1. Presents Planning for First Party Money: Alternatives to Using SNTs With Kevin Urbatsch Sponsored by: February 18, 2014

2. Planning Process Special Needs Planning For First Party Money Requires A Thorough Understanding Of The Person with a Disability’s Current and Future Situation And Creating A Plan That Accomplishes That Person’s Goals 2

3. Planning Process You Need a Team to Do This Right  Special Needs Planning Attorney  Special Needs Financial Advisor  Special Needs Care Advisor/Advocate/Social Worker/Public Benefits Consultant  Health Care Consultant/Broker  Special Needs Tax Professional 3

4. Facts Needed To Do Planning Type of Public Benefits Amount of Assets At Issue Adjustable Gross Income Living Situation – Number of People in Household Age Type of Disability Capacity Parent or Grandparent Alive, Well, and Willing to Help Ability to Manage Assets 4

5. Planners Toolbox 1.Do nothing; 2.Consider ACA Private Health Care/ Expanded Medicaid; 3.Give the assets away; 4.Spend down assets; 5.Modify disqualifying trust to 3 rd party SNT; 6.Place assets in a first party (d)(4)(A) SNT; 7.Join a Pooled SNT; or 8.Some combination of the above. 5

6. Public Benefits Effect of Doing Nothing ♦ Loss of SSI ♦ Month of receipt, assets will be counted as unearned or earned income ♦ Next calendar month, if assets still in person’s name counted as a resource ♦ Loss of Medicaid ♦ Categorically Eligible ♦ Own limited income and resource test ♦ May still be eligible for Expanded Medicaid/Subsidized Healthcare through ACA 6

7. Consider ACA (Private Insurance) Expanded Medicaid For certain clients, may “do nothing” and obtain subsidized health care or free Medicaid ACA – Private Health Insurance Government Subsidized Private Health Care for Income Levels of 139 to 400% of Federal Poverty Limit Ends at Age 65 May Not Provide Full Coverage Expanded Medicaid Free Medicaid without Asset Test – Less Than 138% of FPL Ends at Age 65 Not Every State Has Adopted It 7

8. Some Considerations Under New ACA Laws In cases with competent, capable beneficiary, the beneficiary may like to keep control of his or her own $ Consider Regular Estate Planning (POA, Health Care Directive) SSI Still Has Asset Test See Article About Financial Effect of Losing SSI Persons who lack legal capacity – What is SNT Alternative? Conservatorship/guardianship may not be suitable Possible that Expanded Medicaid May Not Cover Long-Term or In Home Care 8

9. SSI - Paying Health Insurance Premiums Payment of an individual's bills (including supplementary medical insurance under title XVIII or other medical insurance premiums) by a third party directly to the supplier is not income. However, anything received in kind as a result of the payment is income if it is food or shelter POMS SI 00815.400(A) 9

10. Effect of Giving Away Assets - SSI Gift Penalty – But See Discussion Later Ineligible for SSI for up to 36 months (42 U.S.C. §1382b) Transferred amount ÷ SSI = ineligibility period Example: SSI recipient ($637/month), receives $15,000 from his grandmother at her death. In the month after he receives it, he gives it to his brother. SSI Recipient is ineligible for SSI for 1 year and 11 months. (15,000 ÷ 637 = 23.547 or, rounded down, 23 months). 10

11. Effect of Giving Away Assets: Traditional Medicaid Under Deficit Reduction Act of 2005 (DRA) up to Five Years of Ineligibility California still has not implemented and gifting currently is still a very viable planning tool Use Elder Law Planning Tools 11

12. Spend Down of Assets – When to Consider Preservation of SSI Important When the amount of assets is modest If a person with a disability is age 65 or over NO Expanded Medicaid or ACA Health Insurance When the person with a disability owns a home When there are debts 12

13. POMS - SpendDown Spending-down cash can be a valid transfer of resources. Generally, when an individual purchases items or pays for services on the open market, he or she receives fair market value in return for the cash. The period of ineligibility does not apply to an individual who spends down cash resources and gets fair market value in return POMS SI 01150.007 13

14. Spend Down of Assets: Purchasing Exempt Assets Principal residence (20 CFR §416.1212); Automobile (of any value) (20 CFR §§416.1210(c)); Household items (20 CFR §§416.1210(b), 416.1216(a); Personal effects (20 CFR §§416.1210(b), 416.1216(b)); Musical instruments (20 CFR §§416.1210(b), 416.1216(b)); Burial insurance (20 CFR §§416.1230, 416.1231(b)(8)); Irrevocable burial trusts; burial funds (20 CFR §416.1230, 416.1231(b)(8)); Burial plots, vaults, and crypts (20 CFR §416.1231(a)); and Life insurance policies with cash surrender value, if total values are less than $1500, plus all term life insurance (20 CFR §416.1230). 14

15. Spend Down: Pay Debts  Debt Must Be:  Enforceable Under State Law  Agreement in Effect at Time of Transaction  Acknowledged Obligation to Repay  Plan for Repayment  Repayment Plan Feasible POMS SI 01120.220 15

16. Spend Down of Assets: Prepay for Food or Shelter For SSI, prepayment of food and shelter is authorized as long as it is for FMV SSI recipient transfers $30,000 cash to his sister based on contract that she would provide him with food and shelter for 5 years. The food and shelter for 5 years is worth $30,000 (5 years x $6,000 per year). ISM is not counted POMS SI 01150.005(C)(3)(b) 16

17. Spend Down of Assets: Prepay Services SSI also allows for prepayment of services ◦ SSA determines the value of services provided to the transferor based on the FMV of the services (monthly or annually) and their frequency and duration under the agreement ◦ POMS SI 01150.005(C)(3)(c): ◦ Example: In exchange for $9,000 cash, the individual contracts for yard maintenance services for 5 years. The maintenance company charges $150 per month ($1,800 per year). Five years of maintenance at $1,800 per year equals $9,000. 17

18. Plan for Achieving Self Support (PASS) PASS allows SSI recipients to set aside earned income, unearned income, or resources, thereby exempting them from consideration by the SSA, which otherwise would result in lowering the monthly cash payment amount or ineligibility due to excess resources A PASS can be an alternative to an SNT under the right set of facts, e.g., if an SSI recipient receives a modest inheritance of $20,000 and intends to use the assets to return to school. A PASS would shield the assets from being counted against the recipient 18

19. Spend Down: Procedure In order to preserve SSI, assets must be spent in the calendar month of receipt of the assets. It is not 30 days from the receipt of the assets. ◦ See POMS SI 01150.001(B)(2) and SI 01110.600. Thus, if the SSI recipient received assets on September 28, he or she would have to spend the assets down to below $2,000 before the end of September 30th, only two days from receipt. 19

20. Disclaimer: Not effective For SSI purposes, a disclaimer will be counted as a gift. See POMS SI 01150.110(E), which describes a period of ineligibility for an individual transferring assets that he or she constructively received ( e.g., he or she refused an inheritance). 20

21. Gifting Inheritance, Litigation or Insurance Proceeds 1.An inheritance, litigation award, or insurance proceed is considered SSI "income" in the month of receipt. 1.20 CFR §§416.1121(e)-(g). 2.In the month after receipt, if retained by the benefits recipient, the asset will be counted as an SSI "resource." 1.20 CFR §§416.1207(d); 3.No asset can be both a "resource" and "income." 1.POMS SI 01110.600. 4.There is no penalty for SSI when "income" is given away. 1.See 42 USC §1382b(c)(1)(A); 20 CFR §416.1201(a)(4) 5.Thus, gift of these assets in the month of receipt should not penalize the benefits recipient. However, according to a POMS provision, a transfer of income in the month it is received is considered a transfer of a resource if the income would have been considered a resource in the following month. POMS SI 01150.001(B)(5). (Questionable Legality) 21

22. Modify Disqualifying Trust to Third Party SNT When the settlor of an irrevocable trust leaves an inheritance that disqualifies a benefits recipient from needs-based public benefits, a viable option under appropriate circumstances is to petition the court to modify (or reform) the irrevocable trust to create a third party special needs trust (SNT) 22

23. When to Consider Special Needs Trusts Benefits Assets are legally available for future needs Assets can grow without interfering with benefits Can pay for private health care Burdens Loss of control by person with a disability Can be costly to establish and administer 23

24. Issue: Procedure to Establish (d)(4)(A) SNT Can be Costly  42 USC §1396p(d)(4)(A) has multiple legal requirements for establishment  “Seed Trust” if parent and grandparent and beneficiary has capacity  Some Jurisdictions, cost of trustees is large  Otherwise, court order needed to establish  Can be expensive to set up  May require court supervision 24

25. Issue: Join (d)(4)(C) or Pooled Trust 42 USC §1396p(d)(4)(C) easier to join: Person with Disability Can Join (if capacity) Can be Done Quickly Cost of Establishment May be Less Ongoing Costs May be More 25

26. Which is Better: Pooled SNT or (d)(4)(A) SNT?  Depends  Age  Capacity  Establishment Procedure  Cost of Administration  Flexibility of Administration  Purchase Real Estate  Unique Disbursements 26

27. Child or Spousal Support A (d)(4)(A) SNT might be considered in the following circumstances: To hold an under-age-65 spouse's share of the marital assets for purposes of SSI and Medicaid asset rules; To receive spousal support for an under-age-65 spouse for purposes of SSI and Medicaid income rules; and To receive child support for purposes of SSI and Medicaid income rules 27

28. Hypotheticals Client receives settlement of $1,000,000. Client is receiving SSI and Medicaid, is 25 years old, clearly has capacity, and has a parent alive and willing to assist. Options: Do Nothing Determine Lifetime Financial Effect of Loss of SSI Qualify for ACA/Expanded Medicaid Establish a (d)(4)(A) “seed trust” SNT Spend Down 28

29. Hypotheticals Client receives settlement of $50,000. Client is receiving SSI/Medicaid, is 25 years old client, lacks capacity, and has a parent alive and willing to assist. Cannot use “seed trust” procedure because of capacity Options: Establish (d)(4)(A) or Pooled SNT through court procedure Spend Down and Doing Nothing Only Through Court Approval Would Still do SNT because money has to be under protected scenario in some way (guardianship or trust) 29

30. Hypotheticals Client receives settlement of $1,000,000. Client is receiving SSI/Medicaid. Client is 25 years old, has capacity, but does not have a parent or grandparent alive. Options: Consider Financial Effect of Loss of SSI Consider Do Nothing and Receive ACA/Expanded Medicaid Court established (d)(4)(A) SNT Join Pooled SNT Spend Down 30

31. Hypotheticals Last month, a 67 year old disabled person received a $50,000 outright inheritance from his brother. He has capacity. Wants to preserve SSI/Medicaid. Issues: ◦ He is over 65 so a (d)(4)(A) SNT will not work ◦ Will not qualify for ACA or Expanded Medicaid ◦ Options are  Do Nothing  Spend Down  Pooled SNT 31

32. Hypotheticals This month a 67 year old disabled person’s guardian informs attorney of $50,000 inheritance. Client is receiving SSI/Medicaid. Potential client lacks capacity. (d)(4)(A) SNT will not work due to age and w ill not qualify for ACA or Expanded Medicaid Options: Do Nothing Gift inheritance in month of receipt Pooled SNT but capacity is required to sign the Joinder Agreement. Thus, court approval will be required (assuming no POA). Spend Down by Conservator (usually requires court order) 32

33. Hypotheticals A 45 year old person with a disability received an inheritance of $100,000 in a discretionary spendthrift trust with a distribution standard of all income and principal for maintenance and support. He recently lost his SSI/Medicaid. Option: This type of trust is a disqualifying third party SNT. This trust must be reformed (or modified). There are two alternatives: Modifying or reforming the trust back into a third party SNT ; Modifying or reforming the trust into a (d)(4)(A) SNT. 33

34. Hypotheticals A 22 year old with severe physical disabilities receives $20,000 from a life insurance policy on her aunt. She is on SSI/Medicaid. Considering going to school to obtain degree. Options: (d)(4)(A) SNT or Pooled SNT PASS Program Spend Down 34

35. Questions? Kevin Urbatsch Myers Urbatsch, P.C. San Francisco, California Kevin@Urbatsch.com www.MyersUrbatsch.com 35

36. Support (866) 296-5509 support@specialneedsplanners.com 36