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

Special Needs Trust ◦(d)(4)(A) trust ◦First-party trust ◦Payback trust

1  SSDI ◦ Unable to do any substantial gainful activity due to disability  Medicare  Special Ed  VA  Means tested ◦ Medicaid ◦ SSI

 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

 No SSI or Medicaid penalty period  Disregarded as available income or resource  Medicaid payback

2  Protects resources without sacrificing government benefits  Irrevocable trust  Wholly discretionary trust  Individual with disabilities must be sole beneficiary while alive

 State law  Amendments  Asset protection SNT  Compensation to caregiver  Insurance on life of family caregiver  Family visitation

 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

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

 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

 Accept the money  Spend down  Gift  Self settled SNT  Pooled trust

4  Incomplete gift ◦ Creditors’ claims ◦ Sole benefit ◦ Limited POA  Grantor trust  Estate tax inclusion ◦ Medicaid payback deduction

 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

 Not described in federal statute  Some states have third-party SNT statutes  Attorney obligation?

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

 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

 Family member  Corporate trustee  Co-trustees  Accountability ◦ Trust Protector ◦ Change trustee

6  Beneficiary may be unable to monitor Trustee’s actions  State interest ◦ Accountings ◦ Notice  Preservation of principal may not be paramount

 Doctor  Lawyer  Public benefits expert  Investment wizard  Social worker  Immortal

 Ignore the situation  Disinherit  Gift to child with disabilities  Distribute to sibling  Fair does not mean equal  Supplemental Needs Trust

7 Life Care Plan

Life Insurance ILIT Crummey powers Beneficiary designations

 Testamentary ◦ Included in decedent’s estate  Inter-vivos ◦ Gift tax  Annual exclusion  Qualified disability trust

 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

 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

 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

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

 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

 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

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

Bernard A. Krooks, J.D., CPA, LL.M, CELA, AEP