Special Needs Trusts vs. ABLE accounts

For families with a disabled loved one, they typically prepared a special needs trust to permit their disabled child to inherit money or assets, yet not disqualify them from government benefits.  My blog pertains to Ohio, and Ohio’s best trust (my opinion) for this purpose is called a “wholly discretionary trust (WDT).”  (Technically, a special needs trust is a less-favorable [my opinion] statutory trust, so I refer to WDTs instead.)  Wholly discretionary trusts are very specifically worded, expensive to have prepared, yet when drafted correctly they hold assets for a disabled person while not jeopardizing their receipt of benefits such as Medicaid.  Medicaid doesn’t pay for many things important to our daily lives, necessitating the need for disabled people to have the means to pay for what Medicaid does not cover.

For someone with a disability who was working, for example, that person had to be very careful to not accumulate more than $2,000, which is the maximum a disabled person can have without becoming ineligible for government benefits.  So, Joe has Down syndrome and receives Medicaid (traditionally described as health insurance for the poor and disabled) that provides him with crucial medical insurance.  Joe must have less than $2,000 in assets in order to receive Medicaid.  But, since Joe is working, he has to be careful to not let more than $2,000 accumulate in his bank account.  Historically, Joe had to choose between working and making some money to pay some of his own way, or not work in order to keep his health insurance.

With ABLE accounts (called “STABLE” accounts in Ohio), Joe can contribute up to $15,000 (2019 figure) annually in his STABLE account, and possibly an additional $12,490 annually of income if Joe is working.  Joe can receive a STABLE card so he can make qualified purchases as someone would do with a debit or prepaid card.  If STABLE accounts can permit Joe to accumulate money without losing necessary health insurance and other benefits, why would Joe need a wholly discretionary trust?

1. In my example, Joe is a competent, working, disabled adult.  He likely wants the autonomy of having his own money and making decisions about how to spend it, such as buying his own lunch at work, or ticket for a movie, groceries at the store, or maybe his own gas if he drives, which he would do with his STABLE account card.  Pulling money for these expenses out of a trust would require Joe to ask his trustee, who would then have to pay expenses for him. Joe would likely feel handcuffed by the trust’s stringent distribution rules.
2. When the beneficiary (Joe) dies, a STABLE account must be used first to pay back Medicaid or the State.  With a WDT, assets remaining in the trust at the beneficiary’s death go to whomever the trust terms state.  This could be Joe’s siblings or other family members, or perhaps a charity.
3. A STABLE account can only hold cash.  To the contrary, Joe’s WDT would be able to hold real property, non-cash assets, etc.  If Joe inherited real property from his grandparents, or a valuable collection from his uncle, his WDT could own it for Joe’s benefit, unlike his STABLE account.
4. In Ohio, the lifetime cap on a STABLE account is $468,000 (2019 figure).  If Joe receives SSI, then anything above $100,000 is considered an available resource (anything above $100,000 would need to be spent down to be eligible for SSI).  There are no resource limits with the amounts a WDT can have.  Consequently, if Joe inherited his father’s accounts totaling $550,000, his STABLE account could not hold all of Joe’s inheritance.

The approach to planning with STABLE accounts and wholly discretionary trusts involve enabling them to work together, not whether there should exist one or the other.  A disabled individual should have a WDT in place to hold inheritances or non-cash assets, as well as a STABLE account to enable the individual to accumulate cash, enabling him or her to operate with accessible funds for daily expenses.

Contact me to discuss STABLE accounts, wholly discretionary trusts, and special needs planning at julie@juliemillslaw.com; http://www.juliemillslaw.com.

Do you have a child with special needs? Avoid these 5 planning mistakes

Mistake #1:  Not preparing a stand-alone special needs trust that is in effect immediately.

Some attorneys incorporate a special needs trust for a disabled child into the parent’s estate plan, to take effect when the surviving parent dies.  This mistake can be costly.  If the child was to receive an inheritance from a relative when the parent is still alive, that gift would go to the child, and would become an asset that might interrupt the child’s receipt of benefits.

Mistake #2:  Naming the child individually instead of his or her trust on retirement and insurance beneficiary designations.

Naming the child individually on your beneficiary designations, instead of the child’s special needs trust, will result in the eventual inheritance going to the child outright instead of the child’s special needs trust.  The inheritance will then become a countable resource that will likely cause the child to lose certain benefits.

Mistake #3: Not telling family and others that a special needs trust exists.

For family (especially well-meaning grandparents) and others  who might include your child in their estate plan, they need to name the child’s trust as the beneficiary, and not the child.  They will not know to do this unless they are informed that a special needs trust exists.  As with Mistakes #s 1 and 2, any inheritance left outright to a child who receives benefits might jeopardize receipt of those benefits.

Mistake #4:  Opening a 529 plan.

Not to pick on grandparents again, but it is common for grandparents to open and fund 529 plans for their grandchildren.  This could be costly for a child with special needs.  If the child  does not go to college, and needs SSI or other benefits at age 18, assets in a 529 plan will likely disqualify the child from receiving benefits, at least until the assets in the plan are spent down.  The child would then have to reapply for benefits.

Mistake #5: Leaving no Letter of Intent.

A Letter of Intent is a comprehensive guide that you prepare for when you are unable to care fr your child, either due to your death or incapacity.  The guide is for the child’s caregivers to ensure a smooth transition in every aspect of their day and life after the surviving parent passes.  Change in routine is very difficult for many kids, particularly those with special needs.  Grieving the loss of a parent makes this transition even more difficult.  The Letter of Intent advises the caregiver of the child’s daily routine, activities, likes and dislikes, among many other things to ease a tough transition.

If you would like to discuss planning for your child with special needs, contact me at julie@juliemillslaw.com.

Disabled loved ones? Avoid this inheritance mistake

A real-life fact pattern with a client was that Grandma and Grandpa wanted to provide something in their wills to provide for their two grandsons who are disabled.  They decided they were going to leave them the farm.  The thought was not that their grandsons would live on and run the farm, but that it would be sold after their deaths and the proceeds would go to their grandsons who were both disabled.  Grandma and Grandpa had very good intentions, particularly since just the land alone had a fair market value of close to $10,000 an acre.  Great, right?  No.

This blog post is for families that include a loved one with a disability.  It is for parents, certainly, but also for extended family who choose to provide a bequest (personal property) or devise (real property, such as house and land) for a disabled family member.  The good intentions of family members in leaving money or property to a person with a disability might do more harm than good.

First, it is almost never recommended to leave an inheritance to a person with a disability unless there is a special needs trust for that person in place (I include Ohio’s “wholly discretionary trust” when I use the term “special needs trust”).  People with disabilities often receive benefits such as Medicaid, or Social Security Income, that could be jeopardized.

Second, the need for such a trust to be in place is the subject of this blog post—the critical mistake I’ve encountered with clients is that they have a special needs trust plan, but it has a certain type of special needs trust that only takes effect at death, called a testamentary trust.  There are trusts that are in existence now and are not funded until death, but that is not a testamentary trust.  To the contrary, with a testamentary trust, the trust itself actually comes into existence at death.  (Most of the situations that I have seen involve testamentary “supplemental services” trusts.)  If testamentary special needs trusts are valid and enforceable, what is the problem?  The problem is the real-life scenario in the top paragraph.

The last of the Grandma-Grandpa unit dies and leaves the 10-acre farmhouse and farm to disabled grandsons “Johnny and Joey.”  However, Johnny and Joey’s parents are still alive, and have a testamentary supplemental services trust (special needs trust), where the special needs trust does not come into existence until Johnny and Joey’s parents die.  In this scenario, there is no special needs trust in existence now, when it is needed.

Except in rare circumstances, I prepare stand-alone special needs trusts that are in existence immediately after they are executed (signed and witnessed).  If the boys’ parents or grandparents had a trust prepared that was already in existence, Grandma and Grandpa’s inheritance could have been left to the boys’ trusts, as well as  inheritances from others.  Because parents might not be the only people who choose to leave an inheritance for a person with a disability, their testamentary special needs trust is not the recommended choice in special needs planning.

If you have questions or would like to begin estate planning with a disabled loved-one in mind, email me at julie@juliemillslaw.com.