This is the second in a series of two about guardianship and special needs planning. In this webinar, we learn how to leave money and other assets for the benefit of a child with special needs without causing the child to lose important public benefits, including understanding the difference between a payback special needs trust and a third-party discretionary trust. ABLE accounts and benefits, such as SSI and Medicaid, were also discussed.
Visit our Webinars page for additional webinars on a variety of topics.
Derek Graham is a principal at Resch, Root, Philips, and Graham, LLC, a law firm in Ohio with a specialty in special needs law. Derek enjoys helping people avoid and fix problems that arise in their lives. Early in his career he was fortunate to get experience in civil litigation, business transactions, and estate planning. Then in 2009, he and his wife had their first daughter who was born with Down syndrome. Like many of his clients today, they were inundated with information and felt overwhelmed. Nine years later, he spends the majority of his days helping similarly situated families understand the various resources that exist for families like his. He finds it very rewarding to meet with families of all varieties and help them understand how to effectively and practically plan their estate. More than that though, he enjoys helping families understand the resources available to them and how to get the most out of those resources.
Please note that Mr. Graham refers to the state of Ohio (where he practices law), including disclaimers that information may differ in other states—we have added some additional resources at the end of the transcript that may help you locate your state information.
Estate Planning: Why Plan?
If you fail to plan, you are planning to fail
Jayne Dixon Weber: Good evening everyone. I’m Jayne Dixon Weber, the director of education and support services at the National Fragile X Foundation. I would like to welcome you to this evening’s webinar, “Special Needs Planning for Individuals and Caregivers,” presented by Derek Graham. These webinars are made possible by your donations, thank you for your ongoing support.
The format for tonight: Mr. Graham will give a presentation that will last about 30 minutes and then we will open it up to questions. Use the question box on the right side of your screen for your questions, and also use that if you have any problems with the webinar.
Now I would like to introduce Derek Graham. He’s a principal at Resch, Root, Philipps & Graham, a law firm in Ohio that practice special needs law. His practice areas include estate planning, special needs estate planning, developmental disabilities law, elder law, and guardianship, among others.
Good evening, Derek. It’s a pleasure to have you join us this evening, thank you very much.
Derek Graham: I appreciate you having me. So tonight’s topic is one that I think is very important, and we’re going to talk about estate planning and estate planning, especially in the context of when you have a loved one or someone in your life who has special needs and what that entails.
So, first thing I say when we talk about estate planning—and everyone has an estate plan, everyone who is listening to this program, you have an estate plan. You either have the estate plan that you have created, or you have the estate plan the government has created for you, and so there are laws in every state that say if you pass away without having designed your own an estate plan, this is what will happen to your assets.
And so when we talk about estate planning . . . what makes that so important . . . is you want to take control of your estate plan and create an estate plan that works for you, and that works for your family, and that becomes . . . even more important when you have a loved one with special needs because, as you know, a lot of individuals with special needs may be relying upon a government benefit of one type or another, and if you have the wrong estate plan it can lead to disqualification of that benefit or it could have a negative impact on that benefit.
So, before we get into the nuts and bolts, I have to do a disclaimer: So I’m an attorney, like Jane said, and I appreciate you guys having me, but estate planning is a creature of state law and I am only licensed in Ohio, and so I’m going to speak about estate planning from a broad, global perspective. But it’s critical that you understand estate planning, and there’s certain nuances of estate planning that may be different in your state, and so the laws here in Ohio very much may be different than the laws in California or Texas or other states, and so I would encourage you to consult with an attorney in your area and I’m actually going to give some tips on how to find the right attorney later on; but I think it’s critical that you consult with an attorney, especially when doing special needs estate planning.
I can tell you from experience, one of the more frustrating and also sad things to see is when a mom or dad do pass away and the family comes in, and maybe they’ve downloaded forms off the internet or created an estate plan that doesn’t exactly follow the law, and it creates a lot of problems. And then dealing with different government agencies if you don’t have the right documents, done the right way . . . so all right, with that said, getting into estate planning . . .
Everyone has an estate plan!
› The statutory estate plan will disqualify loved one from government benefits such as Medicaid/SSI (depending on how much they inherit)
› The statutory estate plan generally costs more in the long run
Planning prevents disruption of benefits for loved ones
Planning allows you to exert and exercise control
So why do estate planning. I remember when my oldest daughter was born and—I have a daughter with Down syndrome, and that’s how I got into this area of law—I remember being inundated with information about Medicaid and Medicaid waivers and all this other stuff, even when she was really young, and at the time I remember thinking, why do I need to know any of this stuff?
At that time, I didn’t do any type of special needs estate planning. I did a little bit of estate planning, but anything having to do with special needs I would refer out, and I remember even at an early age thinking, why in the world are people giving us information about Medicaid? And telling me about these programs I don’t need? That we—my wife and I—have good health insurance. And in my mind, that’s what I thought of when I thought of Medicaid.
For a lot of individuals, Medicaid is health insurance, but it’s also a number of other things; and so if you have a loved one with special needs and they have a Medicaid waiver or some other type of state Medicaid program, you may find that it pays for a lot more than just health care.
What we don’t want is when mom or dad pass away, your son or daughter to inherit money in a way that disqualifies that son or daughter from Medicaid, or if they’re over 18 and they meet certain criteria, they may also—or even under 18, but if they meet certain criteria—they may be receiving SSI, which stands for supplemental security income.
Medicaid and SSI are programs that involve eligibility standards—from an asset standpoint and an income standpoint—so planning prevents the disruption of these benefits, and it allows you to exert and exercise control of your own estate plan.
Planning Options for a Loved One With Special Needs
Last will & testament
(Wholly discretionary trust)—Make sure it is Medicaid/SSI compliant
So what are the options. It used to be—a long time ago—it used to be that if you had a child with special needs, really, your only good option was to disinherit them, because if you left inheritance to them, it would disqualify them from the government benefits that they have come to depend upon in their adult adult life.
We also have a lot of individuals that say, well, I have a will, and when you think of estate planning, everybody thinks of a will—last will and testament—and, at least in Ohio, if you have a will—and just a will—that doesn’t work. And when I say that doesn’t work, a will means that upon your death assets are going to pass to an individual pursuant to the terms of the will—and again I’m speaking about Ohio law here on this and this is where we . . . something may be different in your state—but in Ohio, just having a last will and testament that leaves assets to a loved one special needs isn’t enough; because that’s going to leave the assets to them in a way that does disqualify them from certain government benefits.
A big part of estate planning is beneficiary designations. A lot of people listening to this broadcast might have a retirement account or a life insurance policy or something like that, a financial account.
You can go to your bank, the life insurance company, or the—whoever’s managing your retirement account. You can fill out a beneficiary form and you can name people as beneficiaries. Like the will, that does a good job of transferring ownership upon your death, but it doesn’t protect you from eligibility problems with these different government benefits.
And so in Ohio, the—this is true in most states—but in Ohio, the only good way to protect eligibility from government . . . from disqualification of government benefits . . . is to have the right type of trust in place.
And so when we talk about a trust—we’ll talk a little bit more about it here in a minute—but a trust is the plan that I always recommend to clients here in Ohio who do have a loved one with special needs.
Not Means Tested
Now, again, we talked about the government benefits. A couple things to keep in mind, because if I ever met the person who named Medicare and Medicaid and SSI and SSDI, I would have a whole lot of things to say to them about how and why they named these programs, and why they made them so confusingly similar.
But there’s—and I find there’s a lot of confusion about this—so, SSDI, we hear about that a lot in Medicare, those are not means-tested programs. Now, SSDI does have an income test to it, but those are programs that—once you are eligible for them—the amount of assets you have isn’t going to dictate your eligibility for those programs. SSI and Medicaid—and again, Medicaid is . . . it’s a federal program but it also has a state law component that could be different every state—those are programs that are means-tested.
So for example, here in Ohio, to be eligible for SSI and Medicaid you cannot have assets of more than $2,000. Now of course there’s exceptions, and I’m not going to get into the weeds and all the different exceptions and programs that slightly change that, but the general rule of thumb is you cannot have assets of more than $2,000, and, if you do, that disqualifies you from Medicaid and SSI because you’re over-resourced or you’re over-asset.
› Payer of last resort
› Funds approximately 60% of state/county programs
› Asset limit
› Buy-in programs
Supplemental Security Income (SSI)
› Support for aged, blind, and disabled
So, Medicaid . . . what is Medicaid and what is SSI for those that are sitting there and thinking, well maybe you’re like I was years ago, and you don’t understand why it’s important: It’s a payer of last resort for medical expenses, it’s also a program—a lot of you may have heard of Medicaid waivers in your state, you may have different types of Medicaid waivers, some states have lots of different types of Medicaid waivers, some states have one Medicaid waiver, some states don’t call them waivers at all—so if you’re sitting there thinking, what’s a waiver?, and maybe in your state they have a different name for it, but it’s a Medicaid program that says we’re going to use asset and we’re going to use Medicaid funds, which are part federal funds and part state and county funds, to pay for resources and to pay for programming for your loved one with special needs.
So for example, here in Ohio, if my daughter with Down syndrome is an adult and she wants to go to a day program, a Medicaid waiver would help pay for that day programming. And it would also maybe help pay for the transportation to and from the day program. It could help pay for job coaching, and there’s a variety of different functions that can help pay for—above and beyond health care—but it certainly also includes healthcare. And then SSI is that support for aged, blind, and disabled, and so those are the programs we’re trying to protect eligibility for.
Trust: What is Trust?
So, as I said earlier, when looking at this and trying to figure out what’s the right estate plan and what’s the right way to do this, in Ohio, the way to go is to have a trust, and the type of trust you would have is what’s referred to as a “wholly discretionary trust.”
Now generally, if you just turn on the TV and you watch a financial planning program on TV, or you talk to your neighbors and they tell you, yeah we did estate planning and we set up a trust for our kids, when you hear the term “trust” . . . picture a basket. I always tell clients, when you sign a trust agreement you sign this document that’s 20-some pages long and it’s full of legal jargon, and really all you’re doing when you sign that trust is you’re creating a basket.
And then either during your life or upon your death you’re going to make sure you put assets into that basket; and then the terms of the trust dictate when and how assets come back out of the basket. So as a parent of—now I’ll use myself as an example—I have three girls, and so my oldest daughter has Down syndrome and my younger two don’t have special needs, and so for those two daughters I might say . . . in my basket, you know . . . the money that’s in there for them once they get old enough, it’s gonna help pay for college and it’s gonna help if they have health expenses, it’ll help with that, and to graduate college. It might pay for a car, and if they need money to help when they get a job, so be it.
Now the problem with my trust is—as a lot of you listening to this know—since I have kids, that means I don’t really have any money, so I’m really counting on life insurance someday, or something like that, to go into this trust and so I set my assets to go into this basket with the hope that the terms I create will dictate when and how my kids get money back or get assets out of this basket, and so it also then allows me to control so that they don’t have money that falls into their lap when they turn 18, and so I can set up that maybe the trust will make distributions to them when they’re 25 and 30 and 35, where I can pick ages or set standards for when and how money goes to them.
With the wholly discretionary trust—that’s the type of trust I have for my oldest daughter with Down syndrome and it’s different. The reason it’s different is because I don’t get to put any of that guidance in the trust.
Wholly Discretionary Trust
Wholly Discretionary Trust
› Designates a trustee (and successor trustee)
› Provides for a remainder beneficiary to inherit upon beneficiary’s death
Subject to scrutiny
Funds never belonged to individual with disability
Laws and eligible standards differ state to state
I can create the trust and as the person creating the trust I can dictate who the . . . I can dictate who the trustee is going to be, and I can even name the successor trustee, so if my wife and I both pass away . . . life insurance and other savings will go into this trust and it’ll be there for my oldest daughter, and we’ve said who’s going to manage that money: the trustee.
We’ve also said our oldest daughter is going to be the beneficiary of that trust. But what we’re not saying is directives on when and how that money is going to be used; and that’s frustrating to some parents, because for some for my other kids I’ve got all the bells and whistles in there about when they turn a certain age, pay for this, and when they turn a certain age, they can have this much of the trust money. And I hope they go to college, or not even just college, I say when they turn 18, as long as they do something that makes them employable—I don’t care if it’s welding school or anything else . . . anything truck driving is . . . anything that makes them employable—I want the trust to pay for, and I support that, and whatever they want to do it’ll do and so I provide all that guidance in the trust.
Whereas with my daughter with special needs I just say, here’s the trust, and in that trust, under Ohio law at least, I know that I can put $10 in that trust or I could put $10 million dollars in that trust, and whatever amount of money is in that trust—if I’ve created it correctly, and I’ve complied with all the federal laws, and all the state laws that pertain to these type of trust—I know that that discretionary trust is not going to disqualify her from Medicaid or SSI, and so I don’t have to disinherit my daughter with Down syndrome, I don’t have to disinherit my loved one with special needs, I just have to make sure that the inheritance for them goes into this type of trust.
Now one of the benefits of this type of trust is my wife and I can put money in this trust and set it up so that money goes into this trust upon our death; we can also, if I’ve got parents . . . would be my daughter’s grandparent . . . and I know that Grandma and Grandpa want to put something in their will that says on their death each of the grandkids gets $5,000 . . . well that happens a lot, and then clients come in and say, uh oh, what do we do? Our daughter’s on Medicaid and Grandma and Grandpa’s will says they get $5,000, and Grandma and Grandpa just died, and we didn’t know this. Well, that’s a problem, because now the personal with special needs has inherited money and that can interfere with government benefits. So when you . . . when a parent creates a discretionary trust, any other adult or, I’m sorry, any other third party can put money into this trust. So in my case, you know, I’ve let Grandma and Grandpa know, hey, if ever you want to leave money to my daughter, I support that, I think it’s great, but make sure you do it in the right type of trust and leave it to this trust that my wife and I have set up for her benefit. Because if you just named her in your will or if you just named her as a beneficiary, that might mess up other government benefits that she’s relying upon.
And what we do want—think about this—when you pass away that’s going to be hard enough for your child with . . . it’s hard enough for any child . . . it’s hard . . . it’s gonna be very hard for me someday when my parents pass away. And hopefully I’m a good enough parent to where, when I pass away someday—and I really hope I outlive all my kids by . . . I’m sorry, I really hope all my kids outlive me—when I pass away, I hope it is kind of hard on my kids, because I hope they missed me, but I also know that when they go through a grieving process I want them to grieve losing me but I don’t want them to also suffer detriment as a result of losing programs or having interruptions to any of the benefits or things they’re relying upon.
Hopefully losing a parent is hard enough . . . losing a parent is hard enough . . . without also adding to it the injury of having disruption and benefits and disruption in your day-to-day activities and things like that. So that’s part of the value of having the right type of estate plan in place, and I can’t emphasize enough that no matter what state you’re in, you need to talk to an attorney that practices in this area and that understands what the laws are in your state, and can help you create the right type of trust to protect the inheritance you want to leave to your son or daughter or family member or third party who might have special needs, and not leave them assets in a way that messes up their government benefits.
One of the keys to the discretionary trust is the funds that go into the discretionary trust have to be third-party funds, and what I mean by that is, those funds never belonged to the individual who has special needs. So my daughter with Down syndrome can never put money that she earned or that she owns in this discretionary trust. Anyone else alive can, but she can’t. It’s got to be third-party money.
Payback Trust (“Special Needs Trust”)
Can be created by a parent, grandparent, legal guardian, or court
First party trust, meaning it only holds assets belonging to individual with disability
Limitations on how the funds can be used
Assets in this trust are not countable resources for Medicaid or SSI
State payback provision required
The next trust I want to talk about is a first-party trust, which would be a payback trust. Now there’s federal statutes that pertain to payback trust and then most if not all states have state statutes that pertain to a payback trust. And when we talk about a payback trust, really what we’re talking about is, upon the death of the individual the state is going to be paid back an amount equal to whatever the state has paid out on behalf of the beneficiary.
A payback trust is for first-party money, so . . . continuing to use my daughter as an example . . . if she’s an adult and she’s in a car accident—and I hope that never happens—but she’s in a car accident, and she sues the other driver because it’s the other driver’s fault, and she wins $50,000 in a lawsuit, that $50,000 belongs to my daughter. That’s first-party money. It’s her money. It belongs to her, it cannot go into that discretionary trust we just talked about, it has to go into a payback trust, a “special needs trust.” And when we say into that special needs trust . . . that’s because the money belongs to her legally. And because it belongs to her legally, it’s essentially always going to be subject to Medicaid payback.
Now it can be spent during her lifetime and so that doesn’t mean that the asset or the money just sets in that trust until she dies and then goes to the state, the money can be used during her lifetime. It can pay for a variety of needs and it can supplement with the governments otherwise providing a number of programs, and it can do a lot of good things.
But on her death, whatever’s left in that trust is going to be used to pay back the state for what it’s paid on her behalf. Now I have the term in quotes here, “SPECIAL NEEDS TRUST.” A payback trust is a special needs trust. One of the things I find . . . and a second ago I was talking about a discretionary trust . . . a lot of attorneys, and a lot of people out in the field misuse these terms and so the analogy I use to explain this is a football analogy. Hopefully I have some football fans watching this or listening to this webinar. If you told me you were a football player, and I said, what position do you play? And your response to me was, I play offense. Well, alright, so I know you play offense, but that doesn’t tell me whether you’re a big lineman or you’re a really fast receiver or you’re a quarterback or you’re a strong running back. I mean, that could be a variety of different things because offense only tells me a little bit. A lot of attorneys use the term special needs trust the way I used offense. They use it to describe a number of different positions, and so a lot of attorneys and people in the field use the term special needs trust to describe a discretionary trust; where they use special needs trust as a blanket label for any trust that involves an individual with . . . special needs.
That is confusing sometimes, because in the statute—if you’re actually following what the federal laws say—a special needs trust is a specific position . . . going back to my football analogy . . . it’s not a broad term for a number of positions, it’s a specific position and it is a payback trust. So when we say special needs estate planning, a lot of parents immediately go and think, well I need a special needs trust. And, at least here in Ohio, the way they’re defined in state law—and it’s also the way they’re defined in federal law—special needs trust is a specific type of trust that has a payback component to it.
Now in . . . in full fairness, there are a lot of attorneys and there are a lot of people on the field that use that term differently, and so if you’ve been to an attorney and you’ve created a trust and it says “special needs trust” at the top, please do not immediately panic and think, Oh no! My attorney didn’t know what he was doing, gave me the wrong type of trust. It’s common to see it used that way, I’m just pointing out that technically, under the statute, a special needs trust is a payback trust.
Can be created by the individual
Must be managed by a non-profit association
Accounts are pooled for management and investment purposes
Under the federal statutes, we also have the option to create a pooled trust . . . when I say a pooled trust—in Ohio at least—we have a couple of different nonprofit organizations or associations that operate and manage pull trust, and a pooled trust is an account that you create where it’s just what it sounds like. You’re giving your assets, or upon your death directing your assets to this nonprofit that pools the money with a lot of other individuals who have given money to this nonprofit or the organization, and they pool the money and invest it. Obviously, there’s greater investment power there because they have more money pooled together, but they also manage and maintain a sub-account for your loved one.
So pooled trusts really come into play if you have no one in your life, no one in your loved one’s life, who would make a great trustee. Maybe you’ve got a lot of friends and family, but you don’t really trust any of them to maintain the money in a way that’s not going to interfere with benefits, or something of that nature. That’s one scenario where I start to recommend a pooled trust because you have the backing of the nonprofit or other organization that’s probably much more used to dealing in this area of law, and much more used to advising people on how to maintain assets and protect assets. So a pooled trust is a great option where, again, where parents can put . . . leave money to an individual with special needs, in a way that’s not going to interfere with their various benefits.
In Ohio, there are different types of pooled trust accounts, and you can do a pooled trust account that is a payback account. You can also do a pooled trust account that is not, it’s like a discretionary trust, and again, the difference for when you would use which one goes back to: Is it third-party money, that never belonged to the individual? Or is it first-party money that belonged to the individual. Generally speaking, if it’s first-party money that belongs to the individual, it’s going to need to be in a payback-type, pooled trust, and there’s different . . . there’s different options there. Some states and some venues have options where the payback might not necessarily be to the state, but could instead be to a charity or some other direction that you choose as the person setting up the account.
ABLE Act Stable Accounts
› SSI/SSDI/Certification of Disability
› Not ideal for estate planning
› $15,000 annually, plus beneficiary’s income up to $12,140 (anything more will be returned)
› Lifetime limit of approx. $400,000/SSI limit of $100,000
Subject to Medicaid payback
Create online at www.stableaccount.com
The ABLE Act. The ABLE Act passed several years ago, “achieving better life experiences.” It was a great act that I was very glad to see pass and it really helped, it helped with a big need. I’m a very big fan of ABLE Act accounts and, here at Ohio, Ohio created ABLE Act accounts and we call them STABLE Accounts.
So, STABLE is the name that Ohio has given to its ABLE Act accounts. Your state may have come up with its own name as well. A lot of states just call them ABLE Act accounts, but these are accounts you’re going to open through your state, and ABLE Act was designed for first-party money. It was not necessarily designed to be an estate planning tool for moms and dads. What it was designed for is, we have individuals who—because they are reliant upon Medicaid—every month they have to make sure their assets stay below $2,000. And what I always hated to see or hear about is, you would have individuals with special needs who . . . they would start to creep up on their asset limit, and maybe it’s $2,000, maybe they’re on a program that’s Medicaid buy-in, so it’s more than $2,000—varies state to state—but they’d get up toward that limit where they’re not allowed to have any more money, so on the last day of the month, they would get in a van with their provider and you would go to Best Buy or the mall or a Walmart or something like that, and you literally had to spend money to get your assets and to get your checking account balance back below $2,000.
And that’s horrible to see, because it prevents this . . . this financial ceiling prevented individuals from saving money, and so the ABLE Act was created as a way to blow up that ceiling and allow individuals . . . who a lot of times do have small margins of savings, but whatever their margin of savings is, let’s let them save that money. And so ABLE Act accounts were designed so that first-party money didn’t have to be spent down to maintain eligibility for different government programs. Instead, the excess asset . . . the excess money could be transferred into an ABLE Act account or, here in Ohio, a STABLE Account, and once the money is transferred into that account, the money in that account is not a countable resource . . . so that money doesn’t count towards their $2000 asset limit, or whatever the applicable asset limit may be in your situation.
So that’s great because now, if somebody’s earning, you know, $800 bucks a month, and they know they can’t have more than $2,000 a month, and they also get a little bit of SSI money, and they’re able to budget every month so that they’ve got $200 left over, they don’t have to stop saving when they get too close to that ceiling. Instead they can keep saving and just deposit the excess money into their ABLE Act account.
It’s not ideal for estate planning because moms and dads that put money in a STABLE Account or an ABLE Act account, they just need to be aware that these accounts do require payback upon the death of the individual. Now it’s . . . I’ve read a lot of articles lately about how some states are waiving the payback and others aren’t and, again, that’s a state-specific question that you’d have to find out how that works in your state, but at least here in Ohio, and a lot of states, I know that the state certainly has the right to require a payback of any money that’s been spent on the individual’s behalf through a Medicaid plan on their death. So because it’s first-party money, and because it’s an account designed for first-party money, it is subject to that Medicaid payback.
Now this slide you have in front of you is one I stole from a presentation I did here in Ohio, so when it says “create online at www.stableaccount.com,” that’s the Ohio link. You should really check to see if you have one in your state first. I know out-of-state individuals can use the Ohio STABLE Account program and—not to brag—but Ohio has a really good ABLE Act account program, that I can’t recommend enough to families. But I would check with your family first and see what’s available in your state.
Summary: What Do I Actually Need?
A trust that complies with your state’s rules governing Medicaid/SSI and any other means-tested government benefits
Possibly also a family trust for other children/beneficiaries
Last will and testament
Healthcare advanced directive
Financial power of attorney
Special needs trust/pooled trust (maybe)
A PLAN OF ACTION!
So “Summary: What Do I Actually Need?” . . . and I know I’m trying to go through this kind of fast, but what do you actually need.
You need a trust that complies with your state’s rules governing Medicaid, SSI, and any other means-tested government benefit. All of you watching this in your state, there is a mechanism by which you can leave assets to a loved one that has special needs. Again, using myself as an example, I’ve got three daughters. If my wife and I pass away, I know that I can leave one-third of my money, a third of my life insurance will go to my daughter with Down syndrome, and if something happens to her and there’s still money in that trust, it doesn’t go back to the state of Ohio. Instead, it’s going to go to my other two daughters or if . . . my other two daughters aren’t around, will go to my grandkids, or wherever I dictate. It’s great because I know that I can leave money to her and I can designate who’s going to be in control of that money.
You should still have a last will and testament because the last will and testament is necessary as part of an overall estate plan that helps fund this, and it’s something we haven’t talked a lot about tonight, but I’m a firm believer that everyone who’s 18 years of age or older needs is a healthcare power of attorney or healthcare advance directive, also a financial power of attorney. Whatever your state’s laws are, I assure you there’s a way where you can give someone the authority to make decisions for you when you can’t.
We talked last—or a couple weeks ago—about guardianship and talked about some of these documents. These are documents that should be part of and should be reviewed as part of every estate plan. When we think about estate planning we think about death, but even before death you’ve got to think about what happens as you get older. You the parent and you have a stroke or you develop Alzheimer’s, or something where you need assistance managing your assets, that’s where—or managing your healthcare—that’s where these directives come into play, and they should be part of every estate plan.
A special needs trust or a pooled trust, those are—maybe a lot of individuals don’t need a special needs trust but sometimes individuals do. If grandma and grandpa died and their will leaves $50,000 to your son or daughter who has special needs, that’s a problem. It’s a good problem because you have $50,000, but it’s still a problem because it disrupts their government benefits, which disrupts the programming and a number of other things. So at that point in time, now the money—because it was in the will—belongs to your child with special needs, and the only way to get eligibility back is to put it into a first-party trust, which is a payback trust, and that’s not necessarily what grandma grandpa might have wanted, but it is what . . . a step we can take towards getting eligibility for different government programs back.
Most importantly, when we talk about estate planning, you’ve got to have a plan of action. Here in my office we call it the road map. We make a family sit down and come up with a road map. You can have all these trusts and all these power of attorneys and all the legal documents written, and hopefully the attorney you’re working with does a great job on them and they’re all done correctly. The most important thing in my opinion is to have a plan, because, for previous generations, it was very rare, and it was very unlikely that children with developmental disabilities—depending on what the disability was—it was rare that they would outlive their parents. But as medical technology has gotten a lot better, life expectancies have gotten a lot longer, and the generation just ahead of me and my generation were some of the first generations where you should expect your child with a developmental disability to outlive you, and you’ve got to have a plan for that.
It’s an overall plan that includes not just having the right documents in place, but, where’s your son or daughter going to live? What are they doing during the day? If something happens to me this year, what’s the transition plan? What’s the plan in place? We make clients map that out as part of an overall estate plan, and I always tell clients, if you knew you were gonna pass away tomorrow, if—anyone watching this—if you knew you were going to pass away tomorrow . . . the rest of today and tonight when you weren’t hugging your loved one and and talking to them and spending time with them, you’d be standing in a different room writing letters, leaving notes, making videos of things you want them to remember when you’re gone. You’d be worried about what information is not going to be remembered when you’re gone. That’s all part of what has to be in your roadmap. It’s got to be mapped out so that there’s a plan in place: when mom and dad die, this is where the individual is gonna live, and . . . and hopefully they’re moving out even before you die, but when mom and dad aren’t here, this is what’s going to happen in the individuals life, and this is how it’s going to work, and this is who’s going to be involved. And it’s just as much of who you don’t want involved. I mean, these are the people we’re worried might take advantage of the trust money or might try to exploit the trust money. You’ve got to have a plan of action. You’ve got to write that down.
I can’t stress enough this . . . this type of estate planning. There are some individuals that come in and say, you know, Derek, why can’t I just download a will off the internet? Why would I need to hire an attorney and pay money to do an estate plan? And that always makes me cringe, and I can do a whole different webinar on why not download forms off the internet to do your estate plan, but I can’t stress enough for this type of estate planning, you need to talk to an attorney that knows what they’re doing, and talk to an attorney in your state, in your local area, that does . . . has a practice area that includes special needs estate planning. Some of the red flags and special issues I see are, you know, when you have individuals with special needs that have been disinherited . . . so I have three daughters, so if I just disinherit my daughter with Down syndrome and say, alright, you other two daughters, you’re going to manage the money—wink and a nod—take care of your sister. Well, what happens if one of them goes through a divorce, but what happens if one of them starts a business that fails or—God forbid—but one of them dies. Then where does the money go? Or what if they marry a jerk—who knows what happens—but anything that goes wrong in their life could impact the money I wanted them to set aside and use for their sister.
With Medicaid planning, you hear a lot about annuities, and annuities are used sometimes in Medicaid planning with elderly individuals, but very very rarely with younger individuals with developmental disabilities, at least in Ohio, and so if that ever comes up, that is to me . . . a red flag where I would want to ask a lot of questions about why it’s appropriate.
Retirement accounts are problematic. There’s a lot of tax issues that come with retirement accounts and making sure that they’re structured correctly. You have a child with special needs and they’re going to be inheriting retirement accounts, you’ve got to understand how that works.
Unexpected inheritances, that’s something we’ve talked about, that’s just where grandma or grandpa or aunt or uncle have a will and they think they’re doing something great leaving money to your child with special needs, but they don’t talk to you about it and they leave it directly to them so—as we’ve talked about—that can be problematic.
When to fund the trust. So again, myself, I’ve got three kids and my kids are still young and in school and lots of different activities and all that stuff so, among other things, that means I don’t have money, so I’ve got the trust set up for my kids but not . . . really, my assets aren’t going to go into this trust until my wife and I are both deceased and that’s when we’ve got it set up so that the savings we . . . we’ve scraped together, and the retirement account savings, and the life insurance—all that would go into their trust on my death, not now. So be mindful of that. If you fund a trust, now you’ve got to be mindful of some of the tax consequences that come with funding of trust, because once a trust starts earning income, that can create certain tax issues that require reporting and extra tax returns and all that stuff.
Hiring an attorney, what to ask. When you go to hire an attorney for a special needs planning I . . . first of all ask, you know, do you charge for the initial consultation? Understanding the legal fees—one of the biggest complaints about attorneys is the misunderstandings that come with what what does it cost. There’s nothing wrong with attorneys charging hourly to do estate planning. There’s nothing wrong with attorneys charging flat fees. I mean, at least in Ohio, you’re allowed to do that, but attorneys should have written fee agreements with their clients and you should have a clear understanding as to, hey, what is this going to cost me? And, when do I pay, and all that stuff. I would always ask, how often do you prepare estate plans for persons who have children with developmental disabilities? What I find a lot is attorneys will take on an estate plan and if it’s not something they’re used to, then it’s an area where it’s easy to make mistakes, and so we spend a lot of time cleaning up or fixing estate plans sometimes where an attorney got outside of their comfort zone. And so just make sure when you’re talking to the attorney, hey, is this in your comfort zone? Is this something you do frequently? And if not then, you know, I would ask, hey, are you comfortable doing it? Is this something you . . . you feel comfortable that you know how to do?
I understand the timeline. A lot of people get frustrated with attorneys because we say we’re going to do something and then unfortunately we don’t, so get a clear picture of the timeline from the attorney. When should I expect to see drafts of the documents? When will we meet next? The general rule of thumb, we try to never let a client leave without something . . . without the next step being on the calendar. So every time a client sees me, I try to make sure we both know, hey, here’s when our next communication will be, or here’s what we expect next, so that we have that on both of our calendars. Because otherwise, what you hear sometimes is, people meet with an attorney and get an expectation and then they don’t hear from the attorney for a long time, and that’s . . . that’s very problematic, and that’s not what the attorneys want, and that’s not what the client should experience. So, have those conversations with the attorneys. Find one in your area that practices in this area and you should be able to get good advice on how to properly draft an estate plan for the benefit of your kids, and I assure you the value on the back end upon your passing will be greatly appreciated by your loved ones, and you’ll be doing a great service for your loved one with special needs to do this in advance.
I’m going to turn it back to Jane now, and if you’ve got questions then I encourage you to send them in. I can’t give real detailed advice on any specific situations, more the global questions that apply to the presentation in general, I’m happy to answer questions on.
Additional ABLE Resources
The ABLE National Resource Center website at www.ablenrc.org has a lot of valuable information. In addition to the resources below, we also encourage you to look through their list of Tools, which includes the ABLE Account, Special Needs and Pooled Trust Comparison Chart (PDF); archived and upcoming Webinars; and federal policies related to ABLE accounts.
Roadmap to Enrollment
These are the basics of ABLE, and how they can help potential ABLE account owners and their families become comfortable with the idea of opening an ABLE account.
We did note that some states’ programs are “inactive,” but also noted that you can open an ABLE account in any state that accepts outside residents into their program.