CLIENT GUIDE Advanced Markets Special Needs Beneficiaries Planning For Your Loved Ones John Hancock Life Insurance Company (U.S.A.) (John Hancock) John Hancock Life Insurance Company of New York (John Hancock) LIFE-5158 10/16
Guiding you through
life. Planning for a Special Needs Individual As someone who loves and cares for an individual with special needs, you may be concerned about ensuring that your loved one continues to receive the care he or she requires throughout their lifetime. How can you help make sure your loved one has the resources needed to lead a comfortable life? By analyzing your financial situation, assessing your loved one s care needs, and creating an Special Needs Trust (SNT) funded with life insurance, you can create a source of funds to help provide care in the long term. Furthermore, if properly designed, the SNT may help to preserve current or future access to government benefits and/or specialized care. Page 1 of 3. Not valid without all pages.
The Special Needs of Your Loved One Individuals who are referred to as having special needs fall into a wide spectrum of persons with physical, mental and emotional disabilities. To maximize the quality of their lives, they may need additional medical care, special educational support, physical, occupational or speech therapies, as well as financial help to adapt their adult living environment to their unique set of needs in an effort to establish and maintain a relative degree of independence. Government Programs Your loved one may be entitled to government programs that can include access to residential and medical facilities that may not be available through a private program. Many of these programs, however, are extremely limited in the types and amounts of services that they offer and may not be sufficient for your loved ones needs, which can include medications, education, training and transportation needs, living accommodations, home modifications, implementation and maintenance of adaptive equipment, specialized computers, and other aids for independent function. It can be challenging to effectively supplement what the government provides through Medicaid and SSI to ensure an acceptable quality of life for your loved one. Because elegibility for government benefits can be inadvertently jeopardized, special consideration must be given so as to not affect eligibility. Items that may jeopardize government benefits include child support in a divorce decree, gifts, or inheritance from well-intentioned family members. It is very important to discuss these matters, especially if your loved one is benefiting from these exclusive programs. How a Special Needs Trust Works A properly drafted SNT can be designed to round out the government benefits a special needs individual receives by providing for care and services not covered by those benefits. Simultaneously, SNTs strive to ensure that any distribution from the trust does not disqualify the special needs individual from receiving ongoing governmental support. However, SNTs are often used to provide ongoing care for a special needs individual whose disabilities are such that he or she will not need, or qualify for, government benefits. For such special needs individuals, these supplemental trusts are generally designed to supplement the income and/or care of the special needs beneficiary. Many times, the SNT is drafted in such a way that if the special needs individual s disabilities change, the trust will not prevent the beneficiary from qualifying for government benefits. Types of SNT s Generally there are two types of SNTs, referred to as First-Party Special Needs Trust and Third-Party Special Needs Trusts. These types of trusts should be drafted by an attorney familiar with special needs planning. First-Party SNT 1 The primary benefit of the First-Party SNT is that the personally owned assets transferred on a tax-free basis to the trust will be disregarded for purposes of Medicaid Eligibility. However, in exchange for Medicaid benefits, First Party SNTs are required to provide a provision to pay back the state s Medicaid agency from the trust balance upon the disabled individuals death in the amount the Medicaid agency paid for services rendered. Third-Party SNT A Third-Party SNT is created and funded for a special needs individual with the trust s assets coming from someone other than the special needs beneficiary. Also called a Supplemental Needs Trust, it can be used as an estate planning vehicle so that family members can make gifts directly to the trust, increasing the pool of assets available for care. At the death of the special needs beneficiary, the remainder of the SNT s property can be paid to other beneficiaries, such as a child s siblings. In this way, the terms of the SNT can be structured to benefit both the special needs individual and other family members. Practical Considerations When Planning for an SNT Individual Making Gifts to Benefit a Special Needs Child 2 Gifts and inheritances should be planned for in advance and directed to the appropriate SNT to avoid compromising access to valuable government benefits. Whenever possible, the gifts should be directed to the Third-Party SNT so as to avoid application of the Medicaid payback requirement associated with a First-Party SNT. Ownership of Assets Care should be taken, where applicable, to re-title assets if maintaining eligibility for government benefits is a planning objective. That is, continued joint ownership of property between a parent and his or her special needs child will jeopardize ongoing access to government benefits. Page 2 of 3. Not valid without all pages.
Guiding you through life. NEEDS ANALYSIS Advanced Markets Special Needs Beneficiaries Planning For Your Loved Ones Client Information (Client A) First Name: Last Name: Client Information (Client B) First Name: Last Name: Gender: DOB/Age: Gender: DOB/Age: Underwriting Risk Class* (Legend on next page): Beneficiary Name: Age: Inflation Rate (used to index income streams): % After Tax Growth Rate of Trust Assets: % Inflation Rate (used to index income streams): % After Tax Growth Rate of Trust Assets: % EXPENSES Living Expenses Monthly Amount Start Age End Age Adjust for Inflation? y Rent/Mortgage (today s estimated housing dollars) $ Yes No y Utilities (gas, electric, phone, etc.) $ Yes No y Transportation (car payment/service, insurance, etc.) $ Yes No y Personal Needs (clothing, food, etc.) $ Yes No y Recreational Needs (activities of leisure) $ Yes No Health and Care Expenses Monthly Amount Start Age End Age Adjust for Inflation? y Custodial Care (non medical care, to provide daily living activities such as eating and dressing) $ y Respite Care (short term care or alternative care) $ Yes No y Nursing Services (in home skilled nursing or nursing home cost) $ y Other (home monitoring, etc.) $ Yes No y Health Insurance $ Yes No y Physical and/or Occupational Therapy $ Yes No Yes Yes No No
NEEDS ANALYSIS Advanced Markets Education and Job Training Monthly Amount Start Age End Age Adjust for Inflation? y Tutoring/Job Coaching/Job Assistance $ Yes No y Tuition/Fees $ Yes No y Books/Supplies $ Yes No y Other Employment/ Educational Expenses $ Yes No Other Expenses Lump-Sum Amount y Emergency Fund $ y One-Time Fixed Costs (e.g., home modification, wheelchair) $ SOURCES OF INCOME Monthly Amount Start Age End Age Adjust for Inflation? y Public Benefits $ Yes No y Structured Settlement $ Yes No y Beneficiary Income $ Yes No y Life Insurance (Existing) Death Benefit $ y Assets Set Aside for Beneficiary Support $ Lump-Sum Amount Other Comments: Advisor Contact Information First Name: Company: City, State and Zip Code: Fax: Last Name: Address: Phone: Email: * Underwriting Legend: Super Preferred Non Smoker Preferred Non Smoker Standard Plus Non Smoker Standard Non Smoker Preferred Smoker Standard Smoker Uninsurable
Importance of a Letter of Intent It is also important to create a daily activity plan that is outlined in a letter of intent in the event of the temporary or permanent absence of a primary caregiver. Funding a SNT A SNT can be funded with a variety of assets, including stocks and bonds. Many times life insurance is also used with SNT planning. Benefits of Using Life Insurance in a Special Needs Trust y Provides the funds to help replace the services of a caregiver. y Life insurance death benefit provides cash to fund the trust over the lifetime of the special needs individual, enhancing and/or supplementing the benefits provided under government programs. y The life insurance proceeds are generally received income tax free, there are a few exceptions such as when a life insurance policy has been transferred for valuable consideration. y Provides liquidity to help equalize an inheritance for the benefit of heirs. y The life insurance allows for the completion of funding needs through the death benefit regardless of the performance of other assets in the trust. y Depending on the state, the life insurance policy proceeds may not be subject to the claims of creditors. Considerations y If the life insurance is to be owned by the insured, the SNT, rather than the special needs individual, should be named as beneficiary for the intended share of the proceeds that are to benefit your loved one. Otherwise, a direct payment of the proceeds to the beneficiary could jeopardize his or her eligibility for government benefits. y A revocable Third-Party SNT will be includible in the grantor s taxable estate unless the trust is properly established during lifetime as an irrevocable trust. Transfers to an irrevocable SNT trust are subject to gift taxes. As a result, you may want to create a giving program to maximize your use of lifetime gift tax exemptions and to minimize gift taxes. y Trusts should be drafted by an attorney familiar with such matters in order to take into account income and estate tax laws, including generation-skipping transfer tax applicable to beneficiaries who are more than one generation removed from you. Failure to do so could result in adverse tax treatment of trust proceeds. y The amount of life insurance protection you qualify for will be subject to medical and financial underwriting requirements. y Life insurance policies have charges associated with them such as the cost of insurance and potential surrender charges. Please consult with your tax advisor for more information. To help you think about the specific care items to consider funding for your special needs loved one, we have provided a Special Needs Fact Finder to use as a starting point. Work with an attorney familiar with special needs planning and include an insurance advisor to assist you with the analysis. Page 3 of 3. Not valid without all pages.
1. See 42 U.S.C Section 1396p d(4)(a) and d(4)(c) pooled SNT. Under certain conditions, a special needs individual may be permitted to transfer his or her personally owned assets on a tax-free basis to a First-Party Special Needs Trust. 2. Annual exclusion gifts are the annual tax free gifts ($14,000 in 2016) a donor (i.e., mom/dad) can transfer to anyone individually or through the use of a trust, without using their lifetime gift-tax-free exemption amount $5M indexed for inflation ($5,450,000 in 2016). To apply the annual exclusion to a gift, it must be considered a present interest gift which allows a beneficiary of a trust the right to immediately withdraw (known as Crummey rights of withdrawal) the gift within a certain period of time. Special Needs Trusts should be drafted by an attorney familiar with special needs planning to take into account eligibility for and preservation of government benefits, as well as taxation and distribution of trust assets. This material does not constitute tax, legal or accounting advice and neither John Hancock nor any of its agents, employees or registered representatives are in the business of offering such advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the marketing of the transactions or topics it addresses. Comments on taxation are based on John Hancock s understanding of current tax law, which is subject to change. Anyone interested in these transactions or topics should seek advice based on his or her particular circumstances from independent professional advisors. Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02210 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. 2015 John Hancock. All rights reserved. MLINY021215053 INSURANCE PRODUCTS: Not FDIC Insured Not Bank Guaranteed May Lose Value Not a Deposit Not Insured by Any Government Agency