trust?) 3. The Moral Imperative kick to someone else... and pray. Third Party SNT Provisions Trust Termination provisions No longer disabled Trustee determines beneficiary is not disabled per SSA definition Period of SGA -- Meet own needs for X months CAUTION: some disabilities may return, such as mental illness Trustee should have discretion to retain assets in trust 10

11 Third Party SNT Provisions Trust Termination provisions Uneconomical to Administer Give trustee discretion to terminate and distribute THEN NOW Third Party SNT Provisions Final Expenses Trustee should have discretion to pay beneficiary s: A. Last debts properly due from beneficiary B. Funeral expenses C. Taxes IF not enough cash outside the SNT to cover Third Party SNT Provisions Then What? Final distribution of remaining assets 1. Give beneficiary the option to say where remainder goes Limited/Special Power of Appointment (NOT general POA) By will or inter vivos writing 2. Residuary Clause do a Gap analysis 3. Ultimate contingent intestacy provision 11

12 Third Party SNT Provisions Then What? Final distribution of remaining assets Contingent Beneficiary has Disabilities? Provide for share to remain in SNT! -- On terms of current SNT, or -- With new terms and disposition Third Party SNT Provisions Then What? Final distribution of remaining assets Contingent Beneficiary is too young? Minority Trust! Discretionary until age milestone/s Distribution on attaining age/s Whaddaya mean I have to wait til I m 30 for my Buggati? Third Party SNT Provisions MF 1. Establishing third party SNT for spouse 2. Gifting provisions for charity, family or friends 3. Commingling Provision 12

13 Establishing a Third Party SNT for Spouse When do you use this provision? providing for an ill spouse in the event the well-spouse predeceases Provides structure and oversight if someone cannot (for whatever reason) handle the property Preventative LTC planning Post Medicaid planning when one spouse is in a nursing home or receiving some other type of Medicaid benefit Benefit to the Spouse Integral part of a comprehensive Medicaid crisis plan Medicaid crisis plans are completely thwarted without implementation of planning in the event the well-spouse predeceases Provides safety and protection for the NH spouse For spouses in the home on waiver, in home support benefits, or PACE, they need the exempt resources to pay for additional caregiving, home repairs, taxes, to age in place. Prevents having to do planning to re-qualify: Half-loaf or annuity What to Include in Estate Plan A third-party SNT MUST be established by Will If your state is simple probate, terms of the will can establish the spousal testamentary SNT If there is a revocable living trust-there must be a pour back provision to have the assets go through probate in order to establish the SNT The method of establishment and funding is state-specific 13

14 Third-Party SNT Gifting A third-party trust is not administered under the sole benefit rule A fundamental difference between first and third party When drafting consider putting guidelines for the trustee and limits on what can be disbursed Can the trustee gift to self? Cults? Religious organizations? Limit amount of gift? duration? scope? Gift even if running out of money? Set floor in document Good points to be addressed in the Memorandum of Intent In absence of direction leaving it up to the Trustee 3p SNT Gifting provisions Third-Party SNT Gifts 14

15 Third-Party SNT Gifts Comingling in a Third-Party SNT Comingling in a Third-Party SNT Do not place the Beneficiary s assets into a third-party SNT Many non-professional trustees dislike multiple accounts The Beneficiary s assets are COUNTABLE while in the third-party trust First-party money does not poison the third-party trust-but after a while may take a forensic accountant to unravel 15

16 Break Time Please return in 30 minutes Third Party SNT Provisions NC 1. Sole benefit trust if Settlor needs Medicaid 2. Adding POMS Third Party requirements 3. Funding a Pooled SNT Drafting the Third Party SNT Following POMS SSA eligibility workers use this to evaluate whether snt qualifies Make sure Third Party SNT meets all SSA requirements of: POMS SI Trusts 16

17 Third Party SNT Provisions KU 1. Multiple SNT beneficiaries 2. Drafting for receipt of IRA proceeds Multiple SNT Beneficiaries Unlike first party SNT, a third party SNT can have multiple beneficiaries Typical planning scenarios are when: Family has more than one child with a disability; or Family wants to create a Pot Trust or Children s Trust with their entire inheritance SNT Drafting for Multiple Beneficiaries Must ensure the trust distribution provision takes into account Settlor s intent: If two or more children with disabilities, how will Trustee decide to allocate resources among children, e.g., if one has substantially more needs than another If only one child has disability, must make sure that the Trustee has appropriate discretionary distribution standard for the child with a disability 17

18 ASNP s Guide on Drafting for Multiple Beneficiaries Option One: Basic provisions on naming multiple beneficiaries when only one child has special needs Option Two: Common Trust for all children and grandchildren with disabilities IRA Accumulation Provisions If do not feel comfortable planning in this area, RUN, don t walk to ASNP website and review Melanie Marmion s program titled SNTs & Retirement Benefits that is available under 10 th Annual Conference Materials Next, Natalie Choate s book Life and Death Planning for Retirement Benefits is essential Drafting SNT to Receive IRAs An SNT can be a Designated Beneficiary of an IRA if drafted correctly This allows an IRA to continue in existence and provide tax deferral benefits If no Designated Beneficiary the IRA must be distributed within 5 years after the owner's death. IRC 401(a)(9)(B)(ii) Bad tax result because the beneficiary will incur significant ordinary income tax during those 5 years and lose the benefit of deferred income tax 18

19 SNT as Designated Beneficiary Trust has no life expectancy and regulations state that trust cannot be a designated beneficiary. Treas Reg 1.401(a)(9) 4, A-5(a) The beneficiaries of a named trust will be recognized as designated beneficiaries if the following requirements are met (Treas Reg 1.401(a)(9) 4, A-5(b)): 1. Trust is valid under state law; 2. Trust is irrevocable, by its terms, on the participant's death; 3. Trust beneficiaries are individuals who are identifiable from the trust instrument; and 4. Plan administrator is provide a copy of the trust instrument and a list of all of the beneficiaries of the trust) See Treas Reg 1.401(a)(9) 4, A-6 Two General Types of Trusts May be Designated Beneficiary Conduit Trust is a safe harbor the language of this trust allows for Required Minimum Distributions (RMD)s to flow through trust directly to beneficiary IRS uses age of lifetime beneficiary to determine RMD RMDs from conduit affects SNT beneficiary s public benefits Accumulation Trust allows for RMDs to be paid to trust, but not require immediate distribution IRS uses age of oldest beneficiary to determine RMD, including contingent remainder beneficiaries Issue arises if contingent beneficiary is not a natural person, e.g, a charity or is older than SNT beneficiary SNT Drafting Issues Drafting SNT so all contingent beneficiaries are natural persons Drafting SNT so oldest beneficiary is person with a disability Make sure even a Power of Appointment in trust limits allowable appointees to natural persons younger than beneficiary 19

20 Drafting Solutions in ASNP Guide Option One: Not leaving IRAs to person with a disability, leave it to other beneficiaries and even up with other assets Option Two: Basic accumulation trust provisions, must make sure there are no charities as contingent remainder beneficiaries Option Three: Trigger sub-accumulation trust. Creates subtrust for IRA proceeds in event trust is a beneficiary Option Four: Creates a conduit trust and attempts to limit RMDs to only one month a year Interested in Joining ASNP s Special Needs Trust Planning Guide Planning Team? Join the Group by Signing our Form Lunch Time Please return in 60 minutes 20

21 (d)(4)(a) Special Needs Trust a.k.a. Payback Trusts TF Authorized by 42 U.S.C. 1396p(d)(4)(A) and has the following requirements: Must be disabled Must be established by INDIVIDUAL, parent, grandparent, legal guardian, or court Must be for the sole benefit of the beneficiary Beneficiary must be under the age of 65 when established and funded Must provide that on the death of the beneficiary, the trustee must repay Medicaid if funds remain in the trust at the beneficiary's death First Party SNT Provisions TF 1. Introductory provisions 2. Defining disability 3. Proper SNT establishment a. Self b. Parent/Grandparent (Seed) c. Court d. Guardian First Party SNT Provisions TF 4. Under age 65 when established and funded 5. Irrevocable 21

22 First Party SNT Must be Irrevocable Federal statute does not expressly require a (d)(4)(a) SNT to be irrevocable However, SSA does: POMS SI (D)(1); and POMS SI (D)(1), Step 7 First Party SNT Provisions TF 6. Funding with Beneficiary s assets Seed necessary? 7. Defining the term Special Needs for first party SNTs 8. Administrative costs authorized prior to Payback - limit First Party SNT Provisions TF 9. Early termination SI Payback provisions to ALL State Medicaid agencies 22

23 First Party SNT Provisions NC 1. Sole Benefit requirement 2. POMS checklist for first party SNTs First Party SNT Provisions RF 1. Powers of Appointment 2. Taxation provisions for first party SNT First Party SNT Provisions Powers of Appointment General: contingent beneficiaries can be anyone, including the powerholder, powerholder s estate, powerholder s creditors or creditors of the powerholder s estate. Limited/Special: contingent beneficiaries can be anyone EXCEPT the powerholder, powerholder s estate, powerholder s creditors or creditors of the powerholder s estate. 23

24 First Party SNT Provisions Powers of Appointment Why do we care? PWD may change mind about contingent beneficiaries. POA allows PWD to change beneficiaries. First Party SNT Provisions Powers of Appointment Ѭ State regulations may not allow PWD to designate contingent beneficiaries Ѭ General POA may cause estate inclusion я -- large settlement may exceed lifetime federal exemption я -- state estate tax exemption may be small First Party SNT Provisions Taxation provisions Grantor Trust Redux Beneficiary is considered the grantor if: No adverse parties must give permission for disbursements 674 Beneficiary has power of substitution 675(4)(C) CAUTION: some Medicaid agencies have held that the power of substitution is akin to the right to revoke trust 24

25 First Party SNT Provisions Taxation provisions Grantor Trust Redux Beneficiary is considered the grantor if: Ø Trustee has power to pay insurance premiums on life insurance on beneficiary. 677(a) Ø Beneficiary has power of substitution Ø Beneficiary has non-testamentary limited POA over assets left after Medicaid payback First Party SNT MF 1. Prepayment of funeral 2. No commingling 3. No funding after age Drafting to avoid SSA s use of English Feudal common law Prepaying for Funerals POMS specifically prohibit paying for funeral expenses after the Beneficiary s death Draft guidelines and instructions to the Trustee as to POMS limits and exemptions for arranging an irrevocable pre-paid funeral contract If owned by the Trust, no limits Must be done PRIOR to the Beneficiary s death 25

26 NO Comingling Common fiduciary mistake is accepting third-party assets Subjects the assets to avoidable payback May jeopardize the exempt nature of the SNT if others have a right to trust assets Common fiduciary mistake: allowing SS income to be assigned to the trust Accepting resources from the Beneficiary if over $2,000 is ok When drafting these provisions-provide guidance to the trustee and other resources for administration No Funding After age 65 No Funding After 65 Hard line rule-any assets added to the trust are counted as resources Depending on circumstances-draft for exceptions Litigation recovery-structures that began prior to age 65 Spousal support-if began before age 65 also exempt 26

27 Drafting to Avoid Feudal Law Feudal Doctrine of Worthier Title Bane of every law student s existence Method of inheritance in feudal England: preference for transfer of title by decent rather than devise or purchase Way for land to stay in family and avoid feudal duty Taking title by inheritance was viewed as worthier than through a legal instrument Differs by state UTC states-generally statutorily abolished Review your state statutes Review Regional Counsel Opinions for prior cases SSA Reliance on DWT 27

28 SSA Reliance on DWT To be an exempt asset-d4a must be irrevocable Easy to draft around this issue Problem language? If there are any remaining assets after the payback, the Trustee shall distribute these assets to the heirs (or estate) of the beneficiary SSA Application of DWT SNTs that name heirs at law or the estate of the beneficiary as remainder beneficiaries, when determining the SNT is revocable, and therefore a countable resource Simplistic application of merger doctrine: this language renders the trust revocable under the feudal doctrines described in general above because the beneficiary is the sole beneficiary of the trust under the merger doctrine If the trust is for the sole benefit of the beneficiary and there are no other intervening interests, then all the interests are held by the beneficiary. The interests thus merge and the beneficiary holds all legal and equitable title to the trust assets. Drafting around the DWT Pay particular attention to the remainder beneficiary portion Name specific people or classes of people (my children, my nieces and nephews) Where the Settlor s heirs are unknown, for example, they may marry and have children at some point, gift a known person $10, then to heirs-at-law. Consider adding in state statutory provision which abolishes DWT-may save you an appeal later 28

29 First Party Special Needs Trust RM Medicare Set Aside Trust provisions Taking Medicare s Interest into Account Initial Reporting: Carrier Responsibility Pre-Settlement: Lien Status Verification Public Benefit Analysis / Conversation Settlement: Final Demand Letter and payment within 60 days Establish Trust / MSA Approval Post-Settlement: MSA / MCA Administration Trust Administration (SNT, PT, SPT, Family) The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers Initial Reporting = Carrier Responsibility The Medicare Secondary Payor Mandatory Reporting Provisions makes the Carrier responsible for reporting all payments of S, J, or A over $1,000.00* to the CMS Coordinator for Benefits Contractor. *This amount also represents the settlement threshold for reimbursement of Conditional Payments Section 202 of the SMART ACT The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers 29

30 Responsibilities of Attorneys Upon taking a case where the beneficiary is a Medicare or Medicaid recipient the parties are required to place the appropriate agency on notice (depending Comp or Liability), this also includes *Advantage Organizations (MAO). *Circuit Opinions Differ Please note these agencies have no responsibility to contact the attorney or client. The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers Pre-Settlement MSA / SNT or BOTH If a beneficiary is currently receiving Medicare and the gross settlement is over $25,000, or the total amount is over $250,000 and the beneficiary could be Medicare eligible within 30 months, or has end stage renal disease If a beneficiary is currently receiving Medicaid and chooses to preserve these benefits you will need to discuss Special Needs Trust options The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers 30

31 Settlement = Attorney Responsibility MSA Allocation Submission* and Approval Submit MSA Allocation to CMS with Final Settlement Agreement and a statement as to how the MSA will be Funded and Administered * OK City (Comp) CMS Portal / Atlanta (Liability) Establishment of a Special Needs Trust Take into consideration age of beneficiary Consider options for Trust Administration The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers Post Settlement = Attorney and Beneficiary Self Administered MSA The Self Administered MSA requires the beneficiary to possess sound money management abilities, excellent judgment, keen organizational skills, and expertise in medical billing and fee schedules. Self Administered SNT A Self Administered SNT is simply not an option. The beneficiary may never act as trustee of their own SNT. In addition it is not a wise decision to engage a family member for these fiduciary responsibilities. The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers Post Settlement = Attorney and Beneficiary Professionally Administered MSA Safety, security and knowledge are all elements that a professional Medicare Set-Aside Administrator should possess, but be careful when choosing your MSA Administrator to ensure they have specific experience in MSA Administration. (Reversionary) Professionally Administered SNT Since Medicaid programs differ from state to state, the Trustee of a Special Needs Trust should have comprehensive knowledge of specific rules regarding program eligibility, otherwise the beneficiary could risk disqualification from these vital programs. (Reversionary) The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers 31

32 Post Settlement = Attorney and Beneficiary Self Administered MSA The Self Administered MSA requires the beneficiary to possess sound money management abilities, excellent judgment, keen organizational skills, and expertise in medical billing and fee schedules. Self Administered SNT A Self Administered SNT is simply not an option. The beneficiary may never act as trustee of their own SNT. In addition it is not a wise decision to engage a family member for these fiduciary responsibilities. The materials contained herein are not to be considered legal advice but informational in nature. Copyright 2015 The Centers Break Time Please return in 30 minutes Provisions Common to Both SNTs RF Trustee provisions Identifying initial trustee Replacement of Incapacitated Trustee Successor trustee (independent or interested) Removal of trustee Exculpatory clauses Professional trustee provisions Default of designation 32

33 Provisions Common to Both SNTs Trustee provisions Initial trustee 1. Individual trustee 2. Corporate trustee 3. Co-trustees Provisions Common to Both SNTs Trustee provisions Temporary Removal of Trustee Incapacity/Disability I. Medical certification (two docs, one a specialist) II. By Court of competent jurisdiction Provide for Interim Trustee to serve during period of incapacity Provisions Common to Both SNTs Trustee provisions Permanent Removal of Trustee I. By Grantor (only third party SNTs) II. By Trust Protector III. By Court of competent jurisdiction (for cause) Cause? Gross negligence, insolvency, failure to act, inability to manage financial assets, willfulness 33

34 Provisions Common to Both SNTs Trustee provisions Successor trustee 1. Name the bench in the agreement 2. If more than one trustee, let remaining ones serve without replacing dead or disabled trustee 3. Allow last-serving trustee to appoint own successor 4. Trust protector or committee appoints successor 5. Court with jurisdiction makes appointment Provisions Common to Both SNTs Trustee provisions Exculpatory Clause trustees 1. Only liable for gross negligence and intentional acts all trustees 2. Only liable for gross negligence and intentional acts individual 3. No liability for failing to ID benefit 4. No liability for failing to maintain benefits Provisions Common to Both SNTs Trustee provisions Corporate fiduciary 1. Provide for scheduled fees as permissible compensation 2. Required language allowing self-dealing 3. Consider only replacing a corporate fiduciary with a corporate fiduciary 4. Have corporate fiduciary review draft 34

35 Provisions Common to Both SNTs West Coast Trustee doing chair Yoga exercises while working Trustee provisions Default of Designation What happens when there are no named trustees left? Provide mechanism for filling the vacancy! Α Grantor (if alive) Β Trust Protector Γ Trust Advisory Council Δ Court Provisions Common to Both SNTs KU 1. Trust Advisory Committee/Trust Protector 2. Hiring professionals 3. Distribution provisions Supplemental Discretionary 4. Making SNT distributions Specific Provisions in SNT Drafting KU 1. Regular contact with Beneficiary 2. Reporting to SSA and others 3. Null and void clauses 4. Allocating disbursements among multiple SNTs 35

36 Setting Up the SNT Management Team Need to consider possible decades of SNT administration Establish lifetime trust management team Trustee Individual or Professional Trust Advisory Committee Good check and balance on Trustee Remove and replace Trustee Trust Protector Backup to Trust Advisory Committee Allowed to modify SNT terms to keep current with changes in law Helpful Provision: What Can t a SNT Pay For? A SNT CANNOT give cash directly to Beneficiary (this includes gift cards unless strict definition) If SNT pays for food, shelter or medical care already being provided by SSI or Medicaid it will reduce (or eliminate) public benefits. Shelter is defined as food, gas, electricity, water, sewer, heating fuel, garbage removal, real estate taxes, rent or mortgage Drafting the SNT Distribution Standard Knowing the Right Distribution Standard Supplemental No payments if reduce or eliminate public benefits Discretionary Allows Trustee to make disbursements even if affects public benefits WARNING State Specific WARNING Health, Education, Maintenance and Support Standard Could be Hazardous to Your SNT 36

37 Making SNT Distributions A provision that outlines how to make SNT distributions is not legally necessary, but it can be helpful for an SNT trustee who may not be aware of how SNT administration can still jeopardize public benefits eligibility The ASNP Drafting Guide includes a checklist that should be performed each time Trustee is making an SNT distribution then provides some sample methods on how to make such a distribution if the person is on public benefits Regular Beneficiary Contact When advising SNT trustees during administration, one of the biggest surprises is how little many of the trustee s communicate or visit with the Beneficiary Beneficiaries when contacted oftentimes have unmet needs the trust could be providing The ASNP Drafting Guide provides a provision that requires a trustee to visit (or hire an agent) to visit the Beneficiary on a regular basis Maintaining Beneficiary s Public Benefits One of my pet peeves is reviewing an SNT that requires a Trustee to obtain all the beneficiary s public benefits and do all the reporting to public benefit agencies Issue is that Trustee oftentimes does not have the legal right to do so because the government will only deal with beneficiary directly or their legal representative who is in charge of their person During SNT administration the Trustee must then decide to comply with trust terms (which may be impossible) seek court intervention to instruct on how to proceed, or be in breach of trust 37

38 Better SNT Provision on Public Benefits Better SNT provision included in ASNP s Drafting Guide requires Trustee to cooperate with Beneficiary in obtaining and maintaining public benefits, but does not require them to obtain or maintain benefits Null and Void Clauses The SSA does not recognize either null and void provisions or exculpatory clauses in a trust NOTE: While exculpatory clauses, use clauses, trustee discretion and restrictions on distributions, etc., do not affect a trust's countability, they do have an impact on how the various components are treated. For example, a prohibition in a discretionary irrevocable trust that limits the trustee to distributing no more than $10,000 to an individual has no effect on whether or not the trust is countable, but does affect the amount that is countable. Allocating Among Multiple SNTs A person with a disability can have multiple SNTs, it could be a (d)(4)(a) SNT and one third party SNT In one case, I had a client who had 5 third party SNTs and 1 first party SNT, the 5 included funding from each set of grandparents, one from mother s separate property, one from father s separate property, and one jointly from mother and father, each with their own trustee and different remainders An allocation clause was essential to make sure disbursements were made from the appropriate trust 38

39 Multiple SNTs Allocation The ASNP Drafting Guide includes a provision that requires that first distributions come from first party SNT, then if there are multiple third party SNTs, an allocation among each of them Common SNT Phrases The ASNP Drafting Guide includes a section on commonly used public benefit and person with a disability phrases that can be included in the definition sections of an SNT Provisions Common to Both SNTs MF 1. Spendthrift provisions 2. Real estate provisions 3. Funding an ABLE account 39

40 Spendthrift Provisions Common SNT provision-prevents Beneficiary from transferring or selling their interest in the trust Even if Beneficiary received regular recurring income from the trust-creditors cannot reach it In best practice SNT administration, this wouldn t happen anyway Does your state recognize spendthrift protection? If not, SSAs directive is to recognize the value of the Beneficiary s right to income as a countable resource because it can be sold Spendthrift Provisions Drafter should include a spendthrift provision Prevents Beneficiary from legally assigning interest Prevents creditors from attachment to future disbursements Clarifies legal rights of the Beneficiary, relationship to creditors, and authority of Trustee to deny claims Real Estate Provisions 40

41 Real Estate Provisions Dealing with real estate is one of the most difficult propositions for an SNT Trustee Drafting considerations: What type of SNT is it? Family wishes (see Memo of Intent for further guidance that doesn t belong in the legal document); Specific condition of the Beneficiary-keep in mind prognosis and how aging may affect future needs The expertise of the Trustee(s) Real Estate Provisions Role of drafter is to create written guidance in light of the type of SNT Identify purchase options: rent, own, lend? Management and maintenance: who s responsible? Sustainability? Public assistance? Section 8? In home supports? Roommates? Answer the what if s Funding an ABLE Account 41

42 Funding an ABLE Account Valid disbursement from an SNT Empowers Beneficiary Improves relationship with Trustee Reduces Trustee fees May prevent ISM reduction for SSI recipients ABLE Account Provisions Drafting considerations: Ability of the Beneficiary to handle money: limit the scope of how much the Trustee can fund? Or up to annual max? Frequency? Can the trust afford it? The type of SNT: third-party funds now subject to payback Insert guidance for SSA regarding disregard of ABLE disbursements for QDE as income even if for shelter OR just rely on the discretion and judgment of the Trustee Add provisions to help Trustee make decisions Questions? 42