Damages and Counsel Fees Against Trustee Affirmed, and Co-Trustee Not Liable for Failing to Stop Trustee's Misconduct

The decedent, Evelyn Berry, had been married twice. At the time of her death, the two children of her first marriage (Darryl and Tara) were adults. The two children of her second marriage (Garrett and Brook) were minors. Evelyn's will included a testamentary trust for the maintenance, support and education of Garrett and Brook. Darryl and Tara were the co-trustees of the trust.

The trust for Garrett and Brook provided that, upon their emancipation, the remainder was to be divided equally among the four children. To fund the trust, the will permitted Darryl to purchase a liquor store owned by the decedent, and to make monthly payments of the purchase price into the trust. The will also permitted the beneficiaries to recover attorney fees if Darryl defaulted on his obligation to make payments on the liquor store.

A lawsuit was instituted on Garrett and Brook's behalf against Darryl for mismanagement of the trust. They alleged that Darryl had misappropriated trust funds and mismanaged investments, among other things. Following a six-day bench trial, the Chancery Division judge found that Darryl had engaged in self-dealing, and awarded damages and counsel fees in favor of the plaintiffs and against Darryl in the amount of $554,893. The trial judge found that the co-trustee, Darryl's sister Tara, had not been complicit in Darryl's wrongdoing. The judge had found credible Tara's testimony that she did not control, invest or borrow trust funds, and concluded that Darryl was solely responsible for the damages.

On appeal, Darryl claimed, among other things, that his sister, as co-trustee of the trust, should have shared liability with him. The appellate court found that the trial judge had “properly rejected defendant's request to hold Tara liable for not stopping him” from committing the wrongdoing. It also affirmed the award of counsel fees, based upon the will provision permitting recovery of attorney fees.

A copy of In re Estate of Berry can be found here –  Matter of the Estate of Evelyn Berry

For additional information concerning probate litigation, trust lawsuits and will contests, visit: http://vanarellilaw.com/will-contests-probate-litigation-elder-abuse-actions/#iplwc

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NJ Supreme Court Rules Non-Lawyers Who Assist In Medicaid Planning Are Engaged In The Unauthorized Practice of Law

The Committee on the Unauthorized Practice of Law, appointed by the Supreme Court of New Jersey, recently issued Opinion 53 in which the Court considered weather non-lawyers who assisted applicants and beneficiaries in applying for Medicaid benefits were engaged in the unauthorized practice of law. The Court identified the non-lawyers providing Medicaid assistance as “Medicaid Advisors” and “Application Assistors.”

The Court recognized that federal law permits non-lawyers to assist Medicaid applicants with certain tasks necessary to obtain and maintain eligibility for public benefits. For example, the Court found that non-lawyers may provide information on public benefit programs and coverage options, assist in preparing and filing Medicaid applications and renewals, review documents to determine an applicant's resources for Medicaid purposes, assist with communication between the agency and the applicant, and attend hearings with the applicant or on behalf of the applicant.

However, while non-lawyers may provide the limited Medicaid services outlined above, the Court found that, when providing advice in matters that require the professional judgment of a lawyer, non-lawyers are engaged in the unauthorized practice of law. For example, the Court explained that only a lawyer may provide legal advice on issues such as strategies for Medicaid eligibility, including the effect that various provisions of wills and powers of attorney may have on eligibility; on the need for guardianships; on the authority to transfer or sell assets; on nursing home laws; on transfers of property; on the impact of marriage and divorce on Medicaid eligibility; on spending down resources; on the tax implications of asset transfers; on the creation of trusts or service contracts; and on estate administration and issues involving the elective share. Specifically, the Court characterized the difference between Medicaid tasks which non-lawyers can perform and those which require lawyer involvement as follows:

Applying the law to an individual's specific circumstances generally is the “practice of law.” A [non-lawyer] may provide information on insurance programs and coverage options; help individuals complete the application or renewal; help them with gathering and providing required documentation; assist in counting income and assets; submit the application to the agency; and assist with communication between the agency and the individual. But the advisor may not provide legal advice on strategies to become eligible for Medicaid benefits, including advice on spending down resources, tax implications, guardianships, sale or transfer of assets, creation of trusts or service contracts, and the like.

As a result of the necessity of inquiring into the type of services provided by non-lawyers assisting in obtaining Medicaid eligibility, the Court concluded that the question of whether non-lawyer involvement in Medicaid planning constitutes the unauthorized practice of law must be determined on a case-by-case basis.

Opinion 53 by the Committee on the Unauthorized Practice of Law Appointed by the Supreme Court of New Jersey is annexed here – New Jersey UPL Opinion 53 Medicaid Advisors 5.16.16

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Court Denied Medicaid's “Caregiver Child” Exemption To Applicant's Daughter Who Provided Care For 24 Years

A New Jersey appeals court ruled that a Medicaid applicant's daughter, who lived with her mother and provided care for 24 years before her mother was admitted to the nursing home, did not meet “caregiver child” exception to Medicaid's transfer of assets rules because during that period care was provided by the applicant's son for 5 months. M.K. v. Division of Medical Assistance and Health Services, Docket No. A-0790-14T3 (App. Div., May 13, 2016)

J.K. began living with her mother, M.K., in her mother's home, in 1987. Although she lived an independent life at first, M.K.'s health declined, as she endured numerous surgeries, suffered a stroke, became blind in one eye, and became afflicted by Parkinson's disease and dementia over the years.

These conditions required J.K.'s level of assistance to increase, and J.K. began helping M.K. in her daily care, such as dressing, bathing, ascending steps, and making meals. In addition to shopping for M.K.'s food, medications, clothing and other errands, J.K. performed all house cleaning, transportation and attended to M.K.'s financial affairs. J.K. also provided daily help because M.K., for the most part, did not leave the home. J.K. also transported M.K. to quarterly doctor and specialty physician visits.

In September 2010, M.K. moved to a nursing facility. M.K. was unhappy with this placement so, in October 2010, she left the facility to reside with her son. For 5 months, M.K.'s son and his wife assumed responsibility for M.K.'s care. However, J.K. continued to obtain M.K.'s medications and occasionally transported her to doctor's appointments.

In January 2011, M.K. executed a deed transferring her residence to J.K. as a “caregiver child” under the Medicaid rules. In March 2011, M.K. returned to the nursing home. She resided there until her death in August 2012.

M.K. applied to the Burlington County Board of Social Services (the Board) for Nursing Home Medicaid benefits in January 2012. Because M.K. transferred ownership of her home to her daughter, J.K., for less than fair-market value within 60 months of entering the nursing home (called the Medicaid “look-back period”), the Board imposed a 24-month period of ineligibility for Medicaid benefits M.K. argued that the transfer of the home to J.K. satisfied the “caregiver child” exception to the Medicaid transfer of assets rule, and she appealed.

The appeal was heard by an administrative law judge (ALJ). The ALJ found J.K. provided M.K. with “care exceeding normal person support activities . . . necessary to [M.K.]'s health and safety,” which allowed her to remain in her home. The ALJ also found that M.K. needed an institutional level of care as of March 2011. However, the ALJ concluded that J.K. did not meet the “caregiver child” exception to Medicaid's transfer of assets rules because J.K. was not M.K.'s caregiver for a full 2 years prior to March 2011 because of the intervening 5-month period when care was provided by M.K.'s son and his wife. Consequently, the ALJ concluded M.K.'s transfer of her home to J.K. did not meet the requirements of the “caregiver child” exemption,” triggering imposition of a penalty period and the denial of benefits. The Division of Medical Assistance and Health Services, the state Medicaid agency, adopted the ALJ's findings and conclusions, and M.K. again appealed.

The appeal was heard by the Superior Court of New Jersey, Appellate Division. The Court first reviewed the rule governing the “caregiver child” exemption to Medicaid's transfer of assets rules, which provides as follows:

[A]n individual shall not be ineligible for [Medicaid] because of the transfer of his or her equity interest in . . . the individual's principal place of residence and the title to the home was transferred to:

. . . .

4. A son or daughter of the institutionalized individual . . . who was residing in the individual's home for a period of at least two years immediately before the date the individual becomes an institutionalized individual and who has provided care to such individual which permitted the individual to reside at home rather than in an institution or facility.

i. The care provided by the individual's son or daughter for the purposes of this subchapter shall have exceeded normal personal support activities (for example, routine transportation and shopping). The individual's physical or mental condition shall have been such as to require special attention and care. The care provided by the son or daughter shall have been essential to the health and safety of the individual and shall have consisted of activities such as, but not limited to, supervision of medication, monitoring of nutritional status, and insuring the safety of the individual. [N.J.A.C. 10:71-4.10(d)(4)]

The Court confirmed the state Medicaid agency's decision to deny benefits. The Court found that, although J.K. provided the requisite level of care that “exceeded normal personal support activities,” J.K. did not supply that care for the 2-year period “immediately before the date the individual becomes an institutionalized individual” mandated by the rule because for a period of approximately 5 months J.K. provided no care for M.K., who resided with her son.

The case is annexed here – M.K. v. Division of Medical Assistance and Health Services

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Government Long-Term Care Benefits for New Jersey Residents (Video)

Government Long-Term Care Benefits for NJ Residents 908-232-7400

The Law Office of Donald D. Vanarelli provides comprehensive Government Long-Term Care Benefits Legal Services throughout the State of New Jersey. See: http://vanarellilaw.com/medicaid-public-benefits-planning/

Elder Law topics covered in the video include Eligibility for Medicaid, Income and Resource Limits and Caps, Medicare Coverage, Home Health Aides, Home Health Care, Nursing Home Care, Assisted Living Facilities, Long-Term Care Insurance, Nursing Home Costs, Resource Rules, Lookback Period Calculations, Eligibility for Veterans Pension Benefits, Net Worth Test, and more.

Noted NJ Attorney Donald D. Vanarelli presents Government Long-Term Care Benefits - the final video in a 4-part series that discusses crucial Elder Law topics. Call 908-232-7400 or visit http://VananrelliLaw.com/ for additional information.

The YouTube Channel for the Law Office of Donald D. Vanarellli is located at: https://www.youtube.com/channel/UClCWs2FIrzO7BUY7ooVe_Lw

Government Long-Term Care Benefits for New Jersey Residents

By Donald D. Vanarelli, Esq.

Overview of Government Sources for the Payment of Long Term Care Costs

Government Sources of Payment

1. Medicare


2. Medicaid


3. Veterans Administration

Overview of Long Term Care Costs Covered by Medicare

1. Home Health Aides


2. Nursing Home Care

Medicare – Home Health Aides

• Covers up to 100 home visits per “spell of illness”.


• Preconditions to payment: prior hospital stay of at least 3 days and home health care initiated within 14 days of discharge.


• Beneficiary must be homebound and need skilled nursing care, physical or speech therapy, NOT custodial care.

Medicare Payment of Nursing Home Care

• Immediate prior hospital stay of 3 days


• Admitted to NH within 30 days of hospital discharge


• Covers skilled nursing care or rehabilitation only, NOT custodial care.

How Much Does Nursing Home Medicare Pay?

• Maximum Coverage – 100 days


• Day 1-20 – Medicare pays 100% of covered charges


• Day 21-100 – Medicare pays all covered charges, except coinsurance amount. Year 2016 coinsurance payment = $157.50/day, or about $4,800/month


• Day 101 – on your own

Overview of Medicaid Payment of Long Term Care Costs

MEDICAID

• Pays the majority of long-term care costs in New Jersey and elsewhere


• Joint Federal and State Program


• Provides medical assistance for financially eligible persons who are aged, blind or disabled

Income Limits

• Income – all income is counted in determining eligibility


• Income cap – All Medicaid programs have an income cap. In 2016, the cap is $2,199/month. Income above the cap must be transferred to a Qualified Income Trust each month.

Resource Limits

• Countable resources – all assets in the sole name of applicant, in the sole name of spouse, or in joint names, either with the spouse or another person. Includes pension and retirement assets of BOTH the applicant and spouse.


• Resource Limits – $2,000 for an individual and $3,000 for a couple.


• Excess resources – must be spent down.

Transfer of Resources Rules

• “Look-back period” – Period which Medicaid examines upon the submission of a Medicaid application to determine an applicant's countable assets, and the disposition of an applicant's assets.

• Look-back Period Under the Medicaid Law- 5 years, or 60 months

• “Penalty period” – Period of Medicaid ineligibility imposed as a result of a transfer of assets for less than fair market value (i. e., a gift) made during the 60-month look-back period.

• To prevent gifting of assets, Medicaid imposes a “penalty period”,  or period of ineligibility for Medicaid, for all gifts made within the “lookback period”.

Comparing Medicare and Medicaid Coverage for Long-Term Care Costs

Medicare: covers costs of home health aides and nursing homes for those who need skilled nursing care or therapy, but for a limited time only. No financial limits. Medicaid: covers home health aides, assisted living facilities and nursing homes, but only for the aged, blind and disabled who need custodial care and who meet strict financial limits.

Overview of Major VA Benefit Programs

1.Service-Connected Compensation

Disability compensation is a monetary benefit for veterans who are disabled by an injury or disease that was incurred or aggravated during active service.

2. Needs-Based Pension

Pension is a monetary benefit for veterans who (1) are disabled (not service-connected) (2) have low income and resources, and (3) served during a period of wartime.

Basic Eligibility Criteria for VA Pension Program

All of the following criteria must be met before a veteran or widow(er) of a veteran can receive Improved Pension benefits:

1.The veteran must have served at least 90 days of active duty service, one day of which must have been during a wartime period. In general, wartime is:

• World War I


• World War II – Dec. 7, 1941 – Dec. 31, 1946


• Korean War – June 27, 1950 – Jan. 31, 1955


• Vietnam War – Aug. 5, 1964 – May 7, 1975


• Gulf War – August 2, 1990 through date to be set by law by Presidential Proclamation

2. The veteran must have received a discharge other than dishonorable;

3. The claimant must have limited income and assets; and,

4. The claimant must be permanently and totally disabled, or be over age 65.

VA Improved Pension Program: Three Tiers of Benefits

1. Low Income Pension


2. Housebound Benefits


3. Aid and Attendance Benefits

Housebound benefits and Aid and Attendance benefits are supplements paid in addition to the basic Low Income Pension to certain veterans to cover the additional costs of care for their added disabilities.

Net Worth: Standard

The VA considers the net worth of the individual seeking benefits, excluding the value of the person's home, furnishings, and car.  The standard as to whether a person will be eligible for benefits is whether the person has “sufficient means” to pay for his or her care.

Assets that are counted toward the “sufficient means” analysis include bank accounts, certificates of deposit, money market accounts, investment accounts, annuities, retirement accounts, life insurance cash surrender values, etc.

Net Worth Test

• STANDARD: Sufficient Means to Self-Pay


• Sufficient Means: A commonly used measure is $80,000 or less for a married couple, $50,000 or less for a single veteran.


• Age Analysis: Age vs. Asset test

VA Transfer of Resources Rules

No look-back period

Compare Medicaid with VA Pension rules regarding transfers of resources. But, note difference in VA Nursing Home Rules.

The YouTube Channel for the Law Office of Donald D. Vanarellli is located at: https://www.youtube.com/channel/UClCWs2FIrzO7BUY7ooVe_Lw

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Disability Planning for New Jersey Residents (Video)

 

The Law Office of Donald D. Vanarelli provides Special Needs Trusts and Disability Planning Attorney Services throughout the State of New Jersey. See: http://vanarellilaw.com/special-needs-disability-planning/

Elder Law topics covered in this video include Guardianships, Conservatorships, Power of Attorney, Representative Payeeships (SSA and SSI), Joint Tenancies (including joint bank accounts), Advance Medical Directives (living wills), Do Not Resuscitate (DNR) Orders, Revocable and Irrevocable Trusts, Family Limited Partnerships, Limited Liability Companies, and more.

Disability Planning is the first video in a 4-part series that discuss crucial NJ Elder Law topics.  Call 908-232-7400 or visit http://VanarelliLaw.com/ for additional information.

The YouTube Channel for the Law Office of Donald D. Vanarellli is located at: https://www.youtube.com/channel/UClCWs2FIrzO7BUY7ooVe_Lw

 Disability Planning for New Jersey Residents

By Donald D. Vanarelli, Esq.

Planning for Substitute Decision-Making

1. Capacity – A critical threshold issue.


2. Legal devices for substitute decision-making: 1. Court-supervised; 2. Voluntary

Court-Imposed Substitute Decision-Making

• Guardianships


• Conservatorships

Nature and Use of Guardianship

A guardianship is a legal mechanism designed to provide surrogate decision-making and financial management for a person who is no longer able to govern him/herself and who has not made alternate voluntary arrangements.

Characteristics of Guardianships: Voluntary; and Imposed by Court.

Guardianships are only for persons who are legally incompetent – medical evidence needed. Alternate voluntary arrangements either not made or ineffective.

Voluntary Substitute Decision-Making

• Representative Payeeships (SSA, SSI)


• Joint Tenancies (Inc. joint bank accts.)


• Powers of Attorney


• Advance Medical Directives (Living Wills)


• Do Not Resuscitate (DNR) Orders


• Revocable and Irrevocable Trusts


• Family Limited Partnerships and Limited Liability Companies

Powers of Attorney

• The most important, simplest and least expensive estate document.


• A power of attorney is a mechanism by which the principal authorizes an agent to manage the principal's financial affairs if the principal becomes incapacitated.

Characteristics of Powers of Attorney

• Creates Fiduciary Relationship


• General vs. Special


• Durable vs. Springing


• Sole Agent vs. Joint Agents


• Termination- death, revocation or expiration

Powers Conferred in Powers of Attorney

• banking transactions


• to make gifts, including gifts to the agent


• prepare and sign tax returns


• to create, amend and fund trusts


• change beneficiaries


• to execute contracts, leases and deeds


• to loan or borrow money


• to engage in long-term care planning

Advance Medical Directives (“Living Wills”)

The right to make decisions about medical treatment is a fundamental right protected under the federal and state constitutions.

Living Wills In New Jersey

N.J. law recognizes 3 planning devices:

1. Instruction Directive


2. Proxy Directive POA for Health Care


3. Combined Directive

Religious preferences may be presented.

Do Not Resuscitate (DNR) Orders

Do Not Resuscitate (DNR) orders prohibit cardiopulmonary resuscitation when the lungs or heart stop working. DNR orders are normally applicable only in hospitals, nursing homes and other facilities. EMS personnel are generally required to attempt resuscitation.

Practitioner Orders for Life Sustaining Treatment (POLST)

Medical orders that help give seriously ill or frail patients more control over end-of-life care. Signed by both the doctor and patient/surrogate. POLST Orders can prevent unwanted or ineffective treatment, reduce patient and family suffering and ensure patient wishes are honored.

Psychiatric Advance Directive (PAD)

Psychiatric Advance Directive: Allows a person to specify important information for caregivers in the event of a mental health crisis.

Trusts

A trust is one of the most important estate planning tools. A trust is a legal relationship in which a person transfers property to one or more trustees who own the property as fiduciaries. The trustees must use the property only as set forth in the trust agreement, or as provided by law.

Providing for Persons with Disabilities: Special Needs Trusts

Purpose – To preserve the disabled person's eligibility for needs-based governmental benefits (SSI, Medicaid, DDD services) while providing a vehicle to hold funds owned by disabled person, or funds contributed by the parents or other third parties, to supplement public benefits.

The YouTube Channel for the Law Office of Donald D. Vanarellli is located at: https://www.youtube.com/channel/UClCWs2FIrzO7BUY7ooVe_Lw

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Administrative Law Judge Reverses Reduction in Medicaid Personal Care Assistant Hours

I represented the 84-year old petitioner in P.R.-P. v. United Healthcare , a case in which we successfully appealed the reduction in her Medicaid personal care assistant (“PCA”) hours. The petitioner suffers from advanced Alzheimer's disease, coronary artery disease, diabetes, congestive heart failure, kidney failure, renal failure, blindness, and bladder incontinence, among other things. She requires the use of an oxygen machine continuously, and she has periods of sleeplessness, with agitation, for up to three days. In 2012, the petitioner had been approved for 40 PCA hours under Medicaid Global Options. In 2015, after United Healthcare began administering her benefits under a Medicaid managed health plan, a reassessment was conducted by United Healthcare field care coordinator Ray Gridley, R.N., using a new PCA Nursing Assessment Tool that had been in operation for less than a month. As a result of that assessment, United Healthcare reduced the petitioner's PCA hours from 40 to 29.

Ray Gridley's assessment revealed no improvement in the petitioner's condition. In fact, at the hearing, the petitioner's family testified at length that, in the three (3) years that elapsed since the original assessment, her condition has declined and the need for assistance has increased. Her cardiac condition has declined to the point that a cardiac direct monitor was installed; her arthritis has advanced; she has sleep apnea and requires a breathing machine day and night.  She must be carried to the car for medical appointments.

Following an administrative law hearing, Hon. Leland S. McGee, ALJ issued a comprehensive decision. The judge found that, based upon the credible evidence presented, there were “inconsistencies in the number of hours assigned in the assessment tool itself, [and]… incongruities in the time allocated for tasks and the time required to perform those tasks.” He questioned much of the information contained in Mr. Gridley's PCA Nursing Assessment Tool:

The evidence indicates that petitioner meets the criteria of “severely impaired”; however, she was determined to be “moderately impaired.” … Further, in the assessment tool, under the category “ADLs,” respondent indicated that petitioner requires “extensive/max assist” (weight-bearing support), which allows for up to 45 minutes per day of assistance…. However, petitioner was only allocated 2 minutes per day. There is no explanation for why she was only granted 2 minutes when the lowest designation, “supervision/limited assist,” allows up to 15 minutes per day. Further, respondent acknowledges that, as stated on the assessment tool itself, the times listed for each activity are only guidelines, and more time may be allocated than the specified “limits.”

The judge further noted that the petitioner's family does her shopping, and no time was allotted for this activity. In addition, the family prepares separate meals for the petitioner, but there was no allotment for that time. As the judge reasoned, “This fails to 'meet the needs of the family' pursuant to N.J.A.C. 10:60-1.2.”

 Judge McGee concluded that the respondent had failed to meet its burden of proving that the reduction of PCA hours was proper:

[T]here is no dispute that since the initial assessment in 2012, petitioner's medical condition has declined. It is neither logical nor equitable to accept that the number of hours needed to provide for her care would decrease regardless of the assessment tool used. In the absence of evidence that the initial assessment allocating 40 hours of PCA was flawed, any subsequent assessment that results in a decreased need for assistance for a person whose health has declined is inherently flawed or improperly administered.

Judge McGee's Initial Decision was filed April 13, 2016 with the Director of the Division of Medical Assistance and Health Services, who has 45 days to adopt, modify or reject the decision; otherwise, it becomes a final decision.

A copy of P.R.-P. v. United Healthcare can be found here –  P.R.-P. v. United Healthcare

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10 Costly Mistakes to Avoid When Administering a Special Needs Trust

The mission of the Academy of Special Needs Planners (ASNP) is to maintain a professional organization of attorneys skilled in the complex areas of public entitlements, estate, trust and tax planning, and the legal issues involving individuals with physical and cognitive disabilities. The ASNP recently announced the addition of a new brochure titled “10 Costly Mistakes When Administering a Special Needs Trust.” The content of the new brochure is reproduced below. Mr. Vanarelli is a founding member of the ASNP.

1. 
   

   Confusing the Type of Special Needs Trust (SNT) Being Administered

   
   

There are two basic types of special needs trusts: First-Party SNTs and Third-Party SNTs.

Although an SNT trustee has nearly identical duties in administering first-party SNTs
and third-party SNTs, certain important distinctions between the two cause problems for a trustee who does not understand which type of SNT is being administered. The two biggest differences between third- and first-party SNT administration involve these issues:

• The first-party SNT must be for the “sole benefit” of the beneficiary, while a third- party SNT need not be.


• The first-party SNT must include a payback to each state Medicaid agency where the beneficiary received benefits, while a third- party SNT has no such requirement.

2. 
   

   Confusing the Public Benefit Programs 


   
   

The trustee needs to know what public benefits the SNT beneficiary is receiving because the trustee's job differs drastically depending on the type of benefits involved. If the only benefits involved are Social Security Disability Insurance (SSDI), Social Security (SS), and Medicare, which have no resource limits, the administration is much simpler. These programs do not have special rules where SNT disbursements affect ongoing eligibility. Thus, the SNT trustee need follow only the terms of the trust document as to what disbursements are acceptable. If the SNT beneficiary is receiving Supplemental Security Income (SSI) or Medicaid, however, the SNT trustee must follow strict rules during administration. To make matters slightly more di cult, an SNT beneficiary could be receiving SSI, SS, or SSDI, Medicare, and Medicaid. Sometimes it is di cult to determine exactly what benefits are being received. Public benefits recipients, their families, and even some inexperienced attorneys often confuse the types of public benefits.

3. 
   

   Failing to Keep Current with Changing Laws

   
   

Once the trustee has a clear picture of the benefits being received by the beneficiary the trustee must develop a system to stay current with any changes in the laws on SNT administration. Public bene t laws change frequently, and application of these laws can be inconsistent. A helpful website is hosted by the Academy of Special Needs Planners (specialneedsanswers.com) that will help a trustee to keep current as laws change.

4. 
   

   Misunderstanding the 'Sole Benefit' Rule

   
   

A first-party SNT must be used for the
“sole benefit” of the primary beneficiary during his or her lifetime. If a distribution provides some benefit to the beneficiary,
it is considered to be for the beneficiary's sole benefit. The penalty for violating this rule can be loss of some or all SSI and
linked Medicaid benefits. If the beneficiary
is receiving only Medicaid, the SNT must
still be solely for the beneficiary's benefit. A distribution made as a gift to someone other than the SNT beneficiary or to a charity is not for the sole benefit of the beneficiary, and causes a disruption of benefits. A third-party SNT has no such automatic prohibition. Disbursements to others may be authorized, but only if the trust terms allow it.

5. 
   

   No SNT Disbursement System

   
   

The most common beneficiary complaint about SNT trustees is lack of communication concerning disbursements from the trust.
The easiest way to avoid this complaint
is to set expectations at the beginning of
the administration with a clear procedure
on how to request disbursements, what disbursements are appropriate, as well as outlining the procedure and decision-making process for approval of disbursement requests. Setting expectations regarding the when,
how, and turnaround time of disbursements is also important. The disbursement procedure should outline whether disbursements can
be made only during business hours, on weekdays, or after 24 hours from a written request. It is in the trustee's best interest
to clearly communicate these policies to
the beneficiary or the beneficiary's legal representative. This will aid in reducing friction during the administration.

6. 
   

   Improperly Refusing to Make Disbursements

   
   

A common misconception of SNTs is that they are too restrictive because they can only pay for a small number of items and services for the beneficiary. The opposite is true. The SNT is designed to enhance the quality of life of the person with a disability. Thus, it can pay for any item or service that is not otherwise available from other resources. Given the large selection of items and services available, the SNT is really a wonderful tool that greatly improves the overall quality of life of persons with disabilities. Still, the trustee must understand that certain disbursements (and how they are made) can affect public benefits eligibility. The trustee is thus asked to perform a balancing act between making distributions that do not violate the rules of the applicable bene t programs while providing the beneficiary with goods and services that enhance his or her quality of life.

7. 
   

   Failing to Distribute for Beneficiary's Food or Shelter

   
   

Another common misunderstanding is that
an SNT trustee can never make distributions for the beneficiary's food or shelter needs. If the SNT beneficiary is an SSI recipient, then payment of food or shelter costs may cause a small reduction in the overall SSI check. This is usually an acceptable loss because the cost of food and shelter is generally much higher than the highest SSI monthly payment. The loss of SSI benefits cannot exceed one-third of the SSI check paid by the federal government. For example, if the SNT beneficiary receives $733 in monthly federal SSI benefits, and an SNT trustee pays the beneficiary's landlord $1,500 a month for rent and pays another $500 a month for food, then the beneficiary's SSI check would be reduced by around $265. The SNT beneficiary would still receive around $470 from SSI plus be allowed to live in a $1,500-a-month apartment and have $500 of her food covered. This is one way to greatly enhance an SNT beneficiary's quality of life.

8. 
   

   Reimbursing with Cash

   
   

A common mistake many trustees make
is distributing money directly to the SNT beneficiary. Any money the trustee gives to the beneficiary directly is “unearned income” to the beneficiary under the SSI rules. After a set-aside of the first $20 each month (general income exclusion), these cash payments reduce the SSI recipient's benefits dollar-for- dollar. In other words, the trustee should never distribute cash directly to a beneficiary who
is receiving SSI. The correct procedure is to pay vendors directly for goods and services in order to avoid the dollar-for-dollar reduction or to reimburse third parties for expenditures they make on behalf of the beneficiary.

9. 
   

   Failing to Maintain Excellent Records

   
   

All SNT trustees must keep accurate records of each and every SNT transaction. Having complete records is very important when the SNT trustee makes reports to the SNT beneficiary, to a court when required, to the IRS, or to the agencies providing the beneficiary's public benefits. It is prudent for the SNT trustee to use a computer program such as Quicken or QuickBooks to keep track of disbursements. The SNT trustee should keep receipts of all disbursements as well. If the SNT trustee is unable to provide these records, the disbursements will be presumed to have been made inappropriately; as a result, the SNT beneficiary may lose his or her eligibility for SSI and may be charged with an SSI overpayment.

10. 
    

    Not Following Proper SNT Termination Procedure

    
    

When a first-party SNT terminates, the SNT trustee must pay back Medicaid in every state in which the beneficiary received assistance before disbursements can be made to the SNT's remainder beneficiaries. Thus, the SNT trustee has to be very careful about how money in the SNT is spent prior to Medicaid being paid back. If an SNT trustee makes an inappropriate disbursement, he or she may be personally liable for breach of fiduciary duty. The SSA has strict rules on what can be disbursed from an SNT before Medicaid receives its payback. Only the following administrative expenses may be paid before reimbursement of Medicaid:

• State and federal taxes due from the trust because of the death of the beneficiary or termination of the trust and transfer of trust assets to the remainder beneficiaries


• Reasonable fees for administration of
the trust estate, such as an accounting of the trust to a court, completion and ling of documents, or other required actions associated with termination and wrapping up of the trust. 
The following disbursements are expressly prohibited from being paid before reimbursement of Medicaid:


• Taxes due from the estate of the beneficiary, other than those arising from inclusion of the trust in the estate


• Inheritance taxes due for residual beneficiaries


• Payment of debts owed to third parties


• Funeral expenses

The ASNP's new brochure can be downloaded here – 10 Costly Mistakes When Administering a Special Needs Trust

For additional information concerning special needs trusts and disability planning, visit: http://vanarellilaw.com/special-needs-disability-planning/

 

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