Planning for Families With Children Who Have Special Needs Carolina Institute for Developmental Disabilities November 11, 2015 Anthony D. Nicholson McPherson, Rocamora, Nicholson & Nordgren, PLLC 3211 Shannon Road, Suite 620, Durham, NC

Topics to Discuss Planning Considerations –Basic Estate Planning Documents –Guardianship Letters of Intent Special Needs Trusts –Types of SNTs –Distributing Funds from SNTs –Selection of Trustee Miscellaneous Planning Considerations

Planning Considerations Will –Guardian Special Needs Trust Guardianship During Lifetime –Before 18 –Alternative-General Power of Attorney and Health Care Power of Attorney –Standby Guardianship

Prepare Letter of Intent Family Information and addresses Residential Care-Past, Present and Future Education, including past record, current enrollment, specialty teachers, future educational goals, special interests and talents Social, Behavioral & Personal Relationships A Typical Day Medical Information Important Contacts Final Expression of Love and Hope

Have you planned effectively for your child who has special needs? Problem-If child with special needs has over $2,000 or receives over $2,000, eligibility for most government benefits is automatically lost. –Does your will leave money or property to your child with special needs? –Is your child a beneficiary, or contingent beneficiary of your life insurance, IRA, or other retirement plan? –Have grandparents, siblings or others named the child beneficiary or contingent beneficiary of a will or life insurance policy?

Common Needs-Based Benefits SSI – Supplemental Security Income –$733/month Maximum –Disability Determination Medicaid – Automatically Eligible if Receiving SSI CAPS – Medicaid Waivers – CAP C, DA, Innovations, Choice

Non-Countable Assets Home One Vehicle Furnishings and personal effects Property approved by SSI for self support (for example office equipment) Life Insurance and/or burial policy worth less than $1,500 $2,000 cash or cash equivalents

Solutions-What Should You Consider? Disinherit the Child Leave the Child’s share to a Sibling or other Relative Plan for Child with a Will and “Special Needs” Trust Division of Assets Between Children

Overview of Special Needs Trusts Trust: An agreement by which one person (the trustee) holds property for the benefit of another (beneficiary) Special Needs Trust: Trust created for the benefit of a person with disabilities who is receiving or may receive “needs-based” public benefits

The “Special Needs” Trust Essential purpose is to improve the quality of an individual’s life without disqualifying him or her from eligibility for public benefits Assets in trust are not counted as a resource Assets supplement rather than supplant government benefits Overall Planning Goal: to achieve as much independence as possible for the beneficiary. Ideally, beneficiary becomes wage-earner who no longer needs public benefits or the SNT

The Trustee Choice of Trustee can be difficult Qualities of the Trustee –Good Judgment –Investment Acumen –Good Record Keeping Abilities –Not Struggling Financially –Willing to Seek Advice on Public Benefits, Investment and Taxes

Trustee Choices Individual Trustee- Sibling, Relative or friend –Successors needed if person dies or becomes incapacitated Professional Trustee Combination of individuals and professionals as co-trustees Non-profit organization that operates a pooled trust

Two Kinds of Special Needs Trusts Third Party SNTs First Party SNTs –Also called Self-Settled SNT, Medicaid Pay- back SNT or d(4)(A) SNT

Third Party SNTs Funded with assets of parents, grandparents, or siblings (third parties) and not the beneficiary Not subject to Medicaid payback Discretionary Distribution Standard Lots of Guidance to Trustee Regarding Distributions

Third Party SNTs (continued) Created in Will Created as a “Stand Alone Trust” –Revocable verses Irrevocable –Can be a receptacle for gifts or bequests from others as well as parents’ assets at death –Family members can leave property directly to trust

Funding of Trust at Death Beneficiary Designations for Life Insurance, IRAs, etc. should name trust as beneficiary not child Wills should state any distribution to child with special needs is distributed to Trust

First Party SNTs Established by parent, grandparent, guardian or court (and perhaps soon by the beneficiary) for a disabled person under 65 years of age Funded with the personal assets of the disabled person– normally inheritance or personal injury settlement Trust is subject to Medicaid Payback Trustee can be individual, trust company or a non-profit corporation Must be for the “sole benefit” of the disabled person

ABLE Accounts Can be a Good Alternative to 1st Party SNT Limited to $14,000 per year Bank account that will not disqualify person from needs-based benefits Good for relatively small amounts of money – wages, small inheritance Medicaid Payback Required Not Good for Parents’ Money

DISTRIBUTIONS FROM SPECIAL NEEDS TRUSTS

Distributions from SNT – Cash One option: Pay cash directly to beneficiary –DON’T DO THIS – cannot help beneficiary If more than $20 in any month, will reduce beneficiary’s SSI payment dollar- for-dollar If cash exceeds beneficiary’s SSI payment, beneficiary loses not only SSI (bad enough), but also Medicaid (much worse)

Distribution from SNT – In-Kind In-Kind Income: non-cash distributions given directly to beneficiary or that beneficiary receives because someone else pays for it. Four Ways to Distribute In-Kind Income: Direct – Trustee delivers items to beneficiary Indirect – Trustee pays provider, provider delivers to beneficiary Credit Card – Beneficiary purchases item with credit card (Note: not ATM or cash advance card) Restricted Debit Card - True Link

Distribution from SNT – In-Kind –Two types of In-Kind Distributions: In-Kind Support and Maintenance (ISM) – food or shelter Non- ISM – Everything else (for example, a wheel- chair equipped van, computer, books, trip to Disney World, etc.)

In-Kind Support and Maintenance (ISM ) “Food or shelter that a person is given or that is received because someone else pays for it.” Bag of groceries, meal at restaurant Rent payment made by Trustee to landlord

Distribution from SNT – Shelter (ISM) 9 (and only 9) household operating expenses that are ISM: 1. Mortgage (including property insurance if required by the mortgage holder) 2. Real property taxes 3. Rent 4. Heating fuel 5. Gas 6. Electricity 7. Water 8. Sewer 9. Garbage removal

Distribution from SNT – Shelter ( Not ISM) So any other shelter items (those not listed on previous slide) are NOT ISM. Examples: Telephone Cable TV Condo fees House cleaning Painting Plumbing Renovation (e.g., wheelchair ramp) etc.

Distribution from SNT Non-ISM: No limitation (in federal law) on amount that can be given SNT beneficiary Family holiday Education Pets & Pet Care Entertainment

Other Planning Issues Transition from teen to adulthood –Guardianship, Public Benefits, Housing –Post Secondary Education – Beyond Academics Housing –Promoting Independence –Living at Home v. More Independent Setting –Preparing for Life After Parents – housing, arrangements for primary advocate/caregiver. –Finding Appropriate Supports –Group Homes, Alternative Family Living

Finding a Special Needs Attorney Understanding of public benefits planning Experience in drafting special needs trusts Knowledge of general estate planning including wills, trusts, etc.

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