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A man and woman are pictured sitting at a table, both with their hands raised in a show of disagreement, while a third person, pictured in the background sits between the two, seeming to mediate.

Does Divorce Impact an Estate Plan?

The Changes That Come with the End of a Marriage

When a couple gets divorced, their estate plan needs to be updated. This is because the original plan was likely based on the assumption that the couple would always be together. Now that divorce is on the horizon, it's important to make sure your estate plan reflects your new circumstances. If you don't update your estate plan after divorce, you could end up with a lot of problems down the road. In this blog, read about the impact of divorce on an estate plan and how to make changes to reflect your new situation.

Changes to an Estate Plan After a Divorce

Understandably, divorce can have a significant impact on all aspects of life, including your estate plan. If you have gone through the process of creating an estate plan, it is important to review and update your documents after your divorce is finalized. Here are some key changes to keep in mind:

Beneficiary Designations

If you named your former spouse as a beneficiary on any accounts (life insurance policy, retirement accounts, etc.), be sure to update the beneficiaries to reflect your current wishes.


If you named your former spouse as the guardian for any minor children, you may wish to appoint someone new in their place.

Power of Attorney

If you named your former spouse as an agent under a durable power of attorney, you will need to appoint someone new.

Wills and Trusts

If your former spouse is named as executor or trustee of your estate, you will need to name someone new in their place. You may also need to make changes to the distribution of assets in your will or trust.

Ask for Help from an Estate Planning Attorney

If you have any questions about updating your estate plan after a divorce, contact an experienced estate planning attorney and ask for their guidance. They can give you the help you need to make the most informed choice for your future.

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Nursing Homes Are Evicting Residents to Make Room for Coronavirus Patients

Illegal evictions of Medicaid nursing home residents are nothing new, but the coronavirus pandemic is exacerbating the problem, according to an investigation by the New York Times.

Some states have asked nursing homes to accept coronavirus patients in order to ease the burden on hospitals. Even as the virus has devastated nursing homes, some have been welcoming these patients, who earn facilities far more than do Medicaid patients. To make room for these more lucrative coronavirus patients, the Times found that thousands of Medicaid recipients have been “dumped” by nursing homes. Many of the residents were sent to homeless shelters.

Nursing homes make far more money from short-term Medicare residents than from Medicaid residents, especially since the federal Centers for Medicare and Medicaid Services changed the reimbursement formula last fall. Now, writes the Times, a nursing home can get at least $600 more a day from a Covid-19 patient than from other, longer-term residents. In other cases, it wasn’t about the money but simply pressure from states to accept Covid patients.

According to federal law, a nursing home can discharge a resident only if the resident’s health has improved, the facility cannot meet the resident’s needs, the health and safety of other residents is endangered, the resident has not paid after receiving notice, or the facility stops operating. In addition, a nursing home cannot discharge a resident without proper notice and planning. In general, the nursing home must provide written notice 30 days before discharge, though shorter notice is allowed in emergency situations. A discharge plan must ensure the resident has a safe place to go, preferably near family, and outline the care the resident will receive after discharge.

According to the New York Times, nursing homes have been discharging residents without proper notice or planning. Because long-term care ombudsmen have not been allowed into nursing homes, there has been less oversight of the process. Old and disabled residents have been sent to homeless shelters, rundown motels, and other unsafe facilities. The Times heard from 26 ombudsmen, from 18 states, who reported a total of more than 6,400 discharges during the pandemic, but this is likely an undercount. In New Mexico, all the residents of one nursing home were evicted to make room for coronavirus patients.

If you or a loved one are facing eviction, you have the right to fight the discharge. Contact your attorney to find out the steps to take.

To read the New York Times article about the evictions, click here.

August 26, 2020

Transferring Assets to Qualify for Medicaid

Transferring assets to qualify for Medicaid can make you ineligible for benefits for a period of time. Before making any transfers, you need to be aware of the consequences.

Congress has established a period of ineligibility for Medicaid for those who transfer assets. The so-called “look-back” period for all transfers is 60 months, which means state Medicaid officials look at transfers made within the 60 months prior to the Medicaid application.

While the look-back period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,000 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). The 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer. Therefore, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018 and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look-back period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

Be very, very careful before making transfers. Any transfer strategy must take into account the nursing home resident’s income and all of his or her expenses, including the cost of the nursing home. Bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well-intentioned they may be, your children could lose the funds due to bankruptcy, divorce, or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren’s eligibility for financial aid in college. Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.

As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to (1) pay for any care needs you may have during the resulting period of ineligibility for Medicaid and (2) feel comfortable and have sufficient resources to maintain your present lifestyle.

Remember: You do not have to save your estate for your children. The bumper sticker that reads “I’m spending my children’s inheritance” is a perfectly appropriate approach to estate and Medicaid planning.

Even though a nursing home resident may receive Medicaid while owning a home, if the resident is married he or she should transfer the home to the community spouse (assuming the nursing home resident is both willing and competent). This gives the community spouse control over the asset and allows the spouse to sell it after the nursing home spouse becomes eligible for Medicaid. In addition, the community spouse should change his or her will to bypass the nursing home spouse. Otherwise, at the community spouse’s death, the home and other assets of the community spouse will go to the nursing home spouse and have to be spent down.

Permitted transfers

While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

  • Your spouse (but this may not help you become eligible since the same limit on both spouse’s assets will apply)
  • A trust for the sole benefit of your child who is blind or permanently disabled.
  • Into trust for the sole benefit of anyone under age 65 and permanently disabled.

In addition, you may transfer your home to the following individuals (as well as to those listed above):

  • A child who is under age 21
  • A child who is blind or disabled (the house does not have to be in a trust)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

August 26, 2020

Estate Planning The Ten Most Avoidable Mistakes

1. Dying Intestate

If you die without a Will or some other form of estate planning, the state in which you reside and the IRS will simply make one for you. Of course, they have no interest in avoiding or reducing estate taxes, minimizing estate administration costs or protecting your family and legacy. The distribution of your assets will just be turned over to the Probate Court. The probate process is needlessly time consuming, frustrating and expensive. It is also open to the public, meaning creditors, predators or anyone else will have complete access to all information about your estate. For the vast majority of people, the benefits of a Will or other estate planning tools far outweigh any initial costs.

2. Having an “I love you” Will

An “I love you” Will is one in which all the decedent’s assets have been left to the spouse. On paper, it might seem to be a caring, thoughtful gesture, but the reality is quite different. That’s because such a Will simply passes the complex issues and problems associated with transferring and protecting wealth onto the spouse or other loved ones. An “I love you” Will creates more problems than it solves, particularly for future generations.

3. Giving property outright to your children

Here is another “solution” that might sound good at first, but ignores several important realities. For instance, what if the child in question is too immature to handle the responsibility of a large sum of money on his or her own? What if the child suffers a severe financial setback that puts the inheritance at risk to creditors? What if the child marries a fortune-hunter, is addicted to drugs or alcohol, gets divorced or remarried? In short, you may need to protect your children and heirs from their own poor decisions.

4. Owning property jointly

There are two types of joint ownership, Joint Tenancy with Right of Survivorship (JTWROS) and Tenants in Common (TIC). Problems with JTWROS include postponement of probate until last tenancy, loss of the double step-up in tax basis, and outright distribution. With TIC, you also lose the double step-up in tax basis, and your property is subject to the estate plan of each tenant as well as probate for each tenant.

5. Not having a trust

A trust is the single most effective estate planning tool available. There are many different types of trusts. Among the better known and more commonly used are revocable trusts, irrevocable trusts and testamentary trusts. In addition to protecting your privacy, a trust will help you leave what you want, to whom you want, in the way you want—at the lowest possible cost.

6. Not funding your trust

A trust can be thought of as a safe. It can do a great job of protecting your hard earned wealth, but if there’s nothing in the trust—i.e. nothing in the safe—what good does it do you? None whatsoever. Which begs another question, why would someone go to the trouble of creating a trust and then not fund it? The answer is quite often that the person in question simply never gets around to it. He or she procrastinates, resulting in an unfunded trust—which is worse than no trust at all. Estate Planning The Ten Most Avoidable Mistakes

7. Not having your documents reviewed and updated

Once they have their estate planning and other documents created, many people simply file them away and never look at them again. Big mistake. An outdated plan can be as bad or even worse than having no plan at all. Your documents should be reviewed, at the very least, every two years. Why? In a word, change. Your needs and goals change; your financial situation changes; your children grow older and their needs change. The law itself is constantly changing. And even if you’ve specified a trustee or executor, the named person’s ability to follow through on your wishes may change as well. Updating your plan allows you to take these changes into account and avoid unintended consequences.

8. Dying in 2011

We may say this tongue in cheek but, given the current status of the laws governing estate taxes, there is nothing funny about how much of your estate will be lost to estate taxes should you pass away in 2011. That’s because the Bush administration’s 2001 estate tax modifications will expire in 2010, meaning the exemption amount will return to the 2002 level of $1,000,000 (down from $3,500,000 for 2010) and the maximum rate will increase from 45% to 55%. If you think this is unusual, consider this: laws governing estate taxes have changed more than 20 times since 1986. Which only underscores the importance of getting expert legal advice to prepare for and cope with continuous change.

9. Thinking a Living

Trust alone is enough The Living Trust is a powerful estate planning tool, but to truly ensure your wishes are carried out should you become incapacitated and incapable of making decisions for yourself, addendums can be extremely helpful. For example, an Advanced Healthcare Directive can dictate how you wish to be cared for and what steps you authorize medical personnel to take to prolong your life. A HIPAA Authorization can ensure your privacy while still making crucial medical information available to the people you want to have it. A Power of Attorney for financial affairs determines in advance who will be able to make financial decisions for you. Other commonly used addendums include Pourover Wills, Assignment of Personal Property, Community Property Agreements, Appointments of Guardianship or Conservatorship, to name a few.

10. Not understanding that the biggest problem is not the IRS

If the biggest threat to preserving your wealth is not the IRS, who or what is? Frankly, it is human nature. None of us wants to think about our own deaths or the possibility of becoming incapacitated. Consequently, we tend to put off taking the steps necessary to prepare for what the future may hold. We procrastinate. And our loved ones often suffer the painful financial consequences. Perhaps Walt Kelly put it best: “We have met the enemy and he is us.”

May 15, 2020

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

Nomination of Trustee

After deciding a special needs trust is appropriate, one of the most difficult choices parents make is the nomination of the trustee. Often a family member, especially a parent, will want to serve in that capacity. They have choices depending on the amount going into the trust, from trust department of banks to legal counsel, non-profit corporations, professional fiduciaries and family or friends.

If the trust is large enough, trust departments of banks will compete for the opportunity to act as trustee, especially in this economic market. There may be an opportunity to reduce the fiduciary fees they would charge for the opportunity to act as trustee. There are national banks and even life insurance companies that market their expertise to special needs planners. One advantage to a bank is that as a large institution it may provide better customer service in a predictable heavily regulated manner. In addition, rarely does a bank have to file a surety bond, which saves the trust from otherwise having to pay premiums. However, if there is a difference of opinion between the beneficiary and the bank trustee, it may be very difficult to move the trust to a different trustee. Courts often favor local banks over national corporations, especially if they do not have a physical presence in the state. Some other choices for professional fiduciaries are non-profit organizations which may specialize in special needs trust administration or may offer such services through grant programs, like ARC of Macomb in Michigan. Often, the drafting attorney will be willing to serve as trustee or has knowledge of other attorneys and organizations specializing in this type of trust administration. A judge or Guardian ad Litem may have special knowledge or experience with a particular professional fiduciary, and may appoint them despite other recommendations or family preference.

Most often family members or lay people, in general, are not the best option. The policies regarding allowable distributions change frequently and vary state to state. You can pay a family member for care services in some states, as you can in Michigan, but not others without penalty. In addition, there are tax considerations and investment issues to consider. Special needs trusts are complex to administer, and professional administration, even in light of the costs involved, is usually for the best. Potential family members as Trustees usually fall into two categories: the busy professional or the unsophisticated but willing. Neither are good choices. The busy professional is just that. Too busy. The willing but unsophisticated person is not a good choice as the potential for mistakes without professional guidance is too great a risk. In addition, if a bond is required the client may have trouble qualifying. Bond companies look at credit scores as a strong indicator of an individual’s fitness to serve as trustee, and if there are blemishes they will decline the application. If there is no court supervision or bond, there is no recourse for the disabled beneficiary if a family member improperly distributes funds or mismanages investments, causing a loss of benefits or loss of principal. The plaintiff or their next friend may not have full control over the nomination of trustee. The Guardian ad Litem, trial court judge or probate court judge may not agree with the nomination and may appoint a different party altogether. The wants and needs of the beneficiary should be given priority, balanced with accountability, professionalism, experience, costs and advocacy abilities of the potential trustee.

November 9, 2019

The Third-Party Pooled Trust: An Alternative Planning Tool to Help Avoid the Biggest Mistakes in Special Needs Planning

Individuals seek professional guidance to protect their assets, children, spouse, partner or other family members after they are gone. If their loved one is an individual with disabilities who depends on means-tested public benefits to meet his or her basic needs, it is essential to choose experienced counsel to help protect his or her present and future eligibility. Individuals who do not hire counsel, whether from a lack of sophistication or resources, may resort to disinheriting their child with disabilities and leave a disproportionate share to a sibling who , it is hoped, will “do the right thing.” While this is the least expensive approach, it provides no protection for their special needs child, and as such, it is the number one planning mistake many families make. The designated sibling may use the funds for themselves, especially if they encounter personal financial difficulties. The assets may become part of marital estate in the event of divorce, disability or death, and they are vulnerable to the creditors and claimants of the designated sibling.

In order to protect vulnerable family members, counsel will properly suggest a custom drafted third-party special needs trust as part of a complete estate plan. Most third party trusts are created either by execution of a custom drafted document, or through use of a third party joinder agreement with a pooled trust.

Even though other family members, especially those without children of their own, may wish to make a bequest to a family member with special needs, parents fail to inform them of the existence of the third party trust. As a practice point, counsel should inform the client how to instruct others to make current or future gifts to the trust and the tax consequences of doing so. However, not all families are of sufficient means to warrant a complex estate plan. They may have difficulty paying legal fees for the creation of this type of estate plan, or it may be too complex for them to manage. They may never fully fund the trust, or review the plan again. All of these factors contribute to the reluctance to create a comprehensive estate plan for themselves or periodically revise their existing plan. Counsel may consider the use of pooled trusts to assist families in exploring options which are cost effective and help meet the particular needs of their family member with disabilities. A pooled trust, as defined by 42 USC §1396(p)(d)(4)(C), is created and administered by a non-profit entity to manage and protect the assets of individuals.

Social security defines a third party trust as “a trust established by someone other than the beneficiary as grantor.” POMS SI 01120.200(B)(17). A grantor is further defined as the party who provides the res of the trust. POMS SI 01120.200(B)(2). To qualify as a valid third party special needs trust the beneficiary must have no ability to revoke the trust or direct distributions in any way (42 USC §1382b(3)(3)(A), 20 CFR §416.1201(A)(1); POMS SI 01120.200(d)(2)).

A pooled trust is defined in 42 U.S.C. §1396p(d)(4)(C), which states: “A trust containing the assets of an individual who is disabled (as defined in section 1614(a)(3) that meets the following conditions: (i) The trust is established and managed by a non-profit association. (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled with disabilities who are dependent upon governmental benefits to meet their basic needs, such as shelter, medical care, food, and income. An individual with excess assets, his or her parent, grandparent, guardian or court actions on his behalf, can place his or her excess funds into the trust and thus maintain their eligibility for governmental benefits.

In order to become a member of any pooled trust, the beneficiary, or other recognized authority as listed above, must execute a Joinder Agreement which dictates the terms under which the beneficiary will become a member of the pooled trust. While maintaining separate accounts for each individual member, assets are pooled together to maximize the return on investments, to spread the cost of administration and management among the members, and to reduce those costs through economies of scale. Pooled trust administrators apply these same principles to the administration of third party funds for individuals with disabilities. Pooled trusts are as varied in culture, fee schedule, asset management, and administrative style as other corporations, and there are many choices in pooled trusts, ranging in scope from local to national organizations.

(as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.”

Parents with eligibility issues can also transfer assets to their child with special needs without penalty pursuant to 42 U.S.C. §1396p(c)(2)(B)(iii), and the funds must be placed in a self-settled trust, which mandates either a payback to the State or retention of the remaining assets. When reviewing the pooled trusts available in your state, counsel should consider several factors: (a) the reputation of the non-profit and trust within the locality of the client being served, (b) the cost of membership such as initial set up fees, perpetual and extraordinary fees (which varies greatly), (c) the longevity of the pooled trust, (d) reputation and experience of the counsel and administrators, (e) the ease and method of requesting distributions, (f) the performance of the investments and oversight of same, (g) availability of advocacy on behalf of the beneficiary, and (h) the retention policy of the trustee. Choice of pooled trusts, in many cases, depends on the recommendation of counsel creating the estate plan. Counsel should not make recommendations based on costs alone, but all of the listed factors, including compatibility of the emotional needs of the client with the trustee. Many pooled trusts have developed third party joinder agreements to allow parents or other family members to make current or future gifts to their loved one with disabilities. The method for determining the residual beneficiaries and the terms by which they receive funds vary greatly among pooled trusts. Typically, there is very little drafting required by counsel when using a third party joinder agreement, as the agreement itself is created and implemented by the non-profit trustee. The trustee may have a standard joinder agreement which contains provisions that are filled out by family or their counsel as to the disposition of any remaining assets. Other pooled trusts may implement a joinder agreement which references anaddendum to the joinder agreement outlining the grantor’s wishes. As with other ©2009 all rights reserved 5 third party special needs trusts, there is no payback required to any governmental entity. However, counsel should thoroughly investigate the non-profit trustee’s policy regarding the fees associated with disbursement of the residual funds to the designated beneficiaries, and whether the trust retains a percentage or charges a flatfee for wrapping up the affairs of the trust. Each family is unique in dynamic and presentment of issues. Use of the pooled trust joinder agreement provides flexibility when the parent is not sure whether governmental benefits will be necessary. Given the uncertainty as to their child’s potential for achievement and self-supporting independence, counsel can incorporate language which will allow the trustee of the parent’s trust agreement to convert the trust to a special needs trust.

Counsel should attach an executed joinder agreement to the Grantor’s revocable trust agreement. The grantor, or other family members, provides enough initial funding to qualify the trust as a seed trust, typically a nominal amount. In a more simple estate plan where a simple last will and testament are most appropriate, counsel can also reference the pooled trust as beneficiary on behalf of the heir or devisee with disabilities, and attach an executed joinder agreement. This Sample trigger provision provided by Susan Tomita: “It is the intention of the Grantors, should the Trustee determine that it is in the best interest of a beneficiary to qualify for needs based public benefits, that the Trustee have the discretion to amend the trust (or a trust share) to allow such qualification. Consequently, the Trustee shall have the power, if the Trustee deems it to be in a beneficiary’s best interest, to transfer the assets of the trust (or of any trust share) to a special needs trust or to convert the trust (or any trust share) into a special needs trust for the benefit of the beneficiary of the trust (or any trust share) that will allow such beneficiary to qualify for Supplemental Security Income, Medicaid, or other governmental assistance.” method allows the will to serve as a conduit for funding the special needs trust for the individual with special needs, thus creating a simple, cost effective estate plan that adequately protects the child with disabilities.

Using a pooled trust for third party funds may also offer a unique opportunity for the grantor and beneficiary to experience the pooled trust administration during the lifetime of the grantor. The parent, prospective caregivers, and beneficiary can form a relationship with the pooled trust administrators before the parents are gone. By forming a bond and creating an additional support for the beneficiary during the life of his or her parent, there is less stress after the parent(s) are deceased, and any issues with administration can be worked out ahead of time. It is also an opportunity for any nominated successor advocate to ease into their role by working with the beneficiary and the trustee.

Third party pooled trusts also help to eliminate choice of trustee issues as family members cannot serve as trustee. Rather, pooled trusts must be administered by the non-profits that created the fund, and typically do so with the assistance of counsel. Choosing the wrong trustee is another common mistake parents make when completing their estate plan. Parents naturally place administrative responsibilities for their own fiduciary needs on their adult children, who are typically the natural choice for trustee of the third party special needs trust. However, administration of these trusts is not like wrapping up the affairs of their deceased parent’s trust, which at some point will terminate. A special needs trust is particularly complex in that the ©2009 all rights reserved 7 trustee must provide management of the funds, be aware of changing public benefits policies, have a working knowledge of community and governmental resources, anticipate the impact of distributions on benefit eligibility, community, state and federal benefit programs, address tax issues, and be able to advocate for the beneficiary should benefits be eliminated. The siblings may or may not be familiar or comfortable with the role of advocate for their sibling with special needs. They or their spouse may become resentful of the time and attention required. The use of a pooled trust and its professional administrators and their counsel helps eliminate these issues, and possibly others as well. When the sibling is thrust into the role of trustee for life and has full discretion over the use of funds, it can place unnecessary stress and friction on that relationship. There is also a natural conflict of interest if the sibling is the remainder beneficiary and the trustee. Every dollar spent on theirsiblings needs is one dollar less that they will eventually receive. In addition, many pooled trusts provide the type of professional administration that would otherwise be unavailable for the size of assets under management.

Utilizing a pooled trust for third party special needs can be a flexible tool for counsel to meet the unique needs of their client by providing a cost effective estate plan which addresses the current or potential needs of a special needs beneficiary. Experience with pooled trusts will allow counsel to make confident recommendations to the client, eliminate some of the hazards associated with family trustees, and provide an additional planning choice to the traditional third party special needs trust.

November 9, 2019

What a Special Needs Trust Pays For

Part of a continuing series regarding what can be paid for from a special needs trust. The most common question a special needs trust client has is, “What can the trust pay for?” Policies regarding distributions change frequently and differ from state to state. What is allowable in one jurisdiction may cause a disruption of benefits in another. In general, a special needs trust is extremely flexible as to what it can and will provide. A trustee of a special needs trust generally does not pay for any good or service otherwise available through governmental benefits. Governmental benefits arguably provide for the basic needs of an individual, such as income, housing, medical benefits, and food. Professional trustees, in most circumstances, will not issue cash or a cash equivalent, such as a pre-paid card, due to the immediate impact on the individual’s benefits. The Trust itself is designed to supplement governmental benefits, not replace them, so needs that can be met through outside entities should be exhausted first before seeking payment from the Trust.

Depending on the terms of the trust, a trustee can pay for the basic needs of the individual under certain circumstances, especially in an emergency where the health and safety of the beneficiary are in jeopardy. Payments from the trust for the basic needs or support of the beneficiary may cause a decrease in monthly income or loss of other benefits. This situation can arise even if no money changes hands. For instance, an adult child living in his parent’s home rent-free may see a one-third reduction of his SSI check as in-kind support and maintenance (ISM). A trust that owns a home can pay for all expenses related to the home, including utilities. In most states, this will cause a one-third reduction of the SSI income, but the benefit to the beneficiary outweighs the loss of income. If there are others living in the home, the trustee may have a lease agreement and receive rent to help support the home. Overall, the duty of the trustee is to act in the best interests of the beneficiary and there are circumstances where the benefits to the beneficiary outweigh the penalties. These types of distributions should be done with the professional guidance of special needs attorneys so as to minimize any potential negative impact and maximize the benefit to the beneficiary.

Generally, distributions from the trust must meet several criteria: (1) the distribution must be for the sole benefit of the beneficiary, (2) in his or her best interests, (3) otherwise unavailable from other resources and/or no other responsible party, and (4) be fiscally prudent. Most often clients will inquire about the purchase of a home and transportation. Can they be purchased by the Trust? Yes. However, it must be done in light of the considerations outlined above and the purchase of any home should not be done without professional guidance, and with court approval if the trust is supervised. If the beneficiary is a minor, the trust does not relieve a parent of their obligation to provide for the basic needs of their minor child. Even though parents are losing jobs and facing economic difficulties, the court is generally unsympathetic to requests for funds or purchases to meet the basic needs of the children.

The most important practice tip is that a special needs trust is a very flexible document in which the trustee has full discretion to act in the best interests of the beneficiary. Every jurisdiction has its quirks. Even though the trusts are written pursuant to federal statutory authority, the administrative policies differ greatly between states. An experienced special needs planning attorney can help set reasonable client expectations, which are important for the client’s future relations and satisfaction with the Trustee and/or special needs trust attorney.

November 9, 2019

New Tax Law Makes Changes to ABLE Accounts

Families taking advantage of ABLE savings accounts will have a little more flexibility in planning for special needs as a result of the new Tax Cuts and Jobs Act signed into law by President Trump on December 22, 2017.

As we previously discussed, ABLE accounts, created by Congress via the passage of the Achieving a Better Life Experience (ABLE) Act in 2014, allow people with disabilities and their families to save for disability related expenses, while maintaining eligibility for Medicaid and other means-tested public benefits programs.

Currently, people can contribute up to $15,000.00 annually into qualified ABLE accounts.  A provision in the new tax law allows families who have saved money in 529 savings accounts to roll over up to $15,000 each year from a 529 account to an ABLE account.   The 529 account must be for the same beneficiary as the ABLE account or for a member of the same family as the ABLE account holder.  Many disability advocates had previously pushed for this change via a bill known as the ABLE Financial Planning Act.   Also as part of the new tax bill, while 529 accounts could previously only cover costs for college, they can now pay for a child’s K-12 education in a public, private or religious school.

The tax bill also includes changes to benefit ABLE account beneficiaries earning income from employment. These individuals will be able to make ABLE contributions above the $15,000 annual cap from their own income up to the Federal Poverty Level, which is currently $11,770 for a single individual, provided they do not participate in their employer’s retirement plan. This change was previously proposed in legislation known as the ABLE to Work Act.

The Consortium for Citizens with Disabilities previously voiced opposition to this revision, on the basis that if not properly implemented, it could increase the beneficiaries’ vulnerability to losing public benefits and pose major administrative burdens.

To read the text of the final bill, the Tax Cuts and Jobs Act, click here.

Click here to read more about ABLE accounts from with the ABLE National Resource Center.

December 29, 2017

Rather Than Ending Medical Expense Deduction, Final Tax Bill Expands It

Included in the new tax bill, signed by President Trump on December 22, is a provision that could provide some temporary relief for families with high medical expenses.

Federal law currently allows families with medical expenses exceeding 10 percent of their adjusted gross incomes to deduct certain medical expenses from their income taxes, provided that they itemize their deductions. For the two months leading up to passage, the entire future of the deduction was in doubt.

The version of the tax bill that the House of Representatives passed November 16, 2017, would have scrapped the deduction altogether, prompting an outcry from disability rights advocates.  The Senate version, however, maintained the deduction. The final version, in fact, expands the number of families eligible for the deduction, at least temporarily.

For the current 2017 tax year and 2018, all families whose medical expenses exceed 7.5 percent of their adjusted gross income will have the option of deducting certain medical expenses. The threshold will, however, revert back to 10 percent for the 2019 tax year.

This 7.5 percent benchmark mirrors regulations that existed prior to the Affordable Care Act (ACA), which had raised it to 10 percent for non-elderly families. For the elderly, the 7.5 percent threshold expired in 2016 and also rose to 10 percent.

According to the IRS, 8.8 million households, or almost 6 percent of tax filers, claimed medical deductions in 2015.

Even with the expanded medical expense deduction, many families with high medical expenses could see increased financial burdens from the tax bill.  The bill eliminates the ACA’s requirement that people purchase health insurance, likely threatening the future of the ACA’s exchanges and sparking increased medical premiums. It also slashes the corporate tax rate from 35 to 21 percent and will cost the government an estimated $1.5 trillion in revenue over the next 10 years, increasing the likelihood of future cuts to Medicaid, Medicare and other major pieces of the social safety net.

“Each vote in favor of this bill was a vote against constituents with disabilities and sets the wheels in motion to quite possibly go back in time to an era when people with disabilities had little opportunity to live a life of their choosing, in the community,” The Arc, which protects the human rights of people with intellectual and developmental disabilities, said in a statement.

To read the text of the final bill, he Tax Cuts and Jobs Act, click here.

December 28, 2017