Adopting a child? Don’t forget to update your Will and estate plan!

The adoption of a child is an event filled with expectation, planning, longing, and finally, the excitement of completing the court proceeding that legalizes the adoption. So many things start to happen that it’s easy to lose sight of the need to protect the child in case of a tragedy. The way to do that is by preparing a Last Will and Testament that includes provisions for a Guardian as well as provisions to protect the assets for the child’s benefit up to a certain age determined by the parent. Beneficiary designations of tax-deferred assets, retirement plans, annuities and life insurance should be coordinated with the estate plan. Whether the assets are large or small, the process is called “estate planning.” As I like to say, careful planning can prevent a crisis, and failure to plan can create mountains of legal work.

If a minor is orphaned, an adult will have to be appointed as their legal guardian until age 18. The parent can include a provision in the Will that specifies a string of successor guardians. See NJSA 3B:12-13 -18. If the child is adopted by a married couple, the surviving parent is the natural guardian. But if there is no surviving parent (see NJSA 3B:12-21), there will be a void and there may be a battle among the grandparents or a battle among friends or remote kin. Even after the Court has appointed the testamentary guardian, the court has the ongoing authority to look into the best interests of the minor if something goes awry and a person brings the matter before the court.

The parent also needs to consider who will manage the child’s funds if the parents have died. Unless a trust is written into the estate plan, the property of the minor in excess of $5,000 in any given year will have to be deposited into the County Surrogate’s account. The minor’s guardian will obtain the funds by completing request forms at the Surrogate’s office, and when the minor reaches 18, s/he can waltz in there and receive the entire amount. As you can imagine, this may not be a good idea, depending on the circumstances, and particularly if there are substantial sums there. The intestacy law (for estates where there was no Will) does not automatically create a trust for the minor just because it seems like the smarter thing to do. The guardian has to bring an action for a protective arrangement (see NJSA 3B:12-1) and to create a trust for the minor (see NJSA 3B:12-54) to preserve the funds for the child’s future, past age 18.

By writing a trust into the Will, the parent can select the trustees — who may be different than the people they select as the guardians — and can decide the ages at which their child will receive funds from the Trust. They can designate the Trust to receive life insurance, annuity payments and the funds from an IRA or 401K. And of course, if the child has special needs and will require SSI or Medicaid or DDD over time, the parent would want to build that into the estate plan as well.

I have had several occasions over the years to represent clients who needed to become guardian of a minor because the parent(s) died with no estate plan. Eventually the problems were solved, but a tremendous amount of legal work was required, and acrimony among family members was the inevitable result of the parents’ failure to plan.

Call us for legal strategies and representation concerning guardianship, trusts and estates … 732-382-6070

Giving Trust Beneficiary a debit card can cause a special needs trust to be “available”

Special Needs Trusts are established with the assets belonging to a disabled person, and if they are properly structured and properly administered, the assets won’t be countable as “resources” and the distributions won’t be countable as “income.” This is particularly important when the beneficiary depends on Medicaid, SSI, DDD and other means-tested programs. A recent case illustrates what can really go awry, with serious consequences for the beneficiary.

In Susan Elias v. Colvin, U.S. District Court for the Middle District of Pennsylvania, Civil action. case # 3:15-CV-263 (decided July 27, 2015), the Trustee had given the Beneficiary a bank debit card which enabled the Beneficiary to directly use the Trust account to pay for different things. After 2 years of this, the debit card was destroyed and the beneficiary’s access ended. She was on SSI and pursuant to her divorce agreement, her ex-husband’s pension was being paid into the SNT every month. SSI as you may already know, has a resource limit for eligibility of $2,000 in “countable available resources,”  and an income limit which is the SSI monthly amount.

You might think of the money in the trust, or the money going into the trust from a third party every month (such as alimony or a pension), as “the beneficiary’s assets.”  However, to preserve eligibility, the beneficiary can’t have access to or control over the trust’s assets. The requirements for SNT’s to be excluded from countability are detailed in the SSA POMS (Program Operations Manual System) as well as the state Medicaid manual and regulations. Specifically, the POMS SI 01120.200.D.1.a says that “if the individual can direct use of the trust principle for his her support or maintenance, the trust principle is a resource for SSI purposes.”

In Elias, the SSI benefits were terminated AND she was given a demand for repayment of an overpayment for “benefits wrongfully received.” Under the SSI rules (20 CFR 416.550, 416.551), they can only waive overpayment if the claimant was “without fault.” She had to pursue an appeal to a federal administrative law judge (ALJ), and from there, to Federal District Court for review. The ALJ decided that the trust was a countable resource because she had had direct access to the funds, and that she was not without fault so the overpayment would not be waived. He also decided that the trust had been misused, since the terms of the document would not have allowed the trustee to give the beneficiary a debit card. However, he further decided that the Trust continued to be countable even after the card was destroyed. The District Court agreed with all of the conclusions except this last one, and on this final point, remanded it for further proceedings to see if the Trust was properly administered after April 2011 so that eligibility could be restored as of then.

The lesson is that: Trustees must pay scrupulous attention to the restrictions contained in the Trust rules, in order to protect their beneficiaries.

Call us for preparation, interpretation, defense and court reformation of special needs trusts, and for asset preservation plans that include special needs trusts for disabled persons  under 65… 732-382-6070


Review your old special needs trusts before it’s too late

Laws change. Sometimes, federal law stays the same and state laws implementing it change. State statutes may remain the same but the state regulations change. State regulations may stay the same, but the executive branch agency issues advisory memoranda which change the procedures. That’s what occurred back in 2001 when the State of New Jersey Division of Medical Assistance and health Services (DMAHS) (“Medicaid”) adopted a set of specific administrative, procedural, technical requirements for first party special needs trusts which are occasionally called “(d)4(A) trusts” by reference to a section of the federal Social Security Act. 42 USC 1917(d)4(A). The State’s regulation is found at N.J.A.C. there be a payback clause so that and 4.11(g) in particular.

The federal statute which undergirds this regulation was enacted long before 2001, and has not changed. So you may find that the Trust that adequately protected your loved one’s SSI or state Medicaid benefits — including eligibility for services through the NJ Division of Developmental Disabilities or DDD — is rejected, because it doesn’t have the technical provisions that were adopted years after the trust was written. The technical provisions include things such as a requirement to notify the State if an expenditure of greater than $5,000 is made, or a requirement that certain information about the Beneficiary be stated in the trust document. There is no change in the historic requirement that the trust be solely funded with assets of the disabled individual, or that there be a payback clause so that the State be the first remainder beneficiary. So rejection of an old non-conforming trust can result in a termination from benefits, or a denial of an application. In cases of termination from benefits, there is the risk of being assessed for “wrongfully paid benefits.”

There is a remedy. Some trusts contain provisions that allow the trustee to amend the trust in whatever way is necessary to conform it to requirements that would still preserve the eligibility of the disabled beneficiary and would not reduce the beneficiary’s interest. Other trusts require that amendments be made by court order. The message is that if you are a trustee of a special needs trust that was written in the 1990’s, this would be a good time for a legal review to see whether any modification is required in order to protect your beneficiary.

Call us for advice on creation and amendment of Special Needs Trusts, and for Medicaid applications and appeals … 732-382-6070