Posts Tagged ‘pooled trust’

Why We Do What We Do

JANUARY 9, 2017 VOLUME 24 NUMBER 2
At Fleming & Curti, PLC, we represent seniors, people with disabilities and the family members who work with and support them. We also frequently act as trustee, agent, conservator or guardian for that population. It’s hard to capsulize exactly what we do, but if you ask any of us you’ll notice that we beam while attempting to characterize our work.

We have very good friends in California doing similar work at the Golden State Pooled Trust. The founder of that organization, attorney Stephen Dale from The Dale Law Firm in Pacheco, California (and his lovely wife Terri, who is instrumental in operation of the Trust), is a great friend and inspiration as well. He also does a very good job of capsulizing what we do, and why we do it.

Steve shared two stories about his trust beneficiaries this week. We think they perfectly explain the spark in our eyes when we explain our work, and we asked his permission to pass them along. See if they don’t make you think you want to work in this field, as well:

I want to share two stories with you that, for me, really bring home why we do this. One story is of triumph, the other is of hope.

So let me begin with the story of triumph. Mrs. B came to the Golden State Pooled Trust with a large settlement and our job was to keep her qualified for Medicaid because she lived in a skilled nursing facility. The first time I met her I visited her in the nursing home and my impression was that this was a woman who had completely lost interest in life — and the world seemed to have lost interest in her.

I asked Mrs. B what she would like me to do with the funds that would help her – and she pretty much was unresponsive. She hadn’t been out of bed in years without assistance and when I asked her if she would like to do things outside of the nursing home she rolled over away from me. I talked to the nursing staff who were caring and engaged to get their input – but there were limits on what they could do.

I called Sage Eldercare and I asked that a care manager be assigned to her and an assessment made about what could be done. They assigned Janeane to the case and through a series of thoughtful assessments Janeane had determined that she was probably capable of being ambulatory but needed more physical therapy than she was currently receiving.

Janeane began to implement a plan to fulfill that need and over time Mrs. B began to improve. She was asked again – what would she want to do other than stay in bed all day. Her answer: go to church.

Janeane secured private care staff to accompany her and off to church she went. Then her world expanded more, going shopping and occasionally going to excursions like the zoo. We at the Golden State Pooled Trust would get these wonderful progress reports, and we would pass them on to our board who loved each one.

The only harsh call I ever got from Mrs. B was once when her helper was late – and she wanted me to know she was a busy woman and needed to know when her helper would arrive so she could do some shopping. Was this really the shell of a woman I had met years earlier?

Mrs. B had been in decline for the past month, and sadly she passed away last week. As sad as her passing is, it fills my heart with joy and pride that her years under our care (primarily because of the actions of Sage and their staff) were made better and she lived a quality of life that would not have been possible but for their vigilance.

Now for the story of hope. Mr. F came to us recently and is a young man with many physical challenges and pretty much getting no services or oversight beyond his meager benefits. Mr. F got a modest settlement and is dependent on Supplemental Security Income and Medicaid and of course our job is to keep him qualified for benefits.

As often happens, we got off to a rocky start. His primary need beyond existing benefits is housing, and the first couple of weeks we made arrangements for short term housing which would be thwarted and cause our staff to have to bail him out of his situation to avoid having him literally be thrown out in the streets. He arranged for a room in what appeared to be a pretty unsafe part of his city, but it was unlikely this would be appropriate for the long term. Then he started making unbelievably inappropriate requests – and he was truly annoying me. This case was really going to be a challenge.

Clearly, we were not connecting – so I called ElderCare Services and arranged for a care manager to do an assessment and create a plan to get this under control. Brenda was assigned to the case, and she wanted a Golden State Pooled Trust staff member to go with her on the first assessment; reluctantly, I agreed.

So off they went to meet with Mr. F. and several hours later they returned. The report I received was that Mr. F is living in a place of incredible squalor – and that beyond the filth of his closet sized room, the entrance to his building is basically inaccessible for his physical needs. The other part of the report was that Mr. F was thankful for the visit, and appears to be committed to work with Brenda. Is it possible that we could do more than keep a roof over his head until the funds run out?

Though his settlement was significant, he doesn’t have unlimited funds. With the right guidance he is fully capable of becoming self-supporting someday, and graduating from the ranks of the lost and forgotten. I am so glad that we have Barbara on the job, and my expectation is that with her guidance we will find Mr. F a safe and appropriate place to live, and maybe we can get him connected a healthier community and set his life on a path that will change his life for the better before his funds run out.

We have many stories in our little pooled trust, and my hope is that we will have many more to come and the services we provide will continue indefinitely. Yes, our folks are almost universally difficult with challenges sometimes that are hard to understand until we dig below the surface.

Even so, Mrs. B’s personal effect on my life was to give me hope and pride in our staff, and our partners that include many care management agencies. For myself and all at the Golden State Pooled Mrs. B’s final years with us  has made our lives better. For Mr. F, we have an opportunity to change the trajectory of his life – how cool is that?

How cool, indeed.

The ABLE Act — How Will You Be Able to Use It?

DECEMBER 29, 2014 VOLUME 21 NUMBER 47

Last week we told you about the passage of The Achieving a Better Life Experience Act, and tried to spell out some of the important details. But until we can all see actual cases, it might be hard to figure out how to use the new law (and the accounts that it authorizes). This week we’re going to suggest some of the ways that the new ABLE accounts might be useful — and some of the pitfalls for people who use them unwisely.

First, a caveat: we don’t really know what the ABLE accounts will look like yet. That’s because we’re collectively waiting for two things: the federal government needs to adopt regulations implementing the new law, and states need to create ABLE accounts. Neither will be complete for months, at least.

What will the ABLE landscape look like in six or nine months? We predict that there will be federal regulations, and that a number of states will have created ABLE accounts that resemble (in each instance) their existing 529 accounts. But probably not all states will have gotten on board by then. If you (or the family member you want to create an ABLE account to benefit) happens to live in a state that is lagging in implementation, the new accounts will simply be unavailable. Though you might be able to choose among the Section 529 plans of several dozen states when making a contribution, the ABLE Act limits you to the state where the person with a disability lives.

Let’s assume, though, that there is an ABLE account available. Who might set up accounts, and why would they choose an ABLE account over the other alternatives available? Let’s try some examples.

Guillermo

We’ll start with Guillermo. He is 30 years old, and he was born with Cerebral Palsy. He lives with his parents, who provide for most of his daily needs. His grandmother has just died, leaving him a small inheritance of $10,000. She did not create a special needs trust for him; she simply left him the $10,000 in his name directly.

Guillermo was disabled at birth, so he will have no trouble meeting the ABLE Act requirement that his disability had to begin before age 26. Guillermo has the mental capacity to sign a receipt for his inheritance, to open an account in his own name and to sign checks on that account — though his disability makes it impossible for him to actually sign the checks. His Supplemental Security Income (SSI) payments go into an account in joint tenancy with his mother, who makes the actual payments from the account. The bank account now has about $1500 accumulated; it is a regular problem for Guillermo and his mother to figure out ways to spend the money to keep him from losing his SSI — and the Medicaid benefits that flow from it.

Guillermo is the classic ABLE Act candidate. He could put all of his inheritance into an ABLE account, and the savings would not cause him to lose his SSI or Medicaid. He would have control over how the money was spent; he would not have to get approval from a trustee or anyone else before deciding to make a purchase. Of course, he will want to make sure his expenditures do not violate the final regulations limiting the distributions from the ABLE account, but that will probably not be any problem. In fact, Guillermo can contribute future funds to the account, too — as his SSI checking account builds up, he can put funds into his ABLE account to stay below his $2,000 limit. In this way, Guillermo can set aside savings for future expenditures — such as when he is no longer able to live with his parents.

Would Guillermo have other choices? Yes, he would. He could establish a self-settled special needs trust, or participate in a pooled special needs trust. Either of those would likely have more start-up costs than his ABLE account, and the fees charged by either a separate trustee or a pooled trustee would likely exceed the annual administrative costs in the ABLE account. Most importantly, perhaps, the ABLE account would permit Guillermo to directly control his money, which is a terrific advantage.

Guillermo’s Grandmother

Knowing what a good idea the ABLE account looks like for Guillermo, should his grandmother have just set up an ABLE account before her death? Absolutely not. Why not? Because of the ABLE account’s payback requirement.

Looking at the same transaction from Guillermo’s grandmother’s perspective, it looks completely different. It would be simplicity itself for her to modify her will to provide that the $10,000 bequest to Guillermo should be held in a third-party special needs trust — probably naming his parents as trustees, and his sister as successor trustee. The cost? Perhaps an additional few hundred dollars over the cost of her basic will. The advantages? Complete discretion in how to handle Guillermo’s money (admittedly it would be handled by his parents, but there’s nothing that prohibits them from letting Guillermo make many of the decisions for them), no administrative costs, and no payback requirement.

Guillermo’s Grandfather

Meanwhile, Guillermo’s grandfather (from the other side of the family) is planning on leaving a larger bequest to Guillermo — he is going to leave Guillermo a full 1/4 of his estate. Could he utilize the ABLE account? Absolutely not. Why not? Because his gift will be more than the $14,000/year that could be contributed to all ABLE accounts for Guillermo’s benefit, and so ABLE is simply not a choice. He could, of course, make annual contributions of $14,000 until he has put 1/4 of his total estate into the account, but that’s not what he wants to do — and besides, he is in his 80s and might not live long enough to transfer Guillermo’s full inheritance into the account.

Guillermo’s Mother

Guillermo’s family is not wealthy, but his mother thinks she could afford to put as much as $10,000 per year aside for Guillermo’s future needs. Should she utilize an ABLE account? Almost certainly not.

What’s wrong with ABLE accounts for Guillermo’s mother? The payback issue is a real problem, and one that’s easily avoidable by her setting up a third-party special needs trust. Yes, that does mean that she will need to pay the cost of creating a trust, but there will not be any continuing cost for administering the trust. She can consult with an attorney, create a trust, and start contributing funds to the trust right away. She can expressly permit expenditures that the ABLE accounts might preclude. She can invest the trust’s money in any way that seems appropriate to her — not just Guillermo’s state’s ABLE provider. She can look for lower-cost and higher-yield investments if she chooses.

Would the answer be different if Guillermo’s mother only intends to contribute $2,000 per year? Not really. She ought to start with the very small investment of talking with an experienced attorney to figure out whether she really wants to create either a trust or an ABLE account; there might be even smarter, more cost-effective options (like just creating a separate account in her own name and earmarking it for Guillermo’s benefit).

Wendy

Wendy is very much in the same situation as Guillermo, with one important difference: her disability is Down Syndrome, and her ability to make her own decisions is very limited. Her parents have been appointed as guardian (of her person); otherwise, her situation is similar to Guillermo’s. In fact, Wendy’s grandmother has just died, leaving $10,000 in her name. Is her situation the same as Guillermo’s?

Not quite. The cost of an ABLE account will actually be higher for Wendy, since she can not sign a receipt for her grandmother’s estate, or negotiate the check she receives. Her parents will probably need to go back to court to get appointed as her conservator (what is called guardian of the estate in some states) in order to set up the ABLE account. Depending on her local court, they may have to file annual accountings for the ABLE account even after it is set up.

For Wendy, a pooled special needs trust might be more suitable. Yes, there will be a small start-up cost, and there will be a payback requirement at her death. But the administrative expenses are likely to be lower than the cost of a continuing court proceeding. The best answer for Wendy might vary from state to state, from county to county, and even from year to year.

What if Wendy’s SSI bank account builds up to more than the $2,000 she’s permitted to keep? The excess might very well be directed to an ABLE account. The reason the answer is different: her mother, as representative payee, has the authority to set up the account, and the administrative costs are therefore lower than they would be for a pooled special needs trust.

Wendy’s Accident

Unfortunately, Wendy was a passenger in a van that was hit by a negligent driver. The good news: Wendy’s injuries were slight, she has recovered completely, and the negligent driver was insured. His insurance company has offered $5,000 to settle her claim.

Can this money be put in an ABLE account? Yes, and that might be the best choice. Like the small inheritance from her grandmother, there will be some administrative costs (getting the court to approve the settlement and allow the ABLE account), but the ABLE account might be the best alternative. That will especially be true if her grandmother’s inheritance was already put into an ABLE account AND the accident settlement is in the next year.

Guillermo’s Accident

Tragically, Guillermo was also injured in an auto/van accident the year after he received his inheritance from his grandmother. His injuries were more serious: the insurance company is offering $60,000 to settle his claim. Can he use his ABLE account?

If you’re paying attention, you probably think the answer is “no.” But it’s not. There is a two-step way Guillermo can use his ABLE account to receive the lawsuit settlement.

First, he could agree with the driver’s insurance company to make not a single $60,000 lump-sum payment but annual payments of $9,000 for seven years. That means that he would actually get a few more dollars in total settlement. Each year’s $9,000 can be contributed to the ABLE account without running afoul of the $14,000 annual limitation (which will rise to $15,000 within a couple years of Guillermo’s accident, making it even easier).

Of course, Guillermo still will have a payback requirement upon his death. But the language of the ABLE payback is considerably gentler than the payback requirements for special needs trusts — the ABLE account should be available to pay Guillermo’s funeral and burial expenses, for instance, without requiring that he prepay those bills.

Guillermo’s Sister

Guillermo was not alone in the van. His sister Louise was also in the van, and she was horribly injured. She was disabled by the accident; her work history is such that she receives about $500/month from Social Security Disability and another $300/month from SSI. Because she gets SSI, she also gets Medicaid coverage. She was 28 at the time of the accident.

Can Louise’s potential settlement be directed to an ABLE account, in the same way that her brother’s was? Absolutely not. Why not? Because her disability onset was after age 26. That arbitrary (and unfair) limitation, incidentally, is not based on anything but budget considerations; if Louise and people like her had access to ABLE accounts, the anticipated cost to the treasury would mushroom and Congress could not figure out how to pay for it.

Your Situation Here

As you can see, it might be hard to figure out whether an ABLE account is the right way to resolve a particular person’s problem. Some generalizations, though: if you are considering setting aside your money for a family member with a disability, ABLE is probably not your best choice. If the problem is how to handle money belonging to the person with a disability, there are quite a few factors to consider. You should get good legal advice to figure out the best solution in your situation.

Taxation of Pooled Special Needs Trusts

SEPTEMBER 23, 2013 VOLUME 20 NUMBER 36

We write a lot about taxation of trusts, and especially of special needs trusts. But there is one type of trust that we haven’t written much about, and we can’t find other explanations for. “Pooled” special needs trusts are a special kind of trust, and there is much confusion about how they should be treated for federal income tax purposes.

First, we don’t think there are a lot of other tax issues about pooled special needs trusts (other than income taxation, that is). They are seldom — perhaps never — large enough to raise gift tax issues or estate tax concerns. We can imagine an occasional parent wondering about the gift tax treatment of contributions to a pooled trust account, but only the wealthiest parents are going to need to worry about that, and they are probably getting an abundance of good tax advice from their lawyers and accountants.

So let’s just talk about income taxation of pooled special needs trusts. But first perhaps we need to define terms.

What is a pooled special needs trust?

Pooled trusts are just what the name suggests: a single trust consisting of money held for the benefit of a number of individuals. Usually those separate trust accounts are managed together but accounted for separately. In other words, your contribution to a pooled special needs trust will be used just for you (or for the other person you designate), not for other beneficiaries. But your money and theirs will be pooled into a single investment structure, so that your administrative costs will probably be lower and your earnings higher than they would be if you were on your own.

By convention pooled special needs accounts tend to be smaller. There is no reason that needs to be true, but it often is. People with substantial money to be set aside in a trust tend to want separate treatment, separate management and different structures. But that is not always true, so some pooled accounts are large.

Most pooled special needs trusts include only money that once belonged to the beneficiary — like personal injury lawsuit settlements, or inheritances from someone who never set up an appropriate trust, or even back payments from Social Security. Increasingly, though, parents (and others) wanting to set aside money for a child with a disability are looking at pooled trusts as a convenient and cost-effective alternative.

When money comes from personal injury settlements or unrestricted inheritances, the resultant pooled trust share is referred to as a “self-settled” or “first-party” pooled trust.  When the trust is set up by a parent or another person, the pooled trust share is called a “third-party” pooled trust. That’s important for income tax purposes.

Taxation of self-settled pooled trust accounts

If a person with a disability transfers funds to a trust for their own benefit (or someone else does it on their behalf), the trust share is called a “grantor” trust. That means that the self-settled share does not pay separate income taxes, or even file a return. The larger trust may have to file a return, but none of the income attributable to the self-settled share (and none of that share’s portion of deductible expenses) gets reported on a trust (or fiduciary) income tax return. For income tax purposes, the self-settled pooled special needs trust share simply doesn’t exist.

That doesn’t mean that there is no income tax. The beneficiary may still have to file an individual tax return, including any income and deductible expenses. Of course, the beneficiary may not have sufficient income — even with the trust’s income added in — to need to file a return, and the fact of the trust won’t change that.

Of course, the beneficiary only knows what he or she has to do if the trustee passes information along to them. So the federal government requires that the trustee give the beneficiary all the information they need to fill out their own tax return. But the trustee doesn’t file anything for the trust, except the brief statement that the trust is a grantor trust and is not filing a separate return.

Taxation of third-party pooled trust accounts

If someone else puts the money into a pooled trust account, that may (or may not) set up a requirement for separate tax filings. Often, the person contributing the money will be treated as the “grantor” and have to report the income and take the appropriate deductions — even if they are not benefiting from the trust. That decision is based on a complicated set of rules known as the “grantor trust” rules. Volumes have been written about the peculiar twists those rules may take, but let’s make the simple over-generalization that, during the lifetime of the donor, it is likely that the donor will be liable for the income tax on a third-party pooled special needs trust share.

If the third-party trust share is not a grantor trust, then the trustee will need to file a federal Form 1041 — the fiduciary income tax return — if the larger trust has more than $600 of income. That return will list all income and deductible expenses, and then may result in taxable income being assigned to the beneficiary — to the extent that the beneficiary receives assistance from the trust. Did the trust pay dental bills, or moving expenses? There may be an income tax consequence to the beneficiary (but only to the extent of taxable income received by the trust — not usually the full value of services or goods purchased by the trust).

Does a pooled special needs trust need an Employer Identification Number — an EIN?

Yes. always. It’s always fun to be able to give a simple and absolute answer. There is a lot of detail behind that simple answer, but the answer is always simple: yes.

We hope that helps. The follow-up questions can be bewilderingly complicated, but go ahead — we’ll see if we can give at least generalized answers. If you have specific legal questions based on your trust’s particular circumstances, you should ask your lawyer (or a lawyer) rather than posting your query online. But we’ll (gently) let you know if we think that’s the case based on your question.

Attorney’s Position on Ending Guardianship Case Approved

MARCH 8, 2010  VOLUME 17, NUMBER 8

{Ed. Note: this week’s Elder Law Issues was written for us by our friend, and nationally-known elder law authority, Prof. Rebecca C. MorganProf. Morgan holds the Boston Asset Management Chair in Elder Law at the Stetson University College of Law, and she is the Director of Stetson’s Center for Excellence in Elder Law.]

The ethical rules for attorneys (the Rules of Professional Conduct) impose a number of duties upon lawyers in their dealings with clients. Sometimes the rules require an attorney to take protective action on behalf of a client who has diminished capacity, even when the client disagrees with the attorney doing so.

Janet Clark suffered a traumatic brain injury as a result of a serious car accident. She was subsequently determined to be incapacitated and a North Carolina probate judge appointed a guardian of the person and property for her. A little over eighteen months after her accident her husband petitioned to end her guardianship, arguing that she had been returned to competence.

In the meantime a personal injury case filed on her behalf settled for $4,000,000, and after the payment costs and fees the balance was to be paid to the trustee of a special needs trust to be established by the attorney’s firm. The attorney had earlier created a pooled special needs trust, and he sat on its Board of Directors. He used that trust for Ms. Clark’s settlement funds.

During the case the attorney had come to the conclusion that the husband was attempting to influence Ms. Clark while she was incompetent. The attorney concluded that the pooled SNT would be the best way to ensure that funds would be both protected and available for Ms. Clark’s future needs. Because of this concern, the attorney opposed the proceeding filed by Mr. Clark to terminate the guardianship, and he sought a new evaluation of Ms. Clark’s competency.

Ultimately Ms. Clark was restored to competency and motions were filed, included motions regarding attorney’s fees. The appellate court rejected the Clarks’ argument that it was wrong to award the fees, especially in light of the guardian’s and attorney’s opposition to efforts to end Ms. Clark’s guardianship. After reviewing state law the appellate court concluded that the attorney’s fees should be paid.

The appellate court noted that the facts supported the guardian’s concerns regarding efforts to end Ms. Clark’s guardianship. The trial judge had found that the attorney had a good faith belief that terminating Ms. Clark’s guardianship was not in her best interest and the attorney had a duty to “exercise his best judgment” which, according to the trial court, is exactly what he did.

The appellate court also upheld the trial court’s finding that there was no conflict of interest because the attorney had fully disclosed his relationship with the pooled trust. According to the court, the Clarks failed to prove that this relationship in any way adversely affected the attorney’s representation of Ms. Clark. In re Clark, February 2, 2010.

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