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Presents
Planning for First Party Money:
Alternatives to Using SNTsWith
Kevin Urbatsch
Sponsored by:
February 18, 2014
Planning Process
Special Needs Planning For First Party Money Requires A Thorough Understanding Of The Person with a Disability’s Current and Future
Situation And Creating A Plan That Accomplishes That Person’s Goals
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Planning Process
You Need a Team to Do This Right
Special Needs Planning Attorney
Special Needs Financial Advisor
Special Needs Care Advisor/Advocate/Social Worker/Public Benefits Consultant
Health Care Consultant/Broker
Special Needs Tax Professional
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Facts Needed To Do Planning
Type of Public Benefits
Amount of Assets At Issue
Adjustable Gross Income
Living Situation – Number of People in Household
Age
Type of Disability
Capacity
Parent or Grandparent Alive, Well, and Willing to Help
Ability to Manage Assets
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Planners Toolbox
1. Do nothing;
2. Consider ACA Private Health Care/ Expanded Medicaid;
3. Give the assets away;
4. Spend down assets;
5. Modify disqualifying trust to 3rd party SNT;
6. Place assets in a first party (d)(4)(A) SNT;
7. Join a Pooled SNT; or
8. Some combination of the above.
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Public Benefits Effect of Doing Nothing
♦Loss of SSI♦ Month of receipt, assets will be counted as unearned
or earned income♦ Next calendar month, if assets still in person’s name
counted as a resource
♦Loss of Medicaid♦ Categorically Eligible♦ Own limited income and resource test♦ May still be eligible for Expanded Medicaid/Subsidized
Healthcare through ACA
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Consider ACA (Private Insurance)Expanded Medicaid
For certain clients, may “do nothing” and obtain subsidized health care or free Medicaid
• ACA – Private Health Insurance• Government Subsidized Private Health Care for Income
Levels of 139 to 400% of Federal Poverty Limit• Ends at Age 65• May Not Provide Full Coverage
• Expanded Medicaid• Free Medicaid without Asset Test – Less Than 138% of FPL• Ends at Age 65• Not Every State Has Adopted It
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Some Considerations Under New ACA Laws
• In cases with competent, capable beneficiary, the beneficiary may like to keep control of his or her own $• Consider Regular Estate Planning (POA, Health Care
Directive)
• SSI Still Has Asset Test• See Article About Financial Effect of Losing SSI
• Persons who lack legal capacity – What is SNT Alternative? • Conservatorship/guardianship may not be suitable
• Possible that Expanded Medicaid May Not Cover Long-Term or In Home Care
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SSI - Paying Health Insurance Premiums
Payment of an individual's bills (including supplementary medical insurance under title XVIII or other medical insurance premiums) by a third party directly to the supplier is not income. However, anything received in kind as a result of the payment is income if it is food or shelter
POMS SI 00815.400(A)
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Effect of Giving Away Assets - SSI
•Gift Penalty – But See Discussion Later
•Ineligible for SSI for up to 36 months (42 U.S.C. §1382b)• Transferred amount ÷ SSI = ineligibility period • Example: SSI recipient ($637/month), receives
$15,000 from his grandmother at her death. In the month after he receives it, he gives it to his brother. SSI Recipient is ineligible for SSI for 1 year and 11 months. (15,000 ÷ 637 = 23.547 or, rounded down, 23 months).
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Effect of Giving Away Assets: Traditional Medicaid
• Under Deficit Reduction Act of 2005 (DRA) up to Five Years of Ineligibility• California still has not
implemented and gifting currently is still a very viable planning tool
• Use Elder Law Planning Tools
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Spend Down of Assets – When to Consider
• Preservation of SSI Important
• When the amount of assets is modest
• If a person with a disability is age 65 or over• NO Expanded Medicaid or ACA Health Insurance
• When the person with a disability owns a home
• When there are debts
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POMS - SpendDown
Spending-down cash can be a valid transfer of resources. Generally, when an individual purchases items or pays for services on the open market, he or she receives fair market value in return for the cash. The period of ineligibility does not apply to an individual who spends down cash resources and gets fair market value in return
POMS SI 01150.007
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Spend Down of Assets: Purchasing Exempt Assets
• Principal residence (20 CFR §416.1212);
• Automobile (of any value) (20 CFR §§416.1210(c));
• Household items (20 CFR §§416.1210(b), 416.1216(a);
• Personal effects (20 CFR §§416.1210(b), 416.1216(b));
• Musical instruments (20 CFR §§416.1210(b), 416.1216(b));
• Burial insurance (20 CFR §§416.1230, 416.1231(b)(8));
• Irrevocable burial trusts; burial funds (20 CFR §416.1230, 416.1231(b)(8));
• Burial plots, vaults, and crypts (20 CFR §416.1231(a)); and
• Life insurance policies with cash surrender value, if total values are less than $1500, plus all term life insurance (20 CFR §416.1230).
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Spend Down: Pay Debts
Debt Must Be: Enforceable Under State Law Agreement in Effect at Time of Transaction Acknowledged Obligation to Repay Plan for Repayment Repayment Plan Feasible
POMS SI 01120.220
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Spend Down of Assets: Prepay for Food or Shelter
For SSI, prepayment of food and shelter is authorized as long as it is for FMV • SSI recipient transfers $30,000 cash to his
sister based on contract that she would provide him with food and shelter for 5 years. The food and shelter for 5 years is worth $30,000 (5 years x $6,000 per year). ISM is not counted• POMS SI 01150.005(C)(3)(b)
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Spend Down of Assets: Prepay Services
SSI also allows for prepayment of services SSA determines the value of services provided to the
transferor based on the FMV of the services (monthly or annually) and their frequency and duration under the agreement POMS SI 01150.005(C)(3)(c):
Example: In exchange for $9,000 cash, the individual contracts for yard maintenance services for 5 years. The maintenance company charges $150 per month ($1,800 per year). Five years of maintenance at $1,800 per year equals $9,000.
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Plan for Achieving Self Support (PASS)
PASS allows SSI recipients to set aside earned income, unearned income, or resources, thereby exempting them from consideration by the SSA, which otherwise would result in lowering the monthly cash payment amount or ineligibility due to excess resources
A PASS can be an alternative to an SNT under the right set of facts, e.g., if an SSI recipient receives a modest inheritance of $20,000 and intends to use the assets to return to school. A PASS would shield the assets from being counted against the recipient
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Spend Down: Procedure
In order to preserve SSI, assets must be spent in the calendar month of receipt of the assets. It is not 30 days from the receipt of the assets.
See POMS SI 01150.001(B)(2) and SI 01110.600.
Thus, if the SSI recipient received assets on September 28, he or she would have to spend the assets down to below $2,000 before the end of September 30th, only two days from receipt.
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Disclaimer: Not effective
For SSI purposes, a disclaimer will be counted as a gift. • See POMS SI 01150.110(E), which describes a
period of ineligibility for an individual transferring assets that he or she constructively received (e.g., he or she refused an inheritance).
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Gifting Inheritance, Litigation or Insurance
Proceeds1. An inheritance, litigation award, or insurance proceed is considered SSI "income" in
the month of receipt.
1. 20 CFR §§416.1121(e)-(g).
2. In the month after receipt, if retained by the benefits recipient, the asset will be counted as an SSI "resource."
1. 20 CFR §§416.1207(d);
3. No asset can be both a "resource" and "income."
1. POMS SI 01110.600.
4. There is no penalty for SSI when "income" is given away.
1. See 42 USC §1382b(c)(1)(A); 20 CFR §416.1201(a)(4)
5. Thus, gift of these assets in the month of receipt should not penalize the benefits recipient.
However, according to a POMS provision, a transfer of income in the month it is received is considered a transfer of a resource if the income would have been considered a resource in the following month. POMS SI 01150.001(B)(5). (Questionable Legality)
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Modify Disqualifying Trust to Third Party SNT
• When the settlor of an irrevocable trust leaves an inheritance that disqualifies a benefits recipient from needs-based public benefits, a viable option under appropriate circumstances is to petition the court to modify (or reform) the irrevocable trust to create a third party special needs trust (SNT)
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When to Consider Special Needs Trusts
Benefits• Assets are legally available for future needs• Assets can grow without interfering with benefits• Can pay for private health care
Burdens• Loss of control by person with a disability• Can be costly to establish and administer
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Issue: Procedure to Establish (d)(4)(A) SNT Can be Costly
42 USC §1396p(d)(4)(A) has multiple legal requirements for establishment
“Seed Trust” if parent and grandparent and beneficiary has capacity
Some Jurisdictions, cost of trustees is large
Otherwise, court order needed to establish Can be expensive to set up May require court supervision
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Issue: Join (d)(4)(C) or Pooled Trust
42 USC §1396p(d)(4)(C) easier to join:• Person with Disability Can Join (if capacity)• Can be Done Quickly• Cost of Establishment May be Less• Ongoing Costs May be More
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Which is Better: Pooled SNT or (d)(4)(A) SNT?
Depends Age Capacity Establishment Procedure Cost of Administration Flexibility of Administration
Purchase Real Estate Unique Disbursements
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Child or Spousal Support
A (d)(4)(A) SNT might be considered in the following circumstances:• To hold an under-age-65 spouse's share of the
marital assets for purposes of SSI and Medicaid asset rules;
• To receive spousal support for an under-age-65 spouse for purposes of SSI and Medicaid income rules; and
• To receive child support for purposes of SSI and Medicaid income rules
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Hypotheticals
Client receives settlement of $1,000,000. Client is receiving SSI and Medicaid, is 25 years old, clearly has capacity, and has a parent alive and willing to assist.
Options: • Do Nothing • Determine Lifetime Financial Effect of Loss of SSI• Qualify for ACA/Expanded Medicaid
• Establish a (d)(4)(A) “seed trust” SNT• Spend Down
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Hypotheticals
Client receives settlement of $50,000. Client is receiving SSI/Medicaid, is 25 years old client, lacks capacity, and has a parent alive and willing to assist.
Cannot use “seed trust” procedure because of capacity
Options:• Establish (d)(4)(A) or Pooled SNT through court
procedure• Spend Down and Doing Nothing Only Through Court
Approval• Would Still do SNT because money has to be under
protected scenario in some way (guardianship or trust)
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Hypotheticals
Client receives settlement of $1,000,000. Client is receiving SSI/Medicaid. Client is 25 years old, has capacity, but does not have a parent or grandparent alive.
Options:• Consider Financial Effect of Loss of SSI• Consider Do Nothing and Receive ACA/Expanded
Medicaid
• Court established (d)(4)(A) SNT• Join Pooled SNT• Spend Down
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HypotheticalsLast month, a 67 year old disabled person received a $50,000 outright inheritance from his brother. He has capacity. Wants to preserve SSI/Medicaid.
Issues: He is over 65 so a (d)(4)(A) SNT will not work Will not qualify for ACA or Expanded Medicaid Options are
Do Nothing Spend Down Pooled SNT
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Hypotheticals
This month a 67 year old disabled person’s guardian informs attorney of $50,000 inheritance. Client is receiving SSI/Medicaid. Potential client lacks capacity. (d)(4)(A) SNT will not work due to age and will not qualify for ACA or
Expanded Medicaid
Options:
• Do Nothing
• Gift inheritance in month of receipt
• Pooled SNT but capacity is required to sign the Joinder Agreement. Thus, court approval will be required (assuming no POA).
• Spend Down by Conservator (usually requires court order)
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Hypotheticals
A 45 year old person with a disability received an inheritance of $100,000 in a discretionary spendthrift trust with a distribution standard of all income and principal for maintenance and support. He recently lost his SSI/Medicaid.
Option: This type of trust is a disqualifying third party SNT. This trust must be reformed (or modified). There are two alternatives:
• Modifying or reforming the trust back into a third party SNT;
• Modifying or reforming the trust into a (d)(4)(A) SNT.
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Hypotheticals
A 22 year old with severe physical disabilities receives $20,000 from a life insurance policy on her aunt. She is on SSI/Medicaid. Considering going to school to obtain degree.
Options:• (d)(4)(A) SNT or Pooled SNT
• PASS Program• Spend Down
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