Craig C. Reaves, CELA, CAP - PDF Free Download

Even for special needs planning 2

Special Needs Planning Changes Some are good Like ABLE Accounts Others are not so good 3

Something wicked this way comes 1. Block Grants 2. Per Capita Caps 3. Section 1115 Waivers 4

Something wicked this way comes Block Grants State receives fixed sum of money from Fed government. Initial amount based on Fed s current payments. Increased by inflation factor that is lower than expected increase in costs. 1981 Regan rejected; but HCBS block grant was started 1995 House Spkr. Genrich proposed Medigrant. Vetoed by Pres. Clinton, but AFDC was replaced with TANF, a block grant 2003 Bush budget proposed block grant in exchange for states having greater flexibility to design Medicaid. Fizzled out after National Governors Assn could not agree on details. 2017 Trump tried 3 times to implement. Are we done? 5

Something wicked this way comes Per Capita Caps A type of block grant, but amount Fed pays calculated differently. Instead of Fed payment based on overall Medicaid expenditures, each state receives fixed sum of money per person enrolled in Medicaid ( enrollee ). Will fluctuate as enrollment goes up or down. Initial amount based on current Fed payments. Increased by inflation factor that is lower than expected cost increases. Proposed by in most recent attempts to repeal Affordable Care Act and cut Medicaid spending. None of them passed.as of today. 6

Something wicked this way comes Section 1115 Waivers Authorizes HHS to waive certain requirements imposed by Medicaid to allow states to implement experimental, pilot, or demonstration project that is likely to assist in promoting the objectives of the Medicaid Act. HHS recently notified states of intention to fast track approval of waivers that build on the human dignity that comes with training, employment and independence. Current proposals impose life time limits on benefits, mandatory premiums, cost sharing, work requirements, drug testing, and elimination of short term annuities and 3 month retroactive eligibility. 7

Something wicked this way comes All these potential changes reduce public benefits or the number of people eligible to receive them But they make special needs trusts even more valuable To understand why, two items will be reviewed: 1. Needs based public assistance 2. Special needs trusts 8

What is Needs Based Public Assistance? There are two basic categories of public assistance programs 1. Needs Based 2. Non Needs Based 9

Non Needs Based Public Benefits Non Needs based public benefits are: 1. Social Security Retirement, Disability, Survivors 2. Medicare 3. Some VA benefits To qualify for these, a person must be blind, sufficiently old, or have a permanent and total disability, AND be able to connect to the Social Security or Veteran s systems 10

Needs Based Public Benefits In addition to requiring a person to be blind, have a permanent and total disability, or be sufficiently old, a needs based public assistance program bases eligibility on financial need, such as: Low income, and Low assets (available resources) Do not need a connection to Social Security or VA 11

Needs Based Public Benefits Needs based public benefit programs are: 1. SSI (Supplemental Security Income) 2. Medicaid But distinguish between medical and long term care benefits (institutional and HCBS) 3. Federal Assisted Housing Programs Housing choice vouchers (Section 8) Section 202 program 4. Some VA benefits 12

Needs Based Public Benefits For most needs based public programs, the beneficiary must be: 1. Sufficiently blind, old, or disabled, 2. Have low income, and 3. Have no more than $2,000 of available (or countable) resources Satisfying the last requirement is the reason to use a special needs trust 13

Special Needs Trusts A special needs trust is 1. A trust 2. That has a special needs distribution clause 3. That allows money to be held and used for the benefit of a person ( beneficiary ) without causing the trust s assets to count towards the maximum amount of money the person can have and qualify for needs based public benefits (usually $2,000) 14

Trusts The Basics Five Components to Every Trust 1. Settlor (Grantor/Trustor) 2. Trustee 3. Beneficiary 4. Written Instrument 5. Principal / Corpus 15

Trust Distribution Clauses Four Trust Distribution Clauses 1. Mandatory Support 2. Discretionary Support 3. Pure Discretionary 4. Special Needs A. Strict, or B. Discretionary 16

Trust Distribution Clauses Special Needs Distribution Clause Discretion to Trustee to distribute for special needs of the beneficiary Special needs are anything not paid for by public benefits Sometimes called supplemental care or supplemental needs trust 17

Trust Distribution Clauses Special Needs Distribution Clause Strict Prohibited from distributing for any food, shelter, or anything provided from public benefits Old trusts include clothing ; eliminated in 2005 Discretionary Trustee has discretion to distribute for food, shelter, or items provided by Medicaid if the trustee deems it in the beneficiary s best interest, even if causes reduction in public benefits 18

Trust Distribution Clauses If Trust Has a Special Needs Distribution Clause Trust assets NOT deemed available resource Trust does NOT disqualify the beneficiary from needs based public assistance This is the Purpose of a Special Needs Trust 19

Special Needs Trusts $ from someone other than Beneficiary (Third Party-Settled) $ from Beneficiary (Self-Settled) Third Party- Settled Special Needs Trust d4a Trust d4c Trust (Pooled Trust) Copyright 2014 Craig C. Reaves 20

Self Settled v. Third Party Settled Trusts Whose Assets Are Going Into the Trust? 1. The beneficiary s assets Self Settled Trust 2. Someone else s assets Third Party Settled Trust 21

Third Party Settled Trust When someone other than the beneficiary is leaving assets in trust for the beneficiary s benefit. Use when someone is establishing a trust for the benefit of another person. Parent for Child Grandparent for Grandchild Child for Parent, Grandparent, or Sibling Does NOT have to comply with OBRA 93 22

Self Settled Special Needs Trust Settlor and Beneficiary are the Same Person Settlor s assets are in the trust, or Settlor s spouse s assets are in the trust Unless established by the spouse s Will Includes trusts established by the beneficiary s guardian and attorney in fact under DPA Must comply with OBRA 93 and FCIA 99 23

Self Settled Special Needs Trusts The Law OBRA 93 the starting place RULE: If you establish a trust, then OBRA 93 applies to the trust 1. Altered definition of a trust Any legal instrument or device that is similar to a trust, or allows property to be held for the benefit of another person, is deemed to be a trust for Medicaid purposes Expanded to apply to SSI by FCIA 99 24

Self Settled Special Needs Trusts The Law OBRA 93 2. Expanded definition of establishing a trust A. Assets of beneficiary are in the trust (In other words, a self settled trust) B. Established (other than by a Will) by: Beneficiary, Beneficiary s spouse, Person with legal authority to act for beneficiary, or Person acting at request or direction of beneficiary or spouse 25

Self Settled Special Needs Trusts The Law OBRA 93 3. The following are Not relevant A. Purposes for creating the trust, B. Discretion given to the trustee, C. Restrictions on when or whether distributions can be made, or D. Restrictions on use of distributions 26

Self Settled Special Needs Trusts The Law OBRA 93 Incorporated COBRA 85 4. Incorporated COBRA 85 rule Any principal or income that could be distributed to or used for benefit of the trust s beneficiary with the exercise of any discretion is deemed available to the beneficiary for Medicaid and SSI eligibility purposes It is assumed that maximum discretion in favor of beneficiary will be exercised 27

Self Settled Special Needs Trusts OBRA 93 The End Result Any asset or income in a self settled trust that was established by the beneficiary that could be distributed to or used for benefit of the beneficiary or the beneficiary s spouse if the trustee (or anyone) exercised maximum discretion in favor of the beneficiary is deemed to be available to the beneficiary for Medicaid and SSI eligibility purposes and countable towards the maximum amount the beneficiary can have and be eligible for Medicaid and SSI 28

After effectively slamming the door shut on the ability of a Medicaid or SSI recipient to use a self settled special needs trust Congress opened it a crack for people who are sufficiently disabled and young enough by allowing two types of special needs trusts: d4a trust d4c pooled trust 42 U.S.C. 1396p(d)(4)(A) and (d)(4)(c) 29

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 1. Beneficiary must be sufficiently disabled to satisfy SSI definition of disability 2. Beneficiary must be under age 65 d4a when trust is established and funded d4c no age 65 requirement when trust is established, but might cause transfer penalty if funded after age 65 3. Only one beneficiary allowed ( sole benefit ) 30

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 4. Trust established by d4a Trust d4c Pooled Trust 31

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 4. Trust established by d4a Trust Separate trust document d4c Pooled Trust 32

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 4. Trust established by d4a Trust Separate trust document d4c Pooled Trust Master trust established by nonprofit association / trustee 33

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 4. Trust established by d4a Trust Separate trust document Trust signed and established by d4c Pooled Trust Master trust established by nonprofit association / trustee Joinder agreement for beneficiary s sub trust signed and established by 35

Self Settled Special Needs Trusts Requirements of an OBRA 93 SNT 5. Assets remaining when beneficiary dies or trust terminates d4a Must first repay Medicaid d4c Non profit association that is trustee can keep, or state may require some Medicaid to be repaid first 37

Self Settled Special Needs Trusts Results if satisfy OBRA 93 rules 1. Transfer of beneficiary s assets to trust is not a disqualifying transfer for Medicaid or SSI No transfer penalty imposed 2. Assets remaining in trust are not deemed to be available resources to beneficiary Don t count towards maximum beneficiary can have and remain eligible for Medicaid and SSI 3. Trust assets and income can be used to pay for beneficiary s special needs 38

Self Settled Special Needs Trust d4a Trust Beneficiary must be under age 65 Separate custom drafted trust document Chose own trustee; may not be experienced Can have trust protector Higher costs than d4c Must repay Medicaid upon beneficiary s death or early termination d4c Pooled Trust No age 65 limitation, but might have transfer penalty Join Master trust established by non profit association Non profit is trustee; has experience with SNTs No trust protector Lower costs than d4a trust Either repays Medicaid or non profit association that is trustee keeps upon death 39

Self Settled Special Needs Trusts Fundamental advantages of SNTs 1. Assets can be held in trust and used to pay for things the beneficiary wants or needs without counting towards maximum the beneficiary can have and remain eligible for Medicaid and SSI (typically $2,000) 2. Large sums of money and assets can be held compared to ABLE account ($14,000/year), residence ($560,000 max FMV), and regular bank account ($2,000) 40

Self Settled Special Needs Trusts Fundamental advantages of SNTs 3. Unique assets can be held in trust, such as businesses, multiple real estate properties, farm land, residential or commercial rental property, art work, jewelry. ABLE accounts are invested in bank accounts or publicly traded securities. 4. SNTs can be set up relatively quickly by experienced SNT lawyer, or d4c pooled SNT joined quickly 41

Self Settled Special Needs Trusts Fundamental advantages of SNTs 5. Assets in SNT are managed for beneficiary s benefit by a trustee, possibly overseen by a trust advisor/protector ABLE accounts are managed by the beneficiary, or someone acting on the beneficiary s behalf 6. Assets in third party settled SNTs are protected from beneficiary s creditors; may also apply to self settled SNTs 42

Whose assets Limitations Who sets up Comparison of ABLE Account and SNTs ABLE Acct Third party or beneficiary Disability before 26; $14,000/year Bene, parent, guardian or DPA Third Party Settled SNT Self Settled Special Needs Trust d4a d4c Not beneficiary s Beneficiary s Beneficiary s None Not the bene Beneficiary must be under 65 Bene, parent, gp, court May be penalty if > 65 Bene, parent, gp, court Who controls Bene or other Not Bene Not Bene Charity Who benefits Only Bene Bene and others Only Bene Only Bene Written Agmt Join ABLE prog. Yes, custom Yes, custom Join Master Tr When to use Repay Medicaid Gift, or too much money Yes, onlymedicaid received after ABLE started Gift or leave at death No Bene has too much money Yes, All Medicaid received for life Bene has too much money Depends 43

What does the future hold? Only a few know, but As long as there are public assistance programs that restrict enrollment to people with limited assets, there will be a need for special needs trusts. If public benefits continue to be reduced, special needs trusts become all the more important to provide for those who have a disability and need or want items the benefit programs won t provide. 44