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Presentation on theme: "KEVIN URBATSCH, ESQ. JEFFREY TACHIKI, ESQ. JAMES HUYCK, PUBLIC BENEFITS GURU Special Needs Trust Distributions."— Presentation transcript:


2 SNT Distributions Most challenging part of SNT administration Trustee must understand:  Type of distribution standard  Type of special needs trust and when “sole benefit” rule applies  Type of public benefits SNT Beneficiary receives  Beneficiary’s current and future needs and balancing these needs  Amount of assets held in the trust and investment allocation  What the future will hold as far as investment performance, beneficiary’s condition, public benefits funding, and tax law changes

3 A trust’s distribution standard sets forth the legal standard for all distributions  Revocable living trusts often use a “broad” standard (“comfort, welfare, happiness”) during settlor’s life;  Some trusts often use a “support” standard (“health, education, maintenance and support”)  Other trusts use a mandatory distribution standard (“must distribute all income on a monthly/annual basis) Defining The Distribution Standard

4 SNT Should Never Have Broad Distribution Standard Trust Distribution Standards that require “mandatory” distributions or authorize distributions for “support” or “maintenance” are NOT Special Needs Trusts If SNT has a “mandatory,” “support,” or “maintenance” standard, it must be modified

5 There are two common SNT distribution standards: Discretionary: This standard gives the trustee absolute discretion to make (or not to make) distributions even those that may reduce or eliminate beneficiary’s public benefits Supplemental: This standard gives the trustee absolute discretion to make distributions except it does not allow distributions that cause a loss or reduction in public benefits SNT Distribution Standards

6  Supplemental standard is common in older SNTs  No distributions allowed that may reduce or eliminate public benefits  Thus, payments for food, shelter or medical expenses covered by Medi-Cal exposes trustee to potential breach of fiduciary duty claims  Solution is to modify the existing trust standard to a discretionary distribution standard Beware the “Supplemental” Standard

7 First Party SNT Third Party SNT Must be for the “sole benefit” of SNT beneficiary No payments to spouse or dependents Exception: child or spousal support order Does not have to be for “sole benefit” May include two or three current beneficiaries May allow for gifts to third parties Type of SNT Also Affects SNT Distributions

8 What is “Sole Benefit” of Beneficiary POMS definition of “sole benefit” states: [I]f the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life. However, the trust may provide for reasonable compensation for a trustee(s) to manage the trust, as well as reasonable costs associated with investment, legal or other services rendered on behalf of the individual with regard to the trust.

9 Effect of “Sole Benefit” Rule An SNT Trustee is not allowed to make payments to anyone other than the SNT beneficiary Problematic when Beneficiary wishes to make payments to:  Children – especially minor children  Spouse  Parents  Friends Oftentimes, the only way to make payments on behalf of children is through child support order

10 SNT Trustee Duty on Distributions Trustee’s balancing act is between making distributions that do not violate rules of the applicable benefit program (typically SSI and Medi-Cal) and providing the beneficiary goods and services so he or she does not have to live at the poverty level

11 SNT Beneficiary Receiving SSI SNT Beneficiary Receiving Medi-Cal Only Distributions for food or shelter counted as “ISM” Distributions of cash directly counted as unearned income Home purchase of any value Distribution of food or shelter as long as beneficiary pays % Distribution of cash may increase “share of cost” and must be spent by next month Home purchase $750,000 or less Type of Public Benefits Affects SNT Distributions

12 Type of Public Benefits – Beneficiary Receives No SSI or Medi-Cal Trustee may then pay for anything authorized in trust document SNT disbursements have no effect on SSDI, Social Security, and Medicare benefits

13 Type of Public Benefits – Section 8 Recipient Payments on behalf of Section 8 housing recipient may effect eligibility for that program  Periodic payments from SNT may increase rent owed by SNT beneficiary and may disqualify from Section 8 entirely  Example: Payment of $100 phone bill each month will increase beneficiary’s rental costs by roughly $33.33/month Not true of all public housing agencies – only a few enforce rule (e.g., San Mateo County)

14 No Brainer Distribution List

15 SNT Distributions That Do Not Affect SSI or Medi-Cal Generally, as long as the trustee understands the basic rules, an SNT may pay for almost anything The list on the next slide (a copy of which is much more readable in your materials) provides a list of items that if purchased for an SNT beneficiary will have no effect on either SSI or Medi-Cal eligibility

16 The No-Brainer Distribution List Automobile/van; Accounting services; Acupuncture/acupressure; Appliances (TV, VCR, DVD player, stereo, microwave, stove, refrigerator, washer/dryer); Bottled water or water service; Bus pass/public transportation costs; Camera, film, recorder and tapes, development of film; Clothing; Clubs and club dues (record clubs, book clubs, health clubs, service clubs, zoo, advocacy groups, museums); Computer hardware, software, programs, and Internet service; Conferences; Courses or classes (academic or recreational), including books and supplies; Curtains, blinds, and drapes; Dental work not covered by Medicaid, including anesthesia; Down payment on home or security deposit on apartment; Dry cleaning and/or laundry services; Elective surgery; Fitness equipment; Funeral expenses; Furniture, home furnishings; Gasoline and/or maintenance for automobile; Haircuts/salon services; Hobby supplies; Holiday decorations, parties, dinner dances, holiday cards; Home alarm and/or monitoring/response system; Home improvements, repairs, and maintenance, including tools to perform home improvements, repairs, and maintenance by homeowner; Home purchase (to the extent not covered by benefits); House cleaning/maid services; Insurance (automobile, home and/or possessions); Legal fees/advocacy (may need court approval of legal fees if court- supervised); Linens and towels; Magazine and newspaper subscriptions; Massage; Musical instruments (including lessons and music); Nonfood grocery items (laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, Kleenex, toilet paper, and household cleaning products); Over-the-counter medications (including vitamins and herbs); Personal assistance services not covered by Medicaid; Pet and pet supplies, veterinary services; Physician specialists if not covered by Medicaid; Private counseling if not covered by Medicaid; Repair services (e.g., for appliances, automobile, bicycle, household, or fitness equipment); Snow removal/landscaping/gardening (lawn) services; Sporting goods/equipment/uniforms/team pictures; Stationery, stamps, and cards; Storage units; Taxicab; Telephone service and equipment, including cell phone, pager; Therapy (physical, occupational, speech) not covered by Medicaid; Tickets to concerts or sporting events (for beneficiary and an accompanying companion, if necessary); Transportation (automobile, motorcycle, bicycle, moped, gas, bus passes, insurance, vehicle license fees, gas, car repairs); Utility bills (satellite TV, cable TV, telephone—but not gas, water, or electricity); Vacation (including paying for a personal assistant to accompany the beneficiary if necessary).

17 SSI RECIPIENT MEDI-CAL ONLY RECIPIENT More Difficult SNT Distributions - Paying For Food and Shelter

18 Paying Food or Shelter – SSI Recipient Payment of food or shelter is counted as ISM and will reduce SSI by PMV or VTR amount Remember from public benefits presentation this morning

19 Shelter Defined Shelter is defined as: Gas, electricity, water, sewer, heating fuel, garbage removal, real estate taxes, rent or mortgage

20 Paying Food or Shelter Example – SSI Recipient Trustee pays $2,200/month rent on behalf of SNT beneficiary. SNT Beneficiary’s SSI check is reduced by $244.67 (which is PMV or 1/3 of the federal portion of the SSI plus $20 in 2009-2010) Trustee can then pay all of beneficiary’s food, gas, electricity, water, sewer, heating fuel, and garbage removal with no further reduction in SSI

21 Caution when Paying for Food and Shelter – SSI Recipient Beware the SNT Beneficiary who is receiving less than $244.67  ISM calculation is not 1/3 of SSI check, but 1/3 of federal portion of SSI check  Thus, if SSI recipient is receiving less than $244.67 in SSI will lose SSI and categorical eligibility for Medi-Cal  Max SSI in 2009-2010 with federal and California portions is $845/month

22 Paying Food or Shelter - Medi-Cal Only Recipient If SNT Beneficiary not receiving SSI but is eligible for Medi-Cal – Trustee may pay for food and shelter However, Medi-Cal recipient should pay certain percentage of own living expenses  Rule of Thumb, have Medi-Cal recipient pay 10% of food and shelter and have SNT pay balance

23 SSI RECIPIENT MEDI-CAL ONLY RECIPIENT Giving Cash Allowance to SNT Beneficiary

24 Giving Cash to Beneficiary – SSI Recipient Cash from any source to an SSI recipient is counted as unearned income Unearned income reduces the monthly SSI check $1 for $1 after the first $20 Example: SNT beneficiary receives $500/month allowance from SNT. The first $20 is fine, however the SSI monthly check is reduced by $480. Thus, the SNT beneficiary loses $500 from SNT assets but only receives a net benefit of $20. Further, if SSI received was less than $480 to begin with, then loses eligibility for SSI

25 Giving Cash to Medi-Cal Only Recipient Medi-Cal for persons who do not receive SSI because of too much income is generally received through “share of cost” “Share of cost” is like a co-pay for insurance Cash from an SNT to a Medi-Cal only recipient will increase “share of cost” Medi-Cal Thus, if SNT pays $500 to a “share of cost” Medi-Cal eligible person, his or her co-pay will be increased the full $500

26 Buying a Home

27 Authority to Purchase Home SNT document must not exclude purchase of home If trust is silent, purchase is authorized under California law One primary residence is an exempt asset  SSI purposes any value  Medi-Cal only recipient exempt up to $750,000 Petition to court for permission to purchase home is recommended  May be required in some jurisdictions for Court supervised SNTs

28 Buying a Home – Practical Challenges There are practical challenges an SNT trustee must consider when purchasing a home:  Does the SNT have sufficient assets to purchase the home?  Should the home be purchased outright or by mortgage?  Should the home purchase be in some form of joint ownership?  How should ownership responsibilities be allocated?  How should home repairs and maintenance be paid for?  Should the trustee charge rent to cohabitating family members?

29 Outright Purchase – SSI Recipient Outright purchase  Home purchase will not interfere with SSI (at any value) or Medi-Cal (as long as under $750,000)  Month of purchase, home will be counted under ISM rules. Meaning loss of SSI of $244.67 for one month only  Every other month, SNT beneficiary has an "equitable home ownership under a trust" so is not considered to be receiving rent- free shelter  Nor is the SNT beneficiary required to pay rent  Title can be held in name of SNT or in SNT Beneficiary’s name (may not want for other reasons, e.g., susceptible to undue influence)

30 Mortgage Purchase – SSI Recipient Purchase by mortgage  Trust can own home but payment of mortgage is treated the same as rent, meaning SSI amount will be reduced by ISM so SNT beneficiary will lose PMV amount of $244.67 each month of mortgage payment  Practically can be very hard for an SNT to be able to find a company willing to provide a mortgage to a trust. If located, often at very high interest rate  SNT trustee purchases a home for $500,000 by paying half in cash and half through a mortgage with monthly payments of $1,200 for 20 years, the SNT beneficiary would lose $244.67 (the 2009 PMV amount) of SSI in the month of purchase as ISM. Going forward, each and every month the mortgage is paid, the SNT beneficiary would lose $244.67 as ISM

31 Joint Ownership Sometimes SNT beneficiary’s and relatives will seek to have the SNT become a co-owner with parents or other relatives In some situations ok, but rarely a good idea Each owner is required to pay his, her, or its fair share of home expenses SNT rarely has bargaining power if parents decide to stop paying (evict parent/caregiver? – partition action) Also, if co-owners have creditor issues, divorce, or take a lien on their part of property, causes problems

32 Paying Household Expenses – SSI Recipient Household operating expenses considered shelter are  Mortgage (payments on a mobile home are considered mortgage payments);  Rent;  Real property taxes;  Heating fuel;  Gas;  Electricity;  Water;  Sewerage;  Garbage collection services;  Homeowner's insurance required by a lender;  Condominium charges that include any of the above items. NOTE: SSI will be reduced in the month that any such household expenses are made. However, household operating expenses that are billed on an annual basis (e.g., property taxes) must be converted to monthly amounts. For example, property taxes in the yearly amount of $4,200 result in $350 of ISM per month (4,200 ÷ 12 = 350), resulting in a benefits reduction

33 Household Expenses That Can Be Paid – SSI Recipient Not all household-related expenses are counted as ISM for SSI purposes, the following useful items can be paid for by the trustee without causing an SSI ISM benefits reduction:  Telephone, cell phone, answering machine;  Cable or satellite television, DVD/video players;  Internet access;  Repairs to the home; or  Capital improvements to the home

34 Payment for Modification to Home Owned by SNT beneficiary or the SNT – SSI Recipient When SNT pays for improvements or renovations to the home, the beneficiary does not receive income even if the home is in the name of the beneficiary Disbursements from the trust for improvements increase the value of the home and, unlike household operating expenses, do not provide ISM For example, renovations to the bathroom to make it accessible or installation of a wheelchair ramp or assistance devices are not considered income and will not interfere with SSI

35 Payment of Modifications To Home Owned by Another Propriety of doing so is not clear if the beneficiary has no interest in the home On the one hand, the modification provides a direct benefit to the beneficiary and improves his or her quality of life by accommodating his or her living environment to his or her disabilities On the other hand, the result of the modification can be an outright SNT distribution of a substantial amount to a homeowner that is potentially detrimental to an SNT beneficiary. The homeowner could later sell the property, die, lose the property through foreclosure, have future creditor issues, or evict the beneficiary. Protections should be considered such as life estate, property agreement, co-ownership

36 Buying an Automobile

37 Purchase of an automobile (and even distribution of the automobile to the SNT beneficiary) will not affect public benefits eligibility as long as it is the beneficiary's only automobile, because one automobile of any value is an exempt resource

38 Holding Title to Automobile Title should be held by someone other than SNT trustee, typically a parent/caregiver although SNT beneficiary can also be titleholder of one car Trustee of the SNT should still be named as a lien holder on the automobile so that the individual with ownership cannot sell or borrow against the vehicle If first party SNT, it may be prudent to get a court order authorizing that title be held in the name of the individual primarily responsible for using the automobile, because the purchase may otherwise be considered a gift to the individual Materials include agreement for automobile user

39 Purchasing Second Automobile SNT Beneficiary can own one automobile in his or her own name If SNT beneficiary needs more than one automobile, an SNT can own the second car without causing any problems with public benefits eligibility

40 Hiring a Caregiver

41 Issues when Hiring Caregivers Trustee must determine:  (1) does the SNT have sufficient funds to pay?  (2) is the proposed caregiver capable of providing the required level of care?  (3) is the compensation reasonable ?  (4) should the caregiver be an employee or independent contractor?  (5) is the proposed caregiver someone who can be legally hired

42 Caregiver as Independent Contractor or as an Employee Caregivers are hired in a variety of ways, but are invariably either employees or independent contractors Safer to hire caregiver as employee When trustee hires as an independent contractor, the trustee may inadvertently and unknowingly assume the role of an employer of the caregiver and thus will have the same obligations and liability as any employer Severe penalties and fines may arise if taxes go unpaid or if wage and hour laws and workers' compensation requirements are ignored

43 Hiring Parents as Caregivers Parents are often the most likely candidates to be caregivers because they are aware of the child's needs, often provide better care, and may cost less than a third party hired through an agency Issues may arise if SNT beneficiary is a minor because of parents’ duty of support plus may affect eligibility for SSI with deeming Some States (not California) state that SNTs cannot pay parents to provide any care giving services at any time through his or her child’s life

44 Hiring Undocumented Caregiver Trustees should not pay for caregivers who lack legal documentation This issue often poses problems for SNT beneficiaries who are citizens, but whose parents are not legally in this country Trustee cannot hire these parents as caregivers, even though they may be capable of providing care (and indeed are already likely providing a substantial amount of care and providing more attentive care than a third party caregiver would), and would do so economically Possible criminal liability

45 Hiring the IHSS Worker as Caregiver Sometimes it makes sense to hire the IHSS caregiver, the IHSS caregiver already understands beneficiary's needs and may be less expensive than hiring agency caregivers When hiring a IHSS caregiver, a trustee cannot supplement the pay of the caregiver for the IHSS- approved hours If IHSS provide 10 hours a month at $10 an hour, a trustee cannot augment the worker's salary by paying an additional $5 hour on top of the $10 Trustee can hire the IHSS caregiver for additional hours, and pay a premium wage for those hours

46 Example of Hiring IHSS Worker as Caregiver If IHSS worker is being paid $10/hour for 10 hours, the SNT can pay $20 an hour for an additional 10 hours, which brings the IHSS's worker pay up to $15 an hour for all the work provided WARNING: The services provided during the hours paid by the trustee must be different than the services provided by IHSS. If the services are the same, the hours provided by IHSS may be reduced. For example, if IHSS pays for two baths a week and the trustee agrees to pay for five baths a week, then IHSS will cease paying for the two baths a week because it only sees a need for two.


48 Donations to Charity or Church First Party SNT must distribute for “sole benefit” of SNT Beneficiary:  Donations to charities are gifts and will be disqualifying transfers Third Party SNT may give donations but only if the document allows it – does not have to be for beneficiary’s “sole benefit”

49 Experimental Medical Treatments SNT can pay for medical expenses not covered by Medi-Cal. Typically for dental work, durable medical goods and cosmetic surgery More troubling are experimental treatments  One requests was for hyperbaric chamber therapy for a young adult with a spinal cord injury costing $40,000 and it nearly exhausted the trust  Trustee sought court authorization and no objection. Attorney advised against it, but the parents were insistent. It did not seem to help

50 Paying for Therapies Common therapies are speech therapy, occupational therapy, or physical therapy. Again, if Medi-Cal will not cover, the SNT can pay for without penalty More exotic therapies include horse therapy and aquatic therapy  Very common for people with autism and cerebral palsy  SNT can also purchase a horse or a pool for the SNT Beneficiary  If to be court supervised, it is best to get a doctor to prescribe the therapies so there is proof of need

51 Paying for Vacations Vacations can be paid for from an SNT Payment for hotel and restaurants is not considered ISM if person is temporarily absent from primary residence for up to 30 days Logistics can be difficult, pre-paid vacations are easiest to manage otherwise possible to reimburse companions, pay credit card expenses but cannot reimburse SNT beneficiary directly If SNT beneficiary requires assistance to travel, SNT can pay for caregivers

52 Timeless Art of Seduction Several SNT beneficiaries have sought payments for:  On-line dating services (No brainer)  Birth control (not paid for by Medi-Cal)  Sex toys and aids (No brainer) Third Party SNT, Generally Fine - First party SNT Fine for Beneficiary, but not for Spouse:  Dinner, flowers, shows or gifts (remember no gifts allowed from First Party SNT)  Engagement and Wedding rings  Marriage  Honeymoon

53 When the Timeless Art of Seduction Fails: Pornography and Prostitution Legal pornography (whether on-line, movies, or print) can be purchased for SNT Beneficiary  ASNP’s best read article  Best to set boundaries early  Strip clubs – mostly cash business, not much can be done; gift card or gift certificate? Prostitution – Nothing illegal  One client had no other needs. All he wanted was to pay for a prostitute once every six months  Trip to Nevada where prostitution is legal  What happens in Vegas, stays in Vegas?

54 Can I Go Gambling? The SNT can certainly pay for the hotel, show and travel but probably not the actual gambling It is possible that the SNT beneficiary could receive a cash advance from a credit card (or use their public benefit money) to gamble with but if they win, that money would be counted against their SSI and Medi- Cal asset limitation and really not the best use of funds Generally just say NO to cash for gambling

55 Life Preservers? An SNT beneficiary had a problem keeping his hands to himself. His family requested that the SNT Trustee purchase life jackets for the women to protect their breasts from his groping hands

56 Can I Buy a Race Car? One SNT Beneficiary who was quadriplegic made this request, SNT assets were significant  Second SNT was established to hold the race car and other automobiles. Hired a driver and SNT beneficiary travelled to different races  If there are to be multiple car purchases, usually a good idea to set up separate SNT to hold cars, boats, RVs and related items for liability reasons

57 My Dog Needs Surgery, Can My Trust Pay for It? A common request is for pet supplies, veterinarian services, pet food, pet toys, and anything else pet related An excellent use of SNT funds

58 I Need a Vaporizer for My Medicine? A vaporizer in common parlance is known as a “bong” and the medicine was marijuana  Trustee cannot pay for items that are illegal. However a bong is not illegal in and of itself so purchase can be made for that  Depending on how comfortable you are with medical marijuana laws possible to pay but I see a big problem with federal laws prohibiting it

59 Can I Start a Pot Farm for Medical Marijuana? Request was made by SNT Beneficiary and when rejected by attorney SNT Trustee (Mom) and SNT Beneficiary started farm anyway  Second request (which was granted) was for criminal defense attorney to respond to charges against SNT beneficiary (and SNT Trustee) for drug possession, intent to distribute and gun possession  SNT Trustee was named because property where pot was being grown was owned by SNT

60 Can the SNT Buy a Business? SNT Trustee agreed to purchase a partial ownership in a car wash that was owned and run by beneficiary’s Father As long as meets SNT’s investment standard, the SNT can purchase  Harder for court supervised first party SNT SNT Beneficiary works there part time and qualifies for private health plan

61 Avon Lady? One male SNT Beneficiary wanted funds to become an “Avon Lady” - his words SNT Trustee purchased a starter kit and he is doing ok with it May trigger issues with working while on benefits Should consult with benefits consultant to determine work programs with public benefits “Ticket to Work” “250% Working Program” “PASS”

62 How About a Treadmill? Exercise equipment is good, not so good if SNT beneficiary cannot use it One mom requested the purchase of a treadmill for her son, the SNT beneficiary. Her son used a wheelchair for mobility, she wanted reimbursement for her purchase of the treadmill because she said her son was like Christopher Reeves and it was part of his therapy, SNT Trustee asked for a prescription, mother refused. SNT Trustee refused Remember “Sole Benefit Rule”

63 Purchasing Video Games and CDs Certainly ok, but in one case:  SNT Beneficiary kept asking to spend TONS of money on blue ray CDs and games  SNT Trustee was really starting to think he was selling them on the street to use the money for other items, Trustee had hired a care manager to check into it. He confirmed that the beneficiary had quite an extensive collection of games and movies in his home  Because of the overall value, SNT Trustee increased the coverage on renters insurance policy

64 Paying for the SNT Beneficiary’s Funeral In Termination Section of this Program we will learn about potential difficulty in paying for funerals in first party SNT when the Beneficiary receives SSI SNT Trustees may wish to explore beneficiary’s thoughts on burial SNT Trustee may pre-pay for funeral (burial plots or burial insurance of any amount) but if set asides money for burial can only add up to $1,500 (if in beneficiary’s name)

65 Can I Purchase Alcohol or Cigarettes? A common request by many SNT Beneficiaries is for purchase of alcohol or cigarettes  The only issue is whether such distributions are considered food. Doubtful. But, even if considered food it only applies for SNT Beneficiary who is SSI recipient and then would be ISM Check the trust document, some Third Party SNTs specifically prohibit the purchase of such items Typically, I advise to have the SSI or SSDI money be used. Try to have SNT pay for items that beneficiary used to have to purchase themselves, e.g. phone

66 Can SNT Pay for Health Insurance or Co-Pays? Many SNT Beneficiaries cannot receive private health insurance at any price due to pre-existing conditions Some SNT Beneficiaries do qualify for private health insurance Depending on amount held in trust and the plan, I always recommend paying for private health plans and co-pays. Generally better coverage and does not interfere with Medi-Cal eligibility

67 Forklift vs. Elevator? Parent as SNT trustee purchased a used forklift (without consulting attorney) so she could hoist her quadriplegic adult son into her split level home via the deck when he came to visit Fortunately, attorney was able to convince her this was a safety issue before she actually tried it  Instead petitioned the Court and received approval to add elevator to her home because son visits just about every day  Good news, she sold the forklift for a profit!

68 SNT Distribution Conclusion Issues that need to be considered on each distribution:  Does the trust document allow it?  Are there sufficient funds to cover it and to comply with intent of trust for the future needs of beneficiary?  Will it interfere with public benefits?  If it interferes is it in beneficiary’s best interest to pay?  How will distribution be made? Directly/on- line/reimbursement/other


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