PLANNING FOR THE FUTURE: THE USE OF SPECIAL NEEDS TRUSTS Brain Injury Association of Massachusetts 34th Annual Brain Injury Conference March 26, 2015 Richard S. Blank, Esq. Rubin & Rudman, LLP Boston, MA 02110 rblank@rubuinrudman.com 617-330-7152 I Whirlwind Tour Of MassHealth, SSI, Etc. A. MassHealth (a/kfa Medicaid). 1. For persons living in the community: a. Provides health insurance. b. Provides additional support services: medical equipment (e.g. wheelchair, customized bed); home nursing; personal care attendants; etc. c. Eligibility based on income. Income-in-kind not counted. Resources not counted (for now!). 2. For persons who are institutionalized: a. Covers cost of institutionalization and care. b. Eligibility resource limit: $2,000. Note: some resources are excluded, e.g.: (i) home (subject to limitations); (ii) third party special needs trust if beneficiary has no access to funds, etc.
c. Eligibility income limit: $73 personal needs allowance. 3. This is a federal / state program administered by the state (MassHealth). 4. Affordable Care Act (a/kla "Obamacare"). All U.S. citizens must have health insurance means that all U.S. citizens can now get some type of insurance, without exclusion for preexisting conditions. B. SSI (Supplemental Security Income). 1. Monthly cash payment. Maximum is $860 per month. Likely range for disabled person in community is $452 to $623. (Amounts include Massachusetts supplement.) 2. Automatic eligibility for MassHealth Standard. 3. Eligibility resource limit: $2,000. Note: some resources are excluded, e.g.: (i) home; Op third party special needs trust, if beneficiary has no access to funds, etc. 4. Eligibility income limit: Unearned income paid to the 551 recipient (such as a monthly stipend) reduces SSI benefit on dollar for dollar basis. (Earned income will also reduce benefit, but to a lesser extent.) 5. Payment for food or shelter reduce federal benefit rate by onethird. Shelter includes rent, mortgage, fuel, electricity, water, real estate taxes, etc. C. Other Benefits. Administered by Social Security Administration. Extensive rules serve as informal guideline for other government programs. 1. SSDI (Social Security Disability Insurance) provides a cash payment each month. Amount varies depending on past earnings record. a. Prior employment (own earnings record) or "adult, disabled child" (parent's earning's record if child became disabled before the age of 22). 1600330_1 #09999-030 2
b. No resource limit. c. No limit to unearned income. d. Substantial gainful activity limit is $1,070 per month. 2. Medicare (covers hospitalization; for a premium, covers physicians and prescription medications) (may be eligible before age 65 if receiving SSD1 for twenty-four months). Part "A" hospitalization; Part "B" physician' Part "D" prescription meds. Premium for "B" and D. Medi-Gap insurance to cover deductibles. 3. Social Security retirement. (Partial benefits at 62; full benefits at 65 gradually increasing to 67 for people born after 1959.) 4. Housing (Federal: Section 8: voucher) (Massachusetts: state public housing). Approximately one-third of income must be used for housing. Administered by local housing authority. 5. SNAP (Food Stamps). Administered by Massachusetts Department of Transitional Assistance. 6. DDS (Department of Developmental Services) (flkla DMR or Department of Mental Retardation). Home and Community Based Waiver Services, includes residential group housing. Provided in conjunction with MassHealth. Income limit: $2,130 per month; Countable resource limit: $2,000. 7. DMH (Department of Mental Health). Community services and group housing. 1600330_1!#09999-030 3
II. Trust Basics. A. What is a trust? "A" gives property to "B" to hold for "C's" benefit. B. Declaration of Trust the rules that govern the trust. C. Grantor. Person who establishes trust (e.g. parent). D. Trust Property. What is going to be managed. E. Beneficiary. Person(s) for whom trust is established. Sole beneficiary v. Class of beneficiaries. F. Trustee. Person who manages trust property. 1. Independent Trustee. Person who has no beneficial interest in trust. G. Trustee Advisor, Person who has authority to appoint and remove trustee. Person who can mediate disputes between trustee and beneficiary. The trustee's "boss". H. Revocable Trust. Grantor can terminate. I. irrevocable Trust. Grantor cannot terminate. J. Procedure To Amend Trust. K. Remainder Beneficiary. 1. Medicaid payback (first party trusts -- see below) 2. Family / Charity (third party trusts from the start) (first party trusts after Medicaid payback complete). L. Trust purpose. 1. Flexibility. Keep as many doors open as possible. 2. Supplement but not supplant. Too restrictive? Unwanted benefits? Potential conflict with beneficiary's best interests? M. First Party Trusts / Third Party Trusts 1. First party (or self-settled) trust funded with beneficiary's money. Medicaid payback and stricter rules. 4
2. Third party trust funded with money from others, e.g. parents, grandparents, etc. No Medicaid payback. Special Needs Trust 1. No official definition. Disabled beneficiary. Maintaining eligibility for government benefits as one goal. Can be drafted with "supplement but not supplant" language. 2. Medicaid Requirements First Party Trusts. a. Established by parent, grandparent, legal guardian or court. b. Beneficiary under age 65 when trust established. c. Beneficiary must be disabled (SSI standard). d. Medicaid reimbursement on beneficiary's death. e. 42 U.S.C. Sec. 1396p(d)(4)(A). 3. SSI Requirements First Party Trusts. a. See Medicaid requirements above. b. Beneficiary cannot terminate or revoke trust. c. Beneficiary cannot direct use of trust for his support and maintenance. d. Beneficiary cannot sell his interest in the trust. e. Trust must be for disabled person's sole benefit. 4. Advisable limitation: a. Independent trustee with sole discretion over trust distributions. 5
III. Identity And Role Of Trustee. A. Identity: Professional Trustee. 1. Corporate trustee (bank) or individual trustee (attorney, accountant, investment advisor, etc.). 2. Managerial and investment skills. Knowledge (or at least awareness) of rules governing benefit programs. Outside party without "family baggage". 3. Trustee's fee will be charged. B. Identity: Non-Professional Trustee. 1. Non-professional trustee's fee likely to be much lower than that of professional trustee. 2. May lack skills to manage trust or properly invest trust property. 3. Option: hire others to fill specific gaps in knowledge (e.g. investment advisor, attorney, accountant). 4. Carries "family baggage". C. Trustee's Duties: 1. Discretionary trust distributions. 2. Investments. 3. Taxes. 4. Accounts (annual, monthly / quarterly). 5. Management of home / real estate (RE taxes, insurance, repairs). 6. Social work (e.g. hire case managers, PCA's, nurses, etc.). 7. Government benefits (reporting / eligibility issues, etc, / engaging legal counsel). 8. Fiduciary obligations. Note especially: never have personal dealings with trust and never co-mingle funds. 6
IV. Identity And Role Of Trustee Advisor. A. Overriding purpose: serve as a check on the trustee's authority, especially where beneficiary may not be able to advocate for himself. (A "trustee advisor" is also sometimes called a "trust protectoc.) B. Identity: family member / family friend / outside party / professional / court. C. Trustee advisor's duties: 1. Appoint and remove trustees. 2. Monitor trust: a. Investment performance. b. Trust value. c. Distributions. 3. Attempt to resolve disputes between trustee and beneficiary. Serve as link between trustee and beneficiary, particularly with regard to beneficiary's health, living status, long and short term needs. 5. Should trustee advisor receive a fee? 7
V. Distributions. A. Housing. 1. Rent / Purchase. 2. Financing (if purchase): a. Trust finances entirely and holds 100% interest. b. Trust finances with family member and holds partial interest. (Trust may make down payment (or more) and family finances balance of purchase price.) c. Trust acts as lender to family member, with note and mortgage running to trust. 3. Insurance / real estate taxes / maintenance. 4. Modifications to existing house. How is title held? Need it be adjusted? 5. Trust distributions for housing will likely result in one-third reduction of SSI benefits. 6. Very difficult to own property in which family lives and comply with sole benefit rule (SSI / Medicaid). B. Transportation. 1. Handicapped accessible conversion van: $50,000 +. 2. Massachusetts sales tax exemption (loss of two limbs or loss of use of two limbs). 3. How will title be held: a. trust, beneficiary (individually or by conservator) or family member. If family member, sign transportation agreement and lien on title running to trust. b. if first party trust, title can only be held by trust or by beneficiary under SS1 rules. 4. How do you keep beneficiary's van from becoming family car? 1600330_1 /#09999-030 8
C. Clothing / day to day supplies / electronic equipment / travel and entertainment, etc. 1. Trust market value. 2. Is distribution advisable? Does it make sense? Is it really for the beneficiary's use? 3. Does distribution comply with actual / implied budget guidelines? D. Manner of payment in general. 1. Direct to vendor, if possible. Check / wire / credit card (trust). 2. Reimbursement to relative / friend. Credit card (relative's / friend's credit card) / check. 3. Cash paid to beneficiary will result in a dollar for dollar reduction of SSI benefits. E. Case Managers 1. Specific, short-term task (e.g. SSI application) or general, long-term assistance. 2. Especially useful where relatives unqualified or unable to assist. 9
VI. Planning Options For Parent With Disabled Child. A. Outright Distribution. 1. Takes no time and costs no money. 2. Child is unable to manage his property and is essentially on his own. Court may be asked to step in and appoint a conservator. Judicial intervention can be slow and expensive. 3. Child may be disqualified from needs based government programs. B. Disinheritance. 1. Takes no time and costs no money. 2. Will not disqualify child from needs based benefits. 3. Child is on his own and with no resources. C. Informal Trust. Example: property left to disabled person's sibling with moral obligation to use for disabled person's benefit. 1. Takes little time and costs little money. 2. Will not disqualify disabled child from needs based government benefits. Disabled child could lose everything if non-disabled sibling dies, divorces, is subject to a legal claim (e.g. damages from lawsuit), misappropriates property etc. D. Special Needs Trust. 1. Requires careful planning of persons to be responsible for child's property. 2. Allows for on-going management of child's property. 3. May not disqualify disabled child from needs based government benefits. 4. Expense to establish trust (legal fees). 5. Expense to administer trust (trustee's fees). 10
VII. ABLE Accounts A. Federal legislation enacted December 2014; Massachusetts waiting for federal regulations; should be available in early 2016. B. ABLE account beneficiary must have become disabled before the age of 26. C. Up to $14,000 can be placed in an. ABLE account each year. D. ABLE account funds not counted for SSI (up to $100,000) or Medicaid eligibility. E. ABLE account funds can be used for education, housing, etc.; ABLE account funds cannot be used for food, entertainment or vacations. F. The ABLE account beneficiary or his / her legal representative can control the funds. G. If ABLE account exceeds $100,000, then SSI is suspended. H. ABLE account cannot exceed approximately $350,000. I. ABLE account subject to a Medicaid payback upon beneficiary's death (similar to first party, special needs trust). J May be ideal for small amount of money for which a special needs trust is too complicated. VIII. Questions And Answers. 11