Your Special Needs Trust ("SNT") Defined

You have a special needs trust— or you have been designated as the trustee of a special needs trust— or your child has a special needs trust. What is a trust? What is a trustee? What is a beneficiary? What are all these terms you've never used before even though your first language is English? This article provides you with an overview of the more common terms found in your special needs trust. What is a Trust? A trust is a legal arrangement in which a person or a financial institution, called the trustee, holds and manages assets for the beneficiary (see definition below). The trust document explains the trustee's authority, how the trust is to benefit the beneficiary, and how and when the trust is to terminate. There are many types of trusts, but this article is focusing on a specific type of trust—a special needs trust. A special needs trust (SNT) is a trust that will preserve the beneficiary's eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). Because the beneficiary does not own the assets in the trust, he or she can remain eligible for benefit programs that have an asset limit. As a general rule the trustee will supplement the beneficiary's government benefits but not replace them. Examples of supplemental needs are costs for sitters, companions, and dental or medical expenses not covered by Medicare or Medicaid. A first-party SNT, also referred to as a "self-settled" or "(d)(4)(A) trust," is funded with assets or income that belong to an individual with a disability (see definition below) and who is the beneficiary of the trust. In order for the assets of this type of trust not to count for Medicaid or SSI purposes, federal law requires that the beneficiary must be under the age of 65 when the trust is created and funded; the trust must be irrevocable and provide that Medicaid will be reimbursed upon the beneficiary's death or upon termination of the trust, whichever occurs first; and the trust must be administered for the sole benefit of the beneficiary. Typically the funding comes from a personal injury settlement or inheritance the beneficiary receives directly. A third-party SNT, frequently referred to as a supplemental needs trust, is funded with assets belonging to a person other than the beneficiary. In fact, no funds belonging to the beneficiary may be used to fund the trust. Typical funding comes from gifts, an inheritance from parents or grandparents, and proceeds of life insurance policies. This trust has no provisions to pay back Medicaid upon the trust's termination; rather, the person creating the trust decides how the trust estate is distributed when the beneficiary dies. The following terms are commonly found in first-party and third-party special needs trust agreements: Grantor — A grantor is the person who creates and funds the trust. This person is also commonly referred to as a settlor or trustor. In first-party SNTs, the grantor is actually the beneficiary because the law requires that the trust be funded with the beneficiary's own money, but that it be established by a parent, grandparent, legal guardian or a court. In third-party SNTs, the grantor is anyone other than the beneficiary, usually a parent or other family member. Trustee — A trustee is the person or entity who manages the trust assets and administers the trust provisions. A trustee can be a family member, friend or colleague of the beneficiary, a professional, or a combination of the two. A professional trustee generally is a corporate trust department or an attorney. It is common for more than one person to serve as trustee at the same time. Successor Trustee — A successor trustee is nominated in the trust agreement and is the person or entity to take over when the initial trustee is no longer able to serve. The trust agreement usually has specific requirements that the successor trustee must satisfy before assuming the trustee role. Beneficiary — A beneficiary is the person for whose benefit the trust is established. In first-party SNTs, the beneficiary must be a person who is classified as disabled by the Social Security Administration (SSA). In some states, the beneficiary of a third-party special needs trust must also be a person with a disability. Remainder beneficiary — When the trust ends (usually upon the beneficiary's death), the remainder beneficiaries are the individuals who will receive any remaining trust assets. In first-party SNTs, the state's Medicaid division is typically the first remainder beneficiary (note that in some states, Medicaid is not considered a beneficiary but rather a creditor). After Medicaid is reimbursed for the services it provided to the beneficiary, if trust assets still remain, they usually pass to the beneficiary's estate, or in some cases to persons named as remainder beneficiaries in the trust instrument. In third-party SNTs, the grantor of the trust decides who the remainder beneficiaries are. Medicaid should never be named as a remainder beneficiary of a third-party SNT. Compensation — Unless the trust agreement states otherwise, trustees are usually entitled to compensation for their services. Compensation is usually set forth in state law. If a corporate trustee is serving, it usually receives a fixed amount, based upon the value of the trust estate. All compensation is reportable as taxable income to the trustee. Trust Estate — The trust estate consists of assets placed into the trust and managed by the trustee for the benefit of the beneficiary. It also includes income earned from invested trust assets. Schedule A — Also known as a schedule of assets, Schedule A identifies all of the assets owned by your trust. It is important for the trustee to keep this schedule up to date. Irrevocable — An irrevocable trust is a trust that cannot be revoked or changed. All first-party SNTs must be irrevocable. A third-party SNT can be either irrevocable or revocable. Revocable — A revocable trust is a trust in which the grantor can revoke or change the trust terms at any time. Only third-party SNTs can be revocable. Revocable trusts usually become irrevocable no later than the death of the grantor, if not sooner. Testamentary — A testamentary trust is a trust created under a last will & testament and is not funded until the death of the person who created the will. A testamentary trust can only be a third-party SNT. Inter vivos — "Inter vivos" is a Latin term that means "among the living" or "during life." An inter vivos trust is a trust established during the lifetime of the person creating the trust. All first-party SNTs are inter vivos. An inter vivos third-party SNT can be revocable or irrevocable. Disability — The beneficiary of a first-party SNT must have a disability recognized by section 1614(a)(3) of the Social Security Act. You can visit http://www.ssa.gov/disability/professionals/bluebook/ for a complete list of SSA-recognized disabilities for adults and children. Bond or Surety — At times, a trustee is required to obtain a bond, which provides protection to the beneficiary against the possibility of fraud, negligence or loss of trust assets by the trustee. A bond is similar to an insurance policy in that if the trustee negligently or fraudulently lost trust assets, the bonding company agrees to pay a specified amount of money to reimburse the trust. Frequently when family members are serving as trustee, courts or Medicaid will require the trustee to obtain a bond. Accounting — The accounting is an explanation of the trust activity for a specified time period (usually a year). The accounting is prepared by the trustee, or an accountant or attorney hired by the trustee to prepare the accounting on the trustee's behalf. The accounting can be simple or very detailed. It is important to review the language in the trust agreement to know what the accounting requirements are. For example, in addition to providing the accounting to the beneficiary, the trustee may need to file the accounting with the court, the Social Security Administration or the state Medicaid agency. Special needs trusts are complex. The language used in special needs trusts can vary greatly from one trust agreement to another and from state to state. It is essential for trustees and trust beneficiaries to understand the terms in the written trust agreement. A legal professional experienced in special needs planning can ensure that the trust document will meet the needs of the trust beneficiary, the person who is funding the trust and the trustee who is administering the trust.  "Reprinted with permission of the Special Needs Alliance - www.specialneedsalliance.org."

Five Myths about Medicaid's Long-Term Care Coverage

 

While Medicare gets most of the news coverage, Medicaid still remains a bit of mystery to many people. The fact is that Medicaid is the largest source for funding nursing home care, but there are many myths about exactly who qualifies for it and what coverage it provides. Here are five myths followed by the real story.

1. Medicare will cover my nursing home expenses. Medicare's coverage of nursing home care is quite limited. Medicare covers only up to 100 days of "skilled nursing care" per illness. To qualify, you must enter a Medicare-approved "skilled nursing facility" or nursing home within 30 days of a hospital stay that lasted at least three days. The care in the nursing home must be for the same condition as the hospital stay.
   
2. You need to be broke to qualify for Medicaid. Medicaid helps needy individuals pay for long-term care, but you do not need to be completely destitute to qualify. While in general a Medicaid applicant can have no more than $2,000 in assets to in order to qualify, this figure is higher in some states and there are many assets that don't count toward this limit. For example, the applicant's home will not be considered a countable asset for eligibility purposes to the extent the equity in the home is less than $536,000, with the states having the option of raising this limit to $802,000 (in 2013). In all states, the house may be kept with no equity limit if the Medicaid applicant's spouse or another dependent relative lives there. In addition the spouse of a nursing home resident may keep one half of the couple's joint assets up to $115,920 (in 2013). For more information on Medicaid’s asset rules, click here.
3. To qualify for Medicaid, you should transfer your money to your children. Medicaid law imposes a penalty on people who transfer assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid, and the length of the penalty period is determined, in part, by the amount of money transferred. The state will look at all transfers made within five years before the application for Medicaid. That doesn't mean that you can't transfer assets at all -- there are exceptions (for example, applicants can transfer money to their spouses without incurring a penalty). However, before transferring any assets, you should talk to an elder law attorney. For more information on Medicaid’s asset transfer rules, click here.
4. A prenuptial agreement will protect my assets from being counted if my spouse needs Medicaid. A prenuptial agreement only works to keep property separate in the event of death or divorce. It does not keep your property separate for purposes of Medicaid eligibility.
5. I can give away up to $14,000 a year under Medicaid rules. You can give away up to $14,000 a year without incurring a gift tax. Under Medicaid law, a gift of $14,000 or any other significant amount could trigger a penalty period if it was made within the five-year look-back period.

Before applying for Medicaid, it is crucially important to consult with an elder law attorney.

Source:  www.elderlawanswers.com

2013 is our 100th Anniversary!

Davidow, Davidow, Siegel & Stern was originally founded by Harry A. Davidow in 1913. The firm later expanded with the addition of Harry's two sons, Sanford and Wallace and then his grandson, Lawrence, who currently serves as Managing Partner.

Located in the Davidow's hometown of Patchogue, New York, the law firm functioned as a general practice firm, catering to a multitude of business and personal needs of local clients. Above all else, the philosophy of the firm was to service its clients with the highest degree of excellence, confidentiality and reliability. Although time has brought many changes, this ideology has never waned; in fact, it is the foundation on which the firm continues to grow.

Today, now operating in the more centralized location of Islandia, Lawrence Davidow has redirected the firm into one of the first and most successful Elder Law, Special Needs, Estate and Business Planning practices on Long Island. Although the firm has grown with new partners and new directions, it continues to be deeply committed to providing excellent customer service which has been the hallmark for ONE HUNDRED YEARS.

In order to celebrate this incredible milestone, Davidow, Davidow, Siegel & Stern has put together a year long, charitable promotion entitled, "Century of Giving." We will provide you with all of the details and invite you to join in our birthday celebration when the promotion is launched.

Planning for unmarried and same-sex couples

New York is only one of four states that still has not defined what marriage consists of, leaving many couples confused and unprepared for the future. The majority of the other states define marriage as a union between one man and one woman. This issue may not seem important, but there are over fifteen hundred federal and state laws (including child visitation rights, power of attorney, and tax benefits) in which benefits, rights and privileges are contingent on marital status.
New York has made the news recently because of the landmark decision of Hernandez v. Robles which holds that denying marriage to same-sex couples violates New York’s constitutional guarantees of equality, liberty and privacy for all New Yorkers. The trial court decided the case in February 2005 and the case was appealed to the appeals court with oral arguments scheduled to start in the fall. The trial court decision means that the New York City clerk may no longer deny marriage licenses to same-sex couples. Since the case was appealed, the judge’s decision is not yet valid.
State Supreme Court Justice Doris Ling reasoned it unfair that in New York the "plaintiffs couples may not own property by their entireties; file joint state income tax returns; obtain health insurance through a partner's coverage; obtain joint liability or homeowner's insurance; collect from a partner's pension benefits; have one partner of the two-women couples be the legal parent of the other partner's artificially inseminated child, without the expense of an adoption proceeding; invoke the spousal evidentiary privilege; recover damages for an injury to, or the wrongful death of, a partner; have the right to make important medical decisions for a partner in emergencies; inherit from a deceased partner's intestate estate; or determine a partner's funeral and burial arrangements."
In addition to marriage, New York has no laws either allowing or prohibiting domestic relation agreements or civil unions between same-sex couples. Unlike marriage, civil unions and domestic partnerships are invalid outside the state in which they occur and do not provide any federal marriage benefits. Because New York does not have any civil union laws giving certain rights to gay and lesbian couples, it is important to create a domestic relationship agreement with the help of a knowledgeable estate planning attorney.
It is crucial to plan ahead because unmarried partners face a lot more obstacles than their married counterparts. Issues that affect domestic partners such as power of attorney have recently surfaced in the wake of Terri Schiavo case. In addition, if you plan on sharing all or even a part of your estate with your partner, it is critical that the details are recorded in a written document. If you are currently living together with a partner, it may be necessary and surely advisable to speak to a specialized estate planning attorney to help create a domestic relationship agreement to ensure that you and your loved ones are protected.

MEDICARE COVERAGE RULES CHANGED

In a major change in Medicare coverage rules, the Obama Administration has agreed to settle a class action lawsuit and end Medicare’s longstanding practice of requiring that beneficiaries with chronic conditions and disabilities show a likelihood of improvement in order to receive coverage of skilled care and therapy services.

The policy shift will affect beneficiaries with conditions like multiple sclerosis, Alzheimer’s disease, Parkinson’s disease, ALS (Lou Gehrig’s disease), diabetes, hypertension, arthritis, heart disease, and stroke.

For decades, home health agencies and nursing homes that contract with Medicare have routinely terminated the Medicare coverage of a beneficiary who has stopped improving, even though nothing in the Medicare statute or its regulations says improvement is required for continued skilled care.  Advocates charged that Medicare contractors have instead used a “covert rule of thumb” known as the “Improvement Standard” to illegally deny coverage to such patients.  Once beneficiaries failed to show progress, contractors claimed they could deliver only custodial care, which Medicare does not cover.  

Source:  www.elderlawanswers.com

The IRA as Inheritance by Jane Bryant Quinn

Do you have an individual retirement account (IRA) that you're leaving to your kids?  Or - flip that - do you expect to inherit an IRA?  Read this column carefully.  It could save you a ton of money in income taxes.

Mistakes are painfully common when IRAs are passed to heirs, says Ed Slott, author of The Retirement Savings Time Bomb...and How to Defuse It.  One wrong move and the entire IRA will be taxed rather than tax-deferred.  Even financial professionals don't always know the rules, Slott says.

An IRA's greatest gift is long-term tax shelter.  The money you put in the plan is invested in mutual funds.  All the earnings -- interest, dividends and capital gains -- grow tax-deferred.  With traditional IRAs, your heirs will owe income taxes when they take money out of the account.  With Roth IRAs, the money comes tax-free.  In either case, the best strategy for heirs is to leave as much money as possible in the account.  The tax-sheltered growth of those investments could continue for years, even decades.  Here's what you and your heirs need to know.

A spouse inherits
Let's start with the easiest case:  You're a spouse who inherits an IRA from your husband or wife.  You can put the IRA in your own name ("retitle" it) -- that's the simplest way -- or roll the money, tax-free, into a new IRA, also in your name.

If it's a traditional IRA, you can leave the money alone until you reach age 70 1/2 ,when required withdrawals begin.  With a Roth IRA, any money you don't need can stay in the Roth for the next generation.

There's a tax wrinkle for younger spouses.  If you need some of that IRA money, you'll potentially owe a 10 percent penalty, as long as you're under 59 1/2.  You can avoid the penalty, however, by retitling the account as an "inherited IRA."

The rules on retitling are very specific.  As an example, say that John Jones dies, leaving his IRA to his young wife, Mary Jones.  The account should be retitled "John Jones IRA (deceased Aug. 1, 2012) for the benefit of Mary Jones, beneficiary."  Once that's done, Mary can start taking money, penalty-free.

There's one more step -- younger wives, please note.  When Mary reaches age 59 1/2, she should retitle the account again, this time in her name alone.  That lets her defer any further withdrawals until she reaches 70 1/2.  If she doesn't take this step, withdrawals must start when her late spouse would have reached 70 1/2.

A child or non-spouse inherits
Now, take the case of inheritors who are not spouses.  Say you're a child receiving an IRA from a parent.  You cannot roll the money into an IRA in your own name.  If you decide to cash out, two bad things happen:  (1) You'll owe income taxes, if it's a traditional IRA.  (2) You will lose the glorious, multi-year (even multi-decade) tax shelter that an inherited IRA can provide.

So you, too, should retitle the account as an "inherited IRA."  For example, say John Jones leaves his IRA to his daughter, Joan.  Joan should retitle it "John Jones IRA (deceased Aug. 1, 2012) for the benefit of Joan Jones, beneficiary."  If the money will be divided among heirs, each recipient should retitle his or her share.  Every year, you're required to make a minimum withdrawal, based on your age, but can take more if you want.  Remember, withdrawals are taxed; the rest accumulates tax-deferred.

Now let's say that Joan dies, naming her son, Jack, as beneficiary.  Jack can retitle the account as an inherited IRA and complete the withdrawals on the same schedule that Joan began.  The family tax deferrals could last for decades more!

What if you inherit a 401(k)?  That, too, can be retitled as an inherited IRA.

Correct titling is critical, says James Lange, author of Retire Secure! Pay Taxes Later.  If you get it wrong, you'll be taxed immediately, on the whole amount.  The lawyer who handles the will can help heirs retitle.  Or send a letter to the mutual fund group that holds the IRA, specifically asking that it create a separate "inherited IRA" for each beneficiary.

Bottom line:  Anyone holding an IRA or 401(k) should leave a note explaining the importance of retitling.  You want your heirs to get as much tax deferral as they can from the money you leave them.

This article originally appeared in the aarp.org/bulletin, October 2012.  Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. 

Romney's Plans for Medicaid

As the presidential campaign unfolds, the differences in approaches to Medicare by President Barack Obama and Republican nominee Mitt Romney have taken center stage. But what is getting far less scrutiny: Romney's plans for Medicaid. He would convert the health care program for the poor, disabled and elderly into a block grant to the states and sharply reduce funding over time. Middle-class Americans should be especially wary, since it's Medicaid, not Medicare, that covers nursing home care for aged and infirm parents and grandparents. Without Medicaid's safety net, it isn't clear what those Americans would do, and Romney doesn't have any good answers.

It's an understandable confusion. People think that since Medicare covers medical services for people over 65, it also pays for nursing home care for elderly people. Medicaid is thought of as a poverty program that provides medical coverage to poor families. But Medicaid is the program that provides long-term care to the elderly and disabled, which accounts for 31 percent of the program's $400 billion annual federal and state spending. Most of the nation's 1.8 million nursing home residents, including more than 77,000 Floridians, rely on Medicaid to pay their bills.

Medicaid's nursing home beneficiaries are not necessarily poor people. During their working years they may have lived productive middle-class lives until becoming infirm and quickly exhausting their assets. No matter how assiduously families save for retirement, there aren't many who could long afford the steep costs of a residential nursing home that can run an average of $80,000 a year. Without Medicaid's essential safety net, members of this vulnerable population would be on their own or might be forced to live with relatives ill equipped to care for their intensive needs.

There is an irony to Romney running mate Paul Ryan's applause line at the Republican National Convention last month that "the truest measure of any society is how it treats those who cannot defend or care for themselves." It was Ryan who authored the plan to convert Medicaid from a strong federal-state entitlement to a block grant program to the states that Romney has incorporated into his campaign. The plan, passed as a budget blueprint by the Republican-controlled House, would gut Medicaid's safety net and focus instead on cutting funds. The nonprofit Center for Budget and Policy Priorities says Medicaid funding would decline by one-third by 2022 under Ryan's plan.

To make up the difference, states that are already struggling under Medicaid's rising costs would have to add substantial state money to the program or - more likely - utilize the new flexibility Romney promises to pare back eligibility, reimbursements and enrollment. Estimates are that states would drop between 14 million and 27 million people from Medicaid by 2021, according to the Urban Institute. In addition, Romney's promise to repeal President Barack Obama's health care reform law would impact Medicaid by eliminating expanded coverage of home and community-based services that help seniors live at home. This fits the you-are-on-your-own agenda of the Republican presidential ticket far more neatly than Ryan's rhetoric about caring for those who can't care for themselves.

Medicaid is a lifeline for poor children and families but also for the nation's middle class whose elderly and disabled loved ones rely on it for long-term care.

  Source:  Tampa Bay Times, September 24, 2012

*This is an editorial piece illustrating one man's opinion.  We thought you might be interested to read his view on this heavily-debated topic.  Keep in mind, while contemplating this issue, that nursing homes in the New York area run about $150,000 per year.