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SPECIAL NEEDS TRUSTS: What Every Estate Planning Professional Needs to Know Bernard A

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SPECIAL NEEDS TRUSTS: What Every Estate Planning Professional Needs to Know Bernard A 2013 NAEPC Webinar SPECIAL NEEDS TRUSTS: What Every Estate Planning Professional Needs To Know Bernard A. Krooks, JD, CPA, LL.M, CELA, AEP Littman Krooks LLP www.littmankrooks.com Special Needs Trusts Third Party SNT D(4)(A) SNT D(4)(c)SNT ©2013 Special Needs Trust ◦(d)(4)(A) trust ◦First-party trust ◦Payback trust ©2013 1 SSDI ◦ Unable to do any substantial gainful activity due to disability Medicare Special Ed VA Means tested ◦ Medicaid ◦ SSI ©2013 Created with the assets or income of an individual with disabilities under age 65 Inheritance PI lawsuit Matrimonial action ◦ Established by the individual’s parent, grandparent, legal guardian or court ©2013 No SSI or Medicaid penalty period Disregarded as available income or resource Medicaid payback ©2013 2 Protects resources without sacrificing government benefits Irrevocable trust Wholly discretionary trust Individual with disabilities must be sole beneficiary while alive ©2013 State law Amendments Asset protection SNT Compensation to caregiver Insurance on life of family caregiver Family visitation ©2013 Reimbursement is only for Medicaid, not all public benefits Reimbursement is based on actual Medicaid expenditures, not prevailing market costs No interest Some services not readily available in the private market ©2013 3 Created and managed by non-profit association May be established by the individual Separate accounts maintained for the benefit of individuals with disabilities (d)(4)(C) trust Modified payback provision ©2013 Non-profit 501(C)(3) organization as trustee Must be irrevocable Beneficiary may be any age Medicaid asset transfer issue after age 65 Often used in smaller cases ©2013 Accept the money Spend down Gift Self settled SNT Pooled trust ©2013 4 Incomplete gift ◦ Creditors’ claims ◦ Sole benefit ◦ Limited POA Grantor trust Estate tax inclusion ◦ Medicaid payback deduction ©2013 No payback requirement ◦ Can direct corpus at death of beneficiary to any individual No age limit Third-party SNT ◦ Testamentary trust ◦ Inter-vivos trust Revocable v. irrevocable ©2013 Not described in federal statute Some states have third-party SNT statutes Attorney obligation? ©2013 5 Sole, absolute and unfettered discretion over income and principal No support standard Beneficiary – no right to compel Wholly discretionary No ascertainable standard Express intent ©2013 Key to success of SNT Ability to deny request for funds even if the request is reasonable Financial duties ◦ Prudent investments Personal needs and advocacy ©2013 Family member Corporate trustee Co-trustees Accountability ◦ Trust Protector ◦ Change trustee ©2013 6 Beneficiary may be unable to monitor Trustee’s actions State interest ◦ Accountings ◦ Notice Preservation of principal may not be paramount ©2013 Doctor Lawyer Public benefits expert Investment wizard Social worker Immortal ©2013 Ignore the situation Disinherit Gift to child with disabilities Distribute to sibling Fair does not mean equal Supplemental Needs Trust ©2013 7 Life Care Plan Life Insurance ILIT Crummey powers Beneficiary designations ©2013 Testamentary ◦ Included in decedent’s estate Inter-vivos ◦ Gift tax Annual exclusion Qualified disability trust ©2013 Revocable trust ◦ Trust assets available Disclaimer wills ◦ Medicaid transfer Portability Testamentary SNT ◦ Right of election 8 SNT is triggered under certain circumstances Otherwise QTIP, credit shelter trust, or outright disposition, as appropriate ©2013 Trigger Credit Shelter Trusts ◦ Discretionary income and principal distributions Trigger QTIP Trusts ◦ Mandatory income provision Contingent QTIP Trusts ◦ 15 month deadline ◦ Surviving spouse should not be executor ©2013 Spend third party trust assets prior to first party trust assets Gifts to first party trust made by third parties No provision to terminate third party SNT if treated as available asset Include payback in third party SNT Create first party SNT for someone over age 65 ©2013 9 Give SNT beneficiary with disabilities Crummey powers Make first party SNT revocable Include sprinkling provisions in first party SNT Failure to include dispositive provisions in first party SNT Retirement benefits Knee-jerk SNT ©2013 Not being flexible in drafting Not creating a third party SNT for someone over 65; thinking you can’t Requiring mandatory distributions of income or principal or putting in a standard so beneficiary can demand distributions such as HEMS standard ©2013 Failure to consider trust protector Failure to appropriately consider proper trustee; will they (can they) do their job? Putting in first party SNT provisions and citation in third party SNT Having remainder beneficiaries who are adverse to the beneficiary with disabilities ©2013 10 Not preparing a letter of intent Failure to include a contingent SNT in Will Failure to review and coordinate all beneficiary designations Failure to coordinate other relatives’ planning Prohibiting disqualifying distributions in all cases ©2013 Bernard A. Krooks, J.D., CPA, LL.M, CELA, AEP www.littmankrooks.com 11.
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