There is Great Value in Special Needs Trust

November 21, 2022

Parents with children who have special needs know they play a pivotal role in their child’s medical, social, emotional and mental health. They also face the challenges of figuring out government assistance programs like Medicaid and how these and other programs provide much-needed help throughout a child’s life. Another important way that parents of children with special needs help is with the creation of a special needs trust, as explained in the article “Special Needs Trust (SNT): What It Is and How It Works” from Forbes. There is great value in a special needs trust.

A special needs trust is used to hold assets in an account to be used to support an individual with special needs. The funds belong to the trust and not the individual, so they are not factored into their eligibility for government benefits.

SNTs are typically set up by a parent, grandparent, or guardian. The person who sets up the account, called the “grantor,” funds the account, as may any other individuals who wish to provide for the child.

The grantor names a trustee, or a third party, who administers the trust. The trustee is a fiduciary and must act in the best interest of the beneficiary. Funds are to be distributed in accordance with the directions in the trust. The trustee will be responsible for distributing funds, following government benefit rules and requirements, and managing tax obligations, among other things.

Parents are often the trustees, although others, like siblings or close relatives, may also be trustees. Parents who are both grantor and trustee generally name a successor trustee to take over after they die, become incapacitated or resign from their role.

A person who may not be able to support themselves due to a medical condition or a disability can gain financial security from an SNT. This is one of the great values of a special needs trust.

Someone with special needs is likely to rely on means-tested government benefits, like Supplemental Security Income (SSI) or Medicaid. These benefits are only available to people with limited income or assets. Anyone receiving SSI, for example, may not have more than $2,000 of countable resources.

A parent who wishes to provide support after they die must plan in advance, so their bequest does not result in the person losing their benefits. This could happen if money is left through anything except a special needs trust. An estate planning attorney will know how to structure the parent’s estate plan to protect the individual with special needs and their government benefits.

Assets in an SNT can be used for a wide variety of expenses, including out-of-pocket medical or dental expenses, personal care givers, rehab services, education, vacations, and other permissible uses.

There is a lot of complexity involved with creating a special needs trust. For one, there are several different kinds of SNTs. You’ll want to select the one best suited for your family. Laws about means-tested benefits vary across states, so you’ll need to work with an estate planning attorney familiar with the laws of your state.

A well-drafted estate plan, incorporating a special needs trust can be of great value to the parents of a child with special needs. It will provide your loved one with the resources to maintain as much normalcy as possible as they adjust to life without their parents. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: Forbes (Sep. 22, 2022) “Special Needs Trust (SNT): What It Is and How It Works”

Photo by Nicola Barts

A Life Estate can help Protect your Property

October 12, 2022

If you are concerned about your loved ones losing control of the family home, a life estate can help protect your property. A life estate is a type of property ownership that divides the control and ownership of a property. The person who creates the life estate for their home and assets is known as the “life tenant.” While a tenant retains control of the property, he or she shares ownership during their lifetime with the remainderman (the estate’s heir).

Quicken Loans’ recent article entitled “What Is A Life Estate And What Property Rights Does It Confer?” explains that while the life tenant lives, they’re in control of the property in all respects, except they can’t sell or encumber the property without the consent of the remaindermen. After the life tenant passes away, the remainderman inherits the property and avoids probate. This is a popular estate planning tool that automatically transfers ownership at the life tenant’s death to their heirs.

The life estate deed shows the terms of the life estate. Upon the death of the life tenant, the heir must only provide the death certificate to the county clerk to assume total ownership of the property.

Medicaid can play an essential role in many older adults’ lives, giving them the financial support needed for nursing facilities, home health care and more. However, the government considers your assets when calculating Medicaid eligibility. As a result, owning a home – or selling it and keeping the proceeds – could impact those benefits. When determining your eligibility for Medicaid, most states will use a five-year look-back period. This means they will total up all the assets you’ve held, sold, or transferred over the last five years. If the value of these assets passes above a certain threshold, you’ll likely be ineligible for Medicaid assistance.

However, a life estate can help protect elderly property owners by allowing them to avoid selling their home to pay for nursing home expenses. If your life estate deed was established more than five years before you first apply for benefits, the homeownership transfer would not count against you for Medicaid eligibility purposes.

To ensure you’re correctly navigating qualifying for Medicaid, it’s smart to discuss your situation with an attorney specializing in Medicaid issues. If you would like to learn more about life estates, please visit our previous posts.

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

Photo by Max Vakhtbovych

Preparing for Retirement with a Special Needs Child

September 22, 2022

For parents of children with disabilities, the challenges of preparing for retirement with a special needs child are far higher than for families with healthy, high-functioning adults. Planning for your own retirement, while needing to secure the stability and basic needs of a child who will be a dependent forever often feels impossible, according to the recent article “Planning for Your Retirement, and for a Child’s Special Needs, All at Once” from The New York Times.

Even under the best of circumstances, where there’s plenty of money available and many hands to help, caring for an adult child with special needs is emotionally and physically challenging. As parents age, they have to address their own needs plus the needs of their adult dependent. Who will care for them, provide safe and comfortable housing and care for them when their parents no longer can?

Understanding the entire picture can be difficult, even for parents with the best of intentions. First, they need to understand how preparing for their retirement will be different than other families without a special needs child. Their investments need to be multi-generational to last not just for their lifetimes, but for their child’s lifetime. They can’t be too conservative because they need long-term growth.

In addition, special needs parents need to keep a certain amount of funds liquid and easily accessible, for times when their child needs a new piece of expensive equipment immediately.

One of the parents will often leave the workforce to provide care or take a lower paying position to be more available for care. This creates a double hit; the household budget is reduced at the same time its strained by costs not covered by benefits or insurance. Paying for gas to drive to therapy appointments and day program, buying supplies not covered by insurance, like adult diapers, waterproof bedding, compression garments to promote circulation, specialized diets, etc. adds up quickly.

Even with public health assistance, finding affordable housing is not easy. One adult may need supervised care in a group home, while others may need in-home care. However, the family home may need to be modified to accommodate their physical disabilities. With wait times lasting several years, many families feel they have no choice but to keep their family member at home.

Another challenge: if the parents wanted to downsize to a smaller house or move to a state where housing costs are lower, they may not be able to do so. Most of the public benefits available to special needs people are administered through Medicaid at the state level. Moving to a state with a lower cost of housing may also mean losing access to the disabled individuals’ benefits or being placed at the end of the waiting list for services in a new state.

For disabled individuals, maintaining eligibility is a key issue. Family members who name a disabled individual as a beneficiary don’t understand how they are jeopardizing their ability to access public benefits. Any money intended for a disabled person must be held in a specialized financial instrument, such as a special needs trust.

The money in a special needs trust (SNT) may be used for quality-of-life enhancements like a cellphone, computer, better food, care providers, rent and utilities among other qualified expenses.

There are two main categories of SNTs: first party trusts, created with assets belonging to the individual. Any money in this trust must go to reimburse the state for the cost of their care. Another is a third-party special needs trust, established and funded by someone else for the benefit of the disabled individual. These are typically funded by parent’s life insurance proceeds and second-to-die life insurance policies. Both parents are covered under it, and the policy pays out after the second spouse dies, providing a more affordable option than insuring both parents separately. Your estate planning attorney can assist you in preparing for retirement with knowledge that your special needs child’s future is secure. If you would like to read more about planning for families with a disabled loved one, please visit our previous posts.

Reference: The New York Times (Aug. 27, 2022) “Planning for Your Retirement, and for a Child’s Special Needs, All at Once”

Photo by RODNAE Productions

Important to consider Long-Term Care Insurance

September 8, 2022

It becomes especially important to plan for the future when the world around us seems so volatile and unpredictable. We can’t control future health care costs, but we can plan for them, says a recent article titled “Economic instability and the need to plan for long-term care” from The Indiana Lawyer. Failing to plan could mean lost assets and a lost legacy. It is important to consider long-term care insurance as you get older.

According to Genworth’s Cost of Care survey, from 2004 to 2021, the cost of long-term care has outpaced inflation by a large margin. Many of the increases were driven by supply and demand issues. There aren’t enough people to care for the growing population of people needing services, which will continue to be the case for at least the next decade. A total of 10,000 boomers turn 65 every day and 70% will require care and support services in their lifetimes.

How can assets be protected from long-term costs?

One of the most frequently used tools is an asset protection trust or an irrevocable trust. The irrevocable trust cannot be modified, amended, or terminated without permission of the grantor’s beneficiary or beneficiaries. Once the grantor transfers assets into the trust, the grantor no longer has the rights of ownership. The trust can be designed to minimize taxation, maximize access to long-term benefits and protect assets.

The trust must be drafted properly, so trust income and principal, if needed, can be accessed.

The timing is critical. Asset protection trusts must be created when there is no immediate health care crisis, and the grantor has no need for long-term care. The best trust is created when the person is in good health and of sound mind.

Those who are nearing retirement, passed retirement age or who may have health issues in the distant future and expect to need Medicaid in the future are best candidates for an asset protection trust.

Medicaid’s Five Year Look Back Period

Planning needs to be done at least five years in advance, as Medicaid looks at the applicant’s past five year’s finances to see if any assets were sold or gifted for under market value. Transferring assets to an irrevocable trust is treated as a gift and violates the five-year look back, making the person ineligible for Medicaid coverage. Nursing home care will have to be paid out-of-pocket until the person becomes eligible.

Asset protection strategies are available for those who need immediate protection of assets. However, they have to done quickly and correctly with an estate planning elder law attorney. People who have suffered a fall and have significant injuries or who have received a diagnosis of a difficult disease should speak with an elder law attorney in a timely manner. They’ll need to discuss preparing for a Medicaid application, what assets can be protected and steps they need to take. It is important to consider long-term care insurance before you reach a point when it is needed. The earlier the plan is put into place, the better. If you would like to learn more about long-term care insurance, please visit our previous posts.

Reference: The Indiana Lawyer (Aug. 3, 2022) “Economic instability and the need to plan for long-term care”

Photo by Tima Miroshnichenko

Protecting the Community Spouse is Necessary

August 30, 2022

Despite the intent of the law, allowing one spouse to remain in the family home and having enough income to live on when the other spouse needs Medicaid to pay for nursing home care does not happen automatically. According to the article “What a ‘Community’ spouse can keep” from The Bristol Press, protecting the community spouse is necessary if they are to maintain their prior standard of living.

The community spouse is entitled to have a minimum monthly maintenance needs allowance (MMNA), which changes every year. If the MMNA is $2,288.00, and the healthy spouse has an income of $1,000.00, Medicaid allows a diversion of the sick spouse’s income of the difference, or $1,288.00 per month to the healthy spouse. In most situations, this is not enough to maintain a home, pay bills and enjoy a well-deserved retirement.

An elder law lawyer can help protect assets for the community spouse. The family home is exempt, if it is in the name of the healthy spouse, although most states have a limit to the allowed value. If the sick spouse is approved for Medicaid, the healthy spouse may choose to sell the home and keep the proceeds or downsize to a smaller home.

The community spouse may keep up to $137,400.00 in investment assets in 2022. That’s considered one half of the couple’s total “countable” assets. If the couple’s investment exceeds this amount, there are a number of strategies used to protect the life savings, as long as they stay within the “spend down” rules. Money may be spent on house expenses or improvements. A new car could replace an old model.

Another method is the use of a Single Premium Immediate Annuity, sometimes referred to as a Medicaid Annuity Trust. The well spouse can purchase this and protect their life savings. However, if the well spouse dies before the sick spouse, the balance of the annuity will need to be paid to Medicaid to reimburse it for expenses paid for the care of the sick spouse.

One positive note: personal property is not considered a countable asset. Things like home furnishings, decorations, jewelry, etc., and any personal property will not be counted. Embarking on a spending spree with an eye to reselling personal property to raise cash is not a good idea, since few items maintain their value after the initial purchase.

Planning should be done in advance, when both spouses are well and healthy, because Medicaid strictly enforces the five-year look back rule. Protecting the community spouse is necessary if they are to maintain their prior standard of living. Any assets transferred within five years of a Medicaid application will make the sick spouse ineligible for Medicaid coverage, and healthcare expenses will have to be paid out of pocket. If you would like to learn more about Medicaid planning, please visit our previous posts.

Reference: The Bristol Press (July 29, 2022) “What a ‘Community’ spouse can keep”

Photo by Matheus Bertelli

Differences between ABLE Accounts and Special Needs Trusts

August 24, 2022

The cost of care and support can be as much as $100,000 per year. As a result, most individuals with disabilities will require government assistance, such as Supplemental Security Income and Medicaid. However, these individuals must shelter their assets carefully to not be disqualified from these programs. That’s why people many use special needs trusts and ABLE accounts. There are differences between ABLE accounts and special needs trusts.

As CNBC’s recent article entitled “Here’s how ABLE accounts, special needs trusts differ … and how they can work together” explains, there are two kinds of special needs trusts:

A third-party trust is funded with the parents’ [or others’] money, for only the disabled child’s needs. It isn’t in the child’s name, and when the child passes away, the funds go to someone other than the child.
A first-party trust is created with the individual’s own assets to shelter any income, whether earned or inherited, to not go above Medicaid income and asset limits. Distributions must be approved by the trustee. Any funds remaining after the child’s death may be claimed by Medicaid, if the child was a recipient.

Special needs trusts can’t be used for certain basic expenses that are covered by government programs. These are things like groceries, which are covered by Supplemental Nutrition Assistance Program; medical expenses, covered by Medicaid; and housing expenses, covered by SSI.

ABLE accounts, defined as “tax-advantaged savings accounts that can fund disability expenses,” can be used for a range of “qualified disability expenses.”

This is expenditures that help the individual “in maintaining or improving his or her health, independence, or quality of life.” These can cover a computer, communication devices, education, training, financial management, support services, assistive technology, and more.

The individual always has control, as opposed to a special needs trust, where the trustee makes the decisions. ABLE accounts are inexpensive and easy to set up and can be funded immediately with small amounts.

A major feature of an ABLE account is that it lets the individual accumulate more than $2,000 without jeopardizing means-tested benefits. ABLE account holders can keep their funds in cash or they can invest them. A certified elder law attorney will have the experience to help you understand the differences between ABLE accounts and special needs trusts. If you would like to learn more about special needs issues related to estate planning, please visit our previous posts.

Reference: CNBC (July 30) “Here’s how ABLE accounts, special needs trusts differ … and how they can work together”

Photo by Alexander Grey

Geriatric Care Managers can make Life Easier

August 3, 2022

Geriatric care managers (or GCMs) help seniors deal with their burdens in an efficient, organized manner. Geriatric care managers can simply make life easier for both you and your senior, says Seniors Matter’s recent article entitled “What is a geriatric care manager?”

Seniors Matter created a guide to provide seniors with detailed information about geriatric care managers, including what they do and how to locate the most qualified individuals in your area. If you’re not sure about the role of a geriatric care manager, it can be broken down into two parts: First of all, “geriatric care” simply refers to geriatric medicine, which focuses on health care services for elderly individuals. The second part of the phrase is quite straightforward, since a “manager” is simply someone with strong organizational skills who is in charge of making important decisions.

Geriatric care managers are knowledgeable and organized individuals skilled in advocacy and care coordination for seniors. They are specialists in senior care who can guide family caregivers and others in providing the best support for their seniors. In fact, many family caregivers think of senior care managers as unofficial family members.

They’re people you can trust to make the right choices when it comes to eldercare services, and they often develop bonds with the entire family.

Geriatric care managers have strong qualifications. Many of them have professional experience in case management, physical therapy, nursing, social work, or occupational therapy. Some have worked as gerontologists. Note that a GCM doesn’t need to directly provide seniors with all of the medical treatment they need. A significant part of their role involves finding other qualified medical professionals and senior care providers who can offer more specialized assistance.

GCMs are especially helpful in long-distance care situations. They can ensure quick response times in the case of an emergency.

Even if the time commitment of informal caregiving isn’t an issue for you, a geriatric care manager can be a welcome source of advice, guidance, and advocacy.

You can make life easier and feel confident about important decisions when you consult with qualified geriatric care managers. They can help you with the complex issues associated with proper care coordination. If you would like to learn more about elder care and elder law, please visit our previous posts.

Reference: Seniors Matter (July 7, 2022) “What is a geriatric care manager?”

Photo by Kampus Production

Special Needs Trusts can Protect disabled Child

July 11, 2022

Parents with disabled children worry about how their offspring will manage when parents are no longer able to care for them. Leaving money directly to a child receiving means-tested government benefits, like Social Security Supplemental Income or Medicaid, could make them ineligible for these programs, explains an article from Kiplinger titled “Estate Planning: A Special Trust for a Special Need.” In most states, beneficiaries of either program are only allowed to have a few thousand dollars in assets, with the specific amount varying by state. However, the financial support from government programs only goes so far. Many families opt to have their own family member with special needs live at home, since the benefit amount is rarely enough. A Special Needs Trust can protect your disabled child.

The solution is a Special Needs Trust, which provides financial support for a disabled individual. The SNT owns the assets, not the individual. Therefore, the assets are excluded from asset limit tests. The funds in the trust can be used to enhance quality of life, such as a cell phone, a vacation or a private room in a group living facility. The SNT is a means of making sure that a vulnerable family member receives the money and other relatives, such as a sibling, don’t have a financial burden.

SNTs can only be created for those who are younger than age 65 and are meant for individuals with a mental or physical disability so severe they cannot work and require ongoing support from government agencies. A disabled person who can and does work isn’t eligible to receive government support and isn’t eligible for an SNT, although an estate planning attorney will be able to create a trust for this scenario also.

Each state has its own guidelines for SNTs, with some requiring a verification from a medical professional. There are challenges along the way. A child with autism may grow up to be an adult who can work and hold a job, for instance. However, estate planning attorneys recommend setting up the SNT just in case. If your family member qualifies, it will be there for their benefit. If they do not, it will operate as an ordinary trust and give the person the income according to your instructions.

SNTs require a trustee and successor trustee to be responsible for managing the trust and distributing assets. The beneficiary may not have the ability to direct distributions from the trust. The language of the trust must state explicitly the trustee has sole discretion in making distributions.

Because every state has its own system for administering disability benefits, the estate planning attorney will tailor the trust to meet the state’s requirements. The SNT also must be reported to the state. If the beneficiary moves to another state, the SNT may be subjected to two different sets of laws and the trustee will need to confirm the trust meets both state’s requirements.

SNTs operate as pass-through entities. Tax treatment favors ongoing distributions to beneficiaries. Any earned investment income goes to the beneficiary in the same year, with distributions taxed at the beneficiaries’ income tax rate. Trust assets may be used to pay for the tax bill.

As long as all annual income from the trust is distributed in a given year, the trust will not owe any tax. However, a return must be filed to report income. For any undistributed annual investment income, the trust is taxed at one of four levels of tax rates. These range from 10% and can go as high as 37%, depending on the trust income.

An SNT can be named as the beneficiary of a traditional IRA on the death of the parent. Investments grow tax deferred, as long as they remain in the retirement account and the SNT collects the required minimum distributions for the retirement account each year, with the money passing as income. However, any undistributed amount of the required distribution will be taxed at the trust’s highest tax rate. Using a Special Needs Trust can protect your disabled child and ensure they have a quality of life for years to come. If you would like to learn more about SNTs, please visit our previous posts.

Reference: Kiplinger (June 8, 2022) “Estate Planning: A Special Trust for a Special Need”

Photo by Mikhail Nilov

The Estate of The Union Season 3|Episode 3

The Estate of The Union Season 2, Episode 2 – The Consumer’s Guide to Dying is out now!

June 21, 2022

The Estate of The Union Season 2, Episode 2 – The Consumer’s Guide to Dying is out now!

Dealing with a funeral home after the death of a loved one is something no one relishes.

In this episode of the Estate of the Union, we interview Nancy Walker, the Executive Director of the Funeral Consumers Alliance of Central Texas, a non-profit that helps people navigate this unpleasant task. Nancy hits on the perils of the process and even discusses “natural burials.” Learn what the organization is and how they are an important resource for making educated choices and arrangements prior to end of life.

This is fun, innovative and informative. Despite the topic, you will love it!

To learn more about Nancy Walker and the Funeral Consumers Alliance of Central Texas, please visit their website: www.fcactx.org

We’ve got fifteen episodes posted and more to come. We hope you will enjoy them enough to share it with others. These are available on Apple, Spotify and other podcast outlets. Click on our logo to listen on Spotify.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2, Episode 2 – The Consumer’s Guide to Dying can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

Supplemental Needs Trust can safeguard Benefits

June 20, 2022

A Supplemental Needs Trust can safeguard government benefits. Supplemental Needs Trusts allow disabled individuals to retain inheritances or gifts without eliminating or reducing government benefits, like Medicaid or Supplemental Security Income (SSI). There are cases where the individual is vulnerable to exploitation or unable to manage their own finances and using an SNT allows them to receive additional funds to pay for things not covered by their benefits.

Having an experienced estate planning attorney properly create the SNT is critical to preserving the individual’s benefits, according to a recent article titled “Protecting Government Benefits using Supplemental Needs Trusts” from Mondaq.

Disabled individuals who receive SSI must be careful, since the rules about assets from SSI are far more restrictive then if the person only received Medicaid or Social Security Disability and Medicaid.

The trustee of an SNT makes distributions to third parties like personal care items, transportation (including buying a car), entertainment, technology purchases, payment of rent and medical or therapeutic equipment. Payment of rent or even ownership of a home may be paid for by the trustee.

The SNT may not make cash distributions to the beneficiary. Payment for any items or services must be made directly to the service provider, retailers, or other entity, for benefit of the individual. Not following this rule could lead to the SNT becoming invalid.

SNTs may be funded using the disabled person’s own funds or by a third party for their benefit. If the SNT is funded using the person’s own funds, it is called a “Self-Settled SNT.” This is a useful tool if the disabled person inherits money, receives a court settlement or owned assets before becoming disabled.

If someone other than the disabled person funds the SNT, it’s known as a “Third-Party SNT.” These are most commonly created as part of an estate plan to protect a family member and ensure they have supplementary funds as needed and to preserve assets for other family members when the disabled individual dies.

The most important distinction between a Self-Settled SNT and a Third-Party SNT is a Self-Settled SNT must contain a provision to direct the trust to pay back the state’s Medicaid agency for any assistance provided. This is known as a “Payback Provision.”

The Third-Party SNT is not required to contain this provision and any assets remaining in the trust at the time of the disabled person’s death may be passed on to residual beneficiaries.

A Supplemental Needs Trust can safeguard benefits. That is why so many estate planning attorneys use a “standby” SNT as part of their planning, so their loved ones may be protected, in case an unexpected event occurs and a family member becomes disabled. If you would like to learn more about SNTs, please visit our previous posts.

References: Mondaq (May 27, 2022) “Protecting Government Benefits using Supplemental Needs Trusts”

Photo by RODNAE Productions

Category: Medicaid

A Life Estate can help Protect your Property

Important to consider Long-Term Care Insurance

Protecting the Community Spouse is Necessary

Geriatric Care Managers can make Life Easier

The Estate of The Union Season 2, Episode 2 – The Consumer’s Guide to Dying is out now!

Supplemental Needs Trust can safeguard Benefits

Categories

View Blog Archives

Watch the

Estate Of The Union

Join Our

eNewsletter and Blog Digest List

Listen to the

Estate Of The Union

Texas Trust Law

Quick Links

Connect With Us