Using Supplemental Needs Trusts: SNT s the Basics AGENDA

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Bartholomew Patrick
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1 AGENDA Overview of Special Needs Planning

First Party and Third Party Trusts Drafting

SNTs Reporting requirements Impact on Public

1 Using Supplemental Needs Trusts: SNT s the Basics Judith D. Grimaldi, Esq. 1 AGENDA Overview of Special Needs Planning Types of Special Needs Trusts Comparison of First Party and Third Party Trusts Drafting Cautions Challenges in operating and funding SNTs Reporting requirements Impact on Public Benefits SSI. SSDI, Medicare and Medicaid, SNAP, Housing 2 1

Introduction to SNTs The name Special Needs Trusts and Supplemental Needs Trusts are interchangeable Trusts to provide for individuals with disabilities who may need means tested public benefits 3

2 Introduction to SNTs The name Special Needs Trusts and Supplemental Needs Trusts are interchangeable Trusts to provide for individuals with disabilities who may need means tested public benefits 3 When to Use an SNT If outright inheritance leads to loss of SSI and Medicaid or other public benefits. If existing Trust results in loss of benefits When families disinherit because they think that money cannot be left to the disabled heir When Grantor gives assets to brothers or sisters for care of disabled child. Risk impact of Debts, Divorce, Death, or Disability of the caretaker sibling 4 2

3 Characteristics of an SNT Enables beneficiary of this specially drafted Trust to maintain government benefits, while Preserving the funds to enhance the quality of the disabled beneficiary s life paying for supplemental expenses not covered by the public benefits, (Medicaid and SSI) 5 Additional SNT Characteristics Funds not available to distribute to beneficiary (usually irrevocable) Beneficiary must be disabled Trust must have specific language stating not to impair public benefits. (NY EPTL ) Age is a criteria (under 65 for 1st party Trusts) Must determine whose money is used to settle the Trust Will impact public benefits 6 3

4 Defining Disability As per Social Security Act: Unable to be gainfully employed and the medical or mental impairment is expected to last more than one year or result in death In determining disability, SSA considers a persons age, education and past work history SSA maintain standards for severity and a list of accepted impairments at 20C.F.R. Part 04, subpart P Appendix 1 Listing 1.00 et seq. And 43 USCA 423 (d)(a) NY State may make a determination of disability using DSS 486T, Statement of Disability and LDSS 1151, LDSS SNT Applicable Law Federal Law OBRA 93 Exempt Trusts Social Security Law Disability criteria 42 U.S.C (d) 4 SSA POMS SI Trust exceptions NY State laws EPTL Foundation of Trust language and assets must not be available NY SSL -366(2)(b)(iii) 18 NYCRR ADM s and GIS 08MA ADM 8 06 OMM/ADM 5 Pg

Federal Law Created Four Types of Exempt Trusts OBRA authorized 4 Trusts exempt from the Medicaid Qualifying Trust rules which would not trigger the 60 month look back rules and not impair Medicaid

5 Federal Law Created Four Types of Exempt Trusts OBRA authorized 4 Trusts exempt from the Medicaid Qualifying Trust rules which would not trigger the 60 month look back rules and not impair Medicaid eligibility; Special Needs Trust Qualified Income Trust Pooled Trust Sole benefit Trust 9 Factors to Consider in Using an SNT Is the individual disabled? Are Medicaid or other entitlements needed? Does the disabled person have or will receive assets greater than permitted? Will the denial or delay of benefits cause harm? Is an outright transfer an alternative? 10 5

6 Two Typical or Main Types of SNTs First Party SNT Federal authorized under OBRA 93 d(4) (a) Pay back Trust Under age 65 Third Party SNT Testamentary Trust (under a will or Trust) Living Trust Revocable, Irrevocable Life Insurance Trust 11 Types of Special Needs Trusts Source of Funds Who Establishes/ Trustee Distribution Upon Death Third Party Anyone except beneficiary Anyone except beneficiary/grantor s choice of Trustee Grantor s wishes (d)(4)(a) Disabled beneficiary s funds before age 65 Parent, grandparent, Guardian, Court/Beneficiary can choose Trustee Medicaid payback; then remainder beneficiaries (d)(4)(c) Pooled Trust Disabled beneficiary s funds Beneficiary, parent, grandparent, Guardian, Court/ Non-profit selection or panel serves as Trustee Non-profit Trustee; or, Medicaid payback; then remainder beneficiaries 4/29/

First Party Trust Exempt Trust by federal and NYS law Must be established before age 65. Funds remain exempt after turning 65 except for new funds added after age 65.

7 First Party Trust Exempt Trust by federal and NYS law Must be established before age 65. Funds remain exempt after turning 65 except for new funds added after age 65. For the sole benefit of the individual Payback and reporting or accounting requirements to State Medicaid Must be established by Parent, Guardian, Grandparent or Court Fairness Act before Congress 13 Common Sources of Funds for First Party Trusts Receipt of Personal Injury or Malpractice awards Unplanned Inheritance or Gift Minor with a Disability Turns 18 and has accumulated assets Funds of a newly disabled under age

8 Common Characteristics of Third Party Trusts Beneficiary (or spouse) did not create the Trust The Trust does not hold any of the Beneficiary s (or spouse s) own money The Beneficiary is not Trustee Trustee has sufficient discretion to withhold distributions Distributions may not impair eligibility for benefits Can override these restrictions and draft in Trustee s sole discretion to be flexible, to accept adverse impact or to opt out of Trust 15 3rd Party A Family Favorite Trust Most families prefer third-party Trusts: No payback requirements Grantor can leave any remaining funds to whomever he or she wishes Revocable during life of grantor, Irrevocable at death of grantor More drafting flexibility but correct distribution standard must be used (restricted payout to beneficiary) No court intervention Tax and estate planning can be considered 16 8

9 Options for SNT Trust Protectors Trust Advisory Committee Name Family/Friends to Make Sure Trustee is acting in the disabled person s best interest Trust Protector Name and individual to provide authority to make modifications if change in law or care or family situation Controversial because of the ill-defined fiduciary role in NYS law Letter of Intent Can be used to establish standards of care and needs 17 Trustee Duties Advocacy Best interest Understand public benefits Promote independence and quality of life. Accountability Accurate records Keeps beneficiary informed Complies with statutory duties Financial Proper investments Understands taxes Hires professionals 4/29/

Decision to Fund 3 rd Party SNTs Trust grantors seek advice on funding the SNT to decide whether to: 1. Treat all heirs equally even the disabled heir, or 2.

10 Decision to Fund 3 rd Party SNTs Trust grantors seek advice on funding the SNT to decide whether to: 1. Treat all heirs equally even the disabled heir, or 2. Fund the Special Needs Trust with a greater portion of their estate because of that heir s need 3. Funding sources for the Trust: Life Insurance if resources are limited Retirement assets to disabled heir as their tax rate may be lower than other beneficiaries. Require special language in the Trust to be effective Secure good financial planning advice 4/29/ Use of Trustee s Discretion in Making Trust Pay Outs How does the Trust expenditure affect beneficiary s eligibility for government benefits? Is the payout appropriate for the beneficiary and consistent with trust policies? Is the distribution or payments for services being made at fair market value and otherwise reasonable? 4/29/

Pooled Income Trusts Income placed in the Trust is not counted in calculating income for Medicaid eligibility Income in Trust can be used to pay bills of beneficiary Managed by a non-profit Remaining

11 Pooled Income Trusts Income placed in the Trust is not counted in calculating income for Medicaid eligibility Income in Trust can be used to pay bills of beneficiary Managed by a non-profit Remaining funds in Trust at death revert to the pool or repays Medicaid 21 Will SNT or Trust Payments Reduce Benefits? Will the SNT fund be considered a resource? Will Trust distributions be considered income? In kind? Will it reduce benefits Each benefit must be analyzed in relation to the benefits of having an SNT 22 11

12 Impact on SSI Benefits Drafting Cautions SSI benefits covers food and shelter If SNT provides for food and shelter it will reduce SSI benefits by up to 1/3 Distributions for food and shelter will not effect Medicaid eligibility except if it is in kind remuneration See 18 NYCRR (e)(1) 89 ADM SNT Impact on Public Benefits SNAP Food stamps- Income 200% of poverty level - $1,962 for individual. Trusts funds are inaccessible if established by a court with no household member in control or if funds are used for education or medical only. Not same as Medicaid HEAP Income $2,194 month or on PA/SSI/SNAP. No asset limit so SNT is ok 24 12

13 SNT Impact on Public Benefits Subsidized Housing Section 8- Subsidy Tenant pays only 30% of rent. Resources are not tested but interest income is deemed if resources exceed $5000 using a fixed interest rate. SNT income or distributions is not considered if not in control of the tenant or any household member. Income is imputed if only if fixed or regular. Random payments, medical expenses OK. Not specifically exempt 25 IMPACT OF SNT ON SSDI Individuals on Social Security Disability, or Disabled before age 21 and parent receives SSA benefits Receives Medicare after disabled for required 24 month period No resource or asset limitations. THUS not means tested and SNT may not be needed for current eligibility but for future need 26 13

14 SNT Summary & Conclusion Ability to provide for disabled family member Enhancing the quality of life needs are met beyond the limits of government benefits Maintain necessary government benefits Must comply with federal and state law(eptl ) Select the correct Trust and give notice to local social service district In drafting, consider all government benefits needed in addition to Medicaid 27 THANK YOU GRIMALDI & YEUNG LLP 9201 Fourth Avenue, 6 th Fl. Brooklyn, New York Fifth Avenue, 6 th Fl. New York, New York Tel. (718) jgrimaldi@gylawny.com

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