Category: Trusts

SPECIAL NEEDS TRUSTS: Pt. 3 – Pooled Trust Mistakes

Aside from the individually structured first and third party special needs trusts, a pooled SNT is a trust that is for multiple individuals with special needs. A pooled SNT is a trust that is established and managed by a non-profit organization. It is a trust that pools together all of the assets of the disabled individuals that have accounts through the trust, as well as assets acquired through outside donations, and makes distributions to the beneficiaries based on their individual shares of the trust’s assets. Pooled SNTs are a way to relieve family members of the job of being the trustee and allows professionals to handle the tedious responsibilities of being the trustee. Some important aspects that set apart pooled SNTs from first and third party SNTs are:

  • Pooled SNTs do not have any age limits;
  • The disabled person is able to be one of the grantors of the trust; and
  • Any excess funds at death are generally kept by the non-profit.

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SPECIAL NEEDS TRUST MISTAKES: Pt. 2 – Third Party Trust Mistakes

A Third Party Special Needs Trust is created for the benefit of a disabled person, which ensures that the disabled person will have proper care. The Third Party SNT is funded with assets typically by family and friends of the disabled person. Unlike the First Party SNT, the property is never owned by the disabled person, and there is also no payback of Medicaid or any other government benefits. When properly planned, a Third Party SNT can provide greater flexibility than a First Party SNT, and can be a very useful mechanism for providing proper care for a person with special needs.

While every state has its own requirements for Special Needs Trusts, generally, Third Party SNTs are more flexible because there are no age requirements. They also do not have to be monitored by the Probate Court in the county of their residence, and may be either revocable or irrevocable. As long as there is careful planning and proper management, there is no repayment of any governmental funds, like Medicaid.

There are common mistakes that must be avoided to ensure that the Third Party SNT works properly and will not have adverse effects on the disabled person or trustee. One of the first mistakes is improperly transferring property into the trust that may disqualify government benefits or require the trust to payback the state funds. It is essential that the property in the trust is never owned by the disabled person, and he or she have no legal right to the property. Transferring property, including money, that can be traced back to the disabled person can be considered a “step-transfer,” and would result in Medicaid and other state funds to be repaid, which could cost thousands of dollars.

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SPECIAL NEEDS TRUST MISTAKES: Pt. 1 – First Party Mistakes

What Is a First Party Special Needs Trust?

A First Party Special Needs Trust is set up for the benefit of a person with special needs, and is funded with the disabled person’s own property. Different rules apply when a Third Party SNT that is set up by family members for the benefit of the disabled person. Typically, a First Party SNT is used in two common scenarios: the disabled person receives a lawsuit settlement for damages, or when the disabled person inherits money or property from family, who did not set up a Third Party SNT.

When a disabled person owns property outright, the person may face difficulty receiving government benefits. This is where a First Party SNT comes in; it allows the disabled person to have access to their property, while the trust retains ownership of it, which improves the disabled person’s ability to receive government funding. When formed properly, the First Party SNT is a useful vehicle for ensuring proper care for a person with special needs.

Requirements for Forming a First Part SNT

Although every state has different rules that must be met when forming a First Party SNT, the requirements are generally:

  • The trust is irrevocable
  • The trust is set up by a parent or guardian in court
  • The beneficiary of the trust is under the age of 65
  • The assets in the trust must have been owned by the beneficiary
  • Benefits received through Medicaid must be repaid after the beneficiary passes away

The Risks of Forming a First Party SNT Incorrectly

Proper planning is essential to ensure that all of these requirements are met and that the First Party SNT operates effectively. If the First Party SNT is not formed properly, there may be several problematic issues that arise. One of the worst problems is the disabled person losing their governmental benefits, like SSI or Medicaid. This can result as a flaw in formation or in improper management by the trustee of the SNT. Proper planning is also essential to avoid issues with Medicaid repayment after the death of the beneficiary. When formed correctly, the assets of the trust will be used to repay the costs of Medicaid. However, if the trust is not formed or managed correctly, repayment can be an unnecessary burden on the beneficiary’s estate. Likewise, the trustee of the First Party SNT may face personal liability if the funds were not managed or accounted for properly. All of these consequences can be mistakes of poor planning and management of the First Party SNT.

If you or a member of your family has special needs and will be receiving money from a lawsuit for damages, or inheriting money from your family, who have not set up a Third Party SNT, please contact Bill Hesch, attorney, CPA and financial planner for a second opinion to avoid the common mistakes that are typically made, due to lack of proper planning.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

ABLE Accounts

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

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Providing For and Protecting a Disabled Child

Do you have your disabled child written into your will? Or are they disinherited and you are relying on their siblings to take care of them? This is potentially problematic and you should consider a Special Needs Trust.

Both of these methods of attempting to care for a disabled child, after your death, have undesirable risk. If your child is receiving Supplemental Security Income (SSI), Medicaid, or other needs-based state or federal government funds, leaving your child assets in your will can cause them to become disqualified for this type of government assistance. If you are disinheriting your disabled child in anticipation that your other children will see to it they are taken care of, you are also taking on risk. The other children do not have any obligation to provide top-notch care for their disabled sibling. One way to eliminate these risks and make sure that your disabled child is provided and protected for long after you are gone, is to set up a Special Needs Trust.

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Is Your Old A-B Trust a Tax Burden for your Family?

Save Taxes by Updating your Estate Plan

If you have an old A-B Trust in place, you may be unaware that recent tax law changes have transformed your A-B Trust from an estate tax shelter into an income tax burden for your loved ones.  An A-B Trust, also known as a Credit Shelter Trust or Bypass Trust, typically provides that on the death of the first spouse, a particular share of the married couple’s assets are transferred into an irrevocable sub-trust (the “B” trust), rather than to the surviving spouse directly.  Traditionally, using an A-B Trust was an estate planning strategy to preserve the deceased spouse’s estate tax exemption to be used upon the death of the surviving spouse.  Without sheltering the first spouse’s unused exemption in the “B” trust, any assets in excess of the survivor’s exemption amount would be exposed to very high federal estate taxes.

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Ohio Medicaid Rules Have Changed! Income Trusts-Medicaid Eligibility

Ohio Medicaid Rules Have Changed!  Do You Need a Qualified Income Trust for Medicaid Eligibility?

Do you or a loved one live in Ohio and receive Medicaid benefits for long-term care? Do you foresee yourself or a loved one needing long-term care in the future? If so, the Ohio Department of Medicaid made changes to its eligibility requirements in 2016 that may affect you.

The Ohio Qualified Income Trust and its Requirements

In order to receive Medicaid benefits for long-term care, an individual’s monthly income must be below the Medicaid income limit set by the state of Ohio.  Starting August 1, 2016, if a Medicaid applicant or recipient’s monthly income exceeds $2,199, the applicant or recipient must set up a Qualified Income Trust (aka a “QIT” or “Miller Trust”) before he or she is eligible for benefits.  For individuals already receiving Medicaid benefits, they must set up their QIT either before August 1 or before their 2017 renewal date.  To be enforceable, the trust must be irrevocable, it must name Ohio as a residual beneficiary, and it must be properly executed.  The trust must also only contain the individual’s income.  It cannot shield assets or contain someone else’s income.

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