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.