Planning for Public Benefits Skills Training for Estate Planners New York Law School New York, New York July 8-13, 2012

Planning for Public Benefits

Skills Training for Estate PlannersNew York Law SchoolNew York, New York

July 8-13, 2012

Molly Dear AbshireWright Abshire, Attorneys

Bellaire, Texas

Demographics

20% of U.S. population is disabled at any given time.

10% of U.S. population is severely disabled and relies on benefit programs to provide for basic needs.

Need for planning for public benefits is growing.

Role of Public Benefits AttorneyEvaluates funding options for

financing LTCAssists in qualification for public

benefitsCounsels regarding available

programsPreserves existing public benefitsAdvises regarding estate planning

documents and prepares same

Estate Planning Documents for Disabled Individuals

If capacity: Financial Power of Attorney Medical Directives Will and/or Trust

If no capacity: Guardianship/Conservatorship

Three Ways to Finance Long-Term CarePrivate payLong-term care insurancePublic benefits

Medicare Medicaid VA Benefits

Medicaid vs. Long-Term Care InsuranceMost people feel they will never need

LTCWhen the need arises many cannot

qualify for LTC insurance & premiums may be cost-prohibitive

Many mistakenly believe that Medicare will cover LTC needs

Long-Term Care Partnership Programs Not counted as income to the Medicaid

recipient Benefits paid = assets can exclude

Common Causes of Medicaid EligibilityRising costs of care for disabled

individualsUnavoidable ImpoverishmentProtection of the “Community

Spouse”Private insurance exhaustedUninsurability

Public Benefits Only Covers Basic NeedsMany personal needs left uncovered

Clothing Dental care Transporation

Trust planning can help close the gap

Ethical Issues in Planning for Public Benefits Identify the clientAvoiding fraudDiligent representation

Malpractice for failing to preserve public benefits

Client capacity and giftingMedicaid planning by non-attorneys

The Affordable Care Act (Health Care Reform)Enacted March 23, 2010, fully

implemented by Fall of 2014Expansion of Medicaid benefits to

qualified lower income retirees, effective in 2014, states may opt out.

Federal High Risk Insurance Program

Social Security Disability InsuranceMonthly cash assistance programFor qualified individuals who are

disabled before age 65Worked appropriate number of

quartersMust meet disability criteriaNon-means tested benefit

Medicare

Federal Health Insurance Program80/20 planFor eligible individuals 65+ and SSDI

beneficiaries after 24 monthsLifetime limitsNo LTCNon-means tested benefit

Four Parts of Medicare

Part A = in-patient services, home health, hospice and limited SNF

Part B = doctor chargesPart C = Medicare Advantage HMOPart D = voluntary drug plan

Medigap Insurance

Medicare has deductibles, co-pays and premiums

Without Medigap, not 100% insuredChoice of provider, but government

regulatedOpen enrollment period

Military and Civil Service Survivor BenefitsFor adult children with disabilitiesProvides 55% of base pay divided by

eligible childrenTRICARE health coverageNon-means tested benefit

Disability Compensation

Two Types: Service Connected Disability

Compensation – injury, illness or aggravation of a pre-existing condition during active duty, non-means tested benefit

Non-Service-Connected Disability Pension – low income disability payments, means-tested benefit

Service Connected Disability CompensationDisability contracted during active

duty (no wartime requirements)Veteran must not have been

discharged dishonorably Injury must not be the result of

misconductOnce disability is determined, a

rating must be assigned

Non-Service Connected Disability PensionDisability does not have to be

service connectedDon’t have to be retired militaryNo requirement for combatMust meet income and net worth

requirements

Supplemental Security IncomeFederal cash assistance program

$698/month individual $1,048/month couple

Provides minimum level of income for individuals with disabilities

Means-tested benefit

Supplemental Security Income, cont.

To be eligible person must be: Age 65 or older or blind or disabled, U.S. Citizen or qualified alien, and Not a resident of public institute.

SSI Eligibility

Income limitationResource limitation

<$2k for single individual in countable resources

Excluded resources = home, car, prepaid funeral and household goods

In-Kind Support and Maintenance ISM = food & shelterLesser of $ for $ reduction or 1/3

reduction of SSIExample: 1/3 reduction = [$698 x

1/3 = $292.67 + $20 disregarded income = $252.67]

Medicaid

Joint federal and state funded program for medical services

Means-tested benefitStates administer Medicaid 3

different ways: 209b states SSI states 1634 states

209b States

Example: ConnecticutUse at least one eligibility criteria

more restrictive than SSI program

SSI States

Example: Alaska If eligible for $1 of SSI, then eligible

for MedicaidStates determine eligibility

1634 States

Example: New York & TexasUse SSI eligibility, if eligible for $1 of

SSI, then eligible for MedicaidSSA determines eligibility

Medicaid Services Hospital – in-patient & out-patient Physician services Physical therapy RX SNF Home and community Community supported living arrangements Personal care services Case management services Emergency care

Medicare Cost-Sharing ProgramsFor low-income Medicare

beneficiariesVary according to income, Medicaid

states and institutional statusMay pay deductibles, premiums and

co-pays of Medicare

Medicaid Long-Term Care ProgramsNursing Home MedicaidWaiver ProgramsCommunity Based ServicesPersonal Care Services

Three Prongs of Eligibility Criteria for LTC MedicaidCategorical Requirements

US Citizen/lawful alien 65 years of age or older, blind or

disabled Medical necessity Medicaid facility, Medicaid bed

Income TestResource Test

Transfer of Asset PenaltyCannot give assets away and qualify

for means-tested public benefits5 year look back period for all statesPenalty rules vary by stateDisclaimer not okay

Purpose and Nature of Transfer Penalties for Means-Tested Benefits

If there were no restrictions, many individuals would become eligible for Medicaid by giving their assets away

The federal statute requires states to penalize transfers for less than fair market value

In Texas, the transfer penalty affects payments for institutional facility services and eligibility for home and community based waiver programs

Medicaid Estate Recovery Program (“MERP”)Pursuant to OBRA ‘93States required to recoup funds

expended on Medicaid recipients at death

MERP often affects homestead

Housing Choice Voucher Program (“Section 8”)Federal housing subsidyMeans-tested governmental benefitSNT not considered an asset for

eligibility purposes

Low-Income Disability Payments Eligibility for Veterans

Meet a needs based test determining inadequate income for adequate care

Suffer from a permanent and total disability (100%) rating

Veteran must not have been discharged dishonorably

Must not be the result of misconductServed at least ninety consecutive

days, with at least one day during wartime

Low-Income Disability Payments Eligibility for Veterans

Veterans with low incomes who are over age 65 are considered disabled

Unreimbursed medical expenses may reduce countable income

Low-Income Disability Payments Surviving Spouse of a Veteran

A surviving spouse is entitled to a lower pension, VA calls a “death benefit”

The Veteran must have met the previous requirements

The surviving spouse has not remarried

And, meets the requirements for the level of compensation

Low-Income Disability Eligibility Computation of Net Worth

The estate of the Veteran must be insufficient to support the Veteran

The net worth is the fair market value of all real and personal property

Except for the homestead and value of personal items within the homestead

Low-Income Disability Eligibility Computation of Net Worth

Case by Case analysisNo set amount or limitBased on actuarial life expectancy

and shortfall$80,000 fallacy

Interaction of Low Income Disability Payments and Medicaid

Many elderly Vets and spouses may qualify

Allows elderly Vets to afford care at home or assisted living

Could be used to pay for care during Medicaid Penalty Period

Monthly cash assistanceMeans-tested benefit Beware of penalty period

Special Monthly PaymentsAid and Attendance – for Veterans

who are unable to perform activities of daily living without assistance

Housebound Allowances – for Veterans who are permanently housebound and who meet the requirements for non-service connected disability pension

VA Health Care System

Largest healthcare network in the country

Service requirementsFinancial eligibility requirementsEnrollment – 10-10EZPriority/ Status Groups

Benefits – Basic Package

Preventative Care ServicesAmbulatory (out-patient) Diagnostic

and TreatmentHospital (in-patient) Diagnostic and

TreatmentMedication and SuppliesFederal & State Veterans’ Nursing

Homes

Supplemental Needs Trusts (“SNTs”)Most common tool to protect

resourcesMay be

Self-settled Third-party settled

They supplement (but do not supplant) public benefits.

Who Needs a SNT?

Individuals who are disabled and need public benefits.

Family members of a disabled person who needs to maintain public benefits.

SNTs to Supplement NOT Supplant

SUPPLANTING Food Shelter Medical items or

services paid by Medicaid

SUPPLEMENTING Medical needs not

covered by Medicaid

Social needs Recreational needs Educational

expenses

Self-Settled Trusts

2 types: Special Needs Trust [(d)(4)(A)] Pooled Special Needs Trust [(d)(4)

(C)]

Self-Settled SNT (d)(4)(A)65 y.o. beneficiary’s own moneyCorporate trusteePayback provisionSettlor = parent, grandparent,

guardian or court Irrevocable

Self-Pooled SNT (d)(4)(C)Beneficiary’s own moneyShared corporate trustee/

administered by non-profitPayback provision Irrevocable

Third-Party Settled TrustsTestamentary or Inter-VivosFunded with third party fundsNot a resource, unless client can

revoke the trust or direct use of its assets for his own support and maintenance

Distributions to/for client can be countable income (unless for medical/social purposes)

Planning With Trusts

Self-Settled Trusts v. Third-Party Trusts Self-Settled Trusts: funded with the

beneficiary’s own money Third-Party Trusts: funded with other

people’s moneyAlways ask yourself: where is the

money coming from to fund this trust; not originally, but just before funding

SNT Planning OpportunityElderly clients with capacity and I

Love You Wills Leave estate to a SNT for benefit of

surviving spouse Partition and transfer

SNT Planning OpportunityClient is parent/grandparent of

disabled child Inter vivos or testamentary third party

SNT Crummey provisions if taxable estate

SNT Planning OpportunityDisabled spouse is divorcing

Consider funding SNTDisabled child’s parents divorcing

Review effect of child support Consider funding SNT

SNT Planning OpportunityElderly client with disabled child

needs Medicaid eligibility Consider funding sole-benefit trust with

SNT provisions for disabled child Immediate eligibility for client, continued

eligibility for disabled child

SNT Planning OpportunityClient is receiving personal injury

recovery Self-settled SNT or pooled trust Mandatory distribution language Corporate trustee

SNT Planning OpportunityClient is receiving inheritance

Self-settled SNT or pooled trust Mandatory distribution language Corporate fee except in rare situation

Alternatives to SNT

If trust is cost prohibitive, consider alternative action

Spend down excess resourcesPurchase exempt resources

State Requirements

SSI POMS standards plus some states impose additional requirements

States have authority to monitor administration of and distributions from SNTs

Miscellaneous SNT ConsiderationsTrustee choiceNo contributions after age 65Distribution standards

Drafting (d)(4)(c) SNTs

Meet POMS requirements.Some states have non-profits who

have formed pooled trusts.Example: Texas has one pooled trust:

ARC of Texas SNT. New York has many pooled trusts.

Drafting Third-Party SNTs IrrevocableNo support languageDistribution provisionsTermination clauseNo payback provision

Third-Party SNTs & Eligibility Corpus not a countable asset, unless

client – Can revoke the trust; or Direct use of trust assets for his/her own

support & maintenanceDistributions to/or client are

countable income (if such income is ordinarily counted)

Other distributions do not affect client’s eligibility

Strict SNT

Distributions restricted to goods/services that do not count as income (no cash, food, or shelter)

Broad SNT

Any distribution is allowed that will not actually disqualify client for benefits.

If client not on benefits, distribution for cash, food and shelter okay.

Discretion to Reduce BenefitsTrustee may make distributions that

result in in-kind support & maintenance (“ISM”), which reduces SSI payments, but does not eliminate benefits.

Distributions for room and board, resulting ISM up to PMV ($252.67) okay.

Totally Discretionary TrustDistributions are totally at trustee’s

discretionTrustee may make distributions in

any amount & for any purpose In some states (not Texas) it

automatically disqualifies client for Medicaid

Texas Medicaid evaluates each distribution

SNT Administration

Notification to SSA Notification to state agency Distribution advice

$ for $ reduction ISM▪ Food▪ Mortgage payments▪ Rent▪ Real property taxes▪ Utilities

Allowable Trust DistributionsAttendant CareMedical supplies and equipmentDentalElectronic equipmentLegal and accounting feesEntertainment, recreation, short

vacationNon-food grocery itemsTelephone and cable expensesClothing

Litigation Aspects

Self-settled SNTs funded with inheritances, excess funds and proceeds from PI claims

Resolve Medicare claims, Medicaid liens

Consider annuity structure tie-in to SNT

Conclusion

Public benefits planning is a growing area of law

SNTs are an important estate-planning tool

Drafting SNTs is not a “one-size-fits-all” process

Conform to federal and state law Inquire regarding beneficiary’s need

for public benefits in every estate planning consultation