1. More than just Taking Care of Money
Special Needs Trusts
More than just Taking Care of Money
Identify the owners of MEMBERS Trust Company. Emphasize that the company is owned by your credit union, CUNA Mutual Insurance Group, and other credit unions nationwide, whose total assets exceed $60 billion. State that MEMBERS Trust Company has offices in 10 states.

2. Disclosure Statement
This presentation is for informational purposes only and is not intended to provide specific legal or tax advice. For specific legal or tax advice, please consult with your attorney and/or accountant. Trust and Investment Products are uninsured, not guaranteed by MEMBERS Trust Company, the credit union, or any federal agency. Any investment exposes an investor to investment risk, including the possible loss of principal.

3. Estate Planning Manners
Key Point on Estate Planning Manners
“Even if you’re certain you’re included in the will, it is rude to drive a U-Haul to the funeral.”
Optional ice breaker.

4. Objectives
To understand how a Special Needs Trust can maintain eligibility for SSI & Medicaid.
To better understand the planning needs of a family with a special needs child.
To start the planning process.
Without knowledge and understanding of the rather complex rules that govern eligibility of public benefits, well intended parents may actually cause a loved one to lose them, which are so important to provide for health and daily needs. For example, let’s say Sue, who has a learning disability and is receiving SSI and Medicaid benefits, upon the death of her parents, receives $100,000 in cash and securities. These assets will count as a personal resource for Sue and will disqualify her for both SSI and Medicaid. However, if those assets had been left in a Special Needs Trust, Sue would have remained eligible for both SSI and Medicaid. A special needs trust can have unlimited assets and the beneficiary may still qualify for benefits.
MEMBERS Trust Company is dedicated to providing planning advice and partnerships with members who have special needs. We can evaluate funding needs and develop a plan to meet those needs. MEMBERS Trust Company may act as trustee of a special needs trust. We also will help you to identify local attorneys specializing in drafting special needs trusts. If your estate plan does not include a special needs trust, and your personal situation includes a loved one currently receiving these benefits or you believe your loved one may become eligible for these benefits in the future, then we hope this seminar will provide a starting point for implementing a comprehensive estate plan that addresses the special needs of your loved one.

5. Families with Special Needs
A physical or mental disability that prevents the person from engaging in “substantial gainful activity.”
Car accident
Congenital Issue (i.e. Downs syndrome)
Health Problem
Mental Issue (i.e. Bipolar)
Combination of the above
Not respective of any family
Your family could require special needs tomorrow.
Special needs are not a respective of any family. It can happen to your family tomorrow. About 5% of all families have special needs. There are a multitude of issues that must be addressed. A reliable and caring trustee is needed to manage assets, a caring guardian may be required to be appointed, and a special letter of intent should be completed. We have a model special letter of intent for you today. MEMBERS Trust Company recognizes a myriad of decisions and tasks that must be performed to finish estate planning for a special needs situation. And we have the professional staff to help you with those decisions.

6. Parental Concerns & Needs
Each situation presents unique challenges
Housing
Personal Care
Health and general welfare
Financial protection and security
Remaining eligible for needs-based benefits
These are concerns and issues that you must address. When we act as trustee for a special needs trust, we pride ourselves on our commitment and understanding that our role as trustee is more than just taking care of the money. We want to encourage you to address all the needs of your loved one. Each need is similar to the links in a chain; if one link breaks, the entire chain falls apart.

7. Supplemental Security Income (SSI)
Limited resources & income
Disabled or blind
Earning less than approximately $800 per month
Less than $2,000 in total assets
There are two primary needs-based programs for a disabled person: SSI and MEDICAID. Both of these benefits are based on needs. That means you must not have personal assets or resources. If assets are left outright to a person receiving these benefits, it may result in the disqualification of both benefits. This is the primary reason why it is so important to leave assets in a special needs trust, as the eligibility can be protected and benefits can continue.
SSI are benefits available to persons who are disabled and have minimum assets. In 39 states, a person who qualifies for SSI is eligible for Medicaid. Utah is one of these states in which SSI and Medicaid are linked in determining eligibility. In other words, if one is eligible for SSI , then that automatically qualifies that person for Medicaid, and vise versa. If one is disqualified for SSI, then they are also not eligible for Medicaid. In many cases, we have found that eligibility for Medicaid is more important than the receipts of the SSI payment. SSI should not be confused with SSDI which is a federal program that is paid to a disabled worker who paid into social security. SSDI is not needs-based.
Note that the recipient cannot have more than $2,000 in his or her name. So, if one’s checking account has $2,00l on the first day of the month, they are not eligible for SSI that month. If a person inherits more than $2,000 outright, that person is no longer eligible for SSI and/or Medicaid. If they receive cash or wages, SSI will be reduced. We will talk about those reductions in just a moment.
It is important to understand the difference between Medicaid and Medicare. Medicaid is a government program that is available to persons with minimum resources. It is a needs-based benefit. Medicare is not dependent on resources, but is generally available for persons who are receiving social security. Medicare is not needs-based. One is entitle to Medicare while still qualifying for Medicaid if there are minimum resources and/or disability involved.

8. Exempt Assets for SSI Not included as countable resources Home
Necessary car or van
Furnishings
Burial up to $1,500
(This amount will buy you an unpainted pine box with a lot by the railroad.)
As I mentioned before, SSI is a needs-based program. If one has more than $2,000 of countable resources, they are not eligible. ($3,000 per couple)
In determining resources, certain assets are exempt. It is important to note that a home is an exempt asset. You can leave your beneficiary your home and this asset will not disqualify your loved one from SSI. A major decision is whether to leave the home outright or in trust. In many cases, the home should be left in trust as the beneficiary may not be able to mortgage the home nor maintain it.
Note: The beneficiary can have only one car. A second car would be a countable resource.
Home furnishings are an important exemption. For example, the trustee of a special needs trust may purchase a computer for the beneficiary and that asset would be exempt.

9. Receipt of Income Reduces SSI Payment
Earned Income: After $65, half reduction
Unearned Income: After $20, dollar for dollar reduction
Lose Medicaid if one becomes ineligible for SSI
If the beneficiary receives cash, either in wages, gifts or unearned income such as dividends or interest, the SSI payment will be reduced.
Assume Ed is receiving SSI and therefore is eligible for Medicaid. Ed takes a job at the local Hamburger Heaven and makes $500 per month.
He is very proud of his wages until he learns that his SSI will be cut by approximate ½ the next month.
Another example would be if a trust distributed cash directly to Ed. Let’s say $300 is distributed out of the trust. In this case his SSI will be cut dollar for dollar or by $280 (remember there is $20 exemption).
If too much income, either in wages or cash, is received the SSI payment could be reduced to $0 and the beneficiary could be disqualified from Medicaid, which could be horrendous as private insurance would probably not be an option.
What if cash is not distributed to the recipient? For instance, gifts such as food, free travel, or even tangible gifts such as a television are made. The impact on the benefits will depend on the nature and ultimate purpose of the gift.

10. In-Kind Support for Food & Shelter
In-kind support & maintenance for food and shelter is considered income (ISM)
Reduction of the lesser value or 1/3 of SSI
(approximately $215)
Example: Mortgage payment; utilities; restaurant tabs; etc.
Gifts of food and shelter directly to the beneficiary or to a third party on behalf of the recipient are referred to as in-kind income or support. And you guessed it, the federal government has special rules for these gifts.
So, back to Ed. If he received a meal voucher worth $300, his SSI would not be reduced by $300, but by approximately $215. In this case, it would be in Ed’s best interest to receive the meal voucher because it is worth more than the reduction. The key here is not to give Ed the $300 in cash to buy the voucher.
It is important to note that there is a maximum in the reduction of SSI for in-kind support. Let me give you some other examples.
Say that Ed rents an apartment for $1,000/month. If the trustee gives Ed $1,000 in cash to pay for the apartment, then Ed’s SSI will be reduce to $0 and his Medicaid eligibility will be lost.
However, if the trustee pays the rent directly, the payment is consider in-kind support and Ed’s SSI will be reduced by no more than $215.
Certain gifts and expenses are exempted and are not considered in-kind support. Illustrations of these are: medical equipment not provided by Medicaid, out of pocket medical and dental expenses, transportation expenses, cosmetics, home improvements, trips and vacations, home furnishings, and materials for hobbies (to name a few). But remember, cash should not be distributed to the beneficiary; Rather, the trustee should pay for these items directly.
Here are some items that ARE NOT COUNTED AS IN-KIND SUPPORT or TREATED AS A COUNTABLE RESOURCE: TRIPS TO SEE FRIENDS,
TELEPHONES, COMPUTERS, RADIOS, HOME IMPROVEMENTS, PERSONAL CARE ATTENDANT, TRANSPORTATION, or COSMETICS. THE LATTER COULD EAT UP ALL THE SSI PAYMENT.

11. Medicaid State specific Disabled persons Limited resources & income
39 states tied to SSI
11 states set different criteria (209 states)
Now let ‘s talk a little bit about Medicaid. This is to be distinguished from Medicare that one receives in conjunction with social security.
In most states, a person who is eligible for SSI automatically qualifies for Medicaid. Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, and Virginia are states in which the eligibility for Medicaid is not linked to SSI.
In these states, eligibility rules for Medicaid are similar to those of SSI, however eligibility for each program is separately determined.
For most beneficiaries, Medicaid eligibility is a critical need as the beneficiary may not be able to retain private health insurance coverage. Medicaid pays for most medical services including long-term nursing home care and prescription drugs.

12. Issue
Leaving assets outright may disqualify the beneficiary from Medicaid and SSI.
Creating a Special Needs Trust provides assets to enhance quality of life while preserving eligibility for public benefits.
For example, grandparents leave their special needs grandchild $50,000 outright or in a trust without the necessary special needs language.
Upon the receipt of those assets, the grandchild is no longer eligible for SSI or Medicaid and will remain ineligible until the inherited funds are spent down. With the help of a special needs trust, the $50,000 could be used to enhanced the quality of life for the grandchild while maintaining eligibility for public benefits. Under the trust, the trustee must have exclusive control over the assets held within the trust and the trust must be for the sole benefit of the named beneficiary. Also, the trust must clearly state that the intent is to supplement, but not replace benefits provided by Medicaid and SSI.
The trust can be included in the Will or Revocable trust. In either case the trust would not come into existence until after the donor’s death.
How long does the trust last? The trust will terminate upon the complete depletion of assets.
Most trusts include a provision stating that the trust will terminate once the beneficiary no longer needs the support of government benefits.
Let me give you an example: A beneficiary has been diagnosed with serious emotional issues that have never rendered the person disabled and in need of public assistance. Modern medicine is finding cures for illnesses every day. If a drug is discovered that will treat the emotional issue and the person is able to return to work, then there is no longer a need for a special needs trust. It may be in the best interest of the beneficiary that the special needs trust terminate or the trust be automatically modified giving the trustee discretion to distribute more of the assets to the beneficiary.
The purpose of a special needs trust is to supplement benefits that the beneficiary is entitle to. Distributions from a special needs trust will enhance the quality of life for the beneficiary.

13. Definition
Special Needs Trust: A trust with provisions to provide distributions that will supplement and not supplant Medicaid and SSI to ensure that the beneficiary remains “benefit eligible.”
Let’s repeat the basic purpose of a special needs trust. The special needs trust must give the trustee sole discretion to distribute assets and the trust must provide a provision stating it’s intent to supplement, but not replace public benefits. There are purchases a trustee can make for the beneficiary without risking the loss of SSI and Medicaid.

14. Third Party Special Needs Trust
Assets from a parent, grandparent or someone other than the special needs individual.
Testamentary Trust ... A planning issue.
Life Insurance Policy … With a Special Needs Trust as beneficiary.
Same requirement: Supplement, but not supplant.
No payback provision required.
No support languages needed.
There are two types of Special needs trusts: Third Party Special Needs Trusts and Self Settled Trusts.
Third party Special Needs Trusts are funded by someone other than the beneficiary (i.e. parents or grandparents). Self Settled Trusts are funded by the beneficiary themselves. For example, assume Bill is in a terrible accident and becomes disabled. He receives $500,000 from the lawsuit arising with the accident. If he receives this money outright, the amount will disqualify him from both SSI and Medicaid. To protect these benefits, his attorney can arrange for a Self Settle Trust. In this trust, a provision must be included that upon Bill’s death or termination of the trust, any remaining assets within the trust must reimburse the state for any Medicaid benefits paid to Bill.
It is important to understand that a third party is not required to have a payback provision. A third party trust could be set up by parents, grandparents or a friend. The trust can be set up in a will or revocable trust and become active at the death of the surviving parent or during the life of the grantor.
Special needs trusts are a specialty area of the law. It is important to retain an attorney that understands the required language to include in the trust to qualify the trust as a special needs trust. If there is a general duty to support the beneficiary (found in most trusts), it will not qualify as a special needs trust.

15. Self Settled Trust Created with the beneficiary’s own assets.
Personal injury.
Subject to payback rules.
Beneficiary must be under 65.
So there are two types of Special Needs Trusts: Third Party Trusts and Self Settled Trusts.
The primary difference is that assets used to fund the Self Settled Trust are owned by the beneficiary. With Third Party Trusts, the assets are owned by a third party such as the parents, a relative, or a friend.
Also, the Self Settled Trust must include a provision that at termination, any remaining assets will be subjected to reimburse the government for used Medicaid benefits. This payback provision is not required with Third Party Trusts.

16. Sites for Information www.specialneedsalliance.com
(Exceptional Parent)
Knowledge is important to set up a holistic plan for a loved one. It is a continuing journey to learn and take advantage of new developments and discoveries. Here are some informational websites on special needs that may be helpful.

17. Administration of the Trust
Protect eligibility.
Receipt of cash is problematic.
Buy non-countable assets such as a TV, furniture, a computer, etc.
Purchase a vehicle for medical purposes.
Schedule recreational trips.
(i.e. Walt Disney World)
Let’s talk about the administration of a special needs trust. The trust can be set up properly to meet all the legal requirements, however if the trustee does not administer the trust properly, the beneficiary can lose benefits.
For example, assume Sue is the beneficiary of a Special Needs Trust and loves to eat out. Sue requests $500 monthly to eat out and the trustee pays the money directly to Sue in cash. Guess what happens to Sue’s SSI payment? It is reduced by $500.
There are ways for Sue to enjoy the value of the trust without jeopardizing her SSI benefits.

18. Common Sense
Buy gifts and avoid cash disbursements to the beneficiary.
Disburse funds to a third party.
Purchase exemption items and let the recipient pay for food and shelter.
Avoid buying assets that will count as a resource.
(i.e. a second vehicle)
Avoid ISM payments if it will result in the loss of SSI benefits.

19. Home as a Trust Asset Protection for the beneficiary.
Repairs, taxes, and insurance are not considered ISM.
An agency may recognize ‘free’ rent as a housing payment (resulting in a $210 reduction).

20. Special Situations: Crummey Trusts
Crummey: The right to withdrawal may be considered a resource
UTMA…Considered a resource

21. Special Needs Trust… May not be the right solution
Restrictions may penalize the beneficiary.
Balance the benefits of standard support vs. public benefits
Include Termination of the Special Needs Trust for recovery.
Balance the constraints of a special needs trust with the value of SSI and Medicaid. For instance, if there is a chance that the beneficiary may recover and be able to be gainfully employed, the special needs trust should be terminated. However, unless the trust includes an early termination provision, it may be problematic to terminate the trust.

22. Special Letter of Intent
Not a legal binding document.
A personal statement and blueprint for future care.
An important document for caregivers.
A special letter of intent is not a legal binding document. It is document to express your wishes for your loved one, to provide guidance to the trustee and care givers, and to provide a source for resources such as friends and relatives.
We have a model letter of intent that we can provide for your use.

23. Guardianship of Person
Must be named in the will.
Courts will presume that the person named is the right appointment.
There are two types of guardians. Guardian of the person and Guardian of the property.
If you have a special needs trust with a professional trustee, your loved one will probably not need a guardian of the person.
Guardian of the person assumes personal care for the loved one, makes decisions about health care matters, housing and other personal decisions that a person makes on daily basis. It is important to give thought to whom you would like to name to serve as guardian of the person in your absence. Courts will give preference to appoint that person named in a will or trust.

24. Planning for Special Needs
Personal Care & Financial Planning
Identify Benefits
Estimate Cost
Special Needs Trust
Life Insurance
Public Agencies
Guardian

25. Budgeting for Special Needs
Attention to special requirement
Wheelchair, special equipped vehicle, etc.
Modification to housing
Health costs beyond Medicaid
Life expectancy
Future Target Savings Amount
How do you accumulate?
It is important to anticipate the needs of your loved one. Will modification to housing be required? What will be the cost of health care beyond Medicaid? What are the costs for those special enjoyments that enhance their quality of life?
Also, what is the life expectancy of your loved one? All of these questions are personal and emotional and are easy to procrastinate.
After you determine a projected annual budget, then you must determine where the money is coming from.
Similar to retirement planning, special needs planning must include analysis of cash flow. You must include payments from SSI and Medicaid and then calculate the short fallings.
For example, assume you feel your loved one will need $20,000 annually for 15 years. What is the amount of money required to generate that annuity? The answer is $207,592 at a 5% investment return. Then you must calculate what you will need to set aside each year to reach that goal. Now this is an oversimplification of the process because we did not address the loss of purchasing power or investment return. The pool of money you need today will be much more in the future due to loss of purchasing power caused by inflation.
We can help you develop a plan to accumulate the amount of funds needed for the future. The success of accumulating a pool of money should be started as early as possible and invested wisely through diversification.

26. Taxation Third Party Trust - not a Grantor Trust An EIN is assigned.
Trust income spent for the beneficiary is taxed at the beneficiary’s tax rate.
The Special Needs Trust will be treated as a tax paying entity and must obtain its own tax identification number which is referred to as EIN by the IRS. This tax treatment is different than with a revocable trust created by a person to avoid probate. In that case, you use the social security number of the person who created the trust.
The trust is taxed at a higher rate than an individual. Any income distributed to the beneficiary must be reported on the beneficiary’s 1040 and the trust does not pay taxes on that income. However, remember you must be careful to avoid distributing too much income as it will impact SSI and Medicaid. If the trustee keeps careful record showing that income was used or spent for the beneficiary, then the trust can use the beneficiary’s tax rate rather than the higher trust rate. For example, a trust earns $6,000 in interest income and the trustee spends $5,000 of that income directly for the beneficiary. The trust then pays the individual’s tax rate on the $5,000 and the higher tax rate on the remaining $1,000.

27. The End
Questions?