Supplemental Needs Trusts

1. Supplemental Needs Trusts Presented by Larry R. Rivkin on behalf of CVLS May 20, 2008

2. Public Benefit Programs Supplemental Needs Trusts May 20, 2008

3. Exempt Assets • $2,000 • Homestead property • Personal effects and household goods • Motor vehicle • Life insurance (with restrictions) • Burial funds and burial space • Self-support resources Supplemental Needs Trusts May 20, 2008

4. Historical Choices • Lose benefits • Disinherit child Supplemental Needs Trusts May 20, 2008

5. Trust Solution for Third-Party Funds 760 ILCS 5/15.1 (Sept. 1991) • Authorizes SNTs for funds outside disabled person’s control • Trust assets exempt • No government reimbursement at death • Created by anyone except the disabled person Supplemental Needs Trusts May 20, 2008

6. Trust Solution for Disabled Person’s Funds OBRA Payback Trust (d-4-A Trust) (Aug. 1993) • Authorizes SNTs for funds in control ofdisabled person under 65 • Created by parent, grandparent, legal guardian,or court • Trust assets exempt during life • Government reimbursement at death Supplemental Needs Trusts May 20, 2008

7. Alternative to Free-standing Trust Pooled Trust (d-4-C Trust) (Aug. 1993) • Funds pooled for management purposes under common trust agreement with joinder • No age requirement • Created by disabled person, parent, grandparent, legal guardian, or court • Trust assets exempt during life • Government reimbursement at death • Factors to consider • Account minimums • Trustee of pooled trust may retain investment control • Some pooled trusts dictate disposition of assets after disabled person’s death and government reimbursement • Fees Supplemental Needs Trusts May 20, 2008

8. Examples of IL Pooled Trusts(see handout) • Illinois Disability Pooled Trust • Options for Living • Life’s Plan Supplemental Needs Trusts May 20, 2008

9. Primary Terms ofSupplemental Needs Trust • Make trust irrevocable but give limited power to amend to comply with law • Express grantor’s intent • Limit distributions • For “supplemental needs” only • In trustee’s sole discretion (no standards) • To providers of goods and services - not to disabled person (Continued … ) Supplemental Needs Trusts May 20, 2008

10. Primary Terms ofSupplemental Needs Trust (cont’d) • Avoid distributions for food or shelter until all benefits are exhausted (will reduce SSI) • Name trustees and successor trustees • Remainder beneficiaries at death (after Medicaid reimbursement for d-4-A trust) • Parents can be trustees and remainder beneficiaries if they have no estate tax exposure and if they are not trying to qualify for public benefits themselves Supplemental Needs Trusts May 20, 2008

11. Timing of Trust Creation and Funding • When to create SNT? • As soon as present or future need is anticipated • When to fund SNT? • 15.1 – usually at death of parent, grandparent, or other family member or close friend • d-4-A – • Prior to disabled person’s application for SSI or Medicaid if disabled person has over $2,000 of assets without spend down opportunities • Thereafter if disabled person receives assets • How much to fund SNT??? Supplemental Needs Trusts May 20, 2008

12. Coordination with Other Estate Planning Documents • Critical to update • Wills of parents, grandparents, etc. • Insurance and retirement plan beneficiary designations • So that no assets pass directly to disabled child; all assets for disabled child should be allocated to SNT Supplemental Needs Trusts May 20, 2008

13. Common Drafting Issues • Stand-alone SNTs preferred to embedding SNT in a will or revocable living trust • Disabled person should not: • Be a beneficiary of a one-pot trust (such as a family trust) that has multiple beneficiaries • Have withdrawal rights over an ILIT • Termination – recommend avoiding kick-out provision • Provisions when grantor might also qualify for Medicaid or SSI Supplemental Needs Trusts May 20, 2008

14. Government Resources • Social Security Administration – Administers SSI Program (www.ssa.gov) • Department of Healthcare and Family Services – Administers Medicaid Program in IL (www.hfs.illinois.gov) Supplemental Needs Trusts May 20, 2008

15. Local Private Resources • Protected Tomorrows (www.protectedtomorrows.com) • Life care planning , service coordination, and advocacy • SSI and Medicaid eligibility planning • Family Benefit Solutions (www.familybenefitsolutions.com) • SSI and Medicaid eligibility planning • PACT, Inc. (www.pactinc.net) • Life care planning, service coordination, and advocacy • Trusteeship • Life Care Innovations (www.lcius.com) • Life care planning, service coordination, and advocacy Supplemental Needs Trusts May 20, 2008

16. Sample Family Situation • Family Members • Mom and dad • Three children – one with severe CP • Grandparents • Assets • Equity in home • 401(k)’s • Life insurance • Child with CP has own assets from gift or settlement Supplemental Needs Trusts May 20, 2008

17. Conclusion • Be conservative! • Review sample forms • Questions Supplemental Needs Trusts May 20, 2008