Category Archives: Trusts

Pooled Trusts & Medicaid Planning

Pooled Trusts & Medicaid Planning

A powerful tool for Medicaid planning that we are seeing more use from is a Pooled Trust. A Pooled Trust (sometimes referred to as a (d)(4)(C) trust) is a very specific type of trust used to help disabled individuals qualify for the government benefits they need while maintaining some funds set aside for things they may want to preserve the quality of life they are used to. A pooled trust is one of many tools an elder law attorney can use to help a person qualify for Medicaid. There are many different types of trust, and it is important to make sure you have the right trust for your situation. If used in the wrong way, a trust can actually cause more harm than good.

Basics of Medicaid

Medicaid is a needs-based governmental program to help people who cannot afford to pay for their medical care. In order to qualify for Medicaid, one must have less than $2,000 in assets. Once qualified for Medicaid, a person gets to keep $50 per month for personal spending. The rest of their income goes to pay the initial cost of the nursing home. Medicaid then picks up the tab for whatever that income does not cover that month. With the average monthly nursing home cost ranging between $7,000 – $8,000 a month, Medicaid is often the only choice for senior citizens in need of care.

Basics of Pooled Trusts

One thing all trusts have in common is that there are at least three parties to a trust; the Settlor, the Trustee, and the Beneficiary. The Settlor is the person who funds the trust. The Trustee is the person who manages the trust. The Beneficiary is the person who benefits from the trust. Often there is a primary beneficiary and then contingent beneficiaries named for after the primary has passed away.

The purpose of a Pooled Trust is to pay for items or services not provided by Medicaid. These items and services are not meant to replace SSI or Medicaid benefits but rather enhance the life of the beneficiary by supplementing them.

Pooled Trusts must be irrevocable, which means once they are set up and funded, there is no way a person can demand their money back. If they could, the trust would not qualify for Medicaid purposes.

Who can be the Settlor?

Pooled Trusts are unique in that the trust itself is already set up. An individual opts to join into an already established trust. Pooled Trusts get their name from fact that the funds in the trust are “pooled” with funds of other disabled individuals into one main trust and each individual gets their own account when they opt in. The account must be set up solely for one disabled individual’s benefit and must be funded with the individual’s assets. The person who sets up the account can be the disabled individual herself, or her power of attorney, parent, grandparent, legal guardian, or the court.

Who can be the Trustee?

The trust must be managed by a nonprofit organization. Currently in Ohio there are three companies that specialize in pooled trusts to choose from:

  • The Community Fund Management Foundation (CFMF) in Cleveland
  • The Disability Foundation in Dayton
  • The Ohio McGivney Pooled Special Needs Trust in Columbus

Separate from the trustee, who manages the funds, is the Designated Advocate, often a spouse or power of attorney, who represents the beneficiary and submits requests for money on behalf of the beneficiary.

Who can be the Beneficiary?

The primary beneficiary must be the disabled individual. “Disabled” is defined in rules adopted by ODJFS. There is currently no age limit in the state of Ohio on who can be a beneficiary. There can be no other primary beneficiaries named on the account, including the spouse or children.

Once the primary beneficiary has died, the pooled trust must contain an express provision for reimbursement to the state of Ohio for Medicaid services provided. If there are still excess funds remaining in the account once Medicaid has been paid back, those remaining funds may go to the spouse or other named remainder beneficiaries.

Funding the Pooled Trust

The trust is funded exclusively with the individual’s assets. The trust cannot receive funds from people other than the individual. A pooled trust is funded exclusively with cash. You would not put a house or personal property in a pooled trust. Assets that would otherwise be countable for Medicaid can be transferred into the pooled trust penalty free. Excess funds can later be added as they become available such as an inheritance or a lawsuit settlement. The individual can fund the trust with assets or irrevocably assign his or her income to the pooled trust. Generally there is a required minimum initial deposit of at least $5,000 to set up a pooled trust, however there is a method to fund pooled trusts with less.

Getting Money out of the Pooled Trust

Once the trust is set up and the Beneficiary is on Medicaid, the Designated Advocate represents the Beneficiary and submits forms (including receipts) to the pooled trust to request money from the trust account for the Beneficiary’s supplemental services. Once a request is approved, the Trustee releases the money from the trust account for payment to the vendor, service provider, or Designated Advocate. Cash can never be distributed directly to the Beneficiary.

Distribution requests can be submitted at any time and there is no limit on the number of distribution requests that can be submitted. The entire process may take three to four weeks from the date the request is issued. If there is an emergency, an emergency distribution request can be made at any time, but there is a fee. Reoccurring payments can be set up if the amount of the item or service remains the same, for example, a distribution request can be made for cable TV or other such common expenditure each month.

Money distributed from a trust account must be used for supplemental services for the sole benefit of the Beneficiary. The trust cannot provide for other people in the beneficiary’s life, such as for example, tuition for a child. A request may be denied if the Trustee feels it would interfere with the beneficiary’s governmental benefits, if they do not have proper documents and receipts, or if they feel the request is unreasonable.

A pooled trust can be used only to pay for supplemental services. It cannot be used for food and shelter. Supplemental services are those items or services that will not be paid for by insurance or a government program, but supplement and can enhance the quality of life of an individual with a disability. Examples include:

  • Dental Care
  • Plastic, cosmetic surgery or non-necessary medical procedures
  • Psychological support services
  • Recreation and transportation
  • Differentials in cost between housing and shelter
  • Supplemental nursing care and similar care which public assistance programs may not otherwise provide, including payments to those providing services in the home
  • Telephone and television services
  • Electric wheelchair and other mobility aids
  • Mechanical bed
  • Periodic outings and vacations, including costs incurred by caretaker companions
  • Hair and nail care
  • Stamps and writing supplies
  • More sophisticated medical, dental or diagnostic treatment, including experimental treatment, for which there are not funds otherwise available
  • Private rehabilitative training
  • Payments to bring in family and friends for visitation if the trustee deems that appropriate and reasonable
  • Private case management to assist the primary beneficiary, or to aid the trustee in the trustee’s duties
  • Medication or drugs prescribed by a physician
  • Drug and/or alcohol treatment
  • Prepay funeral and burial expenses
  • Companions for reading, driving and cultural experiences

A Pooled Trust is one of many tools that can help a person qualify for Medicaid while maintaining some funds that enhance the beneficiary’s life. It can be a powerful tool in your long term care plan. Because all types of trusts are complex, consult your attorney if you feel a Pooled Trust would be advantageous to you or someone you love.

Who Can I Trust With My Trust

Who Can I Trust with my Trust

       Trusts are extremely versatile and efficient estate planning tools which allow for the effective management of assets both during the Settlor’s lifetime and after his death.  In establishing a trust the Settlor (creator of the trust) names a Trustee to manage the assets for the Beneficiaries.  The Settlor can be as specific or as flexible as he desires in directing how and when the assets are to be used.

Choosing the right Trustees can be the difference between the achievement of all of the Settlor’s goals and a catastrophe of financial mismanagement and family discord.  So whom should you choose?  Let’s look at the options.

You – Most people choose to name themselves as the initial trustee of a revocable trust.  This allows them to have complete control over their assets.  You would then name one or more Successor Trustees to take over management of the Trust assets when you become too ill to manage them for yourself or you pass away.

Your Spouse – Married couples will often name each other as Successor Trustees of their individual trusts.  They also frequently name both spouses as Co-Trustees of their individual or joint trusts.  This way, either spouse may manage assets just as they have always done with their joint accounts.  Of course, in the case of separation, divorce or incapacity, the spouse should be removed and replaced.

You and Another Person – Although spouses are the most common co-trustees, you may want to consider naming someone else, as you age or if you have lost your co-trustee spouse.  While having a Successor Trustee serves as a safety net in case you become ill or pass away, having a Co-Trustee is more like having a parachute.  During periods of intermittent illness or times you are traveling, your Co-Trustee can handle things.  If you develop a progressive illness or infirmity, your Co-Trustee can begin by acquainting himself with the assets and viewing transactions and monthly statements.  Then as you are able to do less and less your Co-Trustee can step up and do more and more. This allows you the advantage of seeing a sample of the Co-Trustee’s management style and avoids the potential conflict and distress of a declaration of incompetency.  It also allows the Co-Trustee time to familiarize himself with the assets and their management while you are still available to advise and explain.  This makes it far more likely that your goals and wishes will be achieved, than if the Successor must take over knowing nothing at a time when he may be grieving your illness or death.

Another Person – In the case of an Irrevocable Trust or if the Settlor doesn’t wish to manage the assets, a friend or family member may be chosen as Trustee.  In choosing a Trustee, look for a person with integrity who manages his own life and assets well; someone with diplomacy, organizational skills and a large dose of common sense.  It’s helpful if your Trustee is geographically available and has plenty of time and energy to commit to the task because, done right, managing a trust is a lot of work.

            Think twice before naming two or more people, other than yourself, to serve as Co-Trustees.  When you name two, you either tie their hands together by making them work in concert or give them separate, but equal powers in which case the right hand may not know what the left hand is doing.

Also consider your own family dynamics in deciding whom you will name as Trustee and what you are expecting that person to do.  For example, your daughter may be the right person to choose to manage assets for you if you become ill, but it may be too much to expect her to manage funds for her seriously disabled nephew for the rest of his life.

Your Agent Under Power of Attorney – In a complete estate plan involving a trust you will name an agent under a Durable Power of Attorney (POA) for Finances to handle assets that cannot go into the trust such as IRA’s, 401K’s and certain annuities.  Many people name the same person who they chose as Successor Trustee.  The POA Agent, can also manage trust assets in the Settlor’s place so long as there are provisions both in the POA and in the Trust allowing him to do so.

A Professional Trustee – Bankers, Attorneys, and Accountants may make it part of their business to act as a Trustee.  Their experience can be beneficial when the terms of the trust are complicated or the investments are complex.  Their expertise is helpful in analyzing tax issues, brokerage statements and choosing appropriate investments.  Choosing a professional trustee can avoid family jealousies and emotionally charged issues.  Although their fees may be more than a friend or family member would charge, it may be worthwhile in certain situations.

In the end it is your plan, your trust and your choice.  Who would be the best Trustee to accomplish your goals?

Trust For Children

TRUSTS FOR CHILDREN

It is a parent’s job to raise and take care of their children. The question no one wants to think about is who would do that job if you were gone? Losing a parent is one of the hardest things emotionally a child can go through, but you can still take steps to provide for your children if you should die before they are grown. You can appoint a guardian in your will to raise your children, but you can also set up a trust to make sure the money is managed properly to provide for your children’s care.

A trust is like a basket. It is simply the vehicle for holding assets. The person who sets up the trust (the settlor) can customize the trust to handle things as she sees fit. She can name who will handle the money (the trustee), and name backup trustees in case the original trustee is unable to manage. The settlor can also name beneficiaries to the trust and decide what benefits they will receive from the trust. The settlor can also decide at what point the trust has served its purpose and will end, and when it ends who gets whatever assets may be left in the trust.

How to Spend the Money

The parent can make the trusts as strict, or as flexible as they like. Some parents choose to leave the trustee complete discretion. So if something like a trip to Europe for the child comes up, the trustee can choose to pay for it if they think it’s a good idea, or decline. Other times, the parents may say that the trust is only to be used for education, so if the same European trip came up, the trustee should pay for it only if it were deemed a study abroad educational expense.

Some parents may place conditions on what the child needs to do to inherit their share. They can say the child is entitled to inherit at age 25, or inherit at age 25 provided they have graduated from a state accredited college. If they do not graduate, they do not inherit.

The parent may say the money is to go to care for the family home so long as the youngest child is living in it, or it may simply lay out a general wish of how the settlor hopes the money will be used.

How to Hold the Money

Another question the settlor will have to decide is how the money is going to be “held.” If there is more than one child, the money may be divided into equal shares and each child has their own equal trust. When the child has used up the money in his own trust, it is gone and he cannot access his siblings’ trusts.

The other way is to set up a “Common Pot Trust” which puts all the money in one trust, and the spending on each child is based on need rather than on equivalency. In a common pot trust two beneficiaries may receive drastically different funding based on their needs. This is especially true for clients who have children born significant years apart and can help treat individual circumstances differently. There is no “primary” beneficiary so no child is required to receive any funds before or along with any other child.

Trusts are hard to think about in the abstract, so let’s look at an example:

The following illustration is for example purposes only:

Sally is a single mother, who is diagnosed with terminal cancer. She has four young children, Aiden (20), Becca (18), Carly (16), and Davey (4). Her main goal is to make sure her children are taken care of when she passes away. Her ex-husband, Matthew, is a good father, who Sally trusts to raise the children, but he is not good with money.

Sally doesn’t have much in assets when she passes away, but she did purchase a $500,000 life insurance policy for the kids when she got divorced, that she hopes will be used to care for her children’s wellbeing and education.

If She Does Not Set Up A Trust

If Sally names her minor children as beneficiaries of the Life Insurance Policy, the funds will be held by their legal guardian, and the children will have full access to their funds on their 18th birthday.

This means that Aiden and Becca would each inherit $125,000 immediately. Aiden takes a European vacation and buys a car. Becca uses some of the funds for college, but also pays for trips to the bar and shopping trips with her friends.

Carly and Davey’s share is held by their guardian, Matthew. Matthew uses the funds to care for the children, and there is some money left over when Carly turns 18, but not much. Davey’s share is spent before he is 18.

If She Sets Up Individual Funds

Sally names her sister as trustee for the funds, and sets up the trust with individual funds because she wants to treat her children “equally”. She says they can inherit when they turn 25.

Each child gets their own trust of $125,000. The trustee can only use funds from the child’s individual trust for their care and once they reach age 25 it is distributed to them.

Aiden is already in his third year of college when Sally passes. The trustee uses some of his trust to pay for his last year of college and helps with some incidental payments over the next few years but when he turns 25, he receives $100,000. He decides to take this money and go drink on a beach for a year.

Becca is just starting college, and decides she wants to go to Med school afterwards. The $125,000 is quickly spent on her undergraduate education and first year of medical school. She pays for the rest of medical school herself by going into debt, and there is nothing left to distribute when she turns 25.

Carly gets in a car accident when she is seventeen. Her trustee uses most of her funds to pay her medical bills and her rehabilitation funds. There are no funds left to help with her college.

Davey is the youngest. Over the years the trustee pays out so that he can have the same lifestyle his siblings had growing up, but the funds run out before he reaches 15.

Even though they each got equal shares of cash, equal doesn’t always mean fair. Davey was much younger than his siblings when his mother passed away, and the siblings all had mom’s support while she was alive. Sally may be rolling over in her grave at the thought of Aiden drinking his inheritance away on a beach while his siblings cannot afford to pay for their schooling or medical bills.

If She Sets Up a Common Pot Trust

If she set up the funds in a common pot trust, then the insurance money all goes into one pot of $500,000. The trustee has full discretion how to use this money. Sally can set up the direction or her wishes to the trustee to be as limited or as broad as she likes. Sally decides the primary use of the funds should be to raise Davey and for college educations. The trust will continue to provide for all four children until the youngest turns 25.

Aiden decides not to go to college. He buys a house and gets married but pays for everything himself, because the trust is intended to provide for education and Davey’s care.

Becca decides to go to college and then to med school. The trust pays $225,000 for her tuition and books over the years.

Carly decides to go to a year of culinary school. The trust pays $25,000 for her tuition.

Davey is only four when his mother passes away. The trustee pays an allowance to support Davey throughout his childhood, which costs about $210,000 until he turns 18. He decides to go to a local college with a scholarship. The trust pays $36,000 for this expense.

When Davey turns 25, there is only $4,000 left in the trust which is to be distributed equally to the four children. So they each get $1,000.

This may seem unfair to some. After all, Aiden only got $1,000 in inheritance from the trust, and Davey received $246,000. Becca and Carly both went to school for their careers but Becca received $200,000 more than Carly in tuition. On the other hand, if Sally’s main goals were to make sure Davey received the same opportunities as his siblings growing up and to provide for educational opportunities for her children, the trust accomplished it’s goal.

Which is better?

It depends on Sally’s goals. There is no one “right way” to make a trust because everyone has different goals for their children. Because of the customizable nature of trusts, saying “you have a trust” does not tell anyone what that trust does. Trusts are useful tools for accomplishing all sorts of different tasks. One very good use for a trust is for a parent to set one up to hold and manage money for young children if the parent should die before they are grown. This ensures that the parents can lay out rules and hopes for how the funds are to be used to care for their children, even after the parent is gone. Talk to a qualified estate planning attorney about how a trust could help care for your children.