BENEFITS AND SPECIAL NEEDS TRUSTS PRIMER

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BENEFITS AND SPECIAL NEEDS TRUSTS PRIMER

• PREPARED BY
• MELISSA LADER BARNHARDT, J.D., LL.M.
• F.V.P. TRUST CONSULTANT
• SunTrust Bank and its affiliates and the
  directors, officers, employees and agents of
  SunTrust Bank and its affiliates (collectively
  SunTrust) cannot provide legal services or give
  legal advice. SunTrusts services or advice
  relating to estate planning are limited to (i)
  financial planning, multi-generational wealth
  planning, investment strategy, (ii) management of
  trust assets, investment management and trust
  administration, and (iii) working with the
  clients legal and tax advisors in the
  implementation of an estate plan.

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GENERAL GUIDE TO BENEFITS

• SOCIAL SECURITY BENEFITS (SS VS. SSI VS. SSDI)
• SSI AND MEDICAID
• SSDI AND MEDICARE
• ADULT VS. MINOR (DEEMING ISSUES)
• INCOME AND ASSET LIMITATIONS
• MEDICAID WAIVERS (MEDICAID AND APD TIERS)
• MEDICALLY NEEDY PROGRAM (SHARE OF COST)
• INSTITUTIONALIZED CARE PROGRAM (INCOME/ASSETS)
• LOOK BACK PERIOD FOR QUALIFICATION OF MEDICAID

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TOOLS USED IN MEDICAID PLANNINGSPECIAL NEEDS
TRUSTS

• Omnibus Reconciliation Act of 1993 - Passed on
  August 10, 1993. It amended the Social Security
  Act 42.U.S.C. Sec. 1396p to permit specialized
  trusts for disabled individuals.
• A. (d)(4)(A) trusts (FSNT) - under age 65
  individual
• B. (d)(4)(B) trusts Miller (Qualified Income)
  Trusts and,
• C. (d)(4)(C) trusts - any age managed by a not
  for
• profit (pooled trust).
• Purpose - To permit a disabled person without a
  prior estate plan (or if so to possibly amend a
  trust to comport with the law) to place his/her
  assets in trust in order to qualify for
  government based entitlements. Otherwise, there
  is a lengthy look back period (Deficit Reduction
  Act of 2005 changes look back period and date
  of eligibility) that will disqualify unless spent
  down to the Medicaid limitations.

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SPECIAL NEEDS TRUST UNIQUE PROVISIONS

• A. Irrevocable trust (unless TSNT)
• B. Creator of trust for FSNT - parent,
  grandparent, guardian,court
• or if a pooled trust, the person with the
  disability (joinder agreement)
  Differentiate a TSNT
• C. Definition of disability - defined under 42
  U.S.C. 1382 and 1614(a)(3) - an individual
  shall be considered disabled if he or she is
  unable to engage in any substantial or gainful
  activity by reason of a medically determinable
  physical or mental impairment which can be
  expected to result in death or last for a
  continuous period of not less than twelve
  months
• D. If a minor - look at whether the child as an
  adult with
• the same disability, would prevent gainful
  employment
• E. Pooled nature of funds vs. individual
  accounts

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SPECIAL NEEDS TRUST UNIQUE PROVISIONS
(continued)

• F. Payback provision - upon the individuals
  death, the states
• Medicaid agency that paid for services is
  reimbursed prior to disbursement to heirs
  (multiple states/funeral issue) unless a pooled
  trust (retention by charity) or TSNT Under the
  new POMS, one cannot limit the time period to
  the term of the trust
• G. Tax provision FSNT treated as a grantor
  trust (usually has
• a limited power of appointment) TSNT may be
  treated as
• a grantor trust or a complex trust
• H. Trust to benefit individual beneficiary only
  (sole benefit rule) emphasized in the new POMS
  for the FSNT
• I. Payment restrictions during lifetime
  (food/shelter rules/gift cards/POMS) Payment
  restrictions after death (new POMS)
• J. No creditor protection (FSNT) and,
• L. Types of assets - residential property,
  vehicle (liability issues), cash securities,
  annuity (issues after 65), life insurance
  proceeds.

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CLIENT SCENARIO 1

• Suzie Smith walks into your office and states
  that her father, age 60, just had a stroke. The
  father is mentally competent, although he has
  difficulty speaking. She further explains that he
  has approximately 300,000 to 500,000 in assets
  and it is unclear at this time as to whether he
  will be able to live at home. She wants to know
  what you can do, if anything, to maximize his
  assets.

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CLIENT SCENARIO 1 - ANALYSIS

• OPTION 1 - Spend down assets to 2,000
• A. Nursing home (NH) analysis
• NH private room cost 200.00 per day
• Semi-private NH rate 180.00 per day
• NH public aid rate (semi-private) 100.00 per
  day
• Prescription cost 500.00 per month (Issue
  Medicare Part D)
• How long would the money last?
• 4 to 6.9 years / 71,700 per year (semi-private
  room)
• B. Place at home with 24 hour care
• 150.00 for private care or 4500 per month
• 500.00 per month for medications (Issue
  Medicare Part D)
• 500.00 additional monthly expenses
• How long will the money last?
• 4 to 7.5 years / 5,500 per month or 66,000 per
  year

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CLIENT SCENARIO 1 - ANALYSIS (continued)

• OPTION 2 - Transfer funds to Children/ Personal
  Services Contract
• Transfer funds to children and have a contract
  with the children to pay for the parent
  privately for the period of ineligibility.
  Personal
• Services Contract for personal care based on
  reasonable
• compensation and Medicaid Actuarial Tables.
• OPTION 3 Transfer funds to Annuity
• New rules under the Deficit Reduction Act of
  2005 require pay back provision.
• OPTION 4 - Utilize Individual or Pooled Special
  Needs Trust
• Nursing home placement Reduce nursing home
  expense from 71,700 to 29,700 while Medicaid
  pays the nursing home expense and prescription
  coverage. Supplement needs of client from trust.

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HOW TO REDUCE COSTS BY USING A POOLED SPECIAL
NEEDS TRUST

• Original nursing home cost 5,475.00 per month
• Medicaid payment 3,000.00 per month
• Amount paid from trust 2,475.00 per month
• Original prescription cost 500.00 per month
• Medicaid payment 500.00 per month
• Amount paid from trust 0.00 per month
• Original cost 5,975.00 per month - 71,700.00
  per year
• New cost 2,475.00 per month - 29,700.00 per
  year
• Note Funds will now last 10 to 17 years vs. 4
  to 7 years.
• Note Mr. Smith could enter a Pooled Trust via a
  joinder agreement.

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MAXIMIZE BENEFITS/ QUALITY OF LIFE

• Original Care Cost 4,500.00 per month
• Medicaid Waiver 3,000.00 per month
• Amount paid from trust 1,500.00 per month
• Original prescription cost 500.00 per month
• Medicaid payment 500.00 per month
• Amount paid from trust 0.00 per month
• Other Monthly Costs 500.00 per month
• Original cost 5,500.00 per month - 66,000 per
  year
• New cost 2,000.00 per month - 24,000 per year
• Note Funds will now last 12 to 20 years vs. 4
  to 7.5 years.

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CLIENT SCENARIO 2

• Suzie and Dan Smith walk into your office and
  state that their daughter, who is 17 years old
  was diagnosed with autism a couple of years ago.
  They explain that she and her husband heard about
  the Developmental Disability Waivers a few years
  ago and she remains on the waiting list. They
  want to plan for when she turns 18 for health
  insurance, Social Security Disability, and waiver
  services and also for what will happen on their
  death. They further state that their parents
  want to leave money for her and are wondering how
  to do that without disqualifying her from
  benefits. What will happen if they do no
  planning? What if they plan, but the
  grandparents do nothing? What is the solution?

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CLIENT SCENARIO 2 - ANALYSIS

• I. Definition of Developmental Disability
  Autism FL. Stat. 393
• II. Create Life Care Plan
• III. Determine Parents Needs for Estate Planning
  Tools
• IV. Primary Benefits SSI/SSDI/MEDICAID/MEDICARE/
  ICP
• V. Health Insurance Private Insurance coupled
  with Medicaid or Medicare
• VI. Establish Revocable Trusts with Third Party
  Trust Provision for Child with Disability

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CLIENT SCENARIO 2 - ANALYSIS (continued)

• VII. Establish Stand Alone Third Party SNT for
  Others to Donate to Avoid Outright Distribution
  and Need for First Party SNT. In Florida, There
  is No Payback for a Third Party SNT. First Party
  SNT will have Payback Requirement to State
  Medicaid that provided services (issues of
  portability)
• VIII. Make Sure Information is Shared with
  Grandparents for Appropriate Beneficiary
  Designations
• IX. Permissible Disbursements from SNT
• X. Appointment of Trustee (Co-Trustee)
• XI. Need for Provisions with Trust Advisory
  Committee and/or Trust Protector and,
• XII. Alternatives Pooled Trust for Small Sums.

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CLIENT SCENARIO 3

• The client, age 8, was in a severe car accident
  at the age of 3 and is a quadriplegic, on a
  ventilator, but is not impaired cognitively. He
  is going to receive a settlement in the amount of
  6 million dollars and his parents are going to
  receive 100,000 that they are going to use to
  pay back their debts. The guardian ad litem in
  the guardianship proceeding to approve the
  settlement is recommending a full structure for
  the settlement. The family lives in a small home
  that is not accessible. They also have two other
  teenage children. The child has 24 hour nursing
  (shift care) provided via Medicaid. The father
  works and the child is receiving 30 a month in
  SSI benefits. The father is also looking at
  obtaining private

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CLIENT SCENARIO 3 (CONTINUED)

• health insurance. This is the first meeting with
  the family.
• ANALYSIS
• I. Review of Life Care Plan
• II. Discussion of Life Care Plan in Conjunction
  with Structured Settlement Proposal (Pros and
  Cons)
• III. Parents Settlement Portion
• IV. Confirmation of Benefits
• V. Review of Document Terms and,
• VI. Determine Need for Expenses From Trust -
  (Issue of 1/3rd Reduction).

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DRAFT LANGUAGE/ISSUES

• Trustee shall not pay for food or shelter
  items.
• Trustee shall determine and apply for the
  government benefits on behalf of the
  beneficiary.
• Trustee shall act at the direction of the
  outside Trust Advisory Committee and is bound by
  that decision.
• Trustee shall not pay anything from the trust
  that will reduce, diminish or alter a government
  benefit.
• Trustee shall arrange and pay for a pre-paid
  burial plan for the disabled beneficiary.

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DRAFT LANGUAGE/ISSUES

• Allow for disbursements by Trustee to be pursuant
  to the Programs Operations Manual (POMS) of
  Social Security (which Medicaid follows in the
  State of Florida).
• Permit the trustee to make distributions for
  items that may reduce or even eliminate
  government benefits if in the best interest of
  the disabled beneficiary (1/3rd reduction rule).
  Add a paragraph that if this authority made the
  trust a countable resource or countable income
  that this authority would be deemed null and
  void.
• Use outside Trust Advisory Committee, but do not
  permit them to direct the trustee or bind the
  trustee.
• Use permissive instead of mandatory language.

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ADMINISTRATIVE NIGHTMARES

• EXPECTATIONS SOLE BENEFIT RULE
• A. Vacation Cant the Whole Family Go?
• B. Family Caregivers How to Determine?
  (Hobbs Controversy)
• C. House Expenses My Family will Live There
  and the
• Trust will Pay All Expenses, Right?
• D. Funeral Plan I Dont Want to Talk About
  It!
• BENEFITS ISSUES
• A. Type I think I get SSDI.
• B. I Dont Want to Qualify for Government
  Benefits!

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RESOURCES ON THE WEB

• WWW.SSA.GOV
• WWW.CAREMANAGER.ORG
• WWW.SPECIALNEEDSALLIANCE.COM
• WWW.ADVOCACYCENTER.COM
• WWW.MEDICAREADVOCACY.ORG
• WWW.DISABILITYRESOURCES.ORG

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SUNTRUST DISCLOSURES __________________________
________________________________________

• SunTrust Bank and its affiliates and the
  directors, officers, employees and agents of
  SunTrust Bank and its affiliates (collectively,
  SunTrust) are not permitted to give legal or
  tax advice. While SunTrust can assist clients in
  the areas of estate and financial planning, only
  an attorney can draft legal documents, provide
  legal services and give legal advice. Clients of
  SunTrust should consult with their legal and tax
  advisors prior to entering into any financial
  transaction or estate plan. Because it cannot
  provide legal services or give legal advice,
  SunTrusts services or advice relating to estate
  planning are limited to (i) financial planning,
  multi-generational wealth planning, investment
  strategy, (ii) management of trust assets,
  investment management and trust administration,
  and (iii) working with the clients legal and tax
  advisors in the implementation of an estate plan.
• These materials are educational in nature. The
  implications and risks of a transaction may be
  different from individual to individual based
  upon past estate, gift and income tax strategies
  employed and each individuals unique financial
  and familial circumstances and risk tolerances.