The Cherry Tree Law Firm

12:15, December 5, 2017
“Top Ten Estate Planning Mistakes to Avoid”

12:15, December 12, 2017
“Trust v. Will – Pros and Cons”

12:15, December 19, 2017
“Incapacity Planning – Taking charge before its too late”

All classes are located at the:
Chintimini Senior & Community Center
2601 NW Tyler Avenue
Corvallis, Oregon 97330
Phone: (541) 766-6959

To register please contact Chintimini.

Have you heard the terms “special” needs trust and “supplemental” needs trust and wondered what the difference is? The short answer is that there’s no difference. Here’s the long answer:

When the field of special needs planning began more than two decades ago, trusts created for people with disabilities were generally called supplemental needs trusts. The thinking was that the purpose of the trusts was to supplement the assistance provided by Medicaid, Medicare, Social Security, Supplemental Security Income and other public benefit programs whose level of support is often meager.

With passage of legislation in 1993 (“OBRA”) authorizing the creation of self-settled trusts (first-party) under 42 USC 1396p(d)(4)(A), some practitioners called for distinguishing between these new trusts and third-party trusts often created by a parent, by calling the former special needs trusts and continuing to call the latter trusts supplemental needs trusts. But this approach never really caught on.

Instead, over time both types of trusts have come under the rubric of special needs trusts and the term “supplemental needs trust” has fallen away. The term “special needs trust” refers to the purpose of the trust — to pay for the beneficiary’s unique or special needs. In short, the name is focused more on the beneficiary, while the name “supplemental needs trust” addresses the shortfalls of our public benefits programs.

Special needs trusts now encompass both traditional third-party trusts and first-party trusts created under OBRA, which are often known as (d)(4)(A) trusts (referring to the statute), or as pay-back trusts (referring to the feature that any funds remaining in the trust at the beneficiary’s death must be used to reimburse the state Medicaid agency), or as self-settled trusts (referring to the fact that these trusts are created with the Medicaid beneficiary’s own funds).

Special needs trusts created with someone else’s funds, whether a parent, grandparent, or someone else, are often referred to as third-party special needs trusts.

In short, the reference to the trusts as supplemental needs trusts rather than special needs trusts is something of a survival. But what’s in a name? Whether supplemental or special, the trusts serve the same purpose of helping meet the needs of individuals with disabilities while still permitting them to qualify for vital public benefits programs.

ABLE (Achieving a Better Life Experience Act of 2014) accounts allow people with disabilities or their families to establish tax-free savings accounts.  These accounts won’t affect their ability to qualify for, or remain on, government assistance as long as the account balance does not exceed $100,000.  Any adult with special needs who owns more than $2,000 in countable assets is generally ineligible for many public benefits programs, including Medicaid and Supplemental Security Income (SSI). But because an ABLE account is not counted as a resource for most public benefits programs, the account provides savings options that can make a big difference to families with special needs children.  Here are five practical uses for an ABLE account that could have a significant impact on a beneficiary’s quality of life:

Protecting UGMA/UTMA account funds: Does your minor child have a savings account? Perhaps gifts from family over the years were deposited into the child’s account? When the child becomes an adult, that bank account will suddenly be counted as a resource for purposes of determining eligibility for many public benefits programs. One practical use of an ABLE account is as a repository for money from an UGMA/UTMA account of a child who is coming of age so that it will not be counted in determining her continued eligibility for public benefits.

Shielding income: Another practical use for an ABLE account is as a receptacle for child support, alimony, or even earned wages. Using an ABLE account for sources of income such as these shields them from being counted as a resource of the child. If more than $2,000 is accumulated by the child over time in an ABLE account, the eligibility for government programs is protected. In addition, an ABLE account is flexible enough that payments deposited into an account can easily be used to pay for many of the expenses a child may have.

Windfalls: An ABLE account can play a beneficial role if your child is expecting to receive a small settlement or award, or even an inheritance or gift. Here’s how this might work for a child receiving, say, a a $150,000 settlement. Although no more than $14,000 can be deposited into an ABLE account each year, and an individual can have only one ABLE account, there are still options. The child could transfer $14,000 into her ABLE account, and a structured annuity could be purchased with the remaining $136,000 that would fund the ABLE account for a certain amount each month so that the total deposited into the account each year would not exceed $14,000.  In this way, a complex special needs trust could be avoided.

Giving the child financial control: It can be frustrating to a competent but disabled adult to lack authority and control over their fiances.   It is important to know that An ABLE account is managed and controlled by the disabled person. An ABLE account gives a competent disabled adult access to money that s/he alone can decide how to spend. Through an ABLE account, the child can decide whether or not to save money for such things as a home, a car, or even a wedding. Note, if a disabled individual is not legally competent or able to wisely manage resources, then  a special needs trust may be a more appropriate option.

Paying household expenses: Another beneficial use of an ABLE account is using it to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third party, including a special needs trust, made the same expenditure. When it comes to  its ISM rules, the Social Security Administration views money in an ABLE account as if it were the SSI beneficiary’s money, so there is no penalty when the recipient of a government benefit uses her own funds from an ABLE account to pay for his/her own housing expenses.

When it comes to planning for your child’s needs, you may wish to consider the advantages of an ABLE in conjunction with other planning choices such as a special needs trust, to craft a strategy that best fits your child’s needs now and in the future.

Please accept our sympathy even as we recognize your need for plan language. Although this is a difficult time, it is mom’s last chance to straighten out her affairs and there are some things that she may need to do.

During mom’s remaining lifetime, she may need other people to help her with her affairs. Legal authority to act on behalf of another is conveyed through a durable power of attorney. If mom still has legal capacity, she can give power of attorney to a trustworthy family member or friend. A power of attorney can be used to sign contracts, pay bills and manage assets. A power of attorney can be best obtained from mom’s lawyer; however, a Steven-Ness Durable Power of Attorney Form can be a reasonable alternative under some circumstances. If mom does not have capacity and authority to act is needed, a guardianship or conservatorship may be required.

Second, mom should consider formalizing her medical wishes in an advanced directive and possibly a POLST form. An advanced directive is an Oregon statewide form which names a person to make healthcare decisions only when mom is unable to communicate with her doctor. This person is mom’s healthcare agent. The advanced directive also states mom’s wishes regarding life support. The advanced directive is usually obtained at a doctor’s or lawyer’s office or can be found at the secretary of state’s website https://www.oregon.gov/DCBS/shiba/Documents/advance_directive_form.pdf.

A POLST is a physician’s order for life sustaining treatment- colloquially referred to as a DNR, a ‘do not resuscitate order’. This is obtain directly from mom’s doctor and is typically used only when there is a serious illness.

Mom may also wish to understand what will happen to her assets when she is gone. It is a good idea to check in with mom’s attorney soon to make sure her estate plan is functioning properly.  If mom has named a joint owner on her bank account, has made a pay-on-death (POD) designation on a bank account, or has named a beneficiary on an IRA or life insurance policy, then it is important to know that the asset will go to the person named regardless of what mom’s will or trust may say. Only assets without such designations will pass according to mom’s will or trust. If mom does not have a will and dies with assets in her name alone with no beneficiary, then those assets will pass to the beneficiaries via probate. Similarly, keep in mind, all wills also go through probate. If mom wants to avoid probate, she may want to consider a trust.

Please keep I mind that this is very general advise only. To understand the specifics of mom’s situation, it is a good idea to speak with an attorney and identify issues before they become problems.

Have you seen, “Manchester by the Sea?” This sad, cinematic depiction of a father’s death, highlights the need for parents to plan, realistically for their minor children. In the film, the father presumes his brother will act as guardian and trustee for his minor son and executes a well thought out Will but for one central flaw. The father had failed to discuss the plan with his brother who (spoiler alert) ultimately declines to serve as guardian or trustee.  This begs the question:

If you have children under 18, have you made plans for them if the unthinkable occurs?

Have you discussed these plans with the people you hope will fulfill them?

If you have not made plans or you have questions about their fulfillment, take a few minutes to speak with an attorney. Properly planning for your children’s future can save them a life time of regrets.