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“Where there is charity and wisdom, there is neither fear nor ignorance.”
FRANCIS OF ASSISI

Why Planning Is Important

Today, there are many options for individuals with disabilities and their families to plan for their future.  There has been a dramatic shift even in the last 30 years.  In 1982 Special Needs Trusts were first enacted into law as exempt trusts here in Illinois for parents to utilize.   Families prior to this time had very few choices for planning and services.  Disinheritance was a common estate planning practice for a loved one with disabilities in assuring the child’s eligibility for public benefits would not be in jeopardy.  Housing options in Illinois were often limited to institutional care settings. 

Fortunately today Special Needs Trusts are an invaluable planning tool that has served families for over 30 years.   And through the efforts of Illinois Governor Pat Quinn and with the Ligas Consent Decree Illinois families are moving slowly in the right direction toward an all inclusive state run system of community based services for individuals with disabilities.

It is important for every parent to consider what will happen to them as they age and particularly after death.  Part of the planning process is to decide what will happen with their assets.  These important financial decisions can become very difficult when one of their children is unable to fully care for themselves.  These are many questions that need to be answered when planning for a loved one with a disability.    Parents have many concerns when planning and often struggle with the difficult question, “Who will care for my child when I am gone? “

Another important decision families have to consider is whether their loved one with disabilities will be able to make good decisions as an adult.  Many families in the early years of a child’s life may not know exactly what abilities and executive functions their child will have later in life.  At some point, families will know what services, supports and other care will be needed.   Some families may be more certain that their child will be able to live and work independently as adults.   Other families may not be so certain.  Early in their child’s adult life they may be able to work and live independently, but over time with the influences of society these individuals may not be able make good financial decisions for themselves.  The individual could lose their job later in life.  Their stability and capacity to live independently could be threatened due to a lack of support or mental incapacities in handling the stresses of life.  Families need to be sure in their planning process to look at best and worst case scenarios for their child’s future. 

After high school graduation determining what activities will fill the day of a loved one with disabilities can pose great challenges for families with a limit on available resources.  For some of the lucky individuals who are able to find employment they have meaningful weekly activities.  For others, there are some service options to choose from.  The least favorable option of which is having the individual stay at home with little to do.  Keeping in mind families still may have to consider seeking Social Security benefits and Medicaid waiver programs to provide for these programs after high school.

Many services after high school will include supported employment; home based services, or day programs, vocational services, services for living arrangements, long term care management services, and possibly trust services.  These supports and services are a very key part of a family’s estate plan.

Person Centered Planning

Person centered planning is a good option for families to choose.   Person centered planning offers families a clear vision and focus on what’s in store for their child’s future.   Person centered planning with insight from the individual is an evidence based practice that has recently been adopted by the state of Illinois under the Ligas Consent Decree.  It is a life planning technique that allows for individuals with developmental disabilities to have personalized choices in who will care for them, when they will receive services, where they choose to live and how one’s overall supports and services will be provided.  Person centered plans can be expected to change over an individual’s life as a person’s needs change and changing life events occur. 

Good person centered plans are carefully managed over time.   A successful person centered plan involves a professional overseeing the management through the lifetime of the individual.   What are the family’s financial resources available to the individual?  What are going to be the available public benefits?  As important a question, who will manage the plan throughout the lifetime of the individual? Other questions families need to ask themselves.  Is college or employment realistic for your child?  Is living at home a realistic option?  What type of housing is available today and will be in the future?  A well thought out plan will take into consideration many of these questions.  Organizations like the Ray Graham Association, a provider of services to people with developmental disabilities can offer person centered planning.

Another important document for families to consider is drafting a letter of intent.  Even though it is not a legal estate planning tool, it can be one of the most important documents a parent can draft.  A letter of intent incorporates pertinent information about your child.  It tells a future caregiver detailed personal information about your loved one.  This information can include medical history, social behaviors, preferences on shoes, clothes and television shows to daily personal needs.  The letter of intent will give parents an opportunity to communicate their desires and vision for their child’s future when they are no longer there.

Why Public Benefits

For many individuals with disabilities and their families the first big change comes the day after they graduate from high school.  Up until graduation, individuals with disabilities are provided a full schedule of activities, daily programs and job coaching assistance from the schools through an Individualized Education Plan (IEP).  

Other factors that parents must consider are whether their loved one will need state and federal benefits.  These government benefits will provide the basic funding for food, rent and daily care needs.  Most middle income families today cannot afford to pay for the child’s entire lifetime cost of care.    The public benefit programs will play an essential role in providing the basic primary needs of an individual unable to work.  The public benefits do not include extra costs for things such as clothes, shoes, winter coats, phone service, a computer/iPad, personal items or additional costs of care such as dental services.  This is where a Special Needs Trust can play an integral part in offering a family a reserve fund.

Individuals who receive Supplemental Security Income (SSI) benefits, Medicaid and other state benefits such as food stamps (SNAP) are limited to what they can have in assets and income.  The limit on assets per individual for SSI/Medicaid benefits is $2000 at any given time and $3000 for married couples. This may not seem like an issue for young parents with a minor child.  But it can be a real issue especially when a child reaches age 18, age of majority and seeks their own benefits.  A parent’s, grandparent’s long forgotten savings bond, an inheritance or a life insurance policy left directly in the name of the individual with disabilities receiving public benefits can cause a major disruption. 

As important to mention for Medicaid eligibility there is a “Look back period”.  This is a requirement for an individual to meet public benefit eligibility requirements.  The state of Illinois can look back a period of 5 years (60 mos.) on any and all transfers to or from a person’s estate.  This may appear harmless at first especially for families with an 18 year old just applying for their public benefits.  If Social Security or Medicaid discovers the individual applying for benefits is in receipt of some old savings bond from grandma.  It can become a real dilemma for the individual and their family as they will not be able to qualify for benefits. 

Public benefit programs such as Supplemental Security Income and Medicaid are going to consider ne individual ineligible for benefits if assets exceed $2000.  Grandma’s savings bonds will have to be spent down to the$2000 limit before the individual can re-apply for benefits.  This is what is called a Medicaid Spend Down.  This is not an ideal situation for families or individuals to be in.   So it is very important for families to review any and all assets titled in the name of the child fore they reach age 13.  This is based on calculating in the 5 year look back to age 18, whereby an individual can be eligible for disability benefits on their own record.

What to be concerned about for Long Term Planning with Public Benefits

Families planning for long term security of loved one with disabilities depending on government benefits must prepare themselves for the worst scenarios.  There are real compelling issues out there on the long term sustainability of our government public benefit programs at the state and federal level.  There are no shortcuts to resolving these problems, but yet so many families will come to depend on these key financing mechanisms for services in the future.  Here are the compelling issues:

What is clear for families in the future is they will need to plan further in advance as their own personal finances may play a greater role in providing long term care for their family member.  Special Needs Trusts will also play a pivotal role in preserving the family’s private assts for the individual to cover all the shortfalls of the federal and state government programs.

Family Failed Estate Plans of the Past that is relevant today

Families need to be aware that it is a crime to not properly disclose assets to a government agency when seeking eligibility for public benefits.  Families and attorneys in the past had thought creatively and not so creatively to protect family assets for a child with special needs when seeking public benefits.  Here is a short list of planned ideas did not meet eligibility for SSI/Medicaid benefits:

What is a Special Needs Trust

 Life care planning and the quality of that care are a real concern for families.  Families naturally desire assurances that their child receives all the available resources in the private and public sector.  Families also want to be assured that the quality of life for that person with a disability can be improved above and beyond just the public benefit programs.  Families know that providing extra supplemental supports to meet an individual’s personal needs such as clothes, leisure time activities, training, recreation, dental/medical services, transportation and many more relevant needs are as important as anything in an estate plan.  With proper planning using a Special Needs Trust these items can be assured to be covered with the monies set aside in this legally exempt trust. 

A “Supplemental Needs Trust “ or “Special Needs Trust” is a legally viable financial mechanism or tool for these families that can be used for estate planning purposes that will provide the long term care solution families are concerned with today.  There is no substitute.

A supplemental needs trust will provide the financial mechanism to answer the difficult question as to, “Who will care for my child when I am gone?”  

Through a supplemental needs trust families are able to plan by:

Supplemental needs trusts are intended to supplement and not supplant any "means-tested" public benefit such as SSI and Medicaid   The language of a Special Needs he trust must carefully provide that the funds in the trust are to be used to meet just supplemental needs for the individual and not to pay for the primary care such as food, rent and shelter related expenses.  The trust is to only pay for ancillary or supplemental needs, supports and services.

Families should also consider carefully the attorney to draft their Special Needs Trust.  This is as important a decision as any and should not be handled by a family attorney with little experience in this area of law.  I would strongly recommend 3 websites to begin the search in finding a qualified attorney to draft your trust agreement.

www.specialneedsalliance.org/home/

The Special Needs Alliance (SNA) is a national, not for profit organization of attorneys dedicated to the practice of disability and public benefits law. Individuals with disabilities, their families and their advisors rely on the SNA to connect them with nearby attorneys who focus their practices in the disability law arena.

www.naela.org/

The National Academy of Elder Law Attorneys, Inc. (NAELA) was founded in 1987 as a professional association of attorneys who are dedicated to improving the quality of legal services provided to people as they age and people with special needs.

http://specialneedsplanners.com/

The purpose of the Academy of Special Needs Planners is to assist special needs attorneys in providing the highest quality service and advice to individuals with special needs and to their families. In addition to providing its member attorneys with up-to-date information on legal developments nationwide and a forum for exchanging best practices, the Academy provides information to consumers through this web site and its monthly e-mail newsletter.

The Different Types of Special Needs Trusts

Families need to understand there are two different types of Special needs trusts available for estate planning.  It is also important to understand their major differences.    There are 3rd Party Special Needs Trusts and OBRA Self Settled Payback Special Needs trusts.

Both types of trusts are intended to “supplement” needs and not to supplant or replace public benefit programs like SSI or Medicaid programs.  If both trusts are drafted correctly and in accordance to Social Security policy and rules and administered in line with the rules, the trust will be considered a “NON-COUNTABLE” asset or resource in qualifying an individual with disabilities seeking public benefit eligibility standing.  These are some key similarities to both types of Special Needs Trusts, but there are some major fundamental differences for families to be keenly aware of as well. 

3rd Party Supplemental Needs Trusts

First, 3rd Party Special Needs Trust for planning purposes is ultimately what families should consider creating for their loved one with disabilities.  Once you have found a qualified attorney competent in this area of law to draft your child’s special needs trust.  It is also important to consider the attorney draft what is termed a “Stand-Alone 3rd Party Supplemental needs trust or Stand-Alone 3rd Party Special Needs Trust”.  Families who set up a stand- alone Third Party Trust can begin financing their child’s future through this newly drafted Special Needs Trust once approved by Social Security.  The family can begin almost immediately transferring over 3rd party savings, gifts from other family members not titled to the child’s name. All the family needs to do to establish the trust is to fund it with a minimum of $10.  Parents can easily manage the trust account during its infancy years before it builds up substantial equity before deciding whether further trustee expertise is necessary.

Families once the trust is set up should immediately begin re-titling all their other financial products intended for their child with special needs to go into 3rd Party Special Needs Trust.  Assets such as IRAs, life insurance policies and other assets should not go directly to the individual, but to the child’s stand-alone 3rd party trust.   A parent, grandparent or any other family member can also establish a 3rd party trust.  Parents who develop a 3rd party trust to meet the supplemental needs of their child should tell family and friends about the trust who might consider making a gift in the future to their child.  The assets should never be owned or titled by the beneficiary.  This is to assure all transfers into a 3rd party special needs trust originate as only 3rd party monies.  It is easiest if one person creates the supplemental needs trust for the individual with a disability while other family members/friends make deposits or transfers from their estate directly into the existing trust.

A testamentary 3rd party trust is written into a will or living trust does not exist until usually the death of the second parent.   In most instances the attorney will draft in a will or family trust that a pre-existing 3rd party trust will be used in the future on the date of death of typically the second parent.  A third party special needs trust will also be drafted alongside the will and family trust, but will remain unfunded until the second parent is deceased.  In some cases the attorney has a testamentary trust written into the will or trust, but no special needs trust agreement drafted.  So at death of the second parent there is not a trust ready to be managed.  This can put the surviving family members in a precarious position.   If a testamentary 3rd party trust is not drafted at all and one needs to be drafted in accordance to current laws a competent attorney must be found to draft one.  This is why having a living stand-alone 3rd party trust is an optimum choice for eliminated any and all risks for surviving family members to provide much needed support for a sibling with disabilities.

Any funds remaining in a 3rd party trust at the death of the beneficiary can be distributed according to the grantor’s wishes, typically the parents, grandparents or family member’s.  In drafting their own 3rd party trust the grantor has the ability to direct remainder distributions from a 3rd party Special Needs Trust to other children, grandchildren or perhaps a charitable organization as desired

OBRA Trusts/Private and Pooled

Another type of Special Needs Trust is called an OBRA(Omnibus Reconciliation Act 1993) trust.  There are two types of OBRA trusts, D4A private trusts and D4C OBRA pooled trusts.  The major differences are the OBRA D4A trust must be set up by a parent, grandparent or court whereby an OBRA D4C pooled trust also can be set by parent, grandparent, court, but an individual beneficiary if of capacity can sign into their own trust agreement with the pooled trust in most cases without court oversight.    For individuals with disabilities who live independently the pooled trust option can be more favorable.   Both trusts are able to provide for the “Sole” benefit of the beneficiary, but there cannot be an OBRA trust for more than one beneficiary and documentation to distribute either type of OBRA trusts must demonstrate that the trust disbursement was utilized for the beneficiary’s “sole benefit”.  

3rd party Special Needs Trusts and OBRA trusts are similar in that they can both be used to supplement care through the lifetime of an individual with disabilities.  But there is one major drawback to the OBRA trust on death of a beneficiary the OBRA trust agreements require language that the state where the individual receives services must receive a “Payback” on behalf of the beneficiary for their lifetime cost of Medical expenses under the Medicaid program.  So, if a family wants to preserve their own private assets using an OBRA trust, the “Payback” provision is a much less desirable plan.  But for some families with limited resources and assets to set up a special needs trust this may not be as important a concern.

Some call OBRA self settled payback trusts “oops trusts” due to the “Payback” provisions.  In many instances the families who mistakenly miss the opportunity to plan their own 3rd party special needs trust. The “oops” catch phrase can certainly be used.  But in some instances, OBRA trusts can really play a key role for families especially those involved in a large settlement case, medical malpractice or personal injury where the assets are already titled unavoidably in the beneficiary’s name. Thus is why OBRA trusts are called self settled payback trusts. 

OBRA D4C Pooled Trust Services

OBRA D4C Pooled trusts are a different planning option for families to consider.  A Pooled trust must be operated by a Non-profit organization.  All the assets are pooled together into one fund for management efficiency and cost effectiveness.  Pooling can reduce costs while adding often a better return for families on investment especially with smaller trusts in a larger pooled fund.  Pooled trusts are sort like a combination of a 401K plan meets a traditional Special Needs Trust service.  Pooled trusts offer families the ability to establish their own Special Needs Trust account which includes the trust management services from the non-profit. Many pooled trust programs can help families navigate through their future planning objectives with clear ideas and resources at no cost. 

A beneficiary or their family can set up a pooled trust subaccount by using the non-profit’s pre-drafted trust agreement called a joinder or transfer agreement.  Pooled Trusts can offer families with limited assets a legitimate planning option in setting up a Special Needs Trust for their child. 

Pooled trusts are also available to families, attorneys and service providers in emergent situations.  Pooled trust organizations can offer an individual with disabilities and their family the ability to set up a special needs trust account in quick fashion especially in a crisis with an unplanned inheritance or settlement directed to an individual.  The pooled trust can effectively set a trust account for a beneficiary in a matter of days or weeks to avoid any potential Medicaid spend down situations.

There is another planning idea for families with limited resources in utilizing the pooled trust organization. If a family has a life insurance policy or IRAs for parent to protect against disability or death for the benefit of a child with special needs.  The parent’s life insurance policy can be assigned over to the pooled trust using testamentary language written into a family’s will, living trust or by assigning the pooled trust as the remainder beneficiary instead of to the child.  There is no cost from most pooled trusts for this arrangement, while the family can add another layer of protection against a direct inheritance to a child with special needs who may be at risk of losing benefits. 

Many pooled trusts can also offer families a 3rd Party Pooled Trust option for third party assets from the family.  If a parent with a life insurance policy unexpectedly passes and their policy is assigned to a pooled trust as the beneficiary.  The trustee of the pooled trust will in turn use the cash benefits of the policy to set up a 3rd party pooled trust account for the child that can provide for their long term supplemental supports.   Fees will not be charged from the pooled trust until after all assets are transferred in to the beneficiary’s account.   

Pooled trusts not unlike the other types of Special Needs Trust in helping individuals and families protect their financial resources in trust to help individuals live independently in their communities while utilizing the exempt trust for supplemental goods and services, while guaranteeing all the key public benefits and services will not be lost. 

 Many pooled trusts can offer families individual trust management services as well to overseeing a family’s 3rd Party Stand Alone Special Needs trust or their OBRA D4A private trusts.  Pooled trusts can be a great option for a family who needs a backup plan for seeking a qualified trustee or successor trustee to their Individual Special Needs Trust.  There may not be another sibling or other family member available to oversee the trust duties after both parents have passed.  Special Needs Trust management can become a very complicated issue for many family trustees.   Most corporate trust companies will not manage Special Needs Trust if less than $500,000.  Pooled trusts as well as small private trust organizations are able to manage smaller trusts even as small as $10,000. 

 Special Needs Trusts are invaluable estate planning tools for families today when planning for a loved one with a disability.  It is a win/win situation for families when they can maximize public benefits and services, while utilizing the family’s financial resources in using a Special needs trust.  These valuable trusts vastly improve the quality of a beneficiary’s life.  For families to have so many choices today in planning and services is a remarkable change in landscape from just a generation ago.