USING AN ABLE ACCOUNT ALONG WITH A SPECIAL NEEDS TRUST – A HANDY DUO

Oklahoma implemented the ABLE Act (https://okstable.org/) in May, 2018 (see my blog post).  Because of the many positive benefits of an ABLE Account, establishing an ABLE Account by for the benefit of a person with disabilities is often a wise and practical solution to meeting some of the needs of a disabled person even if a Special Needs Trust (SNT) already exists for the same beneficiary.  The reasons for having both are often rather compelling:

If the disabled beneficiary has sufficient cognitive ability to self-advocate or manage a debit card, then funds can be distributed from the SNT to the ABLE Account.  Thereafter, qualifying distributions (“Qualified Disability Expenses” or QDEs) can be made from an ABLE Account to or for the use of the beneficiary, and such distributions are not treated as “income” to the beneficiary which, were they otherwise treated as income, may have reduced or caused a loss of SSI and/or Medicaid.

The list of permitted disbursements (i.e., that don’t count as income to the beneficiary) from an ABLE Account tends to be a longer and broader list than permitted distributions from an SNT.

     The time required of a professional trustee can be reduced if the trust that is professionally managed can make a disbursement to an ABLE Account established for the same beneficiary, particularly if the beneficiary can manage disbursements from the ABLE Account himself, or with some assistance from a family member or friend.  

However, due to the annual contribution limit for ABLE Accounts being equivalent to the annual gift tax exclusion under IRS Code Section 2503 of Title 26 (currently $15,000 per year), the disbursements from the SNT to the ABLE Account will not eliminate using the SNT for larger expenses of the disabled beneficiary.

Even a first party SNT is permitted to make distributions to an ABLE Account established for the same beneficiary as the SNT. 

An ABLE Account won’t always eliminate the need for an SNT, but it can sometimes serve a very useful role along with the SNT. 

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone: (918) 599-7755

Facsimile: (918) 599-7756

Email: cshacklett@barberbartz.com

Website: www.barberbartz.com

Assets in 529 College Tuition Plan are Not Considered Available Resources of the Over Age 18 Beneficiary

A recent question has arisen regarding whether or not assets held in a 529 College Savings Plan (“Qualified Tuition Program”) for the benefit of a beneficiary who is disabled over eighteen years of age will be treated as a “resource” by either or both SSI (Supplemental Security Income) or Medicaid.

Some parents establish a 529 Plan for a young child in anticipation of saving for the child’s future (and the presumed need for) post-high school education expenses at a college or university.  Years later, due to illness, injury, developmental delays, or disabilities, it may become apparent to the parent that the child would not likely be able to attend college or university but instead does then, or shortly will, need to apply for and receive public benefits like SSI and/or Medicaid.  Will those funds held in a 529 Plan contributed by the parents (or others) now hinder, or even prevent, the beneficiary from being able to obtain SSI and Medicaid, if the beneficiary would otherwise qualify for those benefits??

Social Security has issued a POM which addresses how College Savings Plans are to be treated by the SSA.  The POM is found at SI 01140.150, entitled “Qualified Tuition Programs” (QTPs).  Included in the provisions of this POM is the specific finding that, since the 529 is deemed to be “owned” by the person establishing the account, it is therefore not owned by the beneficiary and, therefore, should not be deemed a resource of the disabled beneficiary.  This is great news for the beneficiary.  In fact, the parent (who is normally the custodian of the account) can use the funds to benefit the beneficiary in certain circumstances for educational needs without having the transfer the assets into an ABLE Account (see blog post), or into another alternative, such as a Medicaid Payback Trust [e.g., (d)(4)(A) or (d)(4)(C)].

In addition, the 529 Plan does not require any “Medicaid payback” to the state Medicaid program since the assets held in the 529 Plan are not deemed to be owned by and are not, therefore, “resources” of the beneficiary.

The recently passed “Tax Cuts and Jobs Act” expanded the use of 529 Plans for expenditures for K-12 tuition, thus making the assets available for educational purposes of a younger disabled person who may not qualify for college or university.  After completion of whatever educational needs the beneficiary has, the new tax act does allow 529 Plans to be rolled over into an ABLE account.

Using the funds in the 529 Plan to benefit the disabled beneficiary, without damaging the beneficiary’s public benefits and without incurring a Medicaid “payback” at the death of the beneficiary, is a two-fold benefit, a real “win/win.”
 

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone: (918) 599-7755

Facsimile: (918) 599-7756

Email: cshacklett@barberbartz.com

Website: www.barberbartz.com

OKLAHOMA CONVERTS FROM A "209-b" STATE TO AN "SSI" STATE

Oklahoma has changed its status from what has been known as a “209-b” state to conform with the SSI criteria effective March 1, 2015.  A handful of states originally opted not to follow the SSI qualification criteria in evaluating income limitations as well as resource limitations when an applicant applied for Medicaid benefits.  Those fewer states were called “209-b” states.  This was permitted under federal law.  Some have considered the SSI criteria more “liberal” than the 209-b rules in some ways, but perhaps not in other ways.  Oklahoma’s adopting the SSI criteria will help simplify the past regimen of attempting to qualify for both SSI and Medicaid with slightly different rules.  Now those qualifying income/resource rules should coincide.  One change is that disbursements from a trust to purchase clothing will no longer be deemed “income” to the recipient.  This has long been a problem for Trustees needing to periodically purchase clothing for a beneficiary.  Disbursements for food or shelter will continue to be treated as “income” to the beneficiary and therefore could be problematic depending on the income category of the beneficiary.

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone: (918) 599-7755

Facsimile: (918) 599-7756

Email: cshacklett@barberbartz.com

Website: www.barberbartz.com

ANOTHER TOOL IN THE TOOL BOX – The ABLE Act, an Overview

Recently Congress passed and the President has signed into a law a new form of investment account designed to provide a source for accumulation of funds to benefit a disabled person in a way similar to Section 529 accounts used for accumulating funds for qualified tuition programs. 

The “Achieving a Better Life Experience” Act (“ABLE” Act) is designed to benefit disabled persons specifically who are receiving Medicaid and/or SSI. 

The ABLE account is established as part of Section 529 of the Revenue Code and allows a disabled individual to maintain receipt of SSI benefits even though the SSI recipient has an ABLE account that contains assets up to but not exceeding $100,000.00.  If the account grows above that amount, the SSI benefits will be held in suspension until the account drops below $100,000.00, at which time the SSI payments will resume.

Likewise, a Medicaid recipient will not lose eligibility based on assets held in an ABLE account even if the size of the account exceeds $100,000.00.  However, similarly to a (d)(4)(A) trust, the ABLE account is subject to a Medicaid payback provision upon the death of the Medicaid recipient. 

An individual who is receiving SSI or disability benefits under Title II of the Social Security Act is eligible to use an ABLE account for “qualified disability expenses” which include:

·         Education

·         Housing

·         Transportation

·         Employment Support

·         Health and Wellness

The State must create the means to establish the ABLE Account (similarly to 529 accounts) and, although lawmakers have introduced bills, Oklahoma has not yet had time to get that completed.

The ABLE Account provides another relatively simple way of accumulating funds in a significant amount for the benefit of a disabled person, and once it is implemented by the states, it is a potentially useful tool in planning for the long term assistance for a disabled person.  It will take months before the details become clearer on how an ABLE account will work, but it may well be another tool in the estate planning tool box in serving individuals with disabilities.

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone: (918) 599-7755

Facsimile: (918) 599-7756

Email: cshacklett@barberbartz.com

Website: www.barberbartz.com

The Importance of Flexible Trust Provisions to Accommodate a Beneficiary’s Uncertain Future

SCENARIO:

A grandparent’s trust for a grandchild contains a discretionary distribution provision as to the principal of the trust, but also contains a compulsory distribution provision of a fixed sum each month, to be distributed directly to the beneficiary.

PROBLEM:

As it turns out, the grandchild reached young adulthood with a disability that hinders the grandchild from being gainfully employed or obtaining additional education.  The grandchild is able to qualify for Social Security Disability benefits (based upon a deceased parents’ work record) and receives Medicaid benefits.  However, as a result of the grandparent’s death and implementation of the funding of the disabled grandchild’s trust, due to a combination of the Social Security payments when added to the compulsory trust distribution each month, the disabled person will now lose valuable Medicaid benefits due to too much income being received by the disabled grandchild.  Although receipt of Social Security Disability payments are not affected by the compulsory cash payments from a Trust, Supplemental Security Income (SSI), as well as Medicaid, are impacted by the compulsory distributions and would likely be lost if the compulsory payments from the trust were large enough to affect those benefit programs.  While some courts might entertain a request that the trust be reformed or modified so as to remove the compulsory distribution requirement, other judges may be philosophically opposed to doing so, seeing such efforts by lawyers as “Medicaid planning at the taxpayers’ expense.”

SOLUTION:

Thus, now more than ever, because a beneficiary may become disabled after a trust was drafted, which may have contained compulsory distribution provisions, and if the creator of the trust is deceased and cannot modify his/her trust document, trusts should be written with flexible provisions, preferably with no compulsory distribution provisions at all but only discretionary distribution provisions.  This will protect the beneficiary from loss due to creditors (in many or most cases) as well as avoid causing the loss of currently received, or future receipt of, public benefits, such as SSI (Supplemental Security Income) and/or Medicaid, or other forms of public benefits.

 

Sometimes a trust may contain provisions for internal modifications or amendment to be performed by the trustee, or someone such as a trust protector.  Such after-the-fact power to modify is becoming increasingly important to enable a trust document to be adjusted to meet a change of circumstances among beneficiaries or simply to correct an oversight or unwise provision.  It is impossible to foresee every beneficiary’s circumstance, so document flexibility is ever more critical to avoid expensive judicial reformation--which might not always be achieved, even if sought.

 

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.
525 S. Main St., Ste. 800
Tulsa, OK 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
Email: cshacklett@barberbartz.com
Website: www.barberbartz.com

CAN A SPECIAL NEEDS TRUST BE THE BENEFICIARY OF AN IRA? (Part I)

The accumulated assets in many families often include some form of a retirement account, such as an IRA, 401-k, or qualified pension plan (herein IRA).  Designating a disabled child as the direct beneficiary of an IRA is not advised for several fairly obvious reasons.  First, the entitlement to the IRA account by the disabled child will normally cause an immediate loss of SSI and/or Medicaid benefits unless spent down immediately or withdrawn from the IRA (income taxes being withheld) and transferred into one form or another of a Medicaid Payback Trust [(d)(4)(A) or (d)(4)(C)].  Secondly, if the child is mentally disabled, the mere availability of the funds to the disabled child may result in his/her misspending the funds or being exploited by others.

To solve or avoid these problems, it is possible to name a trust to be the recipient or beneficiary of the IRA.  There are two basic types of trusts that are used in conjunction with the IRA.  One is called a “conduit” trust and the other is an “accumulation” trust.  A conduit trust is designed to receive the “Minimum Required Distribution” (MRD) from the IRA which are yearly distributions of a fraction of the balance in the IRA based upon the child’s remaining life expectancy.  When the trust receives the yearly distribution from the IRA, the Trustee immediately distributes the funds received to the disabled beneficiary.  A conduit trust avoids the risk of a disabled person using the IRA all at once if he/she were named directly as the beneficiary.  However, the annual MRD coming into and then out of the Trust to the disabled beneficiary may harm the receipt of public benefits received by the disabled person depending on whether or not the beneficiary was receiving SSI and/or Medicaid.  One solution to this problem is the use of an “accumulation” trust to receive and hold onto the MRD received by the Trust from the IRA without being required to make a distribution of the MRD to the disabled beneficiary.  Holding on to the MRD avoids disqualifying the disabled beneficiary from receipt of SSI or Medicaid but may have negative income tax consequences.  There are usually ways to avoid the more negative tax consequences with a carefully drafted accumulation trust.  The ins and outs of an accumulation trust will be addressed in my next blog post. 

Curtis J. Shacklett, Esq.
Barber & Bartz, P.C.
525 S. Main St., Ste. 800
Tulsa, OK 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
Email: cshacklett@barberbartz.com
Website: www.barberbartz.com

SSA IS SERIOUS ABOUT THE SOLE BENEFIT RULE

A “first party” (Medicaid payback trust) has a very important requirement for acceptance by SSA and Medicaid—it must exist and be managed by the trustee for the “sole benefit” of the beneficiary.  The SSA appears to have become increasingly strict in its interpretation of what “sole benefit” means.  For example, a trustee is not permitted to pay the transportation costs to bring (e.g., to fly in) relatives of the disabled person for a visit.  Even though bringing relatives for a visit (especially when travel for the disabled person is difficult if not nearly impossible) may seem like a wise and caring “benefit” to the disabled person, paying travel expenses for the relatives will violate the “sole benefit” rule.

Can the trust pay for the travel expenses of a “companion” to travel with the disabled person?  Most likely, yes, if the companion was the guardian or a required caregiver employed to assist and protect the disabled person so that the latter can travel safely.  Paying for additional family members, such as siblings, may be an enjoyable “benefit” but not a “sole benefit” for the disabled beneficiary.  Trustees must be careful to avoid violating the sole benefit rule.