1. DOING WELL BY DOING GOOD: Combining Special Needs and Charitable Planning and Charitable Planning Presented by: James M. McCarten | Partner Burr & Forman LLP Jim.mccarten@burr.com 615/724-3236 NAMI 2012 NATIONAL CONVENTION SEATTLE, WASHINGTON JUNE 27 – 30, 2012

2. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 2 What is Special Needs Planning? S - Social and Spiritual P - Physical / Medical E - Emotional, Economic, Encouragement C - Community, Creativity, Contentment I - Independence, Inclusion A - Achievement, Academics, Accountable L - Leadership, Legal

3. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 3 BUILD YOUR CHILD’S FUTURE ON A STRONG FOUNDATION!

4. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 4 Funding Treatment, Living Arrangements and Supports Before Age 18 - - - - - -Parental Obligation of Support. -Medicaid/TennCare (if otherwise uninsurable) (only for minors with disabilities). After Age 18 - - - - - -On their own? -SSI. -Medicaid/TennCare (but under Health Care Reform, children can be covered up to age 26).

5. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 5 Other Government Benefits/Services Residential Services. Day Program Services. Housing Subsidies. Family Support Services. Supported Employment. Respite Care Services.

6. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 6 Government Benefits 101: Or Why Planning Is Important. 1.The 2 primary benefits programs for disabled individuals are Supplementary Security Income (“SSI”) and Medicaid. 2.Both are means-tested. -For the disabled individual, the requirement is that the value of his/her countable resources must be less than $2,000.00. -Neither can the disabled individual receive countable income in any month in an amount exceeding two (2) times the SSI benefit plus $65.00 or $85.00. For 2012, the monthly federal benefit rate for unmarried persons is $696.00. 3.While under age 18, the income of the parents is “deemed” income of the minor child.

7. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 7 Making Transfers To Qualify Traditional wealth transfer planning tools generally do not work for families with members who have special needs; in fact, such strategies often work against such individuals!

8. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 8 A Brief Summary of Traditional Strategies (and Why They Don’t Work) 1.Annual gifting. 2.Outright inheritances. 3.Traditional discretionary support trusts. 4.Leaving property to another family member with instructions that the property be used for the benefit of the family member suffering from a disability. 5.Disinheriting the family member with a disability.

9. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 9 Special Needs Trusts Almost all of those problems can be solved by making sure that the family utilizes a properly drafted third-party Special Needs Trust.

10. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 10 Some Planning Specifics Should be based on a life care plan. -In other words, budget for the beneficiary’s needs!!! Life Insurance. Lifetime gifts of cash or marketable securities. -But beware of Crummey powers. Beneficiary designations for qualified plans and similar assets.

11. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 11 The Benefits of “DOING GOOD” What benefits does charitable planning add? 1.It can reduce estate/inheritance taxes. 2.It can reduce your income taxes. 3.It can also provide an income stream to you or your beneficiary or more money in lump-sum later.

12. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 12 Traditional Charitable Planning 1.Outright gifts. 2.Charitable Gift Annuities. 3.Charitable Remainder Trusts. 4.Charitable Lead Trusts. 5.Remainder Interests in Property.

13. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 13 Our Hypothetical: Jack and Diane Jack and Diane are in their 60’s and have a daughter, Kathryn, age 35, with special needs. Kathryn receives SSI and Medicaid and lives with her parents: Their assets: - Home$500,000.00 - Savings$250,000.00 - Life Insurance$500,000.00 - Jack’s 401(k)$500,000.00 - Diane is a retired teacher and receives a monthly pension. Jack died unexpectedly in 2010.

14. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 14 Planning With The 401(k) Account 1.Beware of the special RMD rules on pay out of the account: conduit vs. accumulation trusts. 2.Very complex tax rules apply when attempting to qualify an accumulation trust as a “designated beneficiary.” 3.If a 401(k) or IRA is subject to both income and estate tax, the effective tax rate can easily exceed 60%. 4.Planning must be done via the Beneficiary Designation Form.

15. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 15 A Charitable Remainder Trust (“CRT”) The CRT is treated as a charity, so the value of the charitable interest creates an income tax or estate tax deduction and no additional income tax is paid by the CRT. A 20 year CRAT results in $25,000 per year to the SNT, a nearly $100,000 charitable deduction and approx. $230,000 is ultimately distributed to charity. A 20 year CRUT results in an average of $21,000 per year to the SNT, a charitable deduction of $187,000 and nearly $330,000 to the charity. A lifetime CRUT creates even better results for the beneficiary, but means that the SNT receiving the funds must be a “first-party” SNT subject to Medicaid payback. WHAT HAPPENS IF THE 401(K) IS DISTRIBUTED TO A CHARITABLE REMAINDER TRUST?

16. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 16 Other Ways To Benefit Charities Without Reducing Kathryn’s Assets 1.Gifting a remainder trust in the home. 2.Charitable Lead Trusts.

17. This information is provided for this seminar only. Specific advice from the client’s professional advisors for legal, accounting or tax matters should be sought for specific situations. 17 Doing Well by Doing Good SUMMARY 1.Develop a financial plan. 2.Don’t forget those who have helped you…..commit to paying it forward! 3.Then see an attorney…..

18. THE END. Thank you for your kind attention. James M. McCarten | (615) 724-3236 | jmccarten@burr.com