The Special Needs trust is funded …. now what?

Funding a first party Special Needs Trust with alimony, an inheritance, or a personal injury settlement can preserve those assets for benefit of a person who is receiving or applying for means-tested government benefits such as SSI, DDD or Medicaid/MLTSS. There is quite a process to establish the trust and then fund it with these assets. But that’s just the beginning — not the end.

The person who receives these benefits has an affirmative obligation to notify the Agency when there is a change in assets or income. This duty still applies even though the assets that are held in a qualified Special Needs Trust are not counted as the person’s assets or income. This duty still applies even though the transfer of the person’s assets into the trust may be an exempt transfer. And this duty still applies even though a Court may have reviewed the trust and entered an order allowing the assets to be transferred to the trust.

If the person receiving the benefits has a Representative payee appointed for him/her by the Social Security Administration, the duty to report rests with the Rep. payee. If the Trust document meets all of the relevant criteria, benefits should continue or be approved, as the case may be. However if it turns out that the transaction or trust are defective, there may be wrongfully paid benefits and the representative payee and disabled person could be facing a demand for repayment years later.

What should be done? A copy of the fully executed trust and its EIN# paperwork should be promptly submitted to the agency for its review, along with the relevant court order and written verifications of the transfer and funding of the Trust, such as deposit slips and bank/brokerage statements for the trust. The Trustee should then maintain the account records on an ongoing basis as well as the receipts and copies of cancelled checks so that these verifications can be produced to the agency upon demand. If no response is received from the agency within a reasonable time of when the trust was submitted, the agency should be contacted.

The burden of proving and maintaining eligibility for public benefits rests with the recipient and the representative payee. Attending to these crucial steps can prevent problems down the road.

Call for advice on preparation, funding and administration of Special needs trusts … 732-382-6070.

 

County Medicaid Agency Backs Off – Small Business Saved

Recently, a senior client who had a very small business that he ran by himself came to see me in a panic.  He was just making ends meet. His spouse had been on Medicaid in a nursing home for several years, but the county board of social services was now questioning the nature of the business and whether it was a countable resource that should have been spent down.  They were going to  terminate the wife’s eligibility.  “How can I appeal this?” was one of his worries.

The client was distraught, but we helped him to keep a level head.  Our first step was to file for a Medicaid Fair Hearing and make sure that benefits were continued while that administrative appeal was going on. Next was getting more information about this business–did it have any other employees other than the spouse?  What equipment or real estate was owned by the business?  How were taxes handled–could we see the returns?  Did the applicant spouse have an ownership interest in the business?

Once we had this information, it looked like these business activities and the equipment associated with them would fall firmly in the category of excluded resources under the New Jersey Medicaid regulations (N.J.A.C. 10:71-4.4):

“Excludable resources (b) The following resources shall be classified as excludable:  5. Nonhome property that is used in a business or nonbusiness self-support activity that is essential to the means of self-support of an individual and/or spouse, is excluded from resources.   i. Tools, equipment or other items that are used for trade or business and required for employment, including, but not limited to, the machinery and livestock of a farmer, are assumed to be of a reasonable value and producing a reasonable rate of return and are, therefore, excluded from resources.”

Further, under the Social Security Administration interpretive publication (called the POMS), there is no value limit to property that is essential to a trade or business.  It would all be excludable as long as it is in current use. The income the business generates to a community spouse is exempt, regardless of how much.  This is true of all income of a community spouse.

Once we fully disclosed the nature of the business and how it was essential to the spouse’s self-support, the county backed off and reinstated benefits. We could then withdraw the fair hearing.  The client was relieved and thrilled.  He could get back to caring for his wife without this cloud hanging over his head!

The Medicaid regulations are a thorny thicket, but sometimes protection is available if you can just find where it is hidden in there.

If you or a spouse needs Medicaid, but you are unsure about how an active business affects this, give us a call…. 732-382-6070

 

Special Needs Fairness Act signed into law by President Obama

Today is a good-news day for people with disabilities who want to set up a Special Needs Trust to preserve their eligibility for critical benefits: the President has signed the Special Needs Fairness Act — S349 — into law. . Since 1993, an applicant or recipient of Supplemental Security Income (SSI) or Medicaid (now MLTSS in New Jersey) has been able to shelter their excess resources by transferring them into an irrevocable, first party Special Needs Trust for their own sole benefit, sometimes called a D4A trust (for the section of federal law that allows this). The thing is, the Trust itself could only be established by the person’s parent or grandparent, legal guardian [with Court permission], or by a Court. This created a problem for individuals who had no parent, grandparent or guardian. Such an individual could not just hire an attorney to prepare the Trust and provide advice on how to fund it. S/he would have to hire an attorney to petition the Court to establish the trust, and it would have to be on notice of interested parties such as next of kin and the State of New Jersey. This was a time-consuming process and would sometimes create problematic delays that would pose a risk for filing an application or maintaining ongoing eligibility.

The new law corrects this gap in the statute. Now, an individual who has disabilities but is otherwise managing his own affairs can establish the trust without going to Court. This certainly recognizes the capability of individuals with disabilities by allowing them to do their planning privately with their attorney rather than publically in court.  Each state has its own requirements for the exact terms of these trusts, within the framework of the federal Medicaid and SSI statutes and regulations, so the Trust needs to be written carefully to comply with the State’s requirements. And it still has to be established and funded before age 65.

For advice and assistance in establishing special needs trusts, call us at …

732-382-6070 

The NJ Estate tax may be going away, but you can still do important planning with a Will

On October 14th, Governor Christie signed a tax package into law which does away with the New Jersey estate tax  and certain income taxes in exchange for a 23 cent per gallon increase in the gasoline tax so that the roads and bridges can be repaired. There’s still no estate tax on any assets that pass at death to your spouse.  At the present time, the estate tax exclusion is only $675,000, so many couples have estate plans in which this amount is transferred at death into a ‘credit shelter trust” for the surviving spouse so that it will pass to the heirs free of estate tax when the second spouse dies. About 99 % of NJ estates have to pay estate tax. As of January 1, 2017, $ 2 million can pass to your other heirs free of estate tax. The estate tax will be totally repealed as of January 1, 2018. With the new law, this # will likely drop to less than 15% in 2017 (based on the 2014 tables from the Office of Legislative Services cited by Forbes Magazine).

So do you need a Will? Certainly. Without a Will, the law determines who inherits your estate. On the other hand, if you want to distinguish among your next of kin and leave unequal amounts, you need to sign a document such as a Will. If you don’t want a certain person to inherit their share outright — because of pending divorce, or debtor-creditor problems, or disability or youth — you need to consider writing a trust into your Will to receive their share. Oftentimes, a person who is on disability benefits like SSI or Medicaid inherits assets because their parent didn’t plan things carefully. They are then at risk of losing their benefits because they’ve got access to resources. Court proceedings are often required, to establish a Special Needs Trust and direct the inheritance into the trust.

With estate taxation disappearing as an issue for most people, it’s important to turn your attention to how you’d like your estate to be managed over the long-term for the greatest benefit of your heirs. Has it been years since you looked at your old Will? …………….

Call us for updated estate and trust planning … 732-382-6070