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Faculty Patricia E. Kefalas Dudek Patricia E. Kefalas Dudek & Associates 30445 Northwestern Hwy, Suite 250 Farmington Hills, MI 48334 (248) 254-3462 Email:

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Presentation on theme: "Faculty Patricia E. Kefalas Dudek Patricia E. Kefalas Dudek & Associates 30445 Northwestern Hwy, Suite 250 Farmington Hills, MI 48334 (248) 254-3462 Email:"— Presentation transcript:

1 Faculty Patricia E. Kefalas Dudek Patricia E. Kefalas Dudek & Associates 30445 Northwestern Hwy, Suite 250 Farmington Hills, MI 48334 (248) 254-3462 Email: pdudek@pekdadvocacy.compdudek@pekdadvocacy.com Website: www.pekdadvocacy.comwww.pekdadvocacy.com

2 Special Needs Trust in a Nutshell 2

3 Who Can Be the Beneficiary? A Special Needs Trust is a special kind of trust that holds title to property for the benefit of a child or adult who has a disability. The Special Needs Trust can be used to provide for the needs of a disabled person to supplement benefits received from various governmental assistance programs. A trust can hold cash, personal property, or real property, or can be the beneficiary of life insurance proceeds. Special needs trust are often created for those who lack the capacity to handle their own financial affairs. They can be especially helpful for people with mental or physical disabilities who would lose public benefits. 3

4 What is a “Special Need”? Special needs refers to things which are not considered basic needs, but assist in supporting the person when such items uncovered are not being provided by any public agency. Special needs can include (but are not limited to): 1. Automobile/Van 2. Accounting services 3. Acupuncture/ Acupressure 4. Alterations or mending to clothing (i.e. shoe repair) 5. Appliances (i.e. TV, DVD, stereo, microwave, stove, refrigerator, washer/dryer, etc. For full list of: Permissible DistributionsPermissible Distributions **Please notify us if you think of some common examples not on this list** 4

5 Types of Special Needs Trust: Self-Settled & Third-Party Parents (or other family members) of a disabled child can establish a Special Needs Trust as part of their general estate plan. You can route the child's share of the estate into this trust and not worry that your child will be prevented from receiving benefits when you are not there to care for him/her. Types of Self-Settled Special Needs Trust Self-Settled – D4A Trust Pooled Trust – D4C Trust Some states have - Miller Trust Two common types of Third Party Trust Testamentary Special Needs Trust Stand-Alone Trust 5

6 Self-Settled or First Party Trust As the name implies, a self-settled trust is set up using the person with a disability’s own assets. For example, a person with a disability who receives an inheritance or has some other property that disqualifies him for public benefits might have the property transferred in to a self-settled trust for his own use. Of course, a self-settled trust established to obtain SSI/ Medicaid must meet stringent requirements. First, it must be irrevocable. That means the settlor cannot cancel or amend it. The trust must be established by a parent, grandparent, legal guardian or a court. Notwithstanding the term “self-settled”, the beneficiary cannot establish the trust for himself. Quite often seeking the appointment of a guardian who can establish the trust becomes necessary. Finally, the trust must contain a Medicaid “payback” provision or be a Pooled Trust. 6

7 Pooled Trust What is a Pooled Trust? A pooled trust is a trust established and administered by a non- profit organization. A separate account is established for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts. For self-settled, or (d)(4)(C) pooled trusts, each subaccount is established by the person with a disability, a parent, grandparent, guardian, or a court, and the trust is funded with the assets of the person with a disability. The trust provides that, upon the death of the disabled beneficiary, if there are funds remaining in the beneficiary's subaccount, the trust must pay to the state an amount up to the total amount of Medicaid assistance provided to the beneficiary, to the extent that the funds are not retained by the trust. The pooled trust is irrevocable to avoid being treated as a resource. 7

8 Pooled Trust (cont.) When is a (d)(4)(c) Pooled Trust used? Persons with disabilities who receive public benefits, including Supplemental Security Income (SSI) and Medicaid, and then receive an inheritance, divorce settlement, or personal injury settlement or award. The receipt of these funds may make this person ineligible for public benefits. The client could purchase exempt resources, and then reapply for benefits. The person with a disability would then be ineligible for public benefits until these funds are spent down. The person could give the funds away, however, the gifts would result in a period of ineligibility for SSI and Medicaid long-term care benefits. If under 65 years of age, then the person can transfer the funds to a d(4)(A) Special Needs Trust (SNT). A fourth alternative is to transfer the funds to a d(4)(C) ("Pooled Trust") subaccount. Full article: What is a Pooled Trust, and When Should You Use One?What is a Pooled Trust, and When Should You Use One? 8

9 Pooled Trust (cont.) Coordination of trust with public services To achieve a goal for the beneficiary, like staying out of a nursing home is a key reason for use of the trust. Pooled trust work for people over 65 where D4A trust can’t be used for people over 65. There is a little-known way for some people in certain states to receive home care through Medicaid, without requiring them to impoverish themselves first. Here’s how it works: a federal law established in 1993 allows disabled people to put their monthly income or assets — above the amounts Medicaid allows them to keep — into a special type of pooled trust. They can then use the money in the trust to pay for their monthly bills like rent, cable television, phone bill, etc. Medicaid, meanwhile, pays for the home services. Full article: What’s a Pooled Trust? A Way to Avoid the Nursing HomeWhat’s a Pooled Trust? A Way to Avoid the Nursing Home 9

10 Pooled Accounts Trust Established and managed by non-profit charity Created and funded by individual with a disability or parent / family members Remainder goes to charity upon person’s death for the benefit of people with disabilities, can include family members Benefit to people with small / midsize estates and/or small families Money is used for “special needs during lifetime Protects Medicaid and SSI eligibility; No ability to pay beyond benefits 10

11 Pooled Accounts Trust Entire amount can be used during lifetime of person with a disability. Any remaining at death can be used to help other people with disabilities. 11 Pooled Accounts Trust Springhill Housing Corporation, Inc. Special Needs Trust # 1 $5,000 Special Needs Trust # 2 $10,000 each year, gift from grandparents Special Needs Trust # 6-House $50,000-grandmother on Medicaid Special Needs Trust # 4 Future transfer from parents will or trust and life insurance Special Needs Trust # 5 $20,000 back SSDI benefits Special Needs Trust # 3 $500,000 Personal Injury Settlement

12 Over 65 & Pooled Trust Until relatively recently there was no prohibition from CMS against establishing pooled trust sub-accounts in behalf of disabled persons over the age of 65 who had assets (either their own, or assets resulting from a PI settlement or from other third party sources) in excess of the $2000 asset limit. Such funds can then be used for the benefit of the disabled person to purchase goods and services not covered by Medicaid that may be necessary to assure a decent quality of life for that person. From 1993 through early 2008, CMS did not at any time propose regulations or offer any policy statement or other sub- regulatory guidance suggesting that such transfers were impermissible under federal law. In this regard, disabled persons over 65 were in a similar position to those 65 and under, who are unquestionably permitted to set up special needs trusts or pooled trust sub-accounts, and to benefit from supplemental needs trusts established by third parties. To view full article: Transfers to Pooled Trust Sub-accounts By Persons Over 65 under Medicaid StatuteTransfers to Pooled Trust Sub-accounts By Persons Over 65 under Medicaid Statute 12

13 Over 65 & Pooled Trust Establishing pooled trust sub accounts for the benefit of disabled persons over 65 is explicitly contemplated and permitted by the federal Medicaid statute’s provisions pertaining to pooled trusts, which were enacted in 1993 as part of the Omnibus Budget Reconciliation Act, Pub.L. 103-66, 107 Stat. 312 (August 10, 1993) (hereinafter, OBRA ‘93) Congress has explicitly established three distinct exceptions to the general rule that assets in a first-party funded trust are available for purposes of Medical Assistance eligibility, one of which is a transfer to a pooled trust sub-account. Federal law discusses three types of trusts the assets of which are considered excluded, if the trusts are properly established and administered. These are the Special Needs Trust, the Miller Trust, and the Pooled Trust. To view full article: Transfers to Pooled Trust Sub-accounts By Persons Over 65 under Medicaid StatuteTransfers to Pooled Trust Sub-accounts By Persons Over 65 under Medicaid Statute 13

14 Directory of Pooled Trust Medicaid and SSI law permit "(d)(4)(C)" or "pooled trusts" for beneficiaries with special needs. Such trusts pool the resources of many beneficiaries, and those resources are managed by a non-profit association. Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. Click here for the Directory of Pooled Trust Around the U.S.here 14

15 Testamentary Special Needs Trust Established at the death of the person establishing the trust pursuant to their trust or will Are not immediately accessible until the share belonging to the special needs trust is transferred into the special needs trust; Is a sub trust created within the scope of the broader revocable living trust or will Can work for spouses in a nursing home 15

16 Stand-Alone Third-Party Special Needs Trust Established while the stand-alone Grantor is alive Can receive assets from multiple persons wishing to provide for the well-being of the person with special needs (parents, grandparents, siblings, etc.) When the Grantor dies, or perhaps becomes disabled, the assets remain immediately accessible to assist the person with disabilities from the date the trust is established Is a single purpose trust Can remain empty until funded for Medicaid planning or upon death of Grantor 16

17 Third Party Special Needs Trust Third party Special Needs Trust can be created within a pooled trust as well In order to protect vulnerable family members, counsel will properly suggest a custom drafted third-party special needs trust as part of a complete estate plan. Most third party trusts are created either by execution of a custom drafted document, or through use of a third party joinder agreement with a pooled trust Works really well for families with multiple generations of Medicaid long- term support users or with genetic disabilities (Huntington’s; Fragile X, etc.) Full article: The Third-Party Pooled Trust: an alternative planning tool to help avoid the biggest mistakes in special needs planningThe Third-Party Pooled Trust: an alternative planning tool to help avoid the biggest mistakes in special needs planning 17

18 Coordinating Special Needs Trust with Government Benefits 18

19 Funding a Special Needs Trust: How Much is Enough? The Grantor will want to ensure that the person with special needs will remain financially secure even when you are no longer there to provide financial back up. Given the significant, ongoing expenses involved in the loved ones long-term support and uncertainty about what needs may arise or what public benefits may be available, determining how much a special needs trust (SNT) should hold is no small feat. 19

20 Funding a Special Needs Trust: How Much is Enough? Fortunately, help in calculating your special needs goal is available from special needs calculators, which are accessible free of charge on the Internet. Here are two such calculators: MetDesk Special Needs Calculator: http://www.metlifeiseasier.com/metdesk(Available on the Special Needs Answers site at: http://www.specialneedsanswers.com/resources/calculators.as p) http://www.metlifeiseasier.com/metdesk http://www.specialneedsanswers.com/resources/calculators.as p Merrill Lynch Special Needs Calculator: www.totalmerrill.com/specialneeds. (Click Special Needs Calculator under "Tools and Resources".) www.totalmerrill.com/specialneeds 20

21 Funding a Special Needs Trust: How Much is Enough? The first step in determining the amount to protect in an SNT is considering your goals and expectations for your child's future. If you haven't yet created a Memorandum of Intent, also called a Letter of Intent or a Life Plan, this is the time to draft such a document. It should address factors such as your child's medical condition, legal advocacy needs, ability to work and desired living arrangements, all of which will drive the special needs calculations.Memorandum of Intent This really allows for details on how to coordinate public benefits with the private resources Look at samples: important to address private health insurance, uncovered Medicaid, dental specifically. 21

22 Letter of Intent A Letter of Intent is one of the most important documents a parent can complete for the child’s future care-givers This is not a stand-alone document; it should be incorporated into an estate planning process Can be used when caring for parents or grandparents as well The Letter of Intent should provide the trustee with guidance as to what “special needs” the beneficiary has or will have and define the quality of life as quality means different things to different people The Letter of Intent should be frequently updated as the beneficiary’s needs change 22

23 Sample Letters of Intent http://www.pekdadvocacy.com/firm-news/client- intake/attachment/letter-of-intent-information- regarding-child/ http://www.pekdadvocacy.com/firm-news/client- intake/attachment/letter-of-intent-information- regarding-child/ http://www.pekdadvocacy.com/documents/pattispublica tions/Representing/Att7.pdf http://www.pekdadvocacy.com/documents/pattispublica tions/Representing/Att7.pdf http://www.pekdadvocacy.com/documents/pattispublica tions/Representing/Att8.pdf http://www.pekdadvocacy.com/documents/pattispublica tions/Representing/Att8.pdf 23

24 Letter Of Intent 24 Be Specific! Housing with Person Directed Supports Education Transportation Medical Care and Equipment Quality of Life Social, travel, recreation, etc. Real Employment

25 Coordination of Public Benefits with SNTs How It Works 25 Special Needs Trust Housing Roommate Beneficiary Rent $ Rent from SSI or SSDI Family Community Support Services CMH Support Services (Waiver) Dept. of Community Health - formerly FIA Adult Home Help Services Food Stamps Transportation Phone Cable Social / Recreational

26 Key Affordable Care Provisions and their Effect in SNT’s 26

27 The Affordable Care Act (ACA) The Affordable Care Act (ACA) is the most important legislation affecting special needs planning since 1993 when Congress enacted 42 USC §1396p(d) that authorized special needs trusts (SNTs). Much of the ACA is focused on protecting the rights of people with chronic, long-term physical or cognitive conditions. In this article, we will discuss the important features of the ACA to allow the special needs practitioner to provide proper advice to their clients and how the ACA will affect existing special needs plans. Excerpt from: How the Affordable Care Act Affects Special Needs PlanningHow the Affordable Care Act Affects Special Needs Planning By: Kevin Urbatsch, Esq. & Michelle Fuller, Esq 27

28 Access to Health Care Under the provisions of the ACA, many of the barriers to private health care for persons with disabilities will disappear. The biggest change is that a pre-existing condition will no longer deny an individual access to private health care. The ACA also makes private health care more attractive because it removes the lifetime limits on health insurance that made private plans unattractive to many persons with profound disabilities. An added benefit of the ACA is that it requires private health care coverage for children (up to age 26) on a parent’s plan even if that child has moved away, is disabled, gone to school, or married. Also, the ACA caps the amount of money that a person will have to pay out-of- pocket each year on premiums and deductibles. For example, if the person in California earns less than $17,235 a year, the annual out-of- pocket limit he or she has to pay is $2,250. Otherwise, the general ACA annual out-of-pocket limit for an individual is $6,250 per year. Excerpt from: How the Affordable Care Act Affects Special Needs PlanningHow the Affordable Care Act Affects Special Needs Planning By: Kevin Urbatsch, Esq. & Michelle Fuller, Esq 28

29 Access to Health Care There is a mandate that all persons in the United States be covered by health care. Because so many persons with disabilities have limited income, the ACA provides ways to pay premiums at a reduced cost. If the person with a disability has income, he or she can pay a reduced premium even if they earn up to 400 percent of the federal poverty limit (FPL) ($45,960 for individual in 2013). For example, for the year 2014 in California, a person earning less than $17,235 a year will pay between $19 to $57 a month for a premium based on their actual income. Excerpt from: How the Affordable Care Act Affects Special Needs PlanningHow the Affordable Care Act Affects Special Needs Planning By: Kevin Urbatsch, Esq. & Michelle Fuller, Esq 29

30 Expanded Access to Medicaid For those persons with disabilities who have little to no income, access to Medicaid (for people between the ages of 19 to 65) will be expanded to include individuals with incomes up to 133 percent of the FPL (plus an automatic 5 percent income disregard) ($15,586 for individual in 2013). There is no resource limitation for this new expanded Medicaid program. Thus, for new people qualifying for Medicaid, they can have more than the $2,000 in resources and still qualify for Medicaid if their income is below 138 percent of the FPL. It is important to note that this new expanded program does not apply to persons currently receiving Medicaid, for those over age 65 applying for long-term care nursing home care, and some other restrictions. Further, not every state has agreed to participate in Medicaid expansion, so it is important to see if your state has agreed to implement expanded Medicaid. Excerpt from: How the Affordable Care Act Affects Special Needs PlanningHow the Affordable Care Act Affects Special Needs Planning By: Kevin Urbatsch, Esq. & Michelle Fuller, Esq 30

31 Expanded Access to Medicaid There are several important health care benefits generally not covered by the ACA and private health care that are important to persons with disabilities. Two of the most important (and expensive) benefits that the ACA will not cover include payment for long-term skilled nursing care and payments for in-home care giving services. Thus, for clients with disabilities who require nursing home level care or who require caregivers in order to remain independent in the community will likely still need Medicaid to assist them with their ongoing care. In some states, Medicaid provides unique services for the developmentally disabled that specialize in support for independent living and other related services. Thus, it is important for the practitioner to determine what health care-related services for persons with disabilities are covered by Medicaid (but not through private health care) in determining whether a client should give up his or her government- paid-for health care. Excerpt from: How the Affordable Care Act Affects Special Needs PlanningHow the Affordable Care Act Affects Special Needs Planning By: Kevin Urbatsch, Esq. & Michelle Fuller, Esq 31

32 Key Provisions in ACA The Affordable Care Act has set new standards, called essential health benefits, outlining what health insurance companies must now cover. But there's a catch: Insurance firms can still pick and choose to some degree which specific therapies they'll cover within some categories of benefit. And the way insurers interpret the rules could turn out to be a big deal for people with disabilities who need ongoing therapy to improve their day-to-day lives. The new rules for what health insurance companies have to cover may still change. Federal regulators plan to review them as the health law rolls out and could make changes in 2016. Excerpt from: Obamacare Presents Complex Choices For People with DisabilitiesObamacare Presents Complex Choices For People with Disabilities 32

33 Essential Benefit Package The ACA links the essential health benefits package to limits on cost- sharing. So health plans that are required to provide essential health benefits will also be required to limit the amount consumers will have to pay out-of-pocket. Specifically, health plans will be prohibited from requiring consumers to pay annual cost-sharing that is greater than the limits for high deductible plans linked to health savings accounts. Currently, those limits are $5,950 per year for individuals and $11,900 per year for families. In addition, small group plans must limit deductibles to $2,000 for individual coverage and $4,000 for family coverage. As with all health plans under the ACA, there is no cost-sharing for certain preventive health services recommended by the United States Preventive Services Task Force.high deductible plans linked to health savings accountssmall group plansdeductibles To view full article: Essential BenefitsEssential Benefits 33

34 Essential Benefit Covered Under the ACA Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services Chronic disease management Pediatric services, including oral and vision care 34

35 What are the cost-sharing rules for the essential health benefits? The ACA links the essential health benefits package to limits on cost- sharing. So health plans that are required to provide essential health benefits will also be required to limit the amount consumers will have to pay out-of-pocket. Specifically, health plans will be prohibited from requiring consumers to pay annual cost-sharing that is greater than the limits for high deductible plans linked to health savings accounts. Currently, those limits are $5,950 per year for individuals and $11,900 per year for families. In addition, small group plans must limit deductibles to $2,000 for individual coverage and $4,000 for family coverage. As with all health plans under the ACA, there is no cost-sharing for certain preventive health services recommended by the United States Preventive Services Task Force.high deductible plans linked to health savings accountssmall group plansdeductibles To view full article: Essential BenefitsEssential Benefits 35

36 Are your employees ready for consumer-driven health care? If you’re an employer, it’s likely that your workers have been reluctant to educate themselves about their choices in light of upcoming changes to the health care scene, such as the implementation of state and federal exchanges under the Patient Protection and Affordable Care Act (ACA). That may be because they’re waiting for you to make the first move. According to results from the recently released 2013 Aflac WorkForces Report, 75% of workers surveyed said that they thought their employers would educate them about changes to their health care coverage as a result of the ACA;s health care reform provisions, but only 13% of employers said that educating employees about health care reform was important to their organization.Report 36

37 According to results reported by Aflac, 53% of employers have implemented a high-deductible health plan (HDHP) in the last three years, and Aflac says this is a growing trend. The survey also shows that, despite the shift toward HDHPs and defined contribution health care plans by employers, along with the upcoming implementation of state and federal exchanges, 55% of workers said they had done nothing to prepare for possible changes to the health care system. Sited from Wolters Kulwer Law & Business To view full article: Consumer-Driven Health CareConsumer-Driven Health Care 37

38 Mental Health Parity In 2008, Congress passed the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act taking a great step forward in the decade-plus fight to end insurance discrimination against those seeking treatment for mental health and substance use disorders. This law requires health insurance to cover both mental and physical health equally. Under this law, insurance companies can no longer arbitrarily limit the number of hospital days or outpatient treatment sessions, or assign higher co-payments or deductibles for those in need of psychological services. To view full article: Mental Health ParityMental Health Parity 38

39 Mental Health Parity The 2008 act closes several of the loopholes left by the 1996 Mental Health Parity Act and extends equal coverage to all aspects of health insurance plans, including day and visit limits, dollar limits, coinsurance, co-payments, deductibles and out-of-pocket maximums. It preserves existing state parity and consumer protection laws while extending protection of mental health services to 82 million Americans not protected by state laws. The bill also ensures mental health coverage for both in network and out-of-network services. To view full article: Mental Health ParityMental Health Parity 39

40 Could a Trustee of SNT Determine to go Without Insurance? What happens if I don’t sign up for Obamacare? You won’t have health insurance. You’ll be responsible for every from the flu shots to major surgery. I thought I could just sign up when I need it? Not exactly. The law requires insurance companies to cover people with pre-existing conditions, but you still have to sign up during the enrollment period. That will be from October 1, 2013 to March 31, 2014. Serious problems in Michigan with delayed Medicaid Expansion and states with no Medicaid expansion 40

41 Could a Trustee of SNT Determine to go Without Insurance? cont.) So what if I get sick after March 31, 2013? You’ll have to wait until the next enrolment period, which begins October 1, 2014. Until your new coverage kicks in January 1, 2015, you’ll have to pay for any medical costs. What if I lose my insurance during the year? You can sign up them. Outside of the regular enrollment period, people can sign up for insurance when they have a major life- changing event (i.e. getting married, changing jobs, having a baby, or moving to a new state) 41

42 Could a Trustee of SNT Determine to go Without Insurance? (cont.) Are there any penalties for not signing up? Yes, if you don’t sign up for insurance, you’ll pay a fine when you do you taxes in 2015. The fine will be $95.00 or 1% of your annual income, whichever is higher. And in future years, it will be even higher. What if I refuse to pay the fine? The IRS will take the money out of any refund you would receive on your federal income tax. It is not allowed to put you in jail or seize your property for failing to pay the fine, however. 42

43 Could a Trustee of SNT Determine to go Without Insurance? (cont.) When do I have to sign up? Technically speaking, you need to have insurance on January 1, 2014. However, the enrollment period lasts until March 31, 2013 and you may be able to sign up later in the year if you have a major life event. What if I am uninsured for part of the year? You won’t pay the full fine. The amount is prorated, so you would just pay for the number of months you were uninsured. Also, gaps of less than three (3) months in a given year aren’t counted. 43

44 Could a Trustee of SNT Determine to go Without Insurance? (cont.) Are there any other exceptions? Yes, but they are limited. Certain religious groups, such as the Amish, and federally recognized Indian tribes don’t have to sign up. You can also get exemption if you have a lower income, especially if your state rejected the Medicaid expansion. Medicare or Medicaid is enough! (Either only Part A Or Parts A & B) To view full article: ObamacareObamacare 44

45 What if I have Medicare? Medicare isn’t part of the Health Insurance Marketplace, so you don’t need to do anything. If you have Medicare, you are considered covered. The Marketplace won’t affect your Medicare choices, and your benefits won’t be changing. No matter how you get Medicare, whether through Original Medicare or a Medicare Advantage Plan, you’ll still have the same benefits and security you have now. You won’t have to make any changes. Medicare’s Open Enrollment Period (October 15-December 7) hasn’t changed. To view full article: Donut HoleDonut Hole 45

46 ACA Provisions (cont.) Expanded Medicare benefits for preventive care, drug coverage Medicare benefits have expanded under the health care law– things like free preventive benefits, cancer screenings, and an annual wellness visit.free preventive benefits, cancer screenings, and an annual wellness visit You can also save money if you’re in the prescription drug “donut hole” with discounts on brand-name prescription drugs.discounts on brand-name prescription drugs To view full article: Donut HoleDonut Hole 46

47 Closing the Donut Hole The Patient Protection and Affordable Care Act and accompanying health care reform legislation added important improvements to Medicare prescription drug coverage. The health reform law helps cover expenses for people falling into the "donut hole" coverage gap beginning in 2010, and the hole in coverage is eliminated altogether by 2020. The law also provides for additional assistance for low-income beneficiaries. To view full article: Closing the Donut HoleClosing the Donut Hole 47

48 Closing the Donut Hole The new law provides assistance to help seniors bridge this donut hole. 50 percent rebate on brand-name drugs in 2012. A 50 percent rebate will be applied at the pharmacy for brand name medications. 14 percent rebate on generic drugs in 2012. A 14 percent rebate will be applied at the pharmacy for generic medications. Closure of the donut hole by 2020 for brand-name and generic drugs. The co-payments required for brand-name and generic drugs will be phased down to the standard 25 percent by 2020, eliminating the donut hole. For brand-name drugs, manufacturers will increase their discounts each year to negate the coverage gap. Beginning in 2011, co-payments required by Part D law for generic drugs will be reduced by seven percentage points each year until the coverage gap is eliminated for these drugs as well. Immediate assistance for seniors. A typical senior that fell into the donut hole saved $250 in 2010, over $600 in 2011, and will save over $3,000 by 2020. Provides catastrophic coverage sooner to protect seniors. The legislation will help seniors get out of the donut hole sooner beginning in 2014. The dollar amount of the catastrophic threshold, where seniors' co-payments are dropped to 5 percent of drug costs, will be more slowly increased from year to year at this point. To view full article: Closing the Donut HoleClosing the Donut Hole 48

49 Closing the Donut Hole Assistance for Low-Income People The health reform legislation also provides improves eligibility and coverage for low-income Medicare beneficiaries: Co-payments are eliminated for many beneficiaries receiving home- and community-based services who are eligible for both Medicare and Medicaid. The new law will reduce the number of low-income beneficiaries that are required to change plans each year to maintain zero premiums. It allows widows and widowers to more easily retain their low- income eligibility. Outreach programs are enhanced to ensure that more beneficiaries who are eligible for a Low-Income Subsidy are able to enroll. To view full article: Closing the Donut HoleClosing the Donut Hole 49

50 Other ACA Provisions to Watch 1. Medicaid Managed Long Term Services and Supports 2. State Demonstrations to Integrate Care for Dual Eligible Individuals and other Medicare-Medicaid Coordination Initiatives 3. Other Long Term Services and Support Include A. Balancing Incentive Program B. Medicaid State Plan Amendments under 1915(i) C. Community First Choice Option under 1915 (k) D. Medicaid Health Homes Click here for full sitehere 50

51 Other ACA Provisions to Watch (cont.) Medicaid Managed Long Term Services and Supports Refers to the delivery of long term services and supports through capitated Medicaid managed care programs. Increasing numbers of States are using MLTSS as a strategy for expanding home- and community-based services, promoting community inclusion, ensuring quality and increasing efficiency. MLTSS offers States a broad and flexible set of program design options, and may be used as an overarching structure to promote initiatives such as Money Follows the Person, participant-directed services, the Balancing Incentive Program, etc. Do you know what your state is doing? Click here for full sitehere 51

52 Other ACA Provisions to Watch (cont.) State Demonstrations to Integrate Care for Dual Eligible Individuals and other Medicare-Medicaid Coordination Initiatives Under the State Demonstrations to Integrate Care for Dual Eligible Individuals, fifteen states across the country have been selected to design new approaches to better coordinate care for dual eligible individuals. CMS will provide funding and technical assistance to states to develop person-centered approaches to coordinate care across primary, acute, behavioral health and long-term supports and services for dual eligible individuals. The goal is to identify and validate delivery system and payment coordination models that can be tested and replicated in other states. CMS is also making technical assistance available to all states interested in improving services for dual eligible individuals. Click here for full sitehere 52

53 Other ACA Provisions to Watch (cont.) Other Long Term Services and Support Include Balancing Incentive Program Authorizes grants to States to increase access to non- institutional long-term services and supports (LTSS) as of October 1, 2011. This program will help States transform their long-term care systems by: Lowering costs through improved systems performance & efficiency Creating tools to help consumers with care planning & assessment Improving quality measurement & oversight Click here for full sitehere 53

54 Other ACA Provisions to Watch (cont.) States with approved applications – New Hampshire, Maryland, Iowa, Mississippi, Missouri, Georgia, Texas, Indiana, Connecticut, Arkansas, New York, New Jersey, Louisiana, Ohio, Maine, Illinois States with structural change work plans – New Hampshire, Maryland, Missouri, Georgia, Texas, Mississippi, Indiana, Iowa Click here for full sitehere 54

55 Other ACA Provisions to Watch (cont.) Other Long Term Services and Support Include Expanded Medicaid State Plan Amendments under 1915(i) Allows states to offer HCBS under a Medicaid state plan to individuals who are Medicaid-eligible It limits eligibility to individuals with incomes up to 150 percent of poverty who, but for the program services, would need an institutional level of care Click here for full site here 55

56 Other ACA Provisions to Watch (cont.) Other Long Term Services and Support Include Community First Choice Option under 1915 (k) Lets States provide home and community-based attendant services to Medicaid enrollees with disabilities under their State Plan This option became available on October 1, 2011 and provides a 6 % increase in Federal matching payments to States for expenditures related to this option Community First Choice was established under the Affordable Care Act of 2010 Click here for full site here 56

57 Other ACA Provisions to Watch (cont.) Other Long Term Services and Support Include Medicaid Health Homes Benefit for states to establish Health Homes to coordinate care for people with Medicaid who have chronic conditions by adding Section 1945 of the Social Security Act. Health Homes are for people with Medicaid who: Have 2 or more chronic conditions Have one chronic condition and are at risk for a second Have one serious and persistent mental health condition States can target health home services geographically States can not exclude people with both Medicaid and Medicare from health home services Anyone have a client in this program? Appears very, very limited!! Click here for full site here 57

58 Warning - ACA Provision Some special needs trust are employers By October 1, 2013, employers who are subject to the Fair Labor Standards Act (FLSA) must produce and distribute notices to employees about the health insurance exchanges (also known as marketplaces) that will become effective in January 2014 (see FLSA Sec. 18B). These notices were originally required to be distributed by March 1, 2013. However, in January 2013, the Department of Labor (DOL) delayed this requirement until it had time to issue further guidance. On May 8, 2013, the DOL’s Employee Benefits Security Administration (EBSA) issued Technical Release 2013-02, which specifies that these notices must now be provided by the first of October For full article: Health Reform TalkHealth Reform Talk 58

59 The LTC Commission Establishment The American Taxpayer Relief Act (the so-called "fiscal-cliff" law) repealed the CLASS Act and established a Long-Term Care Commission to advise Congress on how long-term care can be better provided and financed for the nation's older adults and people with disabilities, now and in the future. The bi-partisan commission consists of 15 appointees appointed by Democratic and Republican Congressional leadership and the White House. 59

60 The LTC Commission Objective Charged by statute to report with a "plan for the establishment, implementation, and financing of a comprehensive, coordinated, and high-quality system that ensures the availability of long-term services and supports for individuals in need." Within 6 months of the appointment of Commissioners (by September 12, 2013) they must vote on a comprehensive and detailed report based on the long-term care plan that contains any recommendations or proposals for legislative or administrative action as the Commission deems appropriate. For more information: Long-Term Care Commission WebsiteLong-Term Care Commission Website 60

61 State Insurance Exchanges as Asset Builders 61

62 State Implementation of Health Insurance Exchanges According to the Center on Budget and Policy Priorities as of June 14, 2013 States choosing to establish a State-based Exchange (SBE) were required to submit their exchange proposals to HHS by December 14, 2012 while those considering a Partnership Exchange had until February 15, 2013. As of December 17, 2012, seventeen states and the District of Columbia have declared their intention to establish a State-based Exchange (SBE), and an additional six states are pursuing a State Partnership Exchange. All twenty- four State-based and Partnership Exchanges have been conditionally approved by HHS. Twenty-seven states have declined the opportunity to operate an SBE or State Partnership Exchange, and instead will default to a Federally-facilitated Exchange (FFE) (Figure 1). 62

63 Figure 1 – Status of 2014 Exchange Implementation 63

64 HHS issues proposed regulations on financial integrity, oversight standards for Exchanges The Department of Health and Human Services (HHS) has issued proposed regulations on a number of policies related to the implementation of the Patient Protection and Affordable Care Act (ACA), including provisions regarding Affordable Insurance Exchanges, also known as Health Insurance Marketplaces. Much of the proposed rule focuses on program integrity regarding state Exchanges, issuers offering coverage in the Federally- facilitated Exchanges (FFE), advance payments of the premium tax credit and cost-sharing reductions, and premium stabilization programs. 64

65 HHS issues proposed regulations on financial integrity, oversight standards for Exchanges (cont) The rule also proposes establishing standards for HHS-approved enrollee satisfaction survey vendors, standards for the handling of consumer complaints by issuers in the Exchange, and other provisions meant to ensure smooth operation of the Exchanges, protect consumers, and give flexibility to states. To see the actual rule that was published on June 19, 2013: Federal Register Federal Register 65

66 Access to Health Insurance Promotes Asset Building One of the major problems that the Affordable Care Act tries to solve is the high rate of uninsured Americans. In 2011 the Census Bureau reported that 48.6 million Americans were uninsured. Being uninsured us a major financial burden for those who require medical care. Without health insurance, out-of-pocket health care cost are too high for most people to afford. According to the 2010 U.S. Census, in 2009 the average cost of a hospital stay was $10,379. Worse yet, hospitals generally charge uninsured individuals higher prices than the prices they have negotiated with insurance companies. When individuals are unable to pay such high costs, their cases are sent to collection agencies, thereby diminishing their credit scores and further hampering asset building. All of this evidence points to having health insurance as being essential for attaining financial stability and economic mobility. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 66

67 Access to Health Insurance Promotes Asset Building (cont.) The Affordable Care Act (ACA) provides that all states must open Medicaid eligibility to any adult earning below 33 percent of the federal poverty level. A second provision created health insurance exchanges. These health insurance exchanges are new marketplaces for buying private health insurance by paying premiums based on income. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 67

68 Access to Health Insurance Promotes Asset Building (cont.) Originally the Act required states to set up such exchanges or face elimination of federal funding for their Medicaid programs. However, the U.S. Supreme Court’s decision on the constitutionality of the Act held that threatening to withhold federal Medicaid funding was unconstitutional. As a result, states not may decide whether to establish exchanges. So far twenty-five states have indicated that they will not establish them and will rely instead on a federally created exchange. **Keep in mind that pooled trust promote asset building** Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 68

69 Access to Health Insurance Promotes Asset Building (cont.) The Act requires that exchanges give people private insurance plan options that would be categorized into four levels of quality: platinum, gold, silver, and bronze. Tax credits would be granted to people who earn below 400 percent of the federal poverty level and choose to purchase insurance through the exchange system. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 69

70 Access to Health Insurance Promotes Asset Building (cont.) The final institutional change aimed at increasing health insurance access is the prohibition against coverage denials due to preexisting conditions. This practice of selecting only healthy risk-pool enrollees and denying coverage to those with preexisting conditions was pervasive because it is in health insurance companies’ best interest to avoid covering the sick, Under the ACA insurance companies are required to cover all people who apply for coverage even if they are potentially expensive enrollees. In order to ensure that this provision does not significantly, negatively affect insurance companies’ bottom line, the Act also includes the individual mandate, we discussed earlier. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 70

71 Promoting Health and Well-Being Promotes Asset Building The ACA not only promotes wellness by expanding access to health care and health insurance but also contains provisions that directly promote health outcomes and well-being. These provisions can also be viewed as promoting asset building since research shows that people who are healthier tend to be more financially stable and have more assets than those who are less healthy, just like a pooled trust does. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 71

72 Reducing Medical Bankruptcies and Debt Promotes Asset Building Before the ACA was passed, annual or lifetime benefit limits were pervasive insurance company practices. Once a person’s annual or lifetime benefit limit was reached, the enrollee would be responsible for all health costs incurred. The Act’s provisions help protect consumers’ assets by making sure that deductibles and out-of-pocket costs are capped. Pooled trust allow consumers to save for these expenses. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 72

73 Reducing Medical Bankruptcies and Debt Promotes Asset Building First, the ACA bars deductibles form exceeding $2,000 for individuals are $4,000 for families. Individuals and small businesses that use the exchange system will have cost-sharing maximums laid out based on the level of insurance plans: bronze plan enrollees pay no more that 40 percent out-of- pocket, silver plan enrollees pay no more than 30 percent out-of-pocket, gold plan enrollees pay no more than 20 percent out-of-pocket, and platinum plan enrollees pay no more than 10 percent out-of-pocket expenses. Out-of-pocket maximums are also capped. Out-of pocket limits are based on the Internal Revenue Service's limits on health savings account contributions. Harris, Karen K., and Alexander I. Hoffman. "The Affordable Care Act: An Effective Asset-Building Policy." Clearinghouse REVIEW Journal of Poverty Law and Policy (2013): 492-500. Print. 73

74 Tax Break May Apply for Beneficiary Under the ACA If SNT purchase insurance for the Beneficiary this income tax break may apply for the beneficiary There are two kinds of financial help for people planning to enroll in the online health insurance marketplaces that will open this fall. One could put people at risk of having to pay some of the money back, while the other won't. That's one big difference between tax credits and subsidies, both of which are intended to help people with lower incomes pay for health insurance through the new health care law. Andrews, Michelle. "News." Tax Break Can Help with Health Coverage, But There's a Catch. NPR, 10 July 2013. Web. 12 July 2013. 74

75 Tax Break May Apply for Beneficiary Under the ACA (cont.) People with incomes between 100 and 400 percent of the federal poverty level ($11,490 to $45,960 for individuals in 2013) may be eligible for tax credits to reduce the cost of their monthly health insurance premiums. In addition, people with incomes between 100 and 250 percent of the poverty level ($11,490 to $28,725) may qualify for cost-sharing subsidies that will bring down their deductibles, copayments and coinsurance. The subsidies also reduce the maximum amount they can be required to pay out of pocket annually for medical care. Andrews, Michelle. "News." Tax Break Can Help with Health Coverage, But There's a Catch. NPR, 10 July 2013. Web. 12 July 2013. 75

76 Tax Break May Apply for Beneficiary Under the ACA (cont.) Instead of waiting until tax time to claim the credit for the premiums on their return, people can apply to get it in advance, based on their estimated income for 2014. In that case, the state health exchange, or marketplace, will estimate the tax credit and send it directly to the insurer. But there's a catch. When April 15 rolls around, the Internal Revenue Service will reconcile the amount of the advance payments sent to the insurer with the taxpayer's actual income. If a person's income is higher than the estimate, the taxpayer will have to repay the difference. But there's some good news, too. If a person's income is lower than estimated, the taxpayer will get a credit. Andrews, Michelle. "News." Tax Break Can Help with Health Coverage, But There's a Catch. NPR, 10 July 2013. Web. 12 July 2013. 76

77 Tax Break May Apply for Beneficiary Under the ACA (cont.) People who quality for the cost-sharing subsidies won't face the same financial risk. The federal subsidies, which reduce consumers' out-of- pocket costs, will be paid directly to insurers. They could cover thousands of dollars of costs, depending on a person's health care usage. But with the subsidies, if a person's income changes during the year, he or she won't be responsible for any extra costs. "It's not a reconcilable tax credit, so consumers aren't on the hook if their income changes," says Christine Monahan, a senior health policy analyst at Georgetown Health Policy Institute's Center on Health Insurance Reforms. So check out both options for cheaper premiums, but be well aware of the differences. Andrews, Michelle. "News." Tax Break Can Help with Health Coverage, But There's a Catch. NPR, 10 July 2013. Web. 12 July 2013. 77

78 Alternatives to Special Needs Trust 78

79 Alternatives to Self-Settled Special Needs Trust The four alternatives to establishing an individual self-settled special needs trust are to spend down, by paying bills or purchasing exempt assets, to transfer assets, to simply accept the money, or to utilize a pooled trust Spend down - Under a lifetime personal service contract, the person with a disability would contract with a third party for in-kind support and maintenance for life in exchange for a lump sum payment. Transfer to Assets - If the person with a disability is receiving SSI and/or Medicaid transfer penalties apply. The penalty is a period of ineligibility for SSI and/or Medicaid. The SSI penalty is calculated by dividing the amount transferred by the maximum SSI payment. This is usually in the neighborhood of $600. There is a maximum period of ineligibility of three years. Begley, Jr., Thomas. "News." Four Alternatives to Self-Settled Special Needs Trusts. Begley Law Group, Unknown date. Web. 9 September 2013. 79

80 Alternatives to Self-Settled Special Needs Trust Accept the Money - An alternative for a person receiving SSD and Medicare would be to simply accept the money, because it would have no affect on their public benefits. Another alternative would be to accept the funds and transfer them to a third party who would then establish a support trust for the benefit of the person with a disability. Pooled Trust - A final alternative to an individual self-settled special needs trust is a pooled trust. All or a portion of the settlement can be deposited into a pooled trust to protect the beneficiary’s public benefits. Begley, Jr., Thomas. "News." Four Alternatives to Self-Settled Special Needs Trusts. Begley Law Group, Unknown date. Web. 9 September 2013. 80

81 Alternative to 3 rd Party Trust - Spendthrift Trust Many families have members who just can’t handle money, and that is not always related to a disability. That is the function of the Spendthrift Trust. Parents fund this trust with the trustee appointed as the person to manage the funds for the family member who can’t manage money. The trustee trickles money out to the beneficiary on an ongoing basis, it can be much more flexible than a special needs trust. The trustee can still purchase assets that benefit the spendthrift. The entire intent of this type of trust is to protect the nest egg from financial mismanagement and provide ongoing support for the beneficiary. However, because the beneficiary may not need means tested benefits (either because they are no longer disabled, or their medical and support needs are adequately covered by the purchase of an insurance policy, the Trustee can provide for assistant with basic needs, and even at times if appropriate provide small amounts of cash to the beneficiary. 81

82 Alternative to 3 rd Party Trust - Spendthrift Trust This option maybe a realistic alternative to special needs trusts. Just keep in mind, it will not work for 1 st party money and it will not work for folks that due to the changing nature of the disability may need Medicaid long term care benefits in the future. If that is at all a possibility I would still suggest using a special needs trust. If needs based benefits do not be come an issue then the SNT can be administered more like a spendthrift trust. This type of instruction should be addressed in the letter of Intent which was mentioned earlier. 82

83 Tax Change for the SNTs (3.8% Tax on Undistributed Income) 83

84 Will You or Your SNT Be Affected in 2013? When Congress passed the President’s health care reform initiative in March of 2010, the legislation came in two separate bills. First came the Patient Protection and Affordable Care Act (PPACA), followed by the Health Care and Education Reconciliation Act (HCERA) several days later. One focus of the HCERA was to implement the tax provisions designed to pay for healthcare reform. Several cases are pending in various federal courts challenging the constitutionality of the PPACA, but even if the courts eventually were to declare the PPACA to be unconstitutional, the non- insurance tax provisions in the HCERA will apply to taxpayers, including the disabled beneficiaries of special needs trusts (SNTs) and/or SNTs themselves. Like most taxes, the financial impact of the new tax in the HCERA can be minimized with proper planning. What follows is a very brief overview of the new tax, some general planning opportunities, and a brief discussion on how the tax will apply to SNTs. Full article: The New Medicare Surtax: Will You or Your Special Needs Trust Be Affected in 2013?The New Medicare Surtax: Will You or Your Special Needs Trust Be Affected in 2013? Begley, Jr., Thomas. "News." The New Medicare Surtax: Will You or Your Special Needs Trust Be Affected in 2013?. Begley Law Group, Unknown date. Web. 9 September 2013. 84

85 Tax Hikes Hit Trust Hard (cont.) Folks with trusts, and that includes widows and the disabled, not just the ultra-wealthy, have been hit with a double tax whammy this year. First the 3.8% Obamacare tax that applies to net investment income kicked in Jan. 1. Then, the American Taxpayer Relief Act was signed into law on Jan. 2, imposing income and capital gains tax hikes on trusts akin to those on the wealthiest taxpayers. The top income tax rate is now 39.6%, up from 35%, and the top capital gains rate is now 20%, up from 15%. The kicker: these taxes hit a trust on any income it does not distribute over just $11,950, far less than the $400,000/$450,000 ATRA and $200,000/$250,000 Obamacare thresholds for individuals. Full article: Tax Hikes Hit Trust Hard, Beneficiaries Pull Money OutTax Hikes Hit Trust Hard, Beneficiaries Pull Money Out Ebeling, Ashlea. "Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out." Forbes. Forbes Magazine, 09 Jan. 2013. Web. 09 Sept. 2013. 85

86 Tax Hikes Hit Trust Hard (cont.) Most trusts (non-grantor trusts) pay tax on capital gains and accumulated income that stays in the trust, while the beneficiaries pay tax on income that is distributed to them. So trusts—even relatively small ones—will be hit with the 23.8% capital gains rate (the 20% rate plus the 3.8% Obamacare tax), even if the beneficiary himself would be squarely in 15% capital gains territory. Many trust beneficiaries are ultra-wealthy and can easily bear the extra tax, but many middle-class folks have set up trusts for basic estate planning as well as non-tax reasons, and they’ll be swept into the higher tax regime too. Full article: Tax Hikes Hit Trust Hard, Beneficiaries Pull Money OutTax Hikes Hit Trust Hard, Beneficiaries Pull Money Out Ebeling, Ashlea. "Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out." Forbes. Forbes Magazine, 09 Jan. 2013. Web. 09 Sept. 2013. 86

87 Tax Hikes Hit Trust Hard (cont.) The income tax hikes call for more advanced and time-sensitive planning. For many trusts it’s left to the trustee’s discretion whether or not to distribute income to any or some of the beneficiaries, and there’s always been a tension between leaving money in the trust to grow for future generations and paying out to current beneficiaries today. The Internal Revenue Service allows a 65-day grace period (through March 6, 2013 this year) to take distributable net income out of the trust and treat it as distributed in 2012. Given the new high rates, it may make sense to accelerate income distributions to the extent there is undistributed income in the trust. For high-income beneficiaries who have an immediate need for the money, making the distribution in the window would lock in the 2012 individual tax rates, saving 4.6%, or more because the healthcare tax does not apply in 2012 Full article: Tax Hikes Hit Trust Hard, Beneficiaries Pull Money OutTax Hikes Hit Trust Hard, Beneficiaries Pull Money Out Ebeling, Ashlea. "Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out." Forbes. Forbes Magazine, 09 Jan. 2013. Web. 09 Sept. 2013. 87

88 Tax Hikes Hit Trust Hard (cont.) Some families might even decide to dissolve existing trusts. A widow in her 80s who is living off a $1 million trust left by her late husband doesn’t need it for estate planning purposes any more. Before you rip up a trust, consider whether it’s needed to shield you from state estate and inheritance taxes, for adult children who aren’t great with money or may have a disability, or for protection from divorcing spouses and other creditors. And what if you’re thinking of setting up a new trust? Make sure you have flexibility written in. Full article: Tax Hikes Hit Trust Hard, Beneficiaries Pull Money OutTax Hikes Hit Trust Hard, Beneficiaries Pull Money Out Ebeling, Ashlea. "Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out." Forbes. Forbes Magazine, 09 Jan. 2013. Web. 09 Sept. 2013. 88

89 Knowing a Little about how SNTs are Taxed Can Be Helpful Trust do have returns and deductions The IRS gives taxable trusts a $600 deduction. If a trust fund is small enough, keep the interest income less than $600 per year in order to avoid having to file a trust tax return. Trust payout avoid trust tax Trusts generally get an income tax deduction for all of the money which they distribute to a beneficiary or pay for the beneficiary's treatment, support or needs. Try tax-free trust assets Income received by a trust from investing in a tax-free source keeps its "character" and is tax-free to the beneficiary when it is spent for their needs. 89

90 Knowing a Little about how SNTs are Taxed Can Be Helpful Watch the year end and plan ahead Spend down all trust income by December 31st each year. Currently, Trusts pay about a 38% federal tax on income that the trust accumulates and does not spend on behalf of a beneficiary. Your state income tax can increase this burden. It helps to prepay taxes The trust can make estimated income tax deposits on Form ES1040 and transfer the benefit of those income tax prepayments to your beneficiary. 90

91 Knowing a Little about how SNTs are Taxed Can Be Helpful A Double deduction Congress did add a special provision to the tax code for qualified disability trusts. It is found in section 642 and can be helpful to a SNT trust provided the trust is not a “Grantor" trust. Have the trust hire a helper A trust may pay employees on behalf of the special needs beneficiary, including an accountant!! 91

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