1. Planning for Families With Children Who Have Special Needs
Carolina Institute for Developmental Disabilities
January 23, 2019
Anthony D. Nicholson

2. Anthony D. Nicholson McPherson, Rocamora, Nicholson, Wilson & Hinkle, PLLC 3211 Shannon Road, Suite 620, Durham, NC

3. Topics to Discuss ABLE Accounts Planning Considerations
Basic Estate Planning Documents
Guardianship and Alternatives
SSI/Medicaid and Other Public Benefits
Letters of Intent
Special Needs Trusts
Types of SNTs
Distributing Funds from SNTs
Selection of Trustee
ABLE Accounts

4. Basic Estate Planning Documents
Will and/or Revocable Trust
Appoint Guardian
Name Beneficiaries of Your Estate
Testamentary Trusts for Children
Special Needs Trust
General Power of Attorney
Health Care Directives
Beneficiary Designations on Retirement Plans and Life Insurance

5. Guardianship Court Proceeding Process can start at age 17 ½
Types of Guardianship - Guardian of Person, Guardian of Estate, General Guardianship
Guardian of Person combined with Representative Payee
Alternatives to Guardianship - General Power of Attorney and Health Care Power of Attorney; Supportive Decision-Making

6. Prepare Letter of Intent
Family Information and addresses
Residential Care-Past, Present and Future
Education, including past record, current enrollment, specialty teachers, future educational goals, special interests and talents
Social, Behavioral & Personal Relationships
A Typical Day
Medical Information
Important Contacts
Expressions of Love and Hope

7. Have you planned effectively for your child who has special needs?
Problem-If child with special needs has over $2,000 or receives over $2,000, eligibility for most government benefits is automatically lost.
Does your will leave money or property to your child with special needs?
Is your child a beneficiary, or contingent beneficiary of your life insurance, IRA, or other retirement plan?
Have grandparents, siblings or others named the child beneficiary or contingent beneficiary of a will or life insurance policy?

8. Common Needs-Based Benefits
SSI – Supplemental Security Income
$771/month Maximum
$514 – One Third Reduction Rule
Disability Determination
Medicaid – Automatically Eligible if Receiving SSI
CAPS – Medicaid Waivers – CAP C, DA, Innovations, Choice
SSDI – Social Security Disability Income

9. Non-Countable Assets Home One Vehicle Furnishings and personal effects
Property approved by SSI for self support (for example office equipment)
Life Insurance and/or burial policy worth less than $1,500
$2,000 cash or cash equivalents

10. Solutions-What Should You Consider?
Disinherit the Child
Leave the Child’s share to a Sibling or other Relative
Plan for Child with a Will and “Special Needs” Trust
Division of Assets Between Children

11. Overview of Special Needs Trusts
Trust: An agreement by which one person (the trustee) holds property for the benefit of another (beneficiary)
Special Needs Trust: Trust created for the benefit of a person with a disability who is receiving or may receive “needs-based” public benefits

12. The “Special Needs” Trust
Essential purpose is to improve the quality of an individual’s life without disqualifying him or her from eligibility for public benefits
Assets in trust are not counted as a resource
Assets supplement rather than supplant government benefits
Overall Planning Goal: to achieve as much independence as possible for the beneficiary while maintaining eligibility for needed supports.

13. The Trustee Choice of Trustee can be difficult
Qualities of the Trustee
Good Judgment/Trustworthiness
Investment Acumen
Good Record Keeping Abilities
Financially Secure
Willing to Seek Advice on Public Benefits, Investment and Taxes

14. Trustee Choices Individual Trustee- Sibling, Relative or friend
Successors needed if Trustee dies or becomes incapacitated
Professional Trustee (trust company or attorney)
Combination of individuals and professionals as co-trustees
Non-profit organization that operates a pooled trust

15. Two Kinds of Special Needs Trusts
Third Party SNTs
First Party SNTs
Also called Self-Settled SNT, Medicaid Pay-back SNT or d(4)(A) SNT

16. Third Party SNTs
Funded with assets of parents, grandparents, or siblings (third parties) and not the beneficiary
Not subject to Medicaid payback
Discretionary Distribution Standard
Lots of Guidance to Trustee Regarding Distributions

17. Third Party SNTs (continued)
Created in Will as a Testamentary Trust
Created as a “Stand Alone Trust”
Revocable verses Irrevocable
Can be a receptacle for gifts or bequests from others as well as parents’ assets at death
Family members can leave property directly to trust

18. Funding of Trust at Death
Beneficiary Designations for Life Insurance, IRAs, etc. should name trust as beneficiary rather than the child outright
Wills should state any distribution to child with special needs is distributed to Trust

19. First Party SNTs
Established by the individual, a parent, a grand- parent, guardian or court for a person with a disability under 65 years of age
Funded with the personal assets of the person with a disability–normally inheritance or personal injury settlement
Trust is subject to Medicaid Payback
Trustee can be individual, trust company or a non- profit corporation
Must be for the “sole benefit” of the disabled person

20. ABLE Account Basics Can be a Good Alternative to 1st Party SNT
Limited to $15,000 per year (cash only) (plus wages up to $12,000)
Account that will not disqualify person from needs-based benefits
Medicaid Payback Required (for expenses incurred after account is set up)
NC:
Ohio:

21. ABLE Account Uses
Good for relatively small amounts of money – wages, small inheritance
Generally not good for parents’ money
But could be useful to avoid SSI one-third reduction rule if parent or a trust pays for housing of person getting SSI
Normally, payment of housing expenses causes reduction in SSI
But payment of housing from ABLE account does not reduce benefits since housing is a QDE

22. Creation of the Account
Who can create an account?
Parent (of minor child or adult child)
Competent adult with a disability
General guardian/guardian of the estate or agent under POA of an adult with a disability (not a guardian of the person).

23. Ownership and Contributions
Who is the owner of the account?
The person with a disability (minor or adult)
For incapacitated person - parent, legal guardian or agent under POA controls the account as an “Authorized Individual”
Who can contribute to the account?
Any “person” – individual, trust, corporation, etc.

24. Eligibility Must be eligible for benefits under SSI or SSDI, or
File certification annually demonstrating
Medically determinable physical or mental impairment which results in marked and severe functional limitations, which can be expected to result in death or which has lasted or can be expected to last not less than 12 months.
Certification must include copy of physician diagnosis.
Must have become disabled before age 26.

25. Contributions Rollover from 529 College savings Plan Must be in cash.
Limits:
Subject to annual gift tax exclusion limit ($15,000 in 2019).
Aggregate limit is same as 529 Plans
($450,000 for NC).
Accounts that exceed $100,000 suspend SSI.
Accounts in excess of aggregate limit will cause loss of Medicaid benefits.
Rollover from 529 College savings Plan

26. Distributions For qualified disability expenses: Education Housing
Transportation
Employment training and support
Assistive technology and personal support services
Health, prevention and wellness
Financial management and administrative services
Legal fees
Expenses for ABLE Account oversight and monitoring
Funeral and burial expenses, and
Other expenses (basic living expenses) approved pursuant to Treasury regulations.

27. Qualified Disability Expenses
Proposed Regulations:
Expenses that relate to the benefit of the designated beneficiary and help him or her maintain or improve his or her health, independence and quality of life.
“…should be broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for which there is a medical necessity or which provide no benefits to others in addition to the eligible individual”
E.g., paying for smart phone to assist in communication and navigation.
Seems to be a departure from sole benefit rule, but unclear how much.

28. Income Tax Implications
Contributions are not tax deductible.
Income earned by account is not taxed (so long as distributions are for qualified disability expenses).
If not a qualified disability expense:
Income is subject to tax, AND
10% penalty incurred on the income.

29. Finding a Special Needs Attorney
Understanding of public benefits planning
Experience in drafting special needs trusts
Knowledge of general estate planning including wills, trusts, etc.