Guides and Articles


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 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

  • Do not rely on information from insurance companies or private vendors to pick plans. Use the government’s website at 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: (, the Medicare Rights Center (, and the Center for Medicare Advocacy, Inc. (
  • Or call or e-mail me, Christopher W. Smith at (586) 803-8500 or at

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.

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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

The New MSA Reporting Requirement And The Probate Practictioner

Many probate practitioners advise and support litigation firms and obtain probate court approval of pre-suit settlements. There is a new CMS (Center for Medicare and Medicaid Services) reporting requirement, Section 111 of the Medicare, Medicaid & SCHIP Extension Act (MMSEA), 42 USCS §1395(y)(b)(8), effective July 1, 2009 that we need to be prepared to advise litigation firms and the court when serving as Guardian Ad Litem. Practitioners are already accustomed to resolving Medicare and Medicaid liens for past medical services before finalizing a settlement in liability and PIP cases. However, as of July 1, 2009 they must also consider future medical expenses for their client and evaluate whether their client’s situation triggers the new reporting requirement. This has generated wide discussions among settlement planning attorneys and structured settlement professionals whether this triggers the use of Medicare Set Aside accounts in these cases now and in the future. Unfortunately, CMS has enacted this new requirement without any regulations or procedures, and common review and enforecement practices may vary regionally. There are differing opinions among professionals as to the impact of the new reporting requirements and the effect on our clients.However, CMS officials reportedly comment that the purpose of the enactment is to ensure that any funds allocated for future medicals are to be spent before any claims are submitted to Medicare for payment, and CMS is to be notified when future medicals were a consideration in reaching the settlement. Collegues reportedly have encountered clients with large settlements who have already had Medicare refuse to pay providers.

An insurer has to report the settlement to CMS if the Plaintiff is: (1) a current Medicare beneficiary, or reasonably expected (i.e. a pending appeal) to qualify for Medicare within 30 months of settlement, and (2) the settlement is over Two Hundred Fifty Thousand Dollars ($250,000.00.) If the claimant meets the threshold for reporting, liability insurers, including self-insured entities, must complete a questionnaire/notice of the settlement and submit it electronically to CMS. Failure to do so is a $1,000/day penalty per claim. The Department of Justice is enforcing these requirements against all parties to the settlement, including Plaintiff counsel, and the Plaintiff themselves. All of us who advise counsel or the court with regard to settlement agreements need to be vigilant for our clients and the beneficiaries, and be aware of future developments as CMS forms policies to implement and enforce the new requirements.

November 9, 2011

Special Needs Trusts: The Basics Every Lawyer Should Know

Just when you think your work is done, the case resolved, they drag you back in. Something in the back of your mind tells you your client may have to do a trust or something to protect their benefits. Attorneys do not need to become special needs planners in addition to what they already do. Still, they do need to know some simple basics regarding the effect their client’s settlement may have on their eligibility for governmental benefits. Lawyers have been held liable for failing to recognize and advise their clients of the effect the settlement may have on their eligibility.

Is The Person Receiving Means-Tested Benefits? Ask For a Benefits Statement.

Whether a client is receiving funds directly as a result of their own cause of action, as a claimant under a wrongful death cause of action, an inheritance, or any other reason, the first question to be answered is whether the person receiving the funds receives means-tested benefits. Unfortunately, when a client is asked what type of benefits they receive, frequently the answer is “disability.” The client, or their representative, may not know the type of benefits the client receives or be able to find a determination letter. As a practice tip, the client or their legal representative can call 800-772-1213 and request a benefits statement.

Not all disability benefits are means-tested, so determination as to whether the client has benefits that need protection is the first step in the process. Early involvement with a Michigan special needs trust attorney will help the client become comfortable with the planning that will take place to preserve benefits, a process that may seem complex and overwhelming to them. Further, a consultation with the client regarding their benefits and the effect of receiving settlement proceeds or an inheritance limits the liability of the lawyer after the case is resolved, and sets client expectations regarding the handling of funds.

What Is A Means-Tested Benefit?

The most common are Supplemental Security Income (SSI), Section 8 housing, Medicaid, Veteran benefits, and Waiver services. Most of these are federal programs that are administered differently in each state. In addition, the client may also receive state and local benefits that are also means-tested.

Means-tested benefits typically have an income and asset limit to be met in order to become and remain eligible, and the Medicaid Assistance limit of $2,000 in countable assets is probably familiar to you. The best practice is to affiliate with local special needs trust lawyers near you at Michigan Law Center, PLLC, as they will be familiar with various types of benefits, quirks of the local DHS office and probate court where the client resides, and determine if a settlement or structured settlement payments will compromise the client’s continued eligibility.

When Is a (d)(4)(A) Special Needs Trust Required?

After you have determined that your client in fact does receive a variety of governmental benefits and an outright distribution of proceeds or payments will affect their eligibility, when is a (d)(4)(A) special needs trust appropriate? When the following criteria have been met:

  1. The client receives means-tested benefits,
  2. is under age 65, and
  3. The amount received justifies the costs involved.

What Is a (d)(4)(A) Special Needs Trust?

A (d)(4)(A) special needs trust refers to 42 USC 1396(p)(d)(4)(A), which codified one of the exceptions to the general premise that all trusts are countable assets with regard to means-tested governmental programs. By placing funds and/or structured settlement payments into a special needs trust, the assets are held for the sole benefit of the beneficiary while preserving their continued eligibility for assistance. Only a parent, grandparent, guardian, or court can create this type of trust. Notice that the beneficiary cannot create the trust themselves, and often court authority approving the creation of the trust is necessary. Some courts actively maintain supervision of the trust and require the filing of bonds and annual accounts which can be very costly.

Trusts with modest assets or those that are over-structured can be exhausted from these fees, and nothing angers a client more than having all of their funds go to pay lawyers and they receive little or no benefit. Counsel should consider the continued costs of administration when deciding whether this type of special needs trust is the most appropriate. Local counsel should also be consulted as to the common court practice where the trust will be administered. However, if a parent or other layperson is to act as a trustee, supervision may be advisable. With the current economy and job market, a loss of financial security within the family may make dipping into trust assets too great a temptation to resist.

Nominating A Trustee

One of the most difficult decisions can be the nomination of a Trustee. Often a family member, especially the parent of a minor, will want to serve in that capacity. However, most often family members or lay people, in general, are not the best option. The policies regarding allowable distributions change frequently and vary from 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 are looking at credit scores and if there are blemishes they will decline the application. Corporate or professional fiduciaries often do not have to file bonds so long as proof of liability coverage is offered to the court. If there is no court involvement and no bond, there is no recourse for the disabled beneficiary if a family member makes mistakes or improperly distributes funds.

What Can A Special Needs Trust Pay For?

The most common question a client has is, “What can the trust pay for?” Policies regarding distributions change frequently and differ from state to state. The Trust itself is designed to supplement governmental benefits, so needs that can be met through outside entities should be exhausted first before seeking payment from the Trust.

Generally, distributions from the trust must meet several criteria:

  1. For the sole benefit of the beneficiary,
  2. In the best interests of the beneficiary,
  3. Otherwise unavailable from other resources and/or no other responsible party, and
  4. (4) Fiscally prudent

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 prior court approval, if applicable. 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. Most importantly, do not overpromise the client. Setting reasonable expectations from the start is important for the client’s future relations with the Trustee and/or special needs trust attorney and ultimately benefits the disabled beneficiary.

Speak With Michele Special Needs Trust Lawyers Near You

Knowing when a special needs trust may need to be implemented, what it is, and how it works in the best interests of your client are essential special needs trust basics all attorneys should know in order to avoid a client’s benefit disqualification and a potential claim for failing to provide this information. Working with an experienced special needs planning attorney early in the litigation, settlement, or probate process can assist counsel in meeting their due diligence obligation to their client, relieve a client’s anxiety about the process and their benefits, and set reasonable expectations after the matter is resolved. Michele P. Fuller is a partner with Fuller & Stubbs, PLLC based in Shelby Twp., Michigan. A busy mother of four, she is a council member for the Elder Law and Disability Rights section of the State Bar of Michigan, serves as Treasurer of the Macomb County Probate Bar Association, and is an active member of ASNP and NAEL.

November 9, 2011

Wall Street Journal Article

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 -
  • Professional group of lawyers knowledgeable about estate planning, government benefits, and other disability-related concerns.
  • MassMutual SpecialCare -
  • Program provides financial products and advice for special-needs families. Agents get special training in disability planning.
  • MetLife MetDESK -
  • 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 -
  • 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

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July 22, 2008