Planning for Families With Children Who Have Special Needs

1. Planning for Families With Children Who Have Special Needs Carolina Institute for Developmental Disabilities January 23, 2019 Anthony D. Nicholson

2. Anthony D. Nicholson McPherson, Rocamora, Nicholson, Wilson & Hinkle, PLLC 3211 Shannon Road, Suite 620, Durham, NC anicholson@macroclaw.com www.macroclaw.com 919-493-0584

3. Topics to Discuss • Planning Considerations • Basic Estate Planning Documents • Guardianship and Alternatives • SSI/Medicaid and Other Public Benefits • Letters of Intent • Special Needs Trusts • Types of SNTs • Distributing Funds from SNTs • Selection of Trustee • ABLE Accounts

4. Basic Estate Planning Documents • Will and/or Revocable Trust • Appoint Guardian • Name Beneficiaries of Your Estate • Testamentary Trusts for Children • Special Needs Trust • General Power of Attorney • Health Care Directives • Beneficiary Designations on Retirement Plans and Life Insurance

5. Guardianship • Court Proceeding • Process can start at age 17 ½ • Types of Guardianship - Guardian of Person, Guardian of Estate, General Guardianship • Guardian of Person combined with Representative Payee • Alternatives to Guardianship - General Power of Attorney and Health Care Power of Attorney; Supportive Decision-Making

6. Prepare Letter of Intent • Family Information and addresses • Residential Care-Past, Present and Future • Education, including past record, current enrollment, specialty teachers, future educational goals, special interests and talents • Social, Behavioral & Personal Relationships • A Typical Day • Medical Information • Important Contacts • Expressions of Love and Hope

7. Have you planned effectively for your child who has special needs? • Problem-If child with special needs has over $2,000 or receives over $2,000, eligibility for most government benefits is automatically lost. • Does your will leave money or property to your child with special needs? • Is your child a beneficiary, or contingent beneficiary of your life insurance, IRA, or other retirement plan? • Have grandparents, siblings or others named the child beneficiary or contingent beneficiary of a will or life insurance policy?

8. Common Needs-Based Benefits • SSI – Supplemental Security Income • $771/month Maximum • $514 – One Third Reduction Rule • Disability Determination • Medicaid – Automatically Eligible if Receiving SSI • CAPS – Medicaid Waivers – CAP C, DA, Innovations, Choice • SSDI – Social Security Disability Income

9. Non-Countable Assets • Home • One Vehicle • Furnishings and personal effects • Property approved by SSI for self support (for example office equipment) • Life Insurance and/or burial policy worth less than $1,500 • $2,000 cash or cash equivalents

10. Solutions-What Should You Consider? • Disinherit the Child • Leave the Child’s share to a Sibling or other Relative • Plan for Child with a Will and “Special Needs” Trust • Division of Assets Between Children

11. Overview of Special Needs Trusts • Trust: An agreement by which one person (the trustee) holds property for the benefit of another (beneficiary) • Special Needs Trust: Trust created for the benefit of a person with a disability who is receiving or may receive “needs-based” public benefits

12. The “Special Needs” Trust • Essential purpose is to improve the quality of an individual’s life without disqualifying him or her from eligibility for public benefits • Assets in trust are not counted as a resource • Assets supplement rather than supplant government benefits • Overall Planning Goal: to achieve as much independence as possible for the beneficiary while maintaining eligibility for needed supports.

13. The Trustee • Choice of Trustee can be difficult • Qualities of the Trustee • Good Judgment/Trustworthiness • Investment Acumen • Good Record Keeping Abilities • Financially Secure • Willing to Seek Advice on Public Benefits, Investment and Taxes

14. Trustee Choices • Individual Trustee- Sibling, Relative or friend • Successors needed if Trustee dies or becomes incapacitated • Professional Trustee (trust company or attorney) • Combination of individuals and professionals as co-trustees • Non-profit organization that operates a pooled trust

15. Two Kinds of Special Needs Trusts • Third Party SNTs • First Party SNTs • Also called Self-Settled SNT, Medicaid Pay-back SNT or d(4)(A) SNT

16. Third Party SNTs • Funded with assets of parents, grandparents, or siblings (third parties) and not the beneficiary • Not subject to Medicaid payback • Discretionary Distribution Standard • Lots of Guidance to Trustee Regarding Distributions

17. Third Party SNTs (continued) • Created in Will as a Testamentary Trust • Created as a “Stand Alone Trust” • Revocable verses Irrevocable • Can be a receptacle for gifts or bequests from others as well as parents’ assets at death • Family members can leave property directly to trust

18. Funding of Trust at Death • Beneficiary Designations for Life Insurance, IRAs, etc. should name trust as beneficiary rather than the child outright • Wills should state any distribution to child with special needs is distributed to Trust

19. First Party SNTs • Established by the individual, a parent, a grand- parent, guardian or court for a person with a disability under 65 years of age • Funded with the personal assets of the person with a disability–normally inheritance or personal injury settlement • Trust is subject to Medicaid Payback • Trustee can be individual, trust company or a non- profit corporation • Must be for the “sole benefit” of the disabled person

20. ABLE Account Basics • Can be a Good Alternative to 1st Party SNT • Limited to $15,000 per year (cash only) (plus wages up to $12,000) • Account that will not disqualify person from needs-based benefits • Medicaid Payback Required (for expenses incurred after account is set up) • NC: https://savewithable.com/nc/home.html • Ohio: https://www.stableaccount.com/

21. ABLE Account Uses • Good for relatively small amounts of money – wages, small inheritance • Generally not good for parents’ money • But could be useful to avoid SSI one-third reduction rule if parent or a trust pays for housing of person getting SSI • Normally, payment of housing expenses causes reduction in SSI • But payment of housing from ABLE account does not reduce benefits since housing is a QDE

22. Creation of the Account • Who can create an account? • Parent (of minor child or adult child) • Competent adult with a disability • General guardian/guardian of the estate or agent under POA of an adult with a disability (not a guardian of the person).

23. Ownership and Contributions • Who is the owner of the account? • The person with a disability (minor or adult) • For incapacitated person - parent, legal guardian or agent under POA controls the account as an “Authorized Individual” • Who can contribute to the account? • Any “person” – individual, trust, corporation, etc.

24. Eligibility • Must be eligible for benefits under SSI or SSDI, or • File certification annually demonstrating • Medically determinable physical or mental impairment which results in marked and severe functional limitations, which can be expected to result in death or which has lasted or can be expected to last not less than 12 months. • Certification must include copy of physician diagnosis. • Must have become disabled before age 26.

25. Contributions • Must be in cash. • Limits: • Subject to annual gift tax exclusion limit ($15,000 in 2019). • Aggregate limit is same as 529 Plans ($450,000 for NC). • Accounts that exceed $100,000 suspend SSI. • Accounts in excess of aggregate limit will cause loss of Medicaid benefits. • Rollover from 529 College savings Plan

26. Distributions • For qualified disability expenses: • Education • Housing • Transportation • Employment training and support • Assistive technology and personal support services • Health, prevention and wellness • Financial management and administrative services • Legal fees • Expenses for ABLE Account oversight and monitoring • Funeral and burial expenses, and • Other expenses (basic living expenses) approved pursuant to Treasury regulations.

27. Qualified Disability Expenses • Proposed Regulations: • Expenses that relate to the benefit of the designated beneficiary and help him or her maintain or improve his or her health, independence and quality of life. • “…should be broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for which there is a medical necessity or which provide no benefits to others in addition to the eligible individual” • E.g., paying for smart phone to assist in communication and navigation. • Seems to be a departure from sole benefit rule, but unclear how much.

28. Income Tax Implications • Contributions are not tax deductible. • Income earned by account is not taxed (so long as distributions are for qualified disability expenses). • If not a qualified disability expense: • Income is subject to tax, AND • 10% penalty incurred on the income.

29. Finding a Special Needs Attorney • Understanding of public benefits planning • Experience in drafting special needs trusts • Knowledge of general estate planning including wills, trusts, etc.