Patti's Blog - Advocate for Elders, People with Disabilities and Their Families

How Much Should I Put Into My Child’s Special Needs Trust?

Excerpt from: NAELA News (click for full article)

 

An issue families often find challenging is how to split their estate among their children when one child is disabled and other children are not. This subject alone could take an entire book. Parents often struggle with their attempts to be fair to all of their children. The fact is, children are not created equal, whether they are disabled are not. In many cases, it might be more prudent, at least initially, to dedicate more of the estate to the disabled child’s special needs trust than to the nondisabled child’s share. The children who are not disabled presumably would have more earning capacity than their disabled sibling, especially if the parents contributed to their education. This balancing act is nothing new to parents of disabled children. In many instances it is very difficult to accommodate all children fully, especially when the family has limited resources. Parents must look at the equities and make a pragmatic decision, which is easier said than done. Parents must try to avoid making decisions based on guilt. A common approach is to purchase life insurance to make up the difference or fill in the gaps, which can be a short-term or a long-term solution, depending on the situation and the type of insurance purchased, whether it be “perm,” or “term.”

Congress' Drafting Error Denies Individuals with Disabilities a Fundamental Right

Excerpt from: NAELA (click for full article)

 

Denying a Basic Right
Aside from the mistaken presumption that such individuals lack capacity to establish their own SNT, this omission results in inequitable and unnecessary legal costs and time for the individual with disabilities. Imagine the impact on a person who does not have the luxury of a living parent or grandparent and does not lack mental capacity that requires the appointment of a legal guardian. That person’s sole option is to hire a lawyer to petition the court to exercise a fundamental right that the person is born with in our country. Depending on one’s geographic location, this cost could range from $1,500 to more than $6,000.

This dilemma was recently experienced by a 62-year-old client of mine who was the victim of medical malpractice, which rendered her paralyzed and confined to a nursing home that charges over $100,000 per year for her care. She not only has the mental capacity to direct her care in the facility, but she also was the star witness in her lawsuit, testifying in court as to her ordeal. When it came time to set up her SNT, I had to inform her that she could not simply sign the SNT, but instead, since she did not have a parent, grandparent, or legal guardian, she had to petition the court to authorize it. My words cannot convey the shock on her face. My words also cannot convey the shock on the faces of the legislative assistants in Congress when I informed them that I, a blind and moderately deaf attorney who has drafted thousands of SNTs for clients, would not even be able to sign my own SNT in the future.

Planning for a Special Needs Child

Excerpt from: JDSUPRA Legal News (click for full article)

 

Twenty million American families face the struggle of raising a child with special needs and the number continues to rise. It costs an estimated $3.2 million to take care of a child with certain disabilities such as autism over a lifetime. Parents are often overwhelmed and put off planning for the child’s financial future because they are so burdened with the daily care of the child.

Fortunately, there are many ways to plan for the long-term care of a disabled child, including:

• Special Needs Trust: A special needs trust allows you to allocate funds for the care of a special needs child without leaving your child excluded from federal aid. Parents of a special needs child who also have other children often leave their assets to the other children with the understanding that they will take care of their disabled brother or sister. This is not a good idea because many things can happen to that money over the lifetime of the non-disabled child, such as divorce and bankruptcy. Instead, a better practice is to divide assets among all children equally and place the disabled child’s assets in a special needs trust.

A GUIDE TO PLANNING AHEAD FOR YOUR CHILD WITH SPECIAL NEEDS: SERVICES AND CARE OPTIONS AFTER HIGH SCHOOL AND BEYOND

Excerpt from: NY MetroParents (click for full article)

 

An attorney will make sure that the correct financial advisor represents the child's best interests, while a health care proxy delegates health care decisions in case one or both parents are injured. Parents also should appoint a legal guardian for the child. A memorandum of intent, which states what everyone should know about the child, should be created early and updated annually. This includes information for caregivers, lawyers, and financial advisors the child will work with throughout his life, even after the parents are deceased.

Financially responsible parents will work with a trained financial professional, he says, because there is no one-size-fits-all plan that will solve each family's unique challenges. They must also be aware of the timelines that exist for claiming certain services. Many services expire, and changes take place around the time the child reaches adulthood.

Although they can do it at any time, parents should become their child's legal guardian before the child's 18th birthday. After a child reaches adulthood, parents can no longer make decisions, including medical ones, for their child without legal guardianship. Health insurance companies will not give out information unless parents have guardianship, either.

Special Needs Trusts – Protecting a Disabled Person’s Benefits

Excerpt from: FLB Law (click for full article)

 

Special Needs Trusts are important estate planning tools which should be considered by all families where a member of the family is receiving, or may be eligible to receive, Medical Assistance (also known as MA or Medicaid), Supplemental Security Income (SSI) and/or Mental Health and Mental Retardation (MH/MR) benefits.  A Special Needs Trust allows the disabled person to continue to receive the above benefits, whereas if the disabled person were to own the assets that are in the trust outright in his or her individual name, such benefits would be taken away (if the disabled person was already receiving the benefits) or the disabled person would not be eligible to receive the benefits in the first place (if the disabled person applied for the benefits while already owning assets in excess of a specific amount allowed under the law).

Special Needs Trusts and the New Medicare Tax

Excerpt from: Fleming and Curti (click for full article)

 

You may have heard about a potentially significant new tax liability for special needs trusts. With adoption of the Patient Protection and Affordable Care Act (what is often referred to as “Obamacare”) Congress created a new tax intended for high earners to contribute to Medicare. A fairly complicated formula attempts to capture investment income (as distinct from income from employment) and impose a tax.

Enter the doctrine of unintended consequences — or at least we hope this consequence was unintended. Because of the definition of income subject to the tax, it is possible that some special needs trusts will end up paying a significantly higher tax. Here’s how it works:

The new tax is imposed on “net investment income.” That is defined as dividends, capital gains, interest, rents, royalties — pretty much income other than wages. It was intended to cover relatively higher-income individuals, so it will kick in only for the highest tax brackets for each category of taxpayer. That means, for instance, that a married couple will owe the 3.8% Medicare tax only if their total income (including that investment income) exceeds $250,000.

But here’s the problem: the highest tax bracket for trusts kicks in at a much, much lower figure — $11,950 in 2013. So a special needs trust subject to income taxation will pay an extra 3.8% on any investment income in excess of that amount.

Special Needs Trust

Excerpt from: Special Needs Planning (click for full article)

 

Simply put, the Special Needs Trust – which is established by placing funds and other assets under the control of a trustee – is a legal document which is designed solely for the financial protection of an individual with a disability. It is the only legal way for a beneficiary (the individual with a disability) to receive the benefit of unlimited extra income without sacrificing valuable state and federal benefits. It is of the utmost importance that the Special Needs Trust be written correctly. A trust which has been established without regard for the eligibility laws may disqualify a person with disabilities from government benefits, specifically from Supplemental Security Income (SSI) and Medicaid. (Note: In most states, Medicaid is automatic when a person with special needs qualifies for SSI.)

A short explanation to the answer that you are probably now asking yourself (how is that possible?) is this:  SSI and Medicaid are needs-based government benefits. In order to qualify for these benefits, a person with a disability cannot assets totaling more than $2000 in their name. If the Special Needs Trust is completed correctly, it becomes its own entity. As such, any funds or assets which fall under the Special Needs Trust will not be considered an asset of either the grantor (the person who establishes the trust) or the beneficiary (the person with special needs). Therefore, the beneficiary will still qualify for SSI and Medicaid, as they will not have these funds or assets totaling more than $2000 in their name.

Special Needs Legal and Estate Planning 101

Excerpt from: SF Gate (click for full article)

 

What is the first thing parents should do to prepare for the future?

Prepare their own estate plan and write out their instructions for how to best manage their child and their finances. If that is too much, they should at least prepare a Power of Attorney and Advance Health Care Directive to appoint someone to make these important decisions if they are unable to do so.

Why is it important to hire an attorney who specializes in special needs trusts?

Special needs trusts work to preserve eligibility for public benefits, but only if all of the rules are followed. Many estate planners who do not do a lot of planning for persons with disabilities do not understand all the wonderful things a special needs trust can do to enhance the quality of life of a person with a disability. Thus, it is important that the proper special needs planning attorney is used to make sure all of the legal technical rules are followed along with providing advice on all the options that can be used as part of the special needs planning.

Good News for Trustees, Beneficiaries of Special Needs Trusts

Excerpt from: Raymon B. Harvey, P.A. (click for full article)

 

The changes last fall addressed several sections of the POMS dealing with how to treat expenditures from special needs trusts. Some of the changes focused on just “self-settled” special needs trusts, others included expenditures by “third-party” special needs trusts and perhaps even payments by family members or others who try to help recipients of Supplemental Security Income (SSI).

Among the changes posted last fall:

When family members paid for items for a trust beneficiary — like medical supplies, clothing, transportation or pretty much anything else — reimbursement from a trust would be treated as income to the beneficiary, even though nothing ever went through the beneficiary’s hands or account. The same would have been true for trust payments to the family member’s credit card.

Payments for caregiving could not be made to a family member unless the family member was certified in some way.  

Travel expenditures for third persons to visit a trust beneficiary would have been prohibited in pretty much all circumstances.

Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out

Excerpt from: Forbes (click for full article)

 

Folks with trusts, and that includes widows and the disabled, not just the ultra-wealthy, have been hit with a double tax whammy this year. First the 3.8% Obamacare tax that applies to net investment income kicked in Jan. 1. Then, the American Taxpayer Relief Act was signed into law on Jan. 2, imposing income and capital gains tax hikes on trusts akin to those on the wealthiest taxpayers. The top income tax rate is now 39.6%, up from 35%, and the top capital gains rate is now 20%, up from 15%.

The kicker: these taxes hit a trust on any income it does not distribute over just $11,950, far less than the $400,000/$450,000 ATRA and $200,000/$250,000 Obamacare thresholds for individuals.

Trusts and estates lawyers are just starting to come up with ways to soften the blow of the tax hikes on trusts. On the capital gains front, instead of selling stock in the trust, you might distribute it and sell it at the beneficiary level if the trust allows this, Hall says.