Special Families, Special Plans:

Key Considerations When Advising Families

of Children with Disabilities

Karen Park

Bernstein

Ellen Cookman

Cookman Law

Ellen S. Cookman, Esq.

Certified Specialist, Estate Planning, Trust and Probate Law, The State Bar of California Board of Legal Specialization

Principal at Cookman Law J.D., UC Berkeley School of Law (Boalt Hall) LLM, Golden Gate University Law Clerk, Chief Judge Anthony J. Scirica,

Third Circuit Court of Appeals (Philadelphia, PA)

Volunteer for Sunday School program for children with special needs

California State Bar No. 227833

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Karen Park, Principal, Bernstein

Mom to three boys, one of whom has special needs (Milo)

• 6 surgeries, complex global developmental delays, undiagnosed (http://milosjourney.com)

• Closing speaker at 2017 UCSF Rare Disease Symposium

• Advisor to www.MyGene2.org (Seattle Times, NPR, KQED)

• AAC/AT speaker (PODD), Support for Families

• Financial planning for special needs children

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Goals of Special Needs Planning

Maximize child’s quality of life

Protect child

Maximize child’s independence

Maximize public benefits

Name “surrogate parents”

Avoid the court system

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Examples where Special Needs Planning May Be Needed

Inheritance for special needs child

Family with a developmentally disabled child who turns age 18

Gift made to special needs niece/nephew, aunt/uncle

Parent with Alzheimer’s in need of nursing home

Adult sibling becomes disabled from degenerative disease (ALS, MS), a stroke, an accident

Any time public benefits might be involved!

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Estate Planning Tools for Special Needs Families

1. Limited Conservatorship

2. Durable Power of Attorney

3. Advance Health Care Directive

4. Revocable Trust

5. Special Needs Trust **

6. ABLE Act Account (new!) **

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Means-tested benefits vs. Entitlement benefits

Public Benefits primer

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Means-Tested Benefits

In general, must have under $2,000 in total non-

exempt assets to qualify

SSI: Supplemental Security Income

Income program: up to about $890/month

Medicaid (“Medi-Cal” in California)

Health care program for the poor and disabled

If you receive just $1 in SSI, automatically receive

Medi-Cal

In Home Support Services (“IHSS”)

At-home health care -- drastically reduced

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Means-Tested Benefits (cont.)

Veterans Administration Aid and Attendance Program

(“A&A”)

Approx. $80,000 resource limit

Section 8 (Housing) – different asset limits

Exempt (not counted towards eligibility): house, car

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SSDI: Social Security Disability Insurance

Must have paid into the system, worked a

certain number of “quarters” or “credits”

Some can qualify on a parent’s work record

Medicare

Available to people over age 65

Once you receive SSDI for 2 years, you automatically qualify for Medicare, even if under age 65

Entitlement Benefits

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Medicare vs. Medicaid/Medi-Cal

Medicare

Run primarily by federal government

Entitlement-based

3 types of coverage: Parts A, B, and D

– Hospital visits (Part A), doctor visits (Part B), prescription drugs (Part D)

Does NOT cover long-term care in skilled nursing facility

Medi-Cal

State and federal partnership program

California is the most lenient!

Eligibility based on income, resources

Primary federal insurer for long-term care

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Here is a big issue:

If someone is receiving means-tested

public benefits and receives a gift,

inheritance or judgment of over $2,000,

he or she becomes ineligible for those benefits.

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A Special Needs Trust (“SNT”) is an IRREVOCABLE trust designed to hold assets for the benefit of a disabled

person without disturbing eligibility for public benefits.

What to do? Create a Special Needs Trust

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“3rd Party” SNT

A “third party” (i.e. a parent, grandparent,

uncle, friend) sets up the SNT for the disabled

child

Typically funded at third party’s death

You CAN fund SNT while third party is still

alive, BUT it counts as a gift

- No $14,000 “Annual Exclusion” (typically)

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“1st Party” or “d(4)(A)” SNT

Funded with Disabled Person’s Assets (the

“first party”)

Limitations:

• Beneficiary must be “Disabled”

• Beneficiary must be under 65

• Trust must include “payback” provision

• Can only be created by parent, grandparent,

guardian or by court petition 14

Permissible Expenditures

Entertainment, education, counseling, therapy,

companionship, adaptive aids, medical care,

furniture, travel, non-essential utilities

(cable, telephone, newspaper)

Automobile and operating costs

Clothing

Food and shelter (with possible reduction of benefits)

Residence (plus sufficient liquidity required to maintain

property)

Distribution of cash to beneficiary can be problematic

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Choice of Trustee: Options

Family Member

Friend

Private Professional Fiduciary

Bank

Nonprofit

Pooled Trust

Combination

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Oversight Available for SNTs?

Typically NO court involvement

Trust Protector

Co-Trustees

Advisory Committee

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Memorandum of Intent

Informal letter from parent to future caregiver describing needs of the disabled child:

– What makes her happy/sad?

– Food restrictions?

– Preferences for housing

– Activities to pursue

– Relatives and friends to remain connected

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REAL LIFE EXAMPLES

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Example #1: Jones family

Ed and Mary Jones have 3 children: Jason (age 18, has special needs) and 2 younger

“typical” girls . What planning do they need? 20

Example #2: Claire

Claire is age 25, has special needs, works part-time, receives SSI and Medi-Cal. What planning

might she need?

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Example #3: Martin family

Mr. and Mrs. Martin have a 12-year-old son, Joey, who does not have “capacity” and is not able to work or communicate.

What planning is needed?

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Example #4: Maryam

Maryam, age 30, receives SSI and Medi-Cal. She just received a $50,000 inheritance from her aunt. What planning is needed?

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Key Factors to Consider When Putting Together a Financial Plan

Your child’s needs

What is the nature of your child’s disability? How is his/her health? Any sense for his/her life expectancy?

Is he/she able to work and generate income of any kind? Can he/she manage his/her own money? Does he/she have any assets in his/her own name? Is asset protection important?

What public benefits can he/she qualify for? Are you interested in looking at group home options?

How much spending do you think will be required on an ongoing basis to maintain his/her lifestyle?

Do you anticipate any major changes in his/her lifestyle (living situation, caregivers etc.) in the foreseeable future?

Your goals

What lifestyle do you want for your child after you pass? What is necessary to make that vision a reality? Are there any “rainy day” scenarios that you are concerned about?

What is the dynamic between this child and their siblings? What kind of role do you want the siblings to have after you pass?

Are there any extended family who are involved?

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Spending Needs Will Vary Based on Individual Circumstances

Clothing $200/month

Cable/Phone/Ins. 300

Transportation 200

Household Needs 100

Maintenance 100

Personal Care 75

Entertainment 100

Travel 300

Professional Fees 300

Housing Costs 1,800

Food 700

For illustrative purposes only. Source: AB

Clothing $250/month

Cable/Phone/Ins. 400

Therapy 800

Transportation 300

Household Needs 300

Maintenance 100

Personal Care 150

Pet Care 75

Entertainment 200

Travel 500

Professional Fees 1,600

Companion 1,000

Housing Costs 1,800

Food 850

Clothing $300/month

Cable/Phone/Ins. 400

Therapy 1,000

Transportation 300

Household Needs 400

Maintenance 200

Personal Care 200

Entertainment 300

Travel 800

Professional Fees 3,400

Companion 4,500

Housing Costs 3,000

Food 1,000

Medical Specialists 500

Communication Equip. 300

Basic Needs

50K Annually

More Complex Needs

100K Annually

Lifestyle and Team Needs

200K Annually

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Bernstein’s Wealth Forecasting SystemSM

Based on the current capital-market environment

Incorporates various account types and planning vehicles

Predicts likelihood of meeting long-term goals, reflecting what is known and unknown

The Bernstein Wealth Forecasting System is based upon our proprietary analysis of historical capital-market data over many decades. We look at variables such as past returns, volatility, valuations, and correlations to forecast a vast range of possible outcomes relating to market asset classes, not Bernstein portfolios. While there is no assurance that any specific outcome suggested by the model will actually come to pass, by quantifying the possibilities of achieving financial goals under changing, and sometimes extreme, capital-market conditions, the tool should help our clients make better choices. See Notes on Wealth Forecasting System in the Appendix. Source: AB

Financial Goals

Liquid Assets

Illiquid Assets

Income Requirements

Risk Tolerance

Tax Rates

Time Horizon

Asset Allocation

Funding Method

Spending Amount

Benefits

GREAT MARKET PATTERN (10% of probable outcomes are above this result)

TYPICAL MARKET PATTERN (50% of probable outcomes are above this result)

HOSTILE MARKET PATTERN (90% of probable outcomes are above this result)

Personalized Investor Profile

Bernstein Wealth Forecasting System Scenarios

Hypothetical Range of Future Wealth

10,000 Simulated

Observations Based

on Bernstein’s

Proprietary

Capital Markets

Engine

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Sizing Your SNT Will Depend on a Multitude of Factors

*Results indicate initial portfolio value needed such that it can sustain the given level of inflation-adjusted spending, $50,000, $100,000 or $200,000, over a 20, 30 or 40 year period with a 90% level of confidence. Global stocks are defined as 21% US diversified, 21% US growth, 21% US value, 7% US SMID, 22.5% developed international and 7.5% emerging markets. Bonds are defined as intermediate-term in-state municipal bonds. Based on AllianceBernstein’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise or a range of future results. See Appendix for further details.

Initial Funding Required* 60% global stocks / 40% bonds

($ Millions)

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Understanding How to Divide Up An Estate

Sharon, 75 years of age, widow

Four adult children, including Ava who has special needs

Total Assets: $10 million

Taxable Assets: $4.3 million

IRA Assets: $3.4 million

Real Estate: $2.3 million

Sharon’s annual spending requirement: $100,000 annually, inflation-adjusted

Sharon has established a Special Needs Trust (SNT) for her daughter Ava, age 45, that will be funded from her estate

Ava lives in a government-sponsored group home and only needs nominal support (~$1k/year) for incidentals

Sharon wants to plan for a “rainy day” scenario should the group home cease to operate; she estimates it would cost approximately $100,000 per year to recreate the same level of care privately

Primary concern: fully funding the SNT so that the three non-disabled siblings never have to contribute to Ava’s care post-estate administration

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Scenarios Modeled

0 10 20 30 40 50Years

SNT Funded

SNT Spending Begins In Year 40

SNT Spending Begins In Year 30

SNT Spending Begins In Year 20

Today

Sharon spends $100,000/year*

Trust Distributes $100,000/year*

No Spending

For illustrative purposes only. *All spending is modeled to adjust for inflation.

Scenario A

Scenario B

Scenario C

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The Amount the SNT Will Need Depends on When the Trust Will Need to Begin Providing Support ($Millions, Real)

Required Trust Funding at Year 20* Per $100,000 of Spending, Inflation-Adjusted

90% Level of Confidence

$1.2

$2.4

$3.5

10 years of spending begins

in year 40

20 years of spending begins

in year 30

30 years of spending begins

in year 20

*Required trust funding at year 20 is the amount of money the trust will need to be funded with such that it can support $100,000 of spending, after-taxes and inflation-adjusted, beginning in year 40 for 10 years, beginning in year 30 for 20 years or beginning in year 20 for 30 years with a 90% level of confidence. Assumes a moderate asset allocation of 60% global stocks and 40% bonds. Assumes top marginal Federal and California tax rates. Based on AB’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on the Wealth Forecasting System in the appendix for further details.

Scenario A

Scenario B

Scenario C

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Cash 30%

Fixed Income

50%

Equities 20%

*80% Risk-Mitigating includes a 30% allocation to cash, 10% to short-term bonds, 20% to intermediate-term bonds and 20% to long-term bonds. 20% Return-Seeking includes a 14% allocation to US Growth stocks and 6% Developed Foreign stocks.

Asset Category %

Risk-Mitigating 80%

Diversifying 0%

Return-Seeking 20%

Total 100%

What % of the Estate Should be Allocated to the SNT?

The estate value in 20 years depends on how it is invested today…

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$8.2 $8.0 $7.8 $7.6

$7.5 $6.9

$5.8

$4.6

$3.7

$2.9

$7.5 $6.9

$6.2

$5.6 $5.0

1 5 10 15 20

5%

10%

50%

90%

95%

Probability

Growth of Sharon’s Liquid Estate Over Time

*Net of $100,000 annual inflation-adjusted spending. Based on AB’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Asset values represent the estimated value; if the assets were liquidated, additional capital gains or losses would be realized that are not reflected here. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on the Wealth Forecasting System in the appendix for further details.

($Millions, Real)

After Taxes and Cashflows

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What Percentage of the Estate is Needed to Fully Fund the SNT?

11111 11111 11111

Sharon’s Estate Year 20

Liquid Assets* $5.0

Real Estate** $2.3

Total Estate $7.3

10 years of spending begins

in year 40

20 years of spending begins

in year 30

30 years of spending begins

in year 20

SNT Funding***

% of Total Estate† 16% 33% 48%

Numbers may not sum due to rounding. *Median wealth values. Based on Bernstein’s estimates of the range of returns for the applicable capital markets over the period analyzed. Asset values represent the estimated value; if the assets were liquidated, additional capital gains or losses would be realized that are not reflected here. **Real estate is assumed to increase at the median inflation rate: 2.6% over the next 20 years. ***Required trust funding at year 20 is the amount of money the trust will need to be funded with such that it can support $100,000 of spending, after-taxes and inflation-adjusted, beginning in year 40 for 10 years, beginning in year 30 for 20 years or beginning in year 20 for 30 years with a 90% level of confidence. Assumes a moderate asset allocation of 60% global stocks and 40% bonds. Assumes top marginal Federal and California tax rates. †Represents the total amount required to fully fund the SNT at a 90% level of confidence divided by the median value of Ellen’s total estate.

($Millions, Real)

Scenario A Scenario B Scenario C

$1.2 $2.4 $3.5

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Adding Equity Exposure May Help Grow the Estate and Therefore Decrease the Percentage Needed to Fund the SNT

*Represents the total amount required to fully fund the SNT at a 90% level of confidence divided by the median value of Sharon’s total estate. Required trust funding at year 10 is the amount of money the trust will need to be funded with such that it can support $100,000 of spending, after-taxes and inflation-adjusted, beginning in year 40 for 10 years, beginning in year 30 for 20 years or beginning in year 20 for 30 years with a 90% level of confidence. “20/80” means 20% globally diversified stocks and 80% bonds; “40/60” means 40% globally diversified stocks and 60% bonds; “60/40” means 60% globally diversified stocks and 40% bonds. Bonds are modeled as intermediate-term in-state municipal bonds. Assumes top marginal Federal and California tax rates. Based on AB’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on the Wealth Forecasting System in the appendix for further details.

16%

33%

48%

15%

30%

44%

13%

27%

39%

12%

24%

36%

Spending Beginsin 40 Years

Spending Beginsin 30 Years

Spending Beginsin 20 Years

Current Allocation

20/80

40/60

60/40

% of Total Estate Needed to Fully Fund the SNT*

Scenario A

Scenario B

Scenario C

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SNT Funding Analysis

It’s a living, breathing analysis

Should be updated the sooner of every 3-5 years OR whenever there is a material shift in family circumstances

Change in medical needs

Change in housing or caregiving assumptions

Mortality (SN child, matriarch, patriarch, siblings)

Change in finances (family fortunes, investment performance etc.)

Change in family dynamic (marriage, divorce, grandchildren, etc.)

Close communication with the estate planner to keep documents current

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Do You Have Assets You Can Designate for Your SN Child?

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No <$100k Up to $500k or $1mm >$1mm

Maximize government

benefits

Mix/match:

1. ABLE Account

2. Pooled SNT

3. Family

Carefully weigh pros and cons of (mix/match): 1. Third Party SNT

2. ABLE Account

3. Pooled SNT

4. Family

Third Party SNT (possibly also an ABLE Account)

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Achieving a Better Life Experience Act: ABLE Accounts

529A established 12/19/14; now being implemented state-by-state

After-tax contributions grow tax-free, qualified withdrawals are tax-free

To qualify: disabled before age 26, on SSI or have a physician certificate

Can pay for:

Education

Housing

Transportation

Therapies

Key points:

Beneficiary is the account holder; limit of one

Can go out of state

Maximum contribution from all sources: $14k/year

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Legal/Professional fees

Technology

Support Services

Health

$100k limit before disqualified from SSI

*Medicaid clawback provision*

www.ablenrc.org

Not a long term financial planning tool

Nice for short term liquidity needs >$2k SSI limit

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Common Mistakes / Misconceptions

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Thinking you don’t need a SNT

Thinking a Third Party SNT is too restrictive in expenses it can cover

Thinking the ABLE Act is all you need

Assuming family will take care of your child

HNW/UHNW

Confusing First vs. Third Party

Having Medicaid clawback in Third Party SNT

Failure to understand age limit on First vs. Third Party SNT

Failure to plan beyond drafting the trust document

Not giving any more thought to how to fund a SNT than % in trust document

Failure to coordinate estate planning amongst family members

Forgetting the importance of non-legal documents (esp. LOI)

Forgetting to update retirement account beneficiaries

Identifying the team of PEOPLE who will carry out your vision for your child

Trustee, Trust Protector, Conservators, medical professionals, therapists, financial advisor, accountant, attorney, social worker, etc.

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What do you PUT in the SNT? The Importance of Asset Location

Taxable, liquid assets are the best: simple, ready source of liquidity

Retirement accounts are not ideal

Do NOT list the disabled person as a beneficiary

Stretch treatment complicated to achieve

Cleanest solution: just avoid them in SNTs

All retirement accounts go to the non-disabled siblings or charities

Higher share of taxable assets go to the SNT

Real estate (any illiquid asset) is not ideal

OK to leave if plan is to immediately sell, but otherwise it’s not a liquid asset

Beneficiary can own a house directly (primary residence is not a countable asset), but this may not be appropriate both from an asset protection and a practical standpoint

What if it’s the SN BEN’s primary residence?

Legal: Beneficiary deemed to have in-kind income during the month the trust buys the house (corresponding reduction in SSI)

SSI: Rent must be paid to the SNT or you risk it being deemed a gift; any payments from the SNT associated with shelter (e.g. utilities) reduce SSI unless SSI pays for it

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Planning Considerations at Different Ages

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Birth to age 18 18+ years Retired/elderly parents

1. Special Needs Trust

2. Letter of Intent

3. ABLE Account

4. Key Government

Programs: • Regional

Center • MediCal • IHSS

1. Limited

Conservatorship

2. SSI • 3 year lookback • Start planning

at age 14 • Apply at age 18

3. Government

Programs: • Department of

Rehabilitation • Consult with

Jim Huyck!

1. Review and update

• Retirement plans • Insurance coverage • Legal documents • Fiduciary

appointments

2. SS: Childhood Disability Benefits • 50% of parent’s SS

benefit while they are alive, 75% after they pass

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Choosing a Special Needs Trustee

It’s a complicated role

Invest the assets

Evaluate requested distributions, impact on government benefits

File taxes

Perform record-keeping

Interact with social services agencies

Be aware of changing special needs laws and regulations

Choices

Family member

Is anyone skilled enough, with capacity, to do this role?

May be uncomfortable being the “gatekeeper”

Another option: co-trustee or trust protector

Private Fiduciary

Can be hands-on, but what about longevity?

Corporate Trustee

Future continuity, credit card

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