Fw: [voice] The Voice - Special Needs Alliance newsletter

[Guest guest]

Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

Ellen

Ellen Garber Bronfeld

egskb@...

[voice] The Voice - Special Needs Alliance newsletter

November, 2011 - Vol 5, Issue 19

The Voice®, the Official Newsletter of SNA

Quick Links

> How we help families

> How we help professionals

> Related topics

> More about us

> Unsubscribe

> Subscribe to the

Capitol Connection

> Follow Us on Twitter

Join Our Mailing List >

The Voice is the e-mail newsletter of The Special Needs

Alliance. This installment was written by Special Needs Alliance member

Wilcox, of the Law Office of Wilcox in Berkeley, California. His firm

focuses on government benefits and estate planning for the elderly and for

individuals with disabilities. Greg is a Certified Elder Law Attorney (CELA);

co-author of Special Needs Trusts: Planning, Drafting, and Administration and

California Elder Law Resources, Benefits, and Planning; and a board member of

California Advocates for Nursing Home Reform (CANHR) in San Francisco. Other

articles he has written can be found on the CANHR website.

Work History Requirements for Social Security Disability

Insurance

Most people know that a worker must have worked and paid

into the Social Security system in order to collect Social Security retirement

and disability benefits. People who are particularly aware of their retirement

rights may even know that in order to collect Social Security retirement

benefits they must have worked and received at least 40 " quarters " in order to

qualify for such benefits. But when it comes to qualifying for Social Security

Disability Insurance (SSDI) coverage, the work history requirements become much

cloudier in the minds of most people. This article is intended to dispel these

clouds.

Earning Work Credits

Title II of the Social Security Act provides retirement,

disability, dependents, and survivors benefits ( " Old-Age, Survivors, and

Disability Insurance Benefits, " commonly known as " OASDI " ). However, to receive

any kind of Title II Social Security benefit a worker on whose work record the

benefit is to be calculated must have accumulated enough work credits.

A worker can earn up to four Social Security credits per

year, maximum. Before 1978 a worker had to earn a certain amount in each quarter

of the year to earn a credit. Hence the credits were called quarters. In that

year Congress changed the rules so that workers could earn up to four credits if

they earned over a certain amount in one calendar year, no matter when in the

year the income was earned. Nevertheless, the credits are still referred to as

quarters, and eligibility is said to depend on the number of quarters of

coverage (or QC's) earned. The terms " credits " and " quarters " are now used

interchangeably.

The amount that needs to be earned to receive a credit

increases each year; in 2011 the amount is $1,120 (thus, in 2011 $4,480 earns

the maximum four " quarters of coverage " even if it is all earned in the same

quarter of the year). In 2012 the amount that must be earned to receive a credit

goes up to $1,130, and $4,520 will earn the maximum four quarters. Of course,

the work must have been done in " covered employment " that was subject to Social

Security taxes.

Most important here, the number of credits needed to

qualify for benefits (referred to as " insured status " ) depends on the particular

Social Security benefit being claimed and the age of the claimant. For example,

compare retirement coverage with disability coverage.

Social Security Retirement Benefits vs. Disability

Benefits

To be insured for Social Security Retirement Insurance

(RIB) benefits, a worker must be " fully insured. " He or she becomes fully

insured by having 40 earned quarters - typically four per year for 10 years of

work. There is no requirement that these credits have been earned during any

particular time period. On the other hand, in order to claim Social Security

Disability Income (SSDI) benefits a worker must be " insured for disability " -

which is a different and more complicated standard. First, the worker must have

accumulated a certain number of credits that vary with the worker's age. Second,

depending on the age of the worker at the time of disability, credits must be

acquired during a certain time period.

The Number of Credits Required

The number of credits a worker needs to be insured for

disability goes up with age.

a.. If a worker becomes disabled after reaching age 42

he or she must have earned one credit for each calendar year after the worker

turned 21 and the year before the worker becomes disabled. So, for example, if a

worker becomes disabled at age 50, he or she will need 28 work credits. The

credits required top out at 40 work credits for age 62 or older.

b.. For workers who become disabled from age 31

through age 42, a minimum of 20 work credits is required. So, for example, if a

worker becomes disabled at age 42, he or she will need 20 work credits. This is

only one credit per year for the 20 years between age 21 and age 41, the year

before the age of disability. As a result, it may not be that hard to become

insured. However, a worker who becomes disabled just after turning age 31 will

still need to have earned the 20 credit minimum - in much less time

c.. Workers ages 24 through 30 (i.e., until their 31st

birthday) have a rule to make it easier to qualify for disability benefits in

light of their short work history. They have a " special insured status " if they

earn only half the credits they could have earned working full time from the

quarter after the quarter they turned 21 through the quarter the disability

began. So, for example, if a worker becomes disabled at age 27 the worker would

need to have only 12 credits during the six years between age 21 and 27 (rather

than the 24 he or she would normally have accrued by working full time). Those

12 credits could be earned anytime during those six years. For example, a worker

would qualify by earning two credits per year for the six years or by earning

four credits per year during the past three years.

d.. If a worker becomes disabled before the quarter in

which he or she reaches age 24, he or she needs only six credits earned during

the 12 quarter (i.e., three year) period ending with the quarter in which the

disability occurred. Note that because under this rule the worker can go back 12

quarters, some of them may have been earned before reaching age 21.

When Credits Earned

In addition to the number of credits required for

disability coverage, workers over the age of 30 must have acquired their credits

recently. Specifically, these workers must have acquired at least 20 work

credits within the ten year (i.e. 40 quarter) period just before the occurrence

of the disability. This is often called the " 20/40 rule. "

There are two limited exceptions to this rule. First, a

worker will be insured for disability without having to meet the 20/40 rule if

he or she is disabled under the Social Security statutory standard for blindness

(i.e., having no better than 20/200 vision in the better eye with glasses or

other corrective lenses, or having a visual field of 20 degrees or less).

Second, there is a rare exception for workers over the age of 31 who were

previously disabled before reaching the age of 31.

The following is a summary of the work credit

requirements for SSDI for most individuals:

Became Disabled Required Credits for SSDI When

Credits Earned

Before 24 6 credits in 3 years before disability

began Credits can be earned before 21

24-30 1 credit for each year between 21 and date

disability began Credits start with quarter after the quarter worker turned 21

31-42 20 20 in prior 10 years

43-61 1 credit for each calendar year between 21

and year before disability began 20 in prior 10 years

62 to full retirement age 40 20 in prior 10 years

Failing to Qualify for Disability Benefits

There are a surprising number of ways that a worker can

fail to be insured for disability benefits. For example:

a.. A worker may have worked 10 years and accumulated

a full 40 credits, but then took off time to raise her children. Returning to

work in 2004, and becoming disabled in 2008, she had only 16 recent credits,

i.e., within the last ten years (4 years X 4 credits/year = 16). The worker

would need to work another year, or long enough to fill in the lacking four

credits, and earn at least $4,480. This might be hard for her to do if she is

disabled. Furthermore, if she does perform the necessary extra work she might

then have difficulty showing she is disabled.

b.. If the worker is age 27 when he is seriously

injured in a car accident, he nonetheless might fail to qualify for benefits.

Maybe he has the 12 credits that he needs (as described above), but it turns out

he earned two of them before he turned 21, so they don't count.

c.. A worker age 31 was in graduate school until age

26. He has just been diagnosed with MS and is unable to work because of his

medical condition. He started working full time when he was 27 but was only able

to accumulate 16 credits by the year he was age 30, rather than the required 20

minimum.

Conclusion

Workers should be aware that their hard work and

faithful payment of Social Security taxes may not be enough to guarantee them

disability benefits if they become disabled. Eligibility for such benefits will

depend on complex calculations that take into account the age of the worker, the

amounts he or she has earned, and when the income was earned.

--------------------------------------------------------

About this Newsletter: We hope you find this newsletter

useful and informative, but it is not the same as legal counsel. A free

newsletter is ultimately worth everything it costs you; you rely on it at your

own risk. Good legal advice includes a review of all of the facts of your

situation, including many that may at first blush seem to you not to matter. The

plan it generates is sensitive to your goals and wishes while taking into

account a whole panoply of laws, rules and practices, many not published. That

is what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or by

visiting the Special Needs Alliance online.

--------------------------------------------------------

Requirements for Reprinting this Article: The above

article may be reprinted only if it appears unmodified, including both the

author description above the title and the " About this Newsletter " paragraph

immediately following the article, accompanied by the following statement:

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

© 2011 Special Needs Alliance. .

[Guest guest]

FYI

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

Ellen Garber Bronfeld

egskb@...

[voice] The Voice - Special Needs Alliance newsletter

November, 2011 - Vol 5, Issue 20

The Voice®, the Official Newsletter of SNA

Quick Links

» How we help families

» How we help professionals

» Related topics

» More about us

» Unsubscribe

» Subscribe to the

Capitol Connection

Join Our Mailing List >

Follow us on Twitter

Find us on Facebook Jefferey M. Yussman is a member of the

Estate Planning Group of Wyatt Tarrant & Combs, LLP, in Louisville, Kentucky,

where he chairs the firm's special needs planning practice. His practice is

concentrated in the areas of estate planning and administration, business

succession planning and charitable planning, but the birth of his two special

needs children 20 years ago led him into the sub-specialty of planning for

individuals with special needs. In addition to the Special Needs Alliance (where

he is a member of the board), Mr Yussman is a Fellow of the American College of

Trust and Estate Counsel, and is listed in America's Best Lawyers, Estate

Planning (Kentucky estate planner of the year in 2010) and Elder Law, as well as

Kentucky Super Lawyers. Mr. Yussman is the current board chairman of Wellspring,

a Kentucky organization providing crisis stabilization and housing supports for

mentally ill adults, and is a current executive board member of The Community

Foundation of Louisville.

Is There a Place for a Family Member with Special Needs

in The Family Business?

Ninety percent of businesses in the United States are

" family businesses " - meaning that 50% or more of the business is owned by

individuals within a family. Those businesses produce half the nation's GNP and

create 80% of the new jobs in the U.S. Over half of the Fortune 500 companies

are family controlled, so family business is not necessarily synonymous with

small business. Surely there are family members of these family businesses who

have special needs!

Is there - or should there be - a place for family

members with disabilities in the business-as either an employee, an owner, or

both? Perhaps. If so, is there a way to accomplish each goal and still allow the

family member to retain government benefits? YES!

Families and family businesses are complicated and

messy. Having a family member with special needs is simply another part of the

complex and challenging nature of family, business and family business. Why

shouldn't the family member with a disability be treated as similarly as

possible as any other employee or owner when the business is planning for its

future?

In developing its strategic plans, the family business

should determine its core values, not only for the business, but also for its

employees and family members who are working inside or outside the daily

operations of the business. If part of those core values includes providing

appropriate accommodations to individuals with special needs, a family member

should not be excluded from the potential employee pool just because they are a

family member-unless there are special rules relating to all family-member

employees. In other words, the family member with special needs should be

treated as any other family member, and also as any other employee with special

needs, no more and no less.

The same rules should apply to family members with

disabilities owning stock in the family business. The business should establish

rules which are-first and foremost-in the best interest of the business, and

then in the best interest of the family. Sometimes these interests diverge, and

they always have the potential for causing family or business disharmony and

strife. But, planning with a family member with special needs simply adds one

additional element to that challenge.

Let's assume the family business has planned for its

operation and future and has decided the family member with special needs (let's

call her ) should be allowed to work in the business and potentially own

stock, just like any other family member. Can those two goals be achieved

without jeopardizing 's government benefits; particularly Medicaid? Yes, as

long as the normal income and resource limitation rules relating to Medicaid

qualification are carefully considered and safeguarded.

How employment in the family business will affect

disability benefits will depend upon whether the is receiving Title XVI

Supplemental Security Income (SSI) or Title II disability benefits. SSI benefits

are for blind, elderly, or disabled persons of low income and assets. SSI

beneficiaries also qualify for Medicaid in most states. Title II disability

benefits will either be Social Security Disability Income (SSDI) based on

's work record or Child Disability Benefits (CDB) based on the work record

of 's disabled, retired or deceased parent.

If is receiving SSI and Medicaid and wants to

retain those benefits, she should not exceed the resource and income limits

necessary to maintain her benefits in the state where she lives. Generally

speaking, 's countable resources should not exceed $2,000 for the SSI

program and most state Medicaid programs (see below regarding stock ownership).

Some states have a higher resource limit for some of their Medicaid programs. In

the majority of states, 's monthly gross earned income (assuming there is

no unearned income or supplied food or shelter expenses provided by others)

should not exceed $1,431 per month. This will leave with $1 of SSI, which

will automatically qualify her for Medicaid in most states. This amount will be

higher in states that pay an additional supplement to the federal SSI benefit

amount ($674 for 2011 and $698 for 2012). Here is how the Social Security

Administration will calculate 's eligibility for SSI:

Wages $1,431 SSA does not count first $20 -20 Subtotal $1,411 SSA does not count

first $65 of wages -20 SSA does not count ½ this amount $1,346 Wages SSA does

count $673 The most SSA will pay in any month $674 Minus income SSA counts

(see above) -673 Total SSI payment for month $1 If an individual receives at

least $1 of SSI this results in automatic Medicaid qualification in the majority

of states. Be aware that it is best not to make this calculation without the

assistance of someone knowledgeable of the SSI program, as other factors come

into play that are not discussed in this article.

If is receiving SSDI or CDB as opposed to SSI, she

can keep that cash benefit and her wages as long as the wages are less than the

amount considered to be Substantial Gainful Activity (SGA) by the Social

Security Administration.. In 2011 wages that equal or exceed $1,000 are usually

considered to be SGA ($1,640 if the disability is blindness). The SGA amount

will go up to $1,010 for 2012 and will go up to $1,690 if the disability is

blindness. If the business paid $999 or less per month, then 's wages

would stay below the SGA limit. In determining if wages are below SGA, Social

Security also takes into account work subsidies. For example if requires

20% more supervision than the other employees, 's gross wages should be

reduced by 20% in determining if wages exceed SGA. If the family business pays

for a job coach to help and that expense costs $200 per month, her gross

wages should be reduced by $200 in calculating earnings for SGA purposes.

Some might say that the administrative work for the

family business to understand and comply with these rules outweighs any possible

contribution can make to the business, but imagine the increased

self-esteem she would feel by successfully working, not to mention having " a

little extra jingle in her pocket! " Once the details are mastered, the benefits

can far outweigh the costs.

The same issues are present with regard to ownership in

the family business. If receives SSI, she cannot have assets exceeding the

applicable nominal resource limitation, so an alternative form of ownership,

like a third party special needs trust, would seem to be in order. The trust

would be drafted by the owners of the family business for the benefit of .

A properly drafted special needs trust can protect 's SSI benefits because

she will not be the direct owner of the company stock. In putting family

business stock in a special needs trust some tricky income tax rules (depending

on whether the business is taxed as a C corporation, S corporation, or

partnership) will need to be considered with the business's accounting and tax

advisors, but the end goal can be achieved if thoughtfully considered. Utilizing

an appropriately designed special needs trust can further the business's goals,

help achieve the core values of the business and family, give parity with

other family members and provide a security blanket (i.e. equity in the

business) for her.. If receives SSDI or CDB benefits, individual ownership

of the business does not present eligibility issues though it still might be

prudent to utilize a trust for protection and management reasons.

Like planning for any business, planning for owners and

employees who happen to have disabilities can be challenging. But, the

rewards-for the family member, the family business, and the other employees of

the business-can be remarkable. Consequently, such planning should be

thoughtfully considered in the normal course of planning for the business and

the family.

About this Newsletter: We hope you find this newsletter

useful and informative, but it is not the same as legal counsel. A free

newsletter is ultimately worth everything it costs you; you rely on it at your

own risk. Good legal advice includes a review of all of the facts of your

situation, including many that may at first blush seem to you not to matter. The

plan it generates is sensitive to your goals and wishes while taking into

account a whole panoply of laws, rules and practices, many not published. That

is what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or by

visiting the Special Needs Alliance online.

--------------------------------------------------------

Requirements for Reprinting this Article: The above

article may be reprinted only if it appears unmodified, including both the

author description above the title and the " About this Newsletter " paragraph

immediately following the article, accompanied by the following statement:

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

© 2011 Special Needs Alliance. .

[Guest guest]

Requirements for Reprinting this Article: The above article may be reprinted

only if it appears unmodified, including both the author description above the

title and the " About this Newsletter " paragraph immediately following the

article, accompanied by the following statement: " Reprinted with permission of

the Special Needs Alliance - www.specialneedsalliance.org. "

Ellen Garber Bronfeld

egskb@...

[voice] The Voice - Special Needs Alliance newsletter

December, 2011 - Vol 5, Issue 21

The Voice®, the Official Newsletter of SNA

Quick Links

» How we help families

» How we help professionals

» Related topics

» More about us

» Unsubscribe

» Subscribe to the

Capitol Connection

Join Our Mailing List >

Follow us on Twitter

Find us on Facebook The Voice is the e-mail newsletter of

the Special Needs Alliance. This installment was written by Special Needs

Alliance member Wilcenski, a founding partner of the law firm of

Wilcenski & Pleat PLLC in Clifton Park, New York. He practices in the areas of

Special Needs Planning, Elder Law, and Trust and Estate Planning and

Administration. Ed is a past President of the Special Needs Alliance, and writes

and lectures frequently on issues affecting individuals with disabilities and

their families

Long-time readers of The Voice know that we rarely

repeat an issue. In the world of disability there are many important topics to

choose from, so the challenge has really been in deciding which topics are of

most interest to our readers rather than finding something interesting in the

first place. Because the Voice has many new readers each year, we know that many

of our current readers may have missed this article when it first appeared in

November of 2010. With this in mind, we've decided to reprint this article

written by V. Wilcenski, hoping that it may catch newer readers before

they make their final decisions on how to make holiday gifts to their family

members and friends with disabilities.

Dear Grandma and Grandpa...

Each year as we approach the holiday season, we receive

questions from our clients as to how grandparents and other relatives can make

gifts to children with special needs without creating problems for government

benefits. These conversations don't involve gifts of toys and other items of

personal property, since these items are typically excluded as " exempt "

resources and have no impact on public benefits. Instead, the questions usually

involve how grandparents and other family members might make gifts of cash or

other financial assets.

Most of our clients are informed enough to know that a

direct gift of cash is almost always a bad idea. In fact, the challenge often

lies not in the discussion of the type of gift, but rather in determining how

best to raise the topic in the first place. Indeed, discussions of money can

often be awkward and uncomfortable for both sides.

In this issue of The Voice, we thought it might be

helpful if we wrote a letter to Grandma and Grandpa on behalf of the grandchild

with special needs, in hope that it may facilitate a more detailed discussion

with those who are inclined to be generous.

Dear Grandma and Grandpa:

Thank you so much for thinking about me again at this

time of year. I know how lucky I am to have such generous family and friends. I

am writing this letter to you because sometimes things that are done with the

best intentions can result in unintended problems. Sometimes those problems

occur immediately, but in many cases they don't happen until many years later.

I understand that you are concerned that I may not be

able to work and support myself when I get older and that you would like to

provide some financial assistance to help make it easier for me when that day

comes. I want to explain some of the things that can happen when these acts of

generosity are carried out for the right reasons, but in the wrong way.

Counting Your Nickels

You probably know that I get special help because of my

disability. Sometimes that help comes in the form of a check each month, and

sometimes that help comes in the form of government funded insurance to pay for

social workers, therapists, and other aides that are not available through the

school district or through mom and dad's health insurance. These programs have

very strict limits on what I can own and what I can earn. When someone gives me

money or opens an account in my name, I have to tell the government that I have

assets in my name (even if I'm too young or incapable of spending it). When that

happens, it puts my benefits at risk.

Delaying (not avoiding) the Problem

You might be thinking that a safe way to make gifts is

to open an account which is not available to me until I reach 18 or 21. This is

partially true, because some government programs will disregard these accounts

until I reach the age when the account will be put into my name. More often than

not, however, these accounts create significant complications in the future,

often involving additional time, effort and expense at precisely the time when

you thought the money would be available to help.

For example, a Uniform Transfers to Minors Act (UTMA)

account becomes my property when I reach the age of 18 or 21. This occurs

automatically, regardless of whether I am participating in one of those means

tested government programs, and even if I am not capable (because of my

disability) of managing that money. When this happens, I am really stuck. On the

one hand, by law the money is considered mine when the account terminates on my

18th or 21st birthday. This means I will likely lose my Supplemental Security

Income (SSI), Medicaid and other government benefit programs as of that date.

Yet, at the same time, my disability may prevent me from making my own decisions

with the money, so I may not be capable of taking any steps in order to protect

my eligibility for benefits. In many cases I will need to hire a lawyer in order

to get court permission to put the money in a different type of account, usually

a type of " first party supplemental (special) needs trust " account. Depending on

the amount in the account, I could end up with quite a bit less than you

originally intended once the costs and expenses of the proceeding have been

paid. In addition, any funds remaining in that trust at my death would have to

first reimburse the government for any services it has paid on my account

through the Medicaid program before it could pass to anyone else (your other

grandchildren, for example). I know you wouldn't want that.

Words Matter

I know that you have been buying savings bonds for me

from the day I was born. Sometimes you put my name on the bond, sometimes you

put both my parent's and my names on the bond, and sometimes you put my parent's

name on the bond, " payable on death " to me. These bonds can create the same

types of problems that a Uniform Transfers to Minors Act account can create. At

some point they will be countable in determining my continuing eligibility for

one of these really important programs, and I may not be capable of taking any

steps to protect the bonds without the assistance of a lawyer and the permission

of a judge.

The Unlucky Beneficiary

Maybe you were thinking that you can avoid some of these

problems by waiting until the end of your life before the property is given to

me, perhaps by naming me as a beneficiary on a life insurance policy, an

annuity, or even a small retirement account. But remember that those proceeds

are available (and countable) to me when you die if I am the named beneficiary.

Just as with the Uniform Transfers to Minors Act account, the government benefit

programs will count any assets that come to me by beneficiary designation.

Hoping for the Best, but...

While it may be difficult for you (and for me) to admit,

it could turn out that I will not be ready to manage money when I turn 18

regardless of possible concerns with government benefits. We both know how

difficult it is to predict how any young child may act when he or she reaches

adulthood. I may be able to read and write, have conversations, go to school and

hold down a job, but I may simply be unable (or unwilling) to make good

decisions with my money. I may spend it irresponsibly, I may give it away, or

(worse yet) I may not be able to tell when someone is taking advantage of me.

Government benefits aside, it just may not be a great idea for me to have direct

access to a lot of money when I get older.

What Can You Do?

There are ways that you can help me. Depending on the

size of the gift, it may be easiest to simply give the gift to my parents and

ask them to hold it for me. So long as the bank account is in their name and

uses one of their social security numbers, it won't create a problem with my

government benefits. For smaller gifts, this can be the best solution.

If you think that I may one day go on to higher

education, you could open a " 529 Account " for my benefit. These accounts earn

money on a tax free basis, and have other tax advantages too. But the most

important thing is that the accounts are considered owned by the person holding

the money (i.e., the " owner " of the account), and not the person who might be

using the money to pay for education expenses at some point in the future. Some

grandparents open these accounts in the name of their children (i.e., the parent

of the child with special needs). If it turns out that I'm not able to go to

school, the money could be used for one of your other grandchildren who will

have that opportunity. Your financial advisor can help you set up one of these

accounts (although you might want to check with my parents' special needs trust

lawyer to be sure the account is titled correctly, and that the government

benefit program rules which deal with these types of accounts haven't changed).

It may be that my parents have done their estate

planning and have already created a " supplemental (special) needs trust " for me

as part of that plan. These trusts are specifically designed to hold money for

people with special needs, and can provide the best of both worlds: a trustee is

appointed to manage the money (sometimes a parent will serve as the trustee),

and the trust is " exempt " in determining eligibility for most government benefit

programs (i.e., the government won't treat the money as if I own it). You could

also name the trust as the beneficiary of a life insurance policy or retirement

account. Just remember that if you are thinking about a significant sum of

money, it's important for you to talk to a lawyer who has experience working

with these types of trusts.

And, of course, you could always buy me some toys...

But In The End, What I'm Really Thankful For...

...is knowing that you are thinking about me this

holiday season.

--------------------------------------------------------

About this Newsletter: We hope you find this newsletter

useful and informative, but it is not the same as legal counsel. A free

newsletter is ultimately worth everything it costs you; you rely on it at your

own risk. Good legal advice includes a review of all of the facts of your

situation, including many that may at first blush seem to you not to matter. The

plan it generates is sensitive to your goals and wishes while taking into

account a whole panoply of laws, rules and practices, many not published. That

is what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or by

visiting the Special Needs Alliance online.

--------------------------------------------------------

Requirements for Reprinting this Article: The above

article may be reprinted only if it appears unmodified, including both the

author description above the title and the " About this Newsletter " paragraph

immediately following the article, accompanied by the following statement:

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

© 2011 Special Needs Alliance. .

[Guest guest]

FYI

Ellen

Ellen Garber Bronfeld

egskb@...

[voice] The Voice - Special Needs Alliance newsletter

January, 2012 - Vol 6, Issue 1

The Voice®, the Official Newsletter of SNA

Quick Links

» How we help families

» How we help professionals

» Related topics

» More about us

» Unsubscribe

» Subscribe to the

Capitol Connection

Join Our Mailing List >

Follow us on Twitter

Find us on Facebook

Read the SNA blog

The Voice is the e-mail newsletter of The Special Needs

Alliance. This installment was written by Special Needs Alliance member Stuart

D. Zimring of North Hollywood, California. Mr. Zimring is the lead author of

" Fundamentals of Special Needs Trusts " and co-author of " California Guide to

Tax, Estate & Financial Planning for the Elderly " (both published by

LexisNexis). He is certified as a specialist in Estate Planning, Probate and

Trust Law by the Board of Specialization of the State Bar of California and is a

Fellow of both the National Academy of Elder Law Attorneys and the American

College of Trust & Estate Counsel. He serves on the boards of directors of

several not-for-profit organizations focusing on the needs of seniors and those

with disabilities, including ONEgeneration in Southern California and the

National Senior Citizens Law Center.

Using Pooled Trusts In Estate Planning

Introduction

When family members provide in their estate plans for

individuals with disabilities, a bequest to a stand-alone special needs trust or

to a special needs trust included in the will or revocable living trust is the

usual vehicle of choice, especially when there is a need to protect eligibility

for public benefits. However, there are times when an individual special needs

trust (SNT) is impractical. The cost to administer the trust or problems in

finding a suitable trustee can be daunting. Utilizing a pooled trust in some

cases may be a better option. This article will explore the whys and hows of

using a pooled trust as part of the estate planning process.

What Is a Pooled Trust?

In 1993 Congress enacted the Omnibus Budget

Reconciliation Act of 1993 (OBRA '93) which authorized the use of two types of

SNTs to preserve the assets of a person with a disability, while at the same

time permitting that person to preserve eligibility for public benefits such as

Supplemental Security Income (SSI) and Medicaid.

The first and most common type of SNT is commonly known

as an individual or (d)(4)(A) SNT. This trust must be established by the parent

or grandparent of the beneficiary (the person with the disability) or by that

person's court-appointed guardian (or conservator) or by a court order.

The second type of SNT that was authorized by OBRA '93

is commonly known as a pooled special needs trust or (d)(4)© SNT. Pooled SNTs

are significantly different from (d)(4)(A) trusts in that:

a.. They are established and managed by a nonprofit

association (usually a charitable entity organized under section 501©(3) of

the Internal Revenue Code);

b.. A separate account is maintained for each

beneficiary of the trust, but for investment and management purposes the various

accounts are pooled, hence the name pooled trust;

c.. The pooled trust sub-account must be established

by the beneficiary's parent, grandparent or guardian, by the court, or by the

person with the disability; and

d.. Upon the death of the beneficiary, the balance

remaining in the account (if any) may be retained by the charity establishing

the pooled trust, to be used for other beneficiaries of the pooled trust. A few

states have required that some or all of the trust funds remaining at the death

of the beneficiary be repaid to the state Medicaid agency, but most states allow

the beneficiary to elect that the charitable organization retain the balance at

the beneficiary's death.

A properly drafted individual or pooled SNT will

accomplish the same goal - preserving the beneficiary's eligibility for SSI and

Medicaid while sheltering the trust funds to supplement government benefits as

needed.

Distinction Between a Beneficiary's Assets and the

Donor's Assets

The statutory authority in OBRA '93 for an individual

SNT or a pooled SNT refers to a trust containing the individual beneficiary's

assets, not assets belonging to a third party. Even so, a pooled SNT in many

cases can be a vehicle for receiving assets from a third party such as a parent

or grandparent. There is no restriction in OBRA '93 on pooled SNTs accepting

third-party funds. Unless the pooled SNT's own rules prohibit donations from

third parties, parents and grandparents should be able to make bequests to an

existing pooled trust account as long as the account was established under the

federal law requirements discussed above. In fact, many pooled trusts welcome

funds from third parties so long as the beneficiary qualifies as a beneficiary

with a disability.

Some pooled SNT nonprofit organizations have created a

companion trust specifically to accept donations from third parties. The trust

is administered as a pooled trust, but the third-party trust does not accept any

funds owned by the beneficiaries with disabilities. For that reason, the

third-party pooled SNT does not have to require that funds remaining in the

trust at the beneficiary's death be retained by the nonprofit that set up the

pooled trust or be repaid to the state Medicaid agency.

Advantages of Using a Pooled Trust in the Estate Plan

An advantage of leaving a bequest to a pooled SNT is

that the trust is already in existence and presumably has a track record for how

it administers assets for beneficiaries with disabilities. Two of the biggest

stumbling blocks that families face in establishing a SNT for a loved one with a

disability are (1) the economics of trust administration and (2) the stability

of ongoing administration.

One of the key decisions in drafting any special needs

trust is selecting a trustee. For any number of reasons, having a family member

serve as the trustee is not necessarily a good idea. There may be actual

conflicts of interest (for example, the beneficiary's sibling who is named as

trustee is also a remainder beneficiary of the trust) or there may be a

well-founded desire not to burden another family member with the ongoing

responsibility of the trusteeship. If government benefit issues are complicated,

family members may lack the needed expertise and make unintentional but costly

mistakes that affect eligibility for benefits.

In some cases, the family may turn to a professional

trustee such as a bank or trust company for assistance. Unfortunately, most

professional trustees will not accept a trust that has less than a certain

minimum value, often as high as $500,000 or $1,000,000. The requirement of a

high minimum trust balance rules out a professional trustee for a significant

number of families. A pooled SNT can fill this gap. Most pooled SNTs will permit

creation of accounts for any sum of money, regardless of how small.

Pooled SNTs can also provide stability of ongoing

administration. The nonprofit agency administering the pooled SNT should endure

beyond the lifetime of any one individual trustee. Trustees of pooled SNTs have

expertise in SNT issues, including government benefit eligibility rules and

services available in the community for individuals with disabilities.

So what is the disadvantage of a pooled SNT versus an

individual third-party SNT? The primary one is that, as noted above, most pooled

SNTs must provide for retention of the remaining trust assets when the trust

beneficiary dies. Depending upon the state and the trust, any funds remaining in

the beneficiary's sub-account must be paid over to the charity for its general

charitable purposes, paid to the state Medicaid agency for Medicaid benefits the

beneficiary received during his or her lifetime, or some combination of those

two retention requirements. Where these purposes coincide with the charitable

desires of the donors, this may not be a problem. However, where the donors want

any remainder to go to other family members, problems can arise. It is prudent

for the professional advisor or family member to check with the trustee of the

pooled SNT before the account is established if this is important. If the pooled

SNT has a companion SNT specifically designated to receive funds exclusively

from third parties, it may be possible to leave any trust balance to other

family members and avoid the requirement that the trust balance be retained by

the charity or repaid to the state Medicaid agency.

Opening a Pooled Trust Account

It is very simple to set up a pooled SNT account. The

master trust is already in existence so it is simply necessary to complete

enrollment forms to open up a new account for the beneficiary. Enrollment forms

may be available from the pooled SNT's website. The account must be set up

initially by the beneficiary, a parent or grandparent, a guardian or

conservator, or the court. Sometimes the pooled SNT requires that the person

opening the account first consult with an attorney. The enrollment forms usually

ask for information about the beneficiary's needs and individuals who can be

consulted regarding distributions on behalf of the beneficiary.

Most pooled SNTs charge an initial enrollment fee and an

annual maintenance fee. This of course varies from trust to trust. Some pooled

SNTs use a sliding scale based on the value of the account, and some trusts may

waive the fees altogether if the balance in the account is small.

Even if the primary contribution to the pooled SNT is

going to occur upon the death of the donor, it may be prudent to establish the

account during the donor's lifetime, funding it with a relatively small amount

initially. In addition to funding a pooled SNT account through a will, a pooled

SNT account could also be the designated beneficiary of a life insurance policy.

Once a pooled SNT account is opened and funded, the

trustee should administer the account like any other special needs trust.

Requests to the trustee for distributions may be made by the beneficiary or by

individuals designated in the enrollment forms to make requests on behalf of the

beneficiary. It will be up to the discretion of the trustee to determine if a

requested distribution is appropriate. If the beneficiary is unable to make

distribution requests on his or her own behalf and if there are no designated

friends or family members to do so, it may be necessary for the trustee to

assign a case manager to determine how the trust can benefit the beneficiary.

Conclusion

When providing for loved ones with disabilities, a

bequest to a pooled SNT, whether a (d)(4)© or a companion third-party type,

may be an appropriate alternative to establishing a stand-alone third-party SNT

or a special needs trust as a sub-trust in one's will or revocable living trust.

Family members should consult with an attorney familiar with special needs

trusts to compare the options and then decide which type of trust will best meet

their needs.

--------------------------------------------------------

About this Newsletter: We hope you find this newsletter

useful and informative, but it is not the same as legal counsel. A free

newsletter is ultimately worth everything it costs you; you rely on it at your

own risk. Good legal advice includes a review of all of the facts of your

situation, including many that may at first blush seem to you not to matter. The

plan it generates is sensitive to your goals and wishes while taking into

account a whole panoply of laws, rules and practices, many not published. That

is what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or by

visiting the Special Needs Alliance online.

--------------------------------------------------------

Requirements for Reprinting this Article: The above

article may be reprinted only if it appears unmodified, including both the

author description above the title and the " About this Newsletter " paragraph

immediately following the article, accompanied by the following statement:

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

© 2012 Special Needs Alliance. .

[Guest guest]

Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org.

Ellen Garber Bronfeld

egskb@...

[voice] The Voice - Special Needs Alliance newsletter

January, 2012 - Vol 6, Issue 2

The VoiceT, the Official Newsletter of SNA

Quick Links

» How we help families

» How we help professionals

» Related topics

» More about us

» Unsubscribe

» Subscribe to the

Capitol Connection

Join Our Mailing List >

Follow us on Twitter

Find us on Facebook

Read the SNA blog

The Voice is the e-mail newsletter of The Special Needs

Alliance. This installment was written by Special Needs Alliance members Barbara

S. of Madison, Wisconsin and Tara Anne Pleat of Clifton Park, New York.

Barbara is a partner in the law firm of Hill, Glowacki, Jaeger & , LLP,

where her practice is focused on special needs planning, elder law, and general

estate planning and administration. A Fellow and past board member of the

National Academy of Elder Law Attorneys (NAELA), in recent years she has

consistently been recognized as one of the city's best attorneys in Madison

Magazine and selected as a Wisconsin estate planning and probate Super Lawyer in

Law and Politics Magazine, ranking since 2009 as one of Wisconsin's 25 top women

attorneys. Tara is a founding partner of the law firm of Wilcenski & Pleat PLLC

in Clifton Park, New York. She practices in the areas of Special Needs Planning,

Elder Law, and Trust and Estate Planning and Administration. Tara writes and

lectures frequently on issues affecting individuals with disabilities and their

families.

A Short Primer on Trusts and Trust Taxation

In everyday practice, trust and estate planning

attorneys often advise clients and their family members about the importance and

benefits of various trust arrangements. When planning for a family member with a

disability, the dominant topics are ongoing asset management and preservation of

eligibility for government benefits.

However, an important component is often neglected in

considering the choice of the appropriate type of trust: the taxation of the

different trust arrangements. Many prior articles of The Voice have addressed

the benefits and uses of specific types of trusts, namely special or

supplemental needs trusts (SNTs), when planning for individuals with

disabilities and their families. This edition of The Voice and the next issue

focus on the different types of trusts that are often used in special needs

estate planning, and the way in which the income of these trusts is taxed.

Two Categories of Trusts: Revocable and Irrevocable

Revocable Trusts

A revocable trust is a trust which can be revoked or

amended by its creator at any time and without anyone's consent. Of course, the

creator of the trust retains the unrestricted control of the trust assets so

long as he or she is competent. After the creator's death, the trust usually

continues for traditional estate planning purposes.

When planning for a family member with special needs,

his or her parent(s) or other relatives often create a revocable special needs

trust but expect to delay funding until the creator's death. The trust creator

may declare the trust irrevocable at any time and may even provide for an

automatic shift to irrevocable status under a specific circumstance, such as

funding by someone other than the trust creator. Revocable trusts give the

creator significant flexibility to address changes in the lives of those

expected to be involved in the future administration of the trust.

Irrevocable Trusts

Irrevocable trusts are the other (and more commonly

used) category of trusts used in special needs estate planning. The primary

characteristics of an irrevocable trust are that the creator cannot amend the

provisions of the trust and cannot spend trust funds for the benefit of anyone

other than the beneficiary unless the terms of the trust document specifically

authorize it. Sometimes the trust document grants the trustee a limited right to

amend certain provisions if changes in the beneficiary's life justify or require

an amendment. For example, this need could be triggered by the beneficiary

moving to another state with different laws or policies, or by changes in trust,

tax, or public benefits law.

SNTs created by and funded with the assets of the

parents, grandparents or other relatives are called " third-party " SNTs, whether

they are irrevocable at the time of creation or become irrevocable later. SNTs

funded with assets of the beneficiary are called " first-party, " " self-settled "

or " Medicaid payback " trusts and must be irrevocable from the beginning.

First-party trusts can receive and hold any assets of the beneficiary, such as

his or her injury settlement funds and gifts and inheritances left directly to

the beneficiary.

Whether a first- or third-party irrevocable SNT, the

creator is prevented from accessing the funds unless those funds are to be spent

for the benefit of the trust beneficiary according to the trust's terms.

Trust Taxation

Family members should have a general understanding of

the basic income tax rules that will apply to the trusts they create for their

loved ones. Where is the trust's income reported? Who is responsible for the

payment of tax on the trust's income? The remainder of this article addresses

questions like these.

Revocable Trusts

Revocable trusts are the simplest of all trust

arrangements from an income tax standpoint. Any income generated by a revocable

trust is taxable to the trust's creator (who is often also referred to as a

settlor, trustor, or grantor) during the trust creator's lifetime. This is

because the trust's creator retains full control over the terms of the trust and

the assets contained within it. Typically during the creator's lifetime, the

taxpayer identification number of the trust will be the creator's Social

Security number. All items of income, deduction and credit will be reported on

the creator's personal income tax return, and no return will be filed for the

trust itself. Revocable trusts are considered " grantor " trusts for income tax

purposes. One could think of them as being invisible to the IRS and state taxing

authorities. Grantor trusts are discussed in more detail below.

Irrevocable Trusts

Most irrevocable trusts have their own separate tax

identification numbers, which means that the IRS and state taxing authorities

have a record of the existence of these trusts. Income of a trust that has a tax

identification number is reported to that tax identification number with a Form

1099, and a trust reports its income and deductions for federal income tax

purposes annually on Form 1041. There are two primary taxation categories of

irrevocable SNTs: (1) grantor trusts and (2) non-grantor trusts.

Grantor Trusts

If a trust is considered a grantor trust for income tax

purposes, all items of income, deduction and credit are not taxed at the trust

level, but rather are reported on the personal income tax return of the

individual who is considered the grantor of the trust for income tax purposes.

The concept of who is the grantor can sometimes be

confusing, especially in the context of a first-party SNT. For income tax

purposes, the grantor is the individual who contributed the funds to the trust,

not necessarily the person who signs the trust as the creator. Generally all

first-party trusts (those funded established with the beneficiary's own assets)

are considered grantor trusts for income tax purposes and so all of the items of

income, deduction and credit will be reportable on the beneficiary's personal

income tax return.

Third-party SNTs can also be created as grantor trusts,

as sometimes the creator of the third-party SNT wants to remain responsible for

payment of the income taxes during his or her lifetime. In those instances the

creator of the trust retains certain rights which cause the trust to be treated

as a grantor trust for income tax purposes. At the time the creator of the trust

passes away or otherwise relinquishes the rights causing the trust to be a

grantor trust, the trust's income will no longer be taxable to the grantor, and

the trust will no longer be considered a grantor trust.

Non-Grantor Trusts

When a trust doesn't qualify as a grantor trust for

income tax purposes, how is the trust taxed and who pays the taxes on the

income?

To the extent the trustee of a non-grantor trust pays

expenditures on behalf of the beneficiary of the trust, the trust receives a

deduction, and all or a portion of the trust's income will be taxed to the

beneficiary. This relates to a provision in the Internal Revenue Code that

states distributions to or for the benefit of a non-grantor trust beneficiary

carry out income to that beneficiary. For example, if in 2012 a taxable trust

generated $3,000 of interest and dividend income, and the trustee made

distributions of $5,000 for the benefit of the beneficiary in 2012, all of the

$3,000 of income would be treated as having been passed out to the beneficiary

and thus taxable to the beneficiary on his or her personal income tax return.

Though at first blush this may not seem ideal, in many

cases the result is good because the beneficiary, earning little or no income,

is in a low income tax bracket. The beneficiary will often have his or her own

personal exemption ($3,800 for federal income tax purposes in 2012), and in many

cases the standard deduction available for individual taxpayers ($5,950 in

2012). Unless the beneficiary has other sources of taxable income, the only

trust income ultimately taxable to the beneficiary will be the amount of income

that exceeds the total of the beneficiary's standard deduction and personal

exemption.

By contrast, to the extent that trust income is not

distributed to or expended on behalf of the beneficiary in a given year (or by

March 5th of the following year), that retained income is taxed to the trust.

Using the same example above, if a taxable trust generated $3,000 of income in

2012, and only $1,000 was expended on the trust beneficiary in 2012, $1,000 of

income will be passed out and taxable to the trust beneficiary, but the

remaining $2,000 of income will be taxable at the trust level.

Dramatic Differences in Tax Rates

Understanding the income tax treatment of taxable trusts

is important because trusts have highly compressed tax brackets. For 2012,

trusts reach the highest federal tax bracket of 35% at taxable income of $11,650

(except for capital gains, which are taxable at a lower rate). By comparison,

the tax rate for single taxpayers on taxable income of $11,650 is only 15%. The

highest federal tax bracket of 35% does not apply to most individual taxpayers

until their taxable income reaches $388,350. In addition, many states also tax

the income of trusts.

Exemptions

Taxable trusts have a very small exemption of only $100.

(If the trust requires that all income be distributed annually, the exemption is

$300, but a SNT should not have such a requirement.) If the third-party SNT and

its beneficiary meet certain requirements, the trust can be considered a

Qualified Disability Trust (QDT) for federal income tax purposes and allowed a

larger exemption. The next issue of The Voice will discuss the QDT, the higher

federal income exemption QDTs are allowed, and when a third-party SNT can or

should be drafted as a QDT.

Conclusion

Family members and the professionals helping them often

fail to consider and discuss the various options available in establishing a SNT

and how choices affect the taxation of the trust. Being aware of the income tax

aspects of these commonly used estate planning tools can help the attorney and

client make choices that can minimize the federal and state income taxes payable

at different stages of the trust's existence. Failing to consider these

consequences may result in unintended contributions being made to the IRS. As

one can glean from this article, trust taxation is a complex but very important

topic. Families and trustees need to work with a practitioner who has both

knowledge and experience with SNTs and trust taxation.

--------------------------------------------------------

About this Newsletter: We hope you find this newsletter

useful and informative, but it is not the same as legal counsel. A free

newsletter is ultimately worth everything it costs you; you rely on it at your

own risk. Good legal advice includes a review of all of the facts of your

situation, including many that may at first blush seem to you not to matter. The

plan it generates is sensitive to your goals and wishes while taking into

account a whole panoply of laws, rules and practices, many not published. That

is what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or by

visiting the Special Needs Alliance online.

--------------------------------------------------------

Requirements for Reprinting this Article: The above

article may be reprinted only if it appears unmodified, including both the

author description above the title and the " About this Newsletter " paragraph

immediately following the article, accompanied by the following statement:

" Reprinted with permission of the Special Needs Alliance -

www.specialneedsalliance.org. "

© 2012 Special Needs Alliance. .