401K in Living Trust - PowerPoint

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  Please be advised – these figures are not necessarily
reflective of current numbers. You should check with your
  local disability organization for current benefit data.


The DALE
LAW FIRM
Attorneys and Counselors
           at Law


 Serving the estate planning
    needs of persons with
disabilities and their families
        San Francisco
        Walnut Creek
www.achievingindependence.com
All materials in this presentation
  are copy written and are for
    personal use only. Any
reproduction or commercial use
          is forbidden.
   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 Trust
    Trust Centered Planning
 Kathy has multiple disabilities and
  requires round the clock attendant
  care paid partially by IHSS, and
  supplemented by her parents with
  occasional assistance from her
  grandparents.
Trust Centered Planning
  Kathy’s parents’ desire is that
   she live as independently as
   possible in the family home.
   With the right assistance, it is
   possible that Kathy could work
   which has always been her
   dream.
             Trust Centered Planning
                      Revocable Living
                           Trust




Kathy’s parents
establish a
Revocable Living
Trust that has
instructions in it
about how they will
be provided for
during their
lifetime.
             Trust Centered Planning
                      Revocable Living  Kathy’s parents home
                           Trust         is placed in the living
                                    401K trust, and the living
                                         trust is made the
                                         owner or beneficiary
                                         of all of her parents
Kathy’s parents                          assets.
establish a
Revocable Living
Trust that has
instructions in it
about how they will
be provided for
during their
lifetime.
             Trust Centered Planning
                       Revocable Living  Kathy’s parents home
                             Trust        is placed in the living
                                     401K trust, and the living
                                          trust is made the
                                          owner or beneficiary
                                          of all of her parents
Kathy’s parents                           assets.
establish a           Special Needs Trust
Revocable Living
Trust that has                            The living trust
instructions in it                        directs that upon their
about how they will                       death, Kathy’s share
be provided for                           will pass to her
during their                              Special Needs Trust.
lifetime.
           Trust Centered Planning
 Kathy’s grandparents want to assist her
  upon their death. The grandparents each
  have a substantial retirement plans and
  would consider leaving a portion of their
  plan to Kathy – if it does not interfere
  with her public benefits.
 They would also like to make gifts now
  to assist Kathy to achieve her dream of a
  profession some day.
                Trust Centered Planning


Kathy’s
grandparents begin
making gifts to her
trust now to assist in   Special Needs Trust
day to day needs and
to eventually be
used for vocational
training
                Trust Centered Planning
                                           401K




Kathy’s
grandparents begin
making gifts to her                               Under the advisement
trust now to assist in   Special Needs Trust      of the family attorney,
day to day needs and                              CPA and financial
to eventually be                                  advisor, Kathy’s
used for vocational                               grandparents
                                                  designate a portion of
training
                                                  each of their
                                                  retirement plans upon
                                                  their death’s to her
                                                  Special Needs Trust.
Our Quest
             How do you provide for Kathy for 70
              years when
                 We don’t know what benefits will be
                  available or the eligibility rules
                 We don’t know if the agencies out there
                  will be available over the beneficiary’s
                  lifetime
                 We don’t know who will be the best
                  trustee
  Providing for Persons with
         Disabilities



Special Needs Trust
Basics
 Setting Objectives

 Proper planning will focus on
  achieving as much
  independence as possible for
  the disabled beneficiary
 Benefits alone should not be
  the sole planning objective.
Elements of a Special Needs
Trust

 The Social Security Administration describes a
  discretionary trust as “a trust in which the
  trustee has full discretion as to the time,
  purpose and amount of all distributions.”
 If the beneficiary has no discretion over the
  distributions, the trust is not counted for SSI
  eligibility.
Elements of a Special Needs
Trust

        A Trust is a contract to control
         property for the benefit of a
         beneficiary to meet some
         objective
        A special needs trust is drafted
         specifically so trust assets are
         considered not to be "available
         resources" in calculating the
         disabled person's eligibility for
         needs based benefits.
Elements of a Special Needs
Trust
 The funds in the trust may then
  be used to supplement the
  beneficiary’s needs not covered
  by public benefits without a
  reduction or elimination of SSI,
  MediCal of IHSS.
   Examples -Supplemental Trusts
 No part of the assets of this trust
  shall be used to supplant or
  replace public assistance benefits
  of any county, state, federal, or
  other governmental agency
  which has a legal responsibility
  to serve persons with disabilities
  which are the same as or similar
  to Matthew's.
      Examples - Discretionary Trusts
   In making any distribution, the Trustee:
     • Shall consider any other known income or resources of the
       beneficiary and reasonably available;
     • Shall take into consideration all benefits available from any
       government agency, such as Social Security disability
       payments, Medicare, Medicaid (Medi-Cal), Supplemental
       Security Income (SSI), In-Home Support Service (IHSS) and
       any other special purpose benefits for which the beneficiary is
       eligible;
     • Shall consider resource and income limitations of any such
       assistance program;
     • Shall make expenditures so that the beneficiary's standard
       of living will be comfortable and enjoyable;
     • Shall not be obligated to or compelled to make specific
       payments;
     • Shall not pay or reimburse any amounts to any government
       agency or department, unless proper demand is made by such
       government agency and reimbursement is required by the
       State;
     • Shall not be liable for any loss of benefits .
   Supplemental and Discretionary
        Special Needs Trusts
 A Supplemental Special Needs
  Trust only allows distributions that
  do not in any way reduce needs
  based benefits
 A Discretionary Special Needs
  Trust allows greater flexibility but
  requires greater skill in
  administration.
SPECIAL NEEDS TRUSTS

 Can be a testamentary trust as part of the
  parent's living trust or will
 Stand alone Special Needs Trust with a
  pour-over provision in the parent’s living
  trust
    Allows other family members or loved

     ones to contribute to the trust
    The management issues in a Special

     Needs Trust are different than most
     Living Trusts
    Allows greater privacy
 Special Needs Trusts Can Be
 Divided Into Two Categories
 If the source of the fund are from
                                             Special Needs Trust

                                                  3rd party
  someone other than the benefits               No recovery
                                               upon death of
  recipient, the trust is categorized as a      beneficiary

  Third Party Special Needs Trust
 If the source of the funds of the
  Special Needs Trust are from the
  benefit’s recipient, then the trust is      Special Needs Trust

  categorized as a self settled or                Self Settled
                                               MediCal Payback

  MediCal Payback Trust                           Medi-Cal
                                                Recovery upon
                                                   Death of
                                                 Beneficiary
The Third party
    or Estate
Planning Special
  Needs Trust
         Third-Party Trust
         Social Security says
              SI 01120.200 A 17
 A third-party trust is a trust
  established by someone other than          Special Needs Trust

  the beneficiary as grantor. For
  example, a third-party trust may be
  established by a grandparent for a
  grandchild.
 Be alert for situations where a trust is
  allegedly established by a third party,
  but in reality is created with the
  beneficiary's property.
         Third-Party Trust

             SI 01120.200 A 17
 A third-party trust can have
  great latitude, and upon the death   Special Needs Trust


  of the beneficiary can be left to
  anyone you wish except:
 You cannot leave it to the Dale
  Law Firm, PC
The Individual
 Self Settled
  MediCal
Payback Trust
      Self Settled Special Needs Trusts
        or MediCal Payback Trusts
                     SI 01120.203 B1.
 Federal Law Allows A Disabled
  Individual to Protect Their Own
  Assets And Maintain Their SSI            Special Needs Trust



  AND Medi-Cal If The Special
  Needs Trust
     Which contains the assets of an
      individual under age 65 and who is
      disabled ; and
      Self Settled Special Needs Trusts
        or MediCal Payback Trusts
                      SI 01120.203 B1.
 Federal Law Allows A Disabled
  Individual to Protect Their Own
  Assets And Maintain Their SSI              Special Needs Trust



  AND Medi-Cal If The Special
  Needs Trust
     Which is established for the benefit
      of such individual by a parent,
      grandparent, legal guardian or a
      court; and
     Self Settled Special Needs Trusts
       or MediCal Payback Trusts
                     SI 01120.203 B1.
 Federal law allows a disabled individual
  to protect their own assets and maintain
  their SSI AND Medi-Cal by utilizing a      Special Needs Trust

  Special Needs Trust….
  ….with the understanding that the State
  will receive all amounts remaining in
  the Trust upon the death of the
  individual up to an amount equal to the
  total medical assistance paid on behalf
  of the individual under a State Medicaid
  plan.
 Pooled Special
  Needs Trusts

MediCal Payback
   Required
A pooled trust is a trust
SI 01120.203 B2a

  It is sometimes called a “master
   trust” because it contains the
   assets of many different
   individuals, each in separate
   accounts established by
   individuals, and each with a
   beneficiary.
      By analogy, the pooled trust is like
       a bank that holds the assets of
       individual accountholders.
 The provisions of the SSI trust statute do
 not apply to a trust containing the assets
 of a disabled individual which meets the
 following conditions:

The pooled trust is
established and
maintained by a
nonprofit association;
 The provisions of the SSI trust statute do
 not apply to a trust containing the assets
 of a disabled individual which meets the
 following conditions:

Separate accounts are
maintained for each
beneficiary, but assets are
pooled for investing and
management purposes;
The provisions of the SSI trust statute do
not apply to a trust containing the assets
of a disabled individual which meets the
following conditions:

           NOTE: There is no age restriction
            under this exception.
 Who Established the Trust
 Account
 In order to qualify for the pooled trust exception, the
  trust account must have been established by
  the disabled individual himself/herself or by
  the disabled individual's:
      parent(s);
      grandparent(s);
      legal guardian(s); or
      a court.
 State Medicaid Reimbursement
 Provision
To qualify for the pooled trust exception, the trust must
contain specific language that provides that,
                   …to the extent that amounts remaining
                   in the individual's account upon the
                   death of the individual are not retained
                   by the trust, the trust pays to the State
                   from such remaining amounts in the
                   account an amount equal to the total
                   amount of medical assistance paid on
                   behalf of the individual under the State
                   Medicaid plan.
State Medicaid Reimbursement
          Provision

       To the extent that the trust does not
       retain the funds in the account, the
       State must be listed as the first payee
       and have priority over payment of
       other debts and administrative
       expenses except as listed in SI
       01120.203B.3.a.
  Providing for Persons with
         Disabilities


Pitfalls to commonly
   used strategies
Common Pitfalls
 Gift to Minor Act
  Accounts
 Unstructured Beneficiary
  Designations
 Disinheritance
 No planning at all
 California Uniform Transfers
   to Minors Act (CUTMA)
 Once the child takes control of the account,
  the child may then use the money for
  purposes other than education – regardless
  of the custodian's wishes.
 If your family is applying for need-based
  financial aid, having an CUTMA may
  reduce the size of the benefits package or
  result in a finding of ineligibility.
 California Uniform Transfers
   to Minors Act (CUTMA)
 CUTMA accounts are considered available
  resources for purposes of SSI eligibility
 Custodian could purchase exempt resources
  such as wheelchairs, wheelchair vans
 Larger accounts may require a court ordered
  trust that creates a reimbursement for Medi-
  Cal benefits received upon the death of the
  beneficiary
Unstructured Beneficiary Designations



 Designating a retirement plan, insurance
  policy or annuity directly to an SSI or
  MediCal recipient will cause a reduction
  or elimination of public benefits
                                               401K
                                             Beneficiary________
Unstructured Beneficiary Designations

Many IRAs or 401K s have as default that
the employees children are beneficiaries.
    Example – Husband designates Wife as
     beneficiary of his IRA. Mother predeceases
     Father and no other designation is made. On
     Father’s death, the IRA makes the children
     beneficiaries by default.                           401K
    If one of the children is on SSI or MediCal,
                                                       Beneficiary________
     benefits are lost until all the funds are spent
     down.
          No Planning at All
 Dying intestate (without a will or trust)
  will usually leave all or a portion of the
  estate to the decedent's children.
 Any child on SSI or MediCal will lose
  eligibility until the inheritance is either
  spent down, converted to a exempt
  resource, or placed in a MediCal
  Payback Special Needs Trust.
             No Planning at All
A MediCal Payback Trust differs from
an estate planning Special Needs Trust
because
   the trust must be established by a parent,
    grandparent, legal guardian or court,
   there is a lien upon death for any MediCal
    used by the beneficiary, and
   if the trust is established by a court, then
    the courts will often require costly court
    accounting.
The Achieving Independence Trust
         4 Step Process
       Step 1                   Step 2
 Clearly express your    Choose a management
  intent in your trust    system and team to
and related documents     carry out your intent



       Step 4                    Step 3
  Update and review        Develop a funding
     steps 1-3             plan to fulfill your
    periodically                  intent
    Why is expressing intent so
            important?
 A well executed estate plan is going to
  clearly state your intent so that in the event
  that a future Trustee who does not know you
  is administering the trust, it will be clear
  what is expected.
 A bare bones trust can only accomplish
  limited objectives.
    Why is expressing intent so
            important?
 The Special Needs Trust        Special Needs Trust
  should have broad
  information for overall
  guidance to the trustee and
  advocate.
 The journal of intent should
  give more detailed                Journal of
  information.                      Intent


 Think of the journal as a
  ongoing documentation of
  the beneficiaries needs.
 Residential Needs
 What kind of housing situation is acceptable?
 What is not acceptable?
 Should provision be made for a caregiver to
  live in the residence?
 Is it desirable that the beneficiary own a home
  someday?
 How is home to be maintained?
Social Needs
   You may wish to specify what
    social activities you encourage the
    Trustee to support including
       [ ] Special Olympics
       [ ] participating in sporting
        activities
       [ ] attending sporting events
       [ ] attending cultural activities
       [ ] participation in art programs
       [ ] participate in religious activities
       [ ] other ____________________
      Family
 You might wish to include a provision
  expressing your desire that
  maintaining contact with Grantor's
  family is a priority.
 Typical expenditures that might be
  allowed include
     [ ]Purchase gifts to acknowledge events
      such as birthdays, holidays, etc?
     [ ]Pay for beneficiary to travel to to
      family events
     [ ]Pay for family members to visit
      beneficiary

				
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