Many families are justly concerned about the long-term financial security of their loved ones with special needs, especially if parents who have been providing support pass away. This concern is one reason to create a special needs trust. But not every family can afford to fund a special needs trust with enough money to properly care for a person with special needs over the course of his lifetime. Life insurance provides a unique opportunity for many families to guarantee the financial security of their loved ones with special needs without placing a significant financial strain on other family members.
There are many different types of life insurance that can be used to fund a special needs trust, but whichever type of insurance is purchased, the death benefit is directed to a special needs trust created for the individual with special needs to provide financial security after the parents are gone. Term life insurance is the easiest to understand. Under a term policy, the insurance company agrees to pay a fixed amount of money if the insured person dies during a set period of time. If the insured person survives the policy's term, the insurance lapses and there is no benefit.
Whole life insurance is a little different. A whole policy typically lasts for the insured person's lifetime and the policy accrues value over time. The accrued funds generate interest and the policy typically pays dividends, adding to the value of the payout. Universal life insurance accumulates value like a whole life insurance policy, but the policy owner can typically adjust the premium payments and death benefits over the life of the policy. With both whole life insurance and universal life insurance, the policy owners can contribute enough money to the policy to guarantee a future death benefit, regardless of how long they live. This is called a "paid up" policy, and it provides the emotional security of knowing that the life insurance will be there to fund the trust even if a family's financial circumstances change in the future.
One of the most important types of life insurance for families of people with special needs is called second to die or survivorship insurance. These are policies taken out on the lives of two people that only pay out when the second person passes away. Because of this, the premiums are typically lower than individual policies, allowing families to provide greater sums for the beneficiaries after the death of the second parent. However, there is no guarantee that the second insured person will continue to pay for the policy, potentially leaving the special needs trust in the lurch.
Once a family has decided to fund a trust with life insurance, the follow up question becomes "how much life insurance should we buy?" You can learn all about funding a special needs trust with life insurance and other assets here, but you should always consult with your special needs planner before purchasing any life insurance destined for a special needs trust.
Call Hoopis Manosh Law at (401) 773-9993.
Once you've gone through the trouble of meeting with a special needs planner and establishing an appropriate special needs plan, you might think that your interaction with your lawyer is over. After all, you've got a plan! But as we all know, plans change, so it's important to stay in close contact with your special needs planner throughout your life. In case you haven't thought of checking in with your special needs planner in a while, here are five events that should trigger an immediate call to your attorney.
Your Family Member with Special Needs Is Turning 18
Once your family member hits the age of majority, you will no longer be able to make a lot of the decisions that you have probably been making for him during his childhood. Your special needs planner can discuss various options to help you through this transition, including the preparation of health care proxies and durable powers of attorney, if your family member is competent, or guardianship and conservatorship if he's not. But in no case should you simply ignore the problem. For our three part article on turning 18, click here, here and here.
You Move to Another State
Although some federal benefit programs like Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) have national rules, there can be smaller details that apply at the state level. Likewise, there are usually significant variations in how state Medicaid programs are run. Therefore, if you move to another state, you have to speak with a special needs planner who is familiar with local rules and programs, and not just rely on your old plan. For more on the moving process, click here.
Your Financial Situation Changes
If you were making a lot of money and now you aren't, or vice versa, your special needs plan is probably going to change. Assumptions about how to fund a special needs trust may go out the window. If your income becomes drastically lower, it may be time to consider using life insurance to fund a trust in place of other assets. On the other hand, if you are earning much more, you may have to consider tax planning strategies that you didn't have to worry about before. In either case, a call to your planner is definitely in order.
You Retire, Become Disabled or Pass Away
When the parent of a child who has had a disability that manifested while the child was still young retires, becomes disabled or dies, the child may qualify for benefits on the parent's work record. If you retire or become disabled yourself, call your planner immediately. Obviously, if a person who creates a special needs plan dies, there is going to be a lot of work to do to implement the next stages of that plan.
The Person with Special Needs' Health Changes
Sometimes people who were previously ill become better and don't need a restrictive special needs plan. Often, they get worse and need additional planning. In all cases, if the beneficiary of your special needs plan dies, there will be a lot of work to do, including the potential payoff of government liens and the disposition of trust assets or the amendment of your special needs plan. Once again, if the beneficiary's health changes, your plan is going to have to change too. Your planner can walk you through all of the available options.
Call Hoopis Manosh Estate Law at (401) 773-9993.
Most parents of children with special needs are well versed when it comes to the government benefits like Medicaid or Supplemental Security Income (SSI) that their child receives. Most know not to give the child any money outright and to establish a standalone supplemental needs trust to protect their child's assets, and they usually know all of the ins and outs of the SSI and Medicaid application processes. What many parents don't often think about is the effect that their own estate plan can have on their child's benefits.
The first thing for parents to keep in mind is that they must, without a doubt, have an estate plan. Parents who are often so good about getting their child's plan in order can balk at creating their own estate plan for a variety of reasons. But by failing to put together your own plan, you are placing your child's benefits at risk. If you pass away without a valid will (known as dying intestate), your assets will be distributed according to state law. These laws will often leave a sizable portion of your estate to your children. In the case of a child with special needs, receipt of these funds could eliminate benefits that the child relies on. Therefore, it is essential that you prepare an estate plan that will take into account your child's unique circumstances.
The next thing to remember when assembling your estate plan is that, except in very limited circumstances, you should not leave anything directly to your child with special needs. Instead, your estate should flow through your own will into a special needs trust for your child's benefit. A properly drafted special needs trust will protect your child's benefits and allow your estate to be utilized as you intended without interference from outside sources. You will also have the opportunity to choose a guardian for your child in your will, another important decision that you should not leave up to chance or state law.
Sometimes parents will leave their entire estate to their children without special needs in the hope that those children will take care of their sibling with special needs. You should avoid the temptation to do this. While your motives and trust in your children are well placed, this arrangement often leads to bitter family disputes and should be avoided if at all possible. Typically, the better option will be a separate trust that can hold your child with special needs' share of your estate and free up the shares for your other children to be spent as they see fit.
Another potential problem area is when parents name their children as beneficiaries of life insurance policies and retirement plans. These assets, which are not governed by the terms of your will, could easily pass to all of your children in equal shares if you are not careful about naming plan beneficiaries (this is a very common problem when your child develops a special need later in life, after you have had these policies in place for years). As you did in your will, you can place your child's share of these important assets into a properly configured special needs trust. However, some complicated tax issues may have to be addressed first.
Finally, your estate plan may not be the only issue. Make sure to check with any relatives who may be leaving something for your children and make sure that they also speak with a qualified attorney before including your child with special needs in their estate plan.
If you don't have an estate plan at all, or are worried that your current plan is not appropriate, your next step should be to contact your special needs planning attorney, Kara Hoopis Manosh, at (401) 773-9993.
With Republicans in control of Congress and the presidency, there is talk of eliminating the federal estate tax, which in 2017 affects estates over $5.49 million. This begs the question: With no estate tax, do you still need a trust? While trusts can be used to shelter assets from the estate tax, trusts have many other valuable estate planning uses.
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." The following are some of the benefits of trusts.
Trusts are just one possible part of an estate plan. To know if a trust is right for you, consult with Hoopis Manosh Estate Law, (401) 773-9993.
The Individuals with Disabilities Education Act (IDEA) is arguably the most important federal law for children with special needs. The law mandates that all eligible children and youth ages 3 through 21 years old be provided with a “free and appropriate public education” in the “least restrictive environment.”
To be eligible for services under the IDEA, a child must be identified as having a disability. A child is considered to have a disability if she has been diagnosed with:
The Law’s Key Components
There are several key components to the IDEA that every parent should know about. They are: a free and appropriate public education (FAPE), least restrictive environment (LRE), and individual education program (IEP).
FAPE: The IDEA guarantees every child a free and appropriate public education. States must offer special education and related services to children with disabilities at no cost to the families in a public school setting (whenever possible) that meets the state’s educational standards and conforms to the child’s individual education plan. If a public school cannot offer this, it will offer an alternative, such as the network of educational collaboratives or possibly a private institution, and the government will pay for it.
The U.S. Supreme Court recently expanded the meaning of “appropriate” in the case Endrew F. vs. Douglas County School District, holding that a “minimal educational benefit is not sufficient.”
LRE: Least restrictive environment refers to the educational setting. The IDEA says that “to the maximum extent appropriate” children with disabilities must be educated in a typical classroom with typical peers. Children may be educated in a special or separate class (whether in a district school or in an out-of-district program or facility) only when the nature or severity of the child’s disability prevents the child from being successful in a traditional classroom, even with special accommodations and services.
IEP: An Individual Education Program is a plan that includes: a statement of the child’s present level of performance in academics and functional skills, a list of measureable goals in these areas, a schedule of progress reports, the type and frequency of additional therapies and services, transportation, and any necessary accommodations. The IEP is developed by a team of people including a parent, the child’s teacher, a school district representative, any therapists or other professional who works directly with the child, and sometimes the child as well. The team meets at least once a year to prepare the IEP, but parents may request a team meeting to discuss a particular issue at any time. Parents must also receive regular progress reports on their child.
Other important components of the IDEA include: requirements that schools conduct appropriate evaluations of students with disabilities and that parents be included in all decisions regarding their child’s placement and education program; procedural safeguards that outline parents’ rights under the law; and a process for providing transition services to children to help prepare them for further education, employment and independent living.
If parents are not satisfied with the education program offered by the school, there is a process for resolving disagreements outlined in the procedural safeguards section. Parents can request a review by the state’s educational agency or request the services of a mediator, an unbiased person. If an agreement is not made, parents have the right to file a due process complaint and request a hearing to resolve the issue.
The IDEA has four main parts: A, B, C and D. Part A covers general provisions of the law. Part B outlines how children and youth ages 3 through 21 receive special education and related services. Part C covers early intervention services for infants and toddlers, birth through age 2, with disabilities. Part D focuses on the national program to support and improve special education for children with disabilities.
The full text of the IDEA is available online at https://sites.ed.gov/idea. Click on “Law and Policy” and "Statute/Regulations," then scroll down to “View the Complete IDEA statute.”
For further information, visit http://idea.ed.gov, or contact Kara Hoopis Manosh, Attorney and Counselor at Law at (401)773-9993.
The family disruption that often accompanies divorce is compounded when a son or daughter with disabilities is involved. Divorce attorneys can be unfamiliar with the nuances of how public benefits interact with child support, alimony, and custody. Laws differ dramatically by state and are in flux in some states, as legislators and the courts deal with a growing need to address the special circumstances that arise when the divorce involves a son or daughter with disabilities.
Child support charts simply don’t account for the extra financial requirements of many children with disabilities. The costs of healthcare, therapies, equipment, special diets, support services, transportation and more are often difficult to accurately calculate. To complicate matters, parents sometimes disagree about a child’s abilities and disabilities, which can have a significant effect on divorce negotiations. Also, alimony calculations rarely take into account any drop in the custodial parent’s income due to caregiving demands, as well as the cost of needed respite time.
In addition, since children with intellectual and developmental disabilities may require lifelong financial support, their needs throughout adulthood should be evaluated. While relatively few states have laws on the books requiring a parent to support an adult son or daughter, many courts that have considered the question hold parents responsible for supporting adult offspring whose disabilities make ongoing financial support necessary. It is not the disability that is the determining factor, but the son’s or daughter’s ongoing need for financial support that results from the disability. Also, unless the state law clearly imposes a duty to support an adult offspring, many courts will not order support payments unless the court is asked to do so prior to the child becoming emancipated. On the other hand, some states explicitly end parental responsibility at a set age, such as 18, 19 or 21, whether or not the child has a disability.
Whatever the situation in your state, the issue of continuing support into adulthood of a son or daughter who has a disability should be addressed at the time of divorce, since making changes later can be difficult. Even in states with no-responsibility statutes, courts will uphold support commitments contained in the divorce decree.
That said, the son’s or daughter’s lifestyle during adulthood may need to be considered. What sort of education will be pursued after high school? What type of job is he or she interested in? What skills should he or she be developing? Where will he or she live? What will his or her support needs be? And so on.
How Public Benefits Are Affected by Child Support and What Can Be Done about It
While the family’s income may have previously been too high for a minor child with disabilities to receive SSI (Supplemental Security Income) or Medicaid, that could change if the custodial parent is unable to work outside the home due to full-time caregiving responsibilities. Any SSI received by a child with a disability will not be taken into account when courts establish child support obligations. On the other hand, many courts will factor in the child’s Social Security benefits if they are being paid because of the non-custodial parent’s work record.
While a child is a minor, child support payments are made to the custodial parent. This may result in family income that is too high for the child to qualify for needs-based public assistance. However, once the son or daughter reaches the age of majority, 18 in most states, any child support payments are deemed to be the child’s income, even if still paid to the custodial parent. At the very least, this will reduce, if not eliminate, the child’s potential SSI income and may create issues regarding Medicaid eligibility.
This can be avoided if the support is paid into a self-settled special needs trust (SNT) that is established for the son’s or daughter’s benefit. By doing so, the payments will be income to the trust instead of the offspring’s and will not reduce their SSI. While this type of SNT can be established by the parent or grandparent, in order for the support payment to avoid being treated as the son’s or daughter’s income, there must be an order from a court requiring that the support payments be made into the self-settled SNT.
If paying support payments to a self-settled SNT would best serve the child when he or she becomes an adult, the trust can be established at the time of divorce. The court should then order that support payments be paid into the SNT once the son or daughter reaches the age of majority. The court order can be made either at the time the original divorce decree is entered or later, but it is best that it be made before the child becomes emancipated.
Be aware that using an SNT to pay for certain expenses—such as food or shelter—will reduce SSI benefits. Even if the non-custodial parent pays directly for such items, including utilities, SSI will be negatively affected.
Clearly, the financial implications of public benefits for divorce and child support are complex and outside the experience of many divorce attorneys. For the best results, consulting an attorney who understands special needs planning is important to ensuring that all relevant factors are considered.
Originally Posted on October 8, 2015 by The Arc
By Craig C. Reaves, CELA, Special Needs Alliance
It is common for a parent to want to be named as trustee of a special needs trust benefitting her child, especially when the parent is the one creating or funding the trust. There are many reasons why this makes sense. It positions the parent to have complete control over trust distributions. It is also very unlikely that anyone else can match the loyalty and dedication that comes from the strong filial bond between a parent and child. The parent is almost always the individual most familiar with the child’s specific, unique needs that the trust must seek to fulfill in its administration. Another advantage is that the parent will usually work without compensation.
Despite all this, a parent serving as trustee can also confront many daunting problems involving trust laws and public benefits regulations that affect the administration of a special needs trust. The laws governing trusts vary from state to state, and public benefits rules can also vary in different parts of the country. The federal regulations are complex, highly technical, and subject to change. Even tax laws can cause headaches.
The alternative for most families is a corporate trustee, which brings with it objectivity and knowledge in areas such as investments, accounting, tax and trust laws, and public benefits, that a parent often lacks. Corporate trustees are trained to review on a regular basis the trust documents under their administration. They also usually have systems in place to keep current with changes in trust and tax law, as well as public benefit programs rules. But it is not unusual for a parent to feel uncomfortable ceding so much responsibility over their child’s welfare to a seemingly impersonal professional trustee.
One solution is for the parent and professional trustee to serve together as co-trustees. The parent has a clear understanding of the family’s objectives and the needs of their child with a disability, while the professional trustee usually has expertise in financial matters and public benefits law. This is often a good combination for a trust of substantial size. In trusts involving smaller sums of money, the combination of a parent and a nonprofit organization as co-trustees might make more sense.
Perhaps an even better alternative is to consider the use of a trust protector to oversee the corporate trustee. A trust protector is an independent third party, either an individual or an institution, whose role is to “look over the shoulder” of the trustee to ensure that the trust is properly serving the purpose for which it was intended. The trust agreement typically details the trust protector’s responsibilities and areas of authority. One power often given a trust protector is the ability to remove and replace a corporate trustee. Naming a parent as trust protector allows the parent to have formal authority in the oversight of the trust. The corporate trustee, who is more knowledgeable on the technical and legal trust issues, can then serve with the benefit of a parent’s insight into the particular needs of the child with disabilities.
Another option may be the use of a special needs pooled trust. With a pooled trust, a non-profit organization serves as the trustee. There are fees associated with a pooled trust, and the trustee is still an organization. However, a pooled trust company works almost exclusively with beneficiaries who have special needs and can perhaps provide a more personable, yet equally as professional, trustee than a for-profit corporate trustee.
A parent who wants to be involved in the operation of a special needs trust benefitting his child is commendable and encouraged. But deciding whom to name as trustee, co-trustee or trust protector should involve a careful review of the talents the parent has, and perhaps more importantly, the talents the parent lacks. It is often the combination of a parent and a professional trustee in these roles that forms the best team to provide the most versatile support to the child with special needs.
The First 100 Days and The New Health Care Bill:
What They Mean for Seniors, Veterans and the Disabled
Much has been made of the first 100 days of President Trump’s administration, and of the American Health Care Act (AHCA). This bill was just passed by the House as the first step to repeal and replace the Affordable Care Act (ACA).
This issue of The ElderCounselor™ will highlight the activity of the President’s first 100+ days and the potential effects on seniors, veterans and the disabled.
President Trump’s First 100 Days
In his first 100 days in office, President Trump has signed 32 executive orders, 28 memoranda, 34 proclamations and 29 legislative bills passed by Congress, according to www.whitehouse.gov. A few of those are highlighted below:
President Trump also signed into law The Veterans Choice Program (VCP) Extension and Improvement Act, improving the 2014 program that allows eligible veterans to receive care from providers in the community instead of only from the VA. There are three significant changes to the program:
The American Health Care Act (AHCA)
The House of Representatives narrowly passed this bill on Day 105 of President Trump’s administration by a margin of 217 to 213, with 20 Republicans voting against and no Democrats voting in favor. It is the Republicans’ first step toward their seven-year promise to repeal and replace the Affordable Care Act (ACA) that was passed by the Democrats in 2010 with no Republican support.
The House celebrated its passing of the AHCA, but we are far from a replacement. The House bill is now in the Senate, which is expected to make its own changes; some Senators have stated they may start from scratch. Then members of both the House and Senate will meet in conference to work out final details before it is voted on again. If it passes, it will then be sent to President Trump for his signature.
Who Would Be Affected by the AHCA?
176 million Americans have health insurance that is provided through their employers. The Congressional Budget Office (CBO), who analyzed the financial impact of the AHCA, found that 14 million people would lose their insurance within the first year. Of that 14 million, approximately 5 million fewer people will be covered under Medicaid, 2 million fewer will be covered through their employer, and 6 million fewer will obtain coverage on the individual market. By 2026, an additional 7 million fewer people will be enrolled in employer-based insurance, according to the CBO. Much of the reduction comes from the AHCA repealing the individual mandate penalty. There have been revisions to the AHCA that have not yet been scored by the CBO, so these numbers could improve. Also, it is anticipated that the Senate will make major revisions to the AHCA that may also impact the CBO’s numbers.
It is important to note that when people are required to buy insurance, this helps keep rates reasonable for people who are sick or have pre-existing conditions. The insurance markets set up through the ACA depend on a group of younger, healthier people blending into a diverse pool with older, sicker people. This type of blending (healthy people with unhealthy people) is intended to bring down the overall costs of insurance.
What’s in the AHCA?
Here are some of the main provisions in the bill as it now stands. Remember, these are likely to change at any point in the process.
Elimination of Essential Health Benefits
No longer requiring insurance companies to cover the 10 essential health services listed above could cause serious harm to seniors and persons with disabilities. Prescription drugs alone can be financially devastating to a person with a disability, regardless of age. Aside from covering prescriptions, insurance companies often negotiate discounts, and without that negotiation individuals could be left with a large bill, or be forced to go without needed medication.
While eliminating mandatory coverage for the essential health benefits will lower premiums (in theory), many may not be able afford a higher premium and could go without needed care because outpatient or in-patient care would not be covered, nor would rehabilitative services. A potential result of this piece of AHCA would be millions who would be under insured, or go without needed medical services or prescriptions. Interestingly, the CBO found that removing the necessity of covering essential benefits would save less money than keeping them.
Individuals who have a pre-existing condition and currently have health insurance, whether through an individual policy or Medicaid, will not pay more for their insurance as long as they have continuous coverage. If they let their coverage lapse for more than 63 days, insurers will be allowed to charge them 30% more than someone the same age without a pre-existing condition—but only if their state asks for and receives a waiver and sets up a high-risk pool to help cover people with serious, expensive-to-treat illnesses or diseases. $8 billion has been added to the AHCA over the next five years to help states finance their high-risk pools.
More than half of the 20 million people who gained coverage under ACA did so through Medicaid expansion, which allowed more people over the poverty line to be covered. Under the House bill, $880 billion will be cut from Medicaid over the next 10 years. It ends Medicaid expansion, limiting it to
states that have already implemented it, and changes Medicaid from an open-ended program that covers beneficiaries’ costs to one that gives states fixed amounts of money annually, called per capita caps. This is a way to shift costs from the federal government to the states, who would be given a set amount of Medicaid funds per beneficiary. When the money runs out, states would either pay, or deny Medicaid eligibility to individuals who would otherwise qualify.
Additional Medicaid reforms include eliminating a state’s right to allow over $750,000 in home equity caps for unmarried applicants and eliminating the three-month retroactive coverage rule, forcing individuals to file an application and supporting documentation the same month they are seeking eligibility. For younger Medicaid applicants, states would be allowed to impose work requirements on able-bodied individuals.
A lot has happened in the first 100 days of President Trump’s administration, and there is a lot to watch as we move forward. The AHCA, in its current form, could negatively impact seniors and persons with disabilities. However, it is just at the beginning stages and will undergo many changes in the coming months. Advocacy for our seniors, veterans and persons with disabilities is even more important as the work continues to improve health care for all.
If you have any questions about how you or someone you work with may be affected by the topics discussed here, please don’t hesitate to reach out.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer's particular circumstances.