Wall Street Journal Article

July 22, 2008

Gabe Molitor is no ordinary trust-fund kid: He has epilepsy and Asperger's syndrome, a form of autism. His mother, Shelby Valentine, recently set up what's known as a special-needs trust, which will provide funding to pay for some of her 30-year-old son's expenses when Ms. Valentine and her husband are no longer able to care for him.

Miami lawyer Barry Nelson set up a special-needs trust for his son, Jesse, who has autism. Ms. Valentine and her husband, who live in Calistoga, Calif., are serving as the trustees while they are alive and have named their two daughters successor trustees. "It was such a relief," says Ms. Valentine. "It gives him a better quality of life after we are gone."

Parents of children with special needs often face years of expensive care for their children. Now a growing number of financial-services companies, lawyers, and financial planners --often calling themselves "special-needs planners" --are springing up to help parents provide for kids with disabilities, especially when parents are no longer alive to provide care. These professionals guide families through the intricate maze of federal and state programs for disabled individuals and help set up trusts, insurance policies, retirement plans, and estate planning documents.

Families with special needs have been in the spotlight recently with the vice-presidential candidacy of Alaska Gov. Sarah Palin, whose infant son has Down syndrome, a chromosomal disorder. The financial crisis has also added urgency to families' concerns about how their children's money will be managed when they're not around to oversee it.

More than 41 million Americans, or almost 15% of the population age 5 and older, have some type of disability, according to 2007 Census survey data. Some 6.2% of children ages 5 to 15, or 2.8 million kids, have disabilities, the Census Bureau found. And Individuals with disabilities are living longer than ever before. That means that many disabled children will outlive the parents who support them.

At least two professional groups --the Academy of Special Needs Planners and the Special Needs Alliance --provide referrals to lawyers familiar with special needs planning, and other resources. Financial-services firms such as MetLifeInc. and MassMutual Financial Group also have divisions devoted to special-needs planning.

Special-Needs Trusts

Experts often recommend that families create a "special needs" or "supplemental needs" trust as the centerpiece of their plan. Such trusts will provide funds to pay for certain expenses that enhance a disabled person's quality of life --from residential

treatment programs to movie tickets or haircuts --while not cutting off access to government benefits, such as Medicaid or Supplemental Security Income (SSI), which is administered by the Social Security Administration.

Where to Go for Help

A growing number of financial-services companies, lawyers, and financial planners are offering services for families with disabilities. Here are some resources:

  • Academy of Special Needs Planners - specialneedsanswers.com
  • Professional group of lawyers knowledgeable about estate planning, government benefits, and other disability-related concerns.
  • MassMutual SpecialCare - www.massmutual.com/specialcare
  • Program provides financial products and advice for special-needs families. Agents get special training in disability planning.
  • MetLife MetDESK - www.metlife.com/desk
  • MetLife's Division of Estate Planning for Special Kids offers products, financial advice, and resources for families with disabilities. The website also features a cost-of-care calculator.
  • Special Needs Alliance - www.specialneedsalliance.org
  • Nonprofit group that provides referrals to experienced special-needs lawyers and other disability resources.

Government payments can cover much of a disabled person's expenses. But in order to qualify for them, individuals cannot have assets in their own names that exceed $2,000 (not including a home, a vehicle, and basic personal items). In 1993, Congress permitted special-needs individuals under age 65 to have trusts funded with their own money --such as assets from a legal settlement or an inheritance --and still have access to government benefits. More common, however, are so-called third-party trusts, in which parents provide funding for trusts that benefit their children.

Funds transferred to a trust are not considered to be assets of the special-needs individual, as long as there's an independent trustee who controls distributions of the money and the disabled person can't just grab cash from the trust at will. A trust also insures that a qualified individual will be watching over the money, a particular concern for families since many disabled individuals cannot manage money on their own, says Michael Carris, a senior vice president at the trust division of Regions FinancialCorp. in Fort Lauderdale, Fla.

Barry Nelson, a Miami lawyer, set up a special-needs trust for his autistic son, Jesse, who is now 14 years old. The trust will be funded by life insurance when Mr. Nelson dies, and can be used to pay for expenses beyond what Medicaid or SSI would pay for, including "travel, companionship and cultural experiences" and "purchase of small visual and/or audio equipment for entertainment purposes," such as iPods or DVD players, according to the trust document. A special-needs trust "gives me --and it gives every parent --peace of mind," says Mr. Nelson, who says medical and educational expenses for his son run between $50,000 and $100,000 a year.

Rules governing special-needs trusts are complicated and vary by state and by the source of the funds. Relatives or parents themselves can be the trustees of the funds, although some experts recommend naming a financial-services company or a trusted adviser, such as a lawyer or accountant, to help manage the money and make distributions.

Ideally, the trustee should communicate regularly with the disabled person and be able to work closely with doctors, therapists and a maze of government agencies. Trustees also need to be very careful when making distributions. For instance, they should avoid paying money directly to the person with special needs, since that may disqualify him or her from government benefits, says Andrew Hook, a Virginia Beach, Va., lawyer and president of the Special Needs Alliance.

Coordinating Estate Plans

It's also crucial for grandparents and other relatives to retool their own estate plans to leave gifts or inheritances to the special-needs trust, rather than to the person with disabilities directly, in order to preserve eligibility for government programs. Beneficiary designations on retirement accounts and life insurance policies should also go to the trust.

"You've got to make sure that the relatives' estate plans are coordinated," says Sebastian V. Grassi Jr., a Troy, Mich., estate-planning lawyer. He created a special-needs trust for his 19-year-old daughter, who has cerebral palsy.

Setting up a special-needs trust can cost $4,000 or more, depending on the trust's complexity. Trust companies often charge about 1% of assets annually in management fees, depending on the size of the trust.

Another option is "pooled" trusts, in which funds from many special-needs families are bundled together and managed by nonprofit groups that focus on disability issues. Families typically use pooled trusts if they can't find appropriate individual or bank trustees, or if they have a small trust account that would benefit from bunching with other families.

Letters for Caregivers

There are some other key steps families with special needs should take. Parents should create power-of-attorney or guardianship documents for finances and health care, naming themselves as their child's agent or guardian when their child turns 18. Without this formality, parents of kids over 18 may not be able to have access to their child's medical records or make health-care or financial decisions, says Boston lawyer Harry S. Margolis, the co-founder of the Academy of Special Needs Planners.

It's also smart to create a "letter of guidance," a document spelling out everything another caregiver should know about their child's special needs, including medical diagnosis, treatment and medications, specific likes and dislikes, and food preferences or aversions. "You know things about your children that no one else on this earth knows," says Michael Gilfix, a Palo Alto, Calif., lawyer who does a lot of special-needs planning. "This includes little things, like what breakfast food makes them happy or what breakfast food makes them really angry.

"Ms. Valentine, a client of Mr. Gilfix, recently wrote a letter of guidance for her son, Gabe. The document describes how Gabe is a huge San Francisco Giants fan, so any caregiver should make sure he gets tickets to home games. He doesn't like ice cream or cake, but likes pizza. His epilepsy medication affects his teeth, so the letter recommends that he get his teeth cleaned regularly. "He actually loves the dentist," she says.

Write to Rachel Emma Silverman at rachel.silverman@wsj.com

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Medicare: Top 10 Tips

1. Enroll in Medicare at the right time.

  • For most individuals, enroll (through Social Security) the later of:
  • The three months before you turn 65 or
  • At you or your spouse’s retirement if you receive group health insurance coverage through you or your spouse’s employer.

Note: You actually have the seven months surrounding your 65th birthday to enroll in Medicare. For example, if your birthday is April 15th, you can enroll starting January 1st until July 31st, but you should enroll before April 1st if you want Medicare coverage in April. Retirees technically have eight months to enroll after retirement.

  • If you do not enroll at the earliest opportunity, you may:
  • Receive lifetime financial penalties on your Part B and Prescription Drug Plan (Part D) premiums;
  • Only be able to enroll in Medicare in certain months; and
  • Be subject to underwriting for Medicare Supplemental Plans (a.k.a. Medigap Plans). (In Michigan, the Blue Cross / Blue Shield’s Legacy plan is an exception to this underwriting rule.)

2. There are two distinct Medicare options: Original Medicare or Medicare Advantage.

  • Original Medicare (a.k.a. Traditional Medicare): Part A + Part B + Prescription Drug Plan (Part D) + a Medicare Supplemental (a.k.a. Medigap) plan to cover Parts A and B copays / deductibles. Approximately three-fourths of Medicare beneficiaries have some form of Original Medicare.
  • Original Medicare with a supplemental plan (particularly policies C or F) is about the most comprehensive medical coverage currently available in the United States.
  • Medicare Advantage (a.k.a. Medicare Health Plan or Part C): These plans are similar to employer sponsored health plans and every plan is different. The plans typically include prescription drug coverage and most have a network (or preferred providers). Approximately one-fourth of Medicare beneficiaries have a Medicare Advantage plan, but this number is growing.
  • These plans are generally cheaper if you are healthy, but can cost more or prove to be overly restrictive if you need more than routine medical care.

3. For Michigan residents, always remember that Blue Cross / Blue Shield’s Legacy Medicare Supplemental (a.k.a. Medigap) Plans are options.

  • As a nonprofit, Blue Cross / Blue Shield offers two affordable supplemental plans: Plan A at $39.88/month and Plan C at $121.22/month regardless of age or health status.
  • There is no underwriting to qualify for these plans.
  • Note: You may not qualify for these plans if your previous employer contributes to your premiums or contributes to a health retirement account. Also, premiums will go up if you move out of Michigan.

4. The ten standard Medicare Supplemental (a.k.a. Medigap) policies are the same from state to state and from insurer to insurer. Shop price!

  • What policies A, B, C, D, F, G, K, L, M, and N cover is the same across states and insurers. Most policies are priced based upon your age.
  • You typically have little interaction with these plans other than paying your premium. Generally: if Medicare pays, the policy pays.
  • These plans are basically commodities and you should shop for the cheapest plan. For example, in Michigan, the price for Policy C for a 65 year old ranges from $107 to $301 according to Medicare.gov for essentially the same policy. A person paying $301 is likely paying almost $200 a month more than he or she should be paying.

5. Review Prescription Drug Plans and/or Medicare Advantage Plans each year between October 15th and December 7th only at http://www.Medicare.gov.

  • Do not rely on information from insurance companies or private vendors to pick plans. Use the government’s website at http://www.Medicare.gov and click “Compare Drug and Health Plans.”
  • I like to say that Prescriptions Drug Plans and/or Medicare Advantage Plans are one-year marriages – you divorce each other every year and decide whether or not to remarry. The insurance company can change the details of the plan and you can leave the plan each year.
  • Do not automatically pick the cheapest plan without reviewing any plan limitations. For example, does your doctor accept the Medicare Advantage plan? Are there any restrictions on the prescriptions you take?

6. Medicare is not a long-term care plan and most Medicare plans do not cover routine dental, vision, hearing, or foot care.

  • Other than up to a hundred skilled nursing / rehabilitation days after three nights in a hospital, Medicare does not cover assisted-living, general home assistance, or nursing home care.
  • Note: Some Medicare Advantage plans will provide limited dental or vision coverage, but be careful about overvaluing the benefits of these plans.

7. Do not simply rely only a plan’s prescription formulary – make sure there are not additional restrictions on the prescriptions you need.

  • In addition to making sure a prescription is on a plan’s formulary, make sure you know whether or not the plan places further restrictions on your prescriptions by requiring:
  • Prior Authorization: Before the plan covers the prescription, you must get it approved by the plan.
  • Quantity Limits: The plan will only cover a certain number of pills a month. Hint: If you need more pills than the plan will cover, ask your doctor to see if it is possible to increase a pill’s dosage.
  • Step Therapy: Before the plan will cover this prescription, you have to try another prescription first. This can be a particularly difficult restriction for those on mental health medications.

8. If you disagree with a health provider, consider appealing!

  • Hospitals and skilled nursing facilities are paid based on the diagnosis – not the number of days that you have been in the facility. Thus, the hospital/facility makes more money the less time you are there. Your defense: appealing.
  • There are several layers of Medicare administrative appeals. Statistically, beneficiaries win half or more of their appeals at the first level.
  • Appeals can be particularly important if a person needs to be in a hospital for three nights to qualify for skilled nursing / rehabilitation benefits.
  • Key appeal criteria: is the service “reasonable and necessary in the diagnosis or treatment of an illness or injury.”

9. Fight to be “admitted” to a hospital – not placed on “observation status.”

  • Hospitals may place individuals on “observation status” for days instead of formally “admitting” him or her to the hospital. The problem: the three night stay required for skilled nursing coverage does not start. This has cost many families tens of thousands of dollars.

10. There may be financial assistance to help pay for Medicare or for prescription drugs.

  • Medicare Savings Programs: In Michigan, apply at your local Department of Human Services office. Benefits may be available if income is less than $1,226 / individual ($1,655 / married couple) and assets are less than $6,680 / individual ($10,020 married couple) excluding a $1,500 burial account allowance.
  • Extra Help For Prescription Drugs: Apply through Social Security. (Very easy to do online at Social Security’s website.) Benefits may be available if income is less than $16,335 / individual ($22,065 / married couple) and assets are $12,640 / individual ($25,260 / couple).

Questions? Get answers from independent resources.

  • Each state has a SHIP (State Health Insurance Assistance Program), which will counsel individuals on Medicare decisions. Michigan’s SHIP is the Medicare / Medicaid Assistance Program (MMAP), which is run out of the Area Agencies on Aging. Call MMAP at 1-800-803-7174. You may also call 1-800-Medicare.
  • Good websites for Medicare information include: Medicare.gov (http://www.medicare.gov), the Medicare Rights Center (http://www.medicarerights.org), and the Center for Medicare Advocacy, Inc. (http://www.medicareadvocacy.org.)
  • Or call or e-mail me, Christopher W. Smith at (586) 803-8500 or at christopher@michiganlawcenter.com

Comparing Costs of Original Medicare and Medicare Advantage

Original Medicare Medicare Advantage or “Health Plans”
Part A Monthly Premium* $ Part A Monthly Premium* $
Part B Monthly Premium $ Part B Monthly Premium $
Supplemental Insurance (“Medigap”) $ Monthly Health Plan Premiums $
Co-Insurance / Deductibles (if any) $ Est. Health Co-pay / Co-Insurance Costs $
Monthly Prescription Drug Costs $ Monthly Prescription Drug Costs $
Monthly Prescription Drug Premiums $ Monthly Prescription Drug Premiums** $
Total Monthly Costs $ Total Monthly Costs $

* Most people do not pay a Part A Premium because they or a spouse earned 40 credits in Social Security-covered employment.

**If prescription drug premium is not part of the Medicare Advantage plan.

November 16, 2019

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