Special Needs Settlement Planning: An Overview

1. An Overview of Special Needs Settlement PlanningA presentation for the Academy of Special Needs Planners An educational seminar provided by: 12900 Hall Rd., Suite 470 ▪ Sterling Heights, MI 48313 Phone:586-803-8500 ▪ Fax:586-803-8508 Email:michele@michiganlawcenter.com www.MichiganLawCenter.com

2. What Is Settlement Planning? • Helps recipients of settlement proceeds: • Achieve their post-loss goals • Transition successfully into their post-settlement financial lives • Assist litigatorsto finalize settlements

3. Settlement Planning Working with litigators to: • Set Client Expectations • Preparing Motions & Orders • Settlement approval • MSPA Issues • Appear as GAL • Probate issues • Guardianships • Conservatorships • Protective Orders • Decedent Estates • Settlements • Trusts

4. Settlement Planning Working with the settlement team to execute a plan that includes: • Lien Resolution / Repayment • Special Needs Planning • Coordination of Benefits • Estate Planning • Financial Planning • Tax Planning

5. Why Special Needs Planning? • Planning for the future finances, care, advocacy, and protection for a person with a disability • Issues that generally arise concern: • Lifetime financial and personal care • Understanding what public benefits used to meet current and future care needs • Maintaining the ongoing care • Addressing unmet needs • Medical • Personal

6. Work With aSettlement Planning Team • No single professional can address all of the issues • At a minimum, the following experts should be consulted: • Special Needs/Estate Planning Attorney • Financial Lien Resolution Attorney • Structured Settlement Broker • Medicare Set-Aside Specialist • Certified Public Accountant orEnrolled Agent • Financial Planner • Other (Life Care Planner / Case Manager)

7. Working as a Team • Provides a very real and long lasting benefit for Plaintiffs • Start Working Together Early • Sets Appropriate Expectations for Plaintiffs • Saves Time for all Professionals • Credibility for Plaintiff’s Attorney • Better Overall Service • Financial, Tax, and Legal professionals working together can provide a comprehensive plan • Avoids mistakes

8. When to Involve Special-Needs Settlement Planning Professionals Typical Best Practice

9. What If The Individual Isn’t Disabled BUT Receives Public Benefits? • As this group expands, this will become more of an issue • Special Needs Planners will need to become more adept or coordinate with Elder Law Planners • There are planning options available • Spend-down • Trusts • Annuities • Gifting • Promissory notes • All of the above

10. Do All Persons with Disabilities Require Special Planning? • Only those individuals who meet the definition of disability for public benefit programs require planning • SSI & Medicaid • NOTSSDI & Medicare

11. Who Requires Settlement Planning? • Minors • Adults who lack capacity • Adults with disabilities • Only those who meet the definition of disability for public benefit programs require special needs planning • Plaintiffs receiving public benefits • Only certain public benefit programs require planning

12. Can Other Plaintiffs Be Helped With Settlement Planning • Even those persons who may not require settlement planning can benefit: • Adults with little to no experience in financial management • Spendthrifts • Elderly - over age 65 may need “elder law” planning • Everyone should have a complete estate plan

13. Why Public Benefits for Persons With Disability Planning is Needed • Litigation recovery paid directly to an individual would eliminate eligibility for SSI and Medicaid • Counted as income in month of receipt • Counted as resource first day of next month • Medicare-Set-Aside Accounts are Countable Assets • Loss of Medicaid can be devastating • Generally the only source of medical and community services available to the disabled Individual

14. Facts Needed By Attorney To DoSpecial Needs Planning • Type of Public Benefits? • Type of Disability? • Age of Person with a Disability? • Legal Capacity? • Parent or Grandparent Alive, Well, and Willing to Help? • Amount of Assets At Issue? • Living Situation • Ability to Work

15. Public Benefit Programs for Persons with Disabilities • Needs-Based Public Benefits: • Supplemental Security Income (SSI) • Medicaid • Entitlement Public Benefits: • Social Security Disability Income (SSDI) • Social Security – Adult Disabled Survivor • Medicare • Other benefit programs • Section 8 • Veteran Benefits • Food Stamps • General Assistance • Waiver Services

16. Entitlement Benefits • If only public benefit programs are SSDI, Social Security, or Medicare No special needs planning is required. Although, it may still be helpful to plan in some circumstances • However, watch out for dual eligibility, meaning that person with a disability receives both SSDI and SSI or Medicare and Medicaid • There is often lots of confusion from the person with a disability and their families as to what types of benefits the person receives so important to investigate

17. Special Needs Trusts Basic Planning Tools

18. Basic Planning Tools • Guardianships • Conservatorships • Protective Order / One-time Conservatorships • Structured Settlements • Decedent Estates

19. First-Party Special Needs Trusts • Special Needs Trusts (SNT) are the only planning tool that allows an individual to preserve litigation proceeds AND to preserve eligibility for needs-based public benefits • First-Party SNTs are: • (d)(4)(A) SNT (a/k/a Litigation or Payback SNT) • (d)(4)(C) SNT (a/k/a Pooled Trust)

20. (d)(4)(A) Special Needs Trust • Authorized by 42 U.S.C. §1396p(d)(4)(A) and has the following characteristics: • Must be Irrevocable • Must be established by parent, grandparent, legal guardian, or court • Must be for the sole benefit of a person with a disability who is under the age of 65 • Must provide that on the death of the beneficiary, the trustee must repay Medicaid for all benefits received by the beneficiary during his or her lifetime to the extent that funds remain in the trust at the beneficiary's death.

21. PRO’s(d)(4)(A) Special Needs Trust • Control • Choice of Trustee • Choice of Investment Options • Integrates well with structured settlements • Integrates well with a MSA account • Family has an opportunity to inherit • More easily accepting of non-liquid assets

22. CON’s(d)(4)(A) Special Needs Trust • Limited to under age 65 • Control • Choice of Trustee may be inappropriate • Investments could be too aggressive; result in a loss of principal • Cannot be executed by an individual with capacity • Often results in Probate Court involvement to establish trust and possible court supervision; bond • Very costly to maintain; No cap on fees • Family can inherit • Often over-used: small amount of funding • Poor drafting or administration Practice Tip! Appoint a Trust Protector Appoint a profession as Trust Protector if a family member is Trustee Appoint a family member as Trust Protector if a professional is Trustee

23. (d)(4)(A) Special Needs Trust • Change in Social Security’s Program Operations Manual System (POMS) • Early termination clause • Upon early termination (i.e., termination prior to the death of the beneficiary), the State(s), as primary assignee, would receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s) • Other than payment for those expenses listed in SI 01120.199F.3. in this section, no entity other than the trust beneficiary may benefit from the early termination

24. (d)(4)(C) Special Needs Trust • Authorized by 42 U.S.C. §1396p(d)(4)(C) and has the following characteristics: • Irrevocable • Established and managed by a non-profit association. • Separate account is maintained for each beneficiary; pooled for purposes of investment and management • Established by the individual, parent, grandparent, legal guardian, or by a court. • Residual funds after death are retained by the trust or repaid to the State for medical assistance paid on behalf of the beneficiary.

25. PRO’s(d)(4)(C) Pooled Trust • Can be executed by an individual with capacity • No Court supervision required • Professional Administration • Additional advocacy and resources • Often fees are capped • Perfect for small settlements • Integrates well with structured settlements • Flexible in a variety of situations • Choice of paying back state or leaving to charity • Easier and lower cost to establish

26. CON’s(d)(4)(C) Pooled Trust • Client has lack of control if administration is poor or relationship breaks down • Fees • Percentage • Hourly • Flat • Investment information may not be accessible • Not always accepting of non-liquid assets; depend on the Trustee Practice Tip! Ask for a Trust Protector Appoint a family member as Trust Protector with the authority to change the Trustee

27. What Can a SNT Pay For? • Special Needs Trusts can pay for expenses NOT covered by governmental benefit programs: • Clothing • Telephone, Internet, Cable • Furniture, Audio/Video/Computer Equipment • Periodic outings and vacations • Pre-need funeral and burial expenses • Taxes

28. What Can’t a SNT Pay For? • A SNTCANNOT give cash directly to Beneficiary (this includes gift cards) • If SNT pays for food, shelter or medical care already being provided by SSI or Medicaid it will reduce (or eliminate) public benefits. • Shelter is defined as food, gas, electricity, water, sewer, heating fuel, garbage removal, real estate taxes, rent or mortgage

29. Special NeedsSettlement Planning Advanced Tools and Skills • QSF • MSA • SPT Qualified Settlement Fund Medicare Set-Aside Settlement Preservation Trust

30. Advanced Settlement Planning • Utilizing Qualified Settlement Funds (QSF) • Can be formed by either side (plaintiff or defense) • Allows for immediate payment of settlement or judgment proceeds by defendant • Preserves all options for the injury victim(s) and other claimants without defense involvement • Multiple claimants can resolve their respective damages • Lien resolution • Medicare-Set-Aside allocations • Structured settlements • Special Needs Trusts • Settlement Preservation Trusts

31. Advanced Settlement Planning • MSA and Liability Cases • No CMS guidance • Duty to protect Medicare’s future interests • No double-dipping • Drafting Motions andOrders in relation toMSPA • Consulting for PI attorney and StructureBrokers

32. MSA / SNT Planning • Encourage proper allocation of liability settlements • Non-Economic Damages = Pain and Suffering • Economic Damages • Wages • Attendant care • Conditional medical payments • Future medical • Allocate between Medicare vs. Non-Medicare • MSA to receive future Medicare injury related medical expenses • Structures Practice Tip! MSA’s are COUNTABLE assets for Medicaid eligibility

33. MSA / SNT Planning

34. Alternatives in Special Needs Planning Alternative Tools: • VA Trusts • SettlementPreservation Trust • Elder Law

35. Alternatives to Special Needs Trusts • Veterans Affairs • Aid & Attendance • Different eligibility requirements than Medicaid • Medical • Financial • Available to a surviving spouse and dependents; including step-children Caveat: Must be certified by VA

36. Alternatives to Special Needs Trusts • Adults • Settlement Preservation Trusts • Purely discretionary; helps in the following situations: • Chronic or pending divorce • Job loss / Unemployment • “Lottery” effect • Future eligibility = Reform • Flexible drafting • Not to be used to defraud creditors

37. Settlement for the Elderly • Traditional Elder Law Tools • MAPT • Annuities • Gifting • Pooled Trust? • Estate Planning

38. Settlements for Minors • Small Settlement = Structures • Drip vs. Lump Sum • Avoids fees and cost of Probate Court • Helps protect theminor’s funds • Static • Beware of back-loading • It’s my money andI want it NOW!

39. Settlements for Minors • Large Settlement = Settlement Preservation Trust • May be utilized if disability is uncertain • Allows for maturity • Decreases “Lottery” effect • Varies by jurisdiction; state by state; county by county • Prevents claims by future creditors/spouses

40. Conclusion • Working with persons with disabilities very satisfying and rewarding • Preserving public benefits; • Providing lifetime financial support by purchasing items and services that make life more rewarding; • Providing a system of advocacy to preserve civil rights; • Establishing an efficient, knowledgeable, and long-term management team; • Providing a safe and clean living arrangement; and • Providing avenues for enjoying all social and recreational activities that enhance the quality of life

41. Thank YouA presentation for the Academy of Special Needs Planners An educational seminar provided by: 12900 Hall Rd., Suite 470 ▪ Sterling Heights, MI 48313 Phone:586-803-8500 ▪ Fax:586-803-8508 Email:michele@michiganlawcenter.com www.MichiganLawCenter.com