THE MECHANICS OF FIXING OTHER PROBLEMS: DECANTING AND OTHER ANSWERS. Robert B. Fleming Laurie Hanson H. Amos Goodall

Transcription

1 THE MECHANICS OF FIXING OTHER PROBLEMS: DECANTING AND OTHER ANSWERS Moderator : Mary E. O Byrne Panelists: Robert W. Fechtman Robert B. Fleming Laurie Hanson H. Amos Goodall

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3 The Mechanics of Fixing Other Problems: Decanting and Other Answers Case #1: DIY Special Needs Planning. Petition to Reform. Florida resident with failure to launch son living with him. Both had a dislike of lawyers and structure. Father wrote out his own will; all to his son in trust, but with no named trustee. Son was to receive income from the trust. On his death, son moved to Tucson to live with a cousin. Nephew came to see me, not about the validity of the trust (he just assumed he was trustee, as he had been named as executor) but about whether he could use about half of the principal to improve his own house so son could live there. I explained problems with the trust, and that he just might be able to get son on SSI and/or Medicaid by revising the trust. Ultimately we filed an Arizona petition to reform the trust under Arizona s version of UTC sec The absence of a trustee or successor gave us a reason to reform; we prepared an entirely new trust document with special needs restrictions on distributions, naming the cousin s wife as successor trustee and giving each of them the power to name their own successors, and naming the cousin (the nearest surviving relative) as remainder beneficiary. We also got specific approval for the home improvement project. Case #2: You Can Get There From Here. Successor Trustee, Change of Place of Administration, Decanting. Lawyer in State B (Erehwon) contacted us about a problem with a third-party special needs trust drafted in Erehwon, including language that they wanted to eliminate. Erehwon has not adopted the UTC and its decanting statute is very byzantine. 1

4 Trustee had the power to name a new trustee. Trustee resigned and named our firm as successor trustee; we brought control of the trust into Arizona and proceeded to administer it. After a short period of time, relying on Arizona s statute, we decanted into a new, pretty, well-written trust (prepared by the Erehwon attorney); the new trust named the original trustee as trustee once again, and the trust returned to Erehwon for administration. Case #3: Keeping Up With the POMS. Amendment by Court Order. I prepared a (d)(4)(a) trust for a minor beneficiary; at the time he was not eligible for SSI due to his parents income and resources. When the trust beneficiary turned 18, his parents applied for SSI on his behalf, but they never mentioned the existence of the trust, which had been funded years before with a small personal injury settlement. The trust included a section allowing the trustee to move money into a (d)(4)(c) trust, with the idea that the two trusts could work in tandem with the pooled trust administrator taking on the brunt of the responsibilities for knowing the public benefits rules and reporting trust expenditures to the public benefits agencies. We now know that the SSA considers this section of the trust to be an early termination clause. When the SSA finally found out about the trust, they reviewed it and determined that it was a countable resource for SSI purposes. Since the SSA had never reviewed the trust before, the SSA did not give us 90 days to fix the problem. We had to go back to the court that established the trust and ask the court to amend the trust. Under Indiana law, a court may amend a trust, so all we had to do was convince the judge that the amendment was necessary. Once the trust was amended, we submitted it to the SSA and it was re-reviewed. This resulted in the SSI being restored going forward. There was a fairly large SSI overpayment, so I helped mom and dad ask for a waiver of the overpayment. However, we made sure to wait until the SSI 2

5 was restored before we asked for the waiver of the overpayment, because, if your answer to question 12 on the form is yes, I am now receiving cash public assistance such as SSI, you get to skip to the end of the form and sign it, instead of filling out spreadsheets detailing all of your assets, income, and monthly household expenses. Case #4: Whose Party Is This? Amendment by Trustee. Another lawyer wrote what was supposed to be a third-party SNT for an Indiana Medicaid and SSI recipient, but did so using an old (d)(4)(a) trust form. The trust was immediately funded by the trust beneficiary s grandparents. When the SSA reviewed this trust, they were pretty confused by what they saw, and they terminated the trust beneficiary s SSI. The drafting lawyer then referred the case to me. I prepared an amendment for the parents to sign, and then I wrote a letter to the SSA explaining the situation and what we had done. They wanted some proof of the source of the funds that had been deposited into the trust. That was a little bit tricky, but, eventually, I was able to obtain a bank statement and a canceled check from the grandparents. There was an SSI overpayment in this case, too, but the waiver of the overpayment was fairly cut and dried once the SSA understood the source of the funds. Case #5: Let Me Count The Ways. Amendment by Trustee, Termination by Consent Agreement, Transfer to New Trust. Laura is a young woman who has been disabled since birth. She is on SSI and Medicaid. Laura received a personal injury settlement when she was a minor which was held by the district court pursuant to Minnesota s minor settlement law. In 2003, when she turned 18, the assets were transferred to a trust which Laura and her family thought was a special needs trust. The trust listed Laura as the grantor and was titled the Laura E. Irrevocable Inheritance Supplemental Trust. It 3

6 allowed cash for spending money and later called her a contingent beneficiary. There was no payback provision. The trust was submitted to the Social Security Administration (SSA) and to the County Agency. In 2005, the County Agency requested that the trust be amended to list Laura s mother as grantor, and to provide a payback provision to the State of Minnesota for all Medicaid benefits paid on Laura s behalf following the termination of the trust. That was done and also submitted to the SSA. The relevant portion of the trust amendment specifically stated the following: This trust shall terminate upon Laura s death. Upon Laura s death or other earlier termination of this trust, a. the trustee shall first pay to the Minnesota Department of Human Services, or other appropriate Medicaid Agency, all assets and income remaining in the trust up to an amount equal to the total amount of Medical Assistance paid on behalf of Laura and that is properly due and owing the Department. b. If any amounts remain after payment of the above repayment of Medical Assistance, then the trustee shall distribute such remainder to her sister, C, or if she is deceased, to the deceased sibling s issue by right of representation. In January 2016 the SSA asked Laura to provide a copy of the trust agreement and all related documents and trust account statements for August 2015 through January She complied and submitted (again) the trust and the amendment and other documents. In April 2016 the SSA notified Laura that her trust was a resource because someone other than the beneficiary benefits from the trust assets while the beneficiary is still alive. The notice provided that Laura had 90 days to amend the trust and also stated that if she disagreed with the 4

7 decision she could appeal the decision with 60 days by filing a Request for Reconsideration. She also received notice that her SSI benefits would be terminated as of June She did not understand what was wrong with the trust or why anyone else could benefit. In May 2016 Laura and her mother filled out a Request for Reconsideration as their (previous trust drafting) attorney advised them to do and delivered it in person to the Social Security office. They appealed within the 60 day time period permitted in the notice. They stated that they disagreed with the determination that the trust was an available resource. The SSA has yet to respond to that request. Two weeks later, the SSA sent a Notice of Overpayment to Laura stating that she had been overpaid from February 2014 to May 2016 due to the trust being an available resource. The total amount of the overpayment was $16,819. Laura contacted my office and in August 2016, after the 90 day period to amend the trust had expired. Minnesota s brand new Uniform Trust Code provides that if the settlor and all beneficiaries of a trust agree, and it is in accordance with the purpose of the original trust, the trustee can terminate the trust and distribute the assets as agreed by the parties. So, I drafted a Consent Agreement terminating the bad trust and transferring the assets to the new trust. Laura filed a Request for Waiver of Overpayment Recovery or Change in Repayment Rate and subsequently re-applied for SSI benefits. Laura never received a determination letter regarding her waiver request. 5

8 In June 2017 the Social Security Administration reinstated Laura s SSI benefits and determined that she was entitled to back pay from October 2016 through June In July 2017 Laura submitted the Request for Waiver of Overpayment Recovery or Change in Repayment Rate for the second time. She finally received a response in November 2017 denying her request. The SSA determined that her income is sufficient to meet her ordinary living expenses at the 10% rate of withholding. She had until January 5 th to file a new Request for Reconsideration. On December 29, 2017 we submitted a Request for Reconsideration regarding the November 2017 decision to deny the request for a waiver. She also requested an informal conference to discuss the matter further. On February 8, 2018 the SSA sent notice to Tracy stating that the period in which to request reconsideration of her April 26, 2016 determination had expired. The letter directed her to request a new waiver of the overpayment. Our office submitted a third entirely new waiver request in August Case #6: Never Were There Such Devoted Sisters. Not. Opportunity for Court Reformation. Jim executed a revocable living trust for himself, which included a discretionary special needs trust for the benefit of his adult, capable daughter, June, in her early 50s, who had multiple 6

9 sclerosis. June was on SSI and SSDI (the latter in a small amount, due to her limited work history). Her disability began after the age of 22, and so she was not eligible for Social Security Disability Insurance as a Disabled Adult Child under her father s record. June was unmarried and had no children. June lived with Jim in his home. When Jim died, the home was sold, and proceeds used in part to fund June s trust. Jim had another daughter, Sally, who lived in another state. June and Sally did not have a good relationship. Sally received her inheritance outright, in the same share as June. June s trust gave the trustee wide discretion to make distributions, but included very restrictive language that prohibited the trustee from making distributions that would cause any loss or reduction of public benefits. The trustees were June s cousins; both were supportive of June, and willing to use trust assets liberally for her needs. June s most significant need after her father s death was for housing. She had previously paid her father a flat fee for room and board from her SSI/SSDI, in the amount of $500. There were few housing options available to her at this rate. She also had a large service dog, for which a fenced yard was necessary. She had not previously applied for public housing assistance, and the waiting list for such assistance was years long. She lived in a rural area, and wished to remain in that community. The trust assets were sufficient to subsidize June s rent, but not enough to purchase a home for her. 7

10 If the trust paid for June s housing, June would incur a reduction in her SSI benefit of 1/3 of the federal benefit rate, due to the counting of in-kind support and maintenance; this result violated the express terms of the trust. The trustees were willing to violate the terms of the trust to subsidize June s rent, but counsel advised them against doing so. The trustees were willing to go to court to reform the trust to eliminate the overly restrictive provisions. All that was needed was consent of the other qualified beneficiary: Sally, who would receive trust assets remaining at June s death. She refused to consent to the reformation. The trustees pleaded with Sally, to no avail. The trustees decided to pay June s rent, and risk the consequences of violating their fiduciary duty and potential suit by Sally. June lived only a few more months. 8

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