Chapter 4 Special-needs Trusts and Pooled Trusts
Library | Alzheimer's and the Practice of Law: Counseling Clients with Dementia and Their Families (ABA) (2013 Ed.) |
CHAPTER 4 SPECIAL-NEEDS TRUSTS AND POOLED TRUSTS
This chapter will provide a basic introduction to the use of special-needs trusts (SNT) planning for a client with Alzheimer's disease. The goal is to retain any government benefits, preserve the client's dignity and independence, and pay for specific needs not covered by government benefits. After introducing the different types of special-needs trusts, this chapter will cover the following areas:
1. Help make non-elder-law lawyers aware of the value of an SNT in the inter-spousal and pooled trust context.
2. Illustrate common estate-planner errors and pitfalls that foil many attempts to create inter-spousal SNTs.
3. Make lawyer audience aware of the value of an SNT from the view of an aged person with Alzheimer's or other age-related disability to protect their adult child with a disability by a transfer to an SNT.
Case Study
A Tale of Three Widows: Shirley, Mary, and Zoe
Shirley, Mary, and Zoe were three aged widows who eventually developed dementia. They were all in their 80s at the time of receiving a diagnosis of Alzheimer's-type dementia. Like the majority of seniors, they were women of moderate middle-class means. In other words, they essentially had middle-class income and corresponding net worth. None of them had sufficient income or assets to provide private-pay, luxury nursing home care for the full period of time that they had dementia. Most seniors in the United States do not have sufficient resources to pay for even one full year of private pay at either an assisted-living facility or a skilled-care nursing home.
Since dementia is a progressively debilitating condition, many of those affected will need multiple years of ever-more-expensive care. Once one's personal resources have been exhausted, each state has a nursing home Med-icaid benefit program, which may become the sole resource to pay for skilled nursing home care for those affected by Alzheimer's disease. Although nursing home Medicaid benefit eligibility varies from state to state, an institutionalized person occupying a Medicaid-funded bed is essentially asset-less and income-less.
Let's explore the impact upon dignity and quality-of-care life differences that can be achieved when an appropriate special-needs trust is used to supplement the very limited nursing home Medicaid resources available to a person with Alzheimer's.
Shirley:
At one time, Shirley and her husband, Curly, had enjoyed a life of health and prosperity. Like most men, Curly's health began to deteriorate several years before Shirley had any significant aging-related health issues. And as is quite common, Shirley provided most of the care for her husband for many years. During the time of his decline in health they spent a substantial amount of their marital assets on Curly's ever-increasing health-care needs. Eventually, Curly had to be moved out of the home and had to be institutionalized in a skilled nursing home setting. By the time he died, Shirley was substantially impoverished—so she was unable to continue to afford their marital home or to remain in the neighborhood that they had enjoyed for many years. She was forced to move to a small apartment where she lived frugally on one Social Security check of $1,200 per month. Her assets were $120,000 in total, which represented the proceeds from the sale of their home. A few years later Shirley developed dementia of the Alzheimer's type. After she became unsafe in a normal environment, she needed to live in a skilled nursing care setting. In her state of residence, one does not qualify for nursing home Medicaid until all assets above $2,000 have been "spent down" on health care. In addition, once a person has qualified for nursing home Medicaid benefits, all of the income is assigned to the care facility in which they reside. The only exception is that the institutionalized person may keep $1 per day, which is referred to as the "personal needs allowance."
Near the end of Shirley's life, she was out of money and out of options. With only $30 per month for her personal-needs allowance and less than $2,000 in assets, she was bereft of any resources beyond the state nursing home Medicaid benefits. If she needed dental care, new dentures, hearing aids, modified mobility devices, specialized therapies, foot care, or other such services, the likelihood of the state meeting her needs was remote.
Shirley powerlessly lived out her final days warehoused in a nursing home Medicaid bed.
Mary:
Mary's life history during her younger years was very similar to Shirley's. She and her husband, Larry, enjoyed health, happiness, and modest success for many decades. After reaching retirement age, Larry began to notice that Mary's memory was slipping. Within a few years, Larry had changed from being Mary's husband and best friend to being her full-time caregiver. Larry vowed that Mary would never go to a nursing home.
It would be wonderful if such sentiments could always be fulfilled. Unfortunately, the realities of life and long-term care often thwart such commitments. And so it was to be for Larry and Mary.
Then one day, Larry, who had been a lifelong smoker, was diagnosed with inoperable cancer. He was told to go home and get his affairs in order. Larry remained stoic about his own condition, but he was distraught about what was going to happen to Mary. He worried about how to provide the best care for her after he was gone. A friend whom he had come to know through an Alzheimer's support group encouraged him to see an elder-law estate planner. This attorney understood estate planning, long-term care options, and nursing home and Medicaid law. Under the direction of the lawyer, Larry modified his estate plan to create a new will, which included a testamentary SNT for the sole benefit of Mary during the balance of her life. In addition, the testamentary SNT provided that any assets remaining in the trust after Mary's death were to be distributed to their children and certain selected charities.
The lawyer explained that the testamentary SNT for the benefit of Mary did not need to include a provision for Medicaid payback to the state. According to federal law, a testamentary SNT for a spouse is treated as if it was a third-party, non-payback SNT. Larry died, and Mary did qualify for nursing home Medicaid—which provided for her room, board, and basic health care in a nursing home. However, Mary's life during her final years was much better than Shirley's. Mary could look to her SNT trustee, who had access to ample funds from the sale of the couple's home and other assets. Having money available for hearing aids, mobility devices, specialized therapies, trips, personal attendance, room enhancements, special events, and more is a marvelous way to increase the dignity of a person's life while still qualifying them for nursing home Medicaid benefits.
Zoe:
In the early years, Zoe and her husband Moe's story was much like that of Shirley and Curly, and Mary and Larry. The distinctive difference in its final scene is how Zoe achieved a nursing home Medicaid qualifications and a dignity-preserving SNT.
Zoe was fortunate to live in a state that allowed her personal representative, guardian, or power of attorney to fund a pooled trust from Moe's assets. This is allowable in certain states even though the person may be over 65. (This provision was provided for in the 1993 Omnibus Reconciliation Act legislation.) This is referred to as a d4C Pooled Trust. The virtue of the d4C is that it can be funded with a senior's assets so as to provide and pay for special needs that would not be covered by the state's nursing home Medicaid program. But regardless of the amount of money in the pooled trust, Zoe can still be eligible for nursing home Medicaid. There was a state Medicaid payback requirement from any funds remaining in the pooled trust after Zoe's death.
For Zoe, she was able to use her assets to fund the pooled trust and qualify for institutionalized care paid for by the state's Medicaid program. Because of the funding of her pooled trust, she enjoyed a much higher level of services in her time of greatest need. Her trustee used her pooled trust funds to pay for things such as
• out-of-pocket medical and dental costs,
• personal care attendance,
• nursing home advocate,
• rehabilitation services,
• legal fees,
• clothing and eyeglasses, and
• many other needs, as long as they were solely for the benefit of Zoe.
Even though Moe had never considered creating a testamentary SNT for Zoe, she still was able to enjoy the benefits of an SNT—but it was created via a different route.
Trusts Background
When a lawyer is presented with a situation wherein one member of a family has a diagnosis of Alzheimer's disease, quite frequently there is a healthy spouse. The concern of dealing with a person with Alzheimer's is being able to provide long-term health care, even when the healthy spouse predeceases the person with the diagnosis. The circumstances that cause an event such as a healthy spouse predeceasing a person diagnosed with Alzheimer's is statistically significant. And when doing planning for a husband and wife when one of the two of them has been diagnosed with a long-term illness, it is extremely important to not make the assumption that the person with the long-term disease trajectory is going to die before the healthy spouse.
Without proper planning, lawyers could have one of two results: the client didn't do the proper estate planning and now the spouse has inherited all of the assets, or the client bypassed the spouse with the hopes that the children would simply "do the right thing" and take care of the spouse, and they didn't.
The savior is the testamentary SNT. This tool will not interrupt public benefits, but will provide for the special needs until the beneficiary's death.
Special-Needs Trusts
One of the best ways to protect the individual with Alzheimer's disease is to set up a special-needs...
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