Military Members and New Uses for Special Needs Trusts

Through Survivor Benefit Plans (SBPs) members of the military can elect to defer a portion of their retirement pay so that when they pass away a surviving spouse or dependent child will receive up to 55 percent of their retirement payments.  However, up until now, military members had to name individuals as the beneficiaries of these SBPs.  This rule created a dilemma for the parents of children with special needs.  On the one hand, the retiree could name a child with special needs as the beneficiary of his SBP and that child would receive much-needed income and monetary support.  However, receipt of the SBP funds could compromise the beneficiary’s ability to receive means-tested benefits like Supplemental Security Income (SSI) or Medicaid

With the passage of the National Defense Authorization Act of 2015, Congress has, for the first time, allowed military members to name Special Needs Trusts as beneficiaries of Survivor Benefit Plans (SBP).  This means that military families will finally be able to direct SBPs to their children with special needs without compromising the children’s ability to access government disability and medical benefits.  Although the bill is a great first step, military retirees now need to contact their estate planning attorney to make use of these new planning options for their children with special needs.

10 Reasons to Create an Estate Plan Now

“Never leave that till tomorrow which you can do today.” – Benjamin Franklin

Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.

1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney and perhaps a trust.

2. Minor children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice and advise the court of persons not suitable to care for the children.

3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.

4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and when/what your children will receive from you.

5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.

6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.

7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.

8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs (although the rules regarding the designation of a beneficiary have been eased considerably). With a plan, you can choose the optimal beneficiary.

9. Business ownership. Do you own a business? Without a plan, you don’t name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.

10. Avoiding probate. Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely.

Elder Abuse: Signs and Prevention

The elderly are particularly vulnerable to scams or to financial abuse by family members.  A recent study found that up to one million older Americans may be targeted yearly. Family members and caregivers are the culprits in 55 percent of cases, although total financial losses are higher with investment fraud scams.

While it is impossible to guarantee that an elderly loved one is not the victim of financial abuse, there are some steps you can take to reduce the chances.

1.  Have more than one family member involved in caring for the loved one and reviewing financial decisions to provide a check and balance system. Family members often begin abuse by “borrowing” money from available sources when a financial crisis occurs in his/her life.  Although he/she may begin the abuse with the full intention of repayment, the abuser often fails to follow though.

2.  You can also encourage the elder to get involved in community activities to ensure he or she has a wide range of support. Elderly people with little support are easy prey to ill intentioned individuals who can insert themselves into the lives of a lonely senior with little oversight.

3.  Talk to the senior while he or she is competent and able to discuss proactive solutions such as establishing a trust or giving power of attorney to appropriate family members or trusted, long-term friends. Create a system of tracking incoming funds by using direct deposit or online banking. Establish a contact person to help the senior vet caregivers carefully, verify references and touch base after hiring.

Despite these safeguards, financial abuse can still occur and be very difficult to detect. Signs that a loved one may be the victim of this kind of abuse often include:

▸    Disappearance of household objects
▸    Withdrawals of large amounts of money or low bank balances
▸    Continual withdraws of cash for no stated purpose
▸    A new “best friend” who is often significantly younger
▸    A change or increase in credit card transactions
▸    Signatures on checks look different
▸    Changes in bank accounts or newly formed joint accounts
▸    Indications of fear or concern that a cargiver will no longer like them

If you suspect someone of being financially abused, start by calling your local Adult Protective Services. They may suggest that you contact the police and file a police report.  You may also need to contact an attorney to establish a guardian or conservatorship to end the abuse.

Legal Savvy Seminars

Please join Kara at her upcoming seminars:

registration at the door, or to register in advance go to:

Legal Savvy Series Learn to navigate your way to legally savvy decisions in this series by Kara Daley, Attorney at Law. All classes are held at the Corvallis Senior Center 12-1 pm.  Registration required. $2 per session.

F, Feb. 13:Estate Planning for Busy People Have you been avoiding estate planning?  Did you write a will or a trust long ago and need to update it? Well, you are not alone. Spend one painless (maybe even entertaining) hour learning what you actual need to do and how to take care of the matter once and for all.

Th, February 19: Planning for Parents As our parents grow older, often their children become their support system.  Learn the legal protections to put in place to help your parents age gracefully and avoid costly mistakes in planning. The class will also address emergency planning, community resources and medicaid.

Th, February 26: Special Needs Trusts require special planning.  Because such planning often involved the complex intersection of state and federal law, preparation can be critical in preventing costly mistakes. Join us for: a one hour overview of the different types of special needs trusts, a discussion of when each type of trust is needed and an brief introduction on how to manage the trust once established.

Th, March 5: Starting a Small Business Do you have an idea?  Are you ready to take the plunge and open a business?  Learn the critical steps to take in planning and operating your own small business. The class will discuss the different types of business entities (LLC, LLP, Corporation etc.),  how to launch your new business and provide practical advise on how to maintain the business once its up and running.

F, March 13: Planning for PI Settlement Often a personal injury case proceeds to settlement with no thought of how the monetary distribution will effect a beneficiary who is receiving state assistance.  Receipt of a large sum of money will often disqualify an individual from important benefits such as health care, housing, food stamps and SSI.  Learn how a settlement can be set aside in a special needs trust preserving it as a resource for the individual while maintaining their eligibility.  Class is appropriate for individuals and professionals.

F, March 20: SSD – The Third Appeal Applying for Social Security Disability?  Feeling lost?  The class will provide a clear overview of the steps of a social security disability application and provide practical discussions on how to navigate the process.

An Overview of the New ABLE Accounts: Tax-Free Savings Accounts for People with Disabilities

At the end of December 2014, Congress instituted a new type of savings account for people with disabilities who became disabled before they turned 26.  Called “529A” or “ABLE” accounts, these allow individuals and families to set aside up to $14,000 a year in tax-free savings account without affecting eligibility for government benefits. Contributions are in after-tax dollars but earnings grow tax-free. 529 ABLE accounts are established in the beneficiary’s name but contributions into an ABLE account can be made by any person. It is important to note, that the beneficiary has control over the spending from the accounts.  Unlike other types of special needs trusts, disbursements from the fund are more limited to certain qualifying expenses such as the costs of treating the disability, or for medical expenses, education, housing and health care, or burial expenses.  Caution should be taken spending as there can be hidden consequences.

Beneficiaries are limited to one ABLE Account with a maximum contribution of $14,000 per year.  The existence of the account will not compromise the individual’s ability to qualify for such benefits as SSI or Medicaid unless the account balance exceeds $100,000.  If the beneficiary is receiving SSI benefits, when the assets in the account total $100,000, monthly SSI benefits will be placed in suspension. If the assets in the ABLE account drop back below $100,000, the SSI benefit suspension ceases and any SSI benefit resumes.

If the beneficiary dies with assets in an ABLE account, those assets are first distributed to any state Medicaid plan that provided medical assistance to the beneficiary. For that reason, families looking to establish a fund for individuals may prefer to set up their own special needs trusts which allows them to protect the trust from state recovery and choose secondary beneficiaries other than the state.

The act takes effect at the beginning of 2015, and many states are forecasting that plans will be available starting in July 2015. States must first set up the administrative support to control and provide investment options for the “529A” accounts. Once in place, ABLE accounts will become another tool to protect valuable benefits while enhancing quality of life.   Because of the limitations, many families of people with disabilities should still consider setting up traditional special needs trusts to provide enhanced care for their relatives with special needs.  Before making a decision, it is important to talk to an attorney who can advise you on the best options for your particular needs.

Tip #3: What can a SNT pay for?

Funds held in a properly drafted special needs trust will not affect a Supplemental Security Income (SSI) or Medicaid recipient’s benefits.  But problems can develop when funds come out of a special needs trust.  This leads to one of the most commonly asked questions about special needs trusts – what can the trust pay for?

This questions is best answered by stating what a special needs trust for an SSI beneficiary should typically never do without first consulting a special needs planner: the trust should never give the beneficiary cash or a cash equivalent or pay for food or shelter.

The simplest part of this rule is the part dealing with cash.  If an SSI beneficiary receives cash (or a cash equivalent like a gift card) from a trust (or anyone else for that matter), her benefit will be reduced by one dollar for each dollar received, up until the point that she loses SSI completely.   This is a hard-and-fast rule and should be disregarded only after a serious conversation with an attorney.

The rules about food and shelter are a little more complicated.  If a trust pays for a beneficiary’s food or shelter directly to a landlord, restaurant or store, the beneficiary could lose up to one-third of her SSI benefit.  In addition, payment of bills for housing-related expenses like mortgage payments, real estate taxes, utilities and condo fees are considered payments for housing that cause a similar reduction in benefits.  While a one-third reduction in benefits might be a small price to pay for guaranteed shelter and meals, if the beneficiary works or receives other income, the additional one-third reduction could cause the beneficiary to actually lose SSI, and accompanying Medicaid benefits, entirely.

Once you have taken cash, housing and food off the table, a special needs trust can typically pay for most other things a beneficiary might need to supplement her lifestyle.  But because these rules are very complicated, it is best to always sit down with your attorney to discuss what you intend to do with your trust before making any payments to anyone.