Vermont Bar Journal
Special Needs Planning -There is More to It Than Drafting a Trust
THE VERMONT BAR JOURNALVolume 37, No. 1Spring 2011Special Needs Planning -There is More to It Than Drafting a Trustby James A. Caffry, Esq.What is Special Needs Planning?
Special needs planning is a comprehensive planning process for a person with a disability with the goal of enabling that person to maintain eligibility for all available public benefits, while maximizing the use of private resources to enhance quality of life. The planning process and outcomes will depend on the nature and origin of the disability, the potential public benefits available to that person, and the origin of any private resources.
Equally important is an understanding of the personal circumstances of that individual's life-her abilities and limitations, her personal goals and desires, her friends and family relationships, her community of support, as well as her lifetime needs and life expectancy. Depending on the needs of the individual, a comprehensive special needs plan may include a legal plan, a life care plan, and a financial plan.
Planning outcomes will also depend on who the client is. Is the client the parent of the person with a disability? Is the client the person with a disability herself? Is the client someone else? In some circumstances, a person with a disability may decide not to take the path of public benefits maximization. In other situations, the person with a disability may decide to forgo eligibility for certain benefits. If that individual is the client, in the absence of a guardianship order from a Vermont probate court, then that is the client's choice to make. However, in those circumstances, the attorney must make sure that the consequences of that choice have been explained in writing.
Under the Social Security Act:
an individual shall be considered to be disabled ... if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment 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 twelve months.(fn1)
A person's impairments must be
of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work.(fn2) The definitions of what it means to have a disability and to be unable to engage in "substantial gainful activity" under the Vermont Medicaid Rules closely follow the federal definitions.(fn3)
For 2011, the Social Security Administration ("SSA") has determined that, regardless of the severity of a person's disabilities, that person cannot earn more than $1,000 per month in countable income for eligibility for Social Security Disability Insurance ("SSDI") or Supplemental Security Income ("SSI"), or not more than $1,640 if the person's disability is based on blindness for purposes of eligibility for SSDI.(fn4) The Code of Federal Regulations puts it bluntly: "If you are able to engage in substantial gainful activity, we will find that you are not disabled."(fn5)
There are of course many people in Vermont and across the country who have severe impairments due to physical, cognitive, or mental conditions, or a combination of conditions, that require a great deal of assistance and support for them to function in their daily lives and to maximize their independence. However, many of these people also have the desire and skills (in some cases extraordinary skills) to engage in substantial and meaningful gainful activity. The capabilities of these people do not mean that they do not also have severe impairments of one kind or another that warrant and deserve services and supports. Unfortunately though, their capabilities may mean that they are determined not to be "disabled" under federal and state law, and therefore are ineligible for most services and supports provided through public programs.(fn6)
As part of representing families and individuals affected by disabilities, attorneys should be familiar with the Vermont Trust Code(fn7) as well as the different federal and Vermont public benefit laws and regulations. There are public benefits that are available to a person regardless of the type of disability. However, there are certain programs and services that are specific to a particular disability. Within each of the different populations of people with a particular disability, there is a wide range of abilities and limitations, just as there is within the population generally. There are also many people who have dual diagnoses, such as a developmental disability and mental illness. All attorneys whose practices include representing people with disabilities should gain a basic understanding of the disabilities that their clients are experiencing.
Within the range of possible public benefit programs, the eligibility criteria can vary a great deal between programs. Certain "entitlement" benefits, like SSDI and Medicare, become available once a person has been determined to be disabled and has established that she has met the employment minimums for eligibility. Other public benefits, like SSI and Medicaid, are "needs-based" or "means-tested." In addition to being found disabled, a person must also have limited income and resources. Finally, the disability-specific programs in Vermont have additional eligibility requirements where the type and amount of services are determined based on: (a) the severity of a person's disability and (b) "the limits of available resources."(fn8) Recently, many services and programs have experienced severe cuts. Because there are more people in need of services every year, even if a program budget is unchanged (euphemistically referred to as "level funded"), the effect is a reduction in direct services to those individuals being served by that program.
Attorneys that are most likely to represent people with disabilities and their families are estate planners, personal injury attorneys, and family law attorneys.(fn9) The failure to properly address disability and public benefits issues can land you on the wrong end of a malpractice or disciplinary action.(fn10)
What Makes These Trusts So "Special"?(fn11)
What makes a trust a "Special Needs Trust" ("SNT") is the inclusion of terms in the trust instrument that will maintain the disabled beneficiary's eligibility for public benefits. Generally speaking, the SNT beneficiary has no legal authority to: (a) terminate the trust, (b) compel the trustee to make a distribution of principal or income for the beneficiary's basic support and maintenance, or (c) sell or assign the beneficiary's interest in the trust (i.e., there must be a valid spendthrift clause).(fn12) Both the SSA and the Vermont Agency of Human Services ("AHS") will scrutinize any trust that is claimed to be an SNT to determine whether or not the trust meets the SSA and Vermont Medicaid rule requirements to qualify as an exempt resource for SSI and Medicaid eligibility purposes.
There are two different types of SNTs: "third party" trusts and "first party" trusts. SNTs are sometime referred to "Supplemental Needs Trusts"; there is no legal distinction between the two names. The term "Supplemental Needs Trust" is sometimes used in an effort to clarify that the trust is not to be used to meet the "basic" needs of the beneficiary, and that the SNT is to be used only to "supplement, but not supplant" sources of governmental income or services that are intended to meet the basic needs of individuals with disabilities. Whether the letter "S" in SNT stands for "Special" or "Supplemental" does not matter, as long as the terms of the trust do not give the beneficiary the right to terminate the SNT, compel distributions, or to transfer an interest in the SNT.(fn13)
The SSA reviews all trusts under its Program Operations Manual System, generally known as the POMS. The POMS is the publicly available operating manual used by the SSA for processing all Social Security claims.(fn14) The homepage for the POMS includes a disclaimer stating that the POMS is only internal SSA guidance that does not create "any rights enforceable at law by any party in a civil or criminal action."(fn15 )Although that may be what the SSA disclaimer says, the U.S. Supreme Court has said while these procedures "are not products of formal rulemaking, they nevertheless warrant respect."(fn16) The POMS provisions that most directly impact SNTs were substantially revised in 2009. Any attorney drafting SNTs must be familiar with POMS SI 01120.200 (general provisions applicable to both third party and first party SNTs), as well as POMS SI 01220.201 and SI 01220.203 (applicable to first party SNTs). Vermont Medicaid Rule 4245 contains the Agency of Human Services rules applicable to SNTs.
Attorneys should also have a working knowledge of all Vermont Medicaid Rules,(fn17) the "State Medicaid Manual" issued and updated by the federal Centers for Medicare and Medicaid Services ("CMS"), formerly known as the Health Care Financing Administration ("HCFA"),(fn18) and the Vermont Medicaid "State Plan" adopted and updated by the Vermont AHS.(fn19)