SIBL Presentation Planning for the Disabled

FINANCIAL PLANNING FOR DISABLED PARENTS AND SPECIAL

NEEDS BENEFICIARIESDECEMBER 12, 2016

FPANY’s Public Awareness Committee in Partnership with NYU School of Professional

Studies

New York Public LibraryScience, Industry and Business Library

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All information contained in these pages is for informational purposes only. It should not be considered legal advise. Please consult an attorney before taking any steps based on this information.

All information contained in this presentation is for informational purposes. The presenting attorney does not represent the information contained herein is accurate or appropriate for your personal situation.

All financial advisors are committed to fiduciary standard. Professionals are bound to adhere to the Certified Financial Planner Board of Standards and Ethics and/or the Financial Planning Association Standards depending upon their designation.

The information contained in this document was provided on a pro bono basis. No compensation was obtained in exchange for services provided either directly or via a third party.

Disclaimer

Why Are We Here Today?

1. Discuss differences of NEEDS-BASED versus ENTITLEMENT programs

2. Understand gov’t. programs regarding HEALTH and MONEY

3. Determine how to optimize family assets while using these programs

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SSDI and MEDICARE: “Entitlement Programs” – you paid for it, you

get it Separately withdrawn from your paycheck: 15.3%

You pay half, your employer pays half

SSI and MEDICAID: “Needs Based Programs”

(1) Must have the physical / mental need (2) “Means Tested”: must meet asset & income limits

Comes out of your general tax dollars

Entitlement v. Needs Based Government Programs

Social Security: Disability

There are 2 types of Social Security Disability programs: SSDI: “Social Security Disability Income” SSI: “Supplemental Security Income”

These programs provide $ MONEY $

These are NOT Social Security Retirements SSDI eventually reverts to SS Retirement SSI does NOT (usually)

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SSDI – “Full” Disability Paid into SS for 40 fiscal quarters

Max Benefit: $2,639 in 2016 Benefit base on income history

No limit on how much assets you have Income

No limit on “passive” income You can still “earn” < $1,129 / month in income

No government requirements how it must be spent TIP: If you are nearing 40 quarters, try to keep working before

applying: SSDI has less limits than SSI (20 of those quarters in past 10 years)

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SSI – “Limited” Disability Paid into SS for LESS than 40 quarters

Max Benefit: $820 / month in 2016 Fed max is $733, NY max is $87 Benefit based on living arrangement & other income

Limitations: Assets of only $2,000 Excess must be held in Supplemental Needs Trust

Spending Requirements Food & Clothing

Automatic Medicaid eligibility

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Medicare A HEALTH care program:

40 quarter qualification you can qualify for Medicare 2 years after you are declared disabled (which takes 5 months)

Parts PART A: Inpatient Hospital Care

“Eligible” people pay during working years; pay up to $407 per month if “Ineligible” PART B: Supplemental Medical Insurance

Pay $104.90 - $335.70 per month PART C: Managed Care

Cost varies by plan PART D: Prescription Drug Benefits

$0-$50 per month; cost varies by plan; higher income consumers often pay more

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ACTIVITIES OF DAILY LIVING (“ADLs”) Transferring (Walking) Bathing Dressing Eating Continence Toileting

MEDICAID:Activities of Daily Living

The type of Medicaid benefit you receive determines “look back” periods (I.e. the penalty for transferring assets)

Home / Community Care

Personal care, physical therapy, home health care and home health aid services; clinical or out-patient basis; includes physicians, dentists, pharmaceutical, nursery

Institutional CareHospitals, medical facilities, nursing homes Does NOT usually pay for “Assisted Living facilities”

Types of Medicaid

You have to give away Money (gifting)

AND / OR

You have to give up control of spending

REMEMBER: This is a “Needs Based” program, NOT an “Entitlement” program; if you have no financial need you do not qualify

Why Do People Hesitate?

ASSETS$14,850 in the recipient’s nameEXCEPTIONS:• “Burial Allowance” of $1,500• Life Insurance: $1,500 cash value• Personal Property (unlimited)• Client’s House (ONLY for Home & Community care) IF UNDER $828,000• Supplemental Needs Trusts• Medicaid Trusts

•Retirement Plans (IRAs) are exempted from assets if they are in “payout status” (Required Minimum Distributions or Separate and Equal Periodic Payments if recipient is under age 59 ½), in which case payments are included in Income

MONTHLY INCOMEHOME CARE: $825 per month• Any excess income must go to the recipient’s “SPEND DOWN”o Often goes to a “POOLED TRUST”

INSTITUTIONAL: ALL of the recipient’s monthly income in excess of $50 must be paid to the Nursing Home to offset Medicaid payments

Financial Eligibility Requirements for an Individual

Department of Social Services and Medicaid impose a “Lookback Period” for transferring assets outside of the proposed recipient’s name

Home & Community Care

3 MONTH Lookback

One Strategy:Transfer all financial assets (except $14,850) to a non-spouse, wait one month for bank statements to be updated, then apply for Home Care.

DOWNSIDE: If the recipient needs Nursing Home care… the 5 Year Look back rule applies

Nursing Home5 Year Lookback Period, and the Homestead can be attached by

MedicaidEXAMPLE: In January, 2011 Mary transfers her Coop and most of her assets to her son Joe (total of $280,000), and applies for Home Care. In March 2015 Mary goes to a Nursing Home. She failed to make the 5 year Lookback (4 years & 2 months). Nursing Home Care in Manhattan equals approximately $12,000 per month.

$280,000 (amount gifted) = 23.3 MONTH $12,000 (monthly benefit) “Penalty Period”

Medicaid will not pay Mary’s Nursing Home benefits for 23 months. ..and Joe is liable. Joe should have paid for Mary’s care for 10 more months to get through Mary’s Lookback Period.

Transfer Penalties

Healthy Married Couple: When some aging illness is diagnosed or no earlier than 70s

Single Person with No Kids: NEVER (Private pay caregiving is better than Medicaid care)

Disabled Family Member: Immediately

Disabled Minor Family Member: Prior to them attaining age 18

When To Start Medicaid Planning?

Now We Know the Programs (1. Needs v. Entitlement)

AndNow We Know the Which Are Which

(2. Health v. Wealth)

Now We Focus on the Planning(3. How to Help Family Members)

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Probate v. Non-Probate

“Operation of Law” Transfers Probate / AdministrationAnything with a “Beneficiary Designation” Because we know who it goes to at death

•Jointly Owned Property•Some Business Agreements•Retirement Plans•Life Insurance•Transfer on Death [“TOD”] accounts•Trusts

All you need is a Death Certificate to collect these (if you are the beneficiary)

This is what transfers through your WILL or Intestacy

Because we don’t automatically know who it goes to at death

This includes all property not listed under “Operation of Law”

(I.e. everything else)

2 Legal Procedures:• If there is a valid Will =

“Probate”• If NO Will = “Administration”

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YOU HAVE A WILL WHETHER YOU HAVE

WRITTEN ONE OR NOT

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Intestacy: When there is NO Will

An Administrator is named and MUST deliver estate property as follows:

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What You Don’t Do, or Do Wrong, HURTS Your Disabled Beneficiary19

- Examples:- No Will = No choice of who gets what- Improper Beneficiary Designation = Leaves funds

to beneficiary outright- Worst: Leave Nothing to Beneficiary out of fear!!!

- The Result:- Beneficiary’s assets are too high, and get kicked

off of “Needs-Based” programs- May have to PAY BACK Medicaid, other programs

The GOOD News…

There are solutions for you and your family!

To save money AND receive benefits

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Trusts: Who is Involved?Assets owned by Trust pass Outside of Probate

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“Inter Vivos” v. Testamentary Trusts

Testamentary Trusts Created by your Will Only effective once your Will is effective (I.e.

death) No good for your benefit(you’re dead)

Inter Vivos Trusts Created during your life May be used for your benefit

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For 3rd Party Money (Ex: Parent’s $) Inter Vivos Supplementary Needs Trusts Testamentary SNTs (in Will)

For 1st Party Money (the Recipient’s $) Medicaid Asset Trusts (usually for large assets) Pooled Trusts (payback provisions apply) Inter Vivos SNTs (payback provisions apply)

Promissory Notes (protects 40%-45%)

Strategies

Supplemental Needs Trusts

Money in an SNT is EXCLUDED as an asset for Medicaid and SSI purposes!

Money held in trust can be used for: Food, clothing, education, vacation, television,

charge card, car, home, FUN STUFF

Cannot be used for: Gifts to others, cash to beneficiary, alcohol,

tobacco, firearms

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1st Party SNTs: Medicaid Recipient’s Money

3rd Party SNTs: Non-Medicaid Recipient’s

Money

SNTs: 1st Party v. 3rd Party

1st Party SNT The beneficiary’s money Any remaining money first goes to pay back govt Created with help of a parent, grandparent, guardian

or court order

3rd Party SNT A 3rd Party’s money – NEVER the beneficiary’s money Remaining money goes where creator decides Anyone can create for someone else

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Medicaid Homestead Exemptions

– For Siblings and ChildrenThe following family arrangements avoid a

Medicaid Lien on the primary residence:Sibling Caretakers – 1 year exemption

MUST live in same house

Children Caretakers – 2 year exemption MUST live in same house

Disabled Parent & Child both on Medicaid MUST live in same house

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Created by Medicaid recipient and/or spouse Meant to protect ASSETS, NOT INCOME

Illiquid, non income-generating assets placed in the Trust, such as real estate, or…

…Income generating assets can be placed in Trust and income withdrawn

Income could disqualify recipient for Medicaid due to income limits

5 Year Look Back applies for Institutional Care Child cannot evict parents from house, and cannot take

assets from Trust while parent(s) are alive

Medicaid Asset Protection Trusts

MAPT: Medicaid Recipient’s Money

The “Community Spouse” is entitled to some assets and income, but they are limited

If spouse is in a Nursing Home: $3,022.50 of income per month $74,180 - $120,900 of resources

If s spouses have Home Care: Combined income of $1,192 per month

During the Medicaid Application process the well spouse may exercise a “Spousal Refusal” to avoid inclusion of his/her assets and income Medicaid may accept this (varies county to county), but will have a claim

against the well spouse when he/she dies

New “Spousal Impoverishment” rules avoid liens

What About the “Well” Spouse?

Putting It All Together32

A Certified Financial PlannerTM is a trained financial professional required to meet certain Experience, Examination, Education and Ethical standards.

They are trained in the financial planning process and bring together multiple components of your financial lives (Ex: estate planning, retirement planning, risk management, investment management, etc.)

Daniel Timins, [email protected] Madison Avenue, Suite 240New York, NY 10022(212) 683-3560

Questions & Answers33

For more information about the Financial Planning Association of New York visit www.fpany.org.