Planning for Affluent Families with Disabled Loved-Ones

1. Planning for Affluent Families with Disabled Loved-Ones April 2010 Stephen W. Dale Dale Law Firm, PC

2. Preface • Much of this presentation is from a series of programs we have done for financial advisors to familiarize them with the need for this sort of planning and to demonstrate not only the value to their clients – but the business opportunity this sort of planning presents. • Any reference to US Trust can be replaced with almost any financial group.

3. Before We Begin… • Short Stephen Dale and Dale Law Firm, PC Story • I have built a practice focused on serving the needs of persons with disabilities and their families

4. Special Needs Trusts I will be discussing the advantages of working with a team in order to add a social service element to your practice so that you can serve clients with disabled loved-ones

5. Before We Begin… • In many cases (not all) I incorporate this type of planning in what is commonly called a Discretionary or Special Needs Trust. • But a document itself cannot provide protection – it takes a team – and that’s where you come in.

6. Today’s Presentation My talk will include: • A little history • The fact that many social service systems are facing an unprecedented failure • How that failure affects most families in some way • How this unfortunate situation provides an opportunity to serve your clients - in some cases for several generations

7. So Just Imagine • Imagine that you have a 17 year old daughter named Kathy • Kathy has a disability and is going to need assistance for the rest of her life • Kathy could live 70 years or longer

8. Providing Advocacy for Your Clients Disabled Loved Ones • Many families are seeking answers on how to provide quality of life for their disabled loved ones • You probably have clients with these needs that you may not even be aware of. • More and more the financial industry is providing services that traditionally have been provided by the government.

9. Many Families Are Opting Out of the System • Many families don’t trust that the government will be there to provide for their disable loved ones • Many are looking at alternatives for provision of services and advocacy

10. The Disability Equations Special Needs Trusts = Welfare Program

11. Putting a Value on Public Benefits • The fact is that there are programs where services are only available to public benefits recipients • Put a value on the benefits • Families are seeking quality of life • Spending thousands of dollars to preserve hundreds of dollars worth of benefits doesn’t make sense • Advocacy is the highest priority • Many families of means are looking for tax breaks11 • 11

12. The Disability Equations Disability =Poverty

13. Common Misconceptions • All too many practitioners focus exclusively on preservation of public benefits in their Special Needs Trusts and miss the big picture • There is no such thing as a Special Need. • Special Needs Trust planning is not poverty planning • Affluent families have disabled loved ones also 13

14. The Big Question Does my disabled loved one need Special Needs Planning? • Could the beneficiary manage funds without great assistance? • Build flexibility to deal with changed circumstances • Focus on advocacy and asset protection • Could keeping qualification for SSI or Medicaid be a tool to assist my disabled loved one?

15. A Personal Observation • There has always been a gap between the haves and have-nots • The Gap is now a chasm • If I have a wealthy client – I can perform miracles • For families with limited means – their options are often limited

16. Some Statistics Many of these conditions are more prevalent than you might think

17. The Autism Epidemic Let’s look at one segment of the Developmental Disability Community

18. Autism Prevalence by State California 1 of 154 school aged children are diagnosed with Autism

19. Autism Epidemic in the US In 1992 there were 15,580 cases of children with Autism ages 6-22 In 2006 there were 224,594 cases of children with Autism ages 6-22

20. Psychiatric Disabilities In 2006, there were an estimated 24.9 million adults aged 18 or older in the United States with Serious Psychological Distress. (see http://www.oas.samhsa.gov/NSDUH/2k6NSDUH/2k6results.cfm)

21. Statistics for Bipolar Disorder Approximately 4.4 percent of U.S. adults may have some form of bipolar disorder during some point in their lifetime. (see http://www.pendulum.org/bpnews/archive/001884.html)

22. Substance Dependence In 2006, an estimated 22.6 million (9.2% of the population aged 12 or older) were classified with substance dependence or abuse in the past year based on criteria specified in the Diagnostic and Statistical Manual of Mental Disorders, 4th edition (DSM-IV).

23. Parents as Advocates • What you will often find is that the parents often serve as the advocates of their disabled children • Often parents will expect that the disabled child’s sibling will continue to serve as that advocate • In all too many cases this expectation is unrealistic

24. Doesn’t the Government Have Programs to Take Care of the Disabled? • California has been dismantling its social service system • Most county mental health programs have been almost completely eliminated or reduced to their bare bones • California’s budget crisis has caused proposals for even greater reductions in benefits and programs

25. The Challenge • Many state’s social service programs are facing an unprecedented failure due to budgetary constraints and a lack of commitment to the disabled community. • This failure affects almost every family in some manner.

26. The Challenge • This situation also presents the Trustee of a Special Needs Trust with the challenge of how to provide life-long services when programs that support the disability community are constantly changing. • Courts and public agencies are exercising greater scrutiny and oversight over Special Needs Trusts

27. An Unkept Promise On February 5, 1963 President Kennedy submitted a speech to Congress entitled “A Special Message to the Congress on Mental Illness and Mental Retardation.” Congress promptly passed the Mental Retardation Facilities and Community Mental Health Centers Construction Act (P.L. 88-164), beginning a new era in Federal support for services for persons with mental health and developmental disabilities.

28. An Unkept Promise President Kennedy called on Congress to replace institutions with comprehensive community programs to provide outpatient care, day treatment, rehabilitation, foster-home services and public education on mental health.

29. An Unkept Promise A Joint Commission recommended a tenfold increase in spending on services for mental health and developmental disabilities over the next 10 years, as well as increases in training to ensure availability of the necessary workforce to serve this population Funding would be redirected to communities—to hospitals or nonprofit community agencies—and not long-term institutional services Eventually, it was hoped, state hospitals would be replaced by the community programs  

30. Washington – We Have a Problem JFK’s challenge to go to the moon succeeded – but the challenge for community mental health barely made orbit and has been in a continual decay ever since

31. An Unkept Promise Unfortunately, Congress did not fully follow the Joint Commission recommendations Today most community mental health programs are poorly funded and poorly staffed Many State Hospitals have been closed but the full scope of services they provided have not been moved into the community

32. An Unkept Promise Developmental Disabilities Under the Lanterman Act persons with developmental disabilities have been moved into the community through the regional center system One of the most essential programs they provide are residential services

33. An Unkept Promise Developmental Disabilities Most of the residential providers have not had a substantive increase in their rates in 10 years Many of the providers have been dependent upon the equity in their houses to keep their programs afloat California is proposing a 3% reduction in services California is not investing in new programs Thousands of new RC consumers are about to hit the housing market

34. California’s Disability Service Systemis Facing Unprecedented Challenges July 2009, Governor Schwarzenegger signed a $24 billion budget reduction that included $16.1 billion in spending reductions When included with the $15 billion in reductions passed in February, the cuts amount to approximately $31 billion

35. California’s Disability Service System is Facing Unprecedented Challenges The Governor permanently eliminated adult dental, optometry, chiropractic, podiatry, psychology Medi-Cal funded services, and others services

36. California is Not Alone in Cutting Services to Persons with Disabilities With tax revenue declining a majority of states are instituting spending cuts to social service programs that reduce necessary services for persons with disabilities and their families. • (From Elizabeth McNichol and Iris J. Lav, “New Fiscal Year Brings No Relief From Unprecedented State Fiscal Problems,” Center on Budget and Policy Priorities, revised Sept. 3, 2009.)

37. California is Not Alone in Cutting Services to Persons with Disabilities • States are cutting or eliminating services because the recession has caused declining revenues used to pay for these services • At the same time, the need for these services has risen as the number of families facing economic difficulties increases 37

38. 4 Step Process to Serve Your Clients with Disabled Loved-ones • Awareness that California and the Nation are not providing adequate care for their disabled citizens • Identify your clients that have disabled loved ones that need some level of advocacy and support • Become familiar with the U.S Trust and how they can partner with your office • Document the plan in a Special Needs Trust or Discretionary Trust

39. Steps to Serving Your ClientsStep 1 Awareness that California and the Nation are not providing adequate care for their disabled citizens • Government programs that do exist are in jeopardy of being eliminated • There are no effective government based programs to monitor the quality of life of a disabled person • Many disabled persons are subject to abuse

40. Steps to Serving Your ClientsStep 2 • Identify your clients that have disabled loved ones that need some level of advocacy and support • Could be an immediate family – spouse, children, grandchildren or parents • Could be someone not related • Talk to your clients or “plant seeds”

41. Steps to Serving Your ClientsStep 3 Become familiar with the U.S. Trust group and how they can partner with your office. • Have U.S. Trust help create a team that can effectively provide the services and advocacy that clients are seeking • Plan with your clients how to set aside the resources and effectively manage those resources for their disabled loved-one’s lifetime

42. Steps to Serving Your ClientsStep 4 Document the plan in a Special Needs Trust or Discretionary Trust that incorporates: • The intent of the client • The team to carry out that intent • The flexibility needed to adjust to changes in the beneficiaries condition or the social service delivery system • The tools to get the best investment and tax result

43. The Disability Community • The disability community is a diverse community • Every beneficiary is different • The plan needs to be flexible to adjust to the beneficiaries good times and bad times • In most cases the trust must last for the lifetime of the beneficiary, meaning money under management for a very long time • You have an opportunity to provide the assurance of life long advocacy to your clients that have disabled dependants

44. Social Service Planning Presents Excellent Business Opportunities • You almost certainly have clients that are seeking a solution about how to provide for their disabled loved ones • It may not occur to your clients to turn to their financial advisor for help • Many times these plans last for a very long time

45. Be Part of the Team • After focusing on Special Needs Trusts for over 18 years – I have come to the conclusion that building a management team to administer the Special Needs Trust is the single greatest factor in whether a trust will succeed of fail • I wish I could draft a document that would protect a disabled person – but it just isn’t possible The Bob Jones Special Needs Trust

46. THE IDEAL TRUSTEE • Will use discretion in the best interest of the disabled beneficiary • Must understand public benefits and keep up with changes in the law • Can wisely invest and conform to all statutory fiduciary requirements • Understands taxes • Keeps perfect books • Provides advocacy and prevents abuse • Is immortal

47. Advocacy • Will use discretion in the best interest of the disabled beneficiary • Must understand public benefits • Provides advocacy and prevents abuse • Accountability • Keeps perfect books • Carries insurance, is bondable or has deep pockets • Is immortal • Financial • Can wisely invest and conform to all statutory fiduciary requirements • Understands taxes

48. Model 1 – The Trustee directed by a Trust Advisory Committee. • The Trustee manages funds, makes distributions, does taxes, keeps records • The Trustee directed by a Trust Advisory Committee which directs distributions, can amend the trust or replace the Trustee • Can include care manager Trustee Advisory Committee

49. Model 2 – The Trustee directed by a Care Manager. • The Trustee manages the funds • The Trustee can be directed by a Care Manager • The Care Manager interacts with the beneficiary • The Trust Protector oversees the Trustee and Care Manager from a distance and can replace either for any reason Care Manager Trustee Trust Protector

50. Care Managers – Finding Peace of Mind • Professional care management has given peace of mind to many of our families • I have seen our beneficiaries clinically improve by incorporating a care manager into their estate plan