planning for affluent families with disabled loved-ones

PLANNING FOR AFFLUENT FAMILIES WITH DISABLED LOVED-ONES

April 2010Stephen W. Dale

Dale Law Firm, PC

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Preface

Much of this presentation is from a series of programs we have done for financial advisors to familiarize them with the need for this sort of planning and to demonstrate not only the value to their clients – but the business opportunity this sort of planning presents.

Any reference to US Trust can be replaced with almost any financial group.

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Before We Begin…

Short Stephen Dale and Dale Law Firm, PC Story

I have built a practice focused on serving the needs of persons with disabilities and their families

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Special Needs Trusts

I will be discussing the advantages of working with a team in order to add a social service element to your practice so that you can serve clients with disabled loved-ones 4

Before We Begin… In many cases (not all) I

incorporate this type of planning in what is commonly called a Discretionary or Special Needs Trust.

But a document itself cannot provide protection – it takes a team – and that’s where you come in.

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Today’s Presentation

My talk will include:1. A little history2. The fact that many social

service systems are facing an unprecedented failure

3. How that failure affects most families in some way

4. How this unfortunate situation provides an opportunity to serve your clients - in some cases for several generations 6

So Just Imagine Imagine that you

have a 17 year old daughter named Kathy

Kathy has a disability and is going to need assistance for the rest of her life

Kathy could live 70 years or longer

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Providing Advocacy for Your Clients Disabled Loved Ones

Many families are seeking answers on how to provide quality of life for their disabled loved ones

You probably have clients with these needs that you may not even be aware of.

More and more the financial industry is providing services that traditionally have been provided by the government.

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Many Families Are Opting Out of the System

Many families don’t trust that the government will be there to provide for their disable loved ones

Many are looking at alternatives for provision of services and advocacy

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The Disability Equations

Special Needs Trusts =

Welfare Program

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Putting a Value on Public Benefits

The fact is that there are programs where services are only available to public benefits recipients

Put a value on the benefits Families are seeking quality of life Spending thousands of dollars to preserve

hundreds of dollars worth of benefits doesn’t make sense

Advocacy is the highest priority Many families of means are looking for tax

breaks1111

The Disability Equations

Disability =Poverty

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Common Misconceptions

All too many practitioners focus exclusively on preservation of public benefits in their Special Needs Trusts and miss the big picture

There is no such thing as a Special Need.

Special Needs Trust planning is not poverty planning

Affluent families have disabled loved ones also

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The Big Question

Does my disabled loved one need Special Needs Planning?

Could the beneficiary manage funds without great assistance?

Build flexibility to deal with changed circumstances

Focus on advocacy and asset protection

Could keeping qualification for SSI or Medicaid be a tool to assist my disabled loved one?

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A Personal Observation There has always been

a gap between the haves and have-nots

The Gap is now a chasm If I have a wealthy client –

I can perform miraclesFor families with limited

means – their options are often limited

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SOME STATISTICS

Many of these conditions are more prevalent than you might think

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The Autism Epidemic

Let’s look at one segment of the

Developmental Disability Community

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Autism Prevalence by State

California1 of 154 school aged children are diagnosed with Autism

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You are encouraged to copy, email, print, distribute, and display these images on your website. Data references can be found here.

Autism Epidemic in the US

In 1992 there were 15,580 cases of children with Autism ages 6-22

In 2006 there were 224,594 cases of children with Autism ages 6-22

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Psychiatric Disabilities

In 2006, there were an estimated 24.9 million adults aged 18 or older in the United States with Serious Psychological Distress.

(see http://www.oas.samhsa.gov/NSDUH/2k6NSDUH/2k6results.cfm)

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Statistics for Bipolar Disorder

Approximately 4.4 percent of U.S. adults may have some form of bipolar disorder during some point in their lifetime. (see http://www.pendulum.org/bpnews/archive/001884.html)

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Substance Dependence

In 2006, an estimated 22.6 million (9.2% of the population aged 12 or older) were classified with substance dependence or abuse in the past year based on criteria specified in the Diagnostic and Statistical Manual of Mental Disorders, 4th edition (DSM-IV).

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Parents as Advocates

What you will often find is that the parents often serve as the advocates of their disabled children

Often parents will expect that the disabled child’s sibling will continue to serve as that advocate

In all too many cases this expectation is unrealistic

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Doesn’t the Government Have Programs to Take Care of the Disabled?

California has been dismantling its social service system

Most county mental health programs have been almost completely eliminated or reduced to their bare bones

California’s budget crisis has caused proposals for even greater reductions in benefits and programs 24

The Challenge

Many state’s social service programs are facing an unprecedented failure due to budgetary constraints and a lack of commitment to the disabled community.

This failure affects almost every family in some manner.

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The Challenge This situation also presents

the Trustee of a Special Needs Trust with the challenge of how to provide life-long services when programs that support the disability community are constantly changing.

Courts and public agencies are exercising greater scrutiny and oversight over Special Needs Trusts

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An Unkept Promise On February 5, 1963 President

Kennedy submitted a speech to Congress entitled “A Special Message to the Congress on Mental Illness and Mental Retardation.”

Congress promptly passed the Mental Retardation Facilities and Community Mental Health Centers Construction Act (P.L. 88-164), beginning a new era in Federal support for services for persons with mental health and developmental disabilities.

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An Unkept Promise

President Kennedy called on Congress to replace institutions with comprehensive community programs to provide outpatient care, day treatment, rehabilitation, foster-home services and public education on mental health.

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An Unkept Promise A Joint Commission recommended a

tenfold increase in spending on services for mental health and developmental disabilities over the next 10 years, as well as increases in training to ensure availability of the necessary workforce to serve this population

Funding would be redirected to communities—to hospitals or nonprofit community agencies—and not long-term institutional services

Eventually, it was hoped, state hospitals would be replaced by the community programs   29

Washington – We Have a Problem

JFK’s challenge to go to the moon succeeded – but the challenge for community mental health barely made orbit and has been in a continual decay ever since

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An Unkept Promise Unfortunately, Congress did

not fully follow the Joint Commission recommendations

Today most community mental health programs are poorly funded and poorly staffed

Many State Hospitals have been closed but the full scope of services they provided have not been moved into the community

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An Unkept Promise Developmental Disabilities

Under the Lanterman Act persons with developmental disabilities have been moved into the community through the regional center system

One of the most essential programs they provide are residential services

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An Unkept Promise Developmental Disabilities

Most of the residential providers have not had a substantive increase in their rates in 10 years

Many of the providers have been dependent upon the equity in their houses to keep their programs afloat

California is proposing a 3% reduction in services

California is not investing in new programs

Thousands of new RC consumers are about to hit the housing market

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California’s Disability Service Systemis Facing Unprecedented Challenges

July 2009, Governor Schwarzenegger signed a $24 billion budget reduction that included $16.1 billion in spending reductions

When included with the $15 billion in reductions passed in February, the cuts amount to approximately $31 billion

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California’s Disability Service System is Facing Unprecedented Challenges

The Governor permanently eliminated adult dental, optometry, chiropractic, podiatry, psychology Medi-Cal funded services, and others services

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California is Not Alone in Cutting Services to Persons with Disabilities

With tax revenue declining a majority of states are instituting spending cuts to social service programs that reduce necessary services for persons with disabilities and their families.

(From Elizabeth McNichol and Iris J. Lav, “New Fiscal Year Brings No Relief From Unprecedented State Fiscal Problems,” Center on Budget and Policy Priorities, revised Sept. 3, 2009.)

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California is Not Alone in Cutting Services to Persons with Disabilities

States are cutting or eliminating services because the recession has caused declining revenues used to pay for these services

At the same time, the need for these services has risen as the number of families facing economic difficulties increases

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4 Step Process to Serve Your Clients with Disabled Loved-ones

1. Awareness that California and the Nation are not providing adequate care for their disabled citizens

2. Identify your clients that have disabled loved ones that need some level of advocacy and support

3. Become familiar with the U.S Trust and how they can partner with your office

4. Document the plan in a Special Needs Trust or Discretionary Trust

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Steps to Serving Your ClientsStep 1

Awareness that California and the Nation are not providing adequate care for their disabled citizens Government programs that do exist

are in jeopardy of being eliminated There are no effective government

based programs to monitor the quality of life of a disabled person

Many disabled persons are subject to abuse

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Steps to Serving Your ClientsStep 2

Identify your clients that have disabled loved ones that need some level of advocacy and support Could be an immediate family –

spouse, children, grandchildren or parents

Could be someone not related Talk to your clients or “plant

seeds”

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Steps to Serving Your ClientsStep 3

Become familiar with the U.S. Trust group and how they can partner with your office.

Have U.S. Trust help create a team that can effectively provide the services and advocacy that clients are seeking

Plan with your clients how to set aside the resources and effectively manage those resources for their disabled loved-one’s lifetime

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Steps to Serving Your ClientsStep 4

Document the plan in a Special Needs Trust or Discretionary Trust that incorporates: The intent of the client The team to carry out that intent The flexibility needed to adjust to

changes in the beneficiaries condition or the social service delivery system

The tools to get the best investment and tax result

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The Disability Community

The disability community is a diverse community

Every beneficiary is different The plan needs to be flexible to adjust

to the beneficiaries good times and bad times

In most cases the trust must last for the lifetime of the beneficiary, meaning money under management for a very long time

You have an opportunity to provide the assurance of life long advocacy to your clients that have disabled dependants

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Social Service Planning Presents Excellent Business Opportunities

You almost certainly have clients that are seeking a solution about how to provide for their disabled loved ones

It may not occur to your clients to turn to their financial advisor for help

Many times these plans last for a very long time

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Be Part of the Team After focusing on Special

Needs Trusts for over 18 years – I have come to the conclusion that building a management team to administer the Special Needs Trust is the single greatest factor in whether a trust will succeed of fail

I wish I could draft a document that would protect a disabled person – but it just isn’t possible

The Bob Jones Special Needs Trust

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THE IDEAL TRUSTEE Will use discretion in the best

interest of the disabled beneficiary

Must understand public benefits and keep up with changes in the law

Can wisely invest and conform to all statutory fiduciary requirements

Understands taxes Keeps perfect books Provides advocacy and

prevents abuse Is immortal 46

Financial• Can wisely invest and

conform to all statutory fiduciary

requirements • Understands taxes

Advocacy• Will use discretion in the best

interest of the disabled beneficiary

• Must understand public benefits

• Provides advocacy and prevents abuseAccountability

• Keeps perfect books• Carries insurance, is

bondable or has deep pockets

• Is immortal

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Model 1 – The Trustee directed by a Trust Advisory Committee.

The Trustee manages funds, makes distributions, does taxes, keeps records

The Trustee directed by a Trust Advisory Committee which directs distributions, can amend the trust or replace the Trustee

Can include care manager

Trustee

Advisory Committee48

Model 2 – The Trustee directed by a Care Manager.

The Trustee manages the funds

The Trustee can be directed by a Care Manager

The Care Manager interacts with the beneficiary

The Trust Protector oversees the Trustee and Care Manager from a distance and can replace either for any reason

Trustee

Care Manager

Trust Protector

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Care Managers – Finding Peace of Mind

Professional care management has given peace of mind to many of our families

I have seen our beneficiaries clinically improve by incorporating a care manager into their estate plan

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Surviving a Special Needs Trust

I have found that the utilization of a Professional Care Manager is the key to serving the Beneficiary and protecting the Trustee

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Where To Focus

Many families focus only on death planning, but they really need to focus on life planning

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Ed Roberts

Anyone can join our group at any point in life. In this way, the Disability Rights Movement doesn't discriminate.

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Definition of Estate Planning

I want to provide for myself and my loved ones during my lifetime, and upon my incapacity or death give what I have to who I want, the way I want, when I want, and if I can save every last fee, tax or court cost possible.

From Loving Trust54

Example – Martha's Story

Martha is 75 years old and lives with her 45 year old daughter Helen

Helen has Downs Syndrome and has been living with her mother since birth

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Example – Martha's Story

Helen is very dependent upon her mother

Martha recently spent a week in the local hospital

Both mother and daughter are concerned about what would happen upon Martha’s death or incapacity 56

Engaging Care Managers Before a Special Needs Trust Matures

All too often Estate Planning is seen as death planning – but what if the parent/advocate can no longer be there?

Have the care manager do an assessment before the Trust matures Often identify needs Lets the Beneficiary meet the Care

Manager before a crisis Allows the parent peace of mind to see

the plan in action57

What Else Can Care Managers Do?Sample Language

Set budgets – manage expectations

Decrease the need for appointment of a Guardian Ad Litem by the courts

Determine the value of a caregiver’s services

Advise on the advisability of purchase of a residence 58

What Else Can Care Managers Do?Sample Language

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What Else Can Care Managers Do?Sample Language

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What Else Can Care Managers Do?Sample Language

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How Much Do I Need To Set Aside For My Disabled Child?

Who the heck knows? Two schools of thought

1. Minimalist view 2. Plan as a safety net

Insurance may be a good funding mechanism to fill gaps

Qualified plans may offer a good alternative with good or bad tax consequences – great opportunity for the tax professional

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Special Needs Trust Basics

Also known as Supplemental Needs Trust

Used to supplement, but not replace public benefits

Created or codified by changes to Medicaid law contained in the Omnibus Budget Reconciliation Act of 1993 (OBRA-93)

Highly dependent on state implementation of the law

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Third Party SNT’s

Created by donor who wants to gift money to individual without interrupting public benefits.

Established by third party and funded with third party’s assets

Excluded from OBRA-93 definition of a trust and therefore not a countable resource

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Standalone Third Party SNT

Donor establishes a standalone SNT Established and funded as

standalone trust by third party and with third party funds

Can be used to coordinate testamentary gifts from family members Grandparents can name standalone

third party SNT rather than creating another separate SNT in their own will

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Standalone Third Party SNTBenefits

No payback provision (would be required if child received gift outright and had to create first party SNT)

One trustee and simpler trust administration

Donor can decide who will receive any funds not used to supplement the needs of the child with a disability

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Tax Planning with a Third Party SNT

Combine special needs planning with tax planning;

Know Grantor Trust Rules; Does not mean the beneficiary will

ever access public benefits - leverage what may be available;

Do not use “crummy trust” with special needs beneficiary;

Understand IRA issues with special needs trusts.

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A Word About Planned GivingDoing Well by Doing Good

Affluent Clients with disabled loved ones are excellent candidates for planned giving

Special Needs Trusts and Charitable Lead Trusts make excellent planning tools

Example of Stepped Lead Trust – income interest to charity, remainder to Special Needs Trust

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So What Does This Mean to You?

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So What Does This Mean to You?

California’s social service providers need your support more than ever before

Many programs are receiving less donations because of the economy at a time of increased need

Many Californians are unaware of the importance of community social service programs

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So What Does This Mean to You?

Programs that rely solely on government assistance may be phased right out of the system

To expect that the government will provide adequate resources for your disabled loved one could be a mistake

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So What Does This Mean to You?

Successful planning will include:

Having the right team of advisors to advocate for the needs of your disabled loved one

Making sure your plan has the flexibility to deal with issues in a changing environment

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Conclusion Our social service system is

struggling and the private sector is filling the gap

Social Service Trusts can be good business

Must have systems in place Care Managers are often

the key to coordinating advocacy

Social service programs like the ARC of Contra Costa County need financial support to continue to serve our most vulnerable citizens 74