Decanting an Irrevocable Trust to Protect Public Benefit Eligibility
Unintended consequences can occur when people fail to consider the effect of a plan on persons with special needs. Estate planners who are unfamiliar with public benefits may unintentionally create plans that can wreck a beneficiary’s eligibility for SSI, Medicaid and other means-tested public benefits, resulting in a loss of income, healthcare coverage, housing, etc. Most often, this is the result of just failing to plan around a disability, for whatever reason, or attempting to plan around that disability. However, by creating a trust that by its terms provides “support and maintenance” or some other mandatory distribution scheme that makes the trust, in whole or in part, an available resource to the beneficiary, public benefit eligibility can become at risk.
Consider this example. Your mother created a Revocable Living Trust which divides one share of the trust among her then-living grandchildren, to be held in further trust for their benefit until they reach age 30, when they are entitled to an outright distribution of the remaining assets of their separate trust, and distributions are purely discretionary until age 30. When this trust was created, your daughter, who has Down Syndrome, was not yet born and like most people, your mother didn’t think to update her trust as a result of your daughter’s disability. When your mother dies, your daughter is 28 years old, is receiving SSI, lives in her own apartment that is subsidized by Section 8, and receives in-home support which is provided by a Medicaid waiver – she is happy and you know that your daughter’s current benefits and living arrangements provide a plan for her continued independence upon your death, and the loss of those benefits would jeopardize that plan. Your gut tells you that your daughter’s inheritance could be detrimental so you call Hook Law Center, and we inform you that a distribution of the assets at age 30 would cause your daughter to go over the $2,000 asset limit which would result in your daughter’s ineligibility for public benefits. We also explain that since your daughter is not yet 30, that pursuant to Virginia law, the trustee of the trust may exercise a decanting power by assigning trust principal or income to the trustee of a second trust (without the approval of the court of the beneficiaries) and that this second trust may be a special needs trust to protect your daughter’s public benefit eligibility.
While we have had to decant an old irrevocable trust into a special needs trust on a number of occasions, the question has often been whether this new second trust would be considered by the Social Security Administration and Medicaid offices to be a first-party special needs trust subject to a Medicaid payback, or whether this new trust would be considered a third-party supplemental needs trust. The first notable case pertaining to this issue was In the Matter of the Application of Alan D. Kross (N.Y.Surr.Ct. (Nassau Cty.), No. 2012-369907, Sept. 30, 2013). In that case, Daniel Schreiber was the beneficiary of his grandfather’s trust. Pursuant to the terms of the trust, Daniel was entitled to discretionary distributions of income and principal until age 21. Upon the age of 21, Daniel was entitled to mandatory income distributions paid at least quarterly, half of the principal at age 25, half of the remaining principal at age 30, and the balance of the trust assets at age 35. These mandatory distributions would have disrupted Daniel’s eligibility for SSI and Medicaid, so the trustees filed a petition requesting the court to approve the decanting of trust assets into a new third party supplemental needs trust prior to Daniel’s 21st birthday. The court determined, in addition to other things, that because the old trust was a third party trust, the decanting of the trust assets occurred prior to Daniel’s right to receive the mandatory distributions. Therefore, decanting into the third-party supplemental needs trust was proper, and that no Medicaid payback would be required for the new trust. The New York State Department of Heath appealed the decision, which was upheld by Supreme Court of New York, in Matter of Kroll v. New York State Department of Heath.
The breadth of this case’s impact is not yet known. It may be that this case, only sets a precedent in New York when a beneficiary has not yet obtained the age to receive the outright distribution, or it may extend to all states and in cases where the distribution standards of the trust cause the trust to be an available resource. Regardless of the impact, those of us that focus on helping persons with special needs now have something we can turn to in considering how the decanting of a trust into a special needs trust may be treated in the future.
Ask Kit Kat – Pet Sitters
Hook Law Center: Kit Kat, what should someone look for in the ideal pet sitter?
Kit Kat: Well, there are several things you can consider when deciding to hire a pet sitter. Some need a sitter while they are away at work, and others only require them while they are away on vacation. My parents use a local pet sitting service called Critter Care. They’ve used it for many years going back to the early 1990s. Over the years, we’ve had several caregivers, but all have been excellent. Critter Care screens its employees; they are bonded, so the hard work is done for you. During each caretaking session, the caregiver keeps a daily log of when they arrive and leave your house. They also write observations about how your pet(s) behaved while they were tending to them. As a bonus, they will take in the mail and trash and even water plants that might be in flower pots. Fees are based on the number of pets and number of visits needed. Since we are an all-cat family, once a day is sufficient, but they will come as often as you like. We really like this, because we get to stay in our own house, and do not have to go to the vet and hear dogs barking at all hours of the day and night. We cats find that very off-putting!
Other possible sources for finding pet sitters are through national associations such as the National Association of Pet Sitters (NAPPS) and Pet Sitters International. Or your vet may have some recommendations. Sitters through associations usually have the advantage of being able to read reviews of the possible candidates. Make sure before hiring someone, you actually interview them and see how they interact with your pet. Sometimes your instincts are the best guide. Wendy Pridgen of Boyds, Maryland says, ‘Sometimes you just have to trust your gut and go with what feels right to you.’ And if Ms. Pridgen’s experience is any guide, there will be ups and downs in the process. At first, she hired a college student, and things worked out for a year. Then, the college student became erratic. She used her to take care of her 2 large dogs who needed to be walked during Ms. Pridgen’s long work days. There were signs the student wasn’t coming, so Ms. Pridgen left a broom by the door the student would enter. Ms. Pridgen exited by another door. When she found the broom hadn’t been disturbed, she knew the student wasn’t taking care of her dogs. The student was fired, and she eventually found a new one through a listing on a bulletin board of a local convenience store.
So, be aware that when you hire a pet sitter, it’s like anything else. Sometimes your first efforts will not be successful, but you keep on trying until you find a good fit for both you and your pet. (Ruthanne Johnson, “Someone to watch over them,” All Animals, November/December 2016, p.34-37)
Distribution of This Newsletter
Hook Law Center encourages you to share this newsletter with anyone who is interested in issues pertaining to the elderly, the disabled and their advocates. The information in this newsletter may be copied and distributed, without charge and without permission, but with appropriate citation to Hook Law Center, P.C. If you are interested in a free subscription to the Hook Law Center News, then please telephone us at 757-399-7506, e-mail us at [email protected] or fax us at 757-397-1267.
757-399-7506 | 252-722-2890
Shannon Laymon-Pecoraro is a Shareholder of Hook Law practicing in the areas of elder law, special needs planning, estate and trust administration, estate planning, asset protection planning, financial planning, guardianships, and conservatorships. Ms. Laymon-Pecoraro also works with plaintiffs who have been injured, and their trusted advisors, to advise on public benefits issues and developing trusts to protect settlements and verdicts. To date, she has completed over 250 personal-injury related trusts, specifically Settlement Protection Trusts and Special Needs Trusts, including those with Medicare Set-Asides.
Ms. Laymon-Pecoraro is certified as an Elder Law Attorney (CELA) by The National Elder Law Foundation (NELF). Approved by the American Bar Association and authorized by the Pennsylvania Supreme Court, the CELA certification is the legal industry’s “gold standard” for elder law and special needs practitioners. There are only about 500 CELA-certified attorneys nationwide.
Prior to joining the firm in 2012, Ms. Laymon-Pecoraro handled estate planning documents for members of the United States Department of the Army and has been involved in the legal representation of several large corporations.
- Elder Law
- Estate & Trust Administration
- Estate Planning
- Asset Protection Planning
- Guardianship & Conservatorship
- Long-Term Care Planning
- Special Needs Planning
- Financial Planning
- Personal Injury Settlement Consulting