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Special Needs Planning

Friday, June 22, 2018

Estate Planning Tips for Families with Disabled Beneficiaries

I recently came across an article on WealthManagement.com that does a good job of setting forth planning tips for families who have a loved one with a disability.


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Thursday, May 31, 2018

Questions & Answers When Looking for an Elder Law and Special Needs Planning Attorney

May is national elder law month.  Below is an excerpt from a guide published by the National Academy of Elder Law Attorneys (NAELA), of which I have been a member since 2003.


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Friday, March 23, 2018

Two provisions under the new tax law positively affect ABLE accounts

The Tax Cuts and Jobs Act includes two provisions that boost Achieving a Better Life Experience (ABLE) accounts for those with disabilities. These are the ABLE Financial Planning Act and the ABLE to Work Act.  The primary goal of the ABLE account legislation is to allow families who have children with a disabilities to have a savings ability, similar to people saving for college, without the account adversely affecting eligibility for means-tested benefits.

The Financial Planning Act allows a family to transfer funds from a 529 plan to an ABLE account as long as the beneficiary remains the same. This is important because families don't always know when a child is born that there may be a disability, or disability may occur later on.


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Friday, October 6, 2017

Update – Montanans with disabilities can now establish ABLE accounts

In my blog post of January 21, 2015, we reported that in late 2014 the federal ABLE (" Achieving a Better Life Experience") Act was signed into law by Congress. Montana implemented the ABLE law in May, 2015, as was reported in my blog post of May 13, 2017.  You can refer to those previous posts for more detail, but you will remember that the law is aimed at achieving a manner in which those with special needs can save money without losing needs based public benefits such as SSI or Medicaid. The federal law allows states to implement the Act to provide for a savings program for persons with disabilities that is modeled after the 529 college savings account program.  Although Montana implemented the ABLE law in 2015, it has spent the last couple of years developing the program under which accounts may be established.


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Tuesday, February 2, 2016

Third-Party Special Needs Trusts

I have previously posted a discussion of planning with special needs trusts (see my post of April 8, 2011) which focused on the two types of special needs trusts – – one created with the beneficiary’s money (self-settled or first-party trust), and one created with someone else's money, such as the disabled person’s immediate family, friends and other relatives (third-party trust).  Today, I want to focus specifically on third-party trusts.

A third-party special needs trust can be either a testamentary trust established under the Last Will and Testament of a decedent, such as the disabled person’s parent, or it can be a standalone special needs trust established by the grantor, typically the disabled person’s parent, during the parent’s lifetime.   The benefit of using a standalone trust is that the trust exists not only to retain assets upon the death of the grantor, but it can also be funded with gifts during the life of the grantor, either from the grantor, another person, or both.   In addition, the standalone third-party special needs trust can be named as a beneficiary to receive funds under a life insurance policy and other financial accounts through TOD (Transfer on Death) designations or POD (Pay on Death) designations.  It can also be named as the beneficiary of another person's estate plan, other than the parent, such as a grandparent or a friend.

Third party special needs trusts are not funded with the disabled person’s own assets, so there is no payback requirement to Medicaid.  Because a third-party special needs trust does not have to account for a Medicaid pay back, the funds can be used to benefit beneficiaries other than the disabled beneficiary, if the grantor so chooses.  Therefore, for example, a trustee could be granted the authority to pay the travel and entertainment costs of friends and other family members to encourage them to interact with the disabled beneficiary more frequently.

If a beneficiary of an estate or trust is receiving public benefits and the inheritance is not passed to a third-party special needs trust, the disabled beneficiary likely will be disqualified from means-tested public benefits.  Even though the disabled beneficiary may be able to shelter the funds in a first-party special needs trust, the first-party special needs trust must contain a payback provision.  Further, if the beneficiary is over the age of 65 when the trust is to be funded, the first-party special needs trust cannot be established because of the age restrictions imposed by federal law. Therefore, utilizing third-party special needs trusts in estate planning can be very advantageous to a beneficiary with special needs. 

Jon

 


Tuesday, December 8, 2015

Update on the Military's Survivor Benefit Plan and the Disabled Child

About four years ago I posted a blog noting that there was a dilemma for military families planning for a disabled child through the use of special needs trusts and the military's Survivor Benefit Plan (SBP).  At the time, it was a problem that could not be reconciled because the benefit could not be assigned to a special needs trust for a disabled child.  The only options were thus to elect to not name the disabled child at all as a beneficiary or to elect for the benefit to be paid directly to the child which would potentially interfere with the child’s eligibility for SSI and Medicaid.

I am pleased to report that Congress, with the passage of the Disabled Military Child Protection Act, has now authorized military members to name special needs trusts as beneficiaries of SBPs.   Members of the military can choose from several options to provide for a spouse or dependent child at the member’s retirement or death.  The SBP will pay up to 55% of the military member’s retirement pay to a spouse and/or dependent child.  The military member can elect between coverage for a spouse only, a spouse and children, or children only.  In addition the military member may now also elect to name a special needs trust as beneficiary of the SBP, allowing the funds to be used for the benefit of the disabled child without harming his or her access to SSI or Medicaid.  However, the funds must be assigned to a first-party or self-settled special needs trust that includes a "pay-back" provision to reimburse the state Medicaid program, upon the death of the disabled child, from the funds, if any, remaining in the trust at his or her death. This certainly is a welcome change for special needs planners.

Jon


Wednesday, May 13, 2015

Update – Montana has now implemented the ABLE Act

In my blog post of January 21, 2015, and in one of our firm's previous newsletters, we reported that in late 2014 the ABLE (" Achieving a Better Life Experience") Act was signed into law by Congress. You can refer to my previous post for more detail, but you will remember that the law is aimed at achieving a manner in which those with special needs can save money without losing needs based public benefits such as SSI or Medicaid. The federal law allows states to implement the Act to provide for a savings program for persons with disabilities that is modeled after the 529 college savings account program.

I am happy to report that Montana has now become the 10th state to implement and ABLE law with Governor Bullock’s signing of Senate Bill 399 on May 7, 2015.  Under the Montana ABLE Act, the disabled individual, or someone on his or her behalf, may set up a savings account to cover expenses associated with the person's disabilities that will not jeopardize the disabled person's public benefits.   Anyone can make a tax-deductible contribution of up to $3,000 each year to the account, whether or not a family member of the disabled individual, although the total annual amount that can be contributed by all persons into the account is limited to $14,000 per year.  The account can accumulate over time a maximum of $100,000 in contributions.

While the ABLE account does not replace other special needs planning tools, such as special needs trusts, it does add an important option for individuals with disabilities.

Jon


Wednesday, January 21, 2015

An Overview of the ABLE Act

What follows is an abbreviated version of our article that appeared in our firm’s most recent newsletter, the ElderCounselor.

 Late in 2014, the ABLE (“Achieving a Better Life Experience”) Act was signed into law. The law is aimed at achieving a manner in which those with special needs can save money without losing needs based public benefits such as SSI or Medicaid.  While an ABLE account does not replace other tools, like special needs trusts, it does add an option for individuals with special needs.

 The ABLE Act is a federal law that allows states to establish a savings program for persons with disabilities.  Montana has not yet implemented the program and we will need to continue to monitor its application in Montana.  The program is modeled after the 529 savings accounts.  ABLE accounts may be used to accumulate savings, with certain restrictions, for use by a beneficiary with a disability.  An ABLE account may be established by any contributor (a parent, friend, family member or the person with a disability) for the benefit of a beneficiary of any age so long as the beneficiary can establish that he or she met the disability criteria prior to age 26.   

 The Act imposes limits as to the amount of savings that can be held in an ABLE account.  The first such limitation deals with the annual total contribution amount, which may not exceed the annual gift-tax exclusion amount (currently $14,000).   This is not a per person contribution limit; it is the total amount that can be contributed to the account by all contributors.  In addition, ABLE accounts may only accumulate aggregate contributions up to the state’s limit on qualified tuition programs (i.e. 529 accounts), which in Montana currently is $396,000.  Finally, SSI exempts only the first $100,000 of an ABLE account. Therefore, if an individual receives SSI, his or her ABLE account may not exceed $100,000 and he/she may have other assets up to only $2,000. Otherwise, the individual will become ineligible to continue receiving SSI, but can remain eligible for Medicaid.

 It is important to note that the ABLE account is a “Medicaid Payback” account.  This means that the Act requires a provision in the account that upon the death of the beneficiary of the account, Medicaid payments made on behalf of the beneficiary subsequent to the establishment of the ABLE account must be reimbursed with any remaining funds.

 ABLE accounts have tax benefits similar to 529 accounts.  Qualified distributions from the account are not counted as taxable to either the contributor or the beneficiary.  Qualified distributions include expenses paid for the benefit of the beneficiary related to: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and any other expenses approved by the Secretary of Treasury.  In addition, earnings on the ABLE account are not taxable to the contributor or to the beneficiary.

 A person receiving needs-based government benefits often has a dilemma when it comes to saving, whether for education or for unexpected events, all while maintaining public benefits such as SSI.  In order to receive SSI, a person with a disability must have assets under $2,000. The ABLE Act makes saving possible…up to a point. Now the individual can remain on SSI and save a modest amount in an ABLE account (up to $14,000 per year).   Persons with disabilities who are employed may want to utilize an ABLE account to save a portion of their income while remaining qualified for SSI. In addition, families may want to contribute to an ABLE account for their loved ones with disabilities in smaller increments.  These same families may also desire to use other tools available such as Special Needs Trusts, which may be more flexible.  On the other hand, because of the limitations the ABLE account will not be useful, for instance, for people who have become disabled due to an accident and who are receiving a judgment or settlement for a significant amount, or for a person with special needs who is receiving a large inheritance.

 Every tool has its use and the ABLE account, when implemented by Montana, will be no exception.  We can walk you through the decision process of determining when it is an appropriate option for you or your loved one and when it is not.

 Jon 


Monday, April 9, 2012

Gifting to a Minor with Special Needs

We previously have posted blog entries about special needs planning and about gifting.  Gifting money to a child with special needs can be a powerful tool for a parent or grandparent to provide support for the special needs child.  However, caution must be used when making such gifts when the special needs individual is a minor.  The parent or grandparent might think that a safe way to make gifts is to open an account under the Uniform Transfers to Minors Act (UTMA), but these accounts may create significant complications in the future.

The UTMA account becomes the property of the special needs child when he or she reaches age 18 or 21.  This occurs automatically, regardless of whether he or she is participating in a means tested government program and even if he or she is not capable, because of disability, of managing that money.  In this instance the special needs individual will likely lose his or her Supplemental Security Income (SSI), Medicaid and other government programs as of that date.  In many cases, a lawyer will need to be hired to step in and obtain court permission to put the money in a different type of account, usually a first-party special needs trust, which under the rules must provide that any funds remaining in that trust at the time of the death of the special needs individual would have to first reimburse the government for any services it has paid on his or her account to the Medicaid program before they pass to anyone else.  The better alternative would be to have the parent or grandparent first set up a third-party special needs trust, which does not require a payback provision to the Medicaid program, and then make gifts to that trust.

For a discussion of first-party and third-party special needs trusts, please see my previous blog post, "Planning with Special Needs Trusts."

Jon


Monday, April 9, 2012

Gifting to a Minor with Special Needs

We previously have posted blog entries about special needs planning and about gifting.  Gifting money to a child with special needs can be a powerful tool for a parent or grandparent to provide support for the special needs child.  However, caution must be used when making such gifts when the special needs individual is a minor.  The parent or grandparent might think that a safe way to make gifts is to open an account under the Uniform Transfers to Minors Act (UTMA), but these accounts may create significant complications in the future.

The UTMA account becomes the property of the special needs child when he or she reaches age 18 or 21.  This occurs automatically, regardless of whether he or she is participating in a means tested government program and even if he or she is not capable, because of disability, of managing that money.  In this instance the special needs individual will likely lose his or her Supplemental Security Income (SSI), Medicaid and other government programs as of that date.  In many cases, a lawyer will need to be hired to step in and obtain court permission to put the money in a different type of account, usually a first-party special needs trust, which under the rules must provide that any funds remaining in that trust at the time of the death of the special needs individual would have to first reimburse the government for any services it has paid on his or her account to the Medicaid program before they pass to anyone else.  The better alternative would be to have the parent or grandparent first set up a third-party special needs trust, which does not require a payback provision to the Medicaid program, and then make gifts to that trust.

For a discussion of first-party and third-party special needs trusts, please see my previous blog post, "Planning with Special Needs Trusts."

Jon


Wednesday, July 6, 2011

The Military’s Survivor Benefit Plan and the Disabled Child – Elect with Care

Great Falls is blessed to have Malmstrom Air Force Base as part of its community. Not only does the base support active personnel, but many military retirees have opted to live in the Great Falls area.  That being the case, I want to address an issue that is unique to military families. 

When retirement looms, a military family with a disabled child must carefully decide whether to name the child under the retiree’s Survivor Benefit Plan (SBP).  The SBP will pay up to 55% of the military member’s retirement pay to a spouse and/or dependent child. The military member can elect between coverage for a spouse only, a spouse and children, or children only.

While the SBP can be a significant benefit for the spouse, it can be problematic if there is a disabled child involved.  In most cases, a disabled child over age 18 can be designated an Incapacitated Dependent (DD Form 137-5) and, thus, be permanently eligible for Commissary and Exchange privileges as well as Tricare health care.  In addition, assuming the disabled child over age 18 has assets of less than $2,000 and minimal income, the disabled child will usually be eligible for Supplemental Security Income (SSI) and Medicaid.  

SSI benefits ($674 per month in 2011) are offset by unearned income to the disabled child.  Any unearned income over $20 per month offsets the SSI benefit dollar-for-dollar. Once the SSI benefit reaches $0, SSI, and in most cases, Medicaid, is lost.  If the member dies having chosen the SBP for the child only, the disabled child will receive 55% of the member’s income.  If that amount exceeds $674 per month, the disabled child will lose SSI and Medicaid.  If the member and spouse both die after having chosen the SBP for a spouse and child, the same thing happens.

What about having the SBP payments go to a Special Needs Trust for the benefit of the disabled child?  Would this “prevent” the child from having received the SBP payment and avoid the SSI offset?  Unfortunately, Social Security considers it to have been received by the child whether it goes directly to the child or to a special needs trust for the child, since by express federal statute the beneficiary is the child for SBP purposes.  What about just canceling the SBP payments?  Again, unfortunately, once they start, there is no way to stop them.

It is critical that the military member be aware of the impact of the SBP on a disabled child’s SSI and Medicaid benefits. To prevent the loss of SSI and Medicaid benefits, there are actions the member may take.  The first is to select the spouse only when making the SBP election when there is a disabled child.  The second option, if the member has a disabled child and has already made an SBP election that includes the child, is to apply to the Board for Correction of Military Records to modify the SBP election.  This option must be completed while the member is still alive since the SBP beneficiary payments to the disabled child start upon death.  The member must complete DD Form 149 justifying why the SBP selection option must not include children.  For example, the member might tell them he or she did not understand when originally making the selection that including children would have a severe negative impact on the disabled child’s other benefits.  

Thus, if you are eligible for the SBP and have a child with a disability, please take care in making your election, or take appropriate action if the election has already been made, to insure your child remains eligible for current/future SSI/Medicaid benefits.


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