WHAT ARE SPECIAL NEEDS TRUSTS AND WHY ARE THEY SO GREAT, ANYWAY? IDA/ CVLS COLLABERATION March 18, 2015 Eileen Durkin Illinois Disability Association 120 S. LaSalle St., Ste. 730 Chicago, IL 60603 312-332-4622 www.ilpooledtrust.com 1

WHEN DID SELF-SETTLED SPECIAL NEEDS TRUSTS FIRST BECOME AVAILABLE IN ILLINOIS? • In 1993, Section 13611 of the Omnibus Reconciliation Act (OBRA ’93) amended Section 1917 of the Act by creating new categories of Medicaid-exempt trusts. • 42 U.S.C. sec. 1396p(b)D(4)

• 1995: Enabling legislation in Illinois, 89 Ill. Adm. Code 120.347(d), 305 ILCS 5/3-1.2

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2 Types of selfself-settled SNTs: SNTs: INDIVIDUAL / d(4)(A)

POOLED / d(4)(C)

• Age Cutoff?

• Age Cutoff?

• Beneficiary must be under 65 at time trust is funded, any additions to trust after age 65 are considered a transfer of assets for less than fair market value

• Payback to state after death

• Prior to July 2012, no age cutoff • Since July 2012- after age 65, funding considered transfer for less than fair market value: 305 ILCS 5/3-1.2 • EXCEPTIONS: OK if beneficiary ward of OSG or OPG

• Payback to state after death 3

2 Types of selfself-settled SNTs: SNTs (cont’d) INDIVIDUAL/ d(4)(A)

POOLED / d(4)(C)

• Who can serve as trustee?

• Who can serve as trustee?

• Anyone (except parent of minor child)

• Who sets it up? • Can only be established by parent, grandparent, legal guardian or court * • *pending bill H.R.670 to add individuals

• trust established and managed by NFP

• Who sets it up? • May be established by individual in addition to parent, grandparent, guardian or court

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WHAT DOES “POOLED” MEAN? • All beneficiaries share the governing Master Pooled Trust document • Funds held in the trust are pooled for investment but account values and interest are credited to the separate individual beneficiaries

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WHEN IS THE RIGHT TIME TO CREATE AN SNT? Typically, in one of these situations: • • •

Receipt of PI/medical malpractice settlement Receipt of inheritance To preserve existing assets at the on-set of disability

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WHY CREATE A SNT? WHAT WILL IT DO FOR MY CLIENT? • To enhance the quality of life of the disabled person through trust disbursements that supplement quality benefits • To keep or maintain the current benefits • Because no one has a crystal ball… there is uncertainty of what government benefits will provide, advancements in technology that may not be covered by government benefits • Duty calls… The Guardian has a duty to engage in estate planning. See 755 ILCS 5/11a-18 for general statutory obligations including: “A guardian shall be required to investigate and pursue a ward’s eligibility for governmental benefits.” -2 cases in other states involving attorney malpractice for not contemplating creation of SNT 7

SO WHAT DO I NEED TO LOOK AT TO DECIDE IF A SNT IS RIGHT FOR MY CLIENT? ATTORNEY ADMONISHMENT: • Not a “one-size fits all” solution • Not a care plan on its own but a component of a well-crafted care plan

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IMPORTANT CONSIDERATIONS •Age •Placement (community, hospital nursing home, mental health facility, CILA) •Diagnosis/ Prognosis •Cognitive Impairment •Assistance needed with ADL’s •Care Plan - both current and proposed •Cause/Onset of Disability 9

AND SOME TENSIONS… • Does Beneficiary have a minor child? • Sole benefit rule • Strict interpretation by state of IL…no disbursements to benefit minor child of parent Beneficiary • What about pre-existing common law and statutory parental obligation to provide for his/ her own child? We haven’t seen litigation on this issue yet

• MI diagnosis…how does trustee administer to a Beneficiary who is actively deluded and paranoid?

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THINGS TO KNOW IF FUNDS ARE FROM A PERSONAL INJURY SUIT • Payback to the state must be made before the trust funds are considered exempt (see Ill. Adm. Code 102.260 and In re Calhoun, 684 N.E.2d 842) • EXCEPTION: if the P.I. settlement relates to a nursing home injury, funds are considered exempt for Medicaid purposes (Nursing Home Act, 210 ILCS 45/3-605)

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ARE THERE RESTRICTIONS ON THE TYPES OF ASSETS THAT CAN FUND THE SNT? • SOLE ASSETS • IRAs must be liquidated •

potential income tax consequences but 10% punitive tax for early withdrawal from an IRA will not apply due to the exception for disability

• ANNUITIES: • (89 Ill. Adm. Code 120.347): failing to name state of IL as reminder beneficiary as required by Sec. 120.385(b) results in denial or termination of eligibility for long term care services 12

ARE THERE ASSETS THAT SHOULD NOT BE PUT INTO THE TRUST? The grantor may choose not to fund the SNT with any of the following exempt assets: • $2,000.00 set-aside allowed by Medicaid • Home (if live-in or intend to return to) • EXCEPTION: if Beneficiary is coming up on age 65 and living in home, may consider transferring into trust so that when it is sold, proceeds can further fund the trust • Life insurance with cash surrender value of less than $1,500.00 13

WHAT ELSE DO I NEED TO THINK ABOUT BEFORE I CREATE A SNT FOR MY CLIENT? • Pay outstanding debts… Self-settled trusts cannot be used to avoid creditors • Stinking Body rule…Have your client purchase a prepaid funeral plan in accordance with Medicaid guidelines if there is not already one in place. 89 Ill. Adm. Code 120.347

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Naming Remainderman Beneficiaries • does beneficiary have testamentary capacity? • An adjudication of disability does NOT necessarily mean a negation of testamentary capacity. ( In Re Estate of Letsche, 392 N.E.2d 612, 73 Ill.App.3d 643.)

• If YES, letter from physician confirming testamentary capacity and affidavit by Beneficiary naming remaindemen

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Naming Remainderman Beneficiaries, Cont’d • If NO, does not have testamentary capacity: • Look to the titling of assets (e.g. joint tenancies or totten trusts, beneficiaries on insurance policies.) Beneficiaries of those estate planning vehicles be incorporated into the SNT document • Is there a putative will? • In guardianship cases, “decedent’s estate of (grantor’s name)” is often inserted as remainderman beneficiary, even when there is a putative will; • If a POA is involved, the legatees named in the putative will may be inserted as the remainderman beneficiaries in the trust.

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Naming Remainderman Beneficiaries, cont’d • If the grantor beneficiary does not have testamentary capacity and you are unable to apply substituted judgment standard by way of the current titling of assets, “Decedent’s estate of (grantor’s name)” may be inserted in the remainderman section. This is often the situation in guardianship cases.

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HOW ARE THE FUNDS DISTRIBUTED POST-DEATH? • Payback to the state Trust contacts the state of Illinois and any other states that provided medical assistance and requests a “payback” amount, which is the total amount of assistance paid via Medicaid • Can take approximately 6 months to receive payback amount • Limited bills related to winding up the trust can be paid until that info is received • More than 1 state and not enough to satisfy both…pro rata

• Funds remaining, if any, distributed to named remainderman beneficiaries 18

WHAT ARE THE GUIDING PRINCIPLES FOR TRUST DISBURSEMENTS? • Disbursements should supplement Beneficiary’s care, not support the Beneficiary • Disbursements must be for the SOLE BENEFIT of the Beneficiary. This means the Trustee CANNOT make a gift to another • The trustee has sole and absolute discretion in making disbursements (noting that in guardianship cases, the Trustee is operating under a court approved budget) 19

THE TRUSTEE CANNOT MAKE DISBURSEMENTS… • directly to the Beneficiary; • to an account bearing the Beneficiary’s name or Social Security number, including a patient trust fund at a nursing home; or, • to reimburse an individual who has given the Beneficiary cash or has deposited funds into an account bearing the Beneficiary’s name

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THE TRUSTEE CAN MAKE DISBURSEMENTS TO… • third-party vendors • an individual as a reimbursement • to purchase a gift card for use by the Beneficiary, so long as the vendor will not refund any amount remaining on the card to the Beneficiary in cash* *SSI recipients limited to $20/mth in gift cards to comply with 20 CFR sec. 416.1121(f) 21

WHEN DOES IT GET TRICKY? • BIRTHDAY AND CHRISTMAS GIFTS • EXAMPLE: The Beneficiary has always given $25.00 to each of her grandchildren on their birthdays. SNT CAN’T DO…not for her sole benefit.

• CREDIT CARDS (held by Beneficiary) • Generally disfavored, Trustee unable to maintain control over the expenditures

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WHEN DOES IT GET TRICKY? (cont’d) • PRIVATE ROOM at nursing home • Nursing home as a contracting party with Medicaid agrees to accept Medicaid rate for the nursing home bed • The Trustee CAN pay the nursing home the difference between the nonMedicaid rates (“private pay” rate) to secure a private (single bed) room • The Trustee CANNOT make a payment to the nursing home for the difference between the Medicaid rate and the non-Medicaid rate (private pay rate) for a private room…would not be supplemental disbursement

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WHEN DOES IT GET TRICKY? (cont’d) EXAMPLE: A) Non-Medicaid rate (private pay rate) in single-bed room is $155 per day B) Non-Medicaid rate (private pay rate) in a double-bed room is $130 per day C) Medicaid rate in a double-bed room is $100 per day The Trustee CAN pay: The difference between A and B (equals a $25 /day difference) The Trustee CANNOT PAY: The difference between A and C (equals a $55/ day difference) OR The difference between B and C (equals a $30/ day difference) 24

DISBURSEMENTS FOR AUTOMOBILES • repairs, purchase, insurance • Trustee should obtain a copy of a valid driver’s license and proof of insurance • If the Trust is making a disbursement to purchase a vehicle, a lien in the name of the trust is placed against the vehicle for the amount equal to the amount disbursed from the trust

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DISBURSEMENTS FOR VACATIONS • reasonable dollar amount • can make payment directly to travel agent for airfare, hotel, meals* • can reimburse third-party for purchase of airline tickets/ hotel, meals* • *(noting SSI recipients have duty to inform SSA re: potential in- kind benefits)

• the Beneficiary may use his/her own funds…$2,000.00 set-aside or SS and pension benefits outside the trust (to the extent the benefits do not have to be applied toward his/her current care) • can pay for a companion to travel with Beneficiary if medically necessary (We require documentation from a doctor) 26

DISBURSEMENTS for REAL PROPERTY • real estate taxes • repairs and maintenance • reasonable costs associated with the property • mortgage*

*NOTE: if real estate not trust-owned, Trustee should file a lien against the property for an amount equal to the mortgage payments made from the SNT.

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DISBURSEMENTS THAT WOULD REDUCE SSI BENEFITS • Trust payments for shelter can result in a dollar for dollar reduction of SSI benefits, up to one-third of benefit amount UNLESS At least 1/3 of the SSI is applied toward rent…then no reduction • Trust payments for food can result in a dollar for dollar reduction of SSI benefits, up to one-third of benefit amount…NO exception just because you apply 1/3 or more of your SSI to food costs • Trust disbursements to guardian of a beneficiary of a SNT counted as INCOME for SSI purposes (Williams vs. SSA, N.D. of Illinois, Eastern Division, case #12 C 7852) 28

COMPLEXITIES OF REGS • SSA/POMS: From October 2012 to February 2013, elder law/ special needs attorneys advocated for practical changes to SSA’s policy clarification. SSA General Counsel had stated that if beneficiary was on SSI, trust can’t directly reimburse a 3rd party for those purchases, trust has to make payment directly to vendor or service provider. On 2/27/13: SSA issues new POMS, SI 01120.200E. Reimbursements made from the trust to a 3rd party for funds expended on behalf of trust beneficiary are NOT income. • HUD: if the distributions are random/ sporadic then they are not counted a income. Trust distributions that are regular/periodic are counted as income 29

New law: Decanting Statute • 760 ILCS 5/16.4, effective 1/1/2013 • Allows for decanting/ distribution of a pre-existing trust into a pooled trust • Statutory savings clause for drafting failures or “unanticipated” disability

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ILLINOIS DISABILITY POOLED TRUST • Providing special needs trust services to persons with disabilities since 1998. Attorney Howard S. Berk is the creator of the IDPT and drafter on the first court-ordered SNT in 1993. • Self-settled and third-party settled trust services • IDA has served as trustee in over 1300 cases, including for government guardian awards in over 600 cases

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Benefits of IDPT • Over 70 years combined experience • Ensures guardian’s compliance with statutory obligation to safeguard ward’s money • Eliminates need for surety bond (755 ILCS 5/12.1) • 24/7 online access to account information • Monitors all SSA, POMS, state adminsitration codes and tax laws 32

BENEFITS of IDPT (cont’d) • Provides local resources of an Illinois Bank, The PrivateBank, including: • • • •

Full investment and custody services as corporate trustee; Preparation of annual court accountings; Expedited account opening process Improved account services needs, including the turnaround time for bill payment and other disbursements

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