Guardians/Guardianship

New York Special Needs Act Becomes Law

By Lori Wolf on October 4, 2017

Posted in Estate Planning, Guardians/Guardianship, Legislation, Special Needs Assistance, Special Needs Trusts

Governor Andrew Cuomo recently signed legislation which amends New York law to allow mentally-competent disabled individuals under age 65 to establish a first-party Special Needs Trust without court petition.

In the past, when an individual with special needs had assets in his or her name which precluded his or her eligibility for government benefits, a special needs trust could only be created to achieve eligibility for benefits while preserving the assets for a disabled individual’s care by a parent, a grandparent or a legal guardian, or by the disabled individual by way of a lengthy and costly court proceeding. Now, a disabled individual with mental capacity can establish his or her own special needs trust for assets in his or her own name without the involvement of these other individuals, or the courts, while preserving his or her eligibility for government benefits (for example, Medicaid and SSI).

New York Social Services Law 366(2)(b)(2)(iii) now conforms to the Federal Special Needs Trust Fairness Act signed into law by President Barack Obama on December 13, 2016, and applies to all first-party Special Needs Trusts established in New York on or after August 21, 2017.

Individuals with Special Needs Can Now Create First Party Trusts

By Lori Wolf & Mary Browning on December 22, 2016

Posted in Estate Planning, Guardians/Guardianship, Legislation, Medicaid, Special Needs Assistance, Special Needs Trusts, Trustees

President Obama just signed a new law that allows First Party Special Needs Trusts to be established by mentally competent individuals for their own benefit. This is a major “fix” to the current law which only allows First Party Special Needs Trusts to be set up by a parent, grandparent, guardian or a court. For those individuals who have no living parent or grandparent (or have no relationship with them) and do not have or need a legal guardian, this law will avoid the time and money spent to have a court create such a Trust.

Under a First-Party Special Needs Trust the trustee can use trust assets to supplement (but not replace) any benefits or governmental assistance such person is or may become entitled to receive. All assets held in such a Trust will not “count” as assets of the disabled person for purpose of qualifying for government benefits.

A First-Party Special Needs Trust is a trust created to own the assets currently owned in the name of a person with special needs. These assets may be gifts or bequests from well- meaning family or friends that were given to person with special needs either outright or in a trust that does not qualify as a special needs trust. These may also be assets received by a person with special needs through a lawsuit (such as a medical malpractice action).

A First-Party Trust can only be set up for someone who is deemed disabled under the Social Security Administration definition. For a minor, a person would be considered disabled if he or she “has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” An individual age 18 and older is “disabled” if he or she has a medically determinable physical or mental impairment which results in (i) the inability to do any substantial gainful activity and can be expected to result in death; or (ii) has lasted or can be expected to last for a continuous period of not less than 12 months.

In a First-Party Trust, at the beneficiary’s death, the remaining trust assets will reimburse Medicaid for any monies expended while the Trust was in existence for medical care, home health care or nursing home care of the person with special needs. Thereafter, any other public assistance programs which have a valid right of reimbursement under state or federal law will be repaid.

Any remaining trust assets will pass to those persons appointed by the person with special needs in his or her Will to receive the assets. If a person with special needs is under the age of 18 and/or is incompetent, then the assets will pass to those persons entitled to receive the assets under the intestacy laws of New Jersey.

Although First-Party Trusts are helpful and even critical in certain situations, there are several downsides that should be carefully considered before moving forward with the creation of this type of Trust. First, there is a reimbursement requirement that is described above. Second, because the state has an interest in the remaining assets in these Trusts, there is substantial state oversight of investments and distributions from the Trust. Therefore, a person who is or may receive government benefits who has assets in his or her own name should speak with an attorney to carefully review the best options under the circumstances.

IRS Eases Administrative Oversight of ABLE Accounts

By Daniel B. Axman & Mary Browning on December 3, 2015

Posted in Guardians/Guardianship, Legislation, Medicaid, Special Needs Trusts

As discussed in earlier blog posts, the Achieving a Better Life Experience (ABLE) Act was signed into law in December 2014. Under the ABLE Act, a so-called ABLE account can be established for a disabled individual. The mechanics are very similar to 529 college savings plans. As opposed to saving for college, the ABLE account allows a disabled individual to save for disability-related costs without the account being considered a “benefit” for means-based testing government programs, such as Medicaid. Although the federal government enacted the legislation in December 2014, each State is responsible for adopting its own ABLE account law. In New York, the legislation is awaiting Governor Cuomo’s signature. In New Jersey, the legislature is still working on the enabling legislation.

In June 2015, the IRS released proposed regulations describing administrative requirements that would have to be satisfied. Under the regulations, safeguards were to be established to categorize qualified disability distributions, including identifying amounts to be distributed for housing expenses. In addition, the institution maintaining the ABLE account would have to request a taxpayer ID number from each contributor to the account. Finally, the regulations provided that a signed physician’s diagnosis and other documentation would have to be filed with the Treasury Department.

After an outpouring of comments from the public, the IRS nixed the aforementioned requirements via a temporary Notice (which will be incorporated into final law), since the proposed requirements would be overly burdensome and could detract from an individual’s willingness to open an ABLE account. Under the updated rules, no categorization is required for distributions, contributors taxpayer ID numbers are generally not required and the disability diagnosis certification simply needs to be maintained by the person opening the account, as opposed to being filed with the IRS.

These new rules should enable States to speed up the legislation process and make it easier for individuals to establish these accounts once the States have enacted the enabling legislation.

Adults with Special Needs May Soon Be Able to Streamline the Process to Establish First Party Special Needs Trusts on Their Own: A Review of the Special Needs Trust Fairness Act

By Jenny R. Flom on October 14, 2015

Posted in Estate Planning, Guardians/Guardianship, Legislation, Medicaid, Special Needs Assistance, Special Needs Trusts

In 1993, Congress enacted Section 1917(d)(4)(A) of the Social Security Act, authorizing the establishment of special needs trusts (also called first-party trusts and self-settled trusts). First-party special needs trusts enable disabled individuals to set aside their funds to pay for supplemental care while enabling those individuals to remain eligible for government benefits. See 42 U.S.C. § 1396p(d)(4)(A). Following suit, the New Jersey Supreme Court has long recognized special needs trusts as effective asset protection tools which can be used “to plan for the future of a disabled minor or adult . . .” See Saccone v. Board of Trustees of Police and Firemen’s Retirement System, 219 N.J. 369, 383 (2014). First-party special needs trusts are used when individuals with disabilities have assets in their own name, (e.g., due to a lawsuit settlement, direct inheritance, savings or gift), yet want to be eligible to receive government benefits such as Supplemental Security Income (SSI) and Medicaid.

Unfortunately, under the current law, individuals with special needs are not authorized to establish their own special needs trusts even if they have the requisite mental capacity and despite the fact that the trust will be funded by assets belonging to them. Rather, a First-party special needs trust can only “be established by a parent, grandparent, legal guardian of the individual, or a court.” See 42 U.S.C. § 1396p(d)(4)(A). Accordingly, if an individual with special needs does not have a parent, grandparent or legal guardian, that individual must petition the Court to establish the first-party special needs trust, even if that individual is competent. This process can be costly and time consuming. A parent, grandparent, or legal guardian, however, can establish a first-party special needs trust for the disabled individual in a relatively short amount of time and is not beholden to the Court’s schedule. While likely a drafting oversight, requiring disabled individuals to have a parent, grandparent, legal guardian or a court to establish their first-party special needs trusts implies that all individuals with disabilities lack the requisite mental capacity to enter into a contract and handle their own affairs. This presumption, however, is unwarranted and offensive.

The Special Needs Trust Fairness Act of 2015 (H.R. 670) introduced in February 2015 by Congressmen Glenn Thompson (R-Pa) and Frank Pallone, Jr. (D-NJ), corrects this problem by adding the individual with special needs to the list of people who can create a first party trust on his or her behalf, giving those individuals the same right to create a trust as a parent, grandparent, guardian, or court. The Special Needs Trust Fairness Act of 2015 proposes to add the words “the individual” to Section 1917(d)(4)(A) of the Social Security Act, permitting disabled individuals to establish their own special needs trusts without a parent, grandparent, legal guardian, or a court. If enacted, persons with disabilities who have no close family would no longer be forced to petition a court and undergo unnecessary legal fees and delays.

On September 9, 2015, the United States Senate passed a companion version of the Special Needs Trust Fairness Act of 2015 by unanimous consent. Hopefully, there will also be swift passage in the House of Representatives.

The ABLE Act

By Mary Browning on July 14, 2015

Posted in Guardians/Guardianship, Legislation, Medicaid, Special Needs Trusts

Although the Achieving a Better Life Experience Act (or ABLE Act) was signed into law on December 19, 2014, many states have been waiting to offer ABLE accounts authorized by the Act until the IRS published regulations. The IRS just published proposed regulations last week for these ABLE accounts. The New Jersey legislature has proposed legislation pending that would create ABLE accounts in the state.

The ABLE Act allows individuals to utilize a tax-free, state-based private savings account for the care of disabled beneficiaries, similar to a 529 plan for education expenses. The ABLE account can be used to supplement government benefits for certain expenses while not disqualifying such individual from government benefits. Similar to 529 plans, income earned by the accounts will not be taxed. Distributions can only be made for “qualified disability expenses.” This term has yet to be defined and may differ from state to state.

The beneficiary of an ABLE Account must have had an onset of a disability prior to turning age 26, however, so long as this requirement is met, the individual establishing the account can be over the age of 26. If an individual’s onset of disability was prior to age 26, and if such individual is already receiving benefits under SSI or SSDI, then he or she is automatically eligible to establish an ABLE account. If a person with a disability is not receiving SSI or SSDI, then he or she would need to undergo a certification process in order to open an ABLE account.

For persons with disabilities who are receiving SSI or Medicaid, the first $100,000 held in an ABLE account will not be counted as part of the $2,000 resource limitation. If an ABLE account exceeds $100,000, the beneficiary will no longer be eligible for SSI but will continue to be eligible for Medicaid. If distributions are made from the account for expenses other than “qualified disability expenses” then the account will be a countable resource and will disqualify the beneficiary from both SSI and Medicaid.

Unlike a First Party Special Needs Trust, the beneficiary or “eligible individual” can set up the account himself or herself. An individual can only have one ABLE account; however there is no limit to the number of people that can contribute to the account. Like a First Party Special Needs Trust, at the beneficiary’s death, the state can recoup the balance of the account to pay for expenses paid by Medicaid since the date the ABLE account was established. This provision makes the ABLE account a less attractive vehicle for gifts from third parties. We recommend that anyone wishing to gift substantial assets for the benefit of a disabled individual use a third party special needs trust, which does not have contribution limitations and does not require payback to Medicaid at the beneficiary’s death.

Like 529 plans, each state will determine the total amount that can be made to an ABLE account over its lifetime. Yearly contributions from any individual are limited to the annual exclusion amount for gifts, currently $14,000. This limitation applies even to beneficiaries who transfer their own assets to an ABLE account. This limits the usefulness of the accounts for situations where a beneficiary receives assets, such as a bequest or a settlement, in excess of $14,000.

An ABLE account is likely most useful for beneficiaries who are able to save some of their SSI payments and can accumulate assets over time in excess of $2,000. The excess can be contributed to an ABLE account and will allow the individual to continue to qualify for Medicaid. The ABLE account may also be a good tool for parents or other family members who want the disabled individual to be able to control some amount of assets while not disqualifying that individual from government benefits.

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Guardians/Guardianship

New York Special Needs Act Becomes Law

Individuals with Special Needs Can Now Create First Party Trusts

IRS Eases Administrative Oversight of ABLE Accounts

The ABLE Act