Planning for a Loved OnePlanning for a Loved One With Special Needs With Special Needs

and and Estate Planning for Parents Estate Planning for Parents

of Persons with of Persons with Developmental and Other Developmental and Other

Severe Chronic DisabilitiesSevere Chronic Disabilities

Presented by Presented by Fredrick P. Niemann, Esq.Fredrick P. Niemann, Esq.

Elder Law, Asset & Estate ProtectionElder Law, Asset & Estate ProtectionPlanning, Medicare, Medicaid andPlanning, Medicare, Medicaid and

Veteran’s Benefit Assistance LawyersVeteran’s Benefit Assistance Lawyers

www.specialneedstrustnewjersey.comwww. njelderlawcenter.com www. njelderlawcenter.com

www.njmedicaidlawattorney.comwww.njmedicaidlawattorney.com

Visit me atVisit me at Hanlon Niemann, PCHanlon Niemann, PC

3499 Route 9 North, Suite 1F3499 Route 9 North, Suite 1FFreehold, NJ 07728Freehold, NJ 07728

Phone: (888) 800-7442Phone: (888) 800-7442fniemann@hnlawfirm.com fniemann@hnlawfirm.com

Fredrick P. Niemann, Esq.Fredrick P. Niemann, Esq.

Fredrick P. Niemann offers his clients over Fredrick P. Niemann offers his clients over 30 years of accomplished practice in the 30 years of accomplished practice in the law. He is a member of the National law. He is a member of the National Academy of Elder Law Attorneys, the Academy of Elder Law Attorneys, the Guardianship and Conservatorship Guardianship and Conservatorship Committee of NAELA, Monmouth County Committee of NAELA, Monmouth County Probate and Estate Committee and the Probate and Estate Committee and the Monmouth County Chancery Practice Monmouth County Chancery Practice Committee. Mr. Niemann is one of the few Committee. Mr. Niemann is one of the few attorneys in New Jersey, accredited by the attorneys in New Jersey, accredited by the Veteran’s Administration, to apply for Aid Veteran’s Administration, to apply for Aid and Attendance benefits for Veterans and Attendance benefits for Veterans and/or their spouses.and/or their spouses.

Legal WitLegal Wit

  

What’s wrong with lawyer jokes?  Lawyers don’t think What’s wrong with lawyer jokes?  Lawyers don’t think they’re funny, and nobody else thinks they’re jokes.they’re funny, and nobody else thinks they’re jokes.

How can you tell when a lawyer is lying?  His lips are How can you tell when a lawyer is lying?  His lips are moving.moving.

  

Cont.Cont.

  What’s the difference between a good What’s the difference between a good lawyer and a great lawyer?  A good lawyer and a great lawyer?  A good lawyer knows the law. A great lawyer knows the law. A great lawyer knows the judge.lawyer knows the judge.

The first thing we do, let’s kill all the The first thing we do, let’s kill all the lawyers.lawyers.

ShakespeareShakespeare

Facts of LifeFacts of Life

1.1. Persons with disabilities are living longer Persons with disabilities are living longer and public benefits are often necessary.and public benefits are often necessary.

2.2. There is no guarantee that public benefits There is no guarantee that public benefits will provide adequate resources over the will provide adequate resources over the disabled person’s lifetime.disabled person’s lifetime.

3.3. There is no guarantee that public There is no guarantee that public agencies will provide services and agencies will provide services and advocacy over the disabled person’s advocacy over the disabled person’s lifetime.lifetime.

What Does Planning What Does Planning Involve?Involve? Preserving your loved one’s financial Preserving your loved one’s financial

security and quality of lifesecurity and quality of life

Addressing key issues: Those key issues Addressing key issues: Those key issues are:are:Understanding the role of public benefits todayUnderstanding the role of public benefits today

Making assumptions about public benefits in the Making assumptions about public benefits in the futurefuture

Using estate planning/trusts to protect your Using estate planning/trusts to protect your assets for the financial security of your loved assets for the financial security of your loved one’s futureone’s future

Part 1:Part 1:Understanding Public Understanding Public

BenefitsBenefits

Public Benefits at a GlancePublic Benefits at a GlanceFinancial BenefitsFinancial Benefits

Supplemental Security Income (SSI)Supplemental Security Income (SSI)

Social Security (SS)Social Security (SS)&&

Social Security Disability Insurance Social Security Disability Insurance (SSDI)(SSDI)

Not means tested but subject to work credits Not means tested but subject to work credits or parents’ eligibilityor parents’ eligibility

Means tested: Income and asset limitations for eligibilityMeans tested: Income and asset limitations for eligibility

Public Benefits at a GlancePublic Benefits at a GlanceMedical BenefitsMedical Benefits

MedicaidMedicaid Automatic with SSIAutomatic with SSI

Must apply for SS/SSDI for first 2 yrsMust apply for SS/SSDI for first 2 yrs

MedicareMedicare After two years of SSDIAfter two years of SSDI

Supplemental Security Supplemental Security Income Income (SSI)(SSI)

Must meet SSA’s definition of Must meet SSA’s definition of “disability” and have limited “disability” and have limited assets/incomeassets/income

Provides monthly income for Provides monthly income for food/shelterfood/shelter

Gateway to Medicaid / in-home Gateway to Medicaid / in-home support servicessupport services

Social Security (SS) / Social Social Security (SS) / Social Security Disability Insurance Security Disability Insurance

(SSDI)(SSDI)Social Security for individuals:Social Security for individuals: Disabled before age 22 andDisabled before age 22 and With parents eligible based on their work With parents eligible based on their work

record if retired, disabled or deceasedrecord if retired, disabled or deceased

SSDI for individuals with work SSDI for individuals with work recordrecord

Social Security benefits may reduce Social Security benefits may reduce or eliminate SSI benefits if greater or eliminate SSI benefits if greater than monthly SSI benefitthan monthly SSI benefit

Medical Assistance & Medical Assistance & SupportSupportMedicaid:Medicaid:

SSI recipients automatically receive MedicaidSSI recipients automatically receive Medicaid Covers “medically necessary” services, Covers “medically necessary” services,

equipment, hospitalization equipment, hospitalization In-home services needed to live at home: personal In-home services needed to live at home: personal

care, housekeeping, cooking, transportation to care, housekeeping, cooking, transportation to doctorsdoctors

SS & SSDI individuals must apply for MedicaidSS & SSDI individuals must apply for Medicaid

Medicare:Medicare: Medical coverage, including doctors, hospital, Medical coverage, including doctors, hospital,

skilled careskilled care Individuals with SS or SSDI eligible for Medicare Individuals with SS or SSDI eligible for Medicare

after 2 years of eligibilityafter 2 years of eligibility

How Benefits Work How Benefits Work TogetherTogether

SSISSI MedicaidMedicaid

SSDISSDI MedicareMedicare

Part 2:Part 2:Making Decisions About the Making Decisions About the

FutureFuture

Typical Timeline for a Typical Timeline for a Child Child

With a DisabilityWith a Disability Upon Attaining Age 18Upon Attaining Age 18 Deeming of parents’ income and Deeming of parents’ income and resources to the disabled child ends.resources to the disabled child ends. Child becomes eligible for public Child becomes eligible for public benefits based upon evidence of benefits based upon evidence of disability and the child’s low income disability and the child’s low income and resources – parents’ resources not and resources – parents’ resources not considered in determining child’s considered in determining child’s eligibility.eligibility. Parental decision-making authority Parental decision-making authority ends - Guardianship may be necessary.ends - Guardianship may be necessary.

Providing for Persons Providing for Persons with Disabilitieswith Disabilities

Pitfalls to commonly used eligibility strategies:

¦ Uniform Gift to Minors Act Accounts (UGMA or POD Accounts)

¦ Unstructured Beneficiary Designations

¦ No planning at all

Uniform Gifts to Minors Uniform Gifts to Minors ActAct

(UGMA) Accounts(UGMA) Accounts

¦Once the child takes control of the account ( age 18 or 21), the child may then use the money for purposes other than education -- regardless of the custodian’s wishes.

¦ UGMA accounts are considered available resources for purpose of SSI eligibility.

Unstructured Beneficiary Unstructured Beneficiary DesignationsDesignations

Naming an SSI, beneficiary Medicaid recipient or minor child as the beneficiary of a retirement plan (401k,IRA, etc.), life insurance policy annuity or any other resource, investment, asset (ie. brokerage account, CD’s, money market, etc.) will cause a reduction or elimination of public benefits.

No Planning at AllNo Planning at All

Dying intestate (without a will or trust) will usually leave all or a portion of the estate of a single parent, person to the decedent’s children.

¦ Any child receiving SSI or Medicaid will lose eligibility until the inheritance is either spent down, converted to a exempt resource, or placed in a Special Needs Trust.

Providing for Persons Providing for Persons with Disabilities:with Disabilities:

Special Needs Trust Special Needs Trust BasicsBasics

Purpose - To preserve the disabled person’s eligibility for needs-based governmental benefits while providing assets which may be used to supplement public benefits in order to improve the disabled person’s quality of life.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

A Special Needs Trust (SNT) is A Special Needs Trust (SNT) is drafted specifically so trust assets drafted specifically so trust assets are not considered to be are not considered to be “countable resources” in “countable resources” in determining the disabled person’s determining the disabled person’s eligibility for public benefits based eligibility for public benefits based on need.on need.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

The SSA describes a The SSA describes a discretionary trust as “a trust in discretionary trust as “a trust in which the trustee has full discretion which the trustee has full discretion as to the time, purpose and amount as to the time, purpose and amount of the distributions.”of the distributions.”

If the beneficiary has no If the beneficiary has no discretion or mandatory rights over discretion or mandatory rights over trust income or principal of the trust trust income or principal of the trust distributions, the trust is not counted distributions, the trust is not counted in determining SSI eligibility.in determining SSI eligibility.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

Assets in a SNT will not count as a Assets in a SNT will not count as a resource for public benefits resource for public benefits purposes.purposes.

The assets in the SNT may be used The assets in the SNT may be used to supplement the beneficiary’s to supplement the beneficiary’s needs not covered by public needs not covered by public benefits without a reduction or benefits without a reduction or elimination of those public elimination of those public benefits.benefits.

Examples of Permissible Examples of Permissible SNT ExpendituresSNT Expenditures

Education Education Travel ExpensesTravel Expenses Newspaper and Magazine SubscriptionsNewspaper and Magazine Subscriptions Personal Care ServicesPersonal Care Services Home Care ServicesHome Care Services Non-covered Medical ExpensesNon-covered Medical Expenses VacationsVacations CompanionsCompanions EntertainmentEntertainment National Review but not the NY TimesNational Review but not the NY Times

Does Every Person with Does Every Person with a Disability Need a a Disability Need a

Trust?Trust?• A trust is appropriate if it helps to A trust is appropriate if it helps to

achieve greater independence or achieve greater independence or reliable asset management.reliable asset management.

• Always keep in mind that a trust by Always keep in mind that a trust by its nature means a loss of control its nature means a loss of control over the funds by the disabled over the funds by the disabled beneficiary (This can be a good beneficiary (This can be a good theory ie; prodigal son or daughter)theory ie; prodigal son or daughter)

Types of Special Needs Types of Special Needs TrustsTrusts

1. Self-Settled Trust

2. Third Party Trust

This is a critical planning technique for parents, grandparents, and individuals who want to gift to actual/potentially handicapped persons, or person with severe medical illnesses.

Special Needs Trusts vs.Special Needs Trusts vs.Support TrustSupport Trust

• If needs-based public benefits are either not If needs-based public benefits are either not needed or not anticipated by the disabled needed or not anticipated by the disabled beneficiary, no need to establish a SNT.beneficiary, no need to establish a SNT.• If public benefits are not an issue, it may be If public benefits are not an issue, it may be appropriate to establish a support trust to appropriate to establish a support trust to provide financial oversight and administration provide financial oversight and administration for the disabled person’s behalf.for the disabled person’s behalf.

A. (ie: a traditional support trust for non SSI A. (ie: a traditional support trust for non SSI child or child with non-qualifying disabilitieschild or child with non-qualifying disabilities

B. B. ButBut… what about the future? What if that … what about the future? What if that child /individual’s health or disability child /individual’s health or disability deteriorates significantly?deteriorates significantly?

Self-Settled SNTSelf-Settled SNT

1. Established with the assets of the disabled person - proceeds of a personal injury award or other court action, inheritances or gifts received before the creation of the trust.

2. Must be established by a parent, grandparent, guardian or a court.

3. The disabled person can be the only beneficiary of a self-settled SNT. No remainder beneficiaries may be named in the trust instrument.

Self-Settled SNT (cont’d)Self-Settled SNT (cont’d)4. Self-settled SNT must be inter vivo ( meaning exist

prior to death) and be irrevocable.

5. Medicare and Medicaid liens must be paid before funding.

6. Self-settled SNT can be established only if the beneficiary is under age 65.

7. “Pay-back” provision to the state of NJ or Medicare is required by state and federal law.

A. For Medicaid/ Medicare benefits actually paid

Third Party SNTThird Party SNT

1.1. Established with assets owned by a Established with assets owned by a third party (ie: parents, grandparents, third party (ie: parents, grandparents, aunts, uncles) for the benefit of the aunts, uncles) for the benefit of the disabled person.disabled person.

2.2. Usually established and funded by the Usually established and funded by the parents, relatives or friends of the parents, relatives or friends of the disabled adult child as part of an disabled adult child as part of an estate or gifting plan.estate or gifting plan.

3.3. Other children can be named as Other children can be named as remainder beneficiaries after death of remainder beneficiaries after death of disabled person.disabled person.

Third Party SNT (cont’d)Third Party SNT (cont’d)

4.4. Third Party SNT may be revocable and Third Party SNT may be revocable and interinter vivosvivos, or irrevocable and , or irrevocable and testamentary.testamentary.

5.5. No need to pay Medicare or Medicaid liens No need to pay Medicare or Medicaid liens before funding.before funding.

6.6. No age limit for disabled beneficiary.No age limit for disabled beneficiary.7.7. ““Pay-back” to the State of NJ, Medicaid and Pay-back” to the State of NJ, Medicaid and

Medicare provision not required (doesn’t Medicare provision not required (doesn’t matter if beneficiary is an adult or minor)matter if beneficiary is an adult or minor)

The Golden RuleThe Golden Rule

The golden rule in SNT planning - the The golden rule in SNT planning - the trustee should make payments on trustee should make payments on behalf of the beneficiary directly to behalf of the beneficiary directly to third party vendors for equipment or third party vendors for equipment or services which are not food or shelter. services which are not food or shelter. For example, distributions directly to For example, distributions directly to a retailer for a radio or television, to a retailer for a radio or television, to an airline for a plane ticket, or to a an airline for a plane ticket, or to a companion/aide for services rendered companion/aide for services rendered are not income to the beneficiary.are not income to the beneficiary.

Objectives Should be Objectives Should be Expressed in The SNT and Expressed in The SNT and

Memorandum of IntentMemorandum of IntentThe trust should set out broad The trust should set out broad instructions that are not likely instructions that are not likely to change.to change.

ExampleExample - “I wish that my child live - “I wish that my child live as independently as possible in as independently as possible in the least restrictive the least restrictive environment”.environment”.

Objectives Should be Objectives Should be Expressed in the SNT and Expressed in the SNT and Memorandum of IntentMemorandum of Intent

The memorandum of intent should The memorandum of intent should reflect more timely and detailed reflect more timely and detailed instructions.instructions.

Example - “I have inspected the Monmouth Example - “I have inspected the Monmouth County Independent Living Center and, in the County Independent Living Center and, in the event of my incapacity or death, I believe that event of my incapacity or death, I believe that this facility meets my son David’s needs. this facility meets my son David’s needs. Please make sure that David is monitored Please make sure that David is monitored regularly by the care manager, especially regularly by the care manager, especially regarding his medication because he is prone regarding his medication because he is prone to frequent side effects”.to frequent side effects”.

Follow-Up Steps:Follow-Up Steps:(1) Select Resources(1) Select Resources

Select a combination of resources Select a combination of resources that will guarantee adequate funds that will guarantee adequate funds for the disabled child’s lifetime, such for the disabled child’s lifetime, such as insurance, savings, investments, as insurance, savings, investments, family assistance, etc., and change family assistance, etc., and change the ownership of each asset to the the ownership of each asset to the trustee of the SNT.trustee of the SNT.

Follow-Up Steps:Follow-Up Steps:(2) Remove Child as (2) Remove Child as

BeneficiaryBeneficiary

Remove the disabled child as the Remove the disabled child as the beneficiary from all of the parents’, and beneficiary from all of the parents’, and others relatives’, financial programs, i.e., others relatives’, financial programs, i.e., employer sponsored retirement plans, IRAs, employer sponsored retirement plans, IRAs, KEOGHSs, life insurance policies, joint KEOGHSs, life insurance policies, joint accounts of all types, brokerage and accounts of all types, brokerage and financial. financial.

A. This is 1 of the 10 Commandments A. This is 1 of the 10 Commandments for asset for asset protection planning. protection planning.

Follow-Up Steps:Follow-Up Steps:(3) Meet With (3) Meet With

CaregiversCaregivers

Hold a meeting with all interested Hold a meeting with all interested parties, i.e., the Guardian, all parties, i.e., the Guardian, all Trustees and Successor Trustees and Trustees and Successor Trustees and all siblings, to review the estate all siblings, to review the estate planning documents, discuss plan and planning documents, discuss plan and management of trust assets.management of trust assets.

Case Study: NathanCase Study: Nathan

Current situation:Current situation:

18-year-old with autism18-year-old with autism

Lives with momLives with mom

Income from work programs, SSI, Income from work programs, SSI, Social Security (from dad who is Social Security (from dad who is deceased)deceased)

Limited personal assets (clothing, tv)Limited personal assets (clothing, tv)

Qualifies for MedicaidQualifies for Medicaid

Case Study: NathanCase Study: Nathan

Future situation:Future situation:

Who will make health care Who will make health care decisions?decisions?

Who will make financial decisions?Who will make financial decisions?

Where will he live?Where will he live?

How will his medical expenses be How will his medical expenses be paid?paid?

What Plan Could What Plan Could Nathan’s Mom Make?Nathan’s Mom Make?

Possible Options:Possible Options:

Make no decisions/plansMake no decisions/plans

Leave money to NathanLeave money to Nathan

Disinherit NathanDisinherit Nathan

Leave money to a future caregiverLeave money to a future caregiver

Establish third-party SNT for Establish third-party SNT for NathanNathan

Establish first-party SNT for NathanEstablish first-party SNT for Nathan

Example: Distributions from Example: Distributions from a Supplemental Needs Trust a Supplemental Needs Trust

Directly Directly to an SSI Beneficiaryto an SSI Beneficiary

Jill is the trustee of a special needs trust established by her deceased mother, Paula, for the benefit of Paula’s disabled daughter and Jill’s sister, Anne. Anne’s living expenses, including rent, food, transportation and clothing, total approximately $2,000 per month. Jill sends Anne a check on the first of every month for $2,000 so Anne can pay her expenses. Since Anne is receiving cash income in excess of her monthly SSI benefits, she loses her SSI. Since Anne received Medicaid based on her SSI payment, she also loses Medicaid.

Example: Distributions from a Example: Distributions from a Supplemental Needs Ttrust to Supplemental Needs Ttrust to

Third Party Vendors for Food or Third Party Vendors for Food or ShelterShelter

Jill is the trustee of a testamentary supplemental needs trust established by Joan under her last will and testament for her adult disabled daughter, Pamela. Pamela receives SSI, Medicaid, food stamps and services from DDD. Pamela lives in an apartment. Jill signed the lease as trustee of the SNT and pays all rent directly to the landlord. The rental payments will result in a reduction, but not the elimination, of Pamela’s SSI benefits.

Example: Distributions from a Example: Distributions from a SNT to Third Party Vendors for SNT to Third Party Vendors for Items Which are Not Food or Items Which are Not Food or

ShelterShelterJill, a disabled adult, receives SSI. Joan is the trustee of a special needs trust established by Jill’s parents for her benefit. Jill likes to read the National Review not the (New York Times.) Joan arranges with the local newspaper distributor to deliver the National Review not the (New York Times) to Jill on a daily basis, including Sundays, and pays the bill directly to the newspaper distributor. This is not considered income, and will not affect Jill’s SSI benefits.

Follow-Up Steps:Follow-Up Steps:(4) New Wills for (4) New Wills for

ParentsParents Prepare Last Will and Testaments for Prepare Last Will and Testaments for parents excluding the child from receiving parents excluding the child from receiving any portion of the parents’ estate outright any portion of the parents’ estate outright and free of trust which may cause the and free of trust which may cause the disabled child to lose government benefits.disabled child to lose government benefits.

Create a Discretionary Supplemental Create a Discretionary Supplemental Needs Trust to protect future quality of Needs Trust to protect future quality of life for the child.life for the child.

Periodic Update and Periodic Update and ReviewReview

The Estate Plan should be periodically reviewed The Estate Plan should be periodically reviewed to:to:

• Ensure all assets either are owned by the Ensure all assets either are owned by the SNT, or SNT is named as the beneficiary SNT, or SNT is named as the beneficiary of the assets.of the assets.

A. The importance of A. The importance of beneficiary designationsbeneficiary designations

• To update trustees and persons To update trustees and persons representatives and power of attorneyrepresentatives and power of attorney

• Changes in the beneficiary’s condition or Changes in the beneficiary’s condition or eligibility for benefits.eligibility for benefits.

• Changes in your economic situation.Changes in your economic situation.

Part 3:Part 3:Creating an Effective PlanCreating an Effective Planfor Your Child / Loved Onefor Your Child / Loved One

What Steps Should You Take What Steps Should You Take Today?Today?

Step 1: Envision Your Child’s Step 1: Envision Your Child’s FutureFuture

Planning ahead makes a difference:Planning ahead makes a difference: Where and with whom will your child live?Where and with whom will your child live? What type/level of care will be required?What type/level of care will be required? Will a guardian/conservator be necessary?Will a guardian/conservator be necessary? Who else will be involved? Who else will be involved? What kind of lifestyle is desired?What kind of lifestyle is desired? What unforeseen challenges could arise?What unforeseen challenges could arise?

Lays out goals/expectations:Lays out goals/expectations: Details preferences, needs, wishes, both Details preferences, needs, wishes, both

medical and personalmedical and personal Lists key people in child’s lifeLists key people in child’s life

Helps guide:Helps guide: Family membersFamily members TrusteesTrustees CaregiversCaregivers OthersOthers

What Steps Should You Take Today? Step 2: Create a Memorandum of Intent

Monthly income: Monthly income: SSI, SSDI, Social Security, earned/unearned SSI, SSDI, Social Security, earned/unearned

incomeincome

Monthly living expenses:Monthly living expenses: Housing, food, transportation, medical, recreation, Housing, food, transportation, medical, recreation,

etc.etc.

Consider how any shortfall will be metConsider how any shortfall will be met

What Steps Should You Take Today? Step 3: Estimate Income & Expenses

Income - Expenses = ShortfallIncome - Expenses = Shortfall

Provides supplemental funds for Provides supplemental funds for living expenses not covered by other living expenses not covered by other income sourcesincome sources

May be established by parents:May be established by parents: Through willThrough will Through living trustThrough living trust

““Living” SNT lets others contributeLiving” SNT lets others contribute

Trustee has discretion over Trustee has discretion over distributionsdistributions

What Steps Should You Take Today? Step 4: Utilize a Third-Party SNT

The SNT Trustee The SNT Trustee ResponsibilitiesResponsibilities

What are the trustee’s responsibilities?What are the trustee’s responsibilities?Invests/manages assetsInvests/manages assetsDistributes fundsDistributes fundsKeeps booksKeeps booksFiles tax returnsFiles tax returnsHires advocates and care managers, etc., as Hires advocates and care managers, etc., as

neededneeded

Selecting an SNT TrusteeSelecting an SNT Trustee

Who should be the trustee?Who should be the trustee?

Parent Parent withwith professional co-trustee professional co-trustee

Corporate or other professional trusteeCorporate or other professional trustee

Successor trusteeSuccessor trustee

What Parents Should DoWhat Parents Should Do

Create Memorandum of IntentCreate Memorandum of Intent

Calculate future financial needCalculate future financial need

Establish SNT through will or living Establish SNT through will or living trusttrust

Fund SNT with life insuranceFund SNT with life insurance

Name SNT as beneficiary of Name SNT as beneficiary of accounts, plans, etc.accounts, plans, etc.

Reduce taxable estateReduce taxable estate

What Your Child Should DoWhat Your Child Should Do

Sign Advance Directives, if legal Sign Advance Directives, if legal capacity capacity

Have a legal guardian appointed:Have a legal guardian appointed: When child without mental capacity becomes When child without mental capacity becomes

an adult and parents want to maintain legal an adult and parents want to maintain legal responsibilityresponsibility

Court appoints legal guardianCourt appoints legal guardian

What If Your Child Has What If Your Child Has Assets?Assets?

Establish a First-Party SNT:Establish a First-Party SNT:

Provides funds for living expenses not Provides funds for living expenses not covered by other income sourcescovered by other income sources

Maintains eligibility for public benefitsMaintains eligibility for public benefits

Must be established by parent, Must be established by parent, grandparent, legal guardian or the courtgrandparent, legal guardian or the court

State must be reimbursed from the trust State must be reimbursed from the trust for all Medicaid expensesfor all Medicaid expenses

Get Started TodayGet Started TodayUnderstand your child’s eligibility for public Understand your child’s eligibility for public benefits.benefits.Make plans for the future to maximize public Make plans for the future to maximize public and private resources for your child’s and private resources for your child’s benefit.benefit.Make the SNT a key part of your estate plan.Make the SNT a key part of your estate plan.Contact a special needs attorney for the Contact a special needs attorney for the assistance you need.assistance you need.

Fredrick P. Niemann, Esq.Fredrick P. Niemann, Esq.NJ Elder Law and NJ Special Needs Trust AttorneyNJ Elder Law and NJ Special Needs Trust Attorney

Hanlon Niemann, PCHanlon Niemann, PC3499 Route 9 North, Suite 1F3499 Route 9 North, Suite 1F

Freehold, NJ 07728Freehold, NJ 07728Phone: (888) 800-7442Phone: (888) 800-7442

fniemann@hnlawfirm.com

www.specialneedstrustnewjersey.comwww.njelderlawcenter.com

THANK YOU FOR ATTENDING.THANK YOU FOR ATTENDING.

QUESTIONS / COMMENTS?QUESTIONS / COMMENTS?

ADMINISTRATION OF ADMINISTRATION OF SPECIAL NEEDS TRUSTSSPECIAL NEEDS TRUSTS

Presented by Presented by Fredrick P. Niemann, Esq.Fredrick P. Niemann, Esq.

Hanlon Niemann, PCHanlon Niemann, PC3499 Route 9 North, Suite 1F3499 Route 9 North, Suite 1F

Freehold, NJ 07728Freehold, NJ 07728www.hnlawfirm.com

www.specialneedstrustnewjersey.com fniemann@hnlawfirm.com

Elder Law, Asset & Estate Protection Elder Law, Asset & Estate ProtectionPlanning, Medicare, Medicaid andPlanning, Medicare, Medicaid and

Veteran’s Benefit Assistance LawyersVeteran’s Benefit Assistance Lawyers

R.R. 1:40 Approved Mediator by the NJ 1:40 Approved Mediator by the NJ Supreme CourtSupreme Court

Accredited Attorney by the US Veterans Accredited Attorney by the US Veterans Administration for Veterans BenefitsAdministration for Veterans Benefits

Trust AdministrationTrust Administration

A Special Needs Trust (SNT) must not only be properly drafted and funded, but must also be properly administered. Improper distributions from a properly drafted and funded SNT can result in the loss of public benefits for the beneficiary of the trust.

Self-Settled, Third Party Self-Settled, Third Party and Marital SNTsand Marital SNTs

The rules of administration apply to self-settled, third party and marital SNTs.

Distributions Distributions MayMay Be Be IncomeIncome

Even if the principal of a SNT is not considered a resource by public benefit providers because the trust was properly drafted, distributions from the trust MAY be considered income to the disabled beneficiary if not properly made.

Basic Rules for Basic Rules for Trust Trust

AdministrationAdministration

These basic rules define the types of distributions which may be made from a SNT and the impact of each type of distribution on the public benefits of the trust beneficiary. It is critical that trustees are aware of these rules.

Types of Trust Types of Trust DistributionDistribution

1. Direct Payments to the Beneficiary.

2. Payments to third party vendors for food, clothing or shelter.

3. Payments to third party vendors for items which are not food, clothing or shelter.

Direct Payments to the Direct Payments to the Beneficiary are NOT Beneficiary are NOT

PermittedPermitted

Cash paid directly from a SNT to a disabled beneficiary of needs-based public benefits is considered to be unearned income and will affect eligibility or the amount of any benefit received.

Example: Distributions Example: Distributions from a SNT Directly to an from a SNT Directly to an

SSI BeneficiarySSI BeneficiaryJill is the trustee of a special needs trust established by her deceased mother, Paula, for the benefit of Paula’s disabled daughter and Jill’s sister, Anne. Anne’s living expenses, including rent, food, transportation and clothing, total approximately $2,000 per month. Jill sends Anne a check on the first of every month for $2,000 so Anne can pay her expenses. Since Anne is receiving cash income in excess of her monthly SSI benefits, she loses her SSI. Since Anne received Medicaid based on her SSI payment, she also loses Medicaid.

SSI - ISM + PMVSSI - ISM + PMV1. SSI is intended to pay for a beneficiary’s food, clothing and shelter.

2. Disbursements from a SNT by a trustee to a third party vendor to cover food, clothing or shelter costs result in the receipt of in-kind support and maintenance (ISM) by the beneficiary.

3. ISM is valued under the presumed maximum value (PMV) rule under which the SSI monthly benefit is reduced by one-third (1/3rd) of the federal benefit amount, or the actual value received, whichever is less.

Payments to Third Party Payments to Third Party Vendors for Food, Vendors for Food,

Clothing or ShelterClothing or ShelterIt is often appropriate to make distributions from a SNT which constitute ISM even though the beneficiary will have a reduction in public benefits to the extent of the PMV because the SSI benefit alone is inadequate to provide an appropriate level of food, clothing and shelter for the beneficiary.

ISM + Medicaid ISM + Medicaid EligibilityEligibility

As long as SSI eligibility is maintained, even at a reduced level, Medicaid eligibility is maintained.

Example: Distributions from a Example: Distributions from a SNT SNT

to Third Party Vendors for Food, to Third Party Vendors for Food, Clothing or ShelterClothing or Shelter

Jill is the trustee of a testamentary special needs trust established by Joan under her last will and testament for her adult disabled daughter, Pamela. Pamela receives SSI, Medicaid, food stamps and services from DDD. Pamela lives in an apartment. Jill signed the lease as trustee of the SNT and pays all rent directly to the landlord. The rental payments constitute ISM and reduce Pamela’s SSI by one-third (1/3rd), the PMV.

Payments to Third Party Payments to Third Party Vendors Vendors

for Items Which Are Not Food, for Items Which Are Not Food, Clothing or ShelterClothing or Shelter

Distributions of this kind do not result in any reduction of benefits so they are the most desirable types of distributions for a trustee to make.

Example: Distributions from a Example: Distributions from a SNT to Third Party Vendors for SNT to Third Party Vendors for

Items Which are Not Food, Items Which are Not Food, Clothing or ShelterClothing or Shelter

Jill, a disabled adult, receives SSI. Joan is the trustee of a special needs trust established by Jill’s parents for her benefit. Jill likes to read the New York Times. Joan arranges with the local newspaper distributor to deliver the New York Times to Jill on a daily basis, including Sundays, and pays the bill directly to the newspaper distributor. This is not considered income, and will not affect Jill’s SSI benefits.

Types of Distributions Types of Distributions NotNot ConsideredConsidered

Food, Clothing and ShelterFood, Clothing and Shelter• Home improvements, repairs, and maintenance by outside source

• Tools to perform home improvements or repairs

• Installation of burglar alarm or monitoring/ response system home

• School tuition, books, and supplies

• Health and life insurance premiums

Types of Distributions Types of Distributions NotNot Considered Food, Clothing and Considered Food, Clothing and

Shelter (Cont’d)Shelter (Cont’d)

• Entertainment, including books, magazines and newspapers; trips, movies, plays, museums and sporting events; audio/video equipment; hobby supplies, etc.

• Vacation travel, but not lodging, since that is shelter

• Purchase and maintenance of car, or bus passes

• Household goods and other items of personal property of reasonable value

• Payment for cleaning supplies and paper products

Types of Distributions Types of Distributions NotNot Considered Considered

Food, Clothing and Shelter Food, Clothing and Shelter (Cont’d)(Cont’d)

• Telephone expenses

• Dental care, physical therapy, massages, support services, and other medical costs not covered by any public benefit programs

• Home care services not covered by another program

• Durable medical equipment, such as wheelchairs

Examples of Trust Examples of Trust Distributions Which Will Distributions Which Will

Reduce SSI BenefitReduce SSI Benefit• Shelter-related expenses (mortgage payments, real property taxes, heating and cooling bills, electricity, water, sewage, garbage collection)

• Groceries or meals

• Items of clothing

• Cash for any purpose

Other Types of Distributions Other Types of Distributions Which May Effect Public Which May Effect Public

Benefits EligibilityBenefits Eligibility

Income and resources of parents are deemed to minor children. Trust distributions to parents may be considered income to them and, therefore, may be deemed to minor children. If the children are public benefit recipients, distributions to parents may effect the eligibility of children.

Other Rules Other Rules Governing DistributionsGoverning Distributions

Distributions should be made by the trustee to accomplish the intention of the grantor as set forth in the trust instrument.

Distributions should be made to provide for the beneficiary’s needs.

Credit CardsCredit Cards

In appropriate cases, it makes sense to consider providing the trust beneficiary with a credit card. Credit cards are loans and loans are not income. Even if the credit card is used for food, clothing, and shelter, it is still a loan. The credit card could be in the name of the individual beneficiary or the name of the trust.

SNT as Owner of HomeSNT as Owner of Home

• Home is an “exempt” asset.

• A beneficiary of public benefits living in a home which he owns or which is owned by a SNT is NOT considered to be receiving ISM in the form of rent-free shelter.

SNT as Owner of HomeSNT as Owner of Home

Advantages

1. Many beneficiaries of SNTs do not have the capacity to manage residential real estate.

2. The home is protected from creditors and from the temptation to borrow against the home.

3. If beneficiary is married, trust ownership protects the home in the event of a divorce.

SNT as Owner of HomeSNT as Owner of Home

Disadvantages

1. If a self-settled SNT owns a home, the home is likely to be lost upon the death of the beneficiary due to the required pay back provision.

2. Family members or others who occupy the home must pay their pro rata share of the expenses.

SNT as Owner of HomeSNT as Owner of Home

• If a self-settled SNT is involved, parents should purchase the home. Will avoid pay back and no pro rata contribution needed.

• If the SNT beneficiary is under age 55 and not likely to live to age 55, home should be owned by the beneficiary since NJ only seeks recovery of Medicaid benefits paid after age 55 from the estate of a deceased beneficiary.

SNT as Owner of a HomeSNT as Owner of a Home

If possible, home should be purchased in cash. Payment of mortgage is ISM to the disabled person, each monthly payment being valued at no more than the PMV.

SNT as Owner of a HomeSNT as Owner of a HomePayment of other household expenses by a SNT may also constitute ISM. The following 10 items are the only expenses considered in determining whether the beneficiary has received ISM:

Food Gas

Mortgage Electricity

Real Estate Taxes Water

Rent Sewer

Heating Fuel Garbage Removal

Additional Household Additional Household ExpensesExpenses

If the trust pays for improvements or renovations to the home, e.g., renovations to the bathroom to make it handicapped accessible or installation of a wheelchair ramp or assistance devices, etc., the individual does not receive income.

Disbursements from the trust for improvements increase the value of the resource and, unlike household operating expenses, do not provide ISM.

SNT as Owner of a SNT as Owner of a VehicleVehicle

1.1. Often a handicap-equipped van is required. Who Often a handicap-equipped van is required. Who should own the van?should own the van?

2. Title - held by trust or family member?2. Title - held by trust or family member?- liability for accidents- liability for accidents

- “pay-back” provision- “pay-back” provision

3.3. Insurance - critical to have adequate insuranceInsurance - critical to have adequate insurance - trust may pay insurance costs - trust may pay insurance costs

4.4. Document transportation needs of disabled Document transportation needs of disabled person for Medicaid.person for Medicaid.

SNT as Owner of a SNT as Owner of a VehicleVehicle

The difficulty with a SNT owning a van is that it The difficulty with a SNT owning a van is that it is often impossible to obtain insurance for the is often impossible to obtain insurance for the trust. A simple solution - have the trust lease the trust. A simple solution - have the trust lease the van and pay all expenses, including insurance, van and pay all expenses, including insurance, gas, maintenance, etc.gas, maintenance, etc.

SNTs and Section 8 SNTs and Section 8 HousingHousing

The Special Needs Trust should never pay the beneficiary’s rent in Section 8 Housing. Distributions from the trust are considered income to the tenant regardless of whether the distribution is made directly to the beneficiary or to a third party.

Recap of Distribution Rules Recap of Distribution Rules for Special Needs Trustsfor Special Needs Trusts

• Do not pay cash to beneficiary

• Do not pay cash to family of beneficiary under 18 years of age

• Distribute to third party vendors

• Retain public benefits counsel

• Retain care manager

Recap of Distribution Rules Recap of Distribution Rules for Special Needs Trusts for Special Needs Trusts

(Cont’d)(Cont’d)

• Always pay: --Income taxes --Trustee fees --Attorney fees --Administrative costs --All regularly recurring expenses

Recap of Distribution Rules Recap of Distribution Rules for Special Needs Trusts for Special Needs Trusts

(Cont’d)(Cont’d)

• Try to avoid payment of : --Mortgage --Rent --Real estate taxes --Homeowner’s insurance --Utilities: Gas, Electric, Heat, Water, Sewer --Garbage removal --Food --Clothing

First Steps for TrusteesFirst Steps for TrusteesReview the document with an attorney familiar with Special Needs Trusts

Meet with the beneficiary and assess his or her needs

Identify the public benefits which the beneficiary is receiving or for which he/she may be eligible

Gather all of the assets subject to the trust

Get tax identification number for the trust

Meet with any care managers, advisors, or fiduciaries required by the trust agreement

Seek assistance and hire advisors

How to Identify the How to Identify the Beneficiary’s NeedsBeneficiary’s Needs

1. Trustee should develop a wish list of goods and services to be purchased for the beneficiary.

- List should be prepared by the beneficiary and the beneficiary’s friends and family

2. Trustee should obtain information from the beneficiary’s school records or life care plan.

3. Care manager performs an annual evaluation of the beneficiary which will help identify his/her needs.

Trustee Duties and Trustee Duties and ResponsibilitiesResponsibilities

1. Trustees should hold periodic meetings to receive input and make decisions concerning distributions.

2. Expectations should be established.

3. An agenda should be maintained and minutes provided to participants.

Trustee Duties and Trustee Duties and Responsibilities (Cont’d)Responsibilities (Cont’d)

4. Self-Settled SNTs - the trustee must balance the long and short-term needs of the beneficiary.

5. Third Party SNTs - trustee must consider the interests of the remainder beneficiaries.

Choose a Management Choose a Management System and Team to Carry System and Team to Carry

Out Your IntentOut Your Intent Many SNTs fail because of ill-equipped Many SNTs fail because of ill-equipped Trustees.Trustees. A system of checks and balances works best A system of checks and balances works best in trust administration.in trust administration. Divide the duties into three categories:Divide the duties into three categories:

• FinancialFinancial• Personal, including advocacy and care Personal, including advocacy and care

managementmanagement• AccountabilityAccountability

Selection of Management Selection of Management

Team MembersTeam Members Parent, sibling or friendsParent, sibling or friends AttorneyAttorney Financial InstitutionFinancial Institution Nonprofit OrganizationNonprofit Organization Co-TrusteesCo-Trustees Social Worker or Care ManagerSocial Worker or Care Manager

SNT Trustee: SNT Trustee: Financial ManagerFinancial Manager

The Trustee should be a person with The Trustee should be a person with expertise in money management and expertise in money management and disability programs. Institutional trustees disability programs. Institutional trustees may provide investment acumen. Although may provide investment acumen. Although a parent often wants a sibling to act as a parent often wants a sibling to act as trustee, there is often an inherent conflict of trustee, there is often an inherent conflict of interest. Since the sibling is usually named interest. Since the sibling is usually named as a remainder beneficiary, he/she has an as a remainder beneficiary, he/she has an incentive to accumulate rather than incentive to accumulate rather than distribute trust assets.distribute trust assets.

InvestmentsInvestments

Prudent Investor Rule - requires trustee Prudent Investor Rule - requires trustee to invest and manage trust assets “as a to invest and manage trust assets “as a prudent investor would, by considering prudent investor would, by considering the purposes, terms, distribution the purposes, terms, distribution requirements and other circumstances requirements and other circumstances of the trust. of the trust. N.J.S.A.N.J.S.A. 3B:20-11.3 3B:20-11.3 Generally, a growth and income Generally, a growth and income investment strategy is appropriate for a investment strategy is appropriate for a SNT.SNT.

SNT Trustee: SNT Trustee: Public Benefits ExpertPublic Benefits Expert

In addition to the usual challenges In addition to the usual challenges involved in managing a trust (financial involved in managing a trust (financial acumen, record keeping, etc.), the acumen, record keeping, etc.), the trustee of a SNT has a more difficult trustee of a SNT has a more difficult job. He/She must know the rules of the job. He/She must know the rules of the applicable governmental programs, and applicable governmental programs, and must make and keep track of payments must make and keep track of payments to third party vendors. to third party vendors.

Trustee Duties: Surety Trustee Duties: Surety BondBond

If there is no corporate trustee, a trust document may include provision requiring a surety bond for the individual. Since the trustee has very broad discretion as to how the trust income and principal are to be used, a surety bond might be considered as a way to safeguard trust assets. The bond should be in an amount equal to the trust assets. The amount the bond should be reviewed annually. The premiums can be paid by the trustee from trust income.

Trustee Duties: Trustee Duties: AccountingsAccountings

The trust document may also provide for annual accountings by the trustee. This enables the trust beneficiary and non-trustee family members to scrutinize the performance of the trustee. Public benefit providers always require accountings from trustees of self-settled SNTs.

Trustee Duties: Trustee Duties: InvestmentsInvestments

The trustee has an obligation to invest the trust assets in a manner designed to achieve the objectives of the trust. As a general rule, the duties of a trustee cannot be delegated. However, the Prudent Investor Act authorizes the delegation of the investment functions by trustee and relieves the trustee of liability for investment performance under certain circumstances.

Trustee Duties: Trustee Duties: Investments (Cont’d)Investments (Cont’d)

An analysis must be made of the degree of risk which the beneficiary can tolerate, as well as the cash-flow needs of the beneficiary. Expenses, such as insurance premiums for a home or a van, medical expenses not covered by other sources and necessities not covered by other sources, must be considered in any analysis of the beneficiary’s cash-flow needs. The trustee must educate the beneficiary and his or her family as to what are appropriate investment vehicles and expectations.

Trustee Duties: Trustee Duties: RecordkeepingRecordkeeping

It is crucial that the trustee maintain accurate records of assets, income and disbursements. SSA reserves the right to review all disbursements made to or on behalf of the beneficiary. The trustee’s records must clearly reflect the payee of each distribution and the purpose for which it is made. If a challenge is made by SSA that a distribution constitutes income to the beneficiary, the trustee must have accurate records to refute the challenge.

Trustee Duties: Trustee Duties: Reporting RequirementsReporting Requirements

SSA requires certain reporting for all SSI recipients. The trustee must complete these reports in a timely manner, so that the beneficiary’s eligibility will continue. Existence of the SNT must be reported to SSA and a copy provided, if requested. Any change in the beneficiary’s address, employment, living arrangements or income must be reported, including distributions which exceed $5,000.

Trustee Duties: AppealsTrustee Duties: Appeals

If the beneficiary receives notice of an adverse action, the decision must be appealed within ten days in order to maintain benefits during the appeal period. The trustee should request copies of all communications from SSA to the beneficiary.

Trustee Duties: Trustee Duties: BudgetingBudgeting

A trustee should establish a budget for the trust and the beneficiary at the outset of the relationship, and annually thereafter. The trustee will estimate the annual income on a conservative basis. Any large expenditures, such as for housing or transportation, should be deducted prior to estimating income. Taxes and trustee’s fees must then be deducted. The remaining income should then be broken down for use by the trustee in an appropriate manner on a monthly basis.

Trustee Duties: Trustee Duties: Tax ResponsibilitiesTax Responsibilities

The trustee is responsible for preparing and filing all federal and state tax returns for the trust. The trustee should also prepare and file all federal and state tax returns for the beneficiary in situations where the beneficiary is unable to file those tax returns him/herself.

Trustee ProtectorTrustee Protector

• A Trust Protector oversees how the trust is managed, without day-to-day involvement.

• The Trust Protector reviews accountings and assessments from the care manager.

• The Trust Protector may hire and fire the trustee or care manager without cause.

• A Trust Protector can be a professional, family or friends.

THANK YOU FOR ATTENDINGTHANK YOU FOR ATTENDING

PLEASE COMPLETE THEPLEASE COMPLETE THE

WORKSHOP SATISFACTION WORKSHOP SATISFACTION SURVEYSURVEY

BEFORE LEAVING.BEFORE LEAVING.