1. New York Public Library, Science, Industry and Business Library Financial Planning & Medicaid Planning for Disabled Parents and Special Needs Beneficiaries Originally presented on April 14, 2018
Daniel Timins, Esq., CFP®
477 Madison Avenue, Suite 240
New York, NY 10022
(212)

2. Disclaimer
All information contained in these pages is for informational purposes only. It should not be considered legal advice. Please consult an attorney before taking any steps based on this information.
The information provided herein is subject to change on an annual basis or more frequently.
Any tax information provided herein is strictly incidental and not provided from a tax preparation professional.
Any references to investment gains are based on past results, and are not a guarantee as to the future.

3. What are we talking about?
What is SSI?
What is Medicaid?
Who does this effect?
Types of Medicaid Trusts
Investments Inside and Outside of Trusts

4. Why should I care? This is about $ MONEY $ Preserving family assets
Protecting spouses and children
Taking advantage of government programs

5. Entitlement v. Needs Based Government Programs
Needs-Based Programs
Financial Programs
Social Security
Social Security Disability
Supplemental Security Income
Health & Personal Care Programs
Medicare
*MAGI-Medicaid
Medicaid

6. Entitlement v. Needs Based
SSDI and MEDICARE: “Entitlement Programs” – you paid for it, you get it
Separately withdrawn from your paycheck: 15.3%
You pay half, your employer pays half
6.20% for Social Security, 1.45% for Medicare
You must “pay in” for 40 working quarters during your life
SSI and MEDICAID: “Needs Based Programs”
(1) Must have the physical / mental need
(2) “Means Tested”: must meet asset & income limits
Comes out of your general income tax dollars
You did not pay for it for 40+ quarters
 RESTRICTIONS APPLY: That’s why we use Trusts (to minimize restrictions)

7. (some) Types of Social Security
Social Security (Retirement)
Social Security Disability Income
Supplemental Security Income
Who receives it?
Retired & Ages 62 +
Disabled (Ages < 65)
Disabled
How long have they paid Social Sec?
40+ Quarters
< 40 Quarters (sometimes not at all)
Examples
Healthy retired grandparent
Disabled person now older than 64 who was on SSDI
Disabled long-time worker
Disabled 19 year old with autism
Disabled 68 year old who never worked 40 quarters
The BIG Concept
Disability NOT required
Disability required AND worked 40+ quarters
Disability required AND NOT worked 40+ quarters
How much do you receive?
Varies based on contributions
Varies based on your needs
Limits on Use?
No – spend however you want
Yes: Some MUST be spent on food & housing

8. Social Security Disability
There are 2 types of Social Security Disability programs:
SSDI: “Social Security Disability Income”
SSI: “Supplemental Security Income”
 These programs provide $ MONEY $
These are NOT Social Security Retirement
SSDI eventually reverts to SS Retirement
SSI does NOT (usually)

9. What is considered being “disabled”?
It is the SYMPTOMS and PHYSICAL MANIFESTATIONS of an illness, injury or inherited deformity
It is NOT the illness, injury or inherited deformity itself
Social Security Administration defines these symptoms
Someone who has Stage 4 Cancer who can ambulate but will die in 2 months may be less likely to qualify for Medicaid than someone with Multiple Sclerosis in need of a wheelchair who will live for 40 more years

10. SSI – “Limited” Disability
Paid into SS for LESS than 40 quarters
Max Benefit: $857 / month in 2018
Fed max is $750, NY max is $87
Benefit based on living arrangement & other income
Limitations: Assets of only $2,000
 Excess must be held in Supplemental Needs Trust
Spending Requirements
MUST spend some of the money on Food & Clothing
 Automatic Medicaid eligibility

11. SSDI – “Full” Disability
Paid into SS for 40 fiscal quarters
Max Benefit: $2,788 in 2018
Benefit base on income history
No limit on how much assets you have
Income limits do apply:
No limit on “passive” income
You can still “earn” < $1,170 / month in income
No government requirements how it must be spent
TIP: If you are nearing 40 quarters, try to keep working before applying: SSDI has more freedom than SSI (20 of those quarters must be in past 10 years)

12. Medicare A HEALTH care program:
40 quarter qualification  you can qualify for Medicare 2 years after you are declared disabled (which takes 5 months)
Parts
PART A: Inpatient Hospital Care
“Eligible” people pay during working years; pay up to $407 per month if “Ineligible”
PART B: Supplemental Medical Insurance
You pay $ $ per month (directly withdrawn from you Social Security)
PART C: Managed Care
Cost varies by plan
PART D: Prescription Drug Benefits
$0-$50 per month; cost varies by plan; higher income consumers often pay more

13. What is Medicaid? Medicaid is: (1) a healthcare program
(2) that assists low-income families or individuals
(3) in paying for long-term medical and custodial care costs
(4) a joint program, funded primarily by the federal government
(5) and run at the state and county level
(6) where coverage, exemptions and costs may vary.

14. BUT What is Medicaid?!!? Pays for health & Personal care
Pays for care regarding ACTIVITIES OF DAILY LIVING (“ADLs”)
Transferring (Walking)
Bathing
Dressing
Eating
Continence
Toileting
Pays health care providers
“Payor of last result”
Picks up Medicare deductibles and co-pays, but still must pay Medicare Part B

15. Medicaid v. medicare Medicaid Medicare Resource Limits Assets: $15,150
Income: $ per month
Spouse’s resources can limit / be limited for Medicaid
Assets: $74,820 – $123,600
Income: $ 3,090
“Look Back” on transfers
Home Care – 1 month
Nursing Home – 5 years
Exemptions permitted (Ex: trusts, retirement plans, spousal refusal, Medicaid promissory notes)
No Resource Limits
Spousal resources immaterial
No need to transfer
Exemptions unnecessary

16. Who are we talking about?
Medicaid for the DISABLED – not people under Affordable Care Act
Children born disabled (who will remain disabled)
People who were not born disabled (who became disabled)
People who are not disabled (who MAY become disabled)
Can also be for people who are disabled and shall one day no longer be disabled, but this can be tricky.
Medicaid & other programs may have to be paid back.
“Pay back” begins at 55 years old…
But MUST pay back all nursing home care at any age

17. Types of Medicaid trusts
Supplemental Needs Trust
3rd Party Trusts
“Inter Vivos” Trusts (created during life)
Testamentary Trusts (created by a Will)
1st Party Trusts
Medicaid Asset Trusts / “Income Only Trusts”
Pooled Income Trusts

18. Medicaid trusts are always irrevocable!!!!
There is no such thing as a “revocable” trust that is Medicaid-compliant
You cannot change the trust
You cannot be the Trustee
You cannot withdraw the funds (except sometimes income)
You cannot get cash in hand (except with MAPTs)
The Government is saying “You want to qualify for a needs-
based benefit, that’s fine…but you cannot maintain control
of the funds and cannot change your mind”
Irrevocable trusts have the WORST income tax treatment!

19. Income tax rates are very high for irrevocable trusts
Individuals
Irrevocable Trusts
10%
< $9,525
< $2,550
12%
$9,525 - $38,700
22%
$38,700 – $82,500
24%
$82,500 - $157,500
$2,550 - $9,150
32%
$157,500 - $200,000
35%
$200,000 - $500,000
$9,150 - $12,500
37%
> $500,000
> $12,500

20. Investment challenges: Need income, but taxes are high
If income from an irrevocable trust are distributed to a beneficiary, the funds are taxed at the “individual rates” instead of the “trust rates”
PROBLEM:
Many beneficiaries need access to benefits from trust money on an on-going basis (I.e. income generation)…
…but the income tax rates are very high, and dilute distributions…
AND, because income is not being given to a beneficiary, it is not taxed at the beneficiary’s income tax rate
(One) SOLUTION:
Invest in tax-efficient mutual funds, mutual funds that focus on paying out long- term capital gains, and invest in companies with low dividends

21. Medicaid trust comparisons
SNT – 1st Party
SNT – 3rd Party
Income Only Trust
Pooled Trust
Who creates it?
Bene, parent, grandparent, guardian, court
NOT beneficiary
Beneficiary(ies)
Bene, Power of Atty
What does it protect?
Bene’s Assets & Income
Donor’s Assets
Bene’s Assets
Bene’s Income
Pre or Post Disability?
Post disability
Pre or Post disability
Pre disability
Who gives money to the trust?
Beneficiary
Not Beneficiary
Transfers $ death? No
Yes

22. SNTs: 1st Party v. 3rd Party
1st Party SNT
The beneficiary’s money
Any remaining money first goes to pay back the government
Created with help of a parent, grandparent, guardian or court order
Recently added to allow the beneficiary to create it themselves
3rd Party SNT
A 3rd Party’s money – NEVER the beneficiary’s money
Remaining money goes where creator decides
Anyone can create for someone else
Can be creates by a Will (a “testamentary trust”)

23. 1st Party SNTs: Medicaid Recipient’s Money
Creator
Beneficiary, Parent, Grandparent, Guardian, Court Order
Beneficiary
1. Medicaid Recipient
2. Medicaid Pay Back
3. Heirs / Next of Kin
Trustee
Anyone Except Bene / Medicaid Recipient

24. Supplemental Needs Trusts: 1st Party
What Is It?
A trust that holds beneficiary’s excess assets (but can hold assets from outside parties)
Who Usually Uses Them?
Currently disabled people who have too much money in their name to qualify for Medicaid
Special Features, Facts & Functions?
You can name your own trustee (unlike Pooled Income Trusts)
Excess funds can be invested
“Pay back” to Medicaid applies
Requires acceptance by Human Resource Administration (they don’t like them)

25. Supplemental Needs Trusts: 1st Party
Best Way to Fund It?
With YOUR money (since there is a pay-back provision, don’t want to fund it with other people’s money)
Best Investments?
Varies; if your family has set up a 3rd Party SNT then you may as well have the 1st Party SNT generate income
You need income from somewhere, and the 1st Party SNT has a “pay back provision”, so might as well spend it during your life
Focus on bonds (municipal bonds), other secure income

26. 3rd Party SNTs: Non-Medicaid Recipient’s Money
Creator
Anyone Except Bene / Medicaid Recipient
Beneficiary
1. Medicaid Recipient
2. Remainder to anyone else
Trustee

27. Supplemental Needs Trusts: 3rd Party
What Is It?
An SNT created with OTHER people’s money ONLY
This is why it is a 3rd party trust (I.e. a 3rd party’s money, not the Medicaid beneficiary’s)
Who Usually Uses Them?
Parents, grandparents, siblings, friends who want to help disabled beneficiaries
Special Features, Facts & Functions?
Can be created by anyone other than the beneficiary
May be made by Will (“testamentary”) or stand-alone Trust (“inter vivios”)
Left over money goes to the Creator’s choice of future beneficiaries, NO Medicaid pay-back

28. Supplemental Needs Trusts: 3rd Party
Best Way to Fund It?
ONLY other people’s money – because there is no pay-back 1st party money is disallowed
Some liquidity, other assets that don’t generate large income taxes
Best Investments?
Again, varies; longer-term investments (stocks, stock mutual funds) are more important
3rd Party SNTs tend to have more money than 1st Party SNTs, since the donor was likely never disabled / earned more money
Lack of “pay back provision” means there may be funds left-over that can be distributed upon beneficiary’s death

29. Income only trusts / “Medicaid asset protection trusts”: Medicaid Recipient’s Money
Creator
The Bene / Future Medicaid Recipient
Beneficiary
1. Medicaid Recipient (income ONLY)
2. Creator’s choice of future Beneficiary
Trustee
Anyone Except Bene / Medicaid Recipient (typically their child)

30. “MAPTs” / Income Only trusts
What Is It?
A trust that ONLY allows income to be distributed (so it protects trust ASSETS)
Who Usually Uses Them?
Aging individuals who MAY get disabled OR people recently diagnosed with progressive illnesses
Have modest assets who want to protect what they have
Willing to accept Medicaid-level care in the future
Special Features, Facts & Functions?
Only income is distributable to Creator beneficiary
Leaves remaining trust asset to children

31. “MAPTs” / Income Only trusts
Best Way to Fund It?
Primary Residence
Asset protect with no need to distribute income
Still gets step-up in basis at death
Creator beneficiary still get favorable real estate tax exemptions (“STAR”)
Using assets from which the Creator beneficiary only requires income
Best Investments?
If you need income, then have it invested heavily in income-producing assets
The tax treatment for distributed funds is at the individual rate

32. Pooled income trust: Medicaid Recipient’s Money
Creator
Beneficiary, Bene’s POA
Beneficiary
1. Medicaid Recipient
2. Not-For-Profit gets remainder
Trustee
Not-For-Profit agency

33. Pooled income trusts What Is It? Who Usually Uses Them?
An SNT created by a Not For Profit [“NFP”] who is also the Trustee
Accepts lump sums & Medicaid recipient’s “spend down” income
Beneficiary (or POA) forward bills to NFP / NFP pays qualified bills
Who Usually Uses Them?
People on Medicaid with too much income to qualify (I.e high spend-downs)
People of any age (but increasingly for the elderly)
Special Features, Facts & Functions?
NFP keeps remaining funds when the beneficiary dies
 SO…spend this money BEFORE you spend

34. Pooled income trusts Best Way to Fund It? Best Investments?
Deposit excess income to this trust, NOT assets, because the NFP receives left-over money
Best Investments?
NO CHOICE regarding investments – only excess income (cash) is in the trust

35. What does Work Retirement Plans Primary Residences
The asset is excluded from Medicaid eligibility; only distributed income is included
Primary Residences
“Homecare” exemption
“Well-spouse” exemption
“Sibling co-owner” exemption (1 year)
“Child care-giver exemption (2 years)
Great asset to place in an Income Only Trust

36. What Does NOT Work Roth IRA Conversations do NOT avoid RMDs / 72t SEPP
STILL have to take Required Minimum Distributions
Commercial Annuities are HORRIBLE for Medicaid Planning (unless in IRAs)
Large cash values in Life Insurance policies are also bad - $1,500 limit

37. Putting It All Together
A Certified Financial PlannerTM is a trained financial professional required to meet certain Experience, Examination, Education and Ethical standards.
They are trained in the financial planning process and bring together multiple components of your financial lives (Ex: estate planning, retirement planning, risk management, investment management, etc.)

38. Drafting Legal Documents
See a lawyer who focuses on Estate Planning before drafting documents

39. Thank you!!! Daniel Timins, Esq., CFP® www.timinslaw.com
477 Madison Avenue, Suite 240
New York, NY 10022
(212)