​This article examines the unique planning requirements of families with children, grandchildren or other family members (such as parents) with special needs. There are numerous misconceptions in this area that can result in costly mistakes when planning for special needs beneficiaries.  Understanding the pitfalls associated with special needs planning is a must for all of us who assist families who have loved ones with special needs.

Tip #1: Avoid disinheriting the special needs beneficiary.  Many disabled persons receive Supplemental Security Income (“SSI”), Medicaid or other government benefits to provide food, shelter and/or medical care. The loved ones of the special needs beneficiaries may have been advised to disinherit them - beneficiaries who need their help most - to protect those beneficiaries' public benefits. But these benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their special needs beneficiaries after they themselves become incapacitated or die.  The best solution is for loved ones to create a special needs trust to hold the inheritance of a special needs beneficiary. 
 
Planning Note:It is unnecessary and in fact poor planning to disinherit special needs beneficiaries. Loved ones with special needs beneficiaries should consider a special needs trust to protect public benefits and care for those beneficiaries during their own incapacity or after their death.
 
Tip #2: Procrastinating can be costly for a special needs beneficiary.  None of us know when we may die or become incapacitated. It is important for loved ones with a special needs beneficiary to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, special needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.


Planning Note:Parents, grandparents, or any other loved ones of a special needs beneficiary face unique planning challenges when it comes to that child. This is one area where families simply cannot afford to wait to plan.
 
Tip #3: Don’t ignore the special needs of the beneficiary when planning.  Planning that is not designed with the beneficiary's special needs in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed special needs trust promotes the comfort and happiness of the special needs beneficiary without sacrificing eligibility.

Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment & appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses: the sorts of things families now provide to their child or other special needs beneficiary.


Planning Note: When planning for a beneficiary with special needs, it is critical that families utilize a properly drafted special needs trust as the vehicle to pass assets to that beneficiary. Otherwise, those assets may disqualify the beneficiary from public benefits and may be available to repay the state for the assistance provided. 
 
Tip #4: A special needs trust does not have to be inflexible.  Some special needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary's public benefits, many trusts are not customized to the particular beneficiary's needs. Thus the beneficiary fails to receive the benefits that the parents or others provided when they were alive.

Another frequent mistake occurs when the special needs trust includes a pay-back provision rather than allowing the remainder of the trust to go to others upon the death of the special needs beneficiary. While these pay-back provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save family members and loved ones hundreds of thousand of dollars, or more.


Planning Note: A special needs trust should be customized to meet the unique circumstances of the special needs beneficiary and should be drafted by a lawyer familiar with this area of the law.
 
Tip #5: Use great caution in choosing a trustee.  Loved ones or family members can manage the special needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create a special needs trust may choose a team of advisors and/or a professional trustee to serve. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical. 
 
Planning Note: The trustee of a special needs trust should understand the trustmaker’s objectives and be qualified to invest the assets in a manner most likely to meet those objectives.
 
Tip #6: Invite others to contribute to the special needs trust.  A key benefit of creating a special needs trust now is that the beneficiary's extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the special needs trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits. Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the special needs trust now or as an inheritance later.
 
Planning Note: Creating a special needs trust now allows others, such as grandparents and other family members, to name the trust as the beneficiary of their own estate planning.
 
Tip #7: Relying on siblings to use their money for the benefit of a special needs child can have serious adverse effects.  Many family members rely on their other children to provide, from their own inheritances, for a child with special needs. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect a child with special needs after the death of the parents or when siblings have their own expenses and financial priorities.

What if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?

Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.


Planning Note: Relying on siblings to care for a special needs beneficiary is a short-term solution at best. A special needs trust ensures that the assets are available for the special needs beneficiary (and not the former spouse or judgment creditor of a sibling) in a manner intended by the parents.
 
Bonus Tip: Stay up to date on changes in the law. The rules applicable to special needs trusts are constantly changing.  Most recently, the Social Security Administration changed the rules on special needs trusts that are created using assets of the special needs beneficiary (called a “self-settled special needs trust”).  The new Social Security regulations require certain provisions to be present in any self-settled trust drafted after January 1, 2000 that allows for early termination of the trust (termination prior to the death of the special needs beneficiary).  
 
If these required provisions are not in the trust, the special needs beneficiary could lose SSI or Medicaid eligibility.  The new regulations go into effect October 1, 2010.   Please contact us if you have questions about the new regulations or if you would like more information on the changes.
 
Planning Note:  A recent change in the Social Security Administration regulations governing self-settled special needs trusts could render some existing trusts invalid for SSI or Medicaid purposes.  It is imperative to stay up to date on changes in the rules that apply to special needs trusts to ensure the benefits received by a special needs beneficiary are not jeopardized as a result of changes in the law.
 
Conclusion. Planning for a special needs beneficiary requires particular care and knowledge on the part of the planning team.  A properly drafted and funded special needs trust can ensure that special needs beneficiary has sufficient assets to care for him or her, in a manner intended by loved ones, throughout the beneficiary's lifetime.  Please contact us if you have any questions or would like to discuss any information in this newsletter further.

​Long-term care is becoming an important issue for our nation to address.  We have 78 million aging baby boomers.  The costs of long-term care to these baby boomers can be catastrophic and few people have sufficient resources to pay for needed long-term care.
 
In an effort to deal with this growing concern, the Long-Term Care Financing Collaborative (the “Collaborative”) began meeting informally in 2012 for the purpose of finding a solution.  They have since become a formalized group made up of a variety of national experts and stakeholders with varying ideological stances. Their common goal is to improve the way Americans pay and prepare for non-medical care (Long-term supports and services) needed by the elderly and those living with disabilities.  On February 22, 2016, the Collaborative announced its third and final set of recommendations.[1]
 
ABOUT THE COLLABORATIVE
The diverse group[2]is made up of policy experts, consumer advocates and representatives from service providers and the insurance industry.  In addition, the group consists of senior executive branch officials in both the Democratic and Republican administrations, former congressional aides, and former top state health officials.
 
THE COSTS INVOLVED
The statistics surrounding long-term care or long-term supports and services (“LTSS”) are eye opening.  According to the Collaborative, there are between 10 and 12 million adults today who require LTSS and that number is expected to double by the year 2030. More than two-thirds of older adults will need some assistance before they die and nearly half will have a high enough need that they will be eligible for private long-term care insurance or Medicaid to pay the bill.  More than 6 million older adults need that level of care today and nearly 16 million will need it in 50 years.
The Collaborative defines Long-term supports and services (“LTSS”) as non-medical assistance.  This would include help with such things as food preparation, personal hygiene, assistive devices and transportation, bathing, eating and the like.
 
Cost to the Elderly or Disabled:
The elderly or disabled persons who find themselves in need of LTSS try to pay for it out of their savings or income from their retirement along with help from family members.  Often, this is insufficient to cover the costs and many people have to turn to Medicaid for help.  The overall spending on LTSS is expected to double by 2050, which will cause even more people to depend on Medicaid to pay for it.
 
Few people have saved sufficiently for LTSS.  In fact, the Collaborative reports that a typical American between the ages of 65 and 74 has financial assets of $95,000 and about $81,000 in home equity.  This does not include retirement savings, which vary widely across the country.  To pay for one’s lifetime medical expenses with a 90% certainty requires savings of about $130,000 and an additional $69,500 for LTSS costs.  With this in mind, it is easy to see how people are running out of money.
 
Over all, individuals pay for about 55% of LTSS expenditures; Medicaid pays about 37%; and Private LTSS insurance pays for less than 5%.
 
Cost to Family and Friends:
In addition to the financial stress this places on the elderly and disabled, it also significantly affects their families. The Collaborative estimates that in 2013, family and friends provided 37 billion hours of uncompensated LTSS to adults. This care calculates to up to $470 billion, which is three times the amount Medicaid spent on LTSS the same year.
 
When family members provide caregiving to a loved one, it often comes at the cost of their job or a portion of their job.  On average, the Collaborative reports, a woman in her 50s who leaves a job to care for her aging parents does so at a cost of $300,000 of income over her lifetime.  The Collaborative states that “unpaid family caregivers lose an estimated $3 trillion in lost lifetime wages and benefits.”
 
Cost to Employers of Family and Friends:
The Collaborative reports that employers experience a loss of $17.1 to $33 billion in productivity due to absenteeism alone. In addition, they state that “costs of turnover and schedule adjustments for caregiving workers add an additional $17.7 billion in costs.”
 
THE COLLABORATIVE’S RECOMMENDATIONS
The Collaborative was able to agree to five key recommendations in three key areas.  This final set of recommendations focused significantly on:  1) A need for universal catastrophic insurance; 2) Private market initiatives and public policies to revitalize the insurance market to help address non-catastrophic LTSS risk; and 3) Enhanced Medicaid LTSS for those with lower lifetime incomes.
 
The Collaborative calls for a strong government role in the solution.  The group considered voluntary and universal insurance programs and came to the conclusion that universal was the only viable, long-term solution as it spread the risk across the entire population and avoided challenges of adverse selection. The Collaborative noted in the report, “As a result, universal insurance appears to offer broad-based insurance at a comparatively low lifetime cost.”
 
In addition to recommending universal catastrophic insurance, the Collaborative also recommended taking some actions to revitalize the private insurance market.  These included suggestions of employers offering long-term care insurance as part of their benefits packages.  In addition, the group suggests that regulatory changes in the insurance industry, creating more standardization in policies, would save costs to consumers. The specifics of the regulatory change suggestions include increasing premiums and benefits as the individual ages. There is also a suggestion that this type of insurance be sold in conjunction with Medicare supplemental programs.  Finally, the group suggests that policymakers continue to encourage and support efforts by the insurance industry to experiment with more hybrid products, combining long-term care insurance with other products.
 
Another recommendation given by the Collaborative was to encourage increased private savings for retirement.  This encouragement might come in the form of ease of enrollment through employers’ benefits programs, expanded retirement products, tax subsidies and education.
 
Of note was a recommendation made by the Collaborative was to modernize Medicaid financing and eligibility.  This recommendation is really one to expand Medicaid coverage to include more people, in more settings, for more care. Eligibility would be based on a functional assessment and a needs assessment rather than requiring an institutional level of care.  
 
CONCLUSION
The Collaborative leaves us with a final recommendation to provide more education about LTSS.  Many people are in denial about the possibility that they may need it some day and do not plan.  While it is encouraging that the nationwide issue is being studied more and taken more seriously now, the problem is far from resolved.  Until there is a firm solution, individuals must take responsibility and plan ahead.
 
If you or someone you know has questions about how to plan for the costs of long-term care, please feel free to contact our office.  
 
ABOUT THE COLLABORATIVE
The diverse group[3]is made up of policy experts, consumer advocates and representatives from service providers and the insurance industry.  In addition, the group consists of senior executive branch.