Posts Tagged ‘Special Needs Trusts’

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.

Two Words (“The Individual”) Make a Big Difference

DECEMBER 12, 2016 VOLUME 23 NUMBER 46
Congress may be in a historic post-election lull, but the end of the year can sometimes see surprising, bipartisan progress. With passage by the U.S. Senate of the Special Needs Trust Fairness Act (a very small part of the 21st Century Cures Act) a significant change has been introduced into the world of special needs trusts. And it all comes down to the addition of two words: “the individual”. Let us explain.

Sometimes an individual with a disability will qualify for the Supplemental Security Income (SSI), Arizona Health Care Cost Containment System (AHCCCS) or Arizona Long Term Care System (ALTCS) programs, but not be able to receive benefits because their assets exceed the $2,000 limit generally applied for all of those programs. In that case, if the individual is under age 65, they might be able to establish a special needs trust and thereby qualify for benefits.

Actually, it’s not correct to say that they could establish a special needs trust. Until passage of the law last week, the special needs trust could only be established by the individual’s parent, grandparent or guardian — or by a court. A competent individual with a disability could not establish their own trust, and often had to go through a court proceeding (at considerable additional cost) before qualifying or re-qualifying for SSI or ALTCS.

The existing law (42 United States Code section 1396p(d)(4)(A)) said that such a trust could be established by “a parent, grandparent, legal guardian of the individual, or a court”. The Special Needs Trust Fairness Act amends that provision so that it permits establishment by “the individual, a parent, grandparent, legal guardian of the individual, or a court”.

The new law will become effective immediately upon President Obama’s signature, which is anticipated in the next few days. It will have no effect on existing trusts, since they will each have been established under the old law. It will, however, sweep away thousands of pages of qualifications, refinements and interpretations about whether a trust could be established by a parent who held a power of attorney, or whether an individual with a disability could file their own guardianship petition (or seek court approval of a trust in their own names).

This simple but powerful change was promoted by the Special Needs Alliance (two of the attorneys at Fleming & Curti, PLC, are members of that national group) and the National Academy of Elder Law Attorneys (all four of our attorneys are members). It has been a key component of legislative plans for the entire advocacy community. Its adoption is welcome news.

The change is just the latest in a series of incremental improvements in the eligibility rules for SSI, ALTCS/AHCCCS and other programs like public housing assistance. Among the changes: more logical (and consistent) treatment of special needs trust distributions among the different programs, creation of the ABLE Act (“Achieving a Better Life Experience” Act) program, allowing public benefits recipients to save more than the long-time $2,000 asset limitation for eligibility, and (partly as a result of the Affordable Care Act and its expanded Medicaid programs) increasing use of tax-based language in place of more peculiar Social Security Administration definitions.

One recent court case gives a good illustration of how this most recent change will benefit people with disabilities. A young South Dakota woman’s special needs trust, established by her parents (as required by the prior law), was invalidated largely because she had signed a power of attorney naming her parents as her agents. That, according to the Social Security interpretation, meant that they acted not as parents but as their daughter’s agents — making the trust defective. The new law should put an end to that type of game-playing.

There are still many individuals who will need a court to get involved to create a special needs trust. The new law, however, should make it easier — and considerably less expensive — to set up many special needs trusts.

Trust Decanting Used to Implement Special Needs Provisions

OCTOBER 10, 2016 VOLUME 23 NUMBER 38
Let’s say that your mother wants to leave an inheritance for your son (let’s call him Daniel), but that Daniel is a minor. How can she arrange his inheritance? By putting it in trust, of course. Pretty commonly, Daniel’s trust might continue until he is 21, or 25, or some other age that your mother might choose. After that, the money can go to him outright. In the meantime, you, or your mother’s accountant or lawyer, or a family member with good financial skills, can manage Daniel’s money for him.

There’s nothing very remarkable about that setup, but one common development can change the story dramatically. What if, before he reaches the age for distribution from the trust, Daniel becomes disabled — or receives a diagnosis that you just didn’t expect when you wrote the trust?

If your mother is still living, of course, she can change the trust provisions to create a “special needs” trust for Daniel. But if she were to die before the family learned that Daniel needed a different type of trust, things could get much more complicated.

If no steps are taken before Daniel turns 25 (or whatever age the trust set), then the trustee will have no choice to turn the money over to him. That will almost certainly mean that he loses some or all of public benefits he receives because of his disability — and he may not be able to manage the money anyway. That could be a bad result.

One response might be for you, as Daniel’s parent and/or guardian, to create a new special needs trust for him after he turns 25. That might require court action, and will result in a pretty tightly-controlled trust document (because the rules are fairly restrictive). This kind of trust is usually called a “self-settled” special needs trust, even though Daniel might not actually be involved in its creation at all. This kind of trust also has to provide that, when Daniel dies later, the state’s Medicaid program will be entitled to make a claim against the trust’s remaining assets — before they pass to Daniel’s other family members.

Another excellent choice in Arizona might be for Daniel’s trustee to “decant” his trust. This notion borrows its name from decanting of wine — the trustee would simply pour (as it were) the trust’s assets from the existing trust container into a new, more appropriate (and special needs) container. But there is some uncertainty about whether that new trust container would have to be a “self-settled” trust — and include the restrictive provisions and payback clause.

It was not in Arizona and does not apply Arizona law, but a recent New York appellate court decision addressed this very question. Daniel’s trustee asked the New York courts for permission to decant his trust to a new special needs trust — but without the payback provision. The trustees gave notice to the state Medicaid agency, and its representatives appeared and objected. Because Daniel would be absolutely entitled to receive the trust balance when he reached the age in the original trust document, they reasoned, the money was really his, and the trust would need to be of the self-settled variety.

Not so, argued the trustee. The money would not be Daniel’s until he reached the age set out in the trust — and in the meantime, state law permitted the trustee’s to move the trust into a new trust, governed by a new document. That meant that no payback provision was required.

The New York Surrogate’s Court (what we would call the probate court in Arizona) agreed with the trustees and allowed creation of a new trust with no payback provision. The Medicaid agency appealed, but unsuccessfully. According to the appellate court, Daniel’s trustee was correct — the new, decanted trust was not a self-settled special needs trust, since Daniel did not have the right to receive the property at the time the new trust was created. Matter of Kroll v. New York State Department of Health, October 5, 2016.

This may seem like a small thing, but the ramifications are actually quite large. If the New York precedent holds up in other states, it will open a terrific opportunity for management of trusts when circumstances have changed (as they so often do). It might be applicable not only when beneficiaries like Daniel reach the age of distribution; it might also apply when a trust contains unfortunate language, or management considerations change.

Will this be the law in Arizona? It is hard to be certain, but each case (and this one is the first) reaching a similar conclusion will add impetus to what we can hope will be a developing trend.

Special Needs Trust Pays Substantial Legal Fees in Dispute

SEPTEMBER 26, 2016 VOLUME 23 NUMBER 36
Questions often arise about what kinds of payments may, or should, be made from a trust. When the trust is a “special needs” trust, the questions sometimes can be even more pointed — the purpose of a special needs trust, after all, is usually to provide for supplemental needs not available from other sources. As in almost every trust case, there are questions about whether trust expenditures improperly favor one beneficiary over the interests of others; in many special needs trusts, the question is compounded by trying to assess the protection due to the state Medicaid agency, since it is often entitled to repayment from the trust on the death of the primary beneficiary.

All of that, though, is hard to analyze — until a specific trust distribution is at issue. To help review the considerations we might look at a recent case out of South Carolina, in which a special needs trustee’s payment of legal fees has come into question.

Alexis Davis (not her real name) presents a tragic story. In 2006 she delivered triplets (after she and her husband had tried to have children for several years). During the delivery, however, she was catastrophically injured; she remains unable to move or speak, and communicates primarily by blinking.

Alexis’ husband and parents cooperated in filing a lawsuit against the hospital where she was treated, and a settlement was negotiated. A special needs trust was established to handle the settlement proceeds, and it was funded with an initial amount of almost $1 million, plus monthly income payments of over $30,000. Alexis’ mother and father were named as trustees of her special needs trust, and as guardians of her person and conservators of her estate.

After the settlement, Alexis’ husband announced that he wanted to pursue a divorce. In response, her parents filed a divorce proceeding on her behalf, and sought visitation between her and her triplets.

All of the legal proceedings took place in California, where the couple had lived together and the triplets were born. For a time, Alexis’ parents moved to California to help take care of her, and to have her remain close to her family. As the divorce proceeded, however, they moved her back to South Carolina to take care of her at home.

Over almost a decade, legal battles proceeded over the visitation issue. Alexis’ legal position was directed by her parents, acting as co-trustees and as co-guardians. The legal costs were paid from her trust.

Meanwhile, legal fees mounted. Alexis’ ex-husband eventually filed an action in South Carolina to try to prevent Alexis’ parents from paying those costs from her trust. He brought his action against them as trustees but did not name Alexis herself as a party. His request was made on behalf of the triplets, arguing that their interests in the trust were being compromised by the legal expenses.

In response Alexis’ parents asked the South Carolina court to expressly approve legal fees they had paid totaling $495,326.75. They also asked that the trust be modified to make it clear that they could pay legal fees without prior court approval. The court appointed a guardian ad litem (a local lawyer) to represent the triplets’ interests in the trust. The court also appointed another local attorney to act as Alexis’ guardian ad litem, and a third as attorney for Alexis.

Midway through the court proceedings (after several days of trial and after Alexis’ ex-husband finished his presentation) the judge formally amended the petitions to make clear that Alexis herself was a party. Because the allotted time was up, the court continued the whole proceeding for a new date; it was set to start up again several months later. Meanwhile, the judge who had heard the first part of the proceedings lost her reelection bid, and Alexis’ ex-husband appealed the order adding her as a party.

Meanwhile, the first appeal resulted in an order denying Alexis’ ex-husband’s objections, and he appealed to the next level of court — South Carolina’s Court of Appeals. That appellate court agreed with both of the lower courts which had considered the questions, approving the addition of Alexis as a party, the appointment of a guardian ad litem and an attorney to represent her, and the course of the litigation up to that point. Dorn v. Cohen, August 3, 2016.

Are you confused yet? We know we are — and we speak the arcane language of appeals and legalisms regarding trusts and guardianship. But that’s not really our point. Instead, we think that Alexis’ case illustrates an important issue.

The key dispute involved here centers around legal fees of almost $500,000. Since that bill was incurred, the dispute moved to another state, three different attorneys have been appointed to be involved in the case, and a multi-day trial has been conducted — and yet the issues are far from resolved. With the change of judge, it seems safe to suggest that there will eventually be several more days of court proceedings, and more legal wrangling just to get to that point. Meanwhile, the underlying fight — over visitation between Alexis and the triplets — was actually resolved (according to news reports) five years ago. The resolution sounds imminently sensible, and it may even be going well.

Our point is that legal proceedings can sometimes lose their connection to reasonable grounding. From Alexis’ parents’ perspective, they have by this time incurred legal fees that are probably two or three times the original reported bill — and they could conceivably be instructed to pay those fees from their own pockets. On the other side, unknown fees and costs have been incurred by Alexis’ ex-husband. Presumably, all the legal costs will eventually be borne by the triplets, since their inheritances (from their father, their mother’s trust and even their grandparents) will have been significantly reduced.

Does this mean that it is dangerous to even act as trustee of a special needs trust (or, for that matter, of any trust)? No. This level of dispute is extremely unusual. But the story is still a cautionary one.

 

When You Might Want to Open an ABLE Act Account

SEPTEMBER 13, 2016 VOLUME 23 NUMBER 34
Now that ABLE Act programs have been set up in several states, you might wonder if it’s time for you to set up an account for yourself or a family member with a disability. How can you figure out whether ABLE is right for you? We’ll try to help.

The Achieving a Better Life Experience Act (ABLE Act) was passed in 2014. It permitted people with disabilities to have a separate account, usable for disability-related expenses, that would not be counted as an available resource for Supplemental Security Income (SSI) or Medicaid eligibility purposes. States were encouraged to set up ABLE Act programs, and people with disabilities were permitted to open an account with any state — provided that the state permitted non-residents to participate.

So far, four states have opened their ABLE Act programs. One of those (Florida) permits only Florida residents to participate. The other three (in Ohio, Tennessee and Nebraska) are open to anyone who qualifies.

ABLE limitations

There are a number of concerns about ABLE Act accounts. First, no more than $14,000 per year can be put into an account. Second, any funds left in the account at the death of the participant — regardless of where the money originally came from — will be paid to the participant’s state’s Medicaid program. Those two limitations make ABLE Act accounts unattractive for most family members who might otherwise think of giving or leaving substantial assets to a loved one who happens to have a disability.

There is a lot of misunderstanding about one other item: are ABLE Act accounts like investment accounts, or more like checking accounts? In some cases they might look like one or the other, but thinking of ABLE Act accounts as terrific investment opportunities for people with disabilities is, well, just misguided. Earnings will be limited, expenses are likely to be somewhat higher than similar accounts for other purposes (like education accounts, on which the ABLE Act accounts were modeled), and any account that does grow to more than $100,000 will cause suspension of SSI benefits anyway. We believe that, in most cases, ABLE Act accounts will most resemble checking or savings accounts.

ABLE uses

That doesn’t mean that the ABLE Act won’t provide terrific opportunities, however. There are a number of situations in which we imagine the ABLE Act will be a great boon for beneficiaries. A sampling of the most likely beneficial circumstances for ABLE Act accounts:

  1. The capable beneficiary. Are you the person with a disability? If you could handle a savings account yourself, but have been unable to put anything away because of the $2,000 asset limit for SSI, then the ABLE Act was written for you. You can now save any money you don’t need from your SSI each month, and park it in an ABLE Act account. You can save for vehicle repairs (or a new vehicle), for tuition, or even for the property taxes on your home. There are more uses you can consider, and you probably see the possibilities.
  2. The housing shortfall. Do you (or a family member) get assistance with your housing expenses? And when you do, does that reduce your SSI benefit? If so, you might explore the ABLE Act account as a way to pass the housing assistance through a sieve that makes it perfectly permissible — and removes any reduction in your SSI payments. Your bottom line might be to increase your SSI benefit to the highest possible amount, while still getting assistance from family members with living expenses.
  3. The small inheritance, or personal injury settlement. If you have less than $14,000 coming to you from an unrestricted inheritance, or settlement of a personal injury lawsuit, you probably already know that it could interrupt your eligibility for SSI (and, perhaps, for AHCCCS, Arizona’s Medicaid program). ABLE makes it possible to take the proceeds — so long as they are less than $14,000 net — and have no negative effect on your benefits. Even slightly larger amounts can be handled this way, depending on timing, other expenses and the particulars of each situation. But one obvious way to increase the number somewhat: in addition to the $14,000 put into an ABLE Act account in any given year, an SSI recipient is permitted to have up to $2,000 in a regular bank account — provided that it’s the only account. So a person who has no assets at all can settle a $16,000 lawsuit without having any effect on SSI.
  4. The Special Needs Trust beneficiary. This one may not always be available (trust language can differ), but it might be a great option: the trustee of a special needs trust, who has been unable to give any money directly to the beneficiary, may now be able to put money into an ABLE Act account. That could give the beneficiary control over the funds, and the ability to pay at least some bills directly. The ABLE Act could give new flexibility to trustees of special needs trusts.

We’re confident that there are other ideas out there, and we even have a few ourselves. Another time perhaps we’ll try to compare the available ABLE Act accounts.

In the meantime, we have one other suggestion: if you have created a special needs trust for your child (or other person) with a disability, you might want to consider modifying it to explicitly permit the trustee to put money into an ABLE Act account. We’re happy — eager, in fact — to talk with our clients about this idea.

Section 8 Housing Participant Permitted to Receive Special Needs Trust Benefits

JUNE 27, 2016 VOLUME 23 NUMBER 24
When an individual is receiving Supplemental Security Income (SSI) benefits, or Medicaid (AHCCCS, in Arizona) benefits, he or she may have benefits reduced or eliminated if he or she receives a lump-sum settlement of a personal injury lawsuit or periodic payments from such a lawsuit. That is the usual circumstance giving rise to establishment of what is called a “self-settled” special needs trust. There are a number of specific requirements for establishment and administration of such a trust — but that is not our subject today. What about public benefits programs that are less-known — like Section 8 subsidized housing, for example?

That was the problem facing Kimberly DeCambre, a Massachusetts resident who had received a personal injury settlement. She established a special needs trust, protecting her SSI and Medicaid benefits, but she was also receiving Section 8 rent assistance. Could she maintain those benefits, as well?

One of many oddities in the patchwork of federal/state benefits programs is that the various programs may use “asset” and “income” differently in determining eligibility. For Section 8 housing subsidies, for instance, almost any payments made by any person on behalf of someone else will be counted as income to the beneficiary — unless the payments are “temporary, non-recurring or sporadic.” That is very different from the SSI standard, which permits unlimited payments directly for any goods or services so long as they are not “food or shelter.”

What that meant for Ms. DeCambre was devastating. While she had long paid $435 in rent (the total rent bill was $1,560), the Section 8 administrators determined that all the special needs trust payments on her behalf for previous years should be counted as income, ending her eligibility for the program altogether. Not only would her rent jump by over $1,000, but if her trust was able to pay anything toward her rent, it would reduce her SSI payments by more than $250 per month.

Ms. DeCambre sued, asking the trial court to determine that the trust’s payments of such things as cell and landline telephone payments, automobile expenses and veterinary bills for her cats should not be counted as income for Section 8 purposes. She argued that she needed those services because of her disabilities, that the Section 8 rules were penalizing her for transactions that were permissible under other federal laws, and that the payments were not really being made by someone else at all, since they were being made from her own money, now placed in the special needs trust.

The Federal District Court judge agreed with her, but only to a limited extent. Under the judge’s interpretation, the agency should have conducted a more thorough review of each transaction to determine whether it could be allowed as necessary for her emotional and medical needs. Ms. DeCambre appealed, seeking a more sweeping declaration of the correctness of her position; the Section 8 agency also appealed, arguing that none of the expenses paid by the trust should be excluded from the income determination.

The First Circuit Court of Appeals (with direct jurisdiction over Maine, New Hampsire, Rhode Island, Puerto Rico and Massachusetts) gave Ms. DeCambre her sweeping declaration. According to the three-member panel of appellate judges, the money going into Ms. DeCambre’s special needs trust was her own money. In other words, if the personal injury settlement proceeds had been paid directly to Ms. DeCambre, payments from that lump-sum would not be treated as income to her — and that result should not change just because her proceeds had gone into a special needs trust. With no payments from the trust being treated as income, Ms. DeCambre’s monthly rent cost should drop back to $435 — or even lower, since that figure included some payments that had been made before the final calculation treating all trust payments as income. DeCambre v. Brookline Housing Authority, June 14, 2016.

What does this decision mean for other special needs trust beneficiaries on Section 8 housing subsidy programs? It is potentially a profound shift in the way such participants will be treated. But it is important to recognize that Ms. DeCambre’s situation was different from those of many other trust beneficiaries.

First, it is likely that the logic of the holding will apply only to self-settled trust beneficiaries. If a trust is established, say, by parents of an individual with a disability, and funded with the parents’ own funds, that trust (usually called a “third-party” trust) will not be treated the same as Ms. DeCambre’s trust.

It is also unclear whether some individuals on Section 8 housing might now have the opportunity to establish a special needs trust to maintain just those benefits. Given housing authorities’ interpretation of the regulations before this decision, it has been unproductive to consider such an approach. Now that might be a possibility in individual cases.

It is also odd timing to have this development arrive just as Achieving a Better Life Experience Act (ABLE Act) accounts become available. Those accounts offer new flexibility to pay housing expenses for individuals with disabilities, and as a result there are a handful of new options available to cover such expenses.

A confusing network of public benefits programs just became more confusing — but at the same time, more approachable. It is unclear whether the housing authority involved in Ms. DeCambre’s case might seek Supreme Court review of her decision, or whether other, similar cases might begin to move through other Federal Circuits, but there is likely to be a patchwork of approaches for the next few months or years. The good news, though: housing problems for individuals with disabilities will not be so impenetrable as they have been over the past three or four decades.

Dispute Between Special Needs Trustee and Beneficiary’s Family

MARCH 28, 2016 VOLUME 23 NUMBER 12

A recent case from the Alaska Supreme Court addresses special needs trusts. It doesn’t break any legal ground (the decision actually focuses on an entirely procedural issue), but it does give us a chance to talk about common problems arising in the administration of such trusts.

“T.V.”, then twelve years old, was riding his bicycle on an Anchorage residential street when he was struck by a car. He was seriously injured; he spent months in a coma, incurred over a million dollars in medical bills, and is now paralyzed from the chest down.

A lawyer was hired, and a lawsuit filed. Unfortunately, there was not enough insurance coverage to pay for T.V.’s care, and the settlement ultimately reached was not large enough to cover T.V.’s medical costs.

What to do with the too-small settlement? The lawyer asked the Alaska courts for permission to transfer T.V.’s settlement proceeds to a special needs trust, managed by a local Alaska non-profit. As it happened, the attorney sat on the Board of Directors for the non-profit, but he explained that he would avoid any involvement in managing T.V.’s money.

T.V.’s father Jack apparently became unhappy over the trust’s administration. He complained that the non-profit refused to make T.V.’s money available for his needs — though the non-profit insisted that he had never actually requested any trust distributions. Whatever the basis, Jack, representing himself, filed a motion with the court which had approved the original settlement. His motion asked that the court release T.V.’s trust money to him (with interest); he apparently figured that he could make better decisions about the settlement money than the non-profit trustee.

A court officer considered Jack’s request, but noted that the trustee was not actually a party to the original lawsuit, and so recommended that it be denied. Jack appealed to the Alaska Supreme Court, which directed the lower court to enter a final order on Jack’s petition. In response, the trial judge directed a hearing be held so that Jack could explain his concerns.

At the hearing, the non-profit trustee explained that they had never received any written requests for distributions. Jack insisted that he had made verbal requests, which had been ignored or denied. The trustee responded that they require requests to be written, and that they would work with Jack to resolve his concerns.

The trial court ultimately ruled that the trust itself was not a party to the personal injury lawsuit, and that any order directing return of the funds could have unintended consequences (like T.V. losing his eligibility for Medicaid coverage for his medical needs). Jack’s request for return of the trust funds was denied.

The Alaska Supreme Court then took up Jack’s appeal, and agreed with the trial judge. The correct way for Jack to proceed, they ruled, would have been to file an action for court supervision of the trust, and lay out his grievances with the trustee in that proceeding. For the moment, at least, Jack’s objections to the administration of the trust were unavailing. In the  Matter of a Petition for Approval of a Minor Settlement T.V., March 18, 2016.

Though there’s not much of legal substance in T.V.’s father’s challenge to his special needs trust, there is a lot that is of practical interest. Many special needs trusts name professional trustees. Family members often feel that they should be given more autonomy and control in management of those trusts. Professional trustees, however, are required to consider the needs of the trust beneficiary first — not the needs or desires of family members.

The appellate decision in T.V.’s trust case does not indicate how much money is in the trust, but one can reasonably infer that the settlement amount was very modest. In such a case, the challenge to a trustee is to maximize the benefit to the beneficiary (T.V., in this case), while minimizing any effect on Medicaid, Supplemental Security Income or other resources providing assistance or care. The trustee also has to keep administrative costs, accounting requirements and tax considerations in mind. All that must be balanced to make sure the trust’s administration is handled as carefully as possible.

Family members often see those constraints as unnecessarily restrictive. When families (particularly caretaker families) have settled on what they see as a good use of the funds, they often resist any discussion of alternatives, limitations or explanations about why their planned use may need to be modified. Tensions can and do arise, and can be exacerbated by what the family sometimes sees as bureaucratic excuses.

T.V.’s trustee’s requirement that requests be put in writing makes good sense, and is a reasonable limitation on fund use. A willingness to work with family members and sort out the priorities is critical; though the family may see that as the trustee being obstinate, it is important to have a process and to follow it.

What about when family members act as trustee? Sometimes the loss of a professional filter can put the trust at risk, leading to too-rapid diminution of its value and possible unintended effects on Medicaid and other public benefits.

What about just turning T.V.’s money over to Jack, his father, to manage and spend on his own? That likely would result in the temporary — or even semi-permanent — suspension of the very public benefits keeping T.V.’s medical and personal care going (we don’t know enough about his actual benefits profile to be certain of that, but it’s a likely outcome).

It can be a challenge to figure out how best to manage and spend limited personal injury proceeds for a trust beneficiary with considerable medical and social needs. Family members’ wishes are of course important, but should be carefully considered and monitored. A good working relationship is critical.

“Decanting” of Trust for Medicaid Patient Challenged

JANUARY 11, 2016 VOLUME 23 NUMBER 2

Jane Murray (not her real name) died in 2003. She had created a number of trusts, including two for the benefit of her daughter Dana. Jane was very worried about Dana’s future, partly because of a long history of drug and alcohol abuse. She included some strong language guiding the trustee about whether and when to make any distributions. She might not have specifically considered long-term medical care, however.

In October, 2013, Dana entered a hospital in Connecticut as a quadriplegic. At the time, the two trusts contained assets of about $1 million, though the money was not actually available to Dana. The trusts were both “spendthrift” trusts, meaning that neither Dana nor her creditors could force any distribution. Both trusts also contained this language:

The trustee shall pay to my daughter or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interests considering all of her resources known to the trustee and her ability to manage and use such funds for her benefits. In exercising its discretion the trustee shall bear in mind that my daughter has suffered severely from alcohol and drug abuse and that I do not want these trust funds to be used to support a drug or alcohol habit or any other activity which may be detrimental to her in the trustee’s sole opinion.

My daughter’s health, happiness and best interests are to be considered foremost in priority over those who will receive the remaining trust funds on her death. Subject to the above considerations the trustee is encouraged to be liberal in its use of the funds for her even to the extent of the full expenditure thereof.

Clearly, Dana’s trusts would be quickly exhausted on her medical care unless she could qualify for Medicaid assistance, and she had inadequate funds from other sources. Could the trustee simply refuse to make distributions for medical care? Would the trust’s assets be counted as available resources for Medicaid eligibility purposes?

In order to address these concerns, the trustee (in Florida) sought to “decant” Dana’s trusts into new trusts with more explicit language about her long-term care costs. Florida law permits such trust modification, and spells out exactly how it can be done, and the trustee followed the law’s directions. The changes were submitted to a court in Florida for approval, and Dana signed a form giving her consent to the decanting.

The two new trusts for Dana’s benefit included language that clearly made the trust assets unavailable for Medicaid eligibility purposes. In that way, the trusts could be preserved to pay for extra or supplemental needs for Dana’s benefit, permitting her to have a better quality of life. The new trusts, and the history of the decanting, were given to the Connecticut Medicaid office for review.

Shortly after the decanting was completed, an attorney for the Connecticut Medicaid office decided that Dana’s trusts were originally “general support trusts”, making them available resources for Medicaid eligibility purposes. To make matters worse, Dana’s consent to the decanting amounted to a transfer of resources for less than fair market value. That would mean that Dana was ineligible for Medicaid assistance with her long-term care needs until 2021.

After an unsuccessful appeal through the Medicaid agency, Dana filed a lawsuit in Connecticut Federal District Court. She asked for a preliminary injunction prohibiting Medicaid from suspending her benefits, and a permanent order finding that the trustee’s decanting should not be counted as a gift by her.

The federal court ruled on the preliminary injunction question last month. It is only a preliminary ruling, and it is only one trial court — and therefore not of much use to establish precedent. It does, however, suggest how courts might view similar actions in other cases.

The judge hearing Dana’s case decided that there was a high likelihood that Dana will prevail when her case finally does come to trial. If the Medicaid agency were to be allowed to suspend her benefits in the meantime, the damage to her would be irreparable. Accordingly, he ordered that Dana will continue to receive Medicaid benefits while her case proceeds.

Even though we will probably not know the final outcome of Dana’s case for months (or perhaps even years), there are some useful lessons to be learned:

  • Inclusion of specific “special needs” language in virtually every trust might make sense. Dana’s mother knew that Dana had problems, but apparently didn’t consider the possibility that Dana might end up in a long-term care setting. A single paragraph expressing her wishes for how the money was to be used in such an event would probably have prevented the current dispute, allowing Dana to easily qualify for Medicaid assistance.
  • Decanting a trust in one state but having an effect in another state, while legally permissible, can lead to confusing results. One problem in Dana’s case was that Connecticut law on the interpretation of the original spendthrift trusts, and the ability to decant the trusts, was different from Florida law. That is not a reason to refrain from using local law, but just a caution that it might make sense to take extra care when multiple states are involved.
  • State law on decanting might require the consent of the beneficiary, or make it easier to complete the process, but it will generally make sense to avoid having beneficiaries consent. Although Dana’s agreement to the decanting was clearly not a “transfer of assets” as the Medicaid agency’s lawyer suggested, it did give him something to raise as an objection.
  • Though interpretations by the Social Security Administration usually are followed by state Medicaid agencies, that is not always the case. In Dana’s case, the Social Security rules clearly provide that her mother’s trusts would not be treated as an available resource. The Medicaid agency here disagreed.

Simonsen v. Bremby, Southern District of Connecticut, December 23, 2015.

The bottom line: trust law and Medicaid eligibility law often have uncomfortable intersections. Slightly different circumstances and different states can lead to big differences in outcomes.

We Are Creeping Up On a Quarter Century Here

JANUARY 4, 2016 VOLUME 23 NUMBER 1

Note the “Volume” number above. Is it even possible that we’ve been doing this for 23 years?

In that time, a number of topics have been perennially popular. We see a lot of internet traffic, and get a lot of questions or comments, when we write about:

Of all those topics (we now have an archive of well over a thousand weekly newsletter articles), which is our favorite? That’s easy: the one you read, gain something from, and have a follow-up question about.

So what’s your question? We won’t try to give individualized legal advice, but maybe we can help you with a relevant legal principle, or perhaps we can elucidate some of your alternatives. We will often tell you that the right answer is “consult an attorney,” but maybe you can get to the attorney’s office as a better-informed client.

Oh, and Happy New Year.

ABLE Act Update: Arizona Residents Could Have Access Next Month

DECEMBER 21, 2015 VOLUME 22 NUMBER 47

We’ve written before about the Achieving a Better Life Experience (ABLE) Act and the possibility that Arizona might get its own version adopted in the next legislative session. Now comes a pleasant surprise from Washington: Arizonans with disabilities won’t have to wait for our legislature to act.

Last week Congress passed a new budget, which the President promptly signed. One tidbit, buried deep in the new law, will eliminate the limitation that ABLE Act account holders may only sign up for accounts in their home state.

To be clear, all of the other limitations on ABLE Act accounts remain. Deposits into the accounts are still limited to $14,000 per year — a cumulative total, from all sources (including any savings contributed by the person with disabilities herself). There can still only be one account. The remaining account balance still will need to be paid over to state Medicaid program (AHCCCS, in Arizona) upon the death of the account holder. If the total account grows above $100,000, there will still be a suspension of Supplemental Security Income (SSI) benefits. But at least Arizona residents won’t have to wait for the in-state legislative process.

The new federal law will be effective January 1, 2016. Theoretically, any Arizonan with a disability could set up an ABLE Act account in another state the next business day. But that would require some state to be so far ahead of Arizona that they are already offering accounts. Where can you put your ABLE Act money starting January 2?

Keep it in your pocket. (OK — we’re speaking metaphorically here. Leave it where it is.) No state has a fully-functioning ABLE Account set up yet, so far as we know (and we’ve been paying attention). Several states — Virginia, West Virginia, Utah and Massachusetts were among the earliest — have adopted enabling legislation. In fact, almost two-thirds of the states have already passed ABLE bills. Notable among the holdouts: Arizona (along with Georgia, Idaho, Indiana, Mississippi, Oklahoma and Wyoming) has not even introduced a bill in the year since the new accounts were authorized.

But that doesn’t necessarily mean Arizona is not interested. There should be an ABLE Act bill in Arizona’s legislature as soon as the new session opens next month. There is considerable interest in adopting something, and it’s likely that there will be at least a study commission in place by mid-year. Arizona ABLE Act accounts are likely to be available in early-to-mid 2017.

Should you just wait? Maybe not. If a good account structure is set up in, say, Massachusetts (or Virginia, or Florida) in the next six months, it might be time to open an account. What’s the rush? The new account might give you a chance to get someone with a small bank balance eligible for SSI. It might allow an easy repository for excess earnings for an SSI recipient with a part-time job. It might be a good place for family members to make small contributions to encourage independence. In other words, it might be a good idea, and you might not want to wait.

There are still unanswered questions about ABLE Act accounts generally: will payments for rent or other housing expenses reduce the account-holder’s SSI payments? Will someone have to review proposed distributions before they are permitted? How will accounts work for minor children and adults who are incapacitated? What authority will parents or other family members have? Those questions were going to wait (in Arizona) for adoption of an Arizona-specific plan, and now the urgency has just stepped up. But new answers have not yet materialized.

On top of that, the change adds some other, newer, questions: will it be possible to move an account from one state to another, less-expensive or easier-to-manage, state? Will Arizona’s Medicaid program understand how to handle accounts in up to 50 other jurisdictions? Will there be competition among the states (or at least among the early-adopter states), like there is in 529 Plans? Will one or two big providers come to dominate the industry? How will states handle the payback requirement when the accounts may be in any state’s program? Our answer: we’ll see.

Another question, specific to Arizona: will the new ability to open out-of-state ABLE Act accounts take the wind out of Arizona’s sails, as it were? In other words, will Arizona’s legislature decide not to pursue the option of establishing a program, especially in the face of uncertainty about administrative costs and oversight?

Many of the underlying ABLE Act issues remain unchanged. The requirement that all assets in an ABLE Act account continue to make the accounts unattractive for any large family donations (hint: use a third-party special needs trust). Annual limitations on contributions make them useful for a much narrower field than they might be. And, of course, the requirement that the ABLE Act account holder must have been disabled before age 26 sharply limits the number of people with disabilities who might qualify. Some of those problems may actually be addressed in future congressional sessions.

This week’s expansion should speed up the ABLE Act process by quite a bit. We’re looking forward to seeing how it works out.

©2017 Fleming & Curti, PLC