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LIFETIME & ESTATE PLANNING FOR SPECIAL NEEDS
MICHAEL T. NOLAN
KEVIN CONDON
November 29, 2001
I. ADVANCE DIRECTIVES & SURROGATE DECISION MAKING
Decision making and asset management for people with disabilities present a variety of legal obstacles. Although state laws vary regarding advance directives, most states have adopted procedures which allow a competent adult (a "principal") to appoint an agent to make medical, financial and personal decisions for the principal.
A. New York Powers of Attorney — A principal may appoint an agent, known as an "attorney-in-fact", to step in her shoes as an alter ego, with the authority to make and implement management and financial (but not medical) decisions for the principal. This versatile document can provide for a broad delegation of authority, or can be tailored in to limit the authority to a specific situation.
1. Durable Power of Attorney — A Durable Power of Attorney is effective when executed and will remain in effect until revocation or the death of the principal. A "Durable" Power of Attorney is not affected by the subsequent disability or incompetence of the principal. Therefore, this document permits the attorney-in-fact to exercise all delegated powers without the requirement of a costly and time consuming court supervised guardianship proceeding.
2. Springing Power of Attorney — A Springing Power of Attorney, as the name suggests, springs into effect at a future time or upon the occurrence of a specified event, typically the incapacitation of the principal. The sole distinction between Durable and Springing Powers of Attorney is the effective date.
B. Living Wills, Health Care Proxies and DNR Orders— Living Wills have historically been the document used to reflect one’s wishes regarding the use of medical treatment to sustain life. Although not recognized by statute in New York, they are considered by New York Courts to be enforceable as "clear and convincing evidence of intent" regarding the maker's health care wishes.
In 1991, New York adopted the Health Care Proxy Statute which allows a Principal to appoint an agent to make any and all medical decisions including, if the document specifies, decisions regarding artificial nutrition and hydration.
Comment: Consider combining health care directives into a single document such that the principal’s wishes (i.e., "Living Will" provisions) and the appointment of an agent are reflected in the Health Care Proxy. A sample form is attached as Appendix I.
Do Not Resuscitate Orders - Permit surrogate decision making with respect to an incident of cardiac respiratory arrest. A family member or agent may, subject to New York statutory procedures, issue a DNR order to prevent the use of CPR on a patient who is suffering from a terminal illness, permanently unconscious or if CPR would be medically futile or extraordinarily burdensome for the patient.
C. Guardianship Proceedings — If an incapacitated person does not have advance directives in place, or if the advance directives do not provide sufficient power, the appointment of a guardian may be necessary. There are essentially two types of guardianship proceedings in New York.
1. Article 17-A (SCPA) — This proceeding is for the appointment of a guardian for a person who is either mentally retarded or developmentally disabled. For persons who are developmentally disabled, the law requires certifications that the person is permanently incapable of managing herself and/or her affairs and is suffering from cerebral palsy, autism, epilepsy, traumatic head injury, neurological impairment or similar condition closely related to mental retardation. With the exception of traumatic head injury, the developmental disability must have commenced prior to age 22. Similar to the parent/child relationship, the guardian is granted unlimited powers over the disabled person who has been found to permanently be incapable of managing herself.
Comment: This is a relatively simple proceeding which is eased by the assistance from, and forms used by, the Surrogate’s Court. A hearing is frequently unnecessary.
2. Article 81 (Mental Hygiene Law)— A more complex proceeding, commenced in the Supreme Court by a Petition and Order to Show Cause, for the appointment of a guardian in all other cases.
The New York "conservatorship" and "committee" proceedings under Articles 77 and 78 of the Mental Hygiene Law were repealed in 1993, and replaced with Article 81. The current New York Statute focuses on the "functional limitations" of an incapacitated person, and not upon a medical diagnosis. The powers of the guardian are tailored to meet the specific needs for personal and property management under the least restrictive means possible. A court hearing, detailed testimony and considerable oversight by the court are involved in this lengthy, and at times adversarial, proceeding.
II. USING DISCRETIONARY NEEDS TRUSTS
The following tools may be employed to benefit disabled persons through the use of living trusts (revocable or irrevocable) which are established during the maker’s lifetime, or testamentary trusts which are created under the maker’s Last Will and Testament.
A. Sprinkler Trusts — A single trust fund to benefit a class of persons with varying needs. The Trustee is given broad powers to "sprinkle" principal and income in varying amounts based upon the specific needs of the beneficiaries.
Comment: A Sprinkler Trust is commonly employed in the estate plan of a parent for the benefit of children of different ages and varying needs. It allows the parent's funds to remain intact until all of the children’s needs have been met, educationally, medically or otherwise, with no requirement that distributions be equal.
Without special provisions, however, trust assets could render a disabled beneficiary ineligible for means-tested government assistance programs, such as Supplemental Security Income ("SSI") and Medicaid. A description of government entitlement programs is set forth at Appendix II of this outline.
B. Third Party Supplemental Needs Trust ("SNT") — A fund designed to supplement, but not duplicate or reduce, government benefits to which a disabled person is, or may in the future, otherwise be entitled. The trust is drafted to insure that no part of the trust assets will be considered to be a resource of the individual for Medicaid eligibility purposes. New York State specifically authorizes SNTs under EPTL Section 7-1.12. SNTs are not successful, however, in avoiding the lifetime obligations of a parent to her child, or between spouses.
C. Special Needs Trust — Federal legislation in 1993 authorized the funding of a trust for the benefit of a disabled individual, under the age of 65 years, using such individuals own assets (sometimes referred to as self-settled Payback Trusts or OBRA 93 Trusts). The trust must be created by the disabled individual’s parent, grandparent or legal guardian, or by a Court. If properly drafted, the trust assets will not be considered to be a resource of the individual for Medicaid or SSI eligibility purposes nor will the transfer of assets to the SNT trigger a period of ineligibility for government entitlements. Like third party SNTs, the assets of a Special Needs Trust are designed to supplement, rather than duplicate or replace, Medicaid benefits.
Caution: The trust document must provide that, upon the death of the disabled beneficiary, the trust assets must first be used to reimburse the Medicaid program for the amount of Medical Assistance paid on behalf of the individual.
Comment: Special Needs Trusts are most commonly used to shelter financial recoveries, belonging to a disabled person, from a personal injury action or medical malpractice case.
D. Pooled Trusts - Like Special Needs Trusts, Pooled Trusts were authorized by OBRA 1993 and are limited to individuals who are disabled and under the age of 65. The requirements and features include:
- Pooled Trusts must have a payback provision, although it can be avoided if the funds are left in trust (although the Statute is unclear on this point, presumably for the other disabled trust beneficiaries).
- Must be established and managed by a non-profit association. Non-profit association can act as a co-trustee together with a corporate co-trustee.
- Can be funded by the disabled individual, or his or her parents, grandparents, guardian or court.
- Pooled Trusts may be "self-settled" or third party trusts.
- Offer advantages for individuals with less assets or with no close family members to serve as trustees.
- Disadvantages include minimum funding thresholds, costs and lack of control.
III. COORDINATING BENEFICIARY DESIGNATIONS FOR TESTAMENTARY SUBSTITUTES
A sound estate plan involves not only properly drawn documents, but also the coordination of one's beneficiary designations which direct the disposition of testamentary substitutes, such as life insurance proceeds, annuities, IRAs and other retirement assets.
A. Life Insurance — Consider placing insurance policies into an Irrevocable Life Insurance Trust or, at a minimum, tailoring beneficiary designations to fit the estate plan. For example, an individual who has established a supplemental needs trust, under her will, for the benefit of a disabled beneficiary, should consider the following sample:
Sample Beneficiary Designation
1. Primary Beneficiary: My wife, [name] .
2. First Contingent Beneficiary: The Trustee of the Supplemental Needs Trust established for the benefit of my son, [name] , under my Last Will and Testament admitted to probate, provided such Trust is in existence as certified in writing by the Executor of my Estate.
3. Second Contingent Beneficiary: My daughter, [name].
B. Annuities — Like life insurance, annuities pass outside of the Will, necessitating a properly drawn Beneficiary Designation.
C. IRAs, 401(k)s and Other Retirement Assets — Income tax considerations, together with the need to coordinate these assets with the estate plan, require the careful preparation of beneficiary designations for IRAs and "Qualified" retirement assets.
Income tax deferral — Structure the retirement asset so that, after death, distributions may "stretch out" or "drip" into a supplemental needs trust over the life expectancy of the beneficiary.
D. Other Non-testamentary Assets: Be aware of other assets which may not, without action, pass in accordance with the estate plan (thereby jeopardizing government benefits) such as jointly owned assets, "In Trust For" accounts, Payable on death accounts and accounts for minors (including accounts established under the Uniform Transfers To Minors Act).
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The information contained in this outline is not legal advice, and is presented for informational purposes only. Laws and regulations differ form state to state and we suggest that you seek the advise of an attorney licensed to practice in your particular state prior to proceeding with any estate or future care plan.
APPENDIX I
HEALTH CARE PROXY
I. I, Paul Principal, residing at ___________, Telephone: ( ) , hereby appoint Alan Agent, residing at __________ Telephone: ( ) , my health care agent to make any and all health care decisions for me, except to the extent I state otherwise. This health care proxy shall take effect in the event that I become unable to make my own health care decisions. The determination as to whether I can make my own medical decisions is to be made by my agent or alternate agent as set forth below.
II. NOTE: (Although not necessary, and neither encouraged nor
discouraged, you may wish to state instruction or wishes, and limit your agent's authority. Unless your agent knows your wishes about artificial nutrition and hydration, your agent will not have authority to decide about artificial nutrition and hydration.
If you choose to state instructions, wishes or limitations, please do so below):
I have discussed with my health care agent my intentions and beliefs regarding the extent to which life sustaining measures may be used, and I authorize my health care agent to make any and all decisions with respect thereto, including, without limitation, the decision whether or not to use artificial nutrition and hydration, and the right to withdraw the same. I direct my agent to make health care decisions in accordance with my wishes and instructions as known to him.
III. In the event the person I appoint above is unable, unwilling or unavailable to act as my health care agent, I hereby appoint Alice Agent, residing at Telephone: (___) __ __, as my health care agent for all purposes hereunder.
IV. I understand that this proxy, unless sooner revoked, shall expire on (specify the date or condition):
None
Signature:________________________________________________________
Address:__________________________________________________________
Date:_____________________________________________________________
I declare that the person who signed or asked another to sign this document is personally known to me and appears to be of sound mind and acting willingly and free from duress. He or she signed (or asked another to sign for him or her) this document in my presence and that person signed in my presence. I am not the person appointed as agent by this document.
Witness:__________________________________________________________
Address:__________________________________________________________
Witness:__________________________________________________________
Address:__________________________________________________________
APPENDIX II
Government Entitlement Programs
1. Supplemental Security Income ("SSI"): SSI is a needs based program (a public welfare benefit) administered by the Social Security Administration. This program is intended to provide a monthly cash stipend to the indigent, aged, blind and disabled.
1. Who gets benefits? Individuals over the age of 65, and individuals who are blind or disabled.
2. Eligibility Requirements - SSI is intended for the indigent. An individual can have $2,000 in non-exempt resources, a $1,500 burial fund, and burial space, the homestead and an automobile. Current individual stipend amount is $599 per month in New York. Certain earned income, unearned income, in-kind income and deemed income will result in a reduction or ineligibility for SSI benefits.
3. Transfer Penalties - Foster Care Independence Act of 1999 now imposes periods of ineligibility for transfer of assets.
2. Social Security Disability ("SSD"): Is a program administered by the Social Security Administration ("SSA") for wage earners and their dependents. SSD entitlement is based on an individual's work record and is not a needs based program. Therefore, resources and unearned income are irrelevant.
A) Disability - Definition of "Disabled" is same for SSD, Supplemental Security Income and Medicaid. It is defined as a medically determinable physical or mental impairment which prevents the individual from participating in substantial gainful activity and which physical or mental impairment is likely to last a year or more or result in death.
B) Who gets benefits? A disabled worker who has earned enough credits (worked enough quarters) and such worker's dependents (in some cases spouse, children). Benefits are received beginning in the 6th month of disability.
C) How much work is necessary - depends on the age at which you become disabled.
D) Medicare - After 24 months of eligibility, SSD recipients receive Medicare for a premium of approximately $50 per month.
3. Medicaid: Medicaid is a joint Federal/state program established in 1964 and was intended to be a "safety net" program for the poor. Medicaid is to be distinguished from Medicare which is administered by the Health Care Finance Agency ("HCFA") and Social Security Administration ("SSA") and is the largest provider of health insurance for senior citizens. Medicare provides health insurance with no financial requirements, whereas Medicaid has resource and income limitations. In 1965, New York State adopted the Medicaid program by statute (Social Services Law §§363 et seq., 18 NYCRR §§360.1 et seq). New York State elected to implement a joint state-county Medicaid program that is supervised by the New York State Department of Social Services and administered by each of the counties in the State, including New York City, for a total of 58 social services districts in the state. Of each dollar spent on Medicaid in New York State, fifty cents ($.50) comes from the Federal Medicaid program, twenty-five cents ($.25) comes from New York State and twenty-five ($.25) cents comes from the County.
A. Medicaid provides the following health services.
1. Community care
2. Home Care - personal care services and long-term home health care
3. Institutionalized care (nursing home). The Medicaid program is the largest payor of nursing home care in the United States. Medicare (Parts A, B and Medicare C + Choice do not provide coverage for custodial care (i.e., assistance with activities of daily living "ADL's", such as bathing, dressing, eating, toileting, walking or transferring).
Comment: Many individuals confuse the Medicare and Medicaid programs and are under the impression that Medicare will provide coverage for nursing home care. Middle class Americans are forced to spend down or transfer assets in order to qualify for Medicaid coverage. Advance planning and awareness involving Long Term Care Insurance can be critical to protecting ones assets.
NON-FINANCIAL ELIGIBILITY REQUIREMENTS.
A. General.
1. Medicaid may be authorized for individuals who are:
a. Under the age of 21;
b. Over the age of 65; or
c. Certified blind or disabled.
2. Medicaid automatically covers anyone receiving Supplemental Security Income (SSI) from Social Security Administration. Medicaid also automatically covers anyone receiving or eligible for public assistance from New York State.
B. Residency/Citizenship Eligibility.
1. The Medicaid applicant/recipient must be a resident of the state providing the benefit. There is no durational residency requirement. Residency is defined as a place where the applicant has his or her permanent home (i.e., an interest to remain permanently or indefinitely).
a. Physical presence in New York State, and
b. Intent to make New York home.
2. Moreover, the applicant must either be a citizen of the United States or a "qualified" alien. A visiting alien is not eligible. An illegal alien if otherwise eligible may receive Medicaid if he or she is suffering from an emergency medical condition.
FINANCIAL ELIGIBILITY.
A. Overview. Medicaid is a means-tested program. In order to qualify, you must have assets and income below certain thresholds. These levels do not account for the individual's other expenses such as rent, utilities or debts.
B. Income. The current monthly income limit (for community based Medicaid, i.e., home care) for a Medicaid applicant is $625/month ($900 for a family of 2). Income is broadly interpreted and includes earned and unearned income and most governmental benefits.
C. Assets. A Medicaid applicant is entitled to retain up to $3,600 plus a $1,500 burial fund for institutional Medicaid or $3,750 plus $1,500 for Community based Medicaid ($5,400 + $1,500 burial for a family of 2). Also exempt from the resource limits is the homestead without regard to value, certain pre-paid funeral expenses i.e., Irrevocable Burial Trust, personal and household property and one automobile. TIP - Seek to convert countable resources (i.e., cash) into exempt resources (home improvement, payoff mortgage, purchase, rather than lease an automobile.)
D. Community Spouse Allowances If Spouse Is Institutionalized.
a. Community Spouse Income Allowance - a/k/a Minimum Monthly Maintenance Needs Allowance ("MMMNA"). An amount which the Community Spouse is permitted in order to remain in the community. - $2,175 (2001) per month (including income from institutionalized spouse).
If greater than $2,175, DSS will request 25% contribution toward the cost of care of institutionalized spouse.
b. Community Spouse Resource Allowance ("CSRA") - $74,820 or 1/2 of couples assets on date of institutionalization (or application for Medicaid while institutionalized, whichever is later) up to a maximum of $87,000 (2001) (not including exempt assets i.e., primary residence, car, personal property). An enhanced community spouse resource allowance is permitted in certain limited circumstances.
c. Medicaid cannot be denied if community spouse has excess resources and refuses ("spousal refusal") to make those resources or income available for his or her spouse.
d. All resources held by either the institutionalized spouse or the community spouse or both are considered available to the extent that the value of the resources exceeds the community spouse's resources or income allowance. Note that transfers between spouses do not trigger a period of ineligibility because the married couple's assets are considered available to either.
E. "Spenddown" State. New York State is an income spenddown state, as opposed to an "income cap" state. If a person has income in excess of $625 (+ 20 if over 65, blind/disabled)/month but has medical bills that are greater than the excess, Medicaid will pay the amount beyond the excess up to the Medicaid rate. If the Medicaid recipient is a resident of a nursing home, all of his/her income must be spent on the cost of the care except $50 ("personal needs allowance") which will be deposited into a personal incidental account at the nursing facility. This account can be managed by the resident, designated representative or facility.
ASSET TRANSFERS.
A. General.
1. Any transfers of assets made by a Medicaid Applicant or his or her spouse for less than fair market value (FMV) made within the thirty-six (36) months (sixty (60) months in the case of transfers to a trust) immediately preceding the date the person becomes an institutionalized person are subject to the penalty period rules for nursing home care (note that there is no transfer penalty for MA home care). TIP - Care has to be taken in transferring assets for purposes of home care because conditions often change requiring institutionalization.
B. Transfers of Assets.
1. Definition of Assets. The transfer of assets rules apply to both income and assets of the individual and the individual's spouse. "Assets" for purposes of the transfer penalty rules include income or resources which the individual or the individual's spouse is entitled to but does not receive because of action or inaction by the following:
(1) The individual or the individual's spouse;
(2) A person, including a court or administrative body, with legal authority to act in place of or on behalf of the individual or the individual's spouse; or
(3) Any person, including a court or administrative body, acting at the direction of or upon the request of the individual or the individual's spouse.
(4) Examples of actions which would cause income or resources not to be received are:
(a) Irrevocably waiving pension income;
(b) Renouncing an inheritance or refusing to assert one's right of election against an inheritance;
(c) Not accepting or accessing injury settlements;
(d) Settling a tort (personal injury) action so as to have the defendant place settlement funds directly into a trust or similar device to be held for the benefit of the Applicant (Note: Exception Trusts such as SNT's a/k/a Payback Trusts will not cause penalty period); or
(e) Refusing without good cause to take action to obtain a court-ordered payment that is not being paid, such as an alimony award or other judgment against an individual.
2. The Transfer of Assets Rules Apply to Transfers of Income - Absent evidence to the contrary, districts will most likely assume that ordinary household income of an Applicant and his or her spouse during the look-back period was legitimately spent on the normal costs of daily living. Practitioners should be aware, however, that districts will consider whether the Applicant or the Applicant's spouse transferred a lump sum income payment or a stream of income during the look-back period.
3. Jointly Held Property - generally is deemed available to the Applicant to the extent of his or her interest in the property. Absent documentary evidence indicating the contrary, it is presumed that all joint owners possess equal shares. TIP - Many clients are under the impression that joint assets are not "counted". All account designations should be reviewed to determine the manner in which title is held.
4. The Look-back Period and the Penalty Period.
a. Look-back Period. In the case of the transfer of assets by an individual in receipt of or applying for nursing facility services, the look-back period is 36 months prior to the first day of the month in which the individual was institutionalized and submitted an application for full Medical Assistance coverage, including coverage of residential health care facility. Transfers to a trust are subject to a 60-month look back period. Many individuals confuse the look-back period with the penalty period.
b. Penalty Period. The penalty period resulting from a transfer of assets for nursing home care (remember home care has no transfer penalty. However, the LTHHC or Lombardi Program does) is determined by a calculation based on the uncompensated value of the assets transferred.
(1) Calculation of Penalty Period - To establish the penalty period, the total value of all uncompensated transfers is divided by the average monthly cost of nursing home care as established by New York State. The state is divided into seven districts, and the average cost of nursing home care depends on the county of residence. The number of months of ineligibility is determined by dividing the value of the property transferred (numerator) by the appropriate monthly figure (denominator). The period of ineligibility runs from the date of transfer. For example, a transfer of $100,000 where the average nursing home cost in the county is $8,125, would result in a penalty period of approximately thirteen (13) months. The penalty period for nursing home care following large transfers (over $300,000) would be significant, and in such cases the Applicant should not apply prior to the expiration of the 36-month look-back period.
(2) Regional Rates. Current regional rates for nursing home care for determining periods of Medicaid eligibility (effective for applications on or after January 1, 2001).
Central $4,953
Long Island (Nassau and Suffolk) $8,125
New York City (All Counties) $7,656
Northeast $5,627
Northern Metropolitan $6,846
Rochester $5,629
Western $5,206
(3) Transfers by a Spouse - With married couples, a transfer by one spouse to a third person (remember, transfers between spouses do not result in a period of ineligibility) will affect the nursing home eligibility of the other spouse. Therefore, if either spouse applies for nursing home care, transfers by the Applicant or the non-Applicant spouse will be applied to the Applicant. TIP Post-Eligibility Transfers - transfers by community spouse do not create new penalty period for applying spouse if made more than 30 days after determination of eligibility for the institutionalized spouse (but count as transfer if non-applying spouse subsequently applies for institutionalized Medicaid coverage).
(4) Commencement Date of Penalty Period - The penalty period will now begin on the first day of the month following the month in which the transfer was made.
(5) A penalty period imposed for a transfer of assets runs continuously from the first date of the penalty period regardless of whether the Applicant continues to receive nursing facility services (except as indicated above when a penalty is apportioned between spouses). Thus, if any Applicant leaves a nursing facility, the penalty period nevertheless continues until the end of the calculated period.
(6) Multiple Transfers.
(a) For multiple transfers made
during the 36-month look-back period, in which assets have been transferred in amounts and/or frequency that would make the calculated penalty periods overlap, the penalty period is calculated by adding together the uncompensated value of all assets transferred ("tacking"), and dividing by the MA regional rate. The period of ineligibility begins with the first day of the month following the month in which the first transfer occurred. When a penalty period ends at anytime during a month and a subsequent transfer occurs at any time during that same month, the subsequent transfer is considered to have occurred in an overlapping penalty period and would be treated as a multiple transfer. When multiple transfers are made in such a way that the penalty periods for each do not overlap, treat each transfer as a separate event with its own penalty period.
IV. SUGGESTED RESOURCES AND REFERENCE MATERIALS
Grenier, Humes & Nolan LLP currently maintains a website at www.nolanlawgroup.com. We currently maintain links to various resources for the elderly and disabled. In the coming weeks we will be significantly adding to these resources, and invite you to visit our website or contact our attorneys directly to obtain more information.
