Disability Rights Consortium Meeting 12/9/15 Equip for Equality… Advancing the Human & Civil...

Disability Rights Consortium Meeting 12/9/15Equip for Equality… Advancing the Human & Civil Rights of People with Disabilities in Illinois

The who, what, where, when, why and how of Special Needs Trust(s) & the ABLE Account

Where from ?WORK

FAMILYINHERITANCES

GOVERNMENT

REQUIRESSPECIALNEEDSTRUSTS

• “Directly”• No Will

• “Disinherit” & leave toothers (“moral Obligation”)

• “Traditional Trust”

How to NOT lose SSI or Medicaid?

THE ANSWER? SpecialNeeds

Trust(S)!

Special Needs Trusts 3rd Party

Private & Pooled Versions

Self Settled aka,

OBRA, 1st Party, Pay Back…

Private (d4A) & Pooled (d4C)

2 Versions... Reserve Supplemental Fund Over & Above

Government Benefits

No $ limit Federal State

“3RD PARTY TRUSTS”

FORINHERITANCES

& GIFTS1st

Version

3RD PARTY TRUSTS

ORIGINAL - GOODby Court Decisions 1982

by Statute (760 ILCS 5/15.1) 1991

3RD PARTY TRUSTINHERITANCE

SPECIALNEEDSTRUST

GIFT

THENUPON

BENEFICIARYPASSING…PARENT(S)

DECIDE:

FAMILYCHARITY

GUARDIANS

INSURANCEIRA

401K

Beneficiary’s own assets,UTMA, Child Support

OK… SOINSIDE WILL OR LIVING TRUST ?

NO! NO! NOT!“INSIDE”

YOUR WILL OR LIVING TRUST!

Won’texist

until...

So NO“Piggy

Backing”

How to put in the Trust?

From your& others’Wills & Trusts

EXTENDED FAMILY• Instruction letter• Form Codicil• Form Trust Amendment

• Trust Certification• Consult with their Attorneys/Advisors

So… 1st set up SNT 2nd reference in Wills/Trusts 3rd extended family too

But… But…

ChangeBeneficiariesLife Insurance, IRA,

401k,Profit Sharing…

WHAT ABOUT GIFTS ?

NOT Directly

NOT UTMA

3rd Party SNT

But…Beware of

absenteeparents &

grandparents

EX-SPOUSELETTER

So far just3rd Party

But what if...

BENEFICIARY

HAS ASSETS

InheritanceWILL/TRUST/BENEFICIARY

Savings

BondsLarge Gift

Law Suit Settlement

UTMA AccountsAT 21

IRA – 401kExcess SSI/SSDI

If “not that much”…consider spending it down on allowed expenditures, such as:

COMPUTER, TV, DVD PLAYER… VACATION PRE-PAID FUNERAL PAY OFF DEBTS… EVEN TO PARENTS… CLOTHES BUT MUST BE FOR HIS/HER SOLE BENEFIT…

HBWD AS AN ALTERNATIVEIN SOME SITUATIONS…

• So if:1. working (FICA being withheld) &2. on SSDI, not on SSI, & only Medicaid

is the issue, thenunder HBWD, can have up to $25,000 in assets, & unlimited qualified plan benefits...

• Note: ACA/Obama Care, with its no asset test , is not an option if on SSDI/Medicare, only if on SSI & then only until on Medicare.

1st PartySpecial Needs

TrustSFederal Law 8/10/93Illinois Law 1/1/96

Otherwise

Called... “Self Settled”... or

“OBRA 93 Trust”… “(d)(4)(A) or (C) Trust” “PAY BACK Trust” because…

1st Party SNT

1st Party Special Needs Trust

Medical Malpractice Special

NeedsTrust

PersonalInjury

Thenupon

passing…The State,

even beforeFUNERAL

bill…any left

only then:FAMILY

CHARITYGUARDIANS

Inheritances& Gifts NOTto 3rd party

SNT

His/Her own assets,such as savings bonds,&

Child Support

1st Party SNT…“NOT” SO GOOD...Only if not 65 Only by Parents, Grandparents, Courts & Guardians... NOT self…

SSA Position... Courts often require... Pay Back...

1ST PARTY SNTSARE THE VERSIONS

REQUIREDFOR CHILD SUPPORT

NOT3RD PARTY SNTS!

… child is mentally or physically disabled

… an application for support MAY be made before or after the child has attained majority

… to supplement SSI or offset?

750 ILCS 5/513 (A)(1) & (A)(2)THE ILLINOIS MARRIAGE

& DISSOLUTION OF MARRIAGE ACT

Until 1/1/16

As of 1

/1/16

Gov signed 7/21/15

COURT ORDER MUST PROVIDE THAT POST 18 CHILD SUPPORT PAYMENTS PAYABLE FOR THE CHILD WITH SPECIAL NEEDS, SHALL BE PAID TO, & SHALL BE SUBJECT TO THE PROVISIONS OF, A 1st PARTY, SELF SETTLED, SOLE BENEFIT, IRREVOCABLE, PAY BACK SPECIAL NEEDS TRUST !

Court Memorandum

Court Agreed Order

DIVORCELAWYER

RESOURCEPACKAGE

“AVAILABLE”

So NOT directly All to 3rd Party SNT IF no alternative then, & only then,

to a 1st Party SNT...

Spread the word... NURSING HOME EXCEPTION

BUT BEWARE…

• Power of Attorney/Living Trust

• 3rd party or 1st party SNT ?

You say you already have a special needs trust?

Does it qualify?

Was it approved by SSA & HFS (Illinois Medicaid Agency)? AG? Will it be approved when it is submitted (It must be submitted to SSA & HFS)?

COMMON ATTORNEY MISTAKES!

Calling it an SNT doesn’t make it an SNT!

COMMON ATTORNEY MISTAKES!No Grand-

FatheringRequired

Language!

COMMON ATTORNEY MISTAKES!NO

prohibition of 1st Party

money in 3rd Party Trust!


NO requirement to use 1st Party

Trust money prior to 3rd Party Trust

money!


Not 100% Discretionary


Permitting Pay TO…


Over RestrictiveLanguage…


“No Trustee Powers to

Correct” or terms not “broad” enough

COMMON ATTORNEY MISTAKES!No

“Band Aid”or retro

Language


No “NextGeneration

”Trustees…


No “Contribution”

or

Gift Language3rd Party


No Terminatio

n Provision…


No “Contingent

”SNT for others


Child Support(Divorce)Sub Trust


NONursing Home

Sub Trust


TRS/SURS/Public Pension

Sub Trust


NOT Sole Benefit…REQUIRED FOR:

d4A/OBRA/Pay Back Special Needs Trust

Divorce Obligation Sub Trust Public Pension Sub Trust Nursing Home Sub Trust IRS Qualified Disability Trust Status Illinois Special Needs Trust Statute


NO Trustee(s)’ power to change

contingent corporate trustee…


NO Change of State

Provision…


NOTrust Tax

Explanation

COMMON ATTORNEY MISTAKES!Other

Documents Wills need special

language! Living Trusts too

Insurance Trusts too Powers of Attorney too

Beneficiary Designations too

COMMON ATTORNEY MISTAKES!No

Extended Family Tools• Letters

• Forms

If “not that much”is an

ABLE Accountan option?

Just like a 529… NOT!

Federal Legislative History First introduced in Congress in 2007 Re-introduced in each Congress thereafter HR 647 – passed on 12/3/14 (404-17) S 313 – passed on 12/16/14 (76-16) Signed into law – 12/19/14 ABLE ACT, but the technically correct

name is “The Stephen Beck Jr., Achieving a Better Life Experience Act of 2014”…

which actually is buried in “The Tax Increase Prevention Act of 2014”…

which actually is P.L. 113-295.

Illinois’ enacted… 15 ILCS 505/16.6 P.A. 99-145 Effective 1/1/16 “sort of” The State will NOT allow accounts until after the “Final Treasury Regulations” are published!

If “not that much”Is an ABLE Account an option?

Not available in Illinois until “Final IRS Regs”! Maximum $14,000 a year from all sources! Disability onset prior to age 26! Only one account per beneficiary! Beneficiary is owner and in control! Over time $14,000 a year but not more than $100,000

for SSI, & never more than $350,000. But, limited on how can spend! Penalties & tax! Pay back on death so not for 3rd party contributions. Tax free? SO WHAT! What if Beneficiary has Guardian or is a minor?

Who Qualifies?

1.Persons diagnosed as “disabled” before age 26 & receiving SSI or SSDI… [§529A(e)(1)(A)]

OR

2. Persons diagnosed as “disabled” before age 26 & certified as meeting conditions similar to that required by SSI or SSDI… [§529A(e)(2)]

Qualified Disability Expenses– education, – housing, – transportation, – employment training and support, – assistive technology and personal support

services, – health, – prevention and wellness, – financial management and administrative

services, – legal fees, – expenses for oversight and monitoring, – funeral and burial expenses.And p

er Tre

asury

Regula

tions

Stay tu

ned…“DISABILITYRELATED”

Per Proposed Treasury Regulations– List of permitted allowable expenses are

not exhaustive and should additionally include basic living expenses

– Disability related expenses should be:• construed broadly;• may be attributed to the designated

beneficiary’s health, independence and quality of life;

• should not be limited to items for which there is a medical necessity;

• and may include expenses which could benefit individuals in addition to benefiting the designated beneficiary… so not sole benefit as a d4…

Qualified Disability Expenses

What if beneficiary lacks capacity?The proposed regulations clarify that, if the eligible individual cannot establish the account, the eligible individual’s agent under a power of attorney or, if none, his or her parent or legal guardian may establish the ABLE account for that eligible individual. But… the Illinois statute is different:

Illinois’ ABLE Act15 ILCS 505/16.6 (P.A. 99-145, eff. 1-1-16)

Sec. 16.6(a):… "Designated representative" … The State Treasurer shall recognize a person as a designated representative without appointment by a court in the following order of priority:

(1) The account owner's plenary guardian of the estate, or the account owner's limited guardian of financial or contractual matters. Any guardian acting in this capacity shall not be required to seek court approval for any ABLE qualified distributions.(2) The agent named by the account owner in a property power of attorney recognized as a statutory short form power of attorney for property.(3) Such individual or entity that the account owner so designates in writing, in a manner to be established by the State Treasurer.(4) Such other individual or entity designated by the State Treasurer pursuant to its rules.

Guardian 1st ,

then Power of

Attorney… &

NEVER a

parent, as

parent!

Can a Traditional 529 Plan be Rolledinto an ABLE Account?The Treasury Department and the IRS have been asked whether a qualified tuition account under section 529 may be rolled into an ABLE account for the same designated beneficiary free of tax.

Because such a distribution to the ABLE account would not constitute a qualified higher education expense under section 529, the Treasury Department and the IRS do not believe they have the authority to allow such a transfer on a tax-free basis.

Food/Shelter under Federal Able…?

One question the Proposed Regulations did NOT answer is whether utilization of expenses for food and shelter will cause the 1/3 reduction in SSI.

Currently under SSI – payments from a trust for housing from a family member or a trust cause a reduction in benefits by $264.66

72

SEC. 4. TREATMENT OF ABLE ACCOUNTS UNDER CERTAIN FEDERAL PROGRAMS.

(a) Account Funds Disregarded for Purposes of Certain Other Means-Tested Federal Programs.--Notwithstanding any other provision of Federal law that requires consideration of 1 or more financial circumstances of an individual, for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized by such provision to be provided to or for the benefit of such individual, any amount (including earnings thereon) in the ABLE account (within the meaning of section 529A of the Internal Revenue Code of 1986) of such individual, and any distribution for qualified disability expenses (as defined in subsection (e)(5) of such section) shall be disregarded for such purpose with respect to any period during which such individual maintains, makes contributions to, or receives distributions from such ABLE account, except that, in the case of the supplemental security income program under title XVI of the Social Security Act, a distribution for housing expenses (within the meaning of such subsection) shall not be so disregarded, and in the case of such program, only the 1st $100,000 of the amount (including such earnings) in such ABLE account shall be so disregarded.

But at Stetson…

Funeral

The Proposed Regulations also don’t answer questions regarding funerals: Can an ABLE Account be used for

funeral expenses (not pre-paid which would be a Qualified Expense) after the death of the beneficiary prior to pay back?

That would be helpful since a d4A and d4C cannot.

Illinois’ ABLE Act 15 ILCS 505/16.6 (P.A. 99-145, eff. 1-1-16)

Sec. 16.6(b): The State Treasurer shall not accept contributions for

ABLE accounts under this Section until the Internal Revenue Service has issued its final regulations concerning ABLE accounts.

The State Treasurer shall establish fees to be imposed on participants to recover the costs of administration, recordkeeping, and investment management. The State Treasurer must use his or her best efforts to keep these fees as low as possible, consistent with efficient administration.

ABLE Act 11/20 …to reduce the administrative burden on program administrators. Below are excerpts of the relevant sections: 1. The beneficiary/owner will be responsible for documenting that ABLE funds are spent for qualified disability expenses and the program will not have to verify how funds are spent. 2. ABLE programs will not have to obtain the TIN for each contributor, but programs must be able to prevent excess contributions and have the authority to obtain the TIN for the contributor who puts the account over the applicable limits. 3. The beneficiary/owner may self-report as meeting the disability criteria under penalty of perjury, and must be able to produce the necessary certification if requested.

Illinois’ ABLE Act15 ILCS 505/16.6 (P.A. 99-145, eff. 1-1-16)

Sec. 16.6(e):• The State Treasurer may adopt rules to

carry out the purposes of this Section.

• The State Treasurer shall further have the power to issue peremptory rules necessary to ensure that ABLE accounts meet all of the requirements for a qualified state ABLE program under Section 529A of the Internal Revenue Code and any regulations issued by the Internal Revenue Service.

An ABLE Account is controlled by the individual with special needs, IF they are 18 & their OWN Guardian!Good or Bad?

Brian’s ABLE “Observations”

IF there is a GUARDIANSHIP, & 3rd parties are going to contribute funds to an ABLE Account, since it becomes 1st party money, then, in the State of Illinois:

• COURT APPROVAL is REQUIRED to establish an ABLE Account;

• In many counties, required annual surety bond (premium).

• NONE OF WHICH IS THE CASE FOR A 3RD PARTY SPECIAL NEEDS TRUST!


80

Can’t use if disability onset is age 26 or older…

So… many with mental illnessdiagnosis, or traumaticbrain injury, if cannot bedocumented prior to age 26,cannot use an ABLE Account!


ABLE Accounts are TAX FREE…

A 3rd party special needs trust, if a QDT (Qualified Disability Trust):

1. Has a full $4,050 exemption in 2016, & all distributions from the Trust for the benefit of the beneficiary carry out the income to the beneficiary’s 1040 (not taxed at Trust Level) & The beneficiary could have his/her own, exemption of $4,050, & a standard deduction of $6,300 in 2016.

2. Therefore, there is no tax on a 3rd party SNT that makes no distributions, until it earns more than 4% (actually more if the Trust has deductible expenses), and if it spends for the beneficiary any income in excess of $4,050, up to $10,350, there still wouldn’t be any income tax.

3. So with proper planning, an ABLE Account with $100,000 (maximum not to lose SSI) would need to earn 14.4% before any income tax benefit (good luck) over a 3rd party SNT. But there would be a needless pay back to the state(s), & limitations on the expenditures.

SO WHAT!

For a 1st party “pay back” trust, ALL income is

taxed to the beneficiary, NOT to the Trust. Again, the beneficiary could have a $4,050 exemption & $6,300 standard deduction in 2016.

THEREFORE, NO TAX UNTIL THE TRUST INCOME EXCEEDS $10,350, &, then at the lowest tax bracket (10% on next $9,225 in 2016).

A tax free ABLE Account must earn more than 10% for there to be any tax advantage (Based on SSI limitation of $100,000).

ABLE Accounts are TAX FREE… SO WHAT!

When to consider ABLE?• IF NO Guardianship, & can take care of their

own money, then: Under $14,000 inheritance received, not

correctly left to a 3rd party SNT. Under $14,000 “Litigation Settlement” Beneficiary has unspent

SSI/SSDI/employment earnings that will push the beneficiary’s resources over the allowable amount.

BUT, in one year can ONLY ADD to the account (only one account allowed), IN TOTAL, from ALL CONTRIBUTORS, $14,000!

Where ABLE Might Fit… continued Small amounts of beneficiary’s own

money Control for competent beneficiaries Accumulation of wages over time Transfer of UTMA accounts at 21 (18) to

qualify for SSI and/or Medicaid Save for purchase of home or car or

wedding expenses 65 & can’t use d4A or d4C or no

parent/grandparent/guardian for d4A

Final ABLE thoughts:

The ABLE Act is a new tool – and in limited situations can be an easy way to shelter assets and still remain qualified for SSI & Medicaid.

ABLE in most cases is not a substitute for a special needs trust.

There is a great need for broad education about all the different options for setting aside assets for persons with disabilities to ensure quality of life.

QUESTIONS

Disability Rights Consortium Meeting 12/9/15 Equip for Equality… Advancing the Human & Civil...

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